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Introduction:
Generally speaking an environment includes the air we breathe, the water we
drink, the available business, social and educational infrastructure in the locality , state
and country etc. In the context of business the environment refers to the sum of internal
and external forces operating on an organization. The managers must perforce recognize
the elements, severity and impact of these forces on the organization. They must identify,
evaluate and react to the forces triggered by the external environment.
More often than not, these forces are beyond the control of an organization and its
managers. Accordingly, the factors of the environment will need to be considered as
inputs in the planning and forecasting models developed by an organization.
It is quite possible that some large organizations themselves constitute a greater part of
the business environment e.g. Public Sector Oil Companies in India.
An organization operates within the larger framework of the external environment that
shapes opportunities and poses threats to the organization. The external environment is a
set of complex, rapidly changing and significant interacting institutions and forces that
affect the organization's ability to serve its customers. External forces are not controlled
by an organization, but they may be influenced or affected by that organization. It is
necessary for organizations to understand the environmental conditions because they
interact with strategy decisions. The external environment has a major impact on the
determination of marketing decisions. Successful organizations scan their external
environment so that they can respond profitably to unmet needs and trends in the targeted
markets.
The Organization as a System
Internally, an organization can be viewed as a resource conversion machine that takes
inputs (labor, money, materials and equipment) from the external environment (i.e., the
world outside the boundaries of the organization), converts them into useful products,
goods, and services, and makes them available to customers as outputs. The organization
must continuously monitor and adapt to the environment if it is to survive and prosper.
Disturbances in the environment may spell profound threats or new opportunities. The
successful organization will identify, appraise, and respond to the various opportunities
and threats in its environment.
External Microenvironment
The external microenvironment consists of forces that are part of an organization's
marketing process but are external to the organization. These micro environmental forces
include the organization's market, its producer-suppliers, and its marketing
intermediaries. While these are external, the organization is capable of exerting more
influence over these than forces in the macro environment.
1. The Market
Organizations closely monitor their customer markets in order to adjust to changing tastes
and preferences. A market is people or organizations with wants to satisfy, money to
spend, and the willingness to spend it. Each target market has distinct needs, which need
to be monitored. It is imperative for an organization to know their customers, how to
reach them and when customers' needs change in order to adjust its marketing efforts
accordingly. The market is the focal point for all marketing decisions in an organization.
2. Suppliers
Suppliers are organizations and individuals that provide the resources needed to produce
goods and services. They are critical to an organization's marketing success and an
important link in its value delivery system.
3. Marketing Intermediaries
Like suppliers, marketing intermediaries are an important part of the system used to
deliver value to customers. Marketing intermediaries are independent organizations that
aid in the flow of products from the marketing organization to its markets. The
intermediaries between an organization and its markets constitute a channel of
distribution. These include middlemen (wholesalers and retailers who buy and resell
merchandise). Physical distribution firms help the organization to stock and move
products from their points of origin to their destinations. Warehouses store and protect
the goods before they move to the next destination. Marketing service agencies help the
organization target and promote its products and include marketing research firms,
advertising agencies, and media firms. Financial intermediaries help finance transactions
and insure against risks and include banks, credit unions, and insurance companies.
Importance of understanding the environment
The managers job cannot be accomplished in a vacuum within the organization. There are
a number of factors both internal as well as external which jointly affect managerial
decision-making. It is therefore very important for the manager to understand and
evaluate the impact of the business environment due to the following reasons :
b)The present and future viability of an enterprise is impacted by the environment For eg
no TV manufacturer can be expected to survive by making only B&W television sets
when consumer preference has clearly shifted to colour television sets.
c)The cost of capital and the cost of borrowing - two key financial drivers of any
enterprise are impacted by the external environment . For eg the ability of a business to
fund its expansion plan by raising money from the stock markets depends on the
prevalent public mood towards investment in stock markets.
d)The availability of all key inputs like skilled labour , trained managers , raw materials ,
electricity , transportation , fuel etc are a factor of the business environment.
e)Increasing public awareness of the negative aspects of certain industries like hand
woven carpets ( use of child labour ) , pesticides (damage to environment in the form of
chemical residues in groundwater), plastic bags (choking of sewer lines) have resulted in
the slow decline of some industries.
f)Finally , the environment offers the opportunities for growth and profits . For eg when
the insurance and aviation industry was thrown open to the private sector , the new
entrant could easily build on the expectations of the public.