Session I-Business Environment

Unit- ISession- I

By: Ruturaj Baber

The term Business Environment is composed of two words ‘Business’ and ‘Environment’.

In simple terms, the state in which a person remains busy is known as Business. The word Business in its economic sense means human activities like production, extraction or purchase or sales of goods that are performed for earning profits.

On the other hand, the word ‘Environment’ literally means surroundings, external objects, Circumstances under which someone or something exists. Therefore, Business Environment may be defined as a set of conditions – Social, Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the functioning of organization.

19-09-2014 MBA I Semester 2

Business Environment has two components:1. Internal Environment2. External Environment

1) Internal Environment:It includes 5 Ms i.e. man, material, money, machinery and

management, usually within the control of business. Business can make changes in these factors according to the change in the functioning of enterprise.

2) External Environment: Those factors which are beyond the control of business

enterprise are included in external environment. These factors are: Government and Legal factors, Political Factors, Socio-Cultural Factors, Demo-Graphical factors etc. It is of two Types:1. Micro/Operating Environment2. Macro/General Environment

19-09-2014 MBA I Semester 3

Micro/Operating Environment: The environment which is close to business and affects its capacity to work is known as Micro or Operating Environment. It consists of Suppliers, Customers, Market Intermediaries, Competitors and Public.

(1) Suppliers: – They are the persons who supply raw material and required components to the company. They must be reliable and business must have multiple suppliers i.e. they should not depend upon only one supplier.

(2) Customers: - Customers are regarded as the king of the market. Success of every business depends upon the level of their customer’s satisfaction. Types of Customers:(i) Wholesalers(ii) Retailers(iii) Industries(iv) Government and Other Institutions(v) Foreigners

(3) Market Intermediaries: - They work as a link between business and final consumers. Types:-(i) Middleman(ii) Marketing Agencies(iii) Financial Intermediaries(iv) Physical Intermediaries19-09-2014 MBA I Semester 4

(4) Competitors: - Every move of the competitors affects the business. Business has to adjust itself according to the strategies of the Competitors.

(5) Public: - Any group who has actual interest in business enterprise is termed as public e.g. media and local public. 2) Non-Economic Environment: - Following are included in non-economic environment:-(i) Political Environment: - It affects different business units extensively. Components:(a) Political Belief of Government(b) Political Strength of the Country(c) Relation with other countries(d) Defense and Military Policies(e) Centre State Relationship in the Country(f) Thinking Opposition Parties towards Business Unit(ii) Socio-Cultural Environment: - Influence exercised by social and cultural factors, not within the control of business, is known as Socio-Cultural Environment. These factors include: attitude of people to work, family system, caste system, religion, education, marriage etc

19-09-2014 MBA I Semester 5

(iii) Technological Environment: - A systematic application of scientific knowledge to practical task is known as technology. Everyday there has been vast changes in products, services, lifestyles and living conditions, these changes must be analysed by every business unit and should adapt these changes.

(iv) Natural Environment: - It includes natural resources, weather, climatic conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall etc. Every business unit must look for these factors before choosing the location for their business.

(v) Demographic Environment :- It is a study of perspective of population i.e. its size, standard of living, growth rate, age-sex composition, family size, income level (upper level, middle level and lower level), education level etc. Every business unit must see these features of population and recognize their various need and produce accordingly.

(vi) International Environment: - It is particularly important for industries directly depending on import or exports. The factors that affect the business are: Globalisation, Liberalisation, foreign business policies, cultural exchang

19-09-2014 MBA I Semester 6

Importance of business environment

• Identification of strength• Identification of weakness• Identification of opportunities• Identification of threats• Exploitation of Business Opportunities• Keeping business enterprise alert• Keeping business flexible and dynamic• Understanding future problems and prospects• Making business socially acceptable• Ensures survival and growth

19-09-2014 MBA I Semester 7

19-09-2014 MBA I Semester 8

The nature of Business Environment is simply and better explained by the following approaches

Nature of business environment (Contd.)

• System Approach: In original, business is a system by which it produces goods and services for the satisfaction of wants, by using several inputs, such as, raw material, capital, labour etc. from the environment.

• Social Responsibility Approach: In this approach business should fulfill its responsibility towards several categories of the society such as consumers, stockholders, employees, government etc.

• Creative Approach: As per this approach, business gives shape to the environment by facing the challenges and availing the opportunities in time. The business brings about changes in the society by giving attention to the needs of the people.

19-09-2014 MBA I Semester 9

Environmental Scanning

What is Environmental Scanning

‘the study and interpretation of the political, economic, social andtechnological events and trends which influence a business, an industry oreven a total market’ Kroon (1995)

Environmental scanning is the process of gathering information about eventsand their relationships within an organization's internal and externalenvironments.

The basic purpose of environmental scanning is to help managementdetermine the future direction of the organization.

Environmental Scanning is a kind of radar to scan the world systematicallyand signal the new, the unexpected, the major and minor.

Brown and Weiner (1985)

19-09-2014 MBA I Semester 11

Objective of Environmental Scanning

• Detecting trends in political, economical, socio-cultural andtechnological events important to business

• Defining potential threats.

• Promoting future orientation and in thinking of management staff.

• Alerting management and staff to trends that are converging andtaking place in the environment.

19-09-2014 MBA I Semester 12

Types of environmental scansAd Hoc Periodic Continuous

General

Character-

istics

Usually performed in response to

crisis

Not as in-depth

Forecasts are more short-term

Tied to planning cycle (e.g.,

every 3 years)

In-depth

Forecasts 5 to 10 years

Also called Continuous Learning

Structured, in-depth data collection and

analyses by dedicated staff

Data gathered is more comprehensive

Pros

Allows for quicker turn-around of

scan results

Lower commitment of resources

over time

Predictable frequency allows

for appropriate budget

planning

Frequency provides timely

information gathering for

planning

Planning is proactive…

Dedication of time by researchers

allows incorporation of data from more

sources

Provides planners with more

comprehensive information

Informs planners of critical changes

sooner

Plans can be adjusted or adopted more

proactively

Cons

Data can be more superficial

Results may address immediate

issues, but are less generalizable

If only conducted in response to

crises, indicates lack of organized

institutional planning efforts

Planning response is reactive

Reaction to unforeseen

changes in environment (e.g.,

onset of recession) may

require Ad Hoc scan to

supplement information.

Planning response is then

more reactive

Requires ongoing institutional

commitment of resources (funding,

personnel, and time)

19-09-2014 MBA I Semester 13

Internal analysis of the environment

• Internal analysis of the environment is the first step of environment scanning. Organizationsshould observe the internal organizational environment. This includes employee interaction withother employees, employee interaction with management, manager interaction with othermanagers, and management interaction with shareholders, access to natural resources, brandawareness, organizational structure, main staff, operational potential, etc.

• Also, discussions, interviews, and surveys can be used to assess the internal environment.Analysis of internal environment helps in identifying strengths and weaknesses of an organization.

19-09-2014 MBA I Semester 14

External Analysis of the Environment

• As business becomes more competitive, and there are rapid changes in the externalenvironment, information from external environment adds crucial elements to theeffectiveness of long-term plans.

• As environment is dynamic, it becomes essential to identify competitors’ moves andactions. Organizations have also to update the core competencies and internal environmentas per external environment.

• Environmental factors are infinite, hence, organization should be agile and vigil to acceptand adjust to the environmental changes.

19-09-2014 MBA I Semester 15

THANK YOU

19-09-2014 MBA I Semester 16