1. The business environment
Chapter 2
The business environment

2. 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.

3. 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

4. Figure 2.1 The organisation as a system

5. Figure 2.2 The business environment

6. Figure 2.3 Levels of management control

7. Figure 2.4 Relationship between functions in the micro-environment

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

9. 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

10. Figure 2.6 Factors in the macro-environment

11. 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

12. Figure 2.7 A healthy economy

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

14. The effect of exchange rates

15. (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

16. (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

17. (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

18. (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

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

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

21. SWOT analysis example