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Business environment
 

Business environment

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stretigic management for ca ipcc and pcc students

stretigic management for ca ipcc and pcc students

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    Business environment Business environment Presentation Transcript

    •  
      • Environment means the surroundings, external objects, influences or circumstances under which someone or something exists. The environment of any organisation is the aggregate of all conditions, events & influences that surround & affect it.
      • Purchase decision: Automobile
      • Supplier of raw materials
      • Manufacturer
      • Dealer
      • Advertising agency
      • Banker
      • Insurance agent
      • Business- economic activity
      • Business firm- economic unit
      • Business decision making- economic in nature
      • Business achieve objectives by using resources optimally
      • Decisions taken in the presence of environmental factors
      • Business firm is micro economic unit
      • Business environment furnishes macro economic context for its operation
      • Environment in which business operates
      • Includes conditions, events, factors that influence the working of business
      • Classification:
      • Time: past, present & future environment of business
      • Space: local, regional, national , international environment of business
      • Forces: forces of market like demand, supply
      • Factors: economic & non-economic
      • The classification of relevant environment into components helps the organisation to cope with its complexity, comprehend the different influences operating & relating the environmental changes to its strategic management process.
      • Business firms: adaptability & adoptability to environment
      • Managers: capability & copability to deal with environment
    • BUSINESS DECISIONS INTERNAL ENVIRONMENT EXTERNAL ENVIRONMENT
      • Richman & Copen…………
      • Environment factors or constraints are largely, if not totally, external and beyond the control of individual industrial enterprises & their managements. These are essentially the ‘givers’ within which the firms & their managements must operate in a specific country & they vary often greatly from country to country.
      • Business environment for a firm- multi layered structure.
      • Layers:
      • favourable/ adverse
      • exhibit different characteristics
      • affect adjoining layer over a period of time
      • Closeness of interaction & interrelationship diff at diff levels
      • Example: changes in global business environment may effect the domestic growth environment significantly
    • INTERNAL ENVRNMNT EXTERNAL RIVAL FINANCIERS CUST OMR INPUT PRVIDER DOMESTIC MACRO ECNMC ENVRNMNT NON ECNMC MACRO ENVRNMNT SOCIAL CULTRL ECMNC STBLTY ECNMC SYSTM GRWTH &DIST ECO POLICY DEMGRPHC INTRNTNL ENVRNMT INTRNTNL ENVRNMT GOVT CONTD……
      • Change in environment presents opportunity to some & threat to others
      • Examples:
      • General agreement on trade & services (GATS) implemented in India on Jan 1, 2005: opportunity for research based pharmaceutical cos like Ranbaxy but threat to smaller companies.
      • HUL took advantage of new takeover & merger codes: acquired Kissan from UB group, Lakme from Tata, Modern foods from government.
      • Regarded as controllable factors: companies have control over them
      • Internal economy: some internal factors contribute increase in productivity
      • Mission & vision of the organisation
      • Management strategy
      • Industrial relations
      • Corporate culture & values
      • Line & staff relations
      • Quality control system
      • Team spirit among employees
      • Work culture
      • Compensation system
      • Career progression of employees
      • Conflict b/w different owner groups
      • Conflicts b/w workers & managers
      • Inter departmental conflicts
      • Unhealthy competition & conflict among employees
      • Office politics
      • Discrimination at work place
      • Absenteeism
      • Regarded as uncontrollable factors: by and large beyond the control of company.
      • External economy: some external factors contribute to the growth of the company.
      • Suppliers
      • Customers
      • Competitors
      • Financiers
      • Society
    • BUSINESS POLITICAL LEGAL ECONOMIC SOCIAL CULTURAL TECHNOLOGICAL GLOBAL NATURAL
      • Economic system
      • Growth & distribution environment
      • Macro economic stability (price level, exchange rate, interest rate, money supply, aggregate demand, BOP, employment rate)
      • Economic policy (monetary policy, fiscal policy, industrial policy, trade policy)
      • Political environment
      • Social / cultural environment
      • Demographic environment
      • Technological environment
      • Natural environment
      • Historical environment
      • State of world economy
      • International economic cooperation
      • Role of multilateral economic institutions
      • International economic laws, agreements, codes
      • Political condition & system in different countries
