Business Environment

Business Environment.
Business environment encompasses all those factors that affect a company's

operations, and includes customers, competitors, stakeholders, suppliers, industry
trends, regulations, other government activities, social and economic factors, and
technological developments.
There can be two divisions of Business Environment. Those are as followed:
1. Internal Environment
2. External Environment
We shall elaborate different types of Business Environment.
1. Internal Environment:
Conditions, entities, events and factors within an organization which influence its
activities and choices, particularly the behavior of the employees. Factors that are
frequently considered part of the internal environment include:
Organizational mission statements

Company policies
Formal structures
Organizational cultures
Organizational climates
Resources
Managerial philosophies
Managerial leadership styles
Let us elaborate all the parts which encompass internal environment of
business.
Organizational mission statements
An organization's mission statement describes what the organization stands for and
why it exists. It explains the overall purpose of the organization and includes the
attributes that distinguish it from other organizations of its type.
A mission statement should be more than words on a piece of paper; it should reveal
a company's philosophy, as well as its purpose. This declaration should be a living,
breathing document that provides information and inspiration for the members of the
organization. A mission statement should answer the questions, What are our
values? and What do we stand for? This statement provides focus for an
organization by rallying its members to work together to achieve its common goals.
But not all mission statements are effective in America's businesses. Effective
mission statements lead to effective efforts. In today's quality-conscious and highly
competitive environments, an effective mission statement's purpose is centered on
serving the needs of customers. A good mission statement is precise in identifying
the following intents of a company:
Customers who will be served
Products/services what will be produced
Location where the products/services will be produced
Philosophy what ideology will be followed
Company policies
Company policies are guidelines that govern how certain organizational situations are
addressed. Just as colleges maintain policies about admittance, grade appeals,
prerequisites, and waivers, companies establish policies to provide guidance to
managers who must make decisions about circumstances that occur frequently within
their organization. Company policies are an indication of an organization's
personality and should coincide with its mission statement.
Formal structures
The formal structure of an organization is the hierarchical arrangement of tasks and

people. This structure determines how information flows within the organization,
which departments are responsible for which activities, and where the decisionmaking power rests.
Some organizations use a chart to simplify the breakdown of its formal structure.
This organizational chart is a pictorial display of the official lines of authority and
communication within an organization.
Organizational cultures
The organizational culture is an organization's personality. Just as each person has a

distinct personality, so does each organization. The culture of an organization
distinguishes it from others and shapes the actions of its members.
Organizational climates
A byproduct of the company's culture is the organizational climate. The overall tone
of the workplace and the morale of its workers are elements of daily climate. Worker
attitudes dictate the positive or negative atmosphere of the workplace. The daily
relationships and interactions of employees are indicative of an organization's
climate.
Resources
Resources are the people, information, facilities, infrastructure, machinery,

equipment, supplies, and finances at an organization's disposal. People are the
paramount resource of all organizations. Information, facilities, machinery
equipment, materials, supplies, and finances are supporting, nonhuman resources that
complement workers in their quests to accomplish the organization's mission
statement. The availability of resources and the way that managers value the human
and nonhuman resources impact the organization's environment.
Managerial philosophies
Philosophy of management is the manager's set of personal beliefs and values about
people and work and as such, is something that the manager can control. McGregor
emphasized that a manager's philosophy creates a self-fulfilling prophecy. Theory X
managers treat employees almost as children who need constant direction, while
Theory Y managers treat employees as competent adults capable of participating in
work-related decisions. These managerial philosophies then have a subsequent effect
on employee behavior, leading to the self-fulfilling prophecy. As a result,
organizational philosophies and managerial philosophies need to be in harmony.
Managerial leadership styles
The number of coworkers involved within a problem-solving or decision-making

process reflects the manager's leadership style. Empowerment means delegating to
subordinates decision-making authority, freedom, knowledge, autonomy, and skills.
Fortunately, most organizations and managers are making the move toward the active
participation and teamwork that empowerment entails.
When guided properly, an empowered workforce may lead to heightened productivity

and quality, reduced costs, more innovation, improved customer service, and greater
commitment from the employees of the organization. In addition, response time may
improve, because information and decisions need not be passed up and down the
hierarchy. Empowering employees makes good sense because employees closest to
the actual problem to be solved or the customer to be served can make the necessary
decisions more easily than a supervisor or manager removed from the scene.
2. External Environment
Conditions, entities, events and factors, surrounding an organization which influence
its activities and choices, and determine its opportunities and risks are considered to
be as the external environment for business.
So, all outside factors that may affect an organizational make up the external
environment. The external environment is divided into two parts:
I.
Directly interactive: This environment has an immediate and firsthand

impact upon the organization. A new competitor entering the market is an
example. Directly interactive forces include owners, customers, suppliers,
competitors and employee unions.
Management has a responsibility to each of these groups. Here are some

examples:
Owners expect managers to watch over their interests and provide a return on
investments.
Customers demand satisfaction with the products and services they purchase and
use.
Suppliers require attentive communication, payment, and a strong working
relationship to provide needed resources.

