Business environment

What is business?

Buying and selling

Covers a complex field of industry and
commerce which involve activities related to
both production and distribution. These
activities on the one hand satisfy societys nees
and desires and on the other hand bring profits
to business firms

Nature of modern business

Large size
Oligopolistic character
Diversification
Global reach
Technology orientation
Change
Government control

Business environment

Business environment refers to all those

internal & external factors which impact the
functioning/performance of a firm &/or its
decision-making, particularly strategies.
In a broader sense it includes both internal &
external factors
In its common usage it refers to the external
factors
Business Environment interrelationships

Factors Influencing Business

Decision

Types of environment
1.
2.
a.

b.

Internal environment
External environment
Micro environment / task environment /
operating environment
Macro environment / general environment /
remote environment

Types of Environment

Internal environment
1. Value system
-Tata's integrity, understanding, excellence, unity,
responsibility
-TISCO
-Murugappa group
-Infosys Technologies-To achieve our objectives in an
environment of fairness, honesty, transparency,&
courtesy towards our customers, employees,
vendors, & society at large

2. Vision, mission & objectives

Ranbaxys mission to become a research
based international pharmaceutical company
Arvind mills vision we will enable people to
experience a better quality of life by providing
enriching & inspiring lifestyle solutions

3. Management structure & nature

Organization structure
Composition of board of directors
Share holding pattern
Extent of professionalisation of management
Financial institutions
4. Internal power relationship

5. Human resources

Skill, quality, morale, commitment, attitude,

etc.

Employee participation
6. Company image & brand equity
7. Physical assets & facilities
8. R & D & technology capabilities
9. Marketing resources
10. Financial factors

Micro environment
Factors in a companys immediate
environment that affect the
performance of the company

suppliers

Supply chain management is critical to the

efficiency of the firm
Companies are resorting to
partnering/relationship marketing

customers

Consumers-personal consumption
Business-further processing
Resellers-resell for profit
Govt.-produce public service & give it to the needy
International
In choosing the customer segment a company should
consider such factors as the relative profitability,
dependability, stability of demand, growth prospects
& the extent of competition

competitors
Different levels of competition
-Desire competition
-Generic competition
-Form competition
-Brand competition
Market structure

Forces Driving Industry Competition

Common entry barriers

Govt policy
Economies of scale
Cost disadvantages independent of scale
Product differentiation
Monopoly elements
Capital requirements

Rivalry among existing competitors

Number of firms and their relative market share, strengths

State of growth of industry
Fixed or storage costs
Indivisibility of capacity augmentation
Product standardization and switching costs
Strategic stake
Exit barriers
Diverse competitors
Switching costs
Expected retaliation

Bargaining power of buyers

The volume of purchase

The importance of the product to the buyer in terms
of total costs
The extent of standardization
Switching costs
Profitability of the buyer
Potential for backward integration by buyer
Importance of the industrys product with respect to
qualityof the buyers product
Extent of buyers information

Bargaining power of suppliers

Extent of concentration and domination in the

supplier industry
Importance of the product to the buyer
Importance of the buyer to the supplier
Extent of substitutability of the product
Switching costs
Extent of differentiation
Potential for forward integration

Marketing intermediaries

a.
b.

c.

d.

Firms that aid the company in promoting, selling &

distributing its goods to final buyers
Middlemen's such as agents & merchants
Physical distribution firms such as warehouses &
transportation firms
Marketing service agencies such as advertising
agencies, marketing research firms, media firms &
consulting firms
Financial intermediaries such as banks, insurance
co

Financiers

Influence decision making

Attitude, values, policies of financiers

Publics

Any group that has an actual or potential

interest in or impact on an organizations
ability to achieve its interests
Media, govt.
Citizen action-consumer organizations,
environmental groups

Macro environment

Demographic environment
Political/govt. environment
Legal environment
Social/cultural environment
Technological /natural environment
Global environment

Global environment

Increasing opportunity as world has become one

market
Improving quality
Competition from MNCs
Capital & technological transfers
Deciding which markets to enter & how to enter
Adjusting the management process
India & WTO

