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Business Environment

Elements of Micro Environment

The micro environment relates to the immediate periphery of an organization and directly influences the organization on a regular basis. Hence, it is also known as the task environment. It is important for an organization to monitor and analyze all the elements of its micro environment like customers, competitors, etc.

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Elements of Micro Environment

Let’s take a quick look at all elements of a micro environment:

Elements of Micro Environment: Customers, Intermediaries, Market etc.

Customers and Consumers

Customers are people who buy an organization’s products/services. In simple words, an organization cannot survive without customers. A consumer, on the other hand, is the ultimate user of the product/service.

For example, a husband might purchase a product for his wife. In this case, the husband is the customer and the wife is the consumer.

A successful business keeps a close watch on both customers and consumers of its products/services. It must monitor and track any changes in tastes and preferences of the consumer along with changes in the buying habits of the customer.

Competitors

Every business has competition. Competitors are other organizations that compete with each other for both resources and markets. Hence, it is important that an organization is aware of its competitors and in a position to analyze threats from its competition. A business must be aware of its competitors, their strengths and weaknesses, and the most aggressive and powerful competitors at all times.

Further, an organization can have direct or indirect competitors. When organizations are involved in the same business activity, they compete for both resources and markets. This is Direct Competition.

For example, Pantene and Sunsilk shampoo companies are direct competitors. On the other hand, a five-star holiday resort and a luxury car company are Indirect competitors since they offer different products but vie for the same market.

Organization

One of the most important aspects of the micro environment of an organization is the self-analysis of the organization itself. It must understand its own strengths and weaknesses, objectives and goals of the business, and resource availability. The following non-specific elements of an organization can affect its performance:

  • Owners – People who have a major shareholding in the organization and have vested interests in the well-being of the company.
  • Board of Directors – The board of directors is elected by the shareholders for overseeing the general management of the business and ensuring that the shareholder’s interests are met.
  • Employees – People who work in the organization are major contributors to its success. It is important that all employees embrace the organization’s goals and objectives.

Market

The market is much more than the sum of all the customers. The organization must study the market in terms of its actual size, the potential for growth, and its attractiveness. Some important issues are:

  • The cost structure of the market
  • Price Sensitivity of the market
  • Technological structure of the market
  • The existing distribution system of the market
  • The maturity of the market

Suppliers

Suppliers are another important component of the micro environment. Organizations depend on many suppliers for equipment, raw material, etc. to maintain their production. Suppliers can influence the cost structure of the industry and are hence a major force.

Intermediaries

Intermediaries are also a major determining force in business. Most customers are unaware of the manufacturer of the products they buy since they approach retailers, departmental store, chain stores or online stores for their purchases.

Solved Question on Elements of Micro Environment

Q1. List the important elements of the micro environment of an organization.

Answer: The important elements of the micro environment of an organization are:

  • Customers and Consumers
  • Competitors
  • Organization
  • Market
  • Suppliers
  • Intermediaries
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