Economic Environment of Business (an Introduction)

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ECONOMIC

ENVIRONMENT OFBUSINESS : AN

INTRODUCTION



ECONOMIC ENVIRONMENT OF

BUSINESS {50 MARKS}COURSE CONTENT : 4 PARTS

PART I : The Fundamentals

{Before syllabus we would cover in deeper the

meaning of economic environment of business} The Scope & Subject Matter of Macroeconomics

An Introduction to the Economics of Growth & Development

An Introduction to the Indian Economy - Its Salient Features India's Gross Domestic Product & Net National Product (its

components & the significance of the same to growth)

Inter-Sectoral Distribution of the Gross National Product over

the Five Year Plans Period.



PART II: The Economic Markets:

The Product Market & How it Affects India's Growth Potential

The Money Market & How it Behaves

The Capital Market & its Variability

The Money Market & the Role of Central Banking

How does Commercial Banking Effect Industry & Business

The Indian Labor Market & Levels of Unemployment &

Inflation since 1990


BUSINESS {50 MARKS}



PART III : Federal Budget

Objective is to expose the students to the various components of

the national budget and how these impact on the business world.

PART IV: India & the World

The capitalist world economy and India's position therein

since 1990

The World Bank , and IMF conditionalities leading to the

liberalisation - privatisation -globalisation exercise and beyond

India's balance of trade and fluctuations since 1990. How do

er figure in the world order.


BUSINESS {50 MARKS}



India's balance of payments and how its study can assist

corporate decision making. What is needed to improve the

situation, if at all it is poor.

The Business Cycle and how it is perceived to behave in the

immediate future. What business decision hinge on this analysis.


BUSINESS {50 MARKS}



Reference Text:

Economic Environment of Business, S.K.Misra and V.K.Puri,

Himalaya Publishing House, 2005

Business Environment, Francis Cherunilam, Himalaya

Publishing House, 2005 Business Environment ± Aswathappa, HPH (10)

Raj Aggrawal: Business Environment (Excel)

Adhikary, M: Economic Environment of Business in

India(Sultan Chand)

Indian Economy ± Datt & Mahajan (6)

Economic Environment of Business ± Veena Keshav Pailwar (6)

MACRO ECONOMICS


BUSINESS {50 MARKS}



Business Environment ± Aswathappa, HPH (10) :

Comprehensively deals with Business Environment : Groups to

deal with Application part + Material related to course revision.

Lot of examples related to points dealing with theoretical points.

Pailwar book: Indian economy related applications. In eachchapter; Importance from the viewpoint of Managerial

application (significance) is given. Groups to consult the same for

presentation.

Indian Economy: Latest information related to the data and

development still obsolete. You have to go for updating the same.


BUSINESS {50 MARKS}



Mode of teaching: Interfacing sessions:

Groups to discuss subjects + case studies +

Important observations in the subject.

Will teach principles for better understanding and

then Groups are to come well prepare for regular

discussion the applications.

Though paper is of 50 marks but most importantfor managers as it will give a fairly good idea

about the business environment and sharpen

capabilities of taking logical decisions.


BUSINESS {50 MARKS}



May not look exciting and challenging apparently

as managerial economics since no charts and

diagrams .

But then you need to remember lot of things with

capability to reproduce.

Data in books are obsolete . You need to update

them.

You need to update your study material with every

day developments appearing in financial papers so

that in exam you can produce best material.


BUSINESS {50 MARKS}



GROUP FORMATION:

ARE YOU COMFORTABLE WITH THE SAME

GROUPS OR WANT SOME CHANGE?

CRs to discuss with class and provide us namesand group.

Let us freeze them from very beginning.


BUSINESS {50 MARKS}



ECONOMIC

ENVIRONMENT OFBUSINESS : AN

INTRODUCTION



INTRODUCTION : BUSINESS

CHALLENGES

INTRODUCTION:

Never before business environment was so Volatile and Dynamic.

Managing business is a daunting task in changing environment for the

managers.

Never before there were so many opportunities to strike and prosper

as they are seen now.

