An environment can be defined as anything which surrounds a system. Therefore, the business environment is anything which surrounds a business organisation. It affects a firm’s decisions, strategies, processes and performance. In failing to respond to its environment, a firm’s profitability is likely to decline as a result. But in spotting emerging trends businesses can succeed spectacularly and can capitalise greatly.
The events which directly impinge on a firm’s activities constitute the micro-environment. This consists of a number of stakeholder groups – customers, suppliers, employees, board of directors and creditors. The macro-environment comprises the forces outside the firm which indirectly affect the firm’s activities. For example, the smoking ban introduced in Feb 2006 induced a change in the macro-environment.
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