Business Environment Overview

Business Environment

• An organization's environment comprises external institutions and forces potentially impacting its performance.
• Environmental uncertainty is crucial; it depends on the degree of change and complexity.
• Change refers to the frequency of components' alteration within the environment.
• Complexity depends on the environment's parts and the organization's knowledge of them.

General Environment

• The external environment comprises two categories: general and competitive.
• The general environment includes factors affecting all organizations (political, economic, socio-cultural, technological, environmental & legal).
• Economic factors include interest rates, inflation, and unemployment.
• Technological factors encompass innovation, infrastructure, and production methods.
• Political and legal factors involve government regulations and stability.
• Socio-cultural factors involve customs, values, and lifestyles.
• Demographic factors refer to population characteristics (age, gender, etc.).
• Environmental factors include pollution, sustainability, and climate change.
• International factors reflect a company's global involvement.
• PESTEL analysis examines these factors in an international context.

Competitive Environment

• A competitive environment encompasses industry-specific factors impacting input & output.
• Key components include suppliers, distributors, customers, and competitors; these affect the organization's ability to obtain resources and sell output.
• Porter's Five Forces model analyses industry attractiveness.

Porter's Five Forces

• Rivalry among competitors: High rivalry leads to lower industry profits. Factors like the number of competitors, demand growth, product differentiation, and exit barriers affect rivalry intensity. More competitors and balanced size increase rivalry. Stagnant demand increases rivalry, while differentiated products reduce it. High exit barriers increase rivalry.
• Threat of new entrants: Lower entry barriers decrease profits. Factors like capital investment, economies of scale, and customer loyalty impact entry barriers.
• Bargaining power of suppliers: Strong supplier power lowers profits. Factors include supplier numbers, the customer's purchase frequency, supplier expansion potential, and switching costs for customers.
• Bargaining power of buyers: Strong buyer power lowers profits.
• Threat of substitutes: Similar products from other industries pose a substitute threat.

Organizational Culture

• Organizational culture comprises shared values, principles, and ways of operating.
• Strong culture: Values are widespread; employees strongly connect with and maintain cultural stories.
• Weak culture: Values are limited; employees don't identify strongly with the company's culture.
• Culture is visible (artefacts) and invisible (values, beliefs, assumptions).
• Cultural dimensions include adaptability, attention to detail, outcome orientation, people orientation, team orientation, and integrity.

How Organizational Culture is Established

• Founders establish the initial culture.
• It's transferred via stories, symbols, and language.
• Existing practices (selection, socialization) contribute to maintaining the culture.
• Top management plays a crucial role in shaping the organization's culture.

Stakeholders

• Stakeholders are individuals or groups with an interest in the company's performance.
• External stakeholders include customers, suppliers, creditors, governments, unions, and communities.
• Internal stakeholders include stockholders, employees, managers, executives, and board members.
• Each stakeholder has different claims on the company. Stockholders seek returns, managers optimize stakeholder benefit & resource use, employees demand rewards, suppliers need fair payment, distributors need quality goods, customers need to be attracted, and the community provides essential infrastructure.

Explore the intricacies of an organization's external environment in this quiz. Understand key factors such as political, economic, socio-cultural, technological, environmental, and legal influences that affect performance. Learn about environmental uncertainty and the distinctions between general and competitive environments.