A MANAGER SHOULD HAVE FULL KNOWLEDGE OF

ENVIRONMENT IN WHICH HE/SHE IS OPERATING

BUSINESS ENVIRONMENT



NATURE OF BUSINESS

NATURE OF BUSINESS:

It is organised efforts of enterprise to earn profit .

Business may vary in size in terms of no. of employees, salesrevenues etc.: small or big in size but all aim at making profits.

SAIL, TISCO has thousands of employees and their sales revenues

run in thousands of crores of rupees.

Small business units (viz. 1 or 2 working at home or 10 operating in

a retail store, 1,00,000 operating in a multiple units spread across the

country working they are all have major concern - to earn profits.



NATURE OF BUSINESS

Businesses go beyond the objective of earning profit in a society;

It represents an institution in society.

Be it for the supply goods and services;

Creating job opportunities;

Offering better quality of life;

Contributing to the economic growth of the country and

putting it on the global map; Role of business is crucial .

Society cannot function without business.



NATURE OF BUSINESS

SCOPE OF BUSINESS:

Vast Scope. Various activities are involved in bringing raw materials

to the factory and the product from there to the market constitute

business.

Automobiles:

Supplier of raw materials Manufacturer converting raw materials into inputs and

products.

Transport agent assists in moving materials to the

manufacturing places;

Banker to finance various activities

Advertising agencies tell about vehicles

Where they can be produced ;

Insurance agent

Other host of activities.

A long chain of activities.Business is people.



NATURE OF BUSINESS

CHARACTERISTICS OF CONTEMPORARY BUSINESS:

Transition

Pressure of competition Immense Opportunities

Globalisation

Technology

Information



CHARACTERISTICS OF

CONTEMPORARY BUSINESS

BUSINESS

TRANSITION

INFORMATION

TECHNOLOGYGLOBALISATION

OPPORTUNITIES

COMPETITION



CHARACTERISTICS OF

CONTEMPORARY BUSINESSBUSINESS IN TRANSITION

For long time business was conducted in sheltered market

covering inefficiencies, low productivity and high cost.

In199

0s and ahead the process of liberalisation started andmost all protectionist measures were lifted.

In a globalised environment Indian business leaders find totally

new environment characterised by competition both from

within and from foreign business.

A TYPICAL BUSINESS LEADER IS SANDWICHED BETWEEN

THE COMPULSIONS OF THE NEW BUSINESS

ENVIRONMENT AND THE OLD PRACTICES OF DOING

BUSINESS.



CHARACTERISTICS OF


What he needs to do ?

Rigid hierarchical and tall structure Flexible flat

and team based structures.

Family centric, closed minded and secretive

environment Dispersed ownership , open minded

and transparent environment.

Caste ridden superstitious laid back styles of

management Rational thinking and vibrant styles of

management.



CHARACTERISTICS OF

CONTEMPORARY BUSINESSPRESSURES OF COMPETITION:

Indian businesses are competing among themselves and are

also exposed to outside competition from foreign firms.

Competition though unwelcome to managers , is a boon to

customers.

Earlier customers were squeezed, they paid high prices for

bad quality goods.

Producers maintained monopoly. (6-7 years wait for

telephone connection; 3-4 years to get cooking gas

connection , 8-10 years to get a new two wheeler and

the list goes on).



CHARACTERISTICS OF


In changed scenario customer is the king ; lot of choices

for customers and at lower prices; service providers greets

customers.

Nature of delivery of services across the counters changed.Courteous handling of customers.

Competition helps rival firms.

Competing firms benefits from having strong domestic

and foreign rivals :

Competition defines new ways of doing business

Building new capabilities

Building new standards for CRM



CHARACTERISTICS OF


IMMENSE BUSINESS OPPORTUNITIES:

BPO, CALL CENTRES, I.T., ITES, Wealth Management, Risk

Management, Private Banking new types of businesses.

Opportunities in traditional sector : viz. Industry.

