Business Environment

Introduction

Business Environment included the actors and forces outside the organization that influence management’s stability to develop and maintain successful transactions with its target customers and stakeholders. The objective is to establish the importance of analyzing the types of environmental forces. The environmental forces are political-legal forces, economic forces, socio-cultural forces and technological forces. In other words, these forces (PEST) strongly affect the way of business is conducted and present opportunities and threats to an organization.

Environmental scanning is defined as an analysis and evaluation of internal conditions and external data and factors that affect the organization. Organizations scan the environment in order to understand the external forces of change so that they may develop effective responses which secure or improve their position in the future. They scan in order to avoid surprises, identify threats and opportunities, gain competitive advantage, and improve long-term & short-term planning (Sutton, 1988).

PEST analysis is concerned with the key external environmental influences on a business. Identifying PEST influences is a useful way of summarising the external environment in which a business operates. However, it must be followed up by consideration of how a business should respond to these influences.

Four Environmental Forces
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Political-Legal Forces

Political-legal forces are changes in the way politicians shape laws and subsequently, the opportunities and threats to an organization. Political forces included government regulations and legal issues and define both formal and informal rules that must operate by a firm. These forces are shown as per below:

Example
Singapore government has encouraged public and private sectors contribute to the growth of e-Government by introducing eCitizen Helper 3P Partnership (People- Private-Public), (Government of Singapore 2005). This joint program provides the public with the means to adopt e-Services. This strategy reflects capacity of Singapore in human capital development and capacity building. The government knows how to motivate and mobilize all stakeholders to participate in e-Services.

Economical Forces

Economic forces included the general economic conditions and trends of the economic cycle. These forces affect the purchasing power of potential customers and the firm’s cost of capital. The following are some examples of economic factors:

Example
Singapore has implemented radical economic policies to assist SMEs to tap the schemes and benefits that await them by adopting e-commerce initiatives” (Ravindran 2003). The Singapore Quality Class helps to identify businesses that have the potential to expand internationally. Government also provide incentives to these enterprises to encourage and assist them in order to reach overseas markets.

Social-cultural Forces

Social-cultural forces are influences and trends originating in a country’s human relationships, cultural values and lifestyle. The social factors that affect customer needs and the size of potential markets such as:

Example
The social strengths of Singapore have been demonstrated by an educational system that produces a well-educated workforce to attract foreign direct investment (FDI). Not only developing its own pool of local talents, Singapore also recruits foreign talents to work in the country.

Technological forces

Technological forces are new developments in methods for transforming resources into goods and services. Technology can improve products quality, reduce costs and lead to innovation. Technological factor that lower the entry barriers and reduce minimum efficient production levels includes:

Example
Singapore has a high-tech based economy. Well-prepared infrastructure and the latest technology contribute to the rapid deployment of e-Services. Online shopping, bar coding and computer aided design are improvements of a better technology performances. Technological revolution has increased the rate at which information is exchanged between stakeholders. A faster exchange of information can benefit businesses as they are able to react quickly to changes within their operating environment.

Environmental Scanning

Ptaszynski (1989) examined the effect of the introduction of environmental scanning in educational organization. The study found scanning have a positive effect on the organization in communication, shared vision, strategic planning & management, and future orientation. The most significant effect was that scanning provided a structured process which encouraged people to regularly participate in face to face discussions on planning issues. As a result, the organization was able to develop a number of strategic options that could be used proactively to cope with external change. Here are some benefits of environmental scanning.

Information for strategic planning

Environmental scanning provides information, such as the strengths or weaknesses of competitors and consumer behaviour and enables companies to discern which resources are valuable to the market and also provides information which can be used as the basis of marketing strategies to leverage these resources and apply them most appropriately. This can strengthen a company own competitive position and weaken that of the competition.

Executive stimulation and development

Executive level strategic planning should base on data rather than whim. This is important as it not only projects a more professional image but also keeps the executive decision makers in tune with the market. Further, it provides education and stimulation for decision makers, who are usually appointed to these positions due to their capacity to turn thought in to action and ultimately profit. Environmental scanning helps to access the company's position in the market and measure the success of previous strategies and direct future strategy.

Monitoring market trends and fashions

Environmental scanning increases sensitivity to customers changing needs and companies should be proactive in monitoring, predicting and responding to market trends. Even if the company is not able to be first to market with a new product or service, simply being aware of what is happening in the competitive environment enables them to plan ahead and build competitive strategies.

Monitoring the dynamic business environment

The importance of scanning is due to the dynamic nature of the modern business environment. This is vital as small changes in the environment such as legislative, cultural or technological changes, if not anticipated and acted upon, can be the difference between becoming the market leader and insolvency. Changes in the economic environment have meant that companies with heavy reliance on finance have been stripped of working capital whereas cash-rich companies have been able to take advantage of this by positioning themselves to acquire insolvent competitors and increase their market share.

Conclusion

Environmental scanning and analysis can provide important information to an organization. Indeed, the results show how using environmental scanning and analysis methods enable organization to gain insight into the future. This insight can help the organization to establish scenarios that can illuminate possible, future opportunities and threats. Identifying opportunities and threats will give the organization the capability to enhance its strategic management.

----------------------- • Tax policy • Employment laws • Political stability • Environmental regulations • Trade restrictions and tariffs

• Interest rate • Exchange rate • Inflation rate • Economic growth

• Education • Demographics • Living standards • Career attitudes • Health consciousness

• Internet • Information technology • Speed of technology transfer • Rates of technological obsolescence • Research and development activity