Environmental Factors of Business | Overview, Effects & Examples – Video & Lesson Transcript | Study.com

Video Transcript

The Business Environment

Business environments consist of all those factors that have a bearing on the business. The term business environment implies that internal and external factors have an impact on the individual organization. A business environment includes both specific and general factors. Specific factors affect the individual organization in its day-to-day operations. General factors have an impact on an entire industry and affect individual organizations equally.

Internal Factors

Internal environment factors have a direct impact on the individual organization. The organization has some control over internal factors. It can alter or modify such factors, as the manager’s deem appropriate. Here are a few of the internal environmental factors of business that can be changed when needed:

• Value System: A value system includes the culture and norms of the organization. In other words, it’s the regulatory framework of an organization and every employee has to act within the limits of this framework. The value system can be changed or replaced at any moment based on the direction of upper management.
• Mission and Objectives: Different priorities, policies, and philosophies of a business can affect the mission and objectives.
• Internal Relationships: Factors like the amount of support the management enjoys from its shareholders, employees, and the board of directions all affect the smooth functions of an organization.

External Environmental Factors of Business:

The external factors in a business environment have an indirect influence on the organization. The factors are uncontrollable by the organization and can be hard to predict. Here are a few examples of external environmental factors of business:

• Competitors: In order to survive, a business must keep a close look at the market and formulate its own policies and strategies to have a competitive advantage over its competitors.
• Economic Factors: Economic factors include economic conditions and the economic policies that together constitute the economic environment. These items include the national growth rate, inflation, restrictive trade practices, etc. All of these items have a considerable impact on the organization.
• Technological Factors: Good technologies can help improve the marketability of a product. Therefore, it is important for an organization to keep a pace with the changing technologies in order to survive.

Management Reaction

Regardless of how effective a manager is or how carefully he or she makes plans, unanticipated environmental factors can affect the organization. To the extent that they can, managers need to be alert to potential, unexpected environmental impacts and have contingency plans in place to ensure that there is very little negative impact to the organization.

Lesson Summary

Let’s review. Environmental factors, internal and external, can affect the organization in its day-to-day operations. General environmental factors have an impact on an entire industry and affect individual organizations equally. Environmental factors can be both internal and external to an organization. Some internal factors of a business include its value system, mission and objectives, and internal relationships. External factors of a business include competitors, economic factors and technological factors. Management needs to carefully plan and take into account these factors when doing business.