CHAPTER 4: THE BUSINESS ENVIRONMENT
• Society depends on business organisations for most of the products and services it needs,
including the employment opportunities that businesses create. They obtain resources from the
society and environment in which they operate.
• This mutual dependence entails a complex relationship between business organisations and
their environment. This relationship increases in complexity when certain variables in the
environment (such as technological innovation or political developments) bring about constant
change that impacts the business organisation in different ways.
BUSINESS AND ENVIRONMENTAL CHANGE
• The process began with technological innovations that are today named Industry 1.0 and
Industry 2.0 (the first was the era of mechanisation where water and steam played an important
role, and the second, new technological systems using superior electrical technology. This led
to the industrialisation era of manufacturing factories and mass production, as evidenced by
motor companies like Ford Motor Company. The 1990s heralded a new age of connectivity,
with the emergence of the Internet and the World Wide Web, both of which revolutionised the
operations of business organisations. Businesses could now send their digital material
anywhere at very little cost. The spread of the commercial web browser allowed individuals and
companies to retrieve documents or web pages stored in websites and display them on any
computer screen in an easy-to-use manner? This heralded the advent of the Third Industrial
Revolution (called Industry 3.0). The era of Industry 4.0 (Fourth Industrial Revolution) followed
hereafter. The Fourth Industrial Revolution is based on smart machines using, inter alia,
storage and In the second decade of the 21st century, the rapid rate of change is even more
staggering.
• South Africa's government brought about drastic changes - in particular, a new social order and
an economy based on socialistic Africa also nations but the country’s international relations, but
at the same time exposed South African businesses to the borderless world in which they have
to compete. Another notable transformation was the initial steady economic growth that was
achieved during the first two decades of democracy.
• In addition, South Africa is experiencing accelerating urbanisation, increased poverty, in influx
of skilled and unskilled immigrants, xenophobia and high crime rates, all of which are affecting
the South African business environment and eroding business confidence in the country.
• Worldwide, business organisations are restructuring, outsourcing and trimming workforces.
Without these major changes, business organisations would not be able to align themselves
with the realities of the changing external environment. If business organisations do not adapt
to these changes, they would not be fit to compete in the new global economy.
• Other changes that affect the business organisation include changes in monetary and fiscal
policy, which impact on financial management. Changing consumer needs, often the result of
economic and technological change, make new demands on marketing management. Existing
methods of operation can change suddenly because of technological advances, and the
introduction of new raw materials can cause established industries to change or disappear
completely. Moreover, trade unions - through strikes and forced absenteeism - are making
increasing demands on the management of human resources.
• The interaction between the environment and a business organisation is an ongoing process
that often results in a new environment with new threats and new opportunities.
, • Management should align its organisation with the environment in which it operates in such a
way that it can identify, in advance, the opportunities and threats that environmental change
brings. It is only when management is fully prepared that an organisation can fully utilise
opportunities and deal with possible threats.
THE COMPOSITION OF BUSINESS ENVIRONMENT
• This was partly the result of the systems approach to management, which argued that an
organisation is an integral part of its environment and that management should therefore adopt
a policy of 'organisational Darwinism' to ensure that its business does not become extinct in a
rapidly changing world in which only the fittest can survive.
• The business environment is therefore defined as all the factors or variables, both inside as
well as outside the business organisation, that may influence the continued and successful
existence of the business.
THE THREE SUB-ENVIRONMENTS
• Classification makes it possible to identify distinct trends per sub-category of the business
environment, which enables further analysis of these trends.
THE MICRO-ENVIRONMENT
• The micro-environment consists of the business itself, over which management has complete
control. This includes variables in this environment, such as the vision, mission and objectives
of the business organisation, the various business functions and the resources and strategies
of the business, which are under the direct control of management.
• An analysis of the micro-environment allows managers to determine the capabilities, and the
strengths and weaknesses of the organisation. (A strength is described as an aspect of a
business that provides it with an advantage in its business environment, while a weakness is a
limitation of the business that places it at a disadvantage). Knowing the organisation's
strengths and weaknesses puts management in a position to use available opportunities better
and to identify and counter threats to the business, ensuring that it remains a stable entity.