      • Cultural factors across countries
      • Growth & spread of MNCs
      • Technology growth & transfer
      • International market structure & competition
      • Barriers to international trade & investment
      • (I) POLITICAL ENVIRONMENT
      • Political stability- changes in the form & structure of government administration
      • Political organisation- ideology of ruling government; influence of premier groups; conflicting role of public & private sector
      • Example:
      • Nehru: transformation of agrarian economy into industrialised economy
      • Indira Gandhi: state became active in agriculture sector (subsidised fertilisers, expansion of institutional credit); tightening of state control over industrial finance, foreign investment, trade
      • Since 1990-91, political environment changed- economy increasingly being liberalised
      • Example:
      • In 1977, Janata govt came to power: Coca cola, IBM had to leave country. All liquor cos had to close operations.
      • 1991 new economic order presented new opportunities for business & also threat to inefficient organizations.
      • (II) REGULATORY & LEGAL ENVIRONMENT
      • Legal policies- formulation & implementation
      • Economic legislations- facilitator and/ or restrictor
      • Playa a vital role- dictating dos & don’ts of business
      • Flexibility & adaptability of law- constitutional amendments
      • Foreign policy- tariffs, custom unions etc
      • (III) SOCIO- CULTURAL ENVIRONMENT
      • SOCIAL ENVIRONMENT
      • Made up of attitude, desires, expectations, education, beliefs & customs of people
      • Changes gradually
      • To forecast a change is difficult
      • CULTURAL ENVIRONMENT
      • Organisational culture is the customary or traditional ways on thinking & doing things, which are shared to a greater or lesser extent by all the members of the organisation, which new members must learn & at least partially accept in order to be accepted into the service of the firm.
      • A firm wanting to market its product in various regions with diversified cultures will have to carefully study the existing consumption pattern & scope for creating demand for new products & will have to adjust their marketing communication to cultural characteristics.
      • If the society is multi- cultural, then the firm can not meet the demands of different groups with a uniform product. To be successful in a multi cultural society, the firm will have to carefully study the consumption behaviour of different groups.
      • Example:
      • Companies have to change their product portfolio because of cultural differences as McDonald and KFC did when they launched their restaurant chain in India.
      • (IV) DEMOGRAPHIC ENVIRONMENT
      • (a) Size & growth rate of population
      • Growing population: boon
      • Increase in productive forces
      • Bigger market for products
      • Growing population: bane
      • Adverse impact on per capita income & standard of living
      • Adverse impact on savings: unfavourable impact on capital formation
      • Adverse impact on employment situation
      • Increasing pressure on agriculture
      • (b) age structure of population
      • It determines:
      • Productivity level
      • Demand pattern
        • Young population: PTC high
        • Elderly population: high savings
      • (c) urban- rural population
      • Proportion of urban rural population increasing
      • Reasons
      • Pull factors:
      • Better employment opportunities in urban areas
      • Better income
      • Better education
      • Better health facilities
      • Push factors:
      • Low level of agriculture productivity
      • Disguised unemployment
      • Wide disparity between urban & rural levels of living
      • In India, urban population increased from 17.3% of total population in 1951 to 27.78% of total population in 2001 (Source: Economic Survey 2003-04)
      • Example:
      • Demographic environment decides the marketing mix for an organisation. A one rupee sachet of shampoo or a five rupee ice-cream cone are some examples.
      • (V) TECHNOLOGICAL ENVIRONMENT
      • Refers to body of skills, knowledge & procedures for making, using & doing useful things
      • Positive effects of technology :
      • Increased productivity
      • Spread effects
      • Production of new & better goods of standardised quality with more efficient use of raw materials
      • Basis for fast growing urban & industrial system
      • Negative effects of technology :
      • Displacement of labour
      • Environmental pollution
      • Switching over might be costly
      • Example:
      • FIAT was using old technology but MUL had no option than to go for superior technology.
      • (VI) NATURAL ENVIRONMENT
      • Industrial activity not entirely independent of nature
      • Industrial units using weight losing inputs to be set up at sources of these inputs
      • Externalities
      • (VII) EDUCATIONAL ENVIRONMENT
      • Attitude towards education & acquisition of knowledge
      • Types of education- formal or informal
      • Literacy level
      • Educational match with skill requirement
      • (VII) HISTORICAL ENVIRONMENT
