Introduction to Business Environment

Micro Environment

As an organization, understanding the environment in which you function is an extremely important exercise. It could be the difference between success and failure. Let us study in detail the different factors of micro environment that affect an organization.

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Micro Environment

The micro environment is the operating environment of the firm. This is because the functioning of the micro environment has a direct and immediate bearing on the company. They are more interlinked with the company than macro environmental factors.

Let us take a look at some of the most important and common elements of the micro environment. These elements are different for different organizations. But the following ones are usually found in almost all companies.

micro environment

(Source: KeyDifferences)

                                                                          Learn Macro Environment here. 

1] Customers

The main purpose for the existence of most organizations is to satisfy the needs and wants of the customers. The enterprise aims to please the customer and earn a profit in return.

So the ultimate aim is to provide the best products/services to the customer at the best prices. Failure to do so may result in failure of the business.

This is why it has become increasingly important to listen to customers and value their feedback. This is why customer consumer surveys have increasing importance in today’s markets.

2] Competitors

There are no pure monopolies in the world. Every organization, whether big or small, has competition and competitors. So the company has to keep a constant check on their competitors.

The company must ensure that their products have a USP that makes them different and unique in the market. The products offered must also be better and cheaper than those of the competition.

3] Employees

Employees or labor is one of the most important factor of production for a company. Human resources are a significant factor in the success (or failure) of a firm. Hence employing the correct people, best suited to your firm is of vital importance.

And training and development of these employees is also essential. If care is not taken in this matter the organization can never succeed, because employees are the back bone of every organization.

4] Shareholders

Shareholders invest in the company, but they are not merely investors. They own shares of the company, so they are actually owners of the company in a way. This means they get a say in the running of a company.

Shareholders will also demand a return on their investment. So it is the company’s duty to earn profits and pass on this benefits to the shareholders. They have to create wealth for these shareholders.

To keep their interest dividends also have to be paid. So the company must find the right balance between the health of the company and the benefits to the shareholders.

5] Suppliers

Suppliers provide the firm with the materials and factors of production they need to run the business. The relation between the company and the suppliers is a power equation. Both depend on each other for their survival.

So it is necessary for the company to have healthy and amenable relations with their suppliers. This is essential to the smooth running of the organization. For example if the company has a falling out with one raw material supplier it could delay their whole production process by days.

6] Media

Every company is going to need media to promote their brand and market their products. So it is necessary that the company maintain their relationship and their status quo with the media.

Any negative coverage in the media can lead to huge losses for the company. This is why companies hire PR managers to help them use the media to a positive effect.

Learn the vision and mission statement here in detail. 

Solved Question on Micro Environment

Q: In any market, ____ is king and they are the organizations most important micro economic factor.

  1. Customer
  2. Supplier
  3. Employee
  4. Competitor

Ans: The correct option is A. Customer is the king, and the reason for the existence of the firm is to satisfy the wants and needs of the customers. They are the most important element of their micro environment.

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