Business Environments and Functions Study Guide
MICRO ENVIRONMENT / INTERNAL ENVIRONMENT
Meaning of Micro Environment / Internal Environment
It constitutes the specific environment within which a business operates and is composed of the business itself.
It is characterized as a decision-making environment because management is responsible for making the choices that facilitate the achievement of business goals.
It is often referred to as the immediate environment and encompasses all internal factors that affect business operations.
COMPONENTS, FEATURES, AND ELEMENTS OF THE MICRO ENVIRONMENT
The micro environment is composed of various integral elements including:
Vision.
Mission.
Objectives.
Goals and strategy.
Organisational resources.
Leadership and management.
Business functions.
Organisational structure.
Organisational culture.
Vision
Refers to a statement explaining the overarching aims a business intends to achieve.
Answers the fundamental question: "Where are we going from here?"
Sets the trajectory required for the business to reach success.
Represents the "dream" of the business and its long-term future aspirations.
Provides a clear conceptual idea of the desired ultimate outcome.
An inspiring statement regarding what the business wants the future to look like.
Considers the business purpose to explain achievement goals.
Example: "To provide job opportunities for the local community."
Mission Statement
A formal statement explaining the reason for the business's existence.
Enables the development of specific strategies to realize the vision.
Answers questions such as: "What do businesses do to make a profit?"
Details the actions the business performs to work toward its vision.
Gives clear direction regarding the intended path of achievement.
Describes the primary activities and basic purpose of the organization.
Example: "To become a world-class communication company."
Goals
Defined as the long-term objectives representing what the business wants to achieve.
Goals serve to break down overarching business objectives into specific, measurable components.
Example: Increase profit margin by in the year .
Provides the organization with a necessary sense of direction.
Objectives
Represent short-term tasks or steps required to reach broader goals.
Must contain a specific deadline for achievement.
Explains the practical steps of how business goals will be reached.
Details the targets and strategies that assist a business in fulfilling its mission.
Defines business purpose; for instance, a primary objective might be profit-making while a secondary objective might be social upliftment.
Strategy
Outlines the methodology the business will use to achieve its vision in alignment with the mission statement and objectives.
Serves as a plan of action formulated by Top management to reach the vision.
ORGANISATIONAL CULTURE
Purpose of Organisational Culture
Influences the actions and attitudes of the people within the organization.
Determines the standard way things are done (the "modus operandi").
Acts as the "personality" of the business.
Represents a shared understanding among all members of how the business functions.
Is influenced by every individual involved in the business.
Is founded on three key pillars: values, beliefs, and purposes.
Manifests in tangible ways, including dress codes, office décor, and employee behavior.
Dictates how members of the organization interact with one another and with external stakeholders.
Examples of Business Culture
The specific ethos or personality of the entity.
The established norms, values, and expectations within the workspace.
The formal Business Code of Conduct.
The physical floor plan of the business premises.
The overall working environment and atmosphere.
Demonstrated respect for the individual values of other employees.
The specific protocol regarding how managers are addressed.
ORGANISATIONAL RESOURCES
Meaning of Resources
Assets utilized by the business to produce goods or services and achieve established goals.
Managed and controlled across four primary groups:
Physical / Operating Resources
Includes machinery, vehicles, and infrastructure.
Encompasses raw materials, office furniture, equipment, and the plant necessary for successful operations.
Financial / Capital Resources
Includes Own Capital and Borrowed Capital (Cash, Bank overdrafts, short and medium-term loans).
Represents money invested in the business to acquire production goods like land, buildings, and machinery.
Human Resources (People)
Employees, consultants, managers, and contractors.
People possessing the knowledge and skills required to perform work and keep the organization functioning.
Individuals who contribute directly to reaching business goals.
Information and Technological Resources
Includes technology, computers, research, and production technology.
Encompasses voice mail, emails, and specialized software that provide competitive advantages.
Natural Resources
Assets derived from nature used for products and services, such as water, minerals, and wood (raw materials).
Entrepreneurial Resources
The specific individual (entrepreneur) responsible for combining the other factors of production in a way that generates profit.
ORGANISATIONAL STRUCTURE
Importance of Structure
Defines reporting lines (who reports to whom) and the departmental breakdown under specific managers.
