The business environment

Chapter 2
Learning Outcomes
This chapter should enable you to:
• understand the concept of systems thinking
• comprehend the nature and impact of the business environment
• explain the level of control that management has over the different
organisational environments
• describe the micro-environment and how the various management
functions affect the success of the business
• discuss how the different role players in the market environment affect the
success of the business
• understand how the sub-environments in the macro-environment affect
the business and its continued existence
• analyse the impact of the environment on an organisation using a SWOT
analysis.
Introduction
• Because a business is an open system, it is affected by the forces
within it and those outside it.
• The manager needs to understand how these forces affect the
business to manage the consequences (results) of these for the
business.
• The business environment comprises anything outside the
organisation that impacts both its current and future activities.
• Each organisation has a unique environment that has distinct impacts
depending on the type of product or service and the market to which
these products or services are being offered.
The systems
approach

FIGURE 2.1 The organisation as a system (p. 32)

Organisational
environment

FIGURE 2.2 The organisational environment (p. 33)

FIGURE 2.3 Levels of management control over the three components of the organisational
Environment (p. 34)
The micro-environment

The micro-environment is the

environment inside the business. It
includes the business functions and
the management tasks involved in
running the organisation.

FIGURE 2.4 Relationships between the business functions in

the micro-environment (p. 35)
The market environment
• This is where the organisation conducts its business.
• Here, the organisation gets the inputs into the business from its suppliers and
their intermediaries sells its goods and services to the customers and competes
for these customers with competitors who sell the same or similar products.
• Suppliers:
• other businesses that give the business its raw materials (if it is a manufacturer) and its goods
(if it is a retailer).
• Intermediaries:
• the wholesalers and other businesses that act as ‘middlemen’ between the manufacturer
and the consumer. Each of these intermediaries adds its mark-up to the product.
• Competitors
• other businesses that sell the same or similar products or services.
• Customers of a business
• are the patrons who buy the business’s goods or services.
The macro-environment
• The macro-environment is all the factors on the national and
international levels that affect the business’s success. These are the
factors over which the management of the organisation has very little
or no control.
• The macro-environment consists of several ‘sub-environments’:
• Natural environment
• Technological environment It is important to note that the different
• Social environment sub-environments are inter-related, that
• Political environment is, when change happens in one this often
• Economic environment impacts on the others.
• International environment
FIGURE 2.6 Factors in the macro-environment (p. 39)
The natural environment
• includes the availability of natural resources, which are the raw materials that the
manufacturing industry uses and factors such as the climate, weather patterns,
and natural disasters.

The technological environment

• Technology is the process by which people make tools and machines to influence
and understand the physical world.
• Invention → discovery or creation of a new product or process
• Innovation → process through which new ideas and inventions become a reality

The social environment

• The social environment is comprised of the characteristics of the society in which
the business is located. The statistical characteristics are referred to as the
society’s demographics.
The political environment
• Politics can be defined as the competition for power within a society. The political
environment is the environment in which this competition takes place.
The economic environment
• The economic environment is a complex sub-environment with many factors that
affect a business in different ways. Economics is the science that describes and
analyses the production, distribution and use of goods and services, and the role of
money or the lack of money.
The international environment
• The international environment refers to the events that happen in other countries
that affect the business.
• Globalisation is the development of business activities on an international level,
which includes competition, markets and the increasing interdependence of global
economies
Conducting a SWOT analysis of a business’s
environment
• To stay competitive and manage the impact of the factors in the
environment, a business needs to analyse both the micro-
environment and the external environment (the market- and macro-
environments), done through a process known as a SWOT analysis
Strengths
Weaknesses
Opportunities
Threats
SWOT analysis
• The process involves analysing the internal environment’s strengths (what
the business is good at) and weaknesses (what needs to be improved). The
external environment is then analysed by identifying a business’s
opportunities (prospects that the business could use to grow and make
more profits) and its threats (factors that could stop the business from
growing and making profits).

Strengths Opportunities

Weaknesses Threats
Ethics in data collection
• Various ethical issues need to be considered when collecting this
information, including the following:
• Accessibility: Does the business have the right to access the required
information? Is the information being accessed private or confidential?
• Privacy: This has to do with the degree of privacy of information and how it
is shared. An example would be how information collected about
customers is protected and what it is used for.
• Property: This deals with ownership and the relative value of the
information that the business collects. Questions that would be asked here
relate to whether the business has paid a fair price to a legitimate source
for the information.
• Accuracy: This asks whether the information being collected is both
accurate and authentic.
Summary
• To recognise how the business environment affects a business, it is vital to
understand the concept of systems thinking. This states that everything is
interconnected; therefore if something occurs in one part of the system, it affects
all the other parts of the system.
• The micro-environment is the context within the organisation over which the
management has almost complete control.
• The market environment is immediately outside the organisation. This is where
the organisation conducts its business and over which the management has some
influence.
• The macro-environment comprises the events on the national and international
level over which management has almost no control.
• Because the business environment determines the success of a business,
management must analyse and check it. This is done using a SWOT analysis,
where the internal strengths and weaknesses, as well as the external
opportunities and threats, are noted and analysed. The business also needs to
note that it collects information for the SWOT analysis ethically and responsibly.