all about "business environment" presented by aditi walia
TRANSCRIPT
TECHNOLOGY
MACRO
PROFIT
STABILITY
SU
RV
IVA
L
EFFICIENCY
GROWTH
OB
JE
CT
IVE
SANALYSIS
ENVIRONMENTAL FORCES
INFORMATION
RESOURCE
INF
LU
EN
CE
POWER
DIVERSITY
CO
MP
LE
XIT
Y
UN
CE
RT
AIN
ITY
DY
NA
MIC
MULTI-FACETED
MICRO
ST
RE
NG
TH
WEAKNESS
OPPORTUNITY
TH
RE
AT
MARKET
SUPPLIER
CO
NS
UM
ER
ECONOMY
POLITICS
SOCIO-CULTURE
Presented By :
ADITI WALIA
❖Business Environment❖Objectives of Business❖ Environmental Analysis & its Goals❖ Forces Operating in Business Environment❖ Relationship Between Organization & Environment❖ Problems in Business Environment❖ Features of Business Environment❖ Components of Business Environment❖ Conclusion
CONTENTS
WHAT
IS
BUSINESS
ENVIRONMENT ?
Etymologically, the term “business” refers to the state of being busy for an individual, group, organization or society. The term is also interpreted as one’s regular occupation or profession.
A business for our purposes can be any activity which comprises of purchase, sale, manufacturing, processing and/or marketing of products & services.
Peter F. Drucker has drawn two important conclusions about business :-
❖ It is created and managed by people : There will be a group of people who will take the decisions that
will determine whetheran organization is goingto flourish, prosper or decline, whether it willsurvive or eventually
perish. This is true for every business.
❖ It cannot be explained in terms of profit :
The economic criterion of maximizing profits for a firm has little
Relevance in the present times.“Profit Maximization” has been qualified & modified with the long term perspective to include development ofwealth and several non-financial factors
such as goodwill, societal factors, relations and so on.
Environment is the sum total of several external and internal forces that affect the functioning of business. Just like Human Beings, business does
not function in an isolated vacuum. Every business functions within a whole gambit of relevant environment and have to negotiate its way
through it.
According to Barry M. Richman & Melvyn Copen “Environment factors or
constraints are largely if not totally, external & beyond the control of individual industrial
enterprises & their managements”.
The extent to which the business thrives
depends on the manner in which it interacts with the environment.
A business which remains continuously
passive to the relevant changes in the environment is destined to
gradually fade away in oblivion.A
successful business has to identify, appraise and respond to
the various opportunities and threats in the environment.
OBJECTIVES
OF
BUSINESS
Enterprises pursue multiple objectives rather than a single objective. In general, we may identify a set of business objectives pursued by a large criss- cross section of business enterprises. These relate to profitability, productive efficiency, growth, technological dynamism, stability, self-reliance, survival, competitive strength, financial solvency, customer service, product quality, diversification, employee satisfaction and so on. Business organization seek to balance these objectives in an appropriate manner.
49%
18%
8%
7%
14%
4%
Other Business Objectives
Customer centricoutcomes
Operational Optimization
Risk Management
Financial Management
New Business Model
HR Analytics
Some of the most important objectives of every business are -
SURVIVAL
It is the will & anxiety to perpetuate into the
future as long as possible. While survival is
an obvious, basic & implicit objective,
business enterprises are interested in more
than mere survival. The ability to survive is
a function of :
▪ Nature of Ownership
▪ Nature of Business
▪ Competence of Management
▪ General & Industry Conditions
▪ Strength of the Enterprise and so on.
STABILITY
STABILITY
One of the most important objective of an
enterprise is stability. It is a cautious &
conservative objective. Stability is the least
expensive and risky objective in terms of
managerial time & talent & other
resources. A stable and steady
organization minimizes managerial
tensions and demands less dynamism from
managers. It is a strategy of least
resistance in a hostile external
environment.
GROWTH
This is a promising and popular objective
which is equated with dynamism, vigour,
promise and success. Enterprise growth
may take one or more form like increase in
assets, manufacturing facilities, increase in
sales volume in existing products or
through new products, improvement in
profits & market share. Growth may take
the enterprise along relatively unknown &
risky paths full of promises & pitfalls.
