Every business has its own set of goals and objectives which it seeks to achieve.

However, certain factors and forces affect the business's ability to achieve these goals and objectives.

These factors and forces are collectively called business environments.

Business environment can be defined as the sum of all the internal and external factors that influence the functioning of the business.

In other words, business environment is the combination of internal and external factors that can influence the operating situation of a business.

Types Of Business Environment

There are two types of business environments, namely; internal and external environments.

Internal environment

Internal environment consists of factors or forces within the business. They have a direct influence on the operation of the business and can easily be controlled by the business.

Managers have a fair degree of certainty and control when making decisions about the internal environment of the business.

Factors that can constitute a business's internal environment include value system, owners, mission, vision and objectives, employees, and organizational structure.

1. Value system: These are the ethnic beliefs that guide the business in achieving its missions and objectives. 

Value systems are such an important factor because the company orientation and behaviour towards employees and customers are largely determined by its values system.

2. Owners: These are individuals (s) who invested in the business and therefore, have ownership rights over the business. 

The owners of the business can be an individual as is the case of a sole proprietorship business, a partner as is the case of a partnership business, a member as is the case of limited liability companies, and a shareholder as is the case of corporations.

Owners are an integral part of the business's internal environment as they can influence business affairs significantly.

3. Mission, vision, objectives: A company's mission describes the core purpose of the company, Its vision describes the goal that the business seeks to achieve in the future while objectives are specific actions and timelines for achieving this goal.

Mission, vision and objectives are very important as they serve as the building block for achieving the business's short and long-term goals.

3. Employees: This needs no formal introduction. An employee is simply a person who gets paid to work for an organization.

Individual employees, as well as the labour unions of which they are a member, are an important part of a business's internal environment.

Individually or collectively as a labour union, employees of a business can bargain with top management regarding the wages and working conditions of different categories of employees. 

The smooth working of a business organization requires that there should be good relations between management and the employees.

4. Organization culture: Linda Smircich (1983) defined organizational culture "as a system of shared values, assumptions, beliefs, and norms that unite the members of an organization".

Organizational culture is also defined as the proper way of behaving within an organization.

Otherwise known as corporate culture, Organizational structure refer to the value, system, languages, vision, and beliefs that members of an organization attached to their action.

Organizational culture is the foundation of a business's internal environment. It determines how well an organization can manage both its internal and external affairs. 

Research has shown that companies with strong organizational cultures tend to perform better than companies with weaker organizational cultures

5. Resources of the business: Business resources consist of anything and everything that is used in the production process of the business.

They consist of human, financial, physical, and intellectual resources that are inputted into a business production process.

The quality of resources available to a business is a significant component of a business environment as it determines a company's competitive advantage and disadvantages.

External environment

The external environment consists of all the forces outside the business that can affect the business's operation and functioning.

The external environment of a business consists of factors and forces that can affect the organization, but over which the business has no control.

External factors that can affect a business are political, economic factors, social factors, technological factors, legal factors, and environmental factors 

1. Political factors: This refer to the nature and type of government intervention as well as the general political condition that may affect the business.

Political factors affect the extent to which government can influence the activities of a business.

They consist of the government policy, rules and regulations that may affect the operation of a business in a country.

Political factors that may affect the business are tax policy, fiscal policy, trade tariff, change in government and political stability of the country.

A good illustration of political forces is when government increases the tax levy on companies such that the cost of production rises significantly.

Because political factors play such an important role in the operation of a business, business managers should, at all times, try to be adequately informed about recent happenings in the political world so as not to be caught unaware by political changes that may affect the business.

2. Economic factors: Factors which directly relate to the economic performance of the country in which a business is located are called economic factors. 

These factors have a long-term effect on the performance of the organization.

Economic factors that can affect a business include inflation rate, general taxation issues, exchange rate, income levels of the population, unemployment rate and the general economic condition of the country in which the business operates.

Due to their direct impact on the business, Economic factors may have a strong impact on the performance of the business.

For most organisations, economic factors are a high source of concern for top management.

Economic factors can influence the overall strategies and performance of an organisation.

They can also affect the market attractiveness or demand for a company's goods. 

For example, when there is high unemployment, the purchasing power of consumers diminishes. As a result, fewer goods would be purchased.

For this reason, businesses should strive to study these economic factors and develop an actionable strategy for mitigating the negative effect of unfavourable economic change.

A good illustration of economic factors at play is a rise in the inflationary rate which cause a significant increase in the price at which a company sells its goods.

3.  Social factors: Every society has its cultural characteristic. Social factors are the cultural characteristics that make up the social environment of the business.

In addition to this, the demographics of a country are also an important component of business environments.

The customs, values, norms, beliefs, social lifestyle, degree of intelligence, consumer buying patterns, education and demographic conditions are some of the social factors that may constitute a business's external environment.

These social factors often form the backbone of a society's demands. As we have observed in the case of many products, the demand for many products changes as social attitudes towards them changes.

Hence, a business should provide goods that correspond to the culture of the people of the society in which it resides.

4. Technological factors: Technological factors consists of various technological development and innovation that could affect the marketing and selling of a company's goods favourably and unfavourably.

Technological factors that can affect a company's operation are research and development, technological development, global trends in technology, growth in information and communication technology.

With technology changing very fast, business managers should monitor and integrate suitable technology that could benefit their business if the business is to stay relevant.

5. Legal factors: These are the most complicated external factors that affect the company. 

Legal factors include all legislations and regulations that may affect a business in a given period. 

Legislations such as copyright protection laws and labour laws are enacted in place to protect the public from the exploitative nature of business activities.

A business must comply with every applicable law of the country if it is to succeed in the country.

Business managers should, therefore, have adequate knowledge of applicable laws that may affect the smooth running of the business.

Furthermore, if the laws are changed, a company have to adjust its operation in line with the modifications in the law.

6. Environmental factors: These include anything and everything in the natural environment that may affect the company. 

The environmental factor is very important for industries like agriculture, which depend largely on their natural environment for their operation.

Climate, weather, mineral resources and geographical location are some of the factors that can influence a business environmentally.

These factors are extremely important as they can determine the number of raw materials and other inputs.

This explains why global warming is becoming a major source of concern to businesses worldwide.


Characteristics of Business environment

There are five characteristics of the business environment, namely; dynamic, interdependence, complexity, uncertainty, and significant impact.

1. Dynamic: The business environment is constantly changing.

The various internal and external factors that affect the business are dynamic and change quite often. 

Hence, it is in the best interest of the business to adapt quickly to its environment.

2. Interdependence: The various factors in the business environment are related to and dependent on each other.

For example, the inflation rate in a country (economic factor) can affect how employers demand wage increases and other benefits.

3. Complexity: Due to the interwovenness of various factors in the business environment, the business environment is very complex and unpredictable.

4. Uncertainty: Various factors come to play in every business environment, and these factors are constantly changing.

Because of this, the business environment is uncertain and unpredictable because of its dynamic nature.

5. Have a significant impact on the business: The environment has a huge impact on the operation of a business.

This is because the business environment determines the kind of approach that a business will take in balancing all its obligation to its stakeholders.

Moreover, the business environment also affects the survival and profitability of a business.

If the environment is favourable, then the business is likely to earn profit and survive.

The reverse is also true. If the environment is unfavourable, the business is unlikely to earn profit or survive for a long period of time.


Importance Of Business Environment

1. It helps in identifying opportunities that can improve the overall performance of the business

2. It also helps in identifying threats that can be avoided

3. By identifying opportunities and threats, helps the business plan for future actions required to effectively utilize this opportunity and mitigate this threat.!

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