Components of Business Environment

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Components of business environment
On the basis of extent of intimacy with the firm, the environmental factors may be classified into different levels or types. There are broadly two types of environment, the internal environment, i.e. factors internal to the firm and the external environment i.e. factors external to the firm which have relevance to it. The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organisation and functional means such as marketing mix to suit the environment. The external factors on the other hand are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors etc., are therefore generally regarded as uncontrollable factors. Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). they constitute what is called macro environment, general environment or remote environment. We may therefore consider the business environment at three levels: •Internal environment

Micro environment/ task environment/ operating environment •Macro environment/ general environment/ remote environment Although business environment consists of both internal and external environments, many people often confine the term to the external environment of business.

Internal Environment:
The important internal factors which have a bearing on the strategy and other decision are outlined below.  Value system: The value system of the founders and those at the helm of the affairs has important bearing on the choice of business, the mission and objectives of the organisation, business policies and practices. It is a widely accepted fact that the extent to which the value system is shared by all in the organisation is an important factor contributing to success. After the EID Parry group was taken over by the Murugappa group, one of the most profitable businesses (liquor) of the ailing Parry group was sold off as the liquor business did not fit into the value system of the Murugappa group. The value system and ethical standards are also among the factors evaluated by many companies in the selection of the suppliers, distributors, collaborators etc.  Mission and Objectives: The business domain of the company, priorities, directions of development, business philosophy, business policy etc., are guided by the mission and objectives of the company. Ranbaxy’s thrust in to the foreign markets and development have been driven by its mission “to become a research based international pharmaceutical company.” Arvind Mills’ mission- “ to achieve global dominance in select businesses built around our core competencies through continuous product and technical innovation, customer orientation and focus on cost effectiveness” – has driven its future development strategy including the portfolio strategy, and indicated the thrusts required in the functional areas to help achieve the mission. Management structure and Nature: The organizational structure, the composition of the Board of Directors, professionalisation of management etc., are important factors influencing business decisions. Some management structures and styles delay decision making while some others facilitate quick decision-making. The Board of Directors being the highest decision making body which sets the direction for the development of the organisation and which oversees the performance of the organisation, so the quality of the board is very critical factor for the development and performance of the...
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