Globally Competitive manufacturing possible in

India. Pharmaceuticals, chemicals, textiles , metals refining,

cement, auto and ancillaries; Exporting large amount of output.

Many MNCs look at India as export base. Suzuki and

Hyundai perceive India as a car club.



CHARACTERISTICS OF


India has potential to emerge as the second global

manufacturing base after China .

First wave $460 Mn. (McKinney) covered low technologyproducts like garments, toys etc.

Second of $1.6 trillion yet to come.



CHARACTERISTICS OF


Commodity Business:

Yet another area where Indian companies are in a

stronger position . L.N. Mittal in Steel, Ambanis in Polyester,

K.M. Birla in Viscose Fibre and Bharat Forge in forgings are some

names .

3 reasons for enviable and commanding position of

industrialists:First Low Cost production

Second Confidence these entrepreneurs love ± Confidence

derived from their increased competitiveness and global outlook



CHARACTERISTICS OF


Third, Countries which were traditionally centres of

manufacturing are finding their competitiveness eroded by

other low cost countries.

(In Europe a number of small auto components manufactures are

selling out and are being taken over by the likes of Bharat forge.



CHARACTERISTICS OF


Globalisation:

Going International is yet another trend followed by modern

business houses .

Political boundaries are no barriers to business.

Production facilities are being set up in different countries

and products are being sold through a global network.

Gradually business houses are exposed to global

competition which augurs well for the consumers.



CHARACTERISTICS OF


Internationalisation and Globalisation is fast becoming imperative

for modern business (triggers for globalisation)

Technological innovations Crumbling trade barriers

Global flow of capital & technology

Information Explosion

Intensity of market competition

Changing life style

Demand for New Products.



CHARACTERISTICS OF


Technology:

Business is characterised by increasing use of technology.

It influences ways of Organising production functions

Marketing of products

Communication among employees

Hiring and motivating employees

Organising Finance function

INFORMATION: Recognition of information needs.

Major Improvements in Data Processing, information systems

analysis and preparation of effective records and reports.



CHARACTERISTICS OF


Vital reason for progress in the area of business is the availability

of the computer and electronic devices that have

made feasible the quick and accurate gathering,

processing and distributing information.

Information technology itself has undergone revolutionary changes.

FROM HAND WRITTEN SHEET OF BUSINESS TO TYPING TO

STENCIL CUTTING TO PHOTOCOPYING TO FLOPPIES TO

CYBERSPACE«..

As businesses are globalised online communication

across the world would be highly useful .



CHARACTERISTICS OF


BUSINESS OBJECTIVES:

VISION:

³ BROAD AND HAZY EXPLANATION OF WHY THE FIRM

EXISTS AND WHERE IT IS TRYING TO REACH´

Where do we go from here?

What changes lie ahead in the business landscape?

What differences will these changes make to the company¶s present

business?

VISION GIVES ORGANISATION A SENSE OF PURPOSE AND

A SET OF VALUES THAT UNITE EMPLOYEES IN A COMMON

DESTINY.



CHARACTERISTICS OF

CONTEMPORARY BUSINESSInfosys Vision´ To be globally respected corporation that provides

best of breed business solutions, leveraging

technology, vendors and societyµ

MISSION:Mission Statement outlines the fundamental purpose of the

organisation. A vision becomes tangible to as a mission statement.

Most of the organisations ± manufacturing, services, infrastructure

have describe their own mission statement in writing.

It seeks to give a definite meaning to vision.

If vision seeks answers to the question ´where to go from

here?µ mission answers ´what business we are in the

right nowµ



CHARACTERISTICS OF


ELEMENTS OF MISSION STATEMENTS:

1. Customer needs or What is being satisfied

2. Customer groups or Who is being satisfied

3. Company·s activities, technologies and

competencies or How the firm goes about creating

and delivering value to customers and satisfying

their needs

3. The company·s concern for survival , its

philosophy, its self concept and its concern for

public image.



CHARACTERISTICS OF


Mission statements are highly personalised-

unique to the organisation for which they are

developed. It is therefore normal that differentfirms in same industry has different mission

statements.

