business environment (concepts and scope)

7/31/2019 Business Environment (Concepts and Scope)

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CHAPTER 1:

BUSINESS ENVIRONMENT:CONCEPT AND SCOPE

Under the guidance of:

Dr. Kshamanidhi Adabar


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Introduction

A business organisation does not exists in a vaccum. It is in factdependent on external environment. It is an open system as it affects

and is affected by outside events and factors which make up the

external environment. Apart from these, business is also affected from

the forces which are inside the business organisation. Thus,

The relation of a business and

environment can be better understood from the input-output model

of business system. The task of management is to receive inputs from

external factors, convert them into outputs which is then sold in

external environment

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FIGURE 1.1

Business System: Input-Output Model

MANAGEMENT

INPUTSTRANSFORMATION

PROCESSOUTPUT

EXTERNAL

ENVIRONMENT

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External Environment

It is consists of those factors that affects a business

enterprise from outside. External environment is

generally classified into two broad forms:

MICRO ENVIRONMENT

MACRO ENVIRONMENT

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External Micro Environment5


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An important factor in the external environmentof a firm are the suppliers of its inputs such as raw materials andcomponents and the firm should ensure that it should have regularsupply of inputs such as raw materials. To ensure regular supply

inputs some firms adopt a strategy of and setup captive production plants for producing raw materials themselves.

The people who buy and use a firms product & servicesare an important part of external micro-environment. Since sales is a

critical for a firms survival and growth, it is necessary to keep thecustomers satisfied.

External Micro Environmentcont

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External Micro Environment

cont

In a firms external environment marketing

intermediaries plays an essential role of selling and distribution of its products tothe final buyers. They are responsible for stocking and transporting goods from

production site to their destination, that is, ultimate buyers.

Business firms compete with each other not only for sale of theirproducts but also in other areas. Completion may also be of different types:

Absolute monopoly (like public utilities)

Non-price competition (Coca-Cola and Pepsi)

Brand competition (Arial and Surf washing powder)Desire competition (manufactures of cars, televisions, etc.)

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External Micro Environment

cont

According to Public is any group that

has a actual or potential interest in or impact on companys

ability to achieve its objective.

a consumer protection firm inDelhi headed by came out with an amazing fact

that soft drinks like Coca-Cola, Pepsi, Limca, etc. had a higher

contains of pesticides which posed threats to human health and

life. This produced a good deal of adverse effect on sale of

these products in 200304.

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External Macro Environment9


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Economic environment includes the type ofeconomic system that exists in the economy, the nature and structureof economy, the face of business cycle, the fiscal, monitory andfinancial policies of government, foreign trade and investment

policies of government. This economic policies of governmentpresents both the opportunities and threats.

Members of a society wieldsimportant influence over business firms. People these days do not

accepts the activities of business firms without question. Activities ofbusiness firms may harm the physical environment and impose heavysocial costs.

External Macro Environment

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Business are closely related to the

government. The political philosophy of the government wields a greatinfluence over business policies. Besides, it requires that working of the

private sector were to be controlled by a suitable industrial policies of

government.

Industrial Regulation Act 1951

Industrial Policy Resolution 1956

Foreign Ex-change Regulation Act (FERA)Monopolistic and Restrictive Practices Act

(MRTP)


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It affects the success of firms and theneed for technological advancement cannot be ignored. The nature oftechnology used for production of goods and services is animportant factor responsible for the success of a business firm. Thefirms which use outdated technologies cannot compete globally.Therefore, technological development plays a vital role in enhancingthe competitive strength of business firms.

It is also important for business firms asit determines the choice of technology by them. It includes the size

and growth of population, life expectancy of the people, rural-urbandistribution of population, educational level of labour force.


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is the ultimate course of many inputs such as raw materials ,energy which business firms use in their productive activity . Natural environmentwhich includes geographical and ecological factors such as materials , water and forestresources etc are all highly significant of for various business activity .naturalenvironment also effects demands for goods. In regions where there is ahigh temp. in summer there is a high demand for dessert coolers, air conditioners,etc.

The efforts by environmentalists and international organisationssuch as World Bank, the people and the government have now became conscious ofthe adverse effects of depletion of exhaustible natural resources and pollution ofenvironment by business activity. So govt. imposes additional responsibilities and

costs for the firm and it is socially desirable that these costs are borne by the businessfirms if we want sustainable economic growth.


