Business is an integral part of

ecology and social system Important decisions related to business are influenced by a number of factors which constitute what is generally referred to as the business environment.

Meaning of business environment

Business environment refers to all

those internal and external factors which impact the functioning /performance of a firm and its decision making, particularly strategies.

 Business ecology is very similar to human

Business Ecology

ecology Success of any individual depend on his innate capabilities- such as to cope up with the environment and the extend to which the environment is conducive to the development of individual The survival and success of a business firm depend on its innate strength and its adaptability to the envt and the extend to which the envt is favourable to the development of the firm.

 The survival and success of the firm, thus

depend on two sets of factors, viz, 1. Internal factors (internal environment) 2. External factors ( external environment)
Internal (organizational) envt has two

components: strength and weakness of the organization External envt has two components: business opportunities and threats to business.

 Any organization has certain mission,

Business environment interrelationship

objectives and goals and a strategy to achieve them Formulation of strategy is establishing a proper firm envt fit. A SWOT analysis( analysis of the strength and weakness of the organization and opportunities and threats in the envt) is one of the first steps in the strategic management process.

Factors influencing business decision

Internal Environment

Business Decision

External Environment

 Business environment is considered at three

levels: 1. Internal environment

2. Micro environment/ task environment/

operating environment
3. Macro environment/ general environment/

remote environment

Internal environment
The important internal factors are: 1. Value system: The value system of the

organization influences its portfolio strategy, HRM, marketing strategy and CSR 2. Vision, mission and objectives: set the scope, direction, philosophy and pace of development. 3. Management structure and nature: organizational structure, composition of board of directors, extent of professionalization of management etc.,

4. Internal power Relationship 5. Human Resources 6. Company Image and Brand Equity 7. Miscellaneous factors: Physical assets and facilities, R & D and technological Capabilities, Marketing resources, Financial factors. Internal factors determine the potential of a company to meet the environmental challenges.

 Micro Environment :

The Micro Environment consists of the actors in the company (intermediates) that affect the performance of the company.

Micro environment
Suppliers

They refer to the people who supply raw materials, components and parts, machinery expert services, fuel, electricity etc. to help in production of goods and services. Suppliers - responsible for smooth functioning of the firm therefore reliability is very important Vendor development is gaining importance

Marketing service agencies marketing research firms, advertising agencies, marketing consulting firms, Financial intermediaries banks, credit companies, insurance companies. Public Any group that has an actual or potential interest in or has an impact on achieving organization's objective. types:- financial public, media public, citizen-action public, local public, general public, internal public.

Customers : A company may have different categories of business individuals, households, industries and other commercial establishments, and government and other institutions Marketing intermediaries these are the firms that help the company to promote, sell, and distribute its goods and services to the final buyers. They are middlemen-wholesalers, retailers physical distribution firms warehouses, transportation firms

Competitors : Entry and exit of major competitors Substitutes and complements for current product/ services major strategic changes by current competitors The competition among the products can be -Desire competition Generic competition Product form competition Brand competition

Political/Govt. Environment

Macro/ General/Remote-Environment Legal Environment Micro/Task/Operating Environment Financiers

Suppliers

Internal Environment
Promoters/shareholders, values Mission /objectives Management structure Human resources Tech capabilities

Customers

Global Environment

Demographic Environment
Public

Business Decision
Internal power relationship

Financial
capabilities Marketing

competitors

Physical assets and facilities capabilities Co. image/brand equity

Marketing intermediaries Social/cultural Environment Technological/Natural Environment