EFFICIENCY
EFFICIENCY
Business enterprise seek efficiency in in
rationally choosing appropriate means to
achieve their goals, doing things in the best
possible manner & utilizing resources in the
most suitable combination to get highest
productivity. It is a very operational
objective. In a sense, efficiency is an
economic version of technical productivity –
designing & achieving suitable input output
ratios of funds, resources, facilities &
efforts.
PROFIT
PROFIT
It is generally asserted that private
enterprises are primarily motivated by the
objective of earning high profits. All other
objectives are facilitative objectives & are
meant to be subservient to the profit
motive. It is pointed out that private
business enterprises are operated on
behalf of and for the benefits of the
owners who have assumed the business
risk of investing their funds.
ENVIRONMENTAL
ANALYSIS
&
ITS
GOALS
When the company ceases to adjust the existing business environment to its strategy or does not
react to the complex and ever changing business environment changing its strategy, the result is reduced achievement of corporate objectives.
Through environmental analysis, strategists get time to anticipate opportunities and plan to take optional responses for these strategies. It also helps the strategists to develop an early warning system to prevent threats or to develop strategies which can turn the threats to the company’s advantage.
“Positive trends in the environment breed complacency. That underscores a basic point : in change there is both opportunity and challenge”.
- Clifton Garvin
“The business environment remains challenging, but if you have a good strategy there is gold in all of this”.
- John Barth
➢ The analysis should provide an understanding of the current and potential changes taking place in the environment. It is important that one must be aware of the existing environment & at the same time one must have a long term perspective about the future too.
➢It should provide inputs for strategic decision making. Mere collection of data is not enough.
In general, Business Environment analysis has three basic goals as follows :
The information collected must be useful for and useful in decision making.
➢It should facilitate and foster strategic thinking in organizations-typically a rich source of ideas and understanding of the context within which a organization operates. It should challenge the current wisdom by bringing viewpoints into the organization.
FORCES
OPERATING IN
BUSINESS
ENVIRONMENT
Business Environment is the sum of several external & internal forces that affect the functioning of business. Just like Human Beings, businesses have to function within a whole gambit of relevant environment forces & have to negotiate their way through it.
The inputs in the form of human, physical, financial & other related resources are drawn from the environment. The business converts these resources through various processes into outputs of products or services. The latter are partly exchanges with the external client groups, say customers.
INPUTHumanPhysicalFinance
Technology
PROCESSINGTransformation of Inputs into
Outputs
OUTPUTProducts &
Services
ENVIRONMENTAL FORCES
The Input – Output exchange activity ( shown above ) is a continuous process and calls for an active interaction with
the external environment.
RELATIONSHIP
BETWEEN
ORGANISATION
&
ENVIRONMENT
A business does not work in isolation, rather it acts as a sub-system of its environment
consisting of society, economics, law, competitors and so on. Business draws
certain inputs from the environment in the form of resources & information and
transforms them into outputs.The relationship
between the organization & its environment can be discussed in the form of interactions between them that can be broadly outlined
as follows :
O
R
G
A
N
I
S
A
T
I
O
N
E
N
V
I
R
O
N
M
E
N
T
INFORMATION
RESOURCES
INFLUENCE & POWER
EXCHANGE OF INFORMATION
The organisation scans the external environment variables, their behaviour & changes, generates important information and then uses it for its planning, decision making & control purposes.
On the other hand, the organisationitself transmits information to several external
agencies either voluntarily, inadvertently or legally .
EXCHANGE OF RESOURCES
The organization receives inputs – finance, materials, manpower, equipment, etc. from
external environment. It sustains itself by employing the above inputs for producing output
of products & services.
The organization is also dependent on the environment for disposal of its outputs of
products & services to a wide range of customers & clients.
EXCHANGE OF INFLUENCE &
POWER
External environment hold considerable power and influence over the organization in the form of
competitors, suppliers, investors, government control, customers.
In turn, organization itself is sometimes in a position to wield power and
influence over the external environment by virtue of its command over the resources and
information.
PROBLEMS IN
UNDERSTANDING
BUSINESS
ENVIROMENT
FORCES
Environmental forces are difficult to analyse & understand on account of :
. DIVERSITY : Listing all conceivable environmental influences may be possible but the difficulty lies in making sense to this diversity in a way which can contribute to strategic decision making.
