Summary
Highlights
The class begins a new chapter focusing on 'The Firm and Its Environment.' This chapter will cover environmental forces, scanning, local and international business environments, economic development phases, and forms of business organization. The initial focus is on environmental forces and environmental scanning.
A business environment is defined as the combination of internal and external factors that influence a company's operating situations. These factors are categorized into internal and external environments.
The internal environment comprises factors within a firm, considered controllable. These include: plans and policies, human resources, financial resources, corporate image, plant and machinery, labor and management relationships, and promoter's vision.
The external environment consists of factors outside the organization, such as political, economic, social, and technological aspects. These are largely uncontrollable and unpredictable, categorized into micro and macro environments.
The micro environment, also known as the operating environment, influences a company's capacity to produce and serve the market. Factors include: suppliers, market intermediaries (e.g., wholesalers, retailers), competitors, the public (e.g., trends), and various types of customers (ultimate, industrial, resellers, government/non-profit, international).
The macro environment, also called the general or remote environment, involves major uncontrollable factors affecting organizational decisions and performance. These include: demographic forces (e.g., population size, age, income), economic factors (e.g., economic policies, inflation rates), technological factors (e.g., advancements, tools), cultural environment (e.g., beliefs, traditions), natural environment (e.g., resource availability), political environment (e.g., legislation, government regulations), and legal environment (e.g., consumer protection laws, factory acts).
Organizations use business analysis tools to analyze and discuss these factors. Two prominent tools are PEST analysis and SWOT analysis. PEST analysis (Political, Economic, Social, Technological) helps assess market conditions for a product or business. SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) assists management in formulating strategies by identifying internal strengths and weaknesses, and external opportunities and threats.
The PEST analysis examines specific factors under each category: Political factors (e.g., taxation, government decisions, market regulations), Economic factors (e.g., exchange rates, unemployment, consumer trust, inflation), Social factors (e.g., demographics, education levels, lifestyle trends, social responsibilities), and Technological factors (e.g., lower energy costs, internet access, new products, technical skills). These factors can significantly influence business decisions and strategies.
SWOT analysis evaluates internal strengths and weaknesses (controllable resources like manpower, finances, equipment) and external opportunities and threats (uncontrollable macro-environment factors like tax law changes, spending patterns, technological advancements). A SWOT matrix visually presents these elements to aid in strategy formulation, identifying internal helpful aspects (strengths), internal harmful aspects (weaknesses), external helpful aspects (opportunities), and external harmful aspects (threats).