Business environment
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Business environment

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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