Business environment

BUSINESS ENVIRONMENT

1st Semester BBM

2011 - 2012

Lecturer: Ramya Rajagopal

SYLLABUS1. Business and its Environment

Meaning – Scope and Characteristics – Significance for economic policies and decisions in Organisation

2. Global Environment

Nature of Globalisation – Manifestations of globalisation – Challenges of international business – Strategies for going global – India, WTO and trading blocks.

3. Technological Environment

Meaning – features – Impact of Technology – Technology and Society – Management of Technology

4. Political Environment

Political institutions – Legislature – Executive Judiciary – The Constitution of India – The Preamble – The fundamental rights – Rationale and extent of state intervention – Role of Government in business.

5. Economic Environment

Characteristics of Indian Economy, Factors affecting economy, Economic resources (natural, industrial and technological)

Impact of Liberalisation, Privatisation and Globalisation on Indian Business.

6. Government Policies:

Impact of Fiscal, Monetary, EXIM policy and Industrial policy on Business (Latest policy measures).

7. Natural Environment:

Meaning and influence on business.

Chapter 1Business & its Environment – An Introduction

Nature of Business Purpose of Business Scope of Business Characteristics of Contemporary business Business Objectives Critics of Business Meaning of Environment Objectives & uses of Business environment

study The process of Environmental Analysis Limitation of Environmental analysis

Meaning

• Business may be understood as the organised efforts of enterprises to supply consumers with goods and services for a profit.

Purpose of Business

• All businesses share the same purpose: TO EARN PROFITS

• But other purposes are:

Supplying goods and services to the society; creating job opportunities; offer of better quality of life; contributing to the economic growth of the country.

Scope

Activities starting from bringing raw materials to the factory and selling the products at the market

Characteristics of Contemporary Business

1. Business in Transition: A typical business person is sandwiched between the compulsions of the new business environment and the old practices of doing business.

2. Pressure of Competition: Indian businesses are facing competition, both from within and from foreign business. Competition though unwelcome to managers, is a boon to customers.

3. Immense Opportunities: Indian business has plenty of opportunities which can be exploited to one's advantage.

4. Globalisation: Modern business necessitates globalisation. Internationalisation or globalisation is fast becoming imperative for modern business due to technological innovations; crumbling trade barriers; global flow of capital and technology; information explosion; intensity of market competition; changing life styles & the demand for new products.

5. Technology: Business is characterised by increasing use of technology. The impact of technology on business is pervasive.

6. Information: Another characteristic of contemporary business is the recognition of and the need for information. The whole area of retrieving & extending information, including data processing, information systems analysis & preparation of effective records & reports, has achieved a major status.

Business objectivesBefore we describe business objectives, it is

desirable to be clear about related concepts, viz.,

Vision Mission & Objectives

VISION: A Vision is a broad explanation of why the firm exists and where it is trying to lead.

A vision gives the organisation a sense of purpose and a set of values that unite employees in a common destiny.

Business Vision

Creating the Vision

Establishing Goals

Visioning

One of the most important things to do in the preparation stage is to VISUALIZE things in your mind.

Mayor Rudolph Giuliani

Visioning vs. PlanningPlanning

process that provides specific direction and meaning to the day-to-day activities.

strategic planning places the strategic vision into motion.

Visioning proactive plan

for the future.

It is a view of the future that everyone can believe in.

A Vision Statement

Says what you want out of Business. Details principles and beliefs. Gives you the power to create and design

your business around your values.

In Summary

You have to have a plan for success! It starts with a vision. You get the vision by reaching each goal. You reach goals by hard work, dedication,

and perseverance.

MissionA Mission statement outlines the

fundamental purpose of the organisation.

A Mission statement incorporates four elements:

1. Customer needs, or what is being satisfied.

2. Customer groups, or who is being satisfied.

3. The company’s activities, technologies, and competencies, or how the firm goes about creating and delivering value to customers and satisfying their needs.

4. The company’s concern for survival, its philosophy, its self-concept and its concern for public image.

Our Mission

Dayananda sagar Institutions

VISIONTo be a centre of excellence in education, research & training and to produce human resource of exceptional leadership quality to serve national needs

MISSIONTo achieve our objectives in an environment that enhances creativity, innovation and scholarly pursuits within the stated values.

Growth has no limit at Reliance. I keep revising my vision.

Only when you can dream it, you can do it.“

Dhirubhai H. AmbaniFounder Chairman Reliance Group December 28, 1932 - July 6, 2002

Objectives

Objectives render mission statements more concrete.

Mission statements seek to make a vision more specific and Objectives are attempts to make mission statements more concrete.

Objectives therefore, represent the operational side of an organisation.

1. Profit: Profit is the main incentive, motivator, strong sustainer, judicious allocator of resources, objective indicator of productivity and a solid basis for growth, expansion and survival.

Profits enables a businessman to realise his other objectives too.

