Internal environment includes infrastructure, physical asset, human resources, organization Structure, technology, work system etc. T is located inside the business organization and it is controlled by the business. It provides strength and weakness to the business. External environment includes outer environment I: e social, economical, political, legal and competitive forces. It provides opportunity and threats to business. So, they are both interrelated and interconnected. It operates in a dynamic environment.
According to Keith Davis, “Business environment is the aggregate of all conditions, events and influences that surround and affect it ” Thus, Business environment is the combination of internal and external ores and condition prevalent inside and outside the boundaries of a firm.
Business environment consist of the forces and conditions outside the boundaries of a firm. These forces changes overtime and thus present the firm with opportunities and threats that influences its ability to carry out its operation efficiency to attain its objectives.
Complex: Business environment is a complex due to its unpredictability.
It consists of interacting events, condition, influences arising from varied sources. Dynamic: Business environment is dynamic. It is continuously changing in shape and character. Multifaceted: Business environment is multifaceted. Different observer may view a particular change in the environment differently. The same development may be taken by someone as opportunity and by other threats. Far reaching: The change in environment has far reaching impact in the business.
The growth, profitability and competitiveness Of the business depend on the existing business environment. Importance of business environment It is essential for the business manager have a profound knowledge about environment surrounding to business to make managerial and business decision.
1 . Comprehensive strategy formulation: business firms have to formulate broad strategies and long term policies for their continuous existence. An assessment of environmental component enables a manager to formulate business strategy and policy.
The assessment can be done through STOW analysis. 2. Competitive analysis: business should regularly analyze the strength and weakness Of competitors and formulate strategies accordingly in Order to retain its superiority in the market. The study of business environment facilitates to formulates effective measures to analyses the strategies of the mediators and face them. 3. Adaptability: the foremost concern of any business firm is to adjust with the emerging environmental forces.
As a result of environmental analysis, the managers are able to adopt the prevailing condition and thus to adopt the prevailing condition and thus influence the environment in order to make it congenial or less harmful to their business. 4. Stability: the study of environment enables the firms to foresee the impact of the socio economic and political changes taking place at the national and international levels on their stability. They can develop actions Lana to cope with such change to maintain stability. 5.
Dynamism: the firm should change and mould itself with the changing environment. The knowledge of business environment enables the manager to be well acquainted with the changing business scenario and take proper steps to keep the firm up-to-date. Component of business environment Internal environment: Internal environment also called micro environment consist of condition and forces within the business organization that affects its performance and outcomes. ; Goals, policies, and strategies: goals are the desired outcomes and present and result.
Policies are guidelines for business decision making and future courses of action. Strategies are the broad action plan. They mean to achieve goal. ; Culture: culture encompasses shared, norms, values and beliefs that guide member in organization. Culture means the assumption that member of an organization share in common. ; Organizational resources: resources can be physical, financial, human and information. , modern business organization required large amount of quality information. The acquisition, storage, analysis is very important for increasing business effectiveness.
The development in information technology has greatly facilitated business activity. ; Organizational structure: structure is the designed of job position and relationship. It defines how job is formally divided, grouped and coordinated. External environment: External environment is composed with the outside condition and forces that influenced performance and outcomes. It is located outside the business organization and cannot be controlled by the effort of business organization. The external environment of business is defined as opportunity and threats.
The external environment can also be divided into: a) general b) task ) General environment: it is also subdivided into following components I) Economic environment: the state of economic environment determines the general health and well being of the organization. Economic environment refers to all economic surrounding that influence the business activity. Economic system, economic policies, economic condition and reasonable economic groups are the component of economic environment of business. Economic system may be: ; Free market economy: it is based on private sector ownership.
Consumer choice or purchase under a market system decide what we produce and by whom. Consumers have freedom of choice. The economic is not planned, controlled, and regulated by the government. ; Centrally market economy: it is based on public sector ownership. The economy is centrally planned, controlled, regulated by the government. Profit is not in aim. The state planner determines the number and types of commodities to be produce, their distribution and prices. ; Mixed economy: mixed economy co-exist both public and private sector.
Economic policies: economic policies are monetary policy concerned with money supply, interest rate, creditability, exchange rate etc. Sisal policies are concerned with the use of taxation and government expenditure to regulate the level of economic activities. Industrial policies concerned with industrial licensing location, incentives, facilities, foreign investment, technology transfer etc. Economic condition: it is also components of economic environment which is determined by the factor like level and distribution of income, different business cycle, inflation, stage of economic development etc.
Regional economic groups: it removes tariff and other restriction to promote co operation and free trade among member countries such as SCARCE, OPEC, ASIAN, IF, WTFO etc 2) Political environment: the component of political system, political institution, political philosophy. ; Political system consists of ideological forces, political parties, election procedures and power centers. ; Political institution consist of law, executive judge. ; Political philosophy can be democratic, totalitarian or mix of both. ) Legal environment: the legal environment forces that influences business law, court Of law and law Of administrator. ; Business law consists of an array of a business law that regulates business activity. Court of law: institution establish by law to solve legal disputes. ; Law of administration: law administer are the various law and enforces of agency which ensure agency which ensures implementation of law and the judgment of the court of law. 4) socio- cultural environment: socio environment of business refers to all the social surroundings that influence business.
