- Business means busy in some activities.
- Business means conducting activities such as sale, purchase and manufacturing etc for profit and growth.
- Business is also referred to a particular company, enterprise or corporation.
Objectives of Business
A business always has some purpose and no doubt the most important purpose of business is achieving profitability and growth.
Following are the some important objectives of business.
Profitability: This is one of the most important objectives of business. We normally setup business to achieve profits for its owner or shareholders. But, does it mean that business should somehow, by hook or crook, earn the profit? Our answer is no; it should earn profit by working under rules and regulations or by following ethical practices.
GROWTH: Another important objective of business is to achieve growth. The growth should be in terms of increase in profit, revenue, capacity, number of employees and employee prosperity, etc.
Stability: Stability means of continuity of business. An enterprise or business should achieve stability in terms of customer satisfaction, credit worthiness, employee satisfaction etc. A stable organization can easily handle changing dynamics of markets.
Efficiency: An efficient or aggresive working environment. A business should always try to achieve the best in its field. Efficiency is considered in terms of labor productivity, energy consumption, quality control etc.
Business Environment and Its Influences on Business
- Surrounding of any living creature is known as environment such as friends, family, peers and neighbors. Environment also include man made structure such as buildings, roads, hospitals and schools, etc.
- Similar to living creature every business is also surrounded by an environment such as technology, competition, economic conditions, supply and demand, etc.
- Environmental is combinations of various factors which are largely not under control of business. Business continuously interact with these factors understand the threats and explore the opportunities from these surrounding factors.
- In general, we can say business takes some inputs from environment and after the processing of these inputs, provides the outputs to environment.
- The types of inputs from environment and outputs to environment depend upon business to business. For example, a cement company shall have different types of inputs and outputs than a steel company.
- A successful business interacts with environment and increases its growth i.e. an environment influences the business growth therefore, it is necessary that business that should be able to handle these influences successfully.
Environment Influences on Business
Environment contains components like demand of products, supply of raw material, competitions and government rules on taxes etc. These components influence or affect a business for its day-to-day activities and long-term profit and growth. Therefore, understanding influences of environment such as demand, supply, technology and competiton, etc on business is very important for growth and continuity of business.
Problems in understanding the business environment
It is not easy to understand the environment influences, because:
- Environment encapsulates many hidden aspects such as technology changes which make it difficult to understand.
- Changes in environment are uncertain such as changes in demand and supply are difficult to measure correctly. For example, it is difficult for a company like TATA STEEL to predict accurately the demand for steel and supply of raw materials etc.
Why Environment Analysis is important?
When a company does not react to environment changes the result is; company cannot achieve its objectives. Therefore, organization should continuously analyze its environment and its changes in environment to achieve its objectives, And as per the changes of environment, the organization should form a strategy to overcome on any negative impact of the environment.
In general, environment analysis serves the following goals or purpose
- Provide understanding of current and potential changes in the environment which help organizations to make strategies to deal with these changes accordingly.
- Provide needed inputs for correct strategic decision making such as; data on possible demand, etc.
- Facilitate strategic thinking in the organization which helps to provide rich source of ideas for growth of organization.
CHARACTERSTICS OF BUSINESS ENVIRONMENT
Business environment presents many characteristics. Some of the important characteristics are as follows:
- Environment is complex: An environment consists of many interrelated factors and understanding these factors are difficult tasks. So we can say business environment is complex. It is somewhat easier to understand environment in parts but difficult to understand in totality.
- Environment is dynamic: Business environment changes continuously due to changing needs of customers and competitions.
- Environment is multi-faceted: Environment developments are taken differently by different people the same development is welcomed as an opportunity by one company while another company perceives it as a threat. For example, shortage of raw material is a threat for manufacturing facilities whereas it provides increased profit opportunity to raw material supplier.
- Environment has a far reaching impact: The environment has a far reaching impact on organizations, particularly, the growth and profitability of an organization depends critically on the environment in which it exists.
COMPONENTS OF BUSINESS ENVIRONMENT
The environment of organization can be divided into two parts
- External Environment
- Internal Environment
The external environment can further be divided into two parts
- General (which does not affect much to organization working directly like law and order, politics, culture etc), and
- Relevant (which may affect organization working directly like economic conditions and globalization etc)
The external environment also known as Macro Economic Environment includes those factors which are not in much control of organization.
The internal environment is known as Micro Economic Environment includes those factors which are in some control of organization.
An external environment provides the opportunities and threats, and the internal environment needs the understanding of the strengths and weaknesses for the existence, growth and profitability of any organization.
A systematic approach to understand the environment is known as SWOT (Strengths, Weaknesses, Opportunities and Threats) Analysis.
Business firms undertake SWOT analysis to understand the external and internal environment. SWOT analysis helps to understand organization’s existing strengths and weaknesses and accordingly organization analyze the opportunities and threats in the environment so that an effective strategy can be formulated.
RELATIONSHIP BETWEEN ORGANIZATION AND ENVIRONMENT
Business cannot exist without interacting with their environment. It is only environment which provides opportunities to business to grow and also provides an indication to business about their strengths and weaknesses. You can relate, for the time being, a business with a student. It is student’s surrounding which provides him opportunities in the form of CA and MBA courses etc and it is also the surrounding which indicated (by interacting with other students, etc) what are student’s strengths and what are his weaknesses, etc.
The above opportunities, threats, strengths and weaknesses are known to organization through interaction with environment. This interaction with environment happens in the following forms.
- Exchange of information: Organizations continuously exchange information with environment which helps them in better planning and functioning of business.
- Exchange of resources: Organizations continuously require the resources such as manpower, machines, materials and money, etc from/to environment for their functioning.
- Exchange of power and influences: These exist in the form of Govt. controls, regulations, etc. which enforce business to work in a controlled manner.
The degree of relationship between environment and business depends upon business to business.
And, Here we have the last topic of this post.
THE MICRO AND MACRO ENVIRONMENT
Every organization’s environment can be divided into two categories.
1. Micro Environment:
The immediate environment with which organization interacts for its day-to-day operations is known as Micro Environment. Every organization in a particular industry will have its own internal environment and this environment primarily affects the working of a particular firm.
The Micro Environment deals with followings;
d. Local communities in which organization or form operates
e. Direct competitors etc.
The Micro Environment influences organization day-to-day working
2. Macro Environment
The Macro Environment covers the broader areas or issues with which organization deals for its long day working. This environment primarily affects the working of all the firms in a particular industry. For example, economic conditions of a country or a state will affect all the firms in that country or state.
The Macro Environment deals with the following:
- Economic Conditions
- Legal setup
- Political setup
- Technological changes
- Global Environment
- Social and Cultural issues
- The Macro Environment influences organization long term working. The Macro Environment plays a very important role in strategic planning for organization growth.
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