Business Environment sheet by Simon (BUBT)

8/4/2019 Business Environment sheet by Simon (BUBT)

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Business EnvironmentDefinitionThe word Environment doesnt refer to the natural or ecological environment.

It is a generic concept which combined the totality of environment process which

may influence any aspect of organizational activity.

Business environment refers to the aggregate of all forces and institutionswhich are external to and beyond the control of individual business concerns andtheir managements

- C. B. Gupta.Organizational environment is the combination of factors or elements thatinfluence the way an organizations functions.

- MoselyWillson has suggested 3 brode concept of the environment. According to him,

the business environment may be viewed as:

1. An objective fact, a clear, measurable and definable reality.2. A subjective fact, its particular characteristics being dependent or each

individual interpretation and perception.

3. Enacted, where the division between organization and environment is notclear and where the environment is created and defined by individuals.


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A Classification of Environmental Forces

Fig: LEPESTEC analysis.

Dartboard Model

ORGANIZATION

Legal

TechnologicalCompetitive Political

Ecological

Economic

Social

Technology sector Government sector

Economy Industrial rawsector material market

Sector

Socio-culture sector Human Resource sector

International sector Finance sector


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According to Peace & Robinson,

They categorized a firm external environment into three groups:

1. Remote environment: It involves global and domestic political, social andtechnological sectors.

2. Industry environment: It involves competitive forces.3. Operating environment: It involves mixed group of actors including suppliers

and customers.

Basis of classificationClassification of the type outlined before attempt to figure out the business

environment and although they tend to simplify reality, they help us to identify

and understand what are complex environmental process and forces.

These classifications serve as useful tools to aid/contribute the company for

analyzing the environment.

The real environment or reality means the complex array of inter-related courses

to find out and gain the insight of the environment.

In reality, there are number of forces that influence the organizational activities.

Environmental stakeholdersA stakeholder may be a person, organization, interest groups or other parties

which holds interest and risk (stake) in the business.

The prime concern with the stake holders concept is to identify and categorized

the power groups as the part of organizations business environment.


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Example: HIGHER EDUCATIONThe stakeholder of a university may be:

Government.Department of education.

Students.

Quality assessment bodies.

Local government.

Local residence.

Other regional higher educational institution.

Tax payers.Finding body.

Geo-political scalesThe Geo refers to geographical scale involving the levels of political govt. that

influence the organizations variance activities.

At the local level, in most countries there is a level or tire of govt. which is

responsible for certain activities within a relatively small area. Most organizations

are influenced by environmental forces operating at different geo-political levels.

The organization-environment relationshipThe relationship or direction of influence between environment and organization

is not unidirectional symbol or static.


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Organizations have different type of influence which helps to form and give shape

to the business environment. Environment then influences the organization to

change.

Thus, the reality is that, many profoundly shape to the business environment

and that facing many other organizations.

Each organization forms part of the business organization such as suppliers,

competitors, buyers and so forth.

Fig: the organization-environment relationship.

Any organization especially sizable influences others; exert considerable pressures

for change in their business environment. For example, BANGLALINK.

The companies can control their future if they know how to influence the

destiny of their industry.

- HAMEL & PRAHALAD.

Filters

Organizations

Actions

Environment


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Sometimes organizations within a business sector collaborate with each other in

order to maintain a stable environment within known competitive conditions. For

example, cement industry.

Information flows

Fig: Model of business environment.

Information about anorganizations environment may take a variety of forms.

For example, it may combine sophisticated data from a strategic management

information system.

External . operating at a Geo-politicalEnvironmental forces Range of .. scales

O Individual & organizational Perpetual filters

R

G

A Decision making

N

I

Z operational and strategic action

A

T

I Implication for organizationO

N


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Environmental information is always the result of human analysis. It has passed

through the complex perceptual filters which exist within every organization

equally.Perceptual filter means all the internal mechanism within an organization whichenables managers to construct their own view of environmental realities.Managers at all levels utilize environmental information to facilitate their

decision making in order to enable the organization to operate successfully.

The environment often determines and always influences the future codes of

action of organization.

Factors that affect/influence individual & organizational perceptionAccording to Miller,

The managers perception of their environment has a greater influence on

organizational decision making and eventual strategic direction.

The main influences upon individual and organizational perception are given below:

1. Characteristics of individual such as background, education and duration ofemployment within the organization.

2. Organizational culture.3. Organizational politics, structure and control mechanism.4.History and development of an organization.5. Industrial sector relationships.


