Environmental Factors Affecting Business Decisions

To be successful, both new and existing businesses use several factors in the environment to gauge the direction in which they should steer. For example, companies in the start-up phase and experienced companies expanding into new markets both should evaluate the strengths and weaknesses of competitors. Other environmental factors include the general economic climate and customer demand. Businesses evaluate these factors and often find ways to succeed through innovative technologies, clever marketing tactics and unique product and service offerings.

A business makes many decisions about the direction to go based on the the success, or lack thereof, of its competitors. From the customers' standpoint, competition provides choice. Businesses must analyze competitors to find and exploit weaknesses to gain increased market share. Businesses often conduct analyses to help identify strengths and weaknesses of current competitors and threats which can come from future competitors in the marketplace.

Customers provide the backbone of success for any business, whether business-to-consumer or business-to-business. According to James Neblett--a presenter at the 2004 International Association for Management of Technology conference--businesses must conduct research in their industries to determine levels of product demand by customers, which provides foundations for company sales and profits. For a company to be successful, it must also keep up with changing customer views, attitudes and demand for products and services.

The role of suppliers for a business is critical, as the business is reliant on a third party which can exert considerable influence. This environmental factor, according to James Neblett, involves the number of suppliers in the industry and the suppliers'--as well as the company's--bargaining power. For example, a few large suppliers that dominate the market and supply material for which there is no good substitute often means that companies needing those supplies pay higher prices.

Economic and geographic environmental factors impact businesses that are beginning, expanding or currently competing. Businesses often take into consideration the overall economic conditions in a country, such as whether a recession or boom is underway. Businesses also consider geographic and climactic factors. For example, a company that relies on vegetable or fruit crops must consider seasonal temperatures, rainfall and other conditions.