Components of Business Environment

2. Flow
• Meaning of Business Environment
• Types of Business Environment
• Components of Internal Business Environment
• Components of External Micro Business Environment
• Components of External Macro Business Environment
• Techniques of Environmental Analysis

3. Business environment
• Business is an economic activity, which is related with continuous and
regular production and distribution of goods and services for satisfying
human wants.
• Environment literally means the surroundings, external objects, influences or
circumstances under which someone or something exists.
• The environment of any organization is “ the aggregate of all conditions,
events and influences that surround and affect it.”

4. Business environment
• “Business environment consists of all those factors that have a bearing
on the business.”
• “Business environment is the sum total of all external and internal
factors which influence the development, performance and outcome of
a business.”

5. Overview of Business Environment
MACRO ENVIRONMENT
ECONOMIC
Environment
MICRO ENVIRONMENT
BUSINESS
Internal Environment
Values,
Mission & Objectives.
Human Resources,
Co. Image & Brand Equity
TECHNOLOGICAL
FACTORS
MARKETING
INTERMEDIARIES
DEMOGRAPHIC
FACTORS