THE MARKET ENVIRONMENT
• The market environment is encountered immediately outside the business organisation. The
key variables in this environment are the following Consumers or customers with a particular
buying power and behaviour who buy the products and services of the business stand central
to the business as their reason for existence.
o Competitors, including new and potential competitors who want to maintain or improve
their market share in the marketplace.
o The labour market and labour unions.
• Aspects such as the availability of skilled labour and the impact of strikes on business are well-
known variables in South Africa and may result in the business failing and must thus be
considered by the businesses.
o Intermediaries, who compete to handle (distribute) the business's product to get it to
the consumer; and
o Suppliers, who supply, or do not wish to supply, raw materials, products, services and
finance the business organisation to enable it to manufacture the products and
services that the consumer requires.
, • All these variables give rise to opportunities and threats. It is in the market environment that
management finds its most important tasks: to identify, assess and take advantage of
opportunities and threats in the marketplace, and to develop and adapt its strategies to meet
competition. For these reasons, the market environment is often called the task environment, in
which top managements' main task must be to note business changes and anticipate their
impact on the Management has no control over the components of the market environment,
although management may influence the relevant variables through its strategy:
• However, the market environment continually infuences a business, and the business must
adapt to these changes.
TH MACRO-ENVIRONMENT
• The macro-environment is the sub-environment that is external to both the organisation and the
market environment.
• Threats and opportunities may occur in the macro-environment, but, as the individual business
organisation has little or no control over the macro-environment, its influence on these threats
and opportunities is insignificant. A threat can be described as an external variable in the
business environment that could cause harm to the business; an opportunity is the opposite,
namely a chance to generate more market share, turnover or profits for the business.
• distinct components or variables:
o The macro-environment variables so as the technological environment, which
continuously brings change and innovation to the business world;
o The economic environment, in which factors such as inflation, exchange rate,
recessions and monetary and fiscal policy influence the prosperity of the business
organisation.
o The social environment, in which consumer lifestyles, habits and values (formed by
culture) make certain demands on the business organisation, particularly through
consumerism.
• Society depends on business organisations for most of the products and services it needs,
including the employment opportunities that businesses create. They obtain resources from the
society and environment in which they operate.
• This mutual dependence entails a complex relationship between business organisations and
their environment. This relationship increases in complexity when certain variables in the
environment (such as technological innovation or political developments) bring about constant
change that impacts the business organisation in different ways.
BUSINESS AND ENVIRONMENTAL CHANGE
• The process began with technological innovations that are today named Industry 1.0 and
Industry 2.0 (the first was the era of mechanisation where water and steam played an important
role, and the second, new technological systems using superior electrical technology. This led
to the industrialisation era of manufacturing factories and mass production, as evidenced by
motor companies like Ford Motor Company. The 1990s heralded a new age of connectivity,
with the emergence of the Internet and the World Wide Web, both of which revolutionised the
operations of business organisations. Businesses could now send their digital material
anywhere at very little cost. The spread of the commercial web browser allowed individuals and
companies to retrieve documents or web pages stored in websites and display them on any
computer screen in an easy-to-use manner? This heralded the advent of the Third Industrial
Revolution (called Industry 3.0). The era of Industry 4.0 (Fourth Industrial Revolution) followed
hereafter. The Fourth Industrial Revolution is based on smart machines using, inter alia,
storage and In the second decade of the 21st century, the rapid rate of change is even more
staggering.
• South Africa's government brought about drastic changes - in particular, a new social order and
an economy based on socialistic Africa also nations but the country’s international relations, but
at the same time exposed South African businesses to the borderless world in which they have
to compete. Another notable transformation was the initial steady economic growth that was
achieved during the first two decades of democracy.
• In addition, South Africa is experiencing accelerating urbanisation, increased poverty, in influx
of skilled and unskilled immigrants, xenophobia and high crime rates, all of which are affecting
the South African business environment and eroding business confidence in the country.
• Worldwide, business organisations are restructuring, outsourcing and trimming workforces.
