Business EnvironmentEnvironment refers to all external forces which have a bearing on the functioning of business.It has been derived from the French word environner- (to surround) and virer (to turn around).Business environment is the aggregate of all conditions,events and influence that surrounds and affect it-Keith Davis.It comprises of micro and macro factors.

Concept of BusinessOld concept- The business of business is to do business.Modern concept- The concept of profit cum service.The concept of profit through service.

Objectives of businessProfitGrowthInnovationEmployee satisfaction & developmentQuality products & servicesFair return to investorsService to societyGood corporate citizenship

GrowthTo add moreproductsDiversificationIntegrationTo cut down Expansion of marketsTo increaseMarket shareGROWTH

Service to societyTo provide safe & quality goods atreasonable prices To provide employmentTo promote cultural & religious activitiesTo maintain & protect ecologyTo help in supporting less privileged sections of society

Factors influencing Business DecisionInternal EnvironmentExternal Environment BusinessDecision

Types of EnvironmentInternal environment.

External environment-Micro/task/operating environment.Macro/general/remote environment.

Internal EnvironmentValue systemMission & objectivesManagement structure& natureInternal powerrelationshipHuman resourcesCompany image &Brand equityMiscellaneousfactorsInternal environment

Micro Environment - FactorsSuppliersCustomersCompetitorsMarketingintermediariesPublicFinanciersRegulatingagenciesMicro Environment

Macro Environment - FactorsEconomicDemographicPolitical & legalGlobalNaturalSocio-culturalTechnologicalMacroEnvironment

McKinsey's 7S Model

Strategy- Actions a company plans in response to or in anticipation of changes in its environment to gain sustainable competitive advantage.Structure-The basic organization of the company, its departments, reporting lines, areas of expertise, and responsibility (and how they inter-relate).Systems-Formal and informal procedures that govern everyday activity, covering everything from management information systems, through to the systems at the point of contact with the customer (retail systems, call centre systems, online systems, etc).

Style - the leadership approach of top management and the organization's overall operating approach; also the way in which the organization's employees present themselves to the outside world, to suppliers and customers.Skills - what the company does best; the distinctive capabilities and competencies that reside in the organization.Staff - the organization's human resources; refers to how people are developed, trained, socialized, integrated, motivated, and how their careers are managed.Shared values - originally called super ordinate goals; the guiding concepts and principles of the organization - values and aspirations, often unwritten; the fundamental ideas around which a business is built & works together for a common aim.

McKinseys 7S FrameworkDeveloped in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firmThe basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful.

Use The 7S model can be used in a wide variety of situations where an alignment perspective is useful.Improve the performance of a company.Examine the likely effects of future changes within a company.Align departments and processes during a merger or acquisition.Determine how best to implement a proposed strategy.

SWOT Analysis

Meaning and HistoryIt is an important planning tool for auditing the overall strategic position of a business and its environment.It helps to identify internal & external factors that affect achievement of business objectives.The SWOT framework was described in the 1960s by Edmund P. Learned,C.Roland Christiansen,Kenneth Andrews & William Guth in Business Policy,Text & Cases.This technique is credited to Albert Humphrey.

SWOT PROFILESituation Analysis

Internal Analysis External Analysis

Strengths Weaknesses Opportunities ThreatsSWOT Profile

Benefits of SWOT AnalysisIt can act as a filter to reduce information to a manageable quantity of key issues.It can be used in a pre-crisis planning and in preventive crisis management.It helps to leverage strengths,correct or stop weakness,capitalize on golden opportunities,deter or defend potentially devastating threats.

SWOT Analysis LimitationsOversimplification - It may oversimplify the situation by classifying the firms environmental factors into categories into which they may not always fit.Arbitrary classification - The classification of some factors as strengths etc might be arbitrary, more important is the companys awareness about these and development of a strategic plan.Multiple perspectives needed rather than one person being interviewed and a SWOT being created.Opportunities external to the company are many a times confused with internal strengths.SWOT is just a description of condition,while strategies define actions.(opportunity analysis-auspicious condition)

Used to assess: ? a company (its position in the market, commercial viability, etc)a method of sales distributiona product or branda business ideaa strategic option, such as entering a new market or launching a new producta opportunity to make an acquisitiona potential partnershipA changing a supplieroutsourcing a service, activity or resourcean investment opportunity

Strengths

Advantages of proposition?Capabilities?Competitive advantages?USP's (unique selling points)?Resources, Assets, People?Experience, knowledge, data?Financial reserves, likely returns?Marketing - reach, distribution, awareness?Innovative aspects?Location and geographical?

WeaknessesDisadvantages of proposition?Gaps in capabilities?Lack of competitive strength?Reputation, presence and reach?Financials?Own known vulnerabilities?Timescales, deadlines and pressures?Cashflow, start-up cash-drain?Continuity, supply chain robustness?

ThreatsPrice, value, quality?Accreditations, qualifications, certifications?Processes, systems, IT, communications?Cultural, attitudinal, behavioural?Management cover, succession?Effects on core activities, distraction?Reliability of data, plan predictability?Morale, commitment, leadership?

Opportunities

Market developments?Competitors' vulnerabilities?Industry or lifestyle trends?Technology development and innovation?Global influences?New markets, vertical, horizontal?Niche target markets?Geographical, export, import?New USP's?Tactics - surprise, major contracts, etc?Business and product development?Information and research?Partnerships, agencies, distribution?Volumes, production, economies?Seasonal, weather, fashion influences?

While some models of organizational effectiveness go in and out of fashion, one that has persisted is the McKinsey 7S framework. Developed in the early 1980s by Tom Peters and Robert Waterman, two consultants working at the McKinsey & Company consulting firm, the basic premise of the model is that there are seven internal aspects of an organization that need to be aligned if it is to be successful.

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