Illustrates the flow of feedback and instructions within the business.
Organizes the business to show individual tasks, levels of authority, and specific responsibilities.
Establishes the hierarchy including management positions, departments, and employees.
Factors Influencing Structure
The size of the company.
Available technology.
Available resources.
The strategic goals of the company.
Types of Organisational Structures
Functional Structure: Employees receive instructions from multiple managers; the specific plan determines who gives instructions. This can lead to confusion because of multiple reporting lines.
Project Structure: Formed around project teams; this is a temporary arrangement where employees from different departments are grouped to complete a specific project.
Matrix Structure: Similar to Project structure but employees remain within their original departments. Phases of a project are passed from one team to the next until completion.
Line Structure: A simple hierarchy where employees report to only one person (e.g., a Director). This eliminates confusion regarding reporting.
Line and Staff Structure: Experts serve as advisors to top and middle management. These advisors act outside the direct authority line; they provide guidance but cannot give instructions to employees.
LEADERSHIP VERSUS MANAGEMENT
Management Characteristics
Focuses on ensuring tasks assigned to subordinates are completed.
Is strictly task-orientated.
Employs an instructional approach.
The individual holds an official managerial position through appointment.
Defined as the process of achieving business goals.
Guides human behavior.
Communicates via formal management functions (e.g., line functions).
Manages through planning, organizing, leading, and controlling.
Leadership Characteristics
Focuses on inspiring other people.
Is notably people-orientated.
Employs a motivational approach.
A leader may not necessarily hold an official managerial position.
Defined as the process of inspiring and influencing others to achieve goals.
Influences human behavior.
Communicates through personal interaction, behavior, vision, charisma, and values.
Leaders are often described as being born with natural or instinctive skills.
Leads through example, trust, and respect.
GENERAL MANAGEMENT: THE EIGHT BUSINESS FUNCTIONS
Core Functions
General Management.
Administration.
Financial.
Purchasing.
Public Relations.
Human Resources.
Production.
Marketing.
The Nature of Business Functions
The eight functions work interdependently as a team to reach the business goal.
Tasks within functions may vary based on business size, type, or growth stage.
General Management Roles
Sets the overall strategy and direction.
Leads, organizes, and controls all other functions.
Ensures coordination among the other seven functions.
Levels of Management
Top Management
Reports to the Board of Directors or an Advisory Board.
Responsible for long-term strategic decisions (policy).
Directs, controls, and manages risks; determines the vision, mission, and objectives.
Examples: CEOs, Directors, Owners of sole traders, Partners.
Middle Management
Responsible for specific departments.
Makes medium-term tactical decisions (procedures).
Implements the plans made by top management.
Acts as a link between top and lower levels; acquires departmental resources.
Examples: Marketing Manager, Financial Manager.
Lower Management
Focuses on high productivity, technical help, and employee motivation.
Makes short-term operational/routine decisions (daily planning).
Implements objectives given by middle management and provides feedback.
Examples: Foremen, Supervisors, Team Leaders.
BASIC MANAGEMENT TASKS
Planning
The process of setting goals and creating strategies.
Involves analyzing information to set long-term goals and considering various plans for achievement.
Requires a backup plan (contingency) if the primary plan fails.
Strategic plans (Top Management), Tactical plans (Middle Management), Operational plans (Lower Management).
Organising
The mechanism used to execute the plan.
Groups people together and organizes resources.
Ensures employees understand their specific tasks, authority, and responsibility.
Leading / Directing / Activating
Guiding and inspiring employees toward goal achievement.
Establishing a productive climate and communication channels.
Activating workers to use their skills to their full potential.
Controlling
Ensures standards are met and the business achieves goals.
Involves comparing actual results against set goals and taking corrective action.
A continuous process to ensure smooth operations.
Risk Management
Identifies risk-bearing activities (things that could go wrong).
Assesses the likelihood and financial impact of risks.
Monitors trends and implements contingency plans and communication strategies.
ADMINISTRATION AND FINANCIAL FUNCTIONS
Administration Function
Handles information and data: collecting, processing, distributing, and storing.
Accounting Records: Used for financial statements and transaction tracking.