UNCERTAINITY : Managers claim that the pace of technological change and the speed of global communication change more faster than ever before. However the case remains same, it is important to try and understand and ten predict the future external influences but is really very difficult to do so.
COMPLEXITY : Managers, like other individuals, may tend to simplify complexity by focusing on the aspects of environment that may confirm their prior view or are historically important. These are not perverse managerial behaviours but only natural behaviour of anyone faced with complexity of the business environment.
FEATURES OF
BUSINESS
ENVIRONMENT
Decision making is a managerial process and a function which is greatly influenced by the broad characteristics of the business environment which
are as follows :
COMPLEXITY : Business Environment consists of a number of factors, events, conditions and influences arising from different sources. It is difficult to comprehend all at once, the factors constituting a given environment.
The vicious complexity has been illustrated as follows.
Increased Complexity
Poor Execution
Loss Of Process Control
Poor Business Results
Processes & People are added to Improve
Vicious Complexity
Cycle
DYNAMIC : Business Environment comprises of lots & lots of factors so is constantly changing the nature.
Due to the many varied influences operating, there is dynamism in the environment causing it to continuously change its shape and character.
MULTI-FACETED : A particular change or development in the business environment may be viewed differently by different observers. It has been seen many a times when the same development is welcomes as an opportunity by one company while another perceives it as a threat.
FAR REACHING IMPACT : The growth and profitability of an organization depends critically on the environment in which it operates. Any environment change has an impact on the organization in several different ways for a good length of period of time.
Client Experience
ProcessDesign
IneffectiveInconsistency
Reliability
Minimise Variation
Continuous Feedback
COMPONENTS
OF
BUSINESS
ENVIRONMENT
INTERNAL ENVIRONMENT
EXTERNAL ENVIRONMENT
BUSINESS ENVIRONMENT
MANAGEMENT
FINANCE
ACCOUNTING
OPERATION
MARKETING
ECONOMY
GOVT.
CUSTOMER
TRENDS
CORPORATE
CITIZENSHIP
INTERNAL ENVIRONMENT
ANALYSIS
EXTERNAL ENVIRONMENT
ANALYSIS
STRENGTH
WEAKNESS
OPPORTUNITY
THREAT
SWOTSUMMARY
CAPITALIZE STRENGTH
MANAGE WEAKNESS
EXPLOIT OPPORTUNITY
AVOID THREAT
MICRO ENVIRONMENT
Micro or Internal Environment is related to the immediate periphery of an organization. It
influences an organization regularly and directly. It imparts strengths or weakness to the
organization. It comprises of the following : Consumer Competitor OrganizationMarket SupplierMarket intermediaries
MICRO ENVIRONMENT
CONSUMER
COMPETITION
ORGANIZATION
MARKET
SUPPLIER
MARKET INTERMEDIARY
Within a Micro environment in which the firm is operating, it needs to address the following issues :
➢ The employees of the firm, their characteristics & how they are organised.
➢ The customer base on which the firm relies for business.
➢ The ways in which the firm can raise its finance.
➢Who are the suppliers & how the links between the two being developed.
➢ The local community within which the firm operates.
➢ The direct competition and how they perform.
CONSUMER
Consumer is the one who ultimately consumes/uses the product or service thus, occupies the central position in the market. The organisation needs to closely monitor and analyse the changes in the consumer’s tastes, preferences and buying pattern.
The organisation cannot survive without customers. It will cease to exit. A consumer occupies the central position in the marketing environment. According to Peter F. Drucker“ The aim of business is to create and retain customers”.
Key points that should be considered as follows :
❖Who are the customers/consumers ?
❖What benefit they are looking for ?
❖What are their buying patterns ?
COMPETITOR
Competitor is the other business entities that compete for the same resources, markets as well as consumers. A study of the competitive scenario & threats from competition is essential.
Competition may be Direct or Indirect. Direct competition is between organisations who are engaged in same business activity whereas competition between a holiday resort & a car manufacturing company for available discretionary income of affluent customers is Indirect competition.
Key points that should be considered as follows :
❖Who are the competitors ?
❖What is their present strategy & business objectives ?
❖Who are the most aggressive & strongest competitors ?
