Introduction to business economics
The course will be divided into 4 parts:
-Module 1: The firm and its environment
-Module 2: Corporate and business strategies
-Module 3: The internal structure of the firm
Module 1:
• External environment: micro and macro environment;
• The boundaries of the firm and definition of industrial sectors;
• Porter’s 5 forces;
• Theory of the firm: resources and capabilities
Macro and Micro environment
AIM
Understanding the Organization of a business, how firms analyze the external environment,
understanding the key characters that take decisions for firms.
Definition of a Business organization:
System that that turns inputs (I.E. citizens or financial capital) into good and services
The organization needs to be sustainable:
• Environmentally: it can meet the need of it’s customers w/out compromising the
future of the future generations
• Economically: it generates revenue (higher or at least equal to the cost).
• Socially: treats it’s workers with respect, treats them equally and rewards them justly.
Business environment:
An environment is everything that operates around a system. Systems are not an island,
exogenous factors profoundly influence them. The sum of these factors is called business
environment.
The system is called “open” because not all elements can be identified
The organization needs to adapt to the Change of the environment in order to keep
generating revenue.
,The environment is divided into three parts:
• Macro environment
the factors that can influence
the business indirectly (I.E.
Politics). Companies cannot
influence back the macro
environment
• Micro environment
The factors that can influence
the company directly (I.E. the
supplier) Companies can
influence back the micro
environment.
• Internal environment
factors that are completely
under the control of the
company
MACRO ENVIRONMENT
It is composed by the political, social, economic and technological factors of society. It does
not affect the company directly and immediately, but over time it modifies the relations in
society, and if the company doesn’t adapt to the change in macro-environment, it WILL fail
to generate value and eventually get forced out of business.
The Macro-environment is divided into:
POLITICAL
The political stability of a country deeply affects the firms that operate inside said country.
Governmental policies also affect corporations, both directly (ex antitrust laws), and
indirectly (ex. GDP growth laws)
The government is responsible for protecting public interests, and this could put further
constraints on firms.
Also, supranational organizations (such as the EU) influence the market and the firms.
SOCIAL
The social composition of society is also a crucial factor to take into consideration.
The composition of society and its beliefs are reflected in the market.
For example, western society is getting older with each passing year, and this reflects in the
products demanded, where durability is valued more than fashionability.
Also, the growing attention for sustainability has led the market into becoming more “eco
friendly”.
The attitude towards debt has also changed, this means that people are more inclined into
contracting debt for less basic needs.
TECHNOLOGICAL
Technology is becoming increasingly rapid, and markets need to adapt and exploit the new
opportunities that technology offers.
,Technology can offer new ways to offer goods and services to consumers (ex. home
banking or on-line shopping)
New tech can make existing products cheaper (ex: fuel-efficient aircrafts)
New technologies give business new ways to communicate with their target customers.
ECONOMICAL
The economic situation of a country is crucial to understand for businesses. Obviously
richer countries (both in terms of GDP and GDP per capita) are going to consume more and
are a better market to be working in, but it is also crucial to understand if the near future will
have a contraction or expansion of the economy. In fact, in contractions less goods tend to
be consumed (save for inferior goods) and vice versa.
PESTEL FRAMEWORK of an
organization: the basic needs of a
company.
Remember: the Pestel framework
it has a very short time frame:
the analysis may be viable today,
but it may need to be redone
tomorrow
POLITICAL
ECONOMICAL
SOCIAL
TECHNOLOGICAL
ENVIRONMENTAL
LEGAL
MICROENVIRONMENT
The microenvironment of an organization can be defined as all the factors that directly
influence the company.
Some of these factors include
CUSTOMERS
They are a crucial part of the organization; in fact, they are the backbone of the firm.
Without customers there would not be a firm. So, understanding customer’s needs and
necessities is crucial for the business. Ideally, the firm should be able to predict its target
customer’s future needs, rather than to wait and then act possibly when it’s too late.