Cost Accounting: Determines if product prices remain competitive relative to production costs.
Budgets: Estimations of income and expenses for specific periods.
Statistics: Classified numerical data collection.
Office Practice: Standards for dress code, filing, etiquette, and internet usage.
Data vs. Information:
Data: Raw, unprocessed facts (graphs, tables, statistics).
Information: Processed or analyzed data used for decision-making. Should be backed up on electronic devices (CDs, memory sticks).
Financial Function
Plans and manages all funds and assets.
Determines capital needs, sources funding, and allocates funds to departments.
Sources of Finance:
Bank Loans: Repaid with interest; requires assets as surety; long-term.
Bank Overdraft: Short-term loan on an account; repaid with interest.
Asset-based Loan: Loan for expansion; the asset belongs to the lender until paid.
Grants: Government money for small businesses; no repayment if community-beneficial.
Receivable Finance: Loan while waiting for customer invoice payments.
Angel Funding: Wealthy investors providing capital for a share of the business; high risk.
Venture Capital: Given by individuals/orgs for equity; often requires a board position.
Budgeting:
Capital Budget: Estimates fixed capital (land, buildings); drawn every to years; revised annually.
Cash Budget: Estimates working capital (day-to-day operations); revised monthly.
Capital Types:
Fixed Capital: Used for fixed assets; long-term needs (mortgage bonds, shares).
Working Capital: Used for day-to-day operations (stock, raw materials); short-term needs.
Owned Capital: Provided by owners; permanent; no obligation to repay; return via profit.
Borrowed Capital: From financial institutions; temporary (must be repaid); return via interest.
PURCHASING FUNCTION AND LEGISLATION
Purchasing Function Activities
Liaises with finance for budgeting.
Finds reputable suppliers and negotiates terms.
Maintains correct stock levels and records cost/selling prices.
Purchasing Procedure:
Determine need (Requisition).
Determine price (Quotes/Tenders).
Select suitable supplier (based on quality, price, reliability).
Place order (in writing).
Receive order (check quality/quantity against delivery note/order).
Pay supplier (Invoice sent to Finance for payment).
Cash vs. Credit Purchasing
Cash allows for discounts and budgeting; credit allows for buying now and paying later but adds interest costs.
Advantages of Credit: Accessible regardless of race/age; helps low-income consumers via affordablity; extended warranties.
Disadvantages of Credit: Unsettled debts; higher total price due to interest; credit can be refused based on risk.
National Credit Act (NCA)
Purpose: Accessible credit market; encourages responsible lending and buying; addresses power imbalances.
Consumer Rights: Application for credit; info in official language; right to reasons for refusal; right to debt counselling.
Provider Duties: Affordability assessments (check pay slips, debt history, expenses).
Remedies: Consumer Tribunal (reviews NCR/NCC decisions); National Consumer Commission (enforcement); Ombudsman (complaint investigation).
Impact: Better cash flow (less bad debt); transparent processes; but increased admin work and potentially lost sales from non-qualifying customers.
Consumer Protection Act (CPA)
Purpose: Prevent exploitation; national standards for consumer safety; prohibits unfair business practices.
Impact: Safeguards against dishonest competitors; gains consumer loyalty; however, high non-compliance penalties and increased costs for staff training.
ADDITIONAL BUSINESS FUNCTIONS
Public Relations Function
Maintains stakeholder happiness and communication.
Methods: Media/Press conferences, Sponsoring community events, Annual reports, Brochures, Networking, Social Responsibility.
Internal PR: Focuses on staff image; External PR: Focuses on outside image.
Production Function
Ensures production meets demand.
Maintains quality, safety of factory workers, and equipment maintenance.
Marketing Function
Identifies customer needs, handles storage, transportation, and product sales.
Human Resources Function
Responsible for selecting, training, and remunerating qualified employees.
RELATIONSHIP BETWEEN BUSINESS FUNCTIONS
All eight functions are interrelated and depend on one another.
General management coordinates all functions.
Finance and Administration handle the information and records needed by others.
Purchasing buys the raw materials that Production processes into goods, which Marketing then sells.
Public Relations promotes the entity while Marketing promotes the specific products.
Human Resources provides the skilled staff required to run all other functions.