OBJECTIVES:

Mission statements are more specific than vision

statements but they are not to be taken as

concrete directions for action.



CHARACTERISTICS OF


BUSINESS OBJECTIVES:

Mission Statements are more specific than vision

statements but are not to be taken as concrete

directions for actions.

Objectives render mission statements more

concrete

A typical business unit seeks to achieve more than

one objective and there are always restraints to

attainment of some objectives.



BUSINESS OBJECTIVES

BUSINESS

GOALSJoy of

Creation

Challenging

Market

Leadership

Employee

Satisfaction& Development

Growth

Quality of products

and servicesPower Profit

Service to

Society



BUSINESS OBJECTIVES

PROFIT:

Main incentive,

Motivator,

Strong sustainer,

Judicious allocator of resources,

Objective indicator of productivity and a solid basis for

growth

Expansion and survival

Enables business to achieve other objectives too. Not all enterprises are interested in making profits. Viz.

Hospitals, Schools, charitable trust, , Government agencies

Non profit organisation customarily rely on gifts,

endowments, receipts from money raising projects subsidies

or taxes for sustenance.



BUSINESS OBJECTIVES

Profit should really be beginning and not end in

itself.

Acting as seed for new products, more plants,

more dividends, more tax payments, more jobs and

more opportunities.

Profit should promote well being of society.

´promoting only products with high margins (toearn profits), ignoring research and failing to

provide working conditions satisfactory to

employees may in the ultimate bring about the

demise of an enterpriseµ



BUSINESS OBJECTIVES

GROWTH:

Growth is another primary objective of business:

The strategies adopted to achieve growth are:

(a) Add more products/markets

(b) Diversify into new areas

(c) Integration ± forward or backward

(d) Increase market share

(e) Expand markets or(f) Cut down costs and increase productivity.



BUSINESS OBJECTIVES

POWER:

Business houses have vast resources (in the form of money ,

materials, men and knowhow) at their command.

Next to top officials of Govt. perhaps it is the business people

who enjoy considerable clout.

Several enlightened business men have used their power for the

good of society. About JN Tata Time of India April 13, 1912wrote ³He was above all a patriot´. .. ³who made no public

speeches. To his mind wealth and the industry which led to

wealth were not ends in themselves but means to an end, the

stimulation of the latent resources of the country and its

elevation in the scale of nations.´



BUSINESS OBJECTIVES

EMPLOYEE SATISFACTION AND DEVELOPMENT :

³If you want to plan for a year plant corn. If you want to plan

for 30 years plant a tree. But if you want to plan for 100 years

plant men´ So goes a Chinese proverb.

Concern for employees continues to be an important

aspect of management.

TATAs are legend in pursuing this objective. Implementation of Labour Welfare measures

Safety and Security measures

Training and development.



BUSINESS OBJECTIVES

QUALITY PRODUCT AND SERVICES :

Persistent quality of products earns brand loyalty, a vital

ingredient of success.

Hindustan Lever is flourishing because of the high quality of its

products (Liril, Vim, Lifebuoy, Rin, Sunlight, Close up , Lux,

Rexona etc.)

Buyers consider them safe, high quality and reasonably priced.

They have excellent R& D facilities behind brands.

Quick Money can come through short cuts but such enterprises

will not survive for long.



BUSINESS OBJECTIVES

MARKET LEADERSHIP:

To earn market leadership and a niche for oneself innovation is

the key factor.

Innovation may be in product, advertising, distribution,

finance or in any other field.

Blow Plast retains its market leadership by introducing soft

luggage & bags.

Hindustan Lever earned leadership in tooth paste by

introducing mouth washer in its Close up. Asian Paints adopted unconventional channels for the sale of its

products

Ambanis of Reliance Textiles introduced convertible

debentures which have become attractive.



BUSINESS OBJECTIVES

CHALLENGING:

Business offers vast scope and poses formidable challenges.

The worth of an individual is tested more in business than in

any other profession.

JOY OF CREATION:

It is through business strategies that new ideas and innovations

are given a shape and are converted into a useful products andservices for the benefit of customers.

