THE BUSINESS ENVIRONMENT Study Unit 2

2 LECTURE OUTLINE 1INTRODUCTION 2COMPONENTS OF THE BUSINESS ENVIRONMENT 3INTERNAL (MICRO) BUSINESS ENVIRONMENT 4EXTERNAL MARKET (TASK) ENVIRONMENT 5MACRO (MEGA) BUSINESS ENVIRONMENT 6BUSINESS ENVIRONMENTS OF FIRMS – OPEN SYSTEMS 7TYPES OF MARKETS IN THE MARKET ENVIRONMENT 8ENVIRONMENTAL SCANNING 9ANALYSIS OF THE BUSINESS ENVIRONMENT (SWOTs) 10VARIABLES IN THE BUSINESS ENVIRONMENT 11REVIEW OF THE STUDY UNIT 12APPLICATION EXERCISES

3 INTRODUCTION Business enterprises cannot function in isolation Open systems interact with their environment Business enterprises exist in and are surrounded by an ‘environment’ – the business or organisational environment Society and business enterprises are mutually dependent Business enterprises satisfy societal needs Relationship between society and business enterprises takes place in a changing environment

4 COMPONENTS OF THE BUSINESS ENVIRONMENT Different environmental variables exist internally and externally to the business enterprise Environmental variables have a positive or negative influence on the enterprise Business environment consists of two sub-environments: Internal (micro) environment External environment  Market environment  Macro environment Mutual relationships exist between these environments

5 ENVIRONMENTAL SCANNING Identification and forecasting phenomena in the environment Ongoing environmental scanning is essential for strategy formulation Enterprises continuously engage in identifying and forecasting opportunities and threats Enterprises need to proactively or reactively respond to changing conditions in the environment Various sources of information are available to assist with scanning

6 ANALYSIS OF THE BUSINESS ENVIRONMENT SWOTs analysis Environmental conditions may be favourable or unfavourable: Opportunity Represents favourable (positive) conditions in micro, market, macro environments Advantageous to firm

7 ANALYSIS OF THE BUSINESS ENVIRONMENT SWOTs Threat Represents unfavourable (negative) conditions in micro, market, macro environments Detrimental to firm