Why is it important for a firm to study and understand the external environment?

Walter Fischer

Understanding the external environment in which a business is operating is not a
luxury; it is a necessity. A business cannot function without knowledge of what are called micro
and macro factors that affect the ownerships ability to produce, distribute and market its goods
or services. Micro factors are those with which the business owner interacts daily, including
suppliers and distribution networks as well as sources of cash that may be needed to finance
plant recapitalization or long-range research and development efforts. A glitch in any of these
components of the external environment can adversely impact productivity and
profitability.

The macro environment in which a business operatesin fact, in
which all businesses operateinclude interest rates set by the Federal Reserve System,
perturbations in stock markets that reflexively react to all kinds of stimuli (e.g., rumors of
an event in another region of the world or of possible adjustments by the Federal Reserve to
the...

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