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External environment of Organization
- 1. INTRODUCTION TO BUSINESS ENVIRONMENT External Environment Reporters : Eugene Aldrich Paguirigan John Soriano Alfreda Abis
- 2. WHAT IS BUSINESS ENVIRONMENT? Environment of any organization is “the aggregate of all conditions, events and influences that surround and affect it”. The combination of internal and external factors that influence a company’s or business operating situation.
- 3. TYPES OF ENVIRONMENT? Internal Environment External Environment Micro Environment Macro Environment
- 4. EXTERNAL ENVIRONMENT Factors outside the organization which provide opportunities or pose threats to the organization Factors that can impact the ability of a business or investment to achieve its strategic goals and objectives. Uncontrollable factors Classified into two categories Micro Macro
- 5. Micro Environment Refers to the environment which is in direct contact with the business organization and can affect the routine activities of business straight away. Types of Factors Suppliers Customers Marketing Intermediaries Competitors Publics Financial Intermediaries
- 6. Micro Environment SUPPLIERS Suppliers are the persons who supply raw material to company. CUSTOMERS Customers are the persons who buy goods from company.
- 7. Micro Environment MARKETING INTERMEDIARIES Market intermediaries are those person who helps company to sell its products. COMPETITORS Competitors are those who also sell same product as the company or business.
- 8. Micro Environment PUBLIC Group of people who can buy or who can show their interest to buy the products of company. FINANCIAL INTERMEDIARIES Are those institutions who provide loan, credit and advance to company.
- 9. Macro Environment Refers to the external factors which affects company and its business and there is no control of company on these factors. Types of Factors Economic Non-Economic Political Demographic Socio-Cultural Technological Natural
- 10. Macro Environment ECONOMIC The economic environment constitutes of economic conditions, economic policies, and the economic system that is important to external factors of business. Economic environment refers to the nature and direction of the economy within which business organisation are to operate. insert picture background
- 11. Macro Environment NON-ECONOMIC Political and Legal Forces Refers to the political, government and legal environment. It has close relationship with the economic system and economic policy. This refers to set of laws, regulations, which influence the business organizations and their operations
- 12. Macro Environment NON-ECONOMIC Demographic Forces Demography refers to study of the population. Demographic factors are as below: Size of population Growth rate Family size Educational level Age composition Sex composition
- 13. Macro Environment NON-ECONOMIC Socio-Cultural Forces Socio-cultural environment is an important factor that should be analysed while formulating company business strategies. These includes people’s attitude to work and wealth, ethical issues, role of family, marriage, religion and education and the social responsibilities of business
- 14. Macro Environment NON-ECONOMIC Technological Forces Technological forces or factors could be said to be the most pervasive in the environment. Technology refers to the application of knowledge base which science provides. It is a well established fact that information and communication technology has revolutionized business operations
- 15. Macro Environment NON-ECONOMIC Natural Forces The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc
- 16. BRIEF COMPARISON (MICRO – MACRO) BASIS FOR COMPARISON MICRO (INTERNAL) ENVIRONMENT MACRO (EXTERNAL) ENVIRONMENT Meaning Micro environment is defined as the nearby environment, under which the firm operates. Macro environment refers to the general environment, that can affect the working of all business enterprises. Alternatively known as Internal Environment External Environment Elements COSMIC, i.e. Competitors, Organization itself, Suppliers, Market, Intermediaries and Customers. PESTLE, i.e. Population & Demographic, Economic, Socio-Cultural, Technological, Legal & Political and Environmental. Nature of elements Specific General Are these factors controllable? Yes No Influence Directly and Regularly Indirectly and Distantly
- 17. Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements, which can affect the organization’s performance. The analysis entails assessing the level of threat or opportunity the factors might present What is Environmental Analysis?