Without these major changes, business organisations would not be able to align themselves
with the realities of the changing external environment. If business organisations do not adapt
to these changes, they would not be fit to compete in the new global economy.
• Other changes that affect the business organisation include changes in monetary and fiscal
policy, which impact on financial management. Changing consumer needs, often the result of
economic and technological change, make new demands on marketing management. Existing
methods of operation can change suddenly because of technological advances, and the
introduction of new raw materials can cause established industries to change or disappear
completely. Moreover, trade unions - through strikes and forced absenteeism - are making
increasing demands on the management of human resources.
• The interaction between the environment and a business organisation is an ongoing process
that often results in a new environment with new threats and new opportunities.
, • Management should align its organisation with the environment in which it operates in such a
way that it can identify, in advance, the opportunities and threats that environmental change
brings. It is only when management is fully prepared that an organisation can fully utilise
opportunities and deal with possible threats.
THE COMPOSITION OF BUSINESS ENVIRONMENT
• This was partly the result of the systems approach to management, which argued that an
organisation is an integral part of its environment and that management should therefore adopt
a policy of 'organisational Darwinism' to ensure that its business does not become extinct in a
rapidly changing world in which only the fittest can survive.
• The business environment is therefore defined as all the factors or variables, both inside as
well as outside the business organisation, that may influence the continued and successful
existence of the business.
THE THREE SUB-ENVIRONMENTS
• Classification makes it possible to identify distinct trends per sub-category of the business
environment, which enables further analysis of these trends.
THE MICRO-ENVIRONMENT
• The micro-environment consists of the business itself, over which management has complete
control. This includes variables in this environment, such as the vision, mission and objectives
of the business organisation, the various business functions and the resources and strategies
of the business, which are under the direct control of management.
• An analysis of the micro-environment allows managers to determine the capabilities, and the
strengths and weaknesses of the organisation. (A strength is described as an aspect of a
business that provides it with an advantage in its business environment, while a weakness is a
limitation of the business that places it at a disadvantage). Knowing the organisation's
strengths and weaknesses puts management in a position to use available opportunities better
and to identify and counter threats to the business, ensuring that it remains a stable entity.
THE MARKET ENVIRONMENT
• The market environment is encountered immediately outside the business organisation. The
key variables in this environment are the following Consumers or customers with a particular
buying power and behaviour who buy the products and services of the business stand central
to the business as their reason for existence.
o Competitors, including new and potential competitors who want to maintain or improve
their market share in the marketplace.
o The labour market and labour unions.
• Aspects such as the availability of skilled labour and the impact of strikes on business are well-
known variables in South Africa and may result in the business failing and must thus be
considered by the businesses.
o Intermediaries, who compete to handle (distribute) the business's product to get it to
the consumer; and
o Suppliers, who supply, or do not wish to supply, raw materials, products, services and
finance the business organisation to enable it to manufacture the products and
services that the consumer requires.
, • All these variables give rise to opportunities and threats. It is in the market environment that
management finds its most important tasks: to identify, assess and take advantage of
opportunities and threats in the marketplace, and to develop and adapt its strategies to meet
competition. For these reasons, the market environment is often called the task environment, in
which top managements' main task must be to note business changes and anticipate their
impact on the Management has no control over the components of the market environment,
although management may influence the relevant variables through its strategy:
• However, the market environment continually infuences a business, and the business must
adapt to these changes.
TH MACRO-ENVIRONMENT
• The macro-environment is the sub-environment that is external to both the organisation and the
market environment.
• Threats and opportunities may occur in the macro-environment, but, as the individual business
organisation has little or no control over the macro-environment, its influence on these threats
and opportunities is insignificant. A threat can be described as an external variable in the
business environment that could cause harm to the business; an opportunity is the opposite,
namely a chance to generate more market share, turnover or profits for the business.
• distinct components or variables:
o The macro-environment variables so as the technological environment, which
continuously brings change and innovation to the business world;
o The economic environment, in which factors such as inflation, exchange rate,
recessions and monetary and fiscal policy influence the prosperity of the business
organisation.
o The social environment, in which consumer lifestyles, habits and values (formed by
culture) make certain demands on the business organisation, particularly through
consumerism.
