Chapter 02
The Business Environment
Learning Goal
Having read this chapter you should be able to:
• Indicate the basic features of business activity
• Portray the business organisation as a system interacting with its environment
• Demonstrate the range and complexity of the external influences on business
activity
• Identify the central themes inherent in the study of the business environment
Introduction
Business organisations differ in many ways, but they also have a common feature: the
transformation of inputs into outputs; it is through this process that the value is created.
This transformation process takes place against a background of external influences
which affect the firm and its activities.
This external environment is complex, volatile and interactive, but it cannot be ignored
in any meaningful analysis of business activity.
The Business Organization as a
Transformation System
The Firm in Its Environment
Two Levels of Environment
Business Environment
The Business Environment is the total of
all external and internal factors that
influence a business. An external
business environment is composed of all
the outside factors or influences that
impact the operation of business.
1. Economic & Legal Environment
Government actions that
affect the operations of a
company or business. A
government can promote
business through:
2. TECHNOLOGICAL ENVIRONMENT
• Technology - Everything from phones to copiers and the
various software programs that make businesses more
effective, efficient, and productive.
• Effectiveness - Producing the desired result (doing the
right things)
• Efficiency - Producing goods and services using the least
amount of resources. (doing things right)
• Productivity - The amount of output you generate given
the amount of input (example: hours you work).
Food for thought: Does being busy mean being productive?
[Link]
Benefits of Technology
E-commerce – Buying and selling goods and services over the internet
(B2B, B2C).
The Universal Product Code (UPC) helps track what product was sold,
including size, color, and price. Checkout scanners send this information to a
database, which stores customer details such as name, address, and phone
number.
3. COMPETITIVE ENVIRONMENT
Firms should offer both high-quality products and outstanding
services at a competitive price. They need to know the
competitors.
Two ways to compete:
✔ by exceeding customer expectations
✔ by restructuring and empowering the employees
4. SOCIAL ENVIRONMENT
Demography is the statistical study of human
populations based on size, density, age, race,
gender, and income.
• Diversity now goes beyond just hiring
women and minority workers
• Growth of two-income families
• Changes in customers’ tastes and
preferences
5. GLOBAL ENVIRONMENT
Significant changes in the global environment are
contributed to by:
• Increase in global competition
• Increase in free trade among nations
Negative effects of globalization on businesses:
• Wars and terrorism
• Global Pandemic
How to stay updated with globalization?
6. ECOLOGICAL ENVIRONMENT
More than just climate change
• Greening: The trend toward saving energy and producing
products that cause less harm to the environment.
PESTLE ANALYSIS
PESTLE Analysis (political, economic, social, technological, legal, and
environmental) is a management method whereby an organization can
assess major external factors that influence its operation in order to
become more competitive in the market.
As described by the acronym, those six areas are central to this
model. It offers people professionals insight into the external factors
impacting their organization.
PESTLE ANALYSIS
SWOT ANALYSIS
SWOT Analysis is a simple but useful framework for analyzing
your organization's strengths, weaknesses, opportunities, and
threats. It helps you to build on what you do well, to address what
you're lacking, to minimize risks, and to take the greatest possible
advantage of chances for success.
SWOT ANALYSIS
Stakeholders
Any individual or group who
can affect or is affected by
the achievement of a firm’s
objectives.
Thank you