Socio environment is made up with the components such as demographic, socio institutions, pressure groups and social groups. ; Demographic forces: demographics forces consist of size, distribution, insist and growth of population, age and gender, mix of population, arbitration of population and migration of population. ; Social institution: Social institution consists of family ,reference groups( relative, colleges etc) and social class ; Pressure groups: pressure groups are the special interest groups organized to use the political process to advance their position earn and issue of social concern. Social change: social change implies modification in relationship and behavior pattern of individual and group in society. Cultural environment of the business refers to all the cultures surrounding hat influences business activities. It includes knowledge, customs, traditions, morals, values, religions, languages, symbols, works of arts and architecture and accepted behavior pattern of people. 5) Technological environment: technological environment refers to all the technical surrounding that influences business activities.
The component of technological environment is: ; Level of technology: the level of technology may be appropriate or sophisticated, labor based or capital based. ; Pace of technological change: pace is the stage and speed of technological change. Technological transfer: technological transfer implies technology imported from technologically advances foreign country. ; Research and development budget: research and development budget is the situation of research and development budget get by government or business. Organization for technological adaptation, up gradation and development. ) Task environment Task environment also called competitive or operating environment. Operating environment involves factors in the immediate competitive situation of a particular organization. ; Customer: customer Of the task environment reflects the characteristic ND behavior of those who buy goods or services provided by the business. ; Supplier: suppliers are the individual and firms that provide the firms with the inputs resources that is provide HTH firms with the input resources that is needed to produce goods or services. Distribution: distribution is an organization or means that helps other organization to sell their goods and services to customers. The distributors can be retailers, middlemen, facilitators, and market service agencies. ; Special interest groups: special interest group is the organized groups o uses the political process to advance their position on particular issues. ; Financial institutions: business organization relay on the services of institution like commercial bank, finance companies, insurance companies and capital marketing institution to meet their short and long term financial needs and other services requirement. Media: the media keeps an eye on the vital decision or action of the business firm having general public interest. ; Competition: the competition factors of the task environment consist of those with whom an organization must do better in order to obtain sources, market and position. Environment scanning Environment scanning is the technique of acquiring information about environment uncertainty complexity and dynamism and analyzing the trends, emerging in the environment.
In another words, environmental scanning is the process of monitoring the business environment to identify both present and future threats and opportunities that may influences the firm’s ability to reach its goal. Before form ululating strategy, environment should be analyzed as strategy matches the internal resources with external environment. What changes are occurring in the environment and in what ways the internal strength are utilized, what factors are affecting business, what purport entities are being available, strategic manager must get the information which is acquired by environmental scanning.
Thus environmental scanning is a tool to monitor, evaluate and disseminate information from the environment. Environment scanning is done to Objectively identify opportunities and threats for the business opportunities are favorable conditions in the environment. This enables a business organization to consolidate and strengthen its position but threats are unfavorable condition in the environment. This creates risk or cause damage to a business organization. Only environmental scanning enhances to determine threats and opportunities.
Environment Scanning help top management to understand and define current environment realities and predict future changes. The top management can observe the changes taking in the environment through reports, committee meeting, memorandum, sub-ordinate manager, journals, colleagues, employee, personal experience and conferences. Once the management receives this information about changes taking place in the environment, they then assess, co-relate, extrapolate and interpreted the vent and signals to determine threats and opportunities.
Now considering the following example which clearly depicts how threats and opportunities are determined through environmental analysis: Events opportunity(LCP) 130% I Impact (l) I probability(P) Threats/ I Competitors entrance in the Sales fall by I Reduction in sales by 3% I I market I Political insecurity I Sales fall by I Reduction in sales by 6% sales fall by 140% recession I I Economic I Reduction in sales by 10% I Napalm’s entrance into WTFO I Market expansion baby% 140% Increase in sales by 20% I Price war I Price fall by 30% I Reduction in sales by 9% Environmental analysis In every society there are plenty of unmet human needs.
Any business firm identifying these unmet needs and supplying goods and services to satisfy them would open up new opportunity for its. On the contrary, a business firm unaware of the environmental signals would find it in constant threats such a firm may even lose its existing business owing to decreased demand for its product or services in the market. It is therefore; very crucial for business firms to keep track of the emerging environmental trends and adjusts accordingly. Analysis involves breaking a whole into its parts to find it nature function and relation.
Environmental analysis, involves identifying the present and future purport entities and threats. According to William Cluck( 1980) defines” environmental analysis as the process by which strategist monitor the economic, legal, competitive, geographic, technical and social setting to determine opportunities and threats to their firms. ” According to Philip settler (2002),”environmental analysis as the process of assessing the emerging trends. ” Every business firm manager has to pay attention in trends. In the process of analysis, a host of activities like thinking, feeling interpreting and behaving are involved.
The constant changes in business environment disturb some managers. But today’s managers have to anticipate them, understand them, deal with them and turn them to their firm advantages. There are several methods or technique of environmental analysis. The most common are as follows; ; STOW analysis ; Business related publication like newspaper and journals ; Business forecasting ; Formal research studies. Environmental analysis and its uses in strategic management Strategic management refers to the decision and action of top management directed at formulation and implementation of strategies to achieve long term objectives.