The problem with customers is that not always the customers that buys the product is the
one that consumes it (ex: old spice), or that the want of the customer is not necessarily what
it’s best for him (ex: cars with expensive music systems as standard equipment, but airbags
as optional equipment)
, SUPPLIERS
Suppliers provide the organization with goods and services that are then transformed by the
organization into value-added products for customers.
The problem with suppliers is that sometimes supply may become scarce and create a
bottleneck for the company (with china’s growing consumption for steel, still prices are
getting higher and higher).
Furthermore, supply comes with a bulk of ethical reasoning to do. Do businesses need to
buy from the local market, or from international markets that provide the same product for
lower prices. Should they buy in bulk from a couple of suppliers or should they buy from
multiple small ones etc.
INTERMEDIARIES
They provide a link between the firm and its customers. Big firms may find it difficult to
have a direct dialogue with their consumers, so they choose to sell their products through
intermediaries (ex: McDonald's franchisees).
GOVERNMENTS
The demand of government agencies often takes precedence over the needs of a company.
Sometimes companies are more interested in getting favorable responses from government
agencies than consumers. (Ex. Companies that provide water)
Companies Need to adapt to the environment, otherwise they can go out of business.
They adapt by changing their “business model”, either by changing their own, creating
another one, or adapting one from another field to their own.
The boundaries of the firm And definition of industrial sectors
Aim of the firm:
Business organization: to earn a profit through selling products that satisfies the needs of the
customers.
Nonprofits: provide services but do not have the aim to make a profit.
COMPETITORS
how to identify them, where is the boundary such as another company can be considered
your competitor.
Two companies can be considered competitors when they offer a product/service that meets
similar needs and face more or less the same suppliers and buyers
Demand substitutability: to identify competitors we can also see how products can substitute
each other (ex Coca-Cola vs Pepsi)
Homogeneity in technology: the same, but technological different product are not
necessarily competitor (ex professional mountain bike and Graziella).
Market vs industry:
Industry is a part of the market that offer similar products and meets similar demands.
The course will be divided into 4 parts:
-Module 1: The firm and its environment
-Module 2: Corporate and business strategies
-Module 3: The internal structure of the firm
Module 1:
• External environment: micro and macro environment;
• The boundaries of the firm and definition of industrial sectors;
• Porter’s 5 forces;
• Theory of the firm: resources and capabilities
Macro and Micro environment
AIM
Understanding the Organization of a business, how firms analyze the external environment,
understanding the key characters that take decisions for firms.
Definition of a Business organization:
System that that turns inputs (I.E. citizens or financial capital) into good and services
The organization needs to be sustainable:
• Environmentally: it can meet the need of it’s customers w/out compromising the
future of the future generations
• Economically: it generates revenue (higher or at least equal to the cost).
• Socially: treats it’s workers with respect, treats them equally and rewards them justly.
Business environment:
An environment is everything that operates around a system. Systems are not an island,
exogenous factors profoundly influence them. The sum of these factors is called business
environment.
The system is called “open” because not all elements can be identified
The organization needs to adapt to the Change of the environment in order to keep
generating revenue.
,The environment is divided into three parts:
• Macro environment
the factors that can influence
the business indirectly (I.E.
Politics). Companies cannot
influence back the macro
environment
• Micro environment
The factors that can influence
the company directly (I.E. the
supplier) Companies can
influence back the micro
environment.
• Internal environment
factors that are completely
under the control of the
company
MACRO ENVIRONMENT
It is composed by the political, social, economic and technological factors of society. It does
not affect the company directly and immediately, but over time it modifies the relations in
society, and if the company doesn’t adapt to the change in macro-environment, it WILL fail
to generate value and eventually get forced out of business.
The Macro-environment is divided into:
POLITICAL
The political stability of a country deeply affects the firms that operate inside said country.
Governmental policies also affect corporations, both directly (ex antitrust laws), and
indirectly (ex. GDP growth laws)
The government is responsible for protecting public interests, and this could put further
constraints on firms.
