Business environments and their effects on the business

Business studies study module

Business environment refers to conditions or factors which surround and affect business operations. These factors could be within the business (internal environment) or from outside the business (external environment).

These factors affect the decisions, strategies, processes and overall performance of the business.

Activity: Discuss some factors that have a strong influence on businesses within the immediate environment.

Internal Business Environment

This comprises factors that are within the business unit itself. These factors can be controlled fully by the business. Internal environmental conditions could be either strength or weaknesses. The strengths tend to improve the performance of the firm while weaknesses tend to affect the operations of the business negatively.

Internal environment is also referred to as: micro-environment. Micro environmental factors include:

  • Objectives of the business

These ate targets or goals that are set by the owners or managers of a business to be achieved. The objectives will influence the following;

  1. The strategies of a business-This is a plan of action which a business intends to follow so as to achieve its goals.
  2. The resources required-By studying the objectives set; a business can determine the resources required for its effective operation. These resources may be physical,financial,human e.t.c
  • Management policies and style

The management refers to the people who are responsible for directing the day-to-day operations of a business. It is the management that sets the objectives and policies of an organization.

A policy is a course of action of action for achieving set objectives, which is adopted by a business.(it is the established way of doing things in a business.

  1. The policies of a business-The policies adopted by a business may boost or hinder its growth and survival e.g. the management may decide that workers will not be allowed to join trade unions. This may make the workers feel locked out of the decision-making process, resulting in tension. This tension may interfere with the performance of the employees and result in inefficiency.
  2. The activities of a business-Management policies will determine the activities of a business i.e. the goods and services provided, location of business e.t.c.
  3. Management style-This refers to how managers conduct the daily operations of the business. This will determine how workers relate with their managers. The style adopted by the management will influence the workers performance positively or negatively thus affecting the overall performance of the business.
  • Business structure

This is the formal arrangement of activities that are carried out at various levels of the organization so that objectives of the business can be achieved.

Duties and responsibilities of all the workers are defined in the business structure. Their interrelationships are also defined.

A well laid out business structure is likely to lead to success of the business since:

  1. Each of the employees know what is expected from them
  2. There will be no conflicts or confusion among the workers
  3. Team work is enhanced
  4. Ensures proper control which is turn promotes efficiency.

A poor business structure leads to business failure.

  • Business Resources

A resource refers to anything that can be used to achieve an objective. These resources include;

  1. Human resource-Human resource (personnel) refers to the employees working in an organization. Employees will only be useful if they have the necessary knowledge and skills to successfully carry out the assigned tasks. It is therefore necessary for the management to match the correct people with the correct job activities; this will ensure success for the business.
  2. Financial resource-Money is required in order to start and operate a business.A business with adequate finances that are property allocated to various activities and also monitored is likely to do better than the one lacking such aspects.
  3. Physical resources-These include tangible facilities which belong to the business such as buildings, machinery, furniture and stock. Availability of such facilities enables the business to operate.
  4. Technology-This refers to skills and methods used in production. Use of modern technology enhances production of goods and services.

5.)    Research and development

Research and development is an important factor for the success of a business. Research generates new ideas, skills and better methods of doing things.

A business has to do market and consumer research regularly to find out how the consumers perceive its goods and services, and how they can improve in order to outdo their competitors.

Research also assists in the development of new and unique goods and services that may attract new consumers or maintain the loyalty of the existing ones.

6.)  Business culture

This is a combination of employees expectations, beliefs and values within the business. It is normally passed on from one generation of employees to the next. Employees acquire norms and code of conduct that is acceptable to all from the general manager down to the sweeper. A business that has a culture of involving employees in decision-making may perform better than one that does not involve its employees.

  1. Owners

The owners of the business provide finances/resources to start and run the business. They also make decisions concerning operations of the business.

Appropriate decisions are likely to lead to well being of the business while poor decisions may adversely affect the business.

External Business Environment

This environment consists of all the factors which affect the operations of the business from the outside. Some of these factors offer business opportunities while others may create problems (threats).

Business have limited or no control over external environmental factors and should therefore try to do adjust in order to cope with them.

External environmental factors are also referred to as macro-environment i.e. environment that is in large scale.

External business environment can further be sub-divided into operating environment and remote environment, depending on whether the factors can be influenced to some extent or not. Those environments that can be influenced are referred to as operating environment while those that cannot be influenced are known as remote environment.

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