Imperative for success

1. BUSINESS
ENVIRONMENT
KINYUA M. 1

2. Introduction
 Set of forces surrounding an organization that affects its
decisions, operations and access to scarce resources
 Sum total of all factors, forces and conditions outside and
inside the organization that influences its operations and
behaviour
 Forces that emanate from within and outside the organization
that impact on an organization's ability to accomplish its goals
and objectives (Philip Kotler)
 No enterprise of any kind can operate in the absence of
constraints or restrictions imposed by the organization’s
surroundings.
 While managers exercise power, their authority is always
limited. Of necessity, all enterprises must adjust to the
environment in which they exist.
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3.  Organizations do not exist in vacuum but are constantly
affected by a set of internal and external forces which
determines their effectiveness and performance
 Organizations are environment dependent and environment
serving. They rely on the environment for their inputs and for
marketing their output after processing
 The environment provides both human and non-human
resources to the organization
 Organization transforms the resources from inputs to outputs.
 Environment provides markets for the finished goods and
services (outputs)
 There is constant interaction between the environment and the
organization
ORGANIZATION-ENVIRONMENT INTERFACE
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4. Figure: Organization- Environmental Interface
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5.  The environment is complex, highly dynamic and
unpredictable
 Systems approach to management view organizations as
open systems and emphasizes the need for managers to view
their organization as an entity of interrelated parts
intertwined with the outside world (environment).
 Survival and success of organization depends on their ability
to respond to changes in the environment. Indeed,
management must be able not only to identify the factors in
its environment but also to cope with them
 Therefore, there is a need to establish a match between the
organization and its environment
ORGANIZATION-ENVIRONMENT INTERFACE
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6.  The components of environment interact and affect one
another and in turn business. Many of these are
constantly changing and difficult to control. The changes
are faster for some industries and slower for others.
 Managers must learn to perceive the environment
accurately in order to deal with these factors effectively.
 Managers must be constantly aware of factors both
inside and outside the firm that affect their decisions and
actions.
 Environment is also full of opportunities as well as poses
some threats” and therefore needs constant monitoring.
ORGANIZATION-ENVIRONMENT INTERFACE
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7. SIGNIFICANCE OF BUSINESS ENVIRONMENT
 First mover advantage
 Awareness of the environment helps organization to take advantage
of opportunities
 Customer focus
 Understanding the environmental helps the organization to respond
to the changing needs and expectations of customers
 Strategy formulation
 Scanning the environment serves as a basis for gathering relevant
information that is crucial developing strategies for achieving
organizations objectives
 Early warning signs
 Monitoring the environment helps the organization to sense and
identify threats and take timely actions to minimise adverse effects
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8.  Public image
 Being sensitive and responsive to the changing needs of customers
helps to improve the perception, belief and opinion of the society
regarding the organization
 Continuous learning
 Analysis of the environment provide opportunities for employees to
continually increase their capacity to produce desirable organizational
outcomes
 It promotes exchange of relevant information creating a knowledgeable
workforce within the organization
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SIGNIFICANCE OF BUSINESS ENVIRONMENT

9. NATURE OF ENVIRONMENT
 Complex
 The environment consist of a number of factors, events and conditions which
impact on business operations, behaviour and performance
 Interdependence
 Environmental factors interact with each other as well as with business
 Dynamism
 The factors in the environment are in a state of change over time
 Uncertainty
 The dynamism and complexity of the environment makes it difficult to predict
future occurrences
 Specific and general
 Some factors have direct and immediate effect to an organization whereas
others affect all organizations
 Relativity
 The business environment differs amongst countries and regions
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10. 10
Micro/specific/Task/Industrial/Operating
Socio-Cultural Forces
General/Macro/Remote
Ecological
Forces
Economic
Forces
Technological Forces
Political-Legal Forces
Customers
Government
SuppliersUnions
Distributors
Competitors
Types of Environment
Public/society
External/
Mega
Organization
Human resource
Organization structure
Processes
Systems
Physical assets and facilities
Financial resources
Research and development etc
Internal