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Figure 1.2 & 1.3 (combined)

Supplier,Customers,

Publics,Marketing,

Competitors, etc

Economic,Political, Social,

Natural,Demographic,

Technological

Externalfactors of a

business

firm

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Internal Environment

Internal environment includes such factors as:Value system

Mission and Objectives

Organisation structureCorporate Culture & Style of Functioning of top

Management

Quality of Human Resources

Labour Unions

Physical Resources and Technological Capabilities

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cont

The value system of an organisation means the ethicalbeliefs that guides the organisation in achieving its mission and objectives.The value system of an organisation also determines its behaviour towardsits employees. The value system of an organisation makes an importantcontribution to its success and prestige in the world of business.

The objective of all firms is assumed to bemaximisation of long-term profits. But mission is different from itsnarrow objective of profit maximisation. Mission is defined as the overallpurpose or reason for its existance"which guides its business decisions andeconomic activities.

has been the mission ofRanbaxy Labs. of India.

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cont

It means such things as composition of

board of directors, the no. of independent directors, the extent

of professional management and shareholding pattern. An

efficient working of a business organisation requires that itsorganisation structure should be conductive to quick decision

making and delays can cast a good deal to the business.

Therefore, the managerial capability of directors is of crucial

importance for the functioning of a business and achieving itsoverall mission and objectives.

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cont

It is animportant factor for determining the internal environment of a company. It isgenerally consider as:

In this type of culture the business decisionsare taken by top level managers, while middle and work level managersdid not contribute in business decision making. As a result, in lowerlevel of managers and workers there is no sense of belongingness tothe company.

In this the business decisions are taken at

lower levels of management, and top management have high level oftrust and confidence in the subordinates. Free communication betweentop level and lower level managers is a rule in this type of corporateculture.

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cont

Quality of employees of a firm is animportant factor of internal environment of a firm. The success of abusiness depends to a great extent on the skills, capabilities, attitudes,and commitment of its employees. Therefore, for efficientmanagement of HR employees are divided into different groups andmanager may pay little attention on the technical details of the jobdone by a group and encourage group corporation.

The other factor determining the internalenvironment of the firm. Unions collectively bargain with top level

regarding wages, working conditions, etc.. Smooth working of abusiness requires that there should be a good relations betweenmanagement and union.

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cont

Physicalresources like plant and equipments, and technologicalcapabilities of a firm determines its competitive strengthwhich an important factor determining its efficiency andunit cost of production. It is important to note that rapidtechnical progress, especially unprecedented growth ofinformation technology in recent years has increased therelative importance of intellectual capital and HR as

compared to physical resources of the company.

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Fi 1 4


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Figure 1.4

Internal Environment Factors21

d


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Business Environment and

Management Strategy

Management strategy is defined as the set of decisions and actionsadopted to achieve the corporate objectives. From evaluation andscanning of external environment, the management can identify theopportunities and threatspresented by the external environment and

strength and weaknessesof the firm as revealed by its internalenvironment. This analysis is generally called

(strength)

(opportunity)

(weaknesses)

(threats)

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Business Environment and Management


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Business Environment and ManagementStrategy

cont

The environment may present many opportunitiesfor its growth but it may not be able to use it to itsadvantage due to internal weakness. Thus, businessenvironment present both oppoptunity and threats

for the firm. These opportunities and threats ofbusiness environment have to be scanned andevaluated in the light of the internal factors. Theeconomic reforms aimed at liberalisation and

globalisation of the Indian economy have changedthe business environment for the Indian firms. As aresults, domestic competition has increased as wellas Indian firms face threats from the imported

products.

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Strategic Management24

The strategic management is concerned

with the determination, given the

business environment it confronts, of longterm goals and objective these goals.


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Strategic Management Process25

Decidingabout the

Mission of theOrganization

Scanningand

Evaluation ofthe BusinessEnvironment

Settingcorporate

LevelObjective

Formulating

Corporate

Strategy

Implementation ofcorporateStrategy


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THANK YOU26

Presentation by: (Group 01)

Amit Fogla (124205)

Anuj Naik (124211)

Sanket Bajaj (124253)

business environment (concepts and scope)

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