Business environment : concept and components (internal and external)

Business establishes, grows or operates and dies in environment. It exchanges resources in environment. It collects inputs i.e. Man money, materials, machines etc. And provides output i.e. Goods and services in the environment. Environment means surrounding. Business environment defines as a force that affects on organizational performance. It includes internal an eternal factors. It provides opportunities and threats.

1. Internal environment
It is defined as all the forces or conditions that are available within an environment that affects on organization and business. It is also known as controllable factors because business can control them. It includes

  • Employees:
    Business hires employees. It is the major internal factor. It works inside the business. It can be controlled by the business. Employees differ in skill, knowledge, morality, and attitude and so on. When managers and employees have difference in goals and beliefs then conflict may arise. The task of management is to divide the work and assign the work to the suitable employee and handle the conflict.

  • Shareholders:
    Management deals with many shareholders. Shareholders have the right of ownership, power of management and voting right. The actual management of organization is carried out by elected representative of shareholders jointly known as boar of directors. Boards of directors have the responsibility of overseeing the management of organization. It plays the major role in formation of objectives, policies, strategies of the organization as well as their implementation.

  • Organization structure:
    It is located inside the organization. The arrangement of various facilities, pattern of relationships among the various department, responsibility, authority and communication is the organization structure. It also included specialization and span of control.

  • Organization culture:
    The sets of values that help the members to understand what organization stand for how it does work, what it considers, cultural values of business forces of business and so on. It helps in direction of activities.

2. External environment (PEST)

All the forces and condition that cannot be controlled by the business is called external environment. It is also known as uncontrollable factors because business can’t control them. It is located outside the business. It affects on organizational performance.

It includes:

  • Economic environment:
    It indicates the condition of economy in which business organization operates. It has continuous and great impact on business. It includes national income, production, inflation, savings, investment, price, government activities. Business person must have constant watch on this factor.

  • Political or legal environment
    It is defined as rules and regulations determined by the government. Business must fulfill demand of government. There should be non violation of rules and regulation of government. Business should avoid unfair trade and should provide essential information to the government.

  • Social environment:
    Business must have good environment where a business can be established neatly. Business also helps in employment opportunities generation. There should be socio-cultural understanding and application of anti pollution measures.

Technological environment:
It defines about the methods available for converting resources into product or services. It transforms inputs into output. Input means material, capital, man, machine. It affects on business. It helps to change the level of job, skill, and product and so on. There can be innovation, development of scientific techniques which encouraged mass production and distribution.

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