Some of the areas of future focus in next 2-3 decades would be:

Readily available artificial human organs except brain.

Means of transportation without an automobile perhaps an

individual flying machine.



BUSINESS OBJECTIVES

Drugs to cure or prevent cancer and the common cold.

A personal telephone no longer than cigarette pack that can be

used from any location

A pocket size computer/Laptops.

Clothing that can be cleaned by placing it in a cleaning

chamber for one minute.

A synthetic material to replace wood.

SERVICES TO SOCIETY:



BUSINESS OBJECTIVES

SERVICES TO SOCIETY:

Providing safe and quality goods at reasonable prices

Providing employment.

Patronising cultural and religious activities.

Maintaining and protecting ecology and

Supporting less privileged sections of people in society.

GOOD CORPORATE CITIZENSHIP:



BUSINESS OBJECTIVES

GOOD CORPORATE CITIZENSHIP:

It implies that business unit complies with the rules of the land,

pays taxes to Government regularly, discharges its obligations

to society and cares for its employees and customers.

Unethical practices are anathema to the Tatas. Quoting JRD

TATA ³ This factor has also worked against our growth. What

would have happened if our philosophy was like that of some

other companies which do not stop at any means to attain theirends«« I have often thought of that and I have come to the

conclusion that if we were like these other groups , we would be

twice as big as we are today. What we have sacrificed is a 100%

growth.´

S SS O C S



BUSINESS OBJECTIVES

Read Critics of Business:

Homework:

Group 1 to discuss table 1.1- 1.2, Box 1.1 to 1.4

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

Environment refers to all external forces which have a bearing

on the functioning of business.

³Environment factors or constrains´ ³ are largely if not totally,

external and beyond the control of individual industrial

enterprises and their managements.

These are essentially the µgivens¶ within which firms and their

managements must operate in a specific country and they vary

often greatly from country to country´

Glueck and Jauch : ³The environment includes factors outside

the firm which can lead to opportunities for or threats to the firm

. Although there are many factors, the most important of the

sectors are socio economic technological supplier, competitors

and government.

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

6 Factors of business environment:

Political ± legal Economic

Socio Cultural

Technological

Global

Natural

ECONOMIC ENVIRONMENT: Refers to all forces that have an

impact on business:

Industrial Production, Agriculture, Planning , Basic economic

philosophy, Infrastructure , National Income, Per CapitalIncome, Money Supply, Price Level, Population, Savings, Stages

in the economic development and trade cycles are major factors.

Business obtains all its needed input from the economic

environment & it absorbs the output of business units.

TABLE

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

TECHNOLOGICAL ENVIRONMENT: It is systematic application of scientific or other organised

knowledge to practical tasks.

It is through business that technology reaches people.

Technology changes fast and to keep pace with it business men

should be ever alert to adopt changed technology in that

business.

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

POLITICAL ENVIRONMENT:

This refers to the influence exerted by the 3 political institutions

viz. legislature, executive and the judiciary in shaping, directing,

developing and controlling business activities.

The legislature decides on a particular course of action ;

executive ±also called government implement whatever is decided

by the Parliament.

Judiciary functions as the watchdog in order to ensure that both

the legislature and the executive function in public interest and

within boundaries of the Constitution.

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

GLOBAL OR INTERNATIONAL ENVIRONMENT:

A Manager must understand that

Safe and protected markets are no more there;

That the world is becoming small in size thanks to advancedmeans of transport and communication facilities;

That learning of foreign languages is a necessity;

That acquiring familiarity with strange and changing currencies

is a must

That facing legal and political uncertainties is inevitable.

and that their products to meet different customer needs and

tastes would only help companies survive amides intense

competition.

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

SOCIALAND CULTURAL ENVIRONMENT :

It refers to the influence exercised by certain factors which are

beyond the company¶s gate.

It includes;

People¶s attitude to work and wealth;

Role of family; marriage; religion and education;

Ethical issues and

Social responsiveness of business.