Competitors present challenges as they vie for customers in a marketplace with
similar products or services.

Employees and employee unions provide both the people to do the jobs and the
representation of work force concerns to management.

II.
Indirectly interactive: This environment has a secondary and more distant

effect upon the organization. New legislation taking effect may have a great
impact. For example, complying with the Americans with Disabilities Act
requires employers to update their facilities to accommodate those with

disabilities. These forces include sociocultural, political and legal,
technological, economic, and global influences. We can illustrate all these
factors in the following way:
Sociocultural Dimension:
The social dimension or environment of a nation determines the value system of the
society which, in turn affects the functioning of the business. Sociological factors such as
costs structure, customs and conventions, cultural heritage, view toward wealth and
income and scientific methods, respect for seniority, mobility of labor etc. have farreaching impact on the business. These factors determine the work culture and mobility
of labor, work groups etc. For instance, the nature of goods and services to be produced
depends upon the demand of the people which in turn is affected by their attitudes,
customs, so as cultural values fashion etc. Socio-cultural environment determines the
code of conduct the business should follow. The social groups such as trade unions or
consumer forum will intervene if the business follows the unethical practices. For
instance, if the firm is not paying fair wages to its business in indulging in black
marketing or adulteration, consumers forums and various government agencies will take
action against the business.
Political and Legal Dimension:
The political environment of a country is influenced by the political organizations such as

philosophy of political parties, ideology of government or party in power, nature and
extent of bureaucracy influence of primary groups etc. political stability in the country,
foreign policy, Defence and military policy, image of the country and its leaders in and
outside the country. The political environment of the country influences the business to a
great extent. For instance, the Government of India, bottling and sale of cocoa-cola was
discontinued in India in the late seventies following policy of restricting the growth of
multinationals in Indian markets. But, its entry was allowed under the New Industrial
policy of 1991. Under this new policy, government allowed liberalized licensing, imports
and exports, inflow of foreign capital and technology on more liberal terms. The trend
towards globalization and signing of GATT in 1993 has posed new challenges before
Indian business.
Legal environment includes flexibility and adaptability of law and other

legal rules governing the business. It may include the exact rulings and decision of the
courts. These affect the business and its managers to a great extent. For instance, in 1992,
the Supreme Court ordered the closure of a number of tanneries in Kanpur as they were
polluting Holi Ganga.
Technological Dimension:
The business in a country is greatly influenced by the technological development. The

technology adopted by the industries determines the type and quality of goods and
services to be produced and the type and quality of plant and equipment to be used.
Technological environment influences the business in terms of investment in technology,
consistent application of technology and the effects of technology on markets. In India,
advancements in automation and information technology have posed the challenging
situation for the organization in future.
Economic Dimension:
Economic environment refers to the aggregate of the nature of economic system of the
country, the structural anatomy of the economy to economic policies of the government
the organization of the capital market, the nature of factor endowment, business cycles,
the socio-economic infrastructure etc. The successful businessman visualizes the external
factors affecting the business, anticipating the prospective market situations and makes
suitable to get the maximum with minimize cost.
Global Influence:
Global dimension of environment refers to factors in other countries that may have an
effect on organizations in India.

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Business Environment.

Business environment encompasses all those factors that affect a company's

Organizational mission statements

Organizational mission statements

Customers who will be served

Products/services what will be produced

Location where the products/services will be produced

Philosophy what ideology will be followed

The formal structure of an organization is the hierarchical arrangement of tasks and

The organizational culture is an organization's personality. Just as each person has a

Resources are the people, information, facilities, infrastructure, machinery,

Managerial leadership styles

The number of coworkers involved within a problem-solving or decision-making

When guided properly, an empowered workforce may lead to heightened productivity

Directly interactive: This environment has an immediate and firsthand

Management has a responsibility to each of these groups. Here are some

relationship to provide needed resources.

similar products or services.

representation of work force concerns to management.

Indirectly interactive: This environment has a secondary and more distant

requires employers to update their facilities to accommodate those with

Political and Legal Dimension:

The political environment of a country is influenced by the political organizations such as

Legal environment includes flexibility and adaptability of law and other

The business in a country is greatly influenced by the technological development. The

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