The business environment is broadly classified into two main components (also referred to as types of business environment):
- Internal Environment
- External Environment
1.) Internal Environment:
The internal environment refers to all the factors, forces, and conditions that exist within a business organization and directly influence its activities, decisions, and performance.
- These factors are largely controllable by the organization and form the basis for strategic planning and decision-making.
Components of the Internal Environment:
- Owners/Shareholders
- Board of Directors
- Employees
- Organizational Objectives
- Organizational Policies
- Organizational Resources
- Organizational Structure
- Organizational Culture
2.) External Environment:
The external environment refers to all the factors and forces outside a business organization that affect its operation, performance, decision-making, and strategies, but over which the business has little or no direct control.
- These factors can present both opportunities and threats to the business.
Types of External Environment:
The external environment is typically divided into two categories:
- Micro Environment (Task Environment)
- Macro Environment (General Environment)
A.) Micro Environment:
The micro environment refers to the immediate external factors that directly influence an organization’s day-to-day operations, decision-making, and performance.
- These factors include customers, competitors, suppliers, intermediaries, and various publics.
Components of Micro Environment:
- Customers
- Suppliers
- Competitors
- Government
- Pressure Group
- Intermediaries
B.) Macro Environment:
The macro environment refers to the broader external forces that affect all organizations in an industry or economy, often beyond the control of the business.
- These include demographic, economic, socio-cultural, technological, political-legal, and environmental factors.
Components of Macro Environment:
- Political-Legal Environment
- Economic Environment
- Socio-Cultural Environment
- Technological Environment
- Environmental/Natural Environment