      • Historical events & ideologies have a strong impact on the current state of business
      • Example: business environment in a number of newly independent nation states has been determined by the colonial status that these countries had.
      • Dynamic
      • Uncertain
      • Element of Risk
      • Opportunities & threats
      • Internal & external factors
      • Economic & non-economic factors
      • Facilitates operations of the organisation
      • Forms the basis of long term policies, plans, strategies of organisation
      • Helps organisation in identifying & understanding its competitors
      • Helps the firm to expand & grow
      • CORPORATE RESPONSE & ADJUSTMENT TO SPECIFIC CHANGES IN BUSINESS ENVIRONMENT
      • Competitive environment
      • Marketing strategy
      • Developing new product
      • Satisfying customers
      • Measures for realisation of economies of scale & scope
      • Technological environment
      • R & D
      • Foreign technical collaborations
      • Choice of technology
      • Capital labour ratio
      • Labour environment
      • Productivity
      • Employee motivation
      • Employees’ turnover rate
      • Working conditions
      • Compensation
      • Legal environment
      • Procedures & documentation
      • Ethical practices
      • Intellectual property protection
      • Credibility
      • Social environment
      • Social responsibility
      • Welfare expenditure
      And so on………….
      • Environmental changes:
      • Liberalisation era forced businessmen to think of core competencies
      • Reckless diversifications made during pre liberalisation era became liabilities
      • Strategic responses:
      • Restructuring business
      • Internationally to consolidate strength in brewing & distilling
      • In India to focus on engineering, services, health care, brewing & distilling
      • Hiving of non core business like pharmaceuticals
      • Consequences:
      • With the excess baggage being shed, UB group looks slim & vibrant
      • Firms that are able to make appropriate adjustment to business environment changes reduce risk & uncertainty & gain competitive edge over others. Failure in making timely adjustment may erode profitability, competitiveness & market share.
      • Legal risk : arising from legal challenges or changes in laws
      • Regulatory risk : arising from regulatory design & its changes
      • Political risk : arising from political changes
      • Social risk : originating from social attitudes, perceptions
      • Natural risk : associated with natural calamities
      • Studies interaction, interdependence, interlocking of various environmental factors
      • Economic environment is both- endogenous & exogenous- it is determined as well as determining
    • Eco Envrnmt Non Eco Envrnmt  Eco. Sys. Eco. Stru Fnctng of the Eco Eco plng Eco. prgrm Eco. Policies Eco. contls & rgultions Eco. gwth & dvt Sociological + + + + + + + + Educational + + + + + + + + Political + + + + + + + + Historical + + + + + + + +
    • PRESENT ENVRNMNT NON PRESENT ENVRNMT PRESENT ECO ENVRNMT (1) PRESENT NON- ECO ENVRNMT (2) PAST ECONOMIC (1) + + NON ECONOMIC (2) + + FUTURE ECONOMIC (3) + + NON ECONOMIC (4) + +
      • Wiliam & Lawrence……..
      • Environmental analysis & diagnosis give strategists time to anticipate opportunities & to plan to take optional responses to these opportunities. Its also helps strategists to develop an early warning system to prevent threats & to develop strategies which can turn a threat to the firm’s advantage
      • Scanning: general surveillance of environmental factors & their interactions
      • Monitoring: tracking environmental trends, events
      • Forecasting: developing plausible projections of direction, scope & intensity of environmental change
      • Assessment: identifying & evaluating how & why current & projected environmental changes will affect strategic management of organisation
      • Strategic planning in which managers try to determine best fit b/w organisation & its external environment
      • Important step towards corporate planning & business policy decisions
      • Aimed at continuous improvement of the company, its policies & programs.
      • INTERNAL SCANNING : acquisition, analysis, use of information from within the organisation that will help the management in determining future course of action of business
      • EXTERNAL SCANNING : acquisition, analysis, use of information about events & establishing the relationship of business with its external environmental variables
      • Corporate managers analyse the Strengths (S), Weakness (W), opportunity (O) & Threat (T) that exist for their organisation in the context of its environment.
      • O & T are external to the firm. With S the firm can seize the O & captilise on it & because of its W it becomes the victim of T in the environment
    • MONITORING SCANNING FORECASTING ASSESSMENT
      • To provide economic logic & perspective for managerial decision making
      • Integrating economic theory with practical business situations
      • Monitoring, scanning, careful analysis & interpretations of business environment
      • Forecasting, future panning & formulating future business strategy