In order to start up or become effective, each new and current companies have to use a number of elements within the environment to gauge the path by which they ought to steer. So what is environment? “Environment is the sum total of forces outside of the entrepreneur and the firm” According to BRIE, the entrepreneur have to create a “Boundary within the environment, setting firm apart from the rest of the environment”. The Resources, says, knowledge, money are gathered from the environment. It is also at the core of Exchange because Exchange is the firm/entrepreneur dealing with the atmosphere – buying, selling, trading, etc.
In short, a firm’s operation activities always involves with environment or environmental factors. It’s divided into 2 elements: Internal and External Environment. The Task & the General Environment are subset of External Environment. II. INTERNAL ENVIRONMENT In accordance with the definition of Internal environment in the text book, “Internal environment are the people & groups within the boundary of firm, including the owners, managers, employees, and board members of the firm”. Understanding the Internal context is essential to confirm that the risk assessment approach meets the needs of the firm and of its owner.
It is the environment in which the firm operates to achieve its objectives and which can be influenced by the firm to manage risk. The internal context is considered having more factors than just all members involved * Internal stakeholders: owners, managers, etc. * The policies, vision, mission and strategic plan in place to achieve them Vision and mission are vitally important to a business because of the direction, guidance and purposes, even inspiration they give to both employees and entrepreneurs. * Perceptions, value and culture Culture factor inside the firm can make or break the business.
At best, the corporate culture can be a competitive advantage; at worst, it can be a significant drag on business results. “Companies with an adaptive culture that is aligned to their business goals routinely outperform their competitors. Some studies report the difference at 200% or more”. Mostly, it is the owner, entrepreneur who shape business culture. The leaders who are able to shape their culture “have a strong understanding that creating thriving, high-performance culture aligned with their company’s mission, vision and values is vital strategy for success”.
HP (Hewlett Packard) coped with some problems few years ago and was forced to change its culture. Each staff has to point out their own personal and professional objectives for a year and are encouraged, supported to meet the goals. After the change, HP no longer loss in productivity despite shorter working time and increase in staff retention rate. * The capabilities in term of resources & knowledge: people, physical assets, technologies, etc. * Standards and reference models in system, enterprise, software engineering * Structures: governance, roles, etc.
III. EXTERNAL ENVIRONMENT A business has to interact to what happen outside internal environment to fulfill Exchange in BRIE model. It is External environment surrounding the business operations and the internal environment of business. External environment may include Task Environment which can be called Micro Environment and General Environment or Macro Environment. 1. Task Environment – Micro Environment a. Element of Task Environment The microenvironment is made from components that are close to the company and directly impact the business.
For examples: * Publics group “can have an actual or potential interest in or impact on an organization’s ability to achieve its objectives”. Publics can be: * Media publics: carry news, features, and editorial opinion * Local publics: neighborhood residents and community organizations. … * Customers: Company must study its customer markets closely since each market has its own special characteristics. Customers can be B2C, B2B or B2G * Suppliers: Provide the resources or input needed for the business to produce goods and services that play key roles in “value delivery system” for customers.
Suppliers can leave huge impact on business due to supply shortage or the bargaining power of suppliers * Competitors: A company has to face with wide range of competitors and secures its strategic competitive advantages over competitors by technologies or selling point of the products or wipes out the marketplace. ….. Walmart case will serve as an example. “Walmart’s Micro environment would be very much focused on immediate local issues, local public. It would consider how to recruit, retain and extend products and services to customers.
Walmart should pay close attention to the actions and reactions of direct competitors: local markets, etc. Walmart would build and nurture close relationships with key suppliers for pricing factors and time of delivery. ” b. Porter five forces Task environment elements also appear in Porter five forces which is a framework for industry analysis and business strategy development. It derives five important forces that determine the competitive intensity and therefore, the attractiveness of a market. 5 typical factors have direct impact on the business. . General Environment – Macro Environment The General Environment can be described by PESTEL model. It refers to all forces that are part of society, affect business and micro environment. * Political factors include: * Government’s stability * Social policies: welfare, etc. * Trade regulation: EU & WTO, etc. * The Government set the laws, regulations and policies that can promote or limit the individuals and organizations in a society * Economic factors: * Economic growth * Unemployment rate * Interest rate… Economic factor can effect purchasing power and spending patterns. “Element like interest rates affect a firm’s cost of capital and therefore a business grows and expands. Exchange rates affect the export and import goods in an economy. ” * Social factors: * Demographics Demographics studies population patterns: sizes, age, sex, occupation, ethnicity, etc. Those patterns are investigated for companies to change various strategies to adapt to these social trends, such as recruiting staff or design suitable products for each segment
Let take an example of age changing structure in US: * Generation Y: born 1980 – 1995 -> technology wise, optimistic, confident, sociable, flexible and changing in its fashion, style consciousness * Generation Z: born after 1995 -> life with internet, phones,… communicate through social media rather than personally meeting * Technological factors: R&D, automation, etc. This factor can affect cost, quality and lead to innovation of a business. * Environmental – Eco factors: Climate, energy consumption, waste disposal, etc.
Awareness of the potential impacts of climate change affects how companies operate and the products/services they offer. There is a strong connection between a healthy economy and a healthy environment. Business should build environmental sustainable strategies for a life-long span. * Legal factors: Antitrust law, consumer law, employment law, etc. Legal factors can shape the way companies operate and interact with employees, customers, etc. IV. CONCLUSION In summary, elements from environment have undeniable vital impacts on the business.
Therefore, entrepreneur should be prepared carefully with full analyzed information from those elements to help their business be able to survive and develop. V. REFERENCE Jerome A. Katz, Richard P. Green II. Ed. 2011. Entrepreneurial Small Business. 3rd Edition. China: The McGraw Hill. Jerome A. Katz, Richard P. Green II. 2011. The element of the small business environment. China: The McGraw Hill. Ch. 2. Figure 1. Jerome A. Katz, Richard P. Green II, 2011. Four elements needed to get your business started. Entrepreneurial Small Business Figure 2. Jerome A. Katz, Richard P. Green II, 2011.
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