In a broad sense, environment means which is external to and within which some entity exists. No one is an island unto himself. No business functions in a vacuum. In simple terms, environment refers to the surroundings, external objects, influences or circumstances under which someone or something exists. Famous management scientist Keith Davis has defined environment as "the aggregate of all conditions, events and influences that surround and affect it."
Since environment is anything outside an organization which may affect an organization's present or future activities, therefore, the environment is situational and is unique to each organisation. As a result, we must always bear in mind the interaction between a particular organisation, and its particular environment.
We do not include internal environment while discussing environment for the simple reason that internal environment is controllable but external environment is non-controllable.
Characteristics of Business Environment:
The following are the major characteristics of Business Environment:
1. It is a sum total of both internal and external forces.
2. It includes specific (to the firm) as well as general forces (Common to all firms).
3. It is dynamic (always changing) in nature.
4. Since prediction of future is difficult, it is always uncertain.
5. It varies from region to region due to STEEPLE
Types of Environments:
1. General and Task Environments:
In terms of levels, environment can be categorised as general environment (also known as the societal environment, the far environment or the macro environment) and task environment. Forces in the general environment have a major impact at the level of the industry.
These forces include national culture, including historical background, ideologies and values; scientific and technological developments; the level of education; legal and political processes; demographic factors; available resources, the international environment; and the general economic, social and industrial structure of the country. The task environment covers the forces relevant to an individual organization within an industry. These include consumers, suppliers, competitors, regulators, the local labour market, and specific technologies.
2. Internal, Micro, and Macro Environments:
The other way of classifying environment is to describe it as (i) Internal (within the organisation), (ii) Micro (industry environment relating to competition), and (iii) Macro (non-controllable and at a national and global level).
3. In terms of popularity, the three terms - PEST, PESTEL and STEEPLE - are in great use. During 1980s and early 1990s, PEST analysis was widely used to analyse environment. PEST analysis breaks down the environment into four categories:
By the mid. 1990s, PESTEL analysis became more popular. Political and legal were split from each other, and an extra component, Environment, was added. It reflected the growing importance of environmental issues.
By the early 2000s, PESTLE had grown into STEEPLE (Social, Technological, Economic, Environmental, Political, Legal, Ethical), with the addition of Ethics, reflecting concern for corporate social responsibility and business ethics.