What is an Environment

The environment of a firm is the sum of all the

elements and forces present in its immediate and
remote surroundings which have potential
impact on its ability to achieve its objectives.

 Micro or Task Environment consists of

different types of stakeholders.
 Macro or External Environment consists of
different factors which are beyond the control
of the business.

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 THE TOTAL ENVIRONMENT OF A FIRM
Socio-
cultural

Customers
Global Economic
Competitors Suppliers

Employees

Labor Govern
Unions THE ment
FIRM
Shareholders &
Ecological Board of Directors Financial Politico-
Media Institutions legal
Special
Interest
Groups

Technological
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 MICRO OR TASK ENVIRONMENT

Elements of the environment that directly influence an

organization’s activities.
Stakeholders – individuals or groups that are directly or
indirectly affected by an organization’s pursuit of its goals.
Internal Stakeholders – individuals or groups for whom
an individual manager is responsible.
 Employees. Companies hire educated and flexible
people to run the business.
 Shareholders and Board of Directors. The governing
structure of a firm . Shareholders are interested
primarily in the return of their investments by exercising
their voting rights and have left the actual operation of
the organizations to the managers.

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External Stakeholders – groups or individuals in an
organization’s immediate external environment that affect the
activities of the organization.
 Customers. Those who pay to use an organization’s goods
or services.
 Suppliers. A person or organization that provides supplies
such as raw materials, services, equipment, labor or energy
to other organizations.
 Government. Should not compete on business but should
limit itself to preserving law and order and allowing the
free market to shape the economy. It is also responsible for
passing and enacting laws which establish and enforce the
ground rules within which businesses must operate.
 Special Interest Groups. Groups of people who organize
to use the political process to influence specific issues.
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External Stakeholders … cont

 Media. A powerful disseminator of both positive and

negative information about the organization.
 Labor Unions. Management and union of workers
usually engage in some form of collective bargaining
to negotiate wages, working conditions, hours,
benefits, etc.
 Financial Institutions. Organizations depend on
commercial banks, investment banks and insurance
companies to acquire funds for maintaining and
expanding their activities.
 Competitors. People or other organizations that
compete for customers or resources.

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 MACRO OR EXTERNAL ENVIRONMENT

Elements of the environment that affect the climate in

which an organization’s activities take place. Changes
in the environment may represent threats or new
opportunities for the firm .
 Socio-cultural Factor. These are influences and
trends in a country’s society or culture as well as
human relationships and values that affect an
organization. Includes demographics, race, sex,
age, religion, beliefs, etc.
 Economic Factor. General economic conditions
and trends such as unemployment, inflation,
interest rates, and economic growth that can
affect a firm’s performance.
External Environment… Cont
 Politico-legal Factor. Forces that influence an
organization’s activities as a result of the
political process or climate. These are changes
in the way politics shape laws and laws shape the
opportunities and threats to an organization.
 Technological Factor. These are new
developments in methods for transforming
resources into goods or services.

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External Environment… Cont
 Ecological Factor. Factors that can affect the
natural environment where we live in.
 Global Factor. Changes in the economic,
political, legal, and technological global system
that can affect an organization. Managers must
learn to deal effectively with multiple cultures
and political systems in the midst of rapidly
changing markets and technology.