A number of factors affect every business. These include both internal and external factors. The factors that affect a business both positively and negatively comprise its environment. These include factors such as management quality to human resources, political climate to environmental concerns. The range of factors that can potentially affect a business is huge. At times, the internal and external factors may affect each other as well. They may also affect the business together in some aspects.
Although the range of factors is vast, in this article we will take a look at the common features of a business environment. Furthermore, we will segregate them into internal and external factors and get a deeper understanding of these aspects.
Table of Contents
Business Environment Definition
According to the business dictionary, “The combination of internal and external factors that influence a company’s operating situation. The business environment can include factors such as: clients and suppliers; its competition and owners; improvements in technology; laws and government activities; and market, social and economic trends”.
So, let’s get started!
Features of Business Environment
- External Factors. As stated before, every business has a number of external factors that either directly or indirectly affect it. These factors can range from individuals, government regulations, environmental concerns, to other organizations and businesses.
- General Factors. These are factors that exist in society and the economy regardless of the business’s existence. They affect all the institutions. These are political, legal, technological, and other such aspects. General factors affect every business regardless of their size or market.
- Specific Factors. These are the factors that are directly related to the business such as customers, target market, competitors, suppliers, etc. Each business has its own set of specific factors that define its environment.
- The Interrelation of Factors. Most of the factors that affect a business are affected by each other as well. These constitute both internal and external factors, specific and general factors.
- Uncertain Future. The future of a business environment is very difficult to predict. With a large range of factors at play, it can change quickly. Although some businesses can successfully predict near term future the aspects affecting it are volatile.
- Constantly Changing. With rapid changes in technology and various social factors, the current business landscape is a highly dynamic one. This makes defining a business environment very difficult.
- Complex Effects. The effects that the various internal and external factors have on businesses are quite complex. They may seem like a small factor at the time but have a larger impact overall, or vice versa.
- Highly Relative. The factors that are beneficial towards one business may be the doom of another. The relationship between factors that affect a business and the particular businesses is highly relative. But there are also factors that affect similar businesses in an equal manner.
Business Environment Factors
There are two types of primary factors that we will be looking into, internal and external factors. These factors define the business environment in its most understandable manner.
External Environment Factors
A business is a socio-economic entity. Thus, the various aspects of society play a crucial role in every business’s success or failure and in creating its environment. The common term given towards external business environment factors is PESTLE. This abbreviation stands for political, economic, social, technological, legal, and environmental factors.
Political Factors
From the political climate of the business’ geography to the international relations it holds, every aspect of politics affects a business. Many countries have laws that facilitate some businesses, others have laws that restrict businesses. The condition of local politics and its relation to other countries highly affect the business condition.
Economic Factors
The current economic condition in most countries is highly volatile. And this is relevant to every business large and small. However, the presence of the open market has been highly beneficial towards businesses as well. Since the global economy is volatile most big business has to be careful of its impact at all times.
Socio-cultural Factors
Every society has its unique requirements and choices. These shape regional business personas and are one of the primary external factors for all businesses worldwide. For example, let’s see the current trend towards a western lifestyle throughout the world. This has led to a rise in demand for western food and fashion.
Technological Factors
Technology is one of the primary drivers in today’s world. Businesses that are unable to match up to the current technological progress are having a hard time establishing their existence. And the businesses that are using tech to their advantage are moving ahead of their competitors. IT itself has become a leading business in the past few decades.
Legal Factors
There are laws for businesses in every country in the world and every business has to abide by these laws. So, regulations are a primary factor that every business needs to consider in its external environment. But there are also regulations that help businesses thrive.
Environmental Factors
The world is currently facing an environmental crisis. As a result, all businesses are expected to adhere to a process that harms the environment in the least way possible. Also, certain environmental conditions in areas affect businesses. For instance, a cold season might bring down the agricultural business, but it will boost tourism.
Internal Environment Factors
The forces present within a business organization define its characteristics. These include the work culture, the level of machinery used, the management process, etc. Here are some of the primary internal factors that affect the business environment.
Value Framework
This is basically the business’ functional process and how the value in a business is judged. The value framework of a business defines the manner in which its employees will perform their roles. And, how their work culture will be regulated.
Business Path
Every company has a reason to exist and a purpose to serve. These two factors along with how the business sees itself in the future constitute the business path. These define the changes that will be enforced into the business framework.
Structure
The hierarchical or non-hierarchical structure of a business that defines each employee’s and management’s role is one of the central aspects of the internal business environment. There are various business structures such as matrix, bureaucratic, functional, etc.
Organizational Culture
Although undefinable in exact terms, every business has a unique culture that it adheres to. This includes the treatment of employees, resources, clients, etc.
Human Resources
HR is a rather new concept that has flooded the world of business. With the size of businesses growing every day, the management of employees at a micro-level is performed by human resources. Thus, it plays an important role in defining the business environment.
Physical Resources
Every business runs on resources, and how it manages these resources is highly impactful towards its internal environment.
Technology
The modern tech landscape continuously defines a business environment both from the outside and from the inside. From the inside it depends on the tech being used by business and from the outside, it depends on the tech being used by its competitors.
Conclusion
A business environment is a vast concept. But each of its aspects is equally important towards the success of a business. The larger a business grows the more aspects it develops both internally and externally. Hopefully, this article was able to present you with a clear picture of the primary factors that every business environment constitutes.
A business environment is a highly volatile concept. It allows for the growth of businesses and also their downfall. So, every business must be highly critical about the environment they create and how it affects their process and persona.
