Session 05 -Business Environment - Internal

Understanding the Business Environment
The business environment refers to the sum of all external and internal factors that influence a company's operations, decision-making process, and overall performance. These factors can be broadly categorized into various dimensions, each contributing uniquely to the business landscape. Understanding these dimensions is crucial for businesses to strategize effectively and adapt to changing conditions. Here’s an in-depth look into the key aspects of the business environment:

1. Economic Environment
The economic environment encompasses the overall economic conditions that impact businesses. Key elements include:

Economic Growth: The rate of economic growth in a country affects consumer purchasing power and demand for products and services.
Inflation: Inflation rates influence pricing strategies and cost management.
Interest Rates: These affect borrowing costs and investment decisions.
Unemployment Rates: High unemployment can reduce consumer spending, while low unemployment might lead to higher wage demands.
2. Political and Legal Environment
This dimension involves the political stability and regulatory framework within which businesses operate. It includes:

Government Policies: Tax policies, trade restrictions, and subsidies can significantly impact business operations.
Regulations: Compliance with laws related to labor, environment, health, and safety is mandatory.
Political Stability: Stable political conditions foster a conducive environment for business growth and investments.
3. Social and Cultural Environment
Social and cultural factors shape consumer behavior and preferences. Key aspects include:

Demographics: Age, gender, income, education, and family structure influence market demand.
Cultural Trends: Lifestyle changes, values, and beliefs affect consumer choices and product demand.
Social Responsibility: Increasingly, businesses are expected to engage in corporate social responsibility (CSR) and ethical practices.
4. Technological Environment
The technological environment involves the pace of technological innovation and adoption. Key elements include:

Innovation: Advances in technology can lead to new products, processes, and business models.
Automation: Automation of production and services can enhance efficiency and reduce costs.
Digital Transformation: Adoption of digital tools and platforms can improve customer engagement and operational efficiency.
5. Environmental and Ecological Factors
These factors pertain to the natural environment and its sustainability. Key considerations include:

Environmental Regulations: Businesses must comply with laws aimed at protecting the environment.
Sustainability Practices: Increasing emphasis on sustainable practices and reducing carbon footprints.
Resource Availability: Access to natural resources like water, minerals, and energy affects production processes.

1. Business Environment

2. Sketch of the Session Introduction to business environment Components of business environment Practical examples

3. Introduction The environment of an organization is ‘ the aggregate of all conditions, events and influences that surround and affect it’. Business cannot function in isolation. Open systems always interact with the environment Businesses exist with in and are mutually dependent. Businesses satisfy societal needs.

4. Importance of Business Environment It enables the firm to identify opportunities and getting the first mover advantage. It helps the firm to identify threats and early warning signals. It helps in tapping useful resources. It helps in coping with rapid changes. It helps in assisting in planning and policy formulation. It helps in improving performance.

5. Characteristics of Business Environment Complex Dynamic Inter-relatedness Uncertainty

6. Features of Business Environment Business environment is the sum of total of all factors internal and external to the business firm and that greatly influence their functioning It covers factors and forces like customers, competitors, suppliers, government and the social, cultural, political, technological and legal conditions. The business environment is dynamic in nature, that means it keeps on changing

7. Cont , The changes in business environment are unpredictable (complex). It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment. Business environment differs from place to place, region to region and country to country. Political conditions in Sri Lanka differ from those in UK.

8. Business Environment-Components Different environmental variables exist internally and externally to the business. Environmental variables have a positive or negative influence on the enterprise too.

9. Cont , Business environment consist of two sub – environments: Internal environment External environment Micro environment Macro environment There is a mutual relationship exist between these environment

10. The Organization and its Environment

11. Question 01 What Is Environmental Analysis? Explain what is Business Environment? Why Are Internal Factors Of A Business Enterprise Regarded As Controllable Factors? Why is it said that business environment is uncertain?

12. Internal Environment Refers to all the factors that are within an organization which communicate strengths or source of weaknesses of strategic nature. Controllable factors.

13. Internal Factors Value system Mission and objectives Human resources Company image and brand equity Other factors Physical assets and facilities R & D and technological capabilities Marketing resources Financial resources

14. External Factors Includes all factors outside the organization which provide opportunities or pose threats to the organization Uncontrollable factors Consists of Operating and Remote environment

15. Operating External Factors It consists of the factors in the company’s immediate environment that affect the performance of the company. Suppliers Customers Marketing Intermediaries Competitors Publics Financial Community

16. Porter’s Five Forces Analysis

17. Remote External Environment It comprises general trends and forces that may not immediately affect the organization but sooner or later will alter the way organization operates. Macro Environment Economic Non - Economic

18. Economic Environment Economic stages that exists at a given time in a country Economic system that is adopted by a country for example. Capitalistic, Socialistic, or mixed economy. Economic planning, such as five year plans, budgets etc. Economic policies for example, monetary, industrial and fiscal policies.

19. Cont , Economic indices such as national income, per capital income, disposable income, rate of savings, balance of payments etc. Economic problems Functioning of economy

20. Non – Economic Environment Regulatory framework Socio – Cultural Environment Demographic environment Technological Environment Political Environment

21. Non – Economic Environment Cultural Environment Social customs and rituals and practices Lifestyle patterns Family structure Role and position of men, women, children and aged in family and society

22. Non – Economic Environment Demographic factors Growth of population Age composition Life expectancy Gender ratio Fertility and mortality rates Inter- state migration

23. Non – Economic Environment Technological Environment Sources of technology Technological development Impact of technology

24. THANK YOU !