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5 important elements of micro-environment of a business

Micro-environment is the specific or the task environment of a business which affects its working or operations directly on a regular basis.

While the changes in the macro-environment affect business in the long run, the effects of changes in the micro-environment are noticed immediately.

Hence, organisations must closely analyze and monitor all the elements of the micro-environment on a regular basis.

The elements of micro- environment are as follows:

Foundations Small Business Center

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Elements of Micro-environment

1. Consumers/Customers:

No organization can survive without customers and consumers. A customer is the one who buys a product or service for the consumer who ultimately consumes or uses the product or service of the organization.

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Hence, the consumer occupies the central position; therefore an organization must closely monitor and analyze the following:

a) Who are the customers/consumers?

b) What features or benefits are they looking for?

c) What are their income levels?

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d) What are their tastes, preferences?

e) What are their buying patterns, etc?

2. Organisation:

An organization refers to a group of all individuals working in different capacities and the practices and culture they follow. In micro-environment analysis, nothing is as important as self-analysis, which is done by the organization itself.

Understanding one’s own strengths and weaknesses in a particular business is of vital importance. Organisations consist of specific groups of people who are likely to influence an organization, which are as follows:

a) Owners-Proprietor, partners, shareholders, etc., who invest resources and also make major decisions for the business.

b) Board of directors-Elected by share holders, the board is responsible for day-to-day and general management of the organization to ensure that it is being run in a way that best serves the shareholders’ interests.

c) Employees-People who actually do the work in an organization. Employees are the major force within an organization. It is important for an organization to have its employees embrace the same values and goals as the organization.

However, they differ in beliefs, education, attitudes, and capabilities. When the management and employees work towards different goals, everyone suffers.

3. Market:

Market refers to the system of contact between an organization and its customers. The firm should study the trends and development and the key success factors of the market, which are as follows:

a) The existing and the potential demand in market

b) Market growth rate

c) Cost structure

d) Price sensitivity

e) Technological structure

f) Distribution system, etc

4. Suppliers:

The suppliers refer to the providers of inputs, like raw materials, equipment and services, to an organization. Large companies have to deal with hundreds of suppliers to maintain their production.

Suppliers with their own bargaining power affect working and cost structure of the industry. Hence it is important for an organization to carry out a study of the following:

a) Who are the suppliers?

b) What are their products, prices and terms and conditions?

c) Whether to “Outsource” production or get it done “in-house” depending on this supplier environment, and so on.

5. Intermediaries:

Intermediaries include agents and brokers who facilitate the contact between buyers and sellers for a commission. They may exert a considerable influence on the business organisations as, in many cases, the consumers are not aware of the manufacturers and their products. Hence, manufacturers use intermediaries to reach out to consumers.

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