BUSINESS ENVIRONMENT- AN INTRODUCTION

INTRODUCTION TO BUSINESS

Business is the organized efforts of enterprises to supply consumers with goods and services. • Business is a commercial activity engaged in as a means of livelihood or profit, or an entity which engages in such activities.

•It is an important institution in society and the role of business is crucial.

– Be it for the supply of goods and services– Creation of job opportunities– Offer of better quality of life– Contributing to the economic growth of the country and putting it on the global map

OBJECTIVES OF BUSINESS

• Objectives of Business means the purpose for which the business is established.

• The objectives of business can be classified under three heads:

economic objectivesSocial objectivesHuman objectives

Economic Objectives

• Business is primarily an economic activity. The major economic objectives to be achieved by business are:

(1) Earning of profit (2) Creation of market (3) Innovations.

Social Objectives

• The social objectives of business are gaining more and more recognition with each passing year. The main social objectives of business are:

Supply of standard quality of goods Avoidance of anti-social practices  Provision of more employment. Cooperation with the government Optimal use of national resources

Human Objectives

• The human objectives of business are the employees working in a business should be fairly

rewarded A healthy climate is created by providing opportunities to

the employers for deve new skills and abilities The employees should have say in the affairs which directly

affect them. thinking of modern business must go well beyond material

benefits of its employees. It must reduce unpleasantness of work and plan for job satisfaction to the workers.

ENVIRONMENT

• Environment refers to all external forces which have a bearing on the functioning of business. ”Environment are largely if not totally external, and beyond the control of individual industrial enterprises and their management. These are essentially the givers within which firms and their managements must operate in a specific country and they vary, from country to country”.

BUSINESS ENVIRONENT

• 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.

Business Decision

Internal Environment

Mission / ObjectivesManagement StructureInternal Power RelationshipPhysical Assets & facilities

Company imageHuman resourcesFinancial CapabilitiesTechnological CapabilitiesMarketing Capabilities

FinanciersSuppliersCustomersCompetitorsPublicMktg Intermediaries

Micro Environment

EconomicTechnologicalGlobalDemographicSocio-CulturalPolitical

Macro Environment

BUSINESS ENVIRONMENT

Internal Environment Any business has certain vision, mission and objectives and a

strategy to achieve them. Formulation of strategy is defined as establishing a proper firm-environment fit. Indeed the objectives should be based on an assessment of the external environment and the organizational factors (internal environment).

Vision Mission Objectives Management Structure Human Resources Financial Factors Company Image and Brand Equity

Micro Environment

• The Micro environment consists of different types of stakeholders - customers, employees, suppliers, marketing intermediaries, competitors. It is also known as the Task Environment and Operating Environment and has a direct bearing on the operations of the firm. Changes in the micro environment will directly affect and impinge on the firm's activities.

Macro Environment The macro environment consists of factors which are beyond the control

of the business. There is a symbiotic relationship between business and the environmental factors, environmental factors are dynamic and a particular business firm, by itself, may not be in a position to change it’s environment. Macro Environment includes

• Political Environment• Economic Environment• Technological Environment• Socio-cultural Environment• Demographic environment• Global Environment• Natural environment

Political Environment

Political Environment refers to the influence exerted by the three political institutions ie. legislature, executive and judiciary in shaping, directing, developing and controlling business activities.

• The constitution of a country• Political Organisation• Political Stability• Image of the country and its leaders• Foreign Policy • Laws governing business• Flexibility and adaptability of laws• The Judicial System

Economic Environment

Economic Environment refers to all forces which have an economic impact on Business. The economic environment consists of the demand dynamics, supply situation, pricing factors, degree of competitiveness, and impact of profitability. It includes the fiscal policy, monetary policy and the taxation policy, the FDI norms, the

investment criterion and financing decisions. Economic environment includes:

Growth strategy Industry Agriculture Infrastructure Money and Capital Markets Per capita and national income Population New Economic Policy

Technological Environment Technological is the systematic application of scientific or other organized knowledge to

practical tasks.Technological environment hold new technological innovation, new products, the state of technology, the utilization of technology for maximum inputs and outputs, the obsolescence of technology and the dynamic changes that frequently occur in technologies which enable firms to get a competitive advantage

• Technology reaches people through business 

• Helps in increased productivity

• Business needs to spend on R & D and keep up with the technological advances around them

• Technology leads to introduction of new products and older products becoming outdated and redundant.

• Technological advances leads to high expectations of consumers in terms of quality

• Leads to system complexity

• Demand for capital

Socio- cultural Environment

• Culture creates people• Culture and globalization• Culture determines people’s attitude to business and work.• Caste system• Spirit of collectivism• Education• Ethics in business• Social responsibility• Social audit• Corporate governance

Demographic Environment

Demographic factors include: Size, growth rate, age composition, sex composition

etc of population Family Size Economic Stratification of population Educational level Caste , religion etc

Natural Factors

Natural factors include geographical and ecological factors. These factors include:

Natural resources endowments Weather and climatic conditions Topographical factors Location aspects Port facilities etc

Global factors

The global environment refers to those factors which are relevant to business, such as the WTO principles and agreements; other international conventions/ treaties / agreements / sentiments in other countries etc. For eg hike in crude oil prices has a global impact etc.

• World is becoming one market• Improving quality• Competition from MNCs• Capital and technology transfers• Deciding which markets to enter and what products to

manufacture• Adjusting the management process

External Environmental Analysis

Environmental Analysis has three goals: Provides an understanding of current and potential changes taking place Environmental Analysis should provide input for strategic decision making. Facilitate and lead to strategic decisions within an organization.

Environmental Analysis and diagnosis give strategists time to anticipate opportunities and to plan to take optional responses to these opportunities. It also helps strategists to develop an early warning system to prevent threats or to develop strategies which can turn a threat to a firm’s advantage”. Firms which systematically analyse and diagnose the environment are more effective than those which do not.

Process of Environmental Analysis

The analysis consists of four steps: Scanning : Detect early signals of possible environmental

change and detect environmental change already underway. Monitoring : Purpose of monitoring is to assemble sufficient

data to discern whether certain trends are emerging, identification of the trends and identification of areas for further scanning.

Forecasting : It is concerned with developing projections of the direction, scope and intensity of environmental change.

Assessment : To determine implications for the organisation’s current and potential strategy

Environmental Analysis and Strategic Management

Defining Business Mission and Objectives

SWOT AnalysisEnvironmental Analysis + Self Appraisal

Strategic Alternatives and Choice of Strategy

Implementation of Strategy

Evaluation and Control of Strategy