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  • 1. BUSINESS AS A SYSTEM Which of the following represent the ‘ Integrated Whole Thing “ : Digestive System Sound System Music System Computer System Digestive Method Sound Method Music Method Computer Method Digestive Process Sound Process Music Process Computer Process Political System Social System Cultural system Economic System Technological System Legal System 26/01/2014 1 Contd …
  • 2. BUSINESS AS A SYSTEM System will: Draw Input Process it Internally and Releases output into environment Business Draw Input – Material , Energy , Information Process it Internally - Into different Material , energy and Information Releases output into environment – Tangible, Intangible and Information 2 Contd …
  • 3. Business & Environment Interface Interaction of Business & its Surroundings I. Micro environment of business. 1) Suppliers Supply raw materials and other components (Inputs) Importance - Reliable supply – continuous supply for smooth functioning Contd … 3
  • 4. Business & Environment Interface Micro environment of business. 2) CUSTOMERS Different categories of customers i. Industrial customers ii. Wholesale customers iii. Retail customers iv. Government customers v. Foreign customers Contd … 4
  • 5. Business & Environment Interface Micro environment of business. 3) Market intermediaries i. Middlemen. ii. Physical distribution Firms: (warehouses and transport firms) iii. Marketing service agencies (Advertising agencies market research firms, media firms, consulting firms) iv. Financial intermediaries Contd … 5
  • 6. Business & Environment Interface Micro environment of business.  4. Competitors:      The Threat of entry of new firms The Power of Buyers The Power of Suppliers The Power of Substitutes The Intensity of Rivalry among existing firms Contd … 6
  • 7. Business & Environment Interface Micro environment of business.  Competitors: 1. The Threat of entry of new firm 1. Economies of scale 2. Capital Requirement 3. Access to Channel 4. Absolute cost advantage 5. Expected Retaliation 5. Government Policy 7. Differentiation • Economies of Scale • Unit cost Inverse to units produced Measured by ‘ Minimum Efficient Scale ‘ Or Market share MES volume is necessary to compete at minimum cost. Strategy : ‘Just in time ‘ & Lean manufacturing to counter economies of scale • Capital requirement • Internet / Knowledge based services less costly 7
  • 8. Business & Environment Interface Micro environment of business.  Competitors: 1. The Threat of entry of new firm 1. Economies of scale 2. Capital Requirement 3. Access to Channel 4. Absolute cost advantage 5. Expected Retaliation 5. Government Policy 7. Differentiation Access to Channel Self help groups / Social networks – New channels of distribution Absolute cost advantage ‘Learning curve effect’ – Cost advantage Expected Retaliation GSM Players like NTC,NCELL ,Smart retaliated entry of CMDA player UTL to operate in GSM field Government Policy Import of sugar, Edible oils, Steel , Liberation of Insurance & other sectors Differentiation Existing company – Strong brand image, wide range of products to cover all segments 8
  • 9. Business & Environment Interface Micro environment of business.  Competitors: 2. The Power of Buyers: 1. Concentration of buyers 2. Alternative source of supply 3. Component cost as a percentage of total cost 4. Possibility of backward integration Concentration of buyers Small no. of buyer + High Volume purchase – High buyer power Coca-Cola – cannot bargain with Malls Alternative source of supply More supply source – high buyer power Bajaj Scooter – Honda, Suzuki, TVS etc Component cost as a % of total cost High proportion of component/material cost to finished goods leads to looking for alternatives. Possibility of backward integration Buyer’s own supply chain – more buyer power – Co-opratives , Self help groups, MLM 9
  • 10. Business & Environment Interface Micro environment of business. Concentration of Sellers  Competitors: Small no. of Sellers– High seller power Like Monopoly & Oligopoly 3. The Power of Sellers: Switching Costs 1. Concentration of Sellers High switching cost to other seller source - Seller power increase 2. Switching costs High-Tec & Specialised goods - SAP 3. Brand power Brand Power 4. Possibility of forward integration High brand power – High power 5. Dependence on customers Ariel , Rin - Supermarkets have to sell it Dependence on customers Possibility of forward integration Not depending on High volume small no.of buyers – more seller power Seller’s own distribution operation – More power 10
