A slide on the business environment of entrepreneur

1. WEEK 3: BUSINESS
ENVIRONMENT
DR OLANIYAN, T. S.

2. WEEK 3: BUSINESS ENVIRONMENT;
 DEFINITION AND NATURE OF BUSINESS ENVIRONMENT
 CHARACTERISTICS OF BUSINESS ENVIRONMENT
 TYPES OF BUSINESS ENVIRONEMENT
 FACTORS INFLUENCING BUSINESS,
 AND ADAPTATION TO BUSINESS ENVIRONMENT.

3. INTRODUCTION
 Businesses operate in a resource-constrained world where they must
compete with other businesses for resources.
 The company conducts local operations in the nation and foreign
operations in other nations.
 Being in a business environment is unexpected and uncertain, and the
environment itself is complicated and ever-changing. The nature of the
internal and corporate settings is examined in this subject.

4. FEATURES OF BUSINESS ENVIRONMENT
 Dynamism: In its simplest meaning, environmental dynamism refers to the rate and
predictability at which the elements of an organisation’s environment are changing.
Environmental dynamism can be divided into two major groups: stable and unstable
environments.
 Complexity: This term “environmental complexity” simply refers to the number of
elements in an organization’s environment and their degree of similarity or segmentation.
The greater the environment contains many different forces, the more complex the
environment is. Environment in which there are relatively small number of similar
elements are said to be homogeneous or simple.

5.  Uncertainty: According to Pfeffer and Salancik (1978), environmental
uncertainty is a condition in which future environmental circumstances
affecting an organization cannot be accurately assessed and predicted.
 Munificence: The last characteristic of the environment we shall examine
is called munificence. Environmental munificence can be defined as the
degree to which the environment supports sustained growth and stability by
making resources available to an organisation.

6. TYPES OF BUSINESS ENVIRONMENT
Business environment is generally divided into three groups.
Internal Environment
 The third major environment of significance to business is the internal
environment.
 The internal environment is quite different from the two other
environments. This is because an organization’s internal boundaries
immediately influences how work is done and how goals are
accomplished.

7.  Employees: Adequate and skilled workforce is in a sine qua non for business success. They
are responsible for setting objectives, analyzing both internal and external environments and
for formulating, implementing and evaluating the firm’s strategies and operations.
 Production: Production is one of the major functional areas of a business and has a strong
relation with other functional areas, is responsible for the production of high-quality
products at relatively low costs, and in sufficient quantities to meet customers’ needs.
 Marketing: No company can stay in business for very long unless its products can be sold
at a profit. The businessman needs to examine the strengths and weaknesses of marketing
position.

8.  Finance: The financial function involves the analysis, planning, and control of the financial
performance of the organization. It deals with the examination of financial strengths and
weaknesses through statement.
 Owners: Owners compose an important element in the internal task environment of a
typical enterprise. The owners of a business are the people who have a legal property right to
that business.
 Organisational Culture: Organisational culture can be defined as the shared philosophies,
values, assumptions, beliefs, norms, and behavior patterns that unite the members of an
organisation

9. TASK/OPERATING ENVIRONMENT
The task is otherwise known as industry operating environment. It is the most immediate environment
within which an organisation operates (Oyeniyi, 2004).
 Competitors (Rivalry among Existing Firms): Generally speaking, business competitors are other
business organizations in the same industry that compete for resources and sell similar products or
services to meet the same customers’ needs.
 Customers (Bargaining Power of Customers): All organisations and businessmen rely on customers
to survive and thrive Drucker (1982) aptly said the primary purpose of a business is to create
customers.

10.  Suppliers (Bargaining Power of Suppliers): An organization’s suppliers
are those individuals and organizations that provide the materials and other
resources needed by the organization to conduct its operations.
 New Entrants (Threats of New Entrants): Another element in the task
environment is the extent to which it is easy or difficult for firms to enter
the industry.
 Regulators: Regulators are units in the task environment that are capable
of influencing a business’ operations.
 Stakeholders: In recent times and in many organizations, stakeholders
have become a major concern and their importance cannot be
overemphasized.

11. EXTERNAL/MACRO ENVIRONMENTAL
The general environment consists of the major forces in the external
environment that reflects the broad conditions in the society in which the
business operates.
 Economic Factors: The economic dimension of a business general
environment is the overall health of the economic system in which the
business operates (Brownstein & Spiers, 1995). In addition, all businesses
must operate within some form of economic domain such as socialism,
capitalism, communism and missed economy to mention a few.

12.  Socio-Cultural Factor: This consists of institutions, customs, moves, values,
attitudes, norms, and beliefs of people of the society in which the business
operates. Socio-cultural processes are the determinants of the products,
services and standard of behaviour that the society is likely to cherish.
 Political-Legal Factor: The political and legal forces exert significant
impacts on business organizations. The political and legal dimensions of the
general laws, rules and regulations that govern the affairs of business
organizations in a given economy.

13.  Demographic Factor: The demographic environment is essentially the
descriptive element and measure of various characteristics of the people in
the society such as the absolute size of the population, gender, family size,
income, literacy level, occupation, the growth rate of population, and
possible effects of future increase in population. E.t.c
 Technological Factor: This is the most dramatic force shaping business
today. The technological elements reflect the application of scientific
knowledge regarding the production of goods and services.
 Ecological Factor: The ecological environment is otherwise known as
natural environment and consists of our natural surroundings.

14. Fig 1; business environment factors.
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15. FACTORS INFLUENCING BUSINESS ENVIRONMENT
 Boundary Spanning: This involves creating roles within the organization
that interface with important forces in the environment.
 Advertising: The business can use communication media to gain favourable
publicity and build a desired image for itself and its product and services.
 Public Relations: This is the use of communication media and allied
activities to establish and maintain a favourable overall impression of the
organization in the minds of the public.

16.  Recruiting: This is done when organization looks for job applicants who have
knowledge of the significant elements of the environment.
 Co-opting: This is the process by which new and important environmental elements are
absorbed into the leadership or policy-making structure of an organization to avert
threats to its stability or existence.
 Political Activity: organisations make efforts to enhance their competitive situations by
influencing elected representatives and/or the behaviour of government regulatory
agencies to create a more favourable business environment or limit competition.

17. ADAPTING TO THE ENVIRONMENT
 Buffering: The use of buffering involves stocking a large supply of resources either
inputs or outputs in order to cope with environmental fluctuations arising from
unpredictable needs.
 Smoothing: This involves taking actions aimed at minimizing the impact of fluctuation in
a given market.
 Forecasting: This is the process of making predictions about changing conditions and
future events that may affect the operation of an organization.
 Rationing: This is the process of providing limited access to a product or service that is in
high demand.

18.  Flexible Processes In order to adapt to the environment, organization should make constant
adjustment in structure and work processes in response to the changes in the environment.
 Empowerment If the environment of an organization is the case of uncertainty arising from
environmental complexity, the best way by which the organization can adapt is by decentralizing
decision making. This is called empowerment. That is, the situation in which the top management
team gives authority to lower-level managers to make decisions that benefits the organization.

19. THANK YOU
Dr Olaniyan, T. S.