GRAND COLLEGE
DEPARTMENT OF BUSINESS ADMINISTRATION
BY
SULTAN ALI
JANUARY, 2022
HAWASSA, ETHIOPIA
Business is regarded as a human activity that is concerned with the production and distribution of
goods and service. It is a social device by which societies organize economic efforts. Most
specifically business is the sum total of the organized efforts by which the people engaged in
commerce and industry, provide the goods and services needed to maintain or improve the
standard of living and quality of life to which individual may aspire.
In management, the word “Environment” does not necessarily mean physical surroundings, but
is used to describe all those influences that bear upon the individual organization. Business
environment is used to mean anything, which surrounds the business organization. It affects the
decisions, strategies, process and performance of the business. The environment is consisting of
factors like social, technological, economical, legal and political. It provides opportunities or
poses threats to the organization. Every organization has its own culture. Almost everything that
affects an organization's ability to compete and respond successfully to changes in the external
environment – ultimately, the organization's success or failure – is an aspect of that culture.
Modern business today is dynamic, if there is any word which can be best to describe today’s
business, it is change the most dynamic change has been that exhibited by competitive pressure.
Competitors have being applying one strategy or the other to adapt to the dynamic and
unpredictable nature of the business environment.
Internal environment of an organization refers to events, factors, people, systems, structures, and
conditions inside the organization that are generally under the control of the company. Internal
environment that will influence organizational activities, decisions, and employee behavior and
attitudes. External factors that affect an organization may be political, economic, social or
technological. The same internal factors that lead to an organization's success inevitably
characterize that organization's relationship to the external environment in these broad areas.
Business environment, performance of companies is predicated on factors such as low sales, high
cost of production, low capital utilization, lack of foreign exchange to source needed input and
materials, poor power supply, and low quality of goods and services among others. These
environmental forces have being impeding activities in the economy.
The environment in which business organizations operate is a complex, multi-focus dynamic and
has a far reaching effect on such organization. The environment tends, shape the outlook, and
goal of the organization by placing constraints on them. These constraints in the environment of
organizations goal could be in the form of competition, this sets a limit on the goals specify by
the organization. External environmental factors change speedily, are uncertain, and complex,
and may create problems for organizations if not closely monitored. Any organization ignoring
or being unresponsive to environmental factors is creating trouble or inviting trouble.
Environment factors affect the relationship between strategic planning and performance.
Environmental factors significantly influence business strategies in the banking industry. Cheng-
Environmental variables can moderate the effect of management strategies, therefore,
significantly affecting performance. Environmental uncertainty arises from organizational ability
to make environmental forecasts. As a result, organizational decision making is influenced by the
complexity and volatility of the environmental. Organizations attempting to ignore
environmental factors or that refuse to respond to such factors create trouble for themselves and
place themselves at a competitive disadvantage. On the contrary, understanding and
responsiveness can contribute to firms’ effectiveness and benefits.
For instance, trade union asking for increase in salary, will affect the shareholder dividend.
behavior also affects profit. All these settings provide multiple contexts that influence how the
organization operates and how and what it produces. These environmental forces have been
found to be capable of either impeding or facilitating entrepreneurial activities in any economy.
The World Bank is of the opinion that improvement in the enabling environment leads to greater
levels of investment by the private sector, more wealth, job creation and poverty alleviation. The
relationship between business and its environment is one of mutuality; that is, the environment
exerts pressure on the business while the business, in turn, influences some aspects of its
environment.
Environmental factors that may influence business performance are many and varied; some are
internal to the business while others are external to the business. Today it becomes extremely
essential for Commercial banks to examine their performance because their survival in the
dynamic economic environment will be dependent upon their good performance. The current
business environment is marked by diverse dynamic features such as information technology,
global competition, corporate social responsibility and quality service revolution which are
compelling managers to rethink and reshape their approach to their various operation
responsibilities. Due to this paradigm shift, new firms are emerging that are more responsive to
both their internal and external environments.
The internal factors occur within the operational base of a business and directly affect the
different aspects of business. These internal factors include firms Mission, resistance to change,
poor quality staff, lapses in internal control, bad resource/financial management, operational
weaknesses, high staff turnover and over-leveraging while the external factors include
government regulation, economic recession, political turmoil, low cost competitors, changes in
customer behavior, environmental or health issues, natural disasters, technological changes,
change in input supply, changes in macroeconomic variables and terrorist attacks. Hence, it is
important for a business to keep a pace with the various changes in the environment in order to
survive in the long run.
References
Adebayo, I. O., Ogunyomi, P. O. and Ojodu, H.O. (2005). Introduction to Business
Management, 2nd ed., Lagos, Abilejo Printing Press.
Kakazoukis, C. (2011). How macro environmental forces affect business buying behavior after a
recession: A case study of the second-hand truck business, Unpublished MBA Thesis. Blekinge
Institute of Technology
Maduki V.N and Aosa E (2011) The influence of external environment on the performance of
publicity quoted companies in Kenya, Business Administration and Management Journal 1(7),
205 -218.
Murgor, P.K (2014) External Environment, firm capabilities strategies responses of large scale
manufacturing firms in Kenya, University of Nairobi, unpublished PhD. Thesis
Park, H. (2007). The Impact of Environmental Factors on Business Strategies in Selected Major
U.S. Apparel Manufacturing Companies 1970-2005, Master of Science in Clothing And Textiles
Project, Virginia Polytechnic Institute and State University