Technological environment

Technology reaches people through business

Increased productivity
Need to spend on R & D
Fast changing technology
Rise & decline of products & organizations
High expectation of consumers
System complexity
Increased regulation & stiff opposition
Demand for capital
Social change

Economic environment

Growth strategy
Economic systems
Industry
Agriculture
Infrastructure
Money & capital market
Per capita & national income
Population
Economic policy

Political environment

Role of legislature
Role of executive
Role of judiciary
Constitution of India

Socio-cultural environment

Culture & globalization

Culture determines goods & services
Peoples attitude to business & work
Caste system
Spirit of collectivism & individualism
Education
Family & marriage
Authority
Scientific spirit
Ethics in business
Social responsibility
Social audit

Natural environment

Manufacturing depends on physical inputs

Mining & drilling depends on natural deposits
Agriculture depends on nature
Trade between two countries depend on
geographical factors
Transport & communication depends on
geographical factors

Benefits of environmental study

Broad strategies are developed

Action plans to cope with technological
changes may be evolved
To foresee the impact of socio-economic
changes
Counter strategies to outsmart competitors
Keep managers on toes

The process of environmental

scanning
Scanning general survey
- identify early signals of environmental
changes
- detect environmental changes already under
way
Monitoring-focused systematic approach
- in-depth analysis of trends identified
- tracking & describing environmental trends

Forecasting
- plausible projection of the direction, scope &
intensity of the environmental change
Assessment
- determine the impact of the trends

Limitations of environmental
scanning

Analysis often has debilitating impact on

business
Fails to foresee future accurately
Does not guarantee organizational
effectiveness
Too much reliance on analysis makes a
manager become complacent

Environment analysis & strategic

management

Glueck defines strategy as a unified, comprehensive

& integrated plan relating the strategic advantages of
the firm to the challenges of the environment. It is
designed to ensure that the basic objectives of the
enterprise are achieved.
Strategic management is a set of decisions & actions
which leads to the development of an effective
strategy or strategies to help achieve corporate
objectives

Chandler describes strategic management as the

determination of the basic long-term goals &
objectives of an enterprise & the adoption of courses
of action & allocation of resources necessary to carry
out goals
Paine & Naumes, Strategic management involves
the decision-making & the activities in an
organization which
1. have wider ramifications
2. Have a long time perspective
3. Use critical resources towards perceived
opportunities or threats in a changing environment
Establishing the right firm-environment fit is the
essence of strategy formulations.

Formulation of vision, mission & objectives

a.
vision- a broad explanation of why the firm
exists & where it is trying to lead
- where do we go from here?
-what changes lie ahead in the business
landscape?
-what difference will these changes make to
the companys present business?
Infosys to be a globally respected corporation
that provides best-of-breed business
solutions, leveraging technology, vendors &
society at large

b. Mission it outlines the fundamental purpose of the

organization. Gives the organization its own unique
identity, business emphasis, & path for development.
-what customer needs is being satisfied
-who is being satisfied
-how the firm goes about creating & delivering value
to customers & satisfying their needs
-the companys concern for survival, its philosophy,
its self-concept & its concern for public image
Infosys to achieve our objectives in an environment of
fairness, honesty, & courtesy towards our clients,
employees, vendors & society at large

According to McGinnis a mission statement

1.
Should define what the organization is & what the
organization aspires to be
2.
Should be limited enough to exclude some ventures
& broad enough to allow for creative growth
3.
Should distinguish a given organization from others
4.
Should serve as a framework for evaluating both
current & prospective activities
5.
Should be stated in terms sufficiently clear to be
widely understood through out the organization.

c. Objectives render mission statements more

concrete . Objectives defines the enterprise.
those ends which the organization seeks to
achieve by its existence & operations.

SWOT analysis

Strategic alternatives & choice of strategy

Implementation
a.
Corporate level strategy
b.
Strategic business unit level strategy
c.
Functional level strategy

evaluation