ORGANISATION
Individuals occupying different postions or working in different capabilities in organisationsconsists of individuals who come from outside. The objectives, goals and resource availabilities of a firm occupy critical position in a micro environment.
An organisation comprises of the following :
▪ Owners : They are individuals, shareholders, groups or organisations that have key stake in the organisation.
▪ Board Of Directors : BOD is elected by the shareholders and is charged with overseeing the management to ensure that it is being run in a way that serves best the shareholder’s interest.
▪Employees : they are the people who actually do work in an organisation and thus considered as major force of the organisation.it is important for the organisation that employees embrace the same values and goalsas the organisation.
MARKET
The market is larger than the customers. It is to be studied in terms of :
• actual & potential size• its growth prospects and• market attractiveness.
The marketer should study the trends & developments and also the success key factors of the market.
Key points to be considered are as follows :
❖Cost structure of the market.
❖Price Sensitivity & Technological Structure of the market.
❖The existing distribution system of the market.
❖Is the market mature ?
SUPPLIER
Supplier form an important component of micro environment. They provide raw materials, equipments, services and so on. Suppliers with their own bargaining power affect the cost structureof the industry. They
constitute a major force that shapes the competition in the industry. Also, organisations have to take major
decisions on “outsourcing” or “in-house production” depending on the supplier environment.
MARKET INTERMEDIARIES
Intermediaries bridge the gap between the organisations and the consumers. They are in the form of
Stockists, Wholesalers and Retailers. In many cases,
consumers are not even aware of the manufacturers of the
products they buy. Stores such as Reliance Trends, Vishal Mega Mart,
Big Bazaar, Big Basket are increasingly becoming popular in
big cities.
PUBLIC CAPITAL MARKET
MERCHANT BANKER
STOCK BROKER UNDERWRITER
DEPOSITED BY PARTICIPANT
TRANSFER AGENT
PORTFOLIO MANAGERS
VENTURE CAPITALSMUTUAL FUNDS
CREDIT AGENCY
FINANCIERS
INTERMEDIARIES
INTERMEDIARIES
MACRO ENVIRONMENTMacro or External Environment refers to all the forces that are a part of a larger periphery and distantly affects the organization and the micro
environment. The elements of macro environment affect all the firms operating within an industry. It
comprises of : Demographic Environment Economic Environment Socio-Cultural Environment Political Environment Technological Environment Global Environment
MACROENVIRONMENT
DEMOGRAPHIC ENVIRONMENT
ECONOMICENVIRONMENT
POLITICAL ENVIRONMENT
SOCIO-CULTURALENVIRONENT
TECHNOLOGICALENVIRONMENT
GLOBALENVIRONMENT
Macro environment has broader dimensions, within a Macro environment in which the Industry is operating, it
needs to address the following issues :
• Who are their threats in the competitive world in which they operate & why ?
• Which areas in technology might pose a threat to their current product range & why ?
• The bargaining powers of suppliers and consumers ?
• The type of competition they are facing and their perceived threats & weaknesses ?
DEMOGRAPHIC ENVIRONMENT
The term “Demographic” denotes characteristics of population in an area, district, country or I the world.Factors such as general age profile,
sex ratio, income, education, growth rate affect the business with different magnitudes.
Organizations need to address the following issues :▪What demographic trends will affect the market size of the industry ?▪What demographic trends represent opportunities or threat ?
DEMOGRAPHIC ENVIRONMENT
Population Size
Geographic Distribution
Ethnic Size
Income Distribution
POPULATION SIZE
Population size itself is a matter of “ critical importance” and changes in the make-up of population has more implications such as Changes in Nation’s birth rate &/or family size, Increases or decreases in total population, Effects of rapid population growth on natural resources and food supplies.
ETHNIC MIX
This reflects the ethnic make-up of the population and has implications for both company’s potential customers and workforce. Issues to be addressed include what changes in the ethnic mix of the population imply for product and service design & delivery.
GEOGRAPHIC DISTRIBUTION
Population shifts from one region of the nation to another and this has a clear impact on the competitive strategy of the organization. For example, companies have to consider relocation if population shifts have a significant impact on the availability of qualified workforce.
INCOME DISTRIBUTION
Changes in the individual and group purchasing power and discretionary income often results in consumptions and savings pattern of the people. Tracking, Forecasting and Assessing changes in the income patterns may identify new opportunities for the companies.