  • 11. Business & Environment Interface Micro environment of business.  Competitors: 4. Threat of Substitution: Non-essential goods where there is the ultimate substitute of doing without That: 1. Relative Price & Performance of substitutes 2. Switching Costs 3.Buyer’s willingness to substitute Relative performance & Price of Substitutes Substitutes with same cost – High threat – Email replaced Post Offices Switching costs The Cheaper switching cost - High threat Pet foods , Fast foods , Malls Buyer’s Willingness to substitute Low-cost articles & infrequent purchase of articles – little effort made to go for substitutes Match box – Lighter 11
  • 12. Business & Environment Interface Micro environment of business. High fixed costs  Competitors: High Fixed cost – High break even point 5. Competitive Rivalry: In depression times – Price war to 1. Industry Growth maintain turnover 2.High Fixed costs 1990 – UK & USA accused each of dumping Steel on Export market 3. Volatile Demand Volatile Demand 4.Product Differentiation 5. Extra Capacity in large increments May lead to intermittent Over-capacity Steel war -1990 6. Balance of firms Product Differentiation 7. High exit barriers Homogeneous products – More intense Industry Growth: the rivalry - Steel Rapid Growth – Competition need Extra capacity in large increments not be intense Maturity Phase- Intense competition Creates short term over capacity . Honda Nissan – plant in UK 12
  • 13. Business & Environment Interface Micro environment of business.  Competitors: 5. Competitive Rivalry: 1. Industry Growth 2.High Fixed costs 3. Volatile Demand 4.Product Differentiation 5. Extra Capacity in large increments 6. Balance of firms 7. High exit barriers Balance of firms If the no. of firms is large / similar size the rivalry will be intensive. Clear market leader can bring discipline High exit barriers High exit barriers – Excess capacity to persist and rivalry to be intense 13
  • 14. Business & Environment Interface Macro environment of business.  1. Demography:  Quantitative aspects of population.  Qualitative aspects of population. 1. Population Growth 2. Drivers of Population Changes 3. Ethnicity of Population 4. Implications of Demographic Changes Population Growth: Year 1000 – Estimated 300 million Year 1750 – Actual 728 million Year 1900 – Actual 1500 million Year 1960 – Actual 3 billion Year 2000 – Actual 6 billion Drivers of Population Changes Birth Rate – No. of births per 1000 population Fertility Rate- Av. No. of birth per women Death Rate - No. of deaths per 1000 Migration – Country to Country movement Implication – Consumer, Labour , Employment participation 14
  • 15. Business & Environment Interface Macro environment of business. 2. Economic environment i. Economic conditions- ii. Economic policies GDP, Business Cycle, Unemployment, Inflation, Balance of Payment, Fiscal Policy, Monetary Policy, Exchange rate Policy, Interest Rate. a) Budget b) Industrial policy c) Trade policy d) Agricultural policy iii. Economic system- Capitalistic, Socilalitic, Mixed Contd … 15
  • 16. Business & Environment Interface Macro environment of business. 3.Political environment i. Legislature - Labour Laws like Factories Act, EPF Act, ESI Act, Industrial Disputes Act, Minimum Wages Act, Payment of Wages Act, etc MRTP Act, Law of Contracts, Companies act, IDRA Act, FERA, Import & Export Control act, Tax Laws i. Executive- Administrators ii. Judiciary - District, High Courts, Supreme Court, Tribunals Contd … 16
  • 17. Business & Environment Interface Macro environment of business. 4. Socio cultural environment i. Attitude of people towards work and health. ii. Role of family. iii. Marriage. iv. Religion. v. Education vi. Ethical issues vii. Social responsibility of business Contd … 17
  • 18. Business & Environment Interface Macro environment of business. 5. Natural environment i. Natural resources. ii. Weather and climatic conditions. iii. Locational aspects. iv. Nearness to port facilities. Contd … 18
  • 19. Business & Environment Interface Macro environment of business. 6. Technological environment i. Nature of technology ii. Scope for innovation Contd … 19
  • 20. Business & Environment Interface Macro environment of business. 7. International environment i. Economic ii. Political iii. Legal iv. Demography v. Technology Contd … 20
  • 21. Business & Environment Interface Uses of environment studies 1) Awarness 2) Policy decisions 3) Demand forecasting 4) Competitor’s strategies. 5) To innovate 21
  • 22. Business & Environment Interface Techniques for environmental studies i. Verbal and written information ii. Search and scanning iii. Forecasting and formal studie 22
  • 23. Business & Environment Interface Limitations of environmental analysis a) Unexpected events b) Future is not a guarantee c) Too much of information. d) Overcautions approach 23
  • 24. Business Sectors Primary Sector – Agriculture, Mining Secondary sector - Manufacturing Industries Manufacturing activities – Electricity Generation and Construction Tertiary Sector – Services industries Trade , Commerce, Insurance, Banking,Repair, Transport 24
