Business Environment Overview

Business Environment

• Environment encompasses external institutions affecting organizational performance.
• Importance stems from differing environmental uncertainty levels.
• Environmental uncertainty measures the degree of change and complexity in the external environment.
  • Change: Frequency of components' alterations.
  • Complexity: Number of components and organizational knowledge about them.

General Environment

• An organization's external environment has two levels: general and competitive.
• The general environment includes broader factors affecting all organizations:
  • Political, economic, socio-cultural, technological, environmental, and legal (PESTEL) factors.

Major Forces in the General Environment

• Economic: Interest rates, inflation, unemployment, economic growth.
• Technological: Infrastructure, advancements, industrial innovations, production/distribution changes.
• Political and legal: Political stability, government regulations, legal changes.
• Socio-cultural: Customs, values, traditions, lifestyles, beliefs, behavior patterns.
• Demographic: Population characteristics (age, gender, ethnicity, etc.).
• Environmental: Production pollution, sustainable energy, climate change.
• International: Involvement in, or impact from, global business.
• International PESTEL Analysis:
  • Political: Government attitudes, stability, intellectual property.
  • Economic: Growth, wealth distribution, currency, exchange rates.
  • Socio-cultural: National cultures, attitudes toward foreign entities.
  • Technological: Telecom, power, import/export infrastructure.
  • Environmental: Resources, pollution, climate change impacts.
  • Legal: Tariffs, trade agreements, employment laws, taxation.

Competitive Environment

• The competitive environment are forces stemming from suppliers, distributors, customers, and competitors.
• Suppliers provide resources for goods/services.
• Distributors help sell goods/services.
• Customers purchase the organization's outputs.
• Competitors provide similar products/services.

Porter's Five Forces Model

• A method for evaluating industry attractiveness.
• Rivalry among competitors:
  • Number of competitors, balanced size, demand growth, product differentiation, exit barriers.
• Threat of new entrants:
  • Entry barriers (capital, economies of scale, licenses, customer loyalty).
• Bargaining power of suppliers:
  • Number of suppliers, customer purchasing patterns, supplier expansion capability, supplier switching costs.
• Bargaining power of buyers: The power of customers to negotiate prices.
• Threat of substitutes: Similar products from other industries.

Organizational Culture

• Organizational culture embodies shared values, principles, traditions, and practices.
• Strong culture: Clear values, widespread agreement, employee identification.
• Weak culture: Limited values, lack of employee identification, mixed messages.
• Levels of organizational culture:
  • Visible artifacts (e.g., dress, behavior, symbols, ceremonies).
  • Values and beliefs (observed from stories, language, symbols).
  • Underlying assumptions (role modeling, legends, nicknames).
• Dimensions of organizational culture:
  • Adaptability, attention to detail, outcome orientation, people orientation, team orientation, integrity.
• Establishment of organizational culture:
  • Founder's vision, transmitted through stories, symbols, language, employee selection/socialization, top management actions.

Stakeholders

• Stakeholders are individuals/groups interested in a company.
• External stakeholders (customers, suppliers, creditors, governments, unions, communities, public).
• Internal stakeholders (stockholders, employees, managers, executives, board).
• Stakeholder claims:
  • Stockholders: Maximize returns.
  • Managers: Benefit stakeholders, resource efficiency.
  • Employees: Rewards for performance.
  • Suppliers: Fair and prompt payment.
  • Distributors: Quality products, agreed prices.
  • Customers: Attraction for business survival.
  • Community: Infrastructure for operations.

This quiz explores critical aspects of the business environment, focusing on the impact of external institutions on organizational performance. It examines different levels of environmental uncertainty and introduces the PESTEL factors that compose the general environment affecting organizations.