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STRATIGIC MANAGEMENT
ORGANISATIONAL ASSESSMENT BY USING ENVIRONMENTAL INFORMANTION.
IMPORTANCE OF DOING THE ASSESSMENT.
Components of business environment:
The various components or factors of business environment can be broadly divided into
two groups:

I.
II.

Internal environment
External environment

Internal environment:
A firms internal environment consists of its plans, policies, resources, relations, and the
other internal factors, which affects its working. The following are some of the important factors
of internal environment:
1. Management philosophy:
The management philosophy greatly influences the working of a business firm. The
management may adopt traditional philosophy or professional philosophy. Traditional approach
relies on outdated techniques or practices. There is lack of emphasis on social responsibility. The
professional approach gives importance to social responsibility towards customers, employees,
investors, etc.
2. Mission and objectives:
Nowadays, organizations frame mission statement. A mission statement reflects the
vision, purpose and philosophy of the organization. The organization must state its objectives in
line with the mission statement.

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3. Plans and policies:

The plans and policies of the firm must be in line with the objectives. Analysis of internal
environment in respect of plans and policies will enable the firm to reframe them, if required.
4. Physical resources:
Physical resources include machines, equipments, buildings, office premises, furniture
and fittings, etc. Analysis of internal environment may indicate the weaknesses of the physical
resources, and as such the firm can take appropriate measures to correct such weaknesses. For
instance, the obsolete machines may be replaced.
5. Human resources:
The survival and success of firm largely depends on the quality of human resources.
Analysis of internal environment in respect of human resources may indicate lack of
motivation, which can be corrected through incentives.
6. Financial resources:
A firm needs adequate working capital, as well as fixed capital. Analysis of financial
resources indicates the effectiveness of management in respect of working capital and fixed
capital.
7. Corporate image:
A firm should develop and maintain good corporate image in the minds of customers,
employees, investors, customers, and others. A firm should undertake analysis of its corporate
image. If the firm finds any problem in corporate image, then adequate measures need to be
taken.
8. Other internal factors:
A firm should also analyse other internal factors such as:

Labour-management relations
Research and development facilities
Organization structure, etc.

External environment:
The external environment can be broadly divided into two groups as shown below:
A. Micro environment:

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The micro environment consists of all those factors in the firms immediate environment.
The environment can have direct impact on the working of a firm. The micro environment
factors include:
1. The customers:
The customers influence most of the business decisions. Therefore, the customers needs,
wants, preferences, and buying behavior must be studied. This will help to take decisions in
respect of product design, pricing, promotion, place of distribution, etc.
2. The competitors:
A firm has to analyse its competitors activities. Information about competitors must be
analysed with respect to their product design, pricing, promotion, place of distribution, etc. such
analysis will enable the firm to design effective marketing-mix.
3. The suppliers:
Suppliers supply raw materials, and other supplies. The company has to keep a watch
over prices and quality of supplies. The company needs to maintain good relations with the
suppliers so that they supply quality items at the right price ant at the right time.
4. Channel intermediaries:
Now-a-days, dealer recommendations play an important role to convince buyers to buy
products, especially in the case of customers durables. The firm has to motivate the dealers to
push and promote its products and also to obtain timely feedback about customers tastes,
preferences, etc.
5. Society:
The society may also affect companys decisions. The society can either facilitate or
make it difficult for a company to achieve its objectives. Therefore, professional business firms
maintain public relations department to handle complaints, grievances and suggestions from the
general public. The various members of the society include financial institutions and banks,
media, government agencies, and the general public.
B. Macro environment:
The macro environment consists of larger societal factors that affect the working of a
firm. It relates to the demographic, economic, natural, technological, political, cultural,
international, and legal forces. The various macro environment factors are briefly discussed as
follows:

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1. Demographic environment:
Demographic environment relates to human population with reference to size, density,
literacy rate, life expectancy, sex ratio, rural-urban divide, age composition, etc. since, business
deals with people, business firms have to study in detail the various demographic factors, which
would help them to frame proper production and marketing strategies.
2. Economic environment:
A business firm closely interacts with its economic environment. Economic environment
consists of:

Economic conditions in the market

Economic policies of the government
Economic system prevailing in the country.

Business firms should have a good idea about the economic conditions in the market, i.e.
demand and supply factors. They must also have good knowledge of government policies in
respect of taxation, foreign trade, foreign investment, capital markets, etc.
3. Natural (ecological) environment:
Business firm use natural resources like water, land, minerals, etc. This results in:

Erosion of natural resources, and

Pollution of resources like air, water, etc.

Business firm should take necessary measures to control erosion and pollution of natural
resources. They may search for alternative resources such as solar energy, recycle the waste,
install anti-pollution devices, etc.
4. Technological environment:
The business firms must monitor changes in the technological environment. If possible,
firms need to introduce latest technology in their operations.
5. Political environment:
This environment consists of government agencies, political parties, and pressure groups
that influence and control the activities of individuals and organizations. Business firms need to
keep a track of all the political events, anticipate changes in government policies and accordingly
frame production and marketing strategies.
6. Social and cultural environment:

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The socio-cultural environment consists of culture, traditions, beliefs, values, and

lifestyles of a society. The socio-cultural elements influence the buying behavior of the member
of a society. Customers lifestyles, tastes, preferences are changing, and as such business firms
should take a note of such changes so as to serve their customers with appropriate goods and
services.
7. Other external macro environments are:
Legal environment
International environment
Organizational Assessment of Business Environment and Organization:

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Importance for organizational assessment:

1. Identification of strengths:
The analysis of the internal environment helps to identify the strengths of the firm. Every
organization must strive to maintain and improve on its. The following instances indicate the
strength of business firm:

2.

Employees are competent and dedicated,

Personnel policies are employees-cum-organisation oriented,
Technology use by the firm leads to low cost of production, etc.
Identification of weaknesses:

The analysis of internal environment indicates not only strengths but also weaknesses of
the firm. The firm should identify its weaknesses and correct them soon. For instance, the
machines used may be outdated, and therefore, they must be replaced with new ones.

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3. Identification of opportunities:
An analysis of the external environment helps to identify the opportunities in the market.
The business firm should make every possible effort to grab these opportunities, as and when
they come. For instance, the government may reduce excise duties on certain items. Business
organization may use opportunity to reduce prices, which may generate higher sales.
4. Identification of threats:
Business may be subject to threats from competitors and others. Therefore, environmental
analysis helps to identify threats from the environment. Identification of threats at an earlier date
is always beneficial to the firm as it helps to defuse the same.
5. Effective planning:
A proper study of environment helps a business firm to plan its activities properly. Before
planning, it is necessary to analyse the internal as well as external environment.
6. Facilitates organizing of resources:
Proper analysis of environment enables a firm to know the demand potential in the
market. Accordingly, the firm can plan and organize the right amount of resources to handle the
activities of the organization.
7.

Others:
Optimum use of resources
Flexibility in operations
Survival and growth
Innovation
Motivation to employees
Corporate image.