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

BUSINESS = PRODUCT OF Technological

Political ±legal

Economic,

Social ±cultural and

Natural factors

amides which it functions.

3 FEATURES:

3 features are common to the web of relationship between business

and its environment1. There is symbiotic relationship between business and its

environment that is business is influenced by its environment

and in turn to a certain degree it will influence the external

forces. Similarly political legal environment influences economic

environment and vice versa .

TABLE

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

2. These environment factors are dynamic. They keep on changing asyears roll by so does business.

3. A particular business firm by itself may not be in a position to

change the environment. But along with other firms business

will be in a position to mould the environment in its favour to a

large extent.

KNOWING THE ENVIRONMENT:

The environment provides a mass of ambiguous information. What should be done to make out the relevance of the

information

What is to be accepted and what is rejected.



GLOBALEXTERNAL

ENVIRONMENT

INTERNAL

ENVIRONMENT

ENVIRONMENT

OF BUSINESS

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

3 concepts seek to answer these questions:

1. Enacted Environment

2. The Domain consensus and

3. The task environment.

ENACTED ENVIRONMENT:

It is organisation¶s own environment out of the total external

environment

Chooses those on which to react and not on entire environment.

Domain & domain Consensus : Domain is a part of enacted

environment which the organisation carves out for itself.

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

Firm delineates its own territory out of the environment.

- Range of products offered

- Population served and

- Services rendered.

Organisation focuses on these 3 areas only.

WHY DOMAIN CONSENSUS:

As an organisation has many stakeholders-owners, employees,customers, government , public , suppliers and lenders, Domain

Consensus is formed when all the stakeholders agree upon the

domain of the organisation.

If Domain consensus is not reached it can create conflicts and

vissiate growth environment.

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

Task Environment :

The range of products to be offered

The technology to be employed and

The productive strategies to be used to counter the global

competition.

It is the task environment needs constant surveillance though

elements outside are not ignored but are not paid less attention.

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

OBJECTIVES AND USES OF STUDY:

Environmental Analysis has 3 basic goals.

Analysis should provide an understanding of current and

potential changes (long term perspective) taking place in the task environment.

It should provide inputs for strategic decision making.

Facilitate and foster strategic thinking in organisations typically

a rich source of ideas and understanding of the context in which

organisation is operating.

It should challenge the current wisdom by bringing fresh

viewpoints into the organisation.



ENVIRONMENTALSCANNING

STRATEGYFORMULATION

STRATEGYIMPLEMENT

ATION

EVALUATION

&

CONTROL

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

Benefits of environmental study:

1. Development of broad strategies and long term policies of the

firm.

2. Development of action plans to deal with technological

advancements3. To foresee the impact of socio economic changes of the national

and international levels on the firm¶s stability

4. Analysis of competitors strategies and formulation of effective

counter measures5. To keep oneself dynamic.

THUS the managers can concentrate on these few instead of having

to deal with all the environment opportunities and threats in the

pressure cooker environment.

WHAT IS ENVIRONMENT



WHAT IS ENVIRONMENT

µFIRMS WHICH SYSTEMATICALLY ANALYSE ANDDIAGNOSE THE ENVIRONMENT ARE MORE EFFECTIVE

THAN THOSE WHICH DON¶T´

PROCESS OF ENVIRONMENTAL




ANALYSIS

1. SCANNING a. Surveillance of all environmental factors and

their interactions in order to

Identify early sign of possible environmental change and

Detect environmental changes already in way.

2. MONITORING Tracking environmental trends, sequences of

events or streams of activities.

3. OUTCOMES EMERGE:a. Specific description of environmental trends or patterns to be

forecast.

b. Identification of trends for further monitoring and

c. The identification of areas for further monitoring





ANALYSIS

These output become inputs for further forecasting.

3. FORECASTING :

Scanning and Monitoring provide a picture of what has already

taken place or what is happening

Strategic Decision requires a future orientation.

Hence forecasting is an essential element in environmental

analysis.





ANALYSIS

1. Forecasting is concerned with developing plausible projections of

the direction, scope and intensity of environmental change:

How much time it will take a particularly new technology to

reach the market place?