11. Macro Environment
 Also referred to as general/remote environment
 Are major external and uncontrollable factors that influence decision
making, operations and affect its strategies and performance
 These factors include:
 Political
 Economic
 Socio-cultural
 Technological
 Ecological
 Legal
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12. Macro Environment
Political-Legal Environment
 Its concerned with government laws, policies and agencies and pressure
imposed by the government to regulate business activities
 It also involves the political ideology of the ruling party which has a bearing
on the system of production, resource allocation and distribution of goods
and services within a society eg capitalistic –free market economy,
communist – command/planned economy etc
 Companies are particularly concerned with the political stability in deciding
where to operate subsidiaries
 Examples; laws on health & safety, laws on disposal of waste products, laws
on advertisement, pricing, industrial relation etc.
Economic Environment
 Are factors that affect consumers purchasing power and pattern of spending
 Includes; level of incomes, bank rates/borrowing rates, unemployment rates,
economic cycle, inflation rates, price levels, tax rates etc
 Determine consumers demand and ability to buy which in turn affects the
business profit and growth
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13. Macro Environment
Socio-Cultural Environment
 Factors that are based on the beliefs, values, opinions and lifestyles of a
group of people
 Culture is the man-made part of a people’s environment and may be
defined as the distinctive way of life of a people e.g how the people of a
society eat
 Culture is quite dynamic and continues to evolve.
 Major cultural parameters that affect international business include; material
culture, language, aesthetics, education, attitude and values, and religion
 Social organizations reflect the way people relate in society
 The ties between individuals and groups greatly influence how people
behave as individuals and as groups.
 Major types of social factors found in most societies include; kinship,
common territory and special interest groups
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14. Macro Environment
Technological Environment
 Are the skills and knowledge applied in the production and
distribution of good and services
 It reflects the current state of knowledge regarding the
production of products and services
 Changes in technology can either favour or hamper business
performance
 Technological development influences;
 Cost of production and distribution
 Life cycle of a product
 Quality of a product
 Speed of response in the market place
 Quality of decisions etc
 Changes in technology can render a product obsolete or extend
its life
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15. Macro Environment
Ecological Environment
 Includes factors such as topography or relief, climate and
infrastructure
 Physical location of an organization influences availability and cost
of input factors as well as market for the company’s output
 Management of waste is critical to the survival and success of
organizations
 The relationship between the organization and its stakeholders
can either favour or hamper business performance
 Its concerned with sustainable use of natural resource and
maintenance of ecological balance
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16. Industrial Environment
 Also referred to as task/operating/specific/micro environment because it has
a direct bearing on the operations of the firm
 Consists of factors in the external environment that have a direct-specific
impact on the organization
 Management has some degree of control over the factors in the task
environment
 The factors usually vary in importance and influence among different
organization
 Examples
 Customers
 Suppliers
 Intermediaries
 Regulatory agencies
 Competitors
 Labor unions
 Society
 Special Interests
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17. Industrial Environment
Suppliers
 Provide the resources needed to produce goods and services
 Serve as an important link in the value delivery system
 Are considered as partners
 Controls the quality, pricing and availability of input factors
Intermediaries
 Include reseller and physical distributors of firms output
 Reseller are those firms that hold and sell a company’s output
eg Wholesalers and retailers
 Firms involved in physical distribution help in stocking and
movement of output from the point of production/origin to the
point of consumption/destination eg transportation and
warehousing
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18. Customer
 Constitutes the demand of the company’s output
 Persons or entities that buy the company’s output
 Purchase requirements vary amongst customers
 Are influenced by cultural, social and psychological factors
 Tastes and preferences are dynamic
 Its critical to be aware of the present needs and emerging needs of their
clients
Competition
 Comprises of companies that offer similar or closely related goods and
services
 Competitors seek to satisfy the same needs and thus vie for market
share
 A company must constantly monitor the strategies, policies, actions,
moves, intentions, practices etc of competitors
 A company must understand the strengths of competitors and
differentiate offerings from those of competitors
Industrial Environment
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19. Industrial Environment
Special interest groups
 Refers to any group that has an actual or potential interest in the
operations of an organization
 The public impacts on organization’s ability to achieve its objectives
 It holds considerable power regarding what an organization can and
cannot do
 Examples; pressure groups, media etc
Society
 Society ultimately establishes the laws and regulations under which all
organizations operate
 It sanction the operations of organizations
 Its perception of concerning an organization can influence sales and
performance
 If a firm ignores social concerns regarding such matters as
environmental protection, product safety and unfair employment
practices, society will react by imposing legal restrictions
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20. Industrial Environment
Labour Unions
 Labor unions have influence on management practices
 They restrict what managers may want to do about wages, vacations
retirement plans, working conditions and employment policies
 Labor unions safeguard and enhance the interest and welfare of
members through negotiated contracts
Regulatory Agencies
 Agencies that provides guidelines and rules on performance of
organizational activities in order to safeguard the interest of
stakeholders
 Enforces ethical behaviour within organizations
 Exercises oversight role
 Constantly monitors behaviour, operations and practices of
organizations
 Institutes fines and can withdraw licences
 Examples; CBK, NEMA, NTSA, KEBBS, CUE, CCK etc
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21. INTERNAL ENVIRONMENT
 Comprises of all the factors inside the organization that
may affect its operations and performance
 Includes all factors that make up the organization.
 These factors are the control of management
 Example; management, human resources, culture, work
ethos, processes and systems, organizational structure,
physical assets and facilities, company image, brand equity
financial resources, research and development etc
THANK YOU
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