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TECHNOLOGY MACRO PROFIT STABILITY SURVIVAL EFFICIENCY GROWTH OBJECTIVES ANALYSIS ENVIRONMENTAL FORCES INFORMATION RESOURCE INFLUENCE POWER DIVERSITY COMPLEXITY UNCERTAINITY DYNAMIC MULTI - FACETED MICRO STRENGTH WEAKNESS OPPORTUNITY THREAT MARKET SUPPLIER CONSUMER ECONOMY POLITICS SOCIO - CULTURE Presented By : ADITI WALIA

All About "Business Environment" presented by Aditi Walia

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Page 1: All About "Business Environment" presented by Aditi Walia

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

Page 2: All About "Business Environment" 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

Page 3: All About "Business Environment" presented by Aditi Walia

WHAT

IS

BUSINESS

ENVIRONMENT ?

Page 4: All About "Business Environment" presented by Aditi Walia

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.

Page 5: All About "Business Environment" presented by Aditi Walia

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.

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❖ 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.

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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”.

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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.

Page 9: All About "Business Environment" presented by Aditi Walia

OBJECTIVES

OF

BUSINESS

Page 10: All About "Business Environment" presented by Aditi Walia

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.

Page 11: All About "Business Environment" presented by Aditi Walia

49%

18%

8%

7%

14%

4%

Other Business Objectives

Customer centricoutcomes

Operational Optimization

Risk Management

Financial Management

New Business Model

HR Analytics

Page 12: All About "Business Environment" presented by Aditi Walia

Some of the most important objectives of every business are -

Page 13: All About "Business Environment" presented by Aditi Walia
Page 14: All About "Business Environment" presented by Aditi Walia

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.

Page 15: All About "Business Environment" presented by Aditi Walia

STABILITY

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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.

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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.

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EFFICIENCY

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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.

Page 21: All About "Business Environment" presented by Aditi Walia

PROFIT

Page 22: All About "Business Environment" presented by Aditi Walia

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.

Page 23: All About "Business Environment" presented by Aditi Walia

ENVIRONMENTAL

ANALYSIS

&

ITS

GOALS

Page 24: All About "Business Environment" presented by Aditi Walia

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.

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“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

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➢ 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 :

Page 27: All About "Business Environment" presented by Aditi Walia

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.

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FORCES

OPERATING IN

BUSINESS

ENVIRONMENT

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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.

Page 30: All About "Business Environment" presented by Aditi Walia

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.

Page 31: All About "Business Environment" presented by Aditi Walia

RELATIONSHIP

BETWEEN

ORGANISATION

&

ENVIRONMENT

Page 32: All About "Business Environment" presented by Aditi Walia

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 :

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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

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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 .

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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.

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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.

Page 37: All About "Business Environment" presented by Aditi Walia

PROBLEMS IN

UNDERSTANDING

BUSINESS

ENVIROMENT

FORCES

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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.

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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.

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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.

Page 41: All About "Business Environment" presented by Aditi Walia

FEATURES OF

BUSINESS

ENVIRONMENT

Page 42: All About "Business Environment" presented by Aditi Walia

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.

Page 43: All About "Business Environment" presented by Aditi Walia

Increased Complexity

Poor Execution

Loss Of Process Control

Poor Business Results

Processes & People are added to Improve

Vicious Complexity

Cycle

Page 44: All About "Business Environment" presented by Aditi Walia

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.

Page 45: All About "Business Environment" presented by Aditi Walia

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.

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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.

Page 47: All About "Business Environment" presented by Aditi Walia

Client Experience

ProcessDesign

IneffectiveInconsistency

Reliability

Minimise Variation

Continuous Feedback

Page 48: All About "Business Environment" presented by Aditi Walia

COMPONENTS

OF

BUSINESS

ENVIRONMENT

Page 49: All About "Business Environment" presented by Aditi Walia

INTERNAL ENVIRONMENT

EXTERNAL ENVIRONMENT

BUSINESS ENVIRONMENT

Page 50: All About "Business Environment" presented by Aditi Walia

MANAGEMENT

FINANCE

ACCOUNTING

OPERATION

MARKETING

ECONOMY

GOVT.

CUSTOMER

TRENDS

CORPORATE

CITIZENSHIP

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INTERNAL ENVIRONMENT

ANALYSIS

EXTERNAL ENVIRONMENT

ANALYSIS

STRENGTH

WEAKNESS

OPPORTUNITY

THREAT

SWOTSUMMARY

CAPITALIZE STRENGTH

MANAGE WEAKNESS

EXPLOIT OPPORTUNITY

AVOID THREAT

Page 52: All About "Business Environment" presented by Aditi Walia

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

Page 53: All About "Business Environment" presented by Aditi Walia

MICRO ENVIRONMENT

CONSUMER

COMPETITION

ORGANIZATION

MARKET

SUPPLIER

MARKET INTERMEDIARY

Page 54: All About "Business Environment" presented by Aditi Walia

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.

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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”.

Page 56: All About "Business Environment" presented by Aditi Walia

Key points that should be considered as follows :

❖Who are the customers/consumers ?

❖What benefit they are looking for ?

❖What are their buying patterns ?

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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.

Page 58: All About "Business Environment" presented by Aditi Walia

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 ?

Page 59: All About "Business Environment" presented by Aditi Walia

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 :

Page 60: All About "Business Environment" presented by Aditi Walia

▪ 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.

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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.

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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 ?

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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.

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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.

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PUBLIC CAPITAL MARKET

MERCHANT BANKER

STOCK BROKER UNDERWRITER

DEPOSITED BY PARTICIPANT

TRANSFER AGENT

PORTFOLIO MANAGERS

VENTURE CAPITALSMUTUAL FUNDS

CREDIT AGENCY

FINANCIERS

INTERMEDIARIES

INTERMEDIARIES

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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

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MACROENVIRONMENT

DEMOGRAPHIC ENVIRONMENT

ECONOMICENVIRONMENT

POLITICAL ENVIRONMENT

SOCIO-CULTURALENVIRONENT

TECHNOLOGICALENVIRONMENT

GLOBALENVIRONMENT

Page 68: All About "Business Environment" presented by Aditi Walia

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 ?

Page 69: All About "Business Environment" presented by Aditi Walia

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 ?

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DEMOGRAPHIC ENVIRONMENT

Population Size

Geographic Distribution

Ethnic Size

Income Distribution

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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.

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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.

Page 73: All About "Business Environment" presented by Aditi Walia

• 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

Page 74: All About "Business Environment" presented by Aditi Walia

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.

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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.

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POPULATION

EDUCATION

EMPLOYMENT

HEALTH INSURANCE

& DISABILITY

HOUSEHOLDEXPENSE

DEMOGRAPHIC & SOCIAL

STATISTICS

Page 77: All About "Business Environment" presented by Aditi Walia

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.

Page 78: All About "Business Environment" presented by Aditi Walia

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.

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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

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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),

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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

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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

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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.

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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.

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CONCLUSION

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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