Are current life style trends likely to continue.

Forecasting is well focused and is much more deductive and complex

activity.





ANALYSIS

4. ASSESSMENT:

Assessment involves identifying and evaluating how and why

current and projected environmental changes affect or will

affect strategic management of the organisation.

Assessment tries to answer questions such as what are the

key issues presented by the environment and what are the

implications of such issues for the organisation?





ANALYSIS

Linkages among Stages:

Though conceptually scanning , monitoring,

forecasting and assessment are separate

activities but they are inextricably intertwined





ANALYSIS

scanning

Monitoring

Assessment

Forecasting

Though they are separate

Activities yet they are

inextricably interwined

LIMITATIONS OF ENVIRONMENTAL




ANALYSIS

1. Environmental Analysis does not foretell the future nor iteliminates uncertainty.

2. It provides only input in strategy development and testing and

does not guarantee organisational effectiveness.

3. The potential of environmental analysis is often not realisedbecause of how it is practised.

4. Too much reliance is often placed on the information collected

through environmental scanning. µparalysis through analysis

syndrome¶

NORTON COMPANY : An industrial abrasives manufacturer

and a competitor of 3M in US the US Norton faithfully studies

environment and followed all management models, systems and

procedures.





ANALYSIS

Inspite of all Norton¶s state of the art management systems itsperformance remained disappointing. In 1990 it was absorbed

into the French giant, Compagnie de Saint- Gobain.

3M achieved success but followed a different path. Company didnot get caught by the paralysis syndrome. Leaders place little

emphasis on top down planning and control.

Instead they nurtured the innovative ideas of sales engineers and

sales representative thereby building an entrepreneurial enginethat generated a stream of profitable new products and

promising new technologies.

By mid 80s 3 M was reporting sales 8 times those of its old

competitor.





ANALYSIS

3 M was named 5th times in 6 years to Fortune¶s list. Of 10 most

admired corporations.

ENVIRONM FACTORS AND THEIR FEATURES



ENVIRONM. FACTORS AND THEIR FEATURES

Global

Environment

Technological

Environment

Economic

Environment

Political

Environment

Socio Cultural

Environment

Natural

Environment

Increasing

Opportunity as

world has

become 1 mkt.

Tech. reaches

people through

business

Growth

Strategy

Role of

Legislature

Culture creates

people

Manufacturing

Depends on

physical

inputs.

Improving

Quality

Increased

Productivity

Economic

System

Role of

Executive

Culture &

Globalisation

Mining &

Drilling

depends onnatural depos.

Competition

from MNCs

Need to spend

on R &D

Industry Role of

Judiciary

Culture

determines

Goods & Serv.

Agriculture

depends on

Nature

Capital & Tech

Transfer

Fast Changing

Technology

Agriculture Constitution of

India

People¶s

attitude tobus. & work

Trade between

2 regionsdepends on geo

factors

Deciding which

mkt to enter &

how

Rise & decline

of products &

organisations

Infrastructure New Direction

for Govt. role

Caste System Transp &

Commun.

Depends on

geo. factors

KNOWING THE ENVIRONMENT



KNOWING THE ENVIRONMENTGlobal

Environment

Technological

Environment

Economic

Environment

Political

Environment

Socio Cultural

Environment

Natural

Environment

Adjusting the

management

process

High Expect-

actions of

consumers

Money &

Capital

Markets

-- Spirit of

collectivism &

individualisatio

n

--

India & WTO Problem of

techno

structure

Per Capita &

National

Income

- Education

--- System

Complexity

Population Family &

Marriage

Increased

regulation &

stiff opposition

New Economic

Policy

Authority

Demand forCapital

Scientific Spirit

Social Change Ethics in

Business

Social

Responsibility

Social Audit





ANALYSIS

ASSIGNMENT Group II- discuss table 1.3 and 1.4

QUESTIONS FOR SURPRISE TESTS:

1.

Documents

Economic Environment of Business (an Introduction)