Chapter 11: Srategic Leadership

Chapter 2The business environment

Learning outcomes

This chapter should enable the student to:• Understand the concept of systems thinking.• Explain the control that management has over the

different organisational environments.• Describe the micro-environment and how the various

management functions impact on the success of the business.

• Explain how the different role-players in the market environment impact on the success of the business.

• Understand how the sub-environments in the macro-environment impact upon the business and its continued existence.

• Analyse the impact of the environment on an organisation using a SWOT analysis.

The organisational environment

• Forces in and outside an organisation which affect the organisation

• The context in which a business operates

• Organisation affected by and affects the macro-environment

Figure 2.1 The organisation as a system

Figure 2.2 The business environment

Figure 2.3 Levels of management control

Figure 2.4 Relationship between functions in the micro-environment

The market environment

• Also known as the task environment

• Where the organisation conducts it business

• Comprises of various sub-environments:

– Supplier– Intermediary– Competitors– Customers

The market environment (continued)

• Suppliers – other businesses that provide the business with raw materials or products

• Intermediaries – the wholesalers and other businesses that act as ‘middle men’ between the manufacturer and the consumer

• Competitors – other businesses that sell the same or similar products or services

• Customers – the patrons who buy the products and services of the business

Figure 2.6 Factors in the macro-environment

(i) Economic environment

• A healthy economy

• Factors in the economic environment

• The effect of exchange rates

Figure 2.7 A healthy economy

Factors in the economic environment

• Average income

• Spending power

• Interest rates

• Exchange rates

• Productivity

• Inflation

• The business cycle

The effect of exchange rates

(ii) Technological environment

• Technology – the processes by which human beings fashion tools and machines to increase their control and understanding of the world

• Invention – the discovery or creation of a new product or process

• Innovation – the process through which new ideas and inventions become an operational or business reality

(iii) International environment

• Events that occur in other countries that affect the business

• Globalisation – the development of business activities on an international level

• Includes:– International competition– Interdependence of global economies– Policy decisions in other countries– Natural disasters– War and terrorist attacks

(iv) Social environment

• The demographics, which are the statistical characteristics of the society in which the business is located

• Include:– Average age– Education– Religion– Culture and language– Educational levels– Degree of urbanisation– Any other relevant characteristic

(v) Political environment

• Politics – the competition for power within a society

• Political environment – environment within which this competition takes place

• Stable democratic environment where political parties compete for power peacefully versus unstable, turbulent, violent environment

• Legislative environment

(vi) Natural environment

• The availability of natural resources, which are raw materials that the manufacturing industry utilises

• Climate

• Weather patterns

• Natural disasters

SWOT analysis

Internal:

• Strengths

• Weaknesses

External:

• Opportunities

• Threats

SWOT analysis example