Simply speaking, environment refers to one's milieu or surrounding. In the context of a business firm, environment can be defined as various external actors and forces that surround the firm and influence its decisions and operations. The two major characteristics of the environment as pointed out by this definition are: one these actors and forces are external to. The firm, and secondly these are essentially uncontrollable. The firm can do little to change them. It has to rather learn to live with them.
Micro and Macro Environments
In order to gain a better understanding, let us have a look at two important classifications of environment one classification is the micro and macro environments.
Micro environment can be defined as the actors in the firm’s immediate environment which directly influence the firm’s decisions and operations. These include: suppliers: various market intermediaries and service organisations such as middlemen, transporters, warehouses, advertising and marketing research agencies, business consulting firms and financial institutions; competitors, customers and general public. While the customers constitute firm's market, suppliers and market intermediaries help providing the firm with inputs and assist in production and marketing processes. Competitors and general public, also influence the way a firm conducts its business.
Macro environment, on the other hand, consists of broader forces which affect the firm as well as other actors in the firm’s micro environment. These include factors such as geographic, economic, financial, socio-cultural, political, legal, technological and ecological forces. Firms need to continuously monitor changes in these environmental forces and devise strategies to cope with them.
Nice points on Micro Environment.
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