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ISK - HULT International Business School
Navigating the Business Environment (BUS101) - G
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Chapter 1 - The Business Environment
Class 1 – Defining the business environment
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A business
organization can be seen as an ​open system​, whose performance is influenced by a whole range of phenomena in
its environment
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Society’s rising
expectations with regard to the ethical behaviour of business organizations is an example of an environmental
factor that has emerged as an increasingly critical factor to the survival of business organizations
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This ​transformation process adds value to the
inputs, so that buyers are prepared to pay more to the business organization than the cost of resources that it has
used up in the production process
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Organizations must constantly ensure that the system
continues to transform inputs into ​higher-value outputs​
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It
comprises:
- The ​macroenvironment: a whole set of factors that can indirectly affect an organization’s
relationship to its markets
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They represent general forces and pressures rather than institutions with which the
organization relates
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- The Internal Environment​: The conditions, entities, events, and factors within an organization that
influence its activities and choices, particularly the behavior of the employees
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The result has been a gradual decline in their ​profitability​, and
eventually they may cease to exist as a viable business unit
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Examples:
- The retailer ​Marks & Spencer assumed that its position was unassailable, but by the 1990s had
failed to take account of the great improvements in value being offered by its competitors
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The profits of the
fast-food company ​McDonald’s fell​ and it was forced to close branches worldwide
- Music retailers such as ​HMV and EMI ​were accused of ‘putting their head in the sand’ and ignoring
the threat to the sale of CDs posed by downloadable music sites
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- Ryanair and easyJet spotted the opportunities represented by government deregulation and
offered profitable low-cost ‘no frills’ air services,
- Organic​ Food shops
Successful organizations are not so much those that deliver value to customers today, but those that understand
how definitions of value are ​likely to change in the future​
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Moreover, Successful companies have often been those
that understand their business environment and have ​invested in growth areas​, while cutting back in areas that
are most likely to go into decline (Investments of Retained Earnings, divestitures)
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A divestiture most commonly results from a management decision to cease operating a
business unit because it is not part of a ​core competency​
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It comprises general trends and forces that may not immediately affect
the relationships that a company has with its ​customers, suppliers and intermediaries ​but, sooner or later,
macroenvironmental change will alter the nature of these relationships
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- the ​stability​ of the political system affects the attractiveness of the business environment
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- the political environment includes ​pressure groups and ​trade associations that can be influential in
changing government policy
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Purchasing power is important because, all else being equal, ​inflation decreases the amount of
goods or services you would be able to purchase
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Purchasing power may also be known as a
currency's ​buying power​
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- Trade Blocks: EU, ASEAN, NAFTA
- Trade Unions: WTO

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The Socio-demographic, cultural environment

Business organizations are concerned with the ​structure and ​values of the societies in which they operate
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Even in home markets, business organizations should understand the
processes of ​gradual change in values and attitudes ​and be prepared to satisfy the changing needs of
consumers

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