- 18. DEFINITION AND CONCEPT It a process of conducting research on the business environment within which an organization operates and on the organization itself, in order to formulate strategy. STRATEGIC ANALYTICAL TOOLS
- 19. PEST Analysis PESTLE Analysis STEEP Analysis STEEPLE Analysis Examples of Analytical Method used in Strategic Analysis
- 20. This is a framework used to analyze the external environmental analysis. The process entails learning about various external factors which affect the organization. PESTLE Analysis
- 21. POLITICAL These include government regulation such as employment laws, environmental organizations and tax policy. Other political factors are trade restrictions and political stability PESTLE Analysis
- 22. ECONOMIC These affect the cost of capital and purchasing power of an organization. Economic factors include economic growth, interest rates, inflation and currency exchange rates PESTLE Analysis
- 23. SOCIAL These impact on customer’s need and the potential market size for an organization’s goods and services. Social factors include population growth, age demographics and attitude towards health. PESTLE Analysis
- 24. TECHNOLOGICAL These influence barriers to entry, make or buy decisions and investment in innovation, such as automation, investment incentives and the rate of technological change. PESTLE Analysis
- 25. LEGAL This factor has both external and internal sides. There are certain laws that affect the business/organization environment in a certain country while there are certain policies that companies maintain for themselves. PESTLE Analysis
- 26. ENVIRONMENTAL this factor includes all those that influence or are determined by more the surrounding environment. PESTLE Analysis
Editor's Notes
- Environment means the surrounding, external objects, influences or circumstances under which someone or something exists. The environment of any organization is the aggregate of all conditions, events and influences that surround and affect it.
- Conditions, entities, events, and factors surrounding an organization that influence its activities and choices, and determine its opportunities and risks also called operating environment and opposite of internal environment
- Micro environment is a collection of all the forces that are close to the firm. These forces are very particular for the said business only. They can influence the performance and day to day operations of the company, but for a short term only. Micro environment is also known as task environment and operating environment. These forces or factors are; suppliers…. -Suppliers are the ones who provide inputs to the business like raw material, equipment and so on. These services must be provided on time, or the production as well as the quality suffers -Customers or Consumers are the ones who purchase the goods for their own consumption. They are considered as the king of business -Marketing intermediaries may include wholesalers, distributors, and retailers that make a link between the firm and the customers; middlemen such as agents and merchants that help the company find customers or close sales with them. -Competitors are the rivals, which compete with the firm in the market and resources as well (kalaban or katunggali); are those who also sell same product -Publics; any group that has an actual or potential interest in or impact on a company’s ability to achieve its objective”. Environmentalists, media groups, women associations, consumer protection groups, local groups, citizens associations are some important examples. That group of people who can buy or who can show their interest to buy the products - Financial Intermediaries are those institutions who provide loan, credit and advance to company (Banks, Loan Agencies)
- Suppliers are the ones who provide inputs to the business like raw material, equipment and so on. These services must be provided on time, it can be controlled if they will be paid on time. If one supplier stops to supply, the business can get raw material from other supplier and thus production as well as the quality will suffer Customers or Consumers are the ones who purchase the goods for their own consumption. They are considered as the king of business. Business will be affected if the customers do not feel delighted, they will buy from other sources leading to decline in sales. hence it should maintain good relations with our customers.