Also, supranational organizations (such as the EU) influence the market and the firms.
SOCIAL
The social composition of society is also a crucial factor to take into consideration.
The composition of society and its beliefs are reflected in the market.
For example, western society is getting older with each passing year, and this reflects in the
products demanded, where durability is valued more than fashionability.
Also, the growing attention for sustainability has led the market into becoming more “eco
friendly”.
The attitude towards debt has also changed, this means that people are more inclined into
contracting debt for less basic needs.
TECHNOLOGICAL
Technology is becoming increasingly rapid, and markets need to adapt and exploit the new
opportunities that technology offers.
,Technology can offer new ways to offer goods and services to consumers (ex. home
banking or on-line shopping)
New tech can make existing products cheaper (ex: fuel-efficient aircrafts)
New technologies give business new ways to communicate with their target customers.
ECONOMICAL
The economic situation of a country is crucial to understand for businesses. Obviously
richer countries (both in terms of GDP and GDP per capita) are going to consume more and
are a better market to be working in, but it is also crucial to understand if the near future will
have a contraction or expansion of the economy. In fact, in contractions less goods tend to
be consumed (save for inferior goods) and vice versa.
PESTEL FRAMEWORK of an
organization: the basic needs of a
company.
Remember: the Pestel framework
it has a very short time frame:
the analysis may be viable today,
but it may need to be redone
tomorrow
POLITICAL
ECONOMICAL
SOCIAL
TECHNOLOGICAL
ENVIRONMENTAL
LEGAL
MICROENVIRONMENT
The microenvironment of an organization can be defined as all the factors that directly
influence the company.
Some of these factors include
CUSTOMERS
They are a crucial part of the organization; in fact, they are the backbone of the firm.
Without customers there would not be a firm. So, understanding customer’s needs and
necessities is crucial for the business. Ideally, the firm should be able to predict its target
customer’s future needs, rather than to wait and then act possibly when it’s too late.
The problem with customers is that not always the customers that buys the product is the
one that consumes it (ex: old spice), or that the want of the customer is not necessarily what
it’s best for him (ex: cars with expensive music systems as standard equipment, but airbags
as optional equipment)
, SUPPLIERS
Suppliers provide the organization with goods and services that are then transformed by the
organization into value-added products for customers.
The problem with suppliers is that sometimes supply may become scarce and create a
bottleneck for the company (with china’s growing consumption for steel, still prices are
getting higher and higher).
Furthermore, supply comes with a bulk of ethical reasoning to do. Do businesses need to
buy from the local market, or from international markets that provide the same product for
lower prices. Should they buy in bulk from a couple of suppliers or should they buy from
multiple small ones etc.
INTERMEDIARIES
They provide a link between the firm and its customers. Big firms may find it difficult to
have a direct dialogue with their consumers, so they choose to sell their products through
intermediaries (ex: McDonald's franchisees).
GOVERNMENTS
The demand of government agencies often takes precedence over the needs of a company.
Sometimes companies are more interested in getting favorable responses from government
agencies than consumers. (Ex. Companies that provide water)
Companies Need to adapt to the environment, otherwise they can go out of business.
They adapt by changing their “business model”, either by changing their own, creating
another one, or adapting one from another field to their own.
The boundaries of the firm And definition of industrial sectors
Aim of the firm:
Business organization: to earn a profit through selling products that satisfies the needs of the
customers.
Nonprofits: provide services but do not have the aim to make a profit.
COMPETITORS
how to identify them, where is the boundary such as another company can be considered
your competitor.
Two companies can be considered competitors when they offer a product/service that meets
similar needs and face more or less the same suppliers and buyers
Demand substitutability: to identify competitors we can also see how products can substitute
each other (ex Coca-Cola vs Pepsi)
Homogeneity in technology: the same, but technological different product are not
necessarily competitor (ex professional mountain bike and Graziella).
Market vs industry:
Industry is a part of the market that offer similar products and meets similar demands.
