The business organisation and its environment - Business Environment

A model of business activity
Most business activity takes place within an organisational context and even a cursory investigation of the business world reveals the wide variety of organisations involved, ranging from the small local supplier of a single good or service to the multi billion dollar international or multinational corporation producing and trading on a global scale.Given this rich organizational diversity, most observers of the business scene tend to differentiate between organisations in terms of their size, type of product and/or market, methods of finance, scale of operations, legal status and so on. Nissan, for example, would be characterised as a major multinational car producer and distributortrading on world markets, while a local builder is likely to be seen as a small businessoperating at a local level with a limited market and relatively restricted turnover.While such distinctions are both legitimate and informative, they can concealthe fact that all business organisations are ultimately involved in the same basic activity, namely, the transformation of inputs (resources) into outputs (goods or services). This process is illustrated in

model of business activity

In essence, all organisations acquire resources including labour, premises, technology, finance, materials and transform these resources into the goods or services required by their customers.While the type, amount and combination of resources will vary according to the needs of each organisation and may also vary over time, the simple process described above is common to all types of business organisation and provides a useful starting-point for investigating business activity and the environment in which it takes place. A more detailed analysis of business resources and those internal aspects of organisations which help to transform inputs into output can be found in later sections.

The need, here, is simply to appreciate the idea of the firm as a transformation system and to recognize that in producing and selling output most organisations hope to earn sufficient revenue to allow them to maintain and replenish their resources, thus permitting them to produce further output which in turn produces further inputs.In short, inputs help to create output and output creates inputs.Moreover, the output of one organisation may represent an input for another, as in the case of the firm producing capital equipment or basic materials or information or ideas.This inter relationship between business organisations is just one example of the complex and integrated nature of business activity and it helps to highlight the fact that the fortunes of any single business organisation are invariably linked with those of another or others a point clearly illustrated in many of the examples cited in the text.

The firm in its environment
The simple model of business activity described above is based on the systems approach to management.One of the benefits of this approach is that it stresses that organizations are entities made up of inter related parts which are intertwined with the outside world the external environment in systems language.This environment comprises a wide range influences. economic, demographic, social, political, legal, technological, etc.which affect business activity in a variety of ways and which can impinge not only on the transformation process itself, but also on the process of resource acquisition and on the creation and consumption of output.This idea of the firm in its environment is illustrated.

firm in its environment

In examining the business environment, a useful distinction can be made between those external factors which tend to have a more immediate effect on the day-to-day operations of a firm and those which tend to have a more general influence. makes this distinction.

The "immediate or operational environment" for most firms includes suppliers, competitors, labour markets, financial institutions and customers, and may also include trading organisations, trade unions and possibly a parent company.In contrast the general or contextual environment comprises those macro environmental factors such as economic, political, socio-cultural, technological and legal influences on business which affect a wide variety of businesses and which can emanate not only from local and national sources but also from international and supranational developments.

This type of analysis can also be extended to the different functional areas of an organisation activities such as marketing or personnel or production or finance, as illustrated Such an analysis can be seen to be useful in at least two ways.First, it emphasises the influence of external factors on specific activities with in the firm and in doing so underlines the importance of the interface between the internal and external environments.Second, by drawing attention to this interface, it highlights the fact that, while business organisations are often able to exercise some degree of control over their internal activities and processes, it is often very difficult, if not impossible, to control the external environment in which they operate.

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