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Environmental forecastingForecasting may be viewed as an uncertain science that time is not spendattempting to foresee what is often regarded as the unforeseeable. Managers

preferred to be influenced by a combination of information resulting from their

accumulated experience in business and a variety of perceptual measures of their

environment.

Normally forecasting is the process of assessing the potential impact of lightly

changes in the environmental offers organization and advantage over their

competitors by enabling decision makers to narrow the range of option.

Approaches for forecastingManagers need to take a step by step approach to the forecasting.

Their model outlined 5 steps:

1. Selection of environmental variables that is critical to the organization.2. Selection of sources of information about those variables.3. Evaluation of forecasting techniques.4. Integration of the result of forecasting into the strategic management

process.

5. Monitoring and evolution of the critical aspects of these forecast.


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Techniques for forecasting1. Time series model: It attends to identify trends in variable based on

historical data orcyclical factor and exert influence into the future. Forexample, based on population then forecast the future demographic

change.

2. Judgmental model: This mainly based upon thesubjective forecast, basedupon theinformed opinion of people in the relevant field. For example,forecasting by sales force personnel.

3. Brainstorming: It can usually be implied to estimate future trends intechnology development.

4.Delphy method: It is more systematic technique than brainstorming. Thismethod attends togain consensus among a group of people such as asenior strategic management group.

5. Scenario development: It recognizes judgmental and non-quantitativeinformation such as changing fashions. Scenarios are pictures or stories ofwhat might be the case on some future date and take these into

consideration in the planning process.

6. Potential risk rating: This take into consideration, the stability andcreditability of nations and their governments and advice commercial

organization and govt. on therisk involved inoverseas investment.

Impact AnalysisThese involve ascertaining a series of potential environmental changes and

assessing the probable effect of these on a range of organizations usually

direct competitors. The impact of a change is firstly assessed as either

positive or negative influence.


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EnvironmentalScenario

Company1

Company2

Company3

Ecological -

Economic ++ - +++

Political - -

Fig: A model of impact analysis.

Impact analysis enables managers or analysts to assess the effects of

environmental change on an organization and upon its competitors clearly,

where such changes are likely to adversely affect on organization more than

its competitors. For this, contingency planning needs to be considered.

Environmental Analysis and strategic processStructure of business Environment1. Machine structure: In environment, there are certain and stable

organization will tend to develop a front and structure which is most

efficient in relation to that environment probably want with a high degree

of managerial control and mechanistic structures and systems.

2. Organic structure: If an organizations environment is uncertain andcomplex, managers design structures with greater flexibility.

The success of commercial firms depends on their ability to foresee and

subsequently act upon environmental information.

According to Miles & Snow (1978) There are various types of organization which causes quite differentcapabilities and motivations in this respect. Their typology of organizationsrefers to the style in which they operate strategically.


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This style influences their relationship with the business environment and

in turn is influenced by that environment.

Types of organizations

1. Defenders org.: This type of organizations attemptto create a stableenvironment which suits or matches theirnon-dynamic structure andstrategy.

2. Prospectors org.: They view their environment asever changing and seekcontinuous strategic and structural adjustment to cope with thosechanges. They arecontinuously searchingfor new opportunities and in the

process may create change and uncertainty for others within competitive

environment.

3. Analyzers org.: These types of organizations are capable of acting in bothstable and unstable environment.

4.Reactors org.: They act when environmental change forces them to do so.They are not proactive organization.

Organizations

Defenders Prospectors Analyzers Reactors


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Types of approaches affecting the business environment

1. Rationalists approach: It argues that strategic planning should beundertaken in alogical and largely linear fashion. It is suggested thatorganizationsmonitor their business environment andanalyze their internalresource position in order toassess what strengths and weaknesses theyhave which mightfacilitate the exploitation of environmental opportunitiesand the avoidance of environmental threats. A stakeholder analysis is also

important at this stage.

2. Subjectivist approach: This approach based on imperial research andintuitive judgment and attempts to explain the actual processes that take

place in organizations. This approach tends to be less prescriptive.

Organizations are not entirely rational or logical in their environmental

decision making process. Organization level filters of an intensely humannature may disrupt mechanical linear planning process, influence the nature

and quality of information available and severely limit the range of

strategic choices. The firms then do seek adoption to their environment

according to their limitation and repeation as competitors.

Approaches

OfBusiness environment

RationalistApproach

SubjectivistApproach


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Many successful organizations use resources more creatively and challenge

environmental assumptions.

Business Environment sheet by Simon (BUBT)

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