The firm in its environment

The simple model of business activity described above is based on the systems approach to management. One of the benefits of this approach is that it stresses that organizations are entitites, made up of interrelated parts which are intertwined with the outside world – the’external environment’ in systems language. This environment comprises a wide range of influences – economics, demographic, social, political, legal, technological, etc. – which affect business activity in a variety of ways and which can impinge not only on the transformations process itself, but also on the process of resource acquisition and on the creation and consumption of output.

In examining the business environment a usefull distinction can be made between those external factors which tend to have a more immediate effect on the dat-to-day operations of a firm and those which tend to have a more general influence.

The immediate or operational environment for most firms includes suppliers, competitors, labour markets, financial instituios and costumers, ang may also include trading organizations, trade unions and possibly a parent company. In contrast the general or contextual environment comprises those macroenvironmental factors such as economic,political, sosio-cultural, technological and legal influences on business which affect a wide variety of businesses and which can emanate not only from local and national sources but also from international and supranational developments.

This type on analysis can also be extended to the different functional areas of an organizations activities such as marketing or personnel or production or finance. Such an analysis can seen to be useful in at least two ways. First, it emphasizes the influence of external factors on specific activities within the firm and in doing so underlines the importance of the interface between the internal and external environments. Second, by drawing attention to this interface, it highlights the fact that whilst business organizations are often able ti exercise some degree of control over their internal activities and processes, it is often very difficult, if not impossible, to control the external environment in which they operate.