ECONOMIC ENVIRONMENT
The “Economic Environment”refers to the nature and
direction of the economy in which a company competes or may compete. It includes general economic conditions in the region & nation, conditions in the resource market that influences the supply to the enterprise, their cost, quality, availability and reliability of supplies.
• Level of disposable income • Interest & tax rates• Government budget deficits• Availability of credit• Inflation rate & Money market rate• Consumption patterns• Price fluctuations• Stock market trends • Import/Export Factors• Monetary & Fiscal policies• OPEC policies• Unemployment Trends• Coalitions of countries/regional blocks
Key Economic Factors
SOCIO-CULTURAL ENVIRONMENT
It comprises of factors related to human relationships and the
impact of social attitudes & cultural values which has bearing on the
business of the organization.It is a complex of factors
such as social traditions, values & beliefs, level & standards of literacy
education, the ethical standards & state of society, the extent of social
stratification, conflict & cohesiveness and so forth.
Some of the important factors & influences operating in this environment are :
▪ Social concerns, such as role of businessin the society, environmental pollution, corruption, use of mass media & consumerism.
▪ Social attitudes & values, social customs, changing lifestyle patterns & materialism.
▪ Education levels, awareness & consciousness of rights, work ethics of members of society.
▪ Family structure & changes in it, family values.
POPULATION
EDUCATION
EMPLOYMENT
HEALTH INSURANCE
& DISABILITY
HOUSEHOLDEXPENSE
DEMOGRAPHIC & SOCIAL
STATISTICS
TECHNOLOGICAL ENVIRONMENT
One of the important factor that is controlling & changing people’s life is technology. It can act as both opportunity & threat to a business. Business & Technology are highly interrelated & interdependent. The fruits of research & development of technology will be availableto the society through businessonly & also improves the quality
of life of the society. Hence, technology is patronized by business.
The following factors are to be considered for technological environment :
The pull of technological change.
Opportunities arising out of technological innovation.
Risk & uncertainty of technological development.
Role of R&D in a country and government’s R&D budget.
TECHNOLOGY AWARENESS of
marketable invention
TECHNOLOGY ACQUISITION by self generation or transfer
TECHNOLOGY ADAPTATION minor
modifications for specific needs
TECHNOLOGY ADVANCEMENT
innovation involving major modifications of
acquired technology
TECHNOLOGICAL ABANDONMENT
obsolescencing ENVIRONMENTfactors affecting technology user
Promotion
POLITICAL ENVIRONMENT
Political-Legal environment is partly general to similar enterprises and partly specific to an individual enterprise. It includes factors likegeneral state of political
development, the degree ofpoliticalization of business &economic issues, the level ofpolitical morality, the law &order situation, political stability, the level of government
intervention in the Economy & the Industry, Government policies (Fiscal, Monetary, Industrial, Labour & Export-Import policies),
specific legal enactments and framework in which the enterprise has to function & the degree of effectiveness with which they are implemented.
There are three important elements of Political-Legal Environment :
▪ Government
▪Legal System
▪Political Groups
Govt.
• The type of govt. running a country is a powerful influence.
• Taxes & Duties levied by the govt. are critical areas affecting the business.
Legal System
• Companies prefer to carry out business in a country having sound legal system.
• They need to have good working knowledge of major laws protecting consumers, competitions & organizations.
Political Groups
• There may sporadic movements against certain products or services or companies.
• They pressurize companies to emphasis more on consumer’s rights.
Political-Legal Environment
GLOBAL ENVIRONMENT
Today’s competitive landscape requires that companies must analyse global environment as it is also rapidly changing. The new concept of “Global Village” has
changed how individuals & organizations relate to each other. Further, migratory habits of the workforce as well as
increased offshore operations are changing the dynamics of business operations. The need to think & act from Global perspective is universal.
The factors that should be assessed are :
▪ Potential positive & negative impact of significant events such as sports meet or a terrorist attack.
▪ Identification of both important emerging global markets and global markets that are changing.
▪ Differences between cultural and institutional attributes of individual global markets.
CONCLUSION
Each business operates in a unique environment. Environment not only influences business but
also gets influenced by it. No business can function free of interacting and influencing forces
that are inside or outside its periphery.
“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change”.
- Charles Darwin