Today, we are going to discuss the main components of the business environment that should know before starting a business.
Let’s start with some basics of the components of the business environment.
- Internal Environment
- External Environment
Before jump into the components of business environment, Lets revised little bit of business environment.
Business environment is a mixture of complex, dynamic and uncontrollable external and internal factors within which a business is to be operated.
From the above definition, we can clearly classify the component of business environment.
Components of the business environment are classified into the following major categories.
- Internal Environment
- External Environment
It is defined as all the controllable forces, factors and conditions within an organization that influence the organizational behavior in Organizations.
The internal environment is one of the important components of Business environment which directly influence the day to day activities of an organization. Such as Employee performance, the decision of the Board of directors and shareholders, the structure of the organization, etc. Directly affect the growth of an organization.
An organization’s internal environment has the following sub-components:
They are the major components and important assets of organizations. They are responsible to work as per the organizational’ direction, goals, rules and regulation of the company. For their better performance, organizations have to motivate and satisfied them with fair and some unique and equitable rewards policies. Such as Bonuses, securities, flexible working hours, etc. The organizations’ productivity and growth can be enhanced only by the dedication, loyalty, satisfaction, and cooperation of employees.
Shareholder and Board of Directors:
Shareholders are the actual owner of the Business organization. Shareholders being the owners of the business, have a direct interest in the performance of the organization. The board of directors is elected by them (shareholders) who represent shareholders’ interest in the board. The board is responsible to manage the company and formulate appropriate plans. They evaluate overall organizational performance and provide direction to the top-level management for the growth and development of an organization.
Culture is a set of values, beliefs, norms. Every organization has its own culture. Organizational Culture refers to set of values, beliefs, norms of an organization under which it operates. It helps to bind all the employees and comply with organizational rules and regulations. Culture has a powerful influence on the process of organizational change and decision making.
Labour union represents the group of employees or labor working in an organization for saving the right of employees and labour. It takes problems and feeling of the labors to the management for constructive solutions. The good relation between labor unions and management avoids unnecessary disturbances in organizations.
Structure is a framework of an organization. It clarifies the authority and responsibility roles and relations, hierarchy of management and coordination activities for the business. So Organizational structure is one of the major components of the internal environment.
External environment is the condition and forces outside the organization that is relevant to its operation and influence the organizational activities. There are two categories of the external environment. They are:
- General Environment
- Task/Operation Environment
General environmental factors have an indirect impact on the activities and outcomes of the firms.
Following are the components of the general environment:
It refers to the influence of government institutions, strategies of political parties, policies of state and local government and the relationship between government and business. Managers must know about the political environment because:
- It imposes certain legal constraints on the business.
- It establishes a market atmosphere that maybe pro-business or anti-business.
- It has the potential to provide the stability needed for long-term planning.
Economic conditions are critical to the success of the organizations. It is defined as the nature and direction of the economic system of a country and its impact on the individual organization. The economic factors such as national income, saving, investment, monetary policies, economic growth, interest rate, consumption pattern, etc have a great impact on the functioning of an organization. Therefore, managers should devote much of their time and resources to forecast the economy and possible changes.
The socio-cultural environment affects the behavior of people and their organizations. It includes values, beliefs, lifestyle, family system, opinions and assumptions widely held by the citizen of a particular country. These elements of society impact the business organizations.
Technology is the practical application of scientific knowledge. Radical development has occurred over the past several years in communication, information, and automation including robotics. This development brings both opportunities and threats to organizations. Thus, organizations should utilize their strength to gain from opportunity and neutralize the threats.
The task environment has a direct impact on the operation of the firms.
The following are the components of the task environment
Customers exchange resources, usually in the form of money for an organization’s product and services. A customer may be an individual, family, a business house or an institution. Customer not only buys the product or services they also give valuable ideas, opinions, and reaction related to it. Thus, the manager should maintain a close relationship with them.
Suppliers are the organizations that provide resources like materials, men, machines, etc to other firms. As the quality and price of the raw material received from the suppliers determine the quality of the output, the business firm tries to obtain lower prices, better quality, and fast deliveries. This strengthens the competitive position of organizations.
The role of the government is to regulate the business system and to protect the interest of customers and the general public. It formulates rules and regulation, business policies, etc under which every firm need to operate. Therefore, the government has a great influence on corporate policies, procedures and business practices of modern organizations.
It refers to organizations that compete for resources with other organizations and provides similar or substitute products and services to the same group of people. The organization must analyze the competition and established clearly defined marketing strategies in order to provide superior customer satisfaction and to increase market share.
The media keeps an eye on the vital decision or actions of the business firms having general public interest. Therefore managers need to have good communication with both media and external audiences and deal with them effectively and promptly.
Organizations depend on a variety of financial institutions such as banks, insurance companies, capital markets, etc to supply funds for maintaining and expanding their business activities. The terms and conditions of loans and advances and the quality of promptness of their services have an impact on the performance of business firms.
Special Interest Group:
It refers to environmentalists, unions, consumer advocates, civic society and other professional organizations. These organizations pressurized the company to advance their position on issues like quality services, reasonable price, waste management, environmental protection, etc.
FAQ Related to Components of Business Enviroment
How many components are there in a business environment?
There are only two main component in a business environment. They are :
1. Internal Environment
2. External Environment
Under Internal Environment ,
there are 4 sub-components. they are Employees, Shareholder and Board of Directors, Organizational culture, Labor Union, Organizational Structure.
External Environment has two categories general and task environment.
General environment has 4 sub-components. They are political, economic, socio-cultural and technological environment.
Task/ Operation Environment has 7 sub-components of business environment. They are customers, suppliers, government, competitors, financial institutions, media and social interest group.
As I said Business environment components are like a warrior which can break or make your business .
I hope you got some amazing knowledge of business environment components which almost no one knows,
If you find this article helpful, Let me know in the comment section and also If you have more amazing facts related to business environment and its components,
So you can comment that and I’ll try to add that interesting fact soon.
Suman(Kul Prasad) Pandit is a graduate from Tribhuvan University, Nepal with four-year experience in corporate and start-up sectors in Nepal. Being a responsible & sustainable business enthusiast he is dedicated to business education to solve problems in entrepreneurship and business growth.