- These are the wholesalers, distributors, and retailers that make a link between the firm and the customers; middlemen such as agents and merchants that help the company find customers or close sales with them Competitors are the rivals, which compete with the firm in the market and resources as well (kalaban or katunggali); are those who also sell same product
- Publics; any group that has an actual or potential interest in or impact on a company’s ability to achieve its objective”. Environmentalists, media groups, women associations, consumer protection groups, local groups, citizens associations are some important examples. That group of people who can buy or who can show their interest to buy the products Financial Intermediaries are those institutions who provide loan, credit and advance to company (Banks, Loan Agencies)
- Macro environment - Refers to the external factors which affects company and its business and there is no control of company on these factors. It comprises general trends and forces that may not immediately affect the organization but sooner or later will alter the way organization operates. This environment refers to the wide ranging economic, socio-cultural, political and legal, and technological forces that affect the organisation and its operating environment. These forces originate beyond the firm’s operating situation. The macro environment is also called the external or remote environment. The macro environment presents threats and opportunities that are often difficult to grapple with (that is, identify and respond to), than with events in the microenvironment
- The economic environment constitutes of economic conditions, economic policies, and the economic system that is important to external factors of business. It refers to the nature and direction of the economy within which business organisation are to operate. These are economic stages that exists at a given time in a country, a system that is adopted by a country for example. Capitalistic, Socialistic or Mixed Economy. Economic policies for example, monetary, industrial and fiscal policies
- Political Environment - Refers to the political, government and legal environment. It has close relationship with the economic system and economic policy. Political environment also affects business with different business laws. These laws controls all the activities of business. Examples are the Government policies like fiscal, monetary, industrial, labour, and export and import policies which are influenced to specific legal enactments and framework towards the business organisation; The Government policies, rules and regulation are controlling and monitoring the business enterprises and its activities in the state; Government tax policies are critical and affect to the business organisation.
- Demographic forces.. From the word Demography refers to study of the population. Demographic factors are Size of population; Growth rate; family size; Educational level; Age composition; Sex composition. 1. Size of population- All these elements are relating to business. If size of population is increasing with high growth rate, demand is increased. 2. Growth rate- High growth rate of population is also tells us high rate of supply of laborers. Many companies motives to invest money in developing countries due Cheap labor power and developing market. 3. family size:Suppose, we are making residential rooms. For making residential rooms, we should study the number of family members who will live in it 4. Educational level-Educational level of our customer may also affect our marketing techniques. If our customers are very educated, we can use online advertising, if they are not educated we have to use old means of advertising. 5 Age composition- Before producing the product, we see what age group will use this. For example, young population are interested to wear jeans but old age population are interested to wear kurta and pajama. 6. Sex composition-Sex composition are two one is male and other is female. We also study the number of our customers who are female and no. of our customers are female. If female are more than male, we will care their need specially in making of our products This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For example a country where population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area
- Socio-cultural environment is an important factor that should be analyzed while formulating company business strategies. These includes people’s attitude to work and wealth, ethical issues, role of family, marriage, religion and education and the social responsibilities of business. It consists of factors which are related to human relationships and the impact of social attitudes and cultural values
- Technological forces or factors could be said to be the most pervasive in the environment. Technology refers to the application of knowledge base which science provides. It is a well established fact that information and communication technology has revolutionized business operations
- The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Climate and weather conditions affect the location of certain industries. Natural environment is the study of an important component of the nature.
- Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements, which can affect the organization’s performance. The analysis entails assessing the level of threat or opportunity the factors might present. These evaluations are later translated into the decision-making process. The analysis helps align strategies with the firm’s environment
- It a process of conducting research on the business environment within which an organization operates and on the organization itself, in order to formulate strategy.
- Businesses are greatly influenced by their environment. All the situational factors which determine day to day circumstances impact firms. So, businesses must constantly analyze the trade environment and the market. There are many strategic analysis tools that a firm can use, but some are more common. The most used detailed analysis of the environment is the PESTLE analysis. This is a bird’s eye view of the business conduct. Managers and strategy builders use this analysis to find where their market currently. It also helps foresee where the organization will be in the future. PESTLE analysis consists of various factors that affect the business environment. Each letter in the acronym signifies a set of factors. These factors can affect every industry directly or indirectly.
- This is a framework used to analyze the external environmental analysis. The process entails learning about various external factors which affect the organization It is a useful tool for understanding the political, economic, socio-cultural, and technological environment that an organization operates in. it can be used for evaluating market growth or decline, and as such the position, potential and direction for a business
- Failure to understand the environmental factors for business shall create number of problems, which in fact are difficult to solve. It will reduce the profit margin and will make the opportunities for expansion to slip. But a proper appreciation of the environmental factors will bring many benefits.