2. Growth: Business should grow in all directions over a period of time. The strategies adopted to achieve growth are:

(a) add more products/markets;

(b) diversify into new areas;

(c) increase market share;

(d) cut down costs and increase productivity.

3. Power: Business houses have vast resources at its command. These resources confer enormous economic and political power on owners and managers of business ventures.

4. Employee satisfaction & Development: Concern for employees continues to be an important aspect of management.

5. Quality products & services: Those who insisted on and persisted in quality survived competition and stayed ahead of others in the market. Persistent quality of products earns brand loyalty, a vital ingredient of success.

6. Market Leadership: To earn market leadership, innovation is the key factor. Innovation may be in product, advertising, distribution, finance or in any other field.

7. Challenging: Business offers vast scope and poses formidable challenges.

8. Joy of creation: It is through business strategies new ideas and innovations are given a shape and are converted into useful products and services for the benefit of customers.

9. Service to society: Business is a part of society and has several obligations towards it.

10. Good Corporate citizenship: It implies that the business unit complies with the rules of the land, pays taxes to the government regularly, discharges its obligations to society and cares for its employees and customers.

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• The Four-Step The Four-Step Pyramid of Pyramid of Corporate Social Corporate Social ResponsibilityResponsibility

CRITICS OF BUSINESS

Specific criticisms are the following:

1.Business activity has a corrosive effect on a range of cherished cultural values.

1. Business dehumanises and expolits workers

2. Business harms interests of consumers.

3. Business degrades nature and the environment.

4. Business has destroyed handicraft and rendered artisans jobless.

There are five groups of Critics

1. Activist Reformers

2. Liberal Intellectuals

3. Marxists

4. Radical Non-Marxists.

5. Reactionaries.

Meaning of Environment

Environment refers to all external forces which have a bearing on the functioning of business.

Environment of a Firm

1. Technological Environment

2. Economic Environment

3. Political Environment

4. Global Environment

5. Social and Cultural Environment

Business Environment

Business environment refers to all those internal and external factors that have a bearing on the business.

Keith Davis defines business environment as the aggregate of all conditions, events and influences that surround and influence it.

Three different levels of Business Environment are as follows:

Internal Environment

Micro Environment

Macro Environment

INTERNAL ENVIRONMENT

The important internal factors which have a bearing on the strategy and other decisions are:

1. Value system

2. Mission & Objectives

3. Management Structure & Nature

4. Internal Power relationship

5. Human resources

6. Company image & Brand equity

Miscellaneous factors

1.Physical assets and facilities

2.R & D and Technological capabilities.

3.Marketing resources

4.Financial factors.

EXTERNAL ENVIRONMENT

The external business environment consists of

Micro environment and

Macro environmet

MICRO ENVIRONMENTThe micro environment consists of the actors in the company’s immediate environment that affect the performance of the company.

Suppliers: Suppliers are the important force in the task environment of a business.

Multiple sources of supply often help to reduce risks.

Customers: To succeed in capturing customers, a business must try its best to know what people want and will buy.

Labour: The labour force is organised in the form of trade unions. The trade unions interact with the management & pressurise the management for the fulfilment of their demands.

Competitors: Competitors play a vital role in running the business enterprise. There are various types of competitions:

• Desire competition: Under this type of competition the primary task is to influence the basic desire of the customer.

• Generic competition: The competition among alternatives which satisfy a particular category of desire is called generic competition.

• Product form competition: In this type of competition, the consumer has to choose between different forms of the product.

Brand competition: The competition between different brands of the same product.

Taking into consideration these different factors every marketer should strive to create primary and relative demand for his product.

Regulating agencies: The regulators include government departments and other organizations which monitor the activities of business.

MACRO ENVIRONMENT

The macro forces are, generally, more uncontrollable than the micro forces.

Important macro environment factors includes:

Economic environment

Political and Regulatory environment

Social/Cultural environment

Demographic environment

Technological environment

Natural & Global environment

ECONOMIC ENVIRONMENT

The survival & success of a business enterprise is finally decided by the economic environment & various market conditions. The important external factors that affect the economic environment of a business are as follows:

• Economic conditions

• Economic system

• Economic policies

• Economic growth

• Interest rates

• Currency exchange rates.

POLITICAL & LEGAL ENVIRONMENT

Political environment refers to the influence exerted by the three political institutions:

• Legislature

• Executive

• Judiciary

It provides a framework within which the business is to function & its existence depends on the success with which it can face the various challenges contructed out of political & legal framework.

SOCIO-CULTURAL ENVIRONMENT

It is very comprehensive because it may include the total social factors within which an organisation operates.

• Socio-cultural environment may include expectations of the society from business, attitudes of society towards business & its management, views towards achievement of work, views towards structure, responsibility & organisational positions, views towards customs, & labour mobility & level of education.

NATURAL ENVIRONMENTIt includes geographical & ecological factors.

