The business environment Chapter 2 The business environment

Learning outcomes This chapter should enable the student to: Understand the concept of systems thinking. Explain the control that management has over the different organisational environments. Describe the micro-environment and how the various management functions impact on the success of the business. Explain how the different role-players in the market environment impact on the success of the business. Understand how the sub-environments in the macro-environment impact upon the business and its continued existence. Analyse the impact of the environment on an organisation using a SWOT analysis.

The organisational environment Forces in and outside an organisation which affect the organisation The context in which a business operates Organisation affected by and affects the macro-environment

Figure 2.1 The organisation as a system

Figure 2.2 The business environment

Figure 2.3 Levels of management control

Figure 2.4 Relationship between functions in the micro-environment

The market environment Also known as the task environment Where the organisation conducts it business Comprises of various sub-environments: Supplier Intermediary Competitors Customers

The market environment (continued) Suppliers – other businesses that provide the business with raw materials or products Intermediaries – the wholesalers and other businesses that act as ‘middle men’ between the manufacturer and the consumer Competitors – other businesses that sell the same or similar products or services Customers – the patrons who buy the products and services of the business

Figure 2.6 Factors in the macro-environment

Factors in the economic environment The effect of exchange rates (i) Economic environment A healthy economy Factors in the economic environment The effect of exchange rates

Figure 2.7 A healthy economy

Factors in the economic environment Average income Spending power Interest rates Exchange rates Productivity Inflation The business cycle

The effect of exchange rates

(ii) Technological environment Technology – the processes by which human beings fashion tools and machines to increase their control and understanding of the world Invention – the discovery or creation of a new product or process Innovation – the process through which new ideas and inventions become an operational or business reality

(iii) International environment Events that occur in other countries that affect the business Globalisation – the development of business activities on an international level Includes: International competition Interdependence of global economies Policy decisions in other countries Natural disasters War and terrorist attacks

(iv) Social environment The demographics, which are the statistical characteristics of the society in which the business is located Include: Average age Education Religion Culture and language Educational levels Degree of urbanisation Any other relevant characteristic

(v) Political environment Politics – the competition for power within a society Political environment – environment within which this competition takes place Stable democratic environment where political parties compete for power peacefully versus unstable, turbulent, violent environment Legislative environment

(vi) Natural environment The availability of natural resources, which are raw materials that the manufacturing industry utilises Climate Weather patterns Natural disasters

Internal: Strengths Weaknesses External: Opportunities Threats SWOT analysis Internal: Strengths Weaknesses External: Opportunities Threats

SWOT analysis example