BUSINESS

ENVIRONMENT
 Concept, Nature, Significance , &
Framework
Business refers to buying and selling of
goods……..
 Moderns business covers a complex field of industry and
commerce involve activities related to both production and
distribution.

 These activities on the one hand satisfy society’s needs and

desire and on the other hand bring profits to business firm.

 Business in brief : includes activities connected with

production, trade, transport, finance, banking, insurance,
advertising and certain other activities related to industry
and commerce.
 Organization as Input-output System

 Flow of input:-
 Material
 Energy
 Information
 Processes:-
 Process to convert input-output
 Process for holding elements in organization
 Output:-
 Input
Out-put
Material Process
Environm Goods & Environm
ent Energy Men, services ent
informati machine
on
 Business Environment

 1.It refers the surroundings & circumstances,

which influence business operations. Consists of
forces and factors, internal or external to a
business firm.

 2.Business environment may be defined as the

total surroundings, which have a direct or
indirect bearing on the functioning of business.
 3.BE factors affect
 a company's operations,
 and includes customers,
 competitors,
 stakeholders,
 suppliers,
 industry trends,
 regulations,
 other government zactivities, social and
economic factors and technological
developments.
 “B.E encompasses the ‘climate’ or set of
conditions ,economic, social, political or
institutional in which business operations are
conducted.”- Arthur M. Weimer.

 “Environment contains the external factors

that create opportunities & threats to
business. This includes socio-economic
conditions, technology & political conditions”-
 “B.E is the aggregate of all conditions, events
and influence that surrounds and affect it”-
Keith Davis.
 “The environment of business consists of all
those external things to which it is exposed
and by which it may be influenced directly or
indirectly”-Reinecke & Schoell.
Concept of B.E

 A business firm is an open system-

 Gets resources from the environment and
supplies its goods and services to the
environment.
 Internal+External

Business organizations cannot change the

external environment but they just react.
 B.En

Extern
Interna al F.
l F.

Micro Macro
F. F.
Internal Environment

1. Business ethics
2. Work environment
3. Business & Managerial Policies
4. Industrial Relations
5. M.I.S
6. Objectives of Business
7. Prospects of Business Development
8. Availability of Resources
9. Finance
10. Human Resource
 External Environment

 Business not in Vacuum………….

 Act & React
 Provides Opportunities and threats to org.
 Competit
ors

Workers Custome
& unions rs

Micro

Mkt
Intermed Suppliers
iaries

Public
 1.Competitors:-
 No monopoly
 Huge competition, large range, variety etc
 “Product form Competition”-Philip Kotler.
 2.Customers:-
 Create customers
 Earn profit by serving customers
 Depends on degree of customer satisfaction
 3.Suppliers:-
 Relation b/w suppliers & firm epitomizes a
power equation b/w them-Porter
4.Public:-
 “Group which have actual or potential interest

or impact on company’s ability to achieve its

objectives”
 e.g:-Environmentalists, Consumer protection

group, media person, local people etc

 Company image should be good with –

Customers, distributors & suppliers.

 5.Mkt. Intermediaries:- Individuals or

Business houses for promoting co. business

like promoting, selling, distributing goods to
ultimate customers.
 (Wholesalers, retailers, agents)
 Must review performance of middleman
 6.Workers & Unions:-
 Industrial Relations, harmony.

 P.T.O
Macro Environment

Macro

Economic Non-
Env. Economic

Inter
Nation natio
al nal

Dem Physica
Socio- o- Political,
cultur Natur l&
grap Govern
al al Technol
hy ment
ogical
 Uncontrollable factors, so can't exercise power on
them.
 (A) Economic Environment of business:-
 Mix of National+International environment.
 Individual firms cann’t, but collectively
 e.g:-
 Confederation of Indian Industry(CII)
 Federation of indian chamber of commerce and
industry(FICCI).
 Associated Chambers of commerce and industry of
India(ASSOCHAM)
 (i)National Environment:-
 Level of income, assest, economic

resources, consumers buying

powers, buying behavior, business
cycle.
 Scope in developing countries not in

Development.
To study national environment-
 Trends in cross national product, income

growth.
 Pattern of income distribution

 Variation in geographical income distribution.

 Expenditure pattern

 Trends of consumer saving i.e bank, bonds,

securities, real estate, insurance policies.