  • 25. Classification of Business – Based on Scope of Business 1. Business which Produce Goods: Two categories of Goods: a. Commodities – Goods produced by Primary sector - Will not undergo any processing - Agriculture , Fisheries, Mining, b. Products - Goods produced by Secondary sector – Conversion of Raw material into another form - Farms, Diaries, -Manufacturing Enterprises – Machinery, Materials for -other business, Producing goods for consumption 25
  • 26. Classification of Business – Based on Scope of Business 2. Business which Produce Services: Transport , Telephone , Electric Light ,Hotels ,Entertainment 3. Business which Distribute Goods: Wholesale merchants Retail Merchants Importers & Exporters 4. Business which Facilitates Distribution of Goods: Warehouse, Auction Houses, Advertising, Financing 5. Business which Deals in Finance: Commercial Banks, Co-Operative Banks, Development Bankd, Insurance Stock Exchange 26
  • 27. Classification of Business – Based on the Nature of Activity 1.Extractive Industries: Extract goods from natural resources- Oil extraction, Farming, Fishing 2. Genetic Industries: Produce goods by breeding- Poultries, Bio Tech 3. Manufacturing Industries: Process Raw materials into finished goods – 4 Types 1. Basic Industries : Iron, Steel 2. Capital goods Industries : Machines 3. Intermediate Industries : Tyre , Tubes 4.Consumer goods Industries : Soap 4. Construction Industries Canals, Dams, Road, Buildings, Road 5. Service & IT Industries 27
  • 28. Classification of Business – Based on Uses of Goods Produced 1. Basic Industries : Provide essential inputs to other industries Iron, Steel, Fertilizer, Chemicals 2. Capital goods Industries : Instrumental in producing goods and services Do not directly produce goods for consumption Capital intensive Machines, Tools, 3. Intermediate Goods Industries : Goods already had undergone manufacturing process but which forms input for other industries for further processing Tyre , Tubes 4.Consumer goods Industries : For consumption – Durable / Nondurable goods Durable – Usage for more than 3 years Non-durable – Usage within 3 years 28
  • 29. Classification of Business – Based on Competitive Structure 1. Monopoly : Single –Firm Industry Monopsony – Single Buyer Bilateral Monopoly – single Buyer and Single seller MRTP Act 2.Duopoly Two sellers 3. Oligopoly Only few firms holding 80 to 85 % market share 4.Monopolistic competition Large sellers & similar but not Substitute products – Textile 5.Perfect competition Large sellers & Homogeneous & free entry , exit & no single firm has any control over the market & Perfect knowledge about market & no transport cost & complete mobility of factors of production between industries. 29
  • 30. Business Motives & Objectives Objective: The end actions Motive: The desire which stimulate action Motive – Profit, Non-Profit Objective – Supply Quality Products, Customer Satisfaction, Exploit labour, Tax evation 30
  • 31. Business Motives & Objectives Importance of Objectives 1. Justifies existance 2. Provide Direction 3. Help coordination 4.Provide standards for assesment & control 5. Help decentralisation 31
  • 32. Business Motives & Objectives I. Economic Objectives a) Earning of adequate profit. b) Creation of customers c) Innovation d) Generation of employment e) Control of inflation f) Economic development g) Reduction of inequalities of income 32 Contd …
  • 33. Business Motives & Objectives II. Social Objectives a) Supply of goods and services. b) Good treatment of customers. c) Fair treatment of employees. d) Good working environment e) Customer Counseling f) Social responsibility. g) Pollution control. 33 Contd …
  • 34. Business Motives & Objectives III. National Objectives a) Implement of government laws. b) Payment of taxes. c) Democratic practices. 34 Contd …
  • 35. Business Ethics Study of good and evil ,right and wrong actions of Business Dishonesty – Unethical , then being dishonest with employees, Customers and shareholders is unethical. Protecting others from harm – Ethical then recalling defective products is ethical action. 35 Contd …
  • 36. Business Ethics Sources of Business Ethics : Religion Culture & Law Religion : Advocate orderly social system Culture : Rules and standards transmitted among generations to produce behaviours- Sathi, Child marriage, Untouchability, Joint family Law : Rules of conduct approved by Legislators – Companies act , Labour laws etc 36 Contd …
  • 37. Business Ethics Codes of Business Ethics : Codes of conducts of business FICCI 1. Business must maintain highest standard of behaviour for the benefit of industry, employees, customers, shareholders 2. Goods and services must conform to committed quality 3. Customers must be treated with respect and fairness 37 Contd …
  • 38. Business Ethics UnEthical Actions : 1.Kentucky Fried Chicken ( KFC ) – Use of Harmful hormons & Monosodium glutamate to fatten the chicken 2. Neem – Oil : Ptent by U.S company 3. Women Harassment – Sacking of Chief Executive of Infosys 38