Changes in the business enviornment

The business environment in which firms operate lies outside themselves. It is their external environment, which is always changing. Some changes are so dramatic that everybody notices them, but others may creep up on an industry over the years and be largely ignored for too long.

Changes take many forms and create new challenges. For an industry as a whole, it may well be that:

• Customers' needs and requirements change. They look for new, better and cheaper products.

• New technologies become established. These encourage new firms to enter the industry with better products and cheaper ways of doing things.

• Employees' skills need revising to take advantage of new technologies.

• New laws are passed that require changes in how businesses operate eg introduction of a minimum wage, restrictions in working hours and tougher health and safety requirements.

• Traditional sources of supplies of raw materials and components begin to look less reliable.

• New supply sources emerge.

• Banks and other investors start to lose interest in financing the industry.

• Pressure groups start to take a greater interest in the industry's activities.

• The industry ceases to be able to attract new, high calibre recruits.

For individual firms within an industry, the external business environment also includes their competitors, who may:

• introduce new, superior methods of production

• change the ways in which they compete for business

• extend their target markets

• find new ways of attracting key employees.

One test of a firm and also of an industry is how well it recognises significant changes and adapts to them.