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Amity Business School
1
Amity Business School
MBA, Semester 1
Organisation Theory and Management
Dr. Anshu Yadav
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Business Environment
Business environment consists of all those
factors that have a bearing on the
business such as the strengths,
weaknesses, internal power relationships
and orientations of the organization,
government policies etc.
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Features of Business Environment
Complexity
Totality of the external forces
Dynamic nature
Uncertainty
Specific and general forces
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Types of environment On the basis of the extent of intimacy
with
the firm, the environmental factors may be
classified into different types of levels:
Internal factors: controllable and direct
impact on business
External factors: uncontrollable and indirectimpact on
business
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Internal Environment
Value system
Mission and Objectives
Management structure and nature
Internal Power Relationship
Human Resources & motivation
Company Image
Work setting
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External Environment
Those factors and forces outside the organization
that affect the organizations performance.
Opportunities: openings for managers to
enhance revenues or open markets.
New technologies, new markets and ideas.
Threats: issues that can harm an organization.
economic recessions, oil shortages.
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Components of the External Environment
Specific / Task environment: external forces that
have a direct and immediate impact on theorganization. It
includes forces from suppliers,
distributors, customers, and competitors
General environment: broad economic, socio-cultural,
political/legal, demographic, technological,
and global conditions that mayaffect the
organization.
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External Environment
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Task environment
Suppliers:provide organization with inputs Managers need to
secure reliable inpu t sources.
Suppliers provide raw materials, components, and
even labor. Working with suppliers can be hard due to
shortages,
unions, and lack of substitutes.
Suppliers with scarce items can raise the price and are
in a good bargaining position. Managers often prefer to have
many, similar
suppliers of each item.
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Distr ibutors:organizations that helpothers to sell goods.
Compaq Computer first used special
computer stores to sell their computers butlater sold through
discount stores to reduce
costs.
Some distributors like Wal-Mart have strong
bargaining power. They can threaten not to carry your
product.
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Customers:people who buy the goods.
Usually, there are several groups of customers. For Compaq,
there are business, home, &
government buyers.
Compet i tors
: other organizations thatproduce similar goods. Rivalry between
compet itorsis usually the most
serious force facing managers.
High levels of rivalry often means lower prices.
Profits become hard to find. Barriers to entry keep new
competitors out
Economies of scale: cost advantages due to largescale
production.
Brand loyalty: customers prefer a given product.
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The General Environment
Consists of the wide economic,
technological, demographic and
similar issues. Managers usually cannot impact or control
these.
Forces have profound impact on the firm.
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Poli t ical-legal fo rces:result from
changes in the political arena.
These are often seen in the laws of asociety.
Today, there is increasing deregulation of
many state-run firms.
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Econom ic forces:affect the
national economy and the
organization. Includes interest rate changes,
unemployment rates, economic growth.
When there is a strong economy, people
have more money to spend on goods and
services.
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Socialcu l tural forces:result fromchanges in the social or
nationalculture of society. Social structure refers to the
relationships between
people and groups.
Different societies have vastly different social
structures.
National culture includes the values that
characterize a society. Values and norms differ widely
throughout the world.
These forces differ between cultures and over time.
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Demog raph ic forces:result fromchanges in the nature,
composition anddiversity of a population.
These include gender, age, ethnic origin, etc. For example,
during the past 20 years, women have
entered the workforce in increasing numbers.
Currently, most industrial countries are aging.
This will change the opportunities for firms competing inthese
areas.
New demand for health care, assisting living can be
forecast.
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Global forces:result from changesin international
relationshipsbetween countries. Perhaps the most important is the
increase
in economic integration of countries.
Free-trade agreements (GATT, NAFTA, EU)
decreases former barriers to trade. Provide new opportunities
and threats to
managers.
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Techno log ical forces:skills &equipment used in
design,production and distribution.
Result in new opportunities or threats tomanagers.
Often make products obsolete very quickly.
Can change how we manage.
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Managing the Organizational
Environment
Environmental Change
The degree to which forces in the task and general
environments change and evolve over time
Reducing the Impact of Environmental Forces Top management:
devise strategies that take
advantage of opportunities and counter threats
Middle managers: collecting about competitors
intentions, new customers, and new suppliers for thefirms
crucial or low-cost inputs
First-line managers: use resources efficiently and get
closer to customers
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Change as a 2-way Process
Environment Organization
Managerial actions impact
Change in Environment affects
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Porters Five Forces Model
Rivalry among
Competitors
Bargaining
Power of
Suppliers
BargainingPower of
Buyers
Threat of
Potential
Entrants
Threat of
Substitutes
