Environment 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 Business
Old 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 business
Employee satisfaction & development.
Quality products & services.
Fair return to investors.
Service to society.
Growth To add more products Diversification Integration To cut down Expansion of markets To increase Market share GROWTH
Service to society To provide safe & quality goods at reasonable prices To provide employment To promote cultural & religious activities To maintain & protect ecosystem To help in supporting less privileged sections of society
Features of B.E.
Is unlimited,extends beyond national frontiers.
Is beyond management control mostly.
Is very complex and its factors may be highly interrelated and interdependent.
Is highly volatile,affected by sudden changes.
Is subject to perception values.
Factors influencing Business Decision Internal Environment External Environment Business Decision
Types of Environment
Internal Environment Value system Mission & objectives Management structure & nature Internal power relationship Human resources Company image Miscellaneous factors Internal environment
Macro Environment - Factors Economic Demographic Political & legal Global Natural Socio-cultural Technological Macro Environment
McKinsey's 7S Model
Strategy - Actions a company plans in response to or in anticipation of changes in it’s 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 ( 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 - 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.
It 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.
Internal Analysis External Analysis
Strengths Weaknesses Opportunities Threats
Factors of Analysis
Strengths & weaknesses
Resources: financial, intellectual, location
Cost advantages from proprietary know-how
Exclusive access to high grade natural resources
Favorable access to distribution networks
Product width and length
Opportunities and threats
Expectations of stakeholders
Competitors and competitive actions
Benefits of SWOT Analysis
It 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 disturbing threats.
SWOT Analysis Limitations
It may oversimplify the situation by classifying the firm’s environmental factors into categories into which they may not always fit.
The classification of some factors as strengths etc might be illogical, more important is the company’s 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 conditions,while strategies define actions.