Almost every aspect of business depends upon natural environment.

• Manufacturing depends on physical inputs.

• Mining depends on nature

• Agriculture depends on nature.

• Trade between two regions depends on geographical factors.

• Topographical factors may affect the demand pattern.

DEMOGRAPHIC ENVIRONMENT

It includes:

• Size, growth rate, age composition, sex composition etc., of population

• Family size

• Caste, religion,

• Educational level...etc

TECHNOLOGICAL ENVIRONMENT

Business has to adopt technological changes from time to time. Every business enterprise has two basic functions i.e.,

• Marketing &

• Innovation.

Technological environnment also includes research base decisions.

The fast changes in technology also create problems for enterprises as these render plants and products obsolete quickly.

International Environment

Implications of global or international environment are as follows:

• Indian companies are forced to view business issues from a global perspective.

• Safe & protected markets are no longer there.

• Learning of foreign languages is a must for every business manager.

• Acquiring familiarity with foreign currencies is also a must.

Thus, business is the product of the technological, political-legal, economic, socio-cultural, global & natural factors amidst which it functions.

Environmental Analysis

2004 Prentice Hall, Inc.4949

Environmental Analysis

Environmental analysis is the process by` which strategist monitors the Environmental sectors to determine opportunities for threats to their firms.


Conducting Environmental Analysis

Identifying threats and opportunitiesGathering of information about competitors intelligence

Forecasting future direction of environmental changes


Key Environments

Marketing EnvironmentMarketing Environment The actors and forces that The actors and forces that

affect a firm’s ability to affect a firm’s ability to build and maintain build and maintain successful relationships successful relationships with customers.with customers.


Key Environments

Aspects of the marketing Aspects of the marketing environment:environment: Microenvironment: Microenvironment:

Actors close to the Actors close to the companycompany

– Macroenvironment Macroenvironment – Larger societal forcesLarger societal forces


Actors in the Microenvironment


Figure 4-2:

Major Macroenvironmental Forces


The Macroenvironment

Key Demographic TrendsKey Demographic Trends World population World population

growthgrowth Now 6.2 billionNow 6.2 billion Projected to Projected to

reach 7.9 billion reach 7.9 billion by 2025 by 2025



The Economic EnvironmentThe Economic Environment Affects consumer Affects consumer

purchasing power purchasing power and spending and spending patterns.patterns.



The Political EnvironmentThe Political Environment Includes laws, Includes laws,

governmental governmental agencies, and agencies, and pressure groups pressure groups that impact that impact organizations and organizations and individuals. individuals.



The Cultural EnvironmentThe Cultural Environment Is composed of institutions and Is composed of institutions and

other forces that other forces that affect a society’s affect a society’s basic values, basic values, perceptions, perceptions, preferences, preferences, and behaviors.and behaviors.



Core beliefs are Core beliefs are persistentpersistent

Secondary cultural Secondary cultural values change and values change and shift more easilyshift more easily

Society’s cultural values are expressed through people’s views of:Themselves Others Organizations Society Nature The Universe

The Cultural Environment


Techniques of environmental scanning

Send the researchers, technicians, engineers to international and national conferences and trade shows

Visit the global competitors in trade fairs and exhibitions.

Systematically gather data on the result of government funded research in other nations.

Carefully review technical and scientific journal and newspaper published in another country and home country.

Developing management information system in each and every department and ultimately for the whole organization.

Develop a strategic management information system at all levels of management in collaboration with customers, peers (office people), suppliers, and other middleman, sales officers.


NEED FOR ENVIRONMENTAL ANALYSISIncreases managerial awareness of environmental changes.

Increases understanding of the context in which industries and markets functions.

Increases understanding of multilateral settings;

Improves resource allocation decisions;

Facilitates risk management;

Focuses attention on the primary influences on strategic changes;

Acts as an early warning system to anticipate opportunities and threats and devise appropriate strategies.

This analysis is a valuable mechanism for increasing strategic awareness of managers.

The Process of Environmental analysis

Environmental analysis is a challenging, time consuming and expensive affair. The analysis consists of four sequential steps:

1. Scanning

2. Monitoring

3. Forecasting

4. Assessment


Five stages of environmental analysis

Audit of environmental influences

Assessment of the nature of the environment

Identification of the key environmental forces

Identification of the principal Os and Ts

Strategic Position

SIGNIFICANCE OF BUSINESS ENVIRONMENT

The significance of business environment is that business decisions in general and strategies in particular are moulded by the business environment.

The importance of environmental analysis from the fact that strategy is some times referred to as a proper firm – environment fit. An analysis of the strengths and weaknesses of the organisation and opportunities and threats in the environment (SWOT analysis) is, in fact, one of the first steps in the strategic management process.

Business environment

Business

business vision

modern business

business intransition

foreign business

new business environment

typical business person

technological environment

natural environment