 Cost of living , interest rates, repayment

terms
 All companies effected by govt. economic

policies.
 (ii) International Environment:-
 Foreign policies, international treaties,
foreign investment policies.
 Liberalization
 W.T.O

 Due to these lot of changes

 Domestic co. now getting int.

standard.
 (B) Non-economic environment of business:-
 (1) Socio-cultural environment:-
 Class structure, social roles, occupation of people,
 Mobility of people, Literacy rate,
 ‘Culture’- values, norms, facts, behavior pattern,
attitude , perception, customs.
 E.g:- demand of packed food, juices increased.
 (2)Natural Environment:-
 (a) Geographical environment:-
 E.g tea, coffee at hills
 (b) Ecological Environment:-
 Lands, mountains, soils, air, lakes, sea, river,

 Demographic Environment:-

 Age, gender, education, occupation, income size,

density, geographic concentration, dispersion, urban

& rural population etc.
 Physical & Technological Environment:-

Shortage of raw material oil, coal, minerals, unstable

cost of energy, increased level of pollution etc.
 Pace of R & D and progress made in introducing modern
technology in production.
 Technology provides capital intensive but cost
effective alternative to traditional labor intensive
methods.
Political & Govt. Environment:-
 Ideology of ruling party, opposition, political
stability, war, president rule,
 Legal Environment:-
 Contract Act, import export control Act, Factories
Act, I.D & Regulation Act
1951,EssentialCommodities Act, Companies Act,
MRTP act , FERA, foreign policy etc.
Nature of Business Environment
 Nature of business environment
 (1.)Internal and External Environment:
Every business enterprise is surrounded with
internal and external environment.
 (2.)Dynamic Factor: The business
environment is the product of various dynamic
factor, i.e., economic, social, political,
geographical, religious and technological.
 (3.)Resources: The business enterprise gets
its resources such as raw material, capital etc.
from the external environment.
 (4.)Inter-dependence: There is a
relationship among the environmental
factors. Business is influenced by its
environment and in turn, to a certain
degree, it will influence the external
forces.
 (5.)Communication: Every business
enterprise exchanges the information
with other enterprises regarding external
environment. It helps the firm in policy
making.
 6.)Wide Market: The environment is a wide
market for the firm. The goods and services
produced by the firm are sold to the
consumers in the society that is its external
environment.
 (7.)Creation of Utility by Change in Form:
 The resources provided by the external
environment to the firm are returned by the
firm to the society by making them useful
through creating utility.
 (8.)Fulfil Needs: External environment
(society) expects from the firm to fulfill its
needs. The firm which cannot fulfill the
requirements of the society cannot survive for a
long period.
 9.)Uncertainity: The success of the firm
depends on its ability to take advantage of the
opportunities and to combat the threats in the
environment.
 (10.)Change according to Changes: For the
success of the firm it is essential that it will
change itself according to the changes taking
place in the environment.
(11.)Responsible for All Factors: The firm
should take decision by safeguarding interests
of the various groups in the environment. cont.
 (12.)Effect of Uncontrollable Factors:

External factors are uncontrollable and they

affect firm’s operations to a large extent. The
main uncontrollable factors are government
policies, legal provisions, research and
development, technology, social conditions,
political conditions, external relations and
pressures etc.
 (13.)To Identify Major Changes: It is
the responsibility of the firm to identify
major changes taking place in the
environment and adjust itself
accordingly.
 Significance of Business
Environment:-
 Help to understand internal environment:-
 Help to understand Economic system:-
(Capitalist, socialistic & mixed economy)
 Help to understand Economic policy:- Export-
import, price policy, monetary policy, industrial
policy, foreign policy.
 Help to understand Market conditions:-
Increase, decrease in demand, supply, monopolistic
practices, govt participation in business.
 To identify opportunities and
getting the first mover
advantage
 To identify threats and early

warning signals
 Coping with rapid changes

 Improving performance
 Image building: Environmental
understanding by the management builds
image of the company in the minds of the
people. They feel that the company is
sensitive and responsive to their needs and
problems.
 Activating management to changing
needs: The knowledge of environmental
changes sensitizes the management to make
strategy to cope with the emerging problems.
Strategies to deal with environment

 Two problems : Uncertainty

Interdependence

 Strategies to insulate org.

 Strategies to gain control over ex. Env.
 Strategies for org. adaption
Strategies for Insulation of the
Organization

 Boundary Spanning:- for anticipating

& min. the impact.
a. Buffering:- Shock absorber
Procuring more raw material, stock pile,
help at crisis time.
b. Smoothing or Leveling:- Aim to
maintain sale uniform, low time-
incentives, gifts, discounts, coupons etc
 c. Rationing:- To set priorities to use
organization scare resource. e.g- water
supply.
Strategies for control over environment

 Creation of prestige:-
 Agreements:
 Co-optation: James Thompson, out side
director etc
 Procurement of key persons:
 Lobbying: Ruling party, Neera Radia.
 Coalescing (Merger)
Strategies for Organizational
adaption

 a. Adaptation of Organizational
Structure:- mechanic structure, organic
structure
 b. Adaptation of system & process:
Environmental Scanning:-
 Meaning:-Carefully analyze various
factors influencing the business.
 Continuous process
 Process by which org monitor their
relevant environment to identify
opportunities and threats affecting
business.
Why environmental Scanning……..

 Effective utilization of resources:

 Constant monitoring of
Environment: taste, preference,
innovations
 Identification of threats &
Opportunities:Colgate, Yahamaha, LML
 Useful for managers
 Prediction of Future
Factors to be considered for En.
Scanning……..
Macro environment
Scanning
Includes:-
 Scanning of industry
 Competitors analysis
 New product analysis
 Scanning of Internal environment
 Economy:-
GDP, Per pita income , Economic growth
rate, Inflation rate, unemployment rate,
currency exchange rate, bop, future
trends
 Government:-
Political climate, stability, govt. debts,
budget deficit, corporate & personal
taxes, export-import,
Legal:-
B.L, environmental laws, foreign trade
& investment laws, consumer &
employee protection laws
Technology:-
New manufacturing process, new
products, cost of fuel, electricity etc
 Socio-cultural:-
a. Demographic factors:
b. Attitude : individualism, collectivism,
role of family, govt., religion ,
consumerism, environmentalism.
Labour: labour supply, wages, quality,
quantity, turn-over, strikes etc
 Material:-Quantity, quality, price,
stability, delivery time.
 Source of information for Environmental scanning

 Daily News paper

 Journals
 Govt. Publications
 Institutions

 Factors affecting environmental

Appraisal:-
 Environment
 Organization:- size, inception, market, nature,
product line
Strategies:-
 Corporate level

 SBU Level

 Functional Level
Economic environment
 Economic system, economic planning,
industry, agriculture, infrastructure,
prices, economic reforms, N.I, GDP etc

 Capitalism:- Featured by pvt.

Ownership.
Characteristics of
Capitalism
1. Freedom of enterprise
2. Private ownership
3. Profit Motive
4. Market system
5. Consumer’s sovereignty
6. Competition
7. Limited role of Govt.
8. Absence of central plan
 Merits of Capitalism
1. Efficient use of resource
2. Democratic
3. Automatic balance in system
4. Efficiency properly rewarded
5. Economic growth
6. Encourage Capital formation
Demerits
1. Wastage & misallocation of resources:
2. Economic Instability
3. Consumer’s sovereignty is myth
4. Inequality of wealth
5. Class struggle
6. Unemployment & corruption
7. Inflation
Socialism
Features:-
1. Equitable distribution of income

2. Govt. Ownership

3. Economic laws

4. Central authority
Merits
1. Better allocation & utilization
2. Elimination of unemployment
3. No Cyclic fluctuation
4. No class struggle
5. Less inequality of income
Demerits
1. Bureaucratization:
2. Lack of incentives
3. Red tapism
4. Control of economy with State
5. Promote corruption
6. Misallocation of resources
7. No consumer sovereignity
Mixed Economy
Political Environment
 Civil war
 Emergency
 Change in Govt.
 Legislature
 Executives
 Judiciary
Responsibility of business for Government

1. Regular payment of taxes

2. Voluntary programmes i.e; cultural,
population control, drought relief
3. Providing information:- Feedback
4. Govt. Contracts
5. Service to govt.
6. Corporate contribution etc
Responsibility of Govt. for
Business
1. Political institutions:- Laws,
2. Peaceful atmosphere
3. Money & credit
4. Balanced development
5. Basic infrastructure
6. Assist SSIs
7. Transfer of Technology
8. Licensing
9. Protection form foreign competitions
 Social & Cultural
Environment
Features:
1. Pluralistic Society
2. Predominantly Rural Society
3. Poverty
4. Illiteracy
5. Linguistic Diversity
6. Racial Diversity
7. Caste & Casteism
8. Communalism
9. Regionalism
10. Fashion
Customs
 Knowledge, beliefs, ideals, Preferences
 SWOT
Strategic planning method to evaluate the
Strengths, Weaknesses, Opportunities,
and Threats involved in a project or in a
business venture.

 Strengths: characteristics of the

business or team that give it an
advantage over others in the industry.

 Weaknesses: are characteristics that

place the firm at a disadvantage relative
 Opportunities: external chances to make
greater sales or profits in the
environment.

 Threats: external elements in the

environment that could cause trouble for
the business.
SWOT: internal factors
 Strengths
 Positive tangible and intangible attributes,
internal to an organization. Within the
organization’s control

 Weaknesses
 Factors within organization’s control. In which
areas might the organization improve?
SWOT: external factors
 Opportunities
 External factors represent reason for
organization to exist and develop.
 What opportunities exist in the environment
which propel the organization?

 Threats
 External factors, beyond an organization’s
control, which could place the organization’s
mission or operation at risk. The organization
may benefit by having contingency plans to
address them should they occur
 Classify them by their “seriousness” and
“probability of occurrence”
E.T.O.P

 It is a process of dividing the

environment into different sectors and
then analyzing the impact of each sector
on the organization.
 E.T.O.P

 Environment analysis results in a mass of

information related to forces in the environment .

 Structuring of environmental issues is necessary

to make them meaning full for strategy
formulation.

 ETOP(Environmental Threat and Opportunity

Profile) is a technique to structure environmental
issues.
 ETOP involves:

 Dividing the environment into different

sectors . Each sectors can be subdivided
into sub sectors.
 Analyzing the impact of each sector and
subsector on the organization.
 Describe the impact in the form of a
statement.
Environmental sectors Nature of impact Impact of each sector

ETOP FOR BICYCLE COMPANY

Economic Growing affluence among
urban consumers, rising
disposable incomes & living
standards.

Market Organized sector a virtual

oligopoly with 4 major
manufacturers, buyers
critical & better informed,
overall industry growth rate
not encouraging, growth
rate for niche market like
sports, trekking etc is high.

International Global imports growing but

India’s share shrinking,
major importers are the US
& EU but India exports
mainly to Africa.
Political Bicycle principal mode of
transport for low & middle
income, Industry too small
to draw attention.

Regulatory Parts & components

reserved for SSI, bicycle
industry a thrust area for
exports,

Social Environment & health

friendly transport option,
wide usage, as recreation,
convenient in traffic,
customers preference
Supplier Mostly ancillaries in small-
scale sector supply parts &
components, rising steel
prices, industrial
concentration in Punjab &
Tamilnadu.

Technological Up gradation in progress,

import of machinery
simple, product innovations
ongoing like battery
operated & lightweight
foldable cycles
Advantage of ETOP:-

 Provides a clear pic. of which sector and sub

sectors have favorable impact on the
organization.
 Helps interpret the result of environment analysis.
 The organization can assess its competitive
position.
 Appropriate strategies can be formulated to take
advantage of opportunities and counter the
threat.
 SWOT analysis (Strategic weakness, opportunities
and threats.)
 PESTL
Political, Economic, Social, Technological and
Legal
 "Political, Economic, Social, and
Technological analysis“
 Describes a framework of macro-
environmental factors used in the
environmental scanning.
 Some analysts added Legal mnemonic
to SLEPT; i Environmental factors
expanded it to PESTEL or PESTLE, which
is popular in the United Kingdom.
 The model has recently been further
extended to STEEPLED, adding Ethics
and demographic factors.
 It is a part of the external analysis when
conducting a strategic analysis or doing
market research
 Gives an overview of the different macro
environmental factors that the company
has to take into consideration
 Useful strategic tool for understanding
market growth
 Environmental Impact
Matrix
 It is one of the way to identify and analyze
development in the external environment.
 It is also called as ‘ Issue Priority matrix’
 High Medium Low
High High High Medium
Priority Priority Priority

Mediu High Medium Low

Probabil m Priority Priority Priority
ity
of Low Medium Low Low
Priority Priority Priority
Occurre
nce
Probable Impact on the Corporation
THANX