Unit I: Introduction to Micro Environment

Introduction to Micro Environment

Business refers to any legal economic activity undertaken to earn a profit by producing, buying, or selling goods and services. The main objective of a business is to satisfy customer needs while generating profit.

Key Features of Business:

• Economic activity
• Involves risk and uncertainty
• Continuous process
• Profit motive
• Satisfies human needs

🔹 Meaning of Business Environment

Business Environment refers to all the external and internal factors that influence business operations. It includes customers, competitors, suppliers, government, laws, economic conditions, and social trends.

Two Types of Business Environment:

Types of Business Organizations

There are different forms of business organizations based on ownership, legal structure, and scale of operations:

SWOT Analysis

SWOT Analysis is a strategic planning tool used to identify an organization’s internal strengths and weaknesses, as well as external opportunities and threats.

✅ Benefits of SWOT Analysis

• Helps in strategic planning
• Identifies areas of improvement
• Helps in risk management
• Supports decision making

Types of Internal Environment

Summary Table

External Environment of Business

A. Micro Environment (Operating Environment)

These are external forces that directly impact the company’s operations and decision-making. These can be influenced to some extent by the organization.

B. Macro Environment (General Environment)

These are broad external factors that affect not just the company but all other businesses in the market. These are uncontrollable and require the business to adapt its strategy.

Summary Table

Why Understanding the External Environment is Important?

• Helps in strategic planning
• Prepares the company to deal with changes
• Identifies opportunities and threats
• Helps maintain competitive advantage

Michael Porter’s Five Forces Analysis

Michael Porter developed this model to analyze the level of competition in an industry and to determine the profitability and attractiveness of that industry.

🔷 The Five Forces are:

Porter’s Competitive Strategies

Michael Porter also proposed 3 generic strategies to gain a competitive advantage in any industry. A business must choose one strategy to succeed; mixing all may lead to failure.

1. Cost Leadership Strategy

• Goal: Become the lowest-cost producer in the industry.
• How: Achieve economies of scale, use efficient operations, cut down waste.
• Advantage: Can offer lower prices than competitors, attract price-sensitive customers.
• Example: Walmart, DMart, Ryanair.

2. Differentiation Strategy

• Goal: Offer products/services that are unique and valued by customers.
• How: Use branding, innovation, quality, design, or customer service.
• Advantage: Can charge premium prices because customers see the product as better.
• Example: Apple, Nike, Starbucks.

3. Focus Strategy

Goal: Focus on a narrow market segment (niche) and serve it better than competitors.

Types:

• Cost Focus: Offer low prices in a niche market.
• Differentiation Focus: Offer specialized and unique products to a specific market.
• Example: Rolls Royce (luxury cars for elite), Lenskart (eyewear niche in India).

Comparison Table: Porter’s Strategies

Why it Matters?

• Helps companies to position themselves strongly in the market.
• Builds sustainable competitive advantage.
• Guides long-term business strategy and decision-making.