The environment, or the uncontrollable factors that affect how a business operates, can have significant effects on an organisation's productivity and success. Though business analysts typically break the business environment into three portions --- general, specific and internal --- each portion of an organisation's environment may have a nearly unlimited number of components.
For many businesses, the national economy is a key component of the general environment. The U.S. Chamber of Commerce's Small Business Nation points out that factors like consumer spending and business spending are part of the economic portion of the general business environment, and business owners may find themselves completely unable to quantify some components of the economy. In addition, the Chamber of Commerce cautions that organisations that heavily rely on loans and financing may be especially susceptible to variations in the interest rate, another major economic portion of the general environment.
The government can also play a key role in a business's general environment. As the U.S. Government website America.gov notes, legitimate businesses need a permit or license from a government agency just to operate. In addition, the government can pass legislation that affects what products the organisation can produce or sell, and the government may regulate how the business sells those products. Government actions like tax cuts can spur spending and increase the organisation's sales, or government warnings can decrease demand for affected products. For some organisations, like defence contractors or highway construction agencies, the government can also affect the company's specific environment by launching new initiatives or taking on new projects.
As more and more businesses rely on technology, according to the tech firm Business Resource Software, technology plays an increasing role in the general environment. Technological abilities like conference calls and webcasts can reduce the expenses associated with employee travel, and advances in computing can affect productivity within the company. The Internet is also a major portion of the general environment, as it expands the company's reach, makes new tools available via download and helps shape marketing through targeted ads. Technology plays such a significant role in the general business environment that some organisations exist almost entirely on the World Wide Web.
The availability of resources is a component of both the general and specific business environments. Common resources like labour, water and electricity affect the general business environment, as many organisations choose not to operate in areas or markets where these resources are scarce or unusually expensive. Resources that serve as factors of production, or components necessary for the business to produce its products, can shape and affect the organisation's specific environment; a sudden shortage of copper, for example, would alter the operations of a company that makes conductive wiring.
According to the U. S. Chamber of Commerce, an almost limitless array of factors can comprise an organisation's specific and general environments. In addition to the myriad components of the external environments, according to the Stephen Robbins and Mary Coulter book "Management," factors like organizational culture and employee morale can compose a distinct internal environment that affects the organisation's productivity.
- Business Resource Software: Environmental Factors
- U.S. Chamber of Commerce: The General Business Environment
- America.gov: The Role of Government
- CBSE Notes: Meaning of Business Environment
- Management (8th Edition); Stephen Robbins and Mary Coulter; 2004