Internal and External Environment of Business' - Components Interaction Matrix Environmental Scanning

1. - Monica Ruby Ebenezer

2.  The definition of business environment means all
of the internal and external factors that affect how
the company functions including employees,
customers, management, supply and demand
and business regulations.
 Business may be understood as the organized efforts of
enterprises to supply consumers with goods and services
for a profit
Characteristics of Business Environment:
 Complex
 Dynamic
 Multi-faceted
 Far- reaching impact

3.  Internal Environment
 External Environment
◦ Micro environment
◦ Macro environment
Economic
Non Economic

4.  Refers to all the factors that are within an
organization which impart strengths or cause
weaknesses of strategic nature.
 Controllable factors. These include:
Value system
Mission and Objectives
Management Structure and Nature

5.  Human Resources
 Company Image and Brand Equity
 Other Factors
Physical Assets and Facilities
R & D and Technological Capabilities
Marketing Resources
Financial Resources

6.  Includes all factors outside the organization
which provide opportunities or pose threats
to the organization
 Uncontrollable factors
 Consists of Micro and Macro environment

7.  “It consists of the factors in the company’s
immediate environment that affect the
performance of the company”.
 Suppliers
 Customers
 Marketing Intermediaries
 Competitors
 Publics
 Financial Community

8. Components
Supplier
Customers
Car DealersCompetitors
Stakeholders
Car
Manufacturer
Potential
Supplier
Local
Communities
Pressure
Groups
Government
For
Supplies
For
Customers
Potential
Customers
Potential
Dealers

9. It comprises general trends and forces that may
not immediately affect the organization but
sooner or later will alter the way organization
operates.
Macro Environment :-
 Economic
 Non Economic

10. ◦ Economic stages that exists at a given time in a
country
◦ Economic system that is adopted by a country for
example. Capitalistic, Socialistic or Mixed Economy
◦ Economic planning, such as five year plans,
budgets, etc.
◦ Economic policies for example, monetary,
industrial and fiscal policies
◦ Economic Indices such as National Income, Per
Capital Income, Disposable Income, Rate of growth
of GNP, Distribution of Income, Rate of savings,
Balance of Payments etc.
◦ Economic Problems
◦ Functioning of economy

11. ◦ Regulatory Environment
◦ Socio- Cultural Environment
◦ Demographic Environment
◦ Technological Environment
◦ Political Environment

12.  Cultural Environment
◦ Social Customs &
Rituals and practices
◦ Lifestyle patterns
◦ Family structure
◦ Role & position of
men, women, children
and aged in family &
society

13.  Demographic Environment
Growth of population
Age Composition
Life Expectancy
Sex Ratio
Fertility and Mortality rates
Inter-state migration

14.  Technological Environment
Sources of technology
Technological development
Impact of technology
 Political Environment
Political parties in power
Political Philosophy

15.  Regulatory Environment
◦ Constitutional framework
◦ Policies relating to pricing and
foreign investment
◦ Policies related to the public
sector, SSIs, development of
backward areas and control of
environmental pollution

16. Important factors that operate at global
level which have an impact on
organization are:
 Growth of world economy
 Distribution of world GDP
 International institutions IMF,WTO ILO
 Economic relations between nations
 Global human resource-nature and
quality of skills, mobility of labor
 Global technology and quality standards
 Global demographic patterns

18.  Determining OPPORTUNITIES and THREATS.
 Giving directions for growth.
 Continuous learning.
 Image building.
 Meeting competition.
 Identifying firm’s strengths and weaknesses.

19.  Studies interaction, interdependence,
interlocking of various environmental factors.
 Environmental analysis and diagnosis gives
strategists time to anticipate opportunities and
plan to take optional responses to these
opportunities.
 Enable strategists to develop early warning
system to prevent threats and develop strategies
which can turn a threat to the firm’s advantage.
 This interaction between economic and non-
economic environment can be explained with the
help of an INTERACTION MATRIX

20.  Factors
 Boundaries
 Time

21.  Critical elements of Non-Economic Environment
are taken along the rows and critical elements of
Economic Environment are taken along the
columns.
 The ‘+’ sign shows interdependence of economic
and non-economic factors.
 When a given element of EE influences a given
element of NEE a short line is drawn vertically
and if its vice versa , a short line is drawn
horizontally resulting in the ‘+’ sign
 This matrix serves as a tool to environmental
reaction and relation

23.  This interaction matrix explains the
relationship among local, regional and
international environment.
 It is a two by six matrix.

24. NON NATIONAL ENVIRONMENT NATIONAL ENVIRONMENT
Economic
Environment
Non Economic
Environment
LOCAL Economic
Non Economic
REGIONAL Economic
Non Economic
INTERNATIONAL Economic
Non Economic
+ +
+ +
+ +
+ +
+ +
+ +

25.  It shows the interaction between past,
present and future.
 It’s a two by four matrix

26. NON PRESENT
ENVIRONMENT
PRESENT ENVIRONMENT
Economic Environment Non-Economic
Environment
PAST
•Economic
•Non Economic
+
+
+
+
FUTURE
•Economic
•Non Economic
+
+
+
+

27.  The process of collecting, analyzing, and
distributing information for tactical and strategic
purposes.
 PURPOSE:
To provide strategic intelligence by evaluating
potentially significant environmental changes.
 Conveys both current environmental status and
how it is changing – trends
 Alerts planners to trends that are converging,
diverging, interacting, accelerating or
decelerating.
 Ideal end-goal: allows for adaptive planning
BEFORE these trends occur or fully develop.

28.  Refers only to the environment that is
external to the organization also called
MACRO environment.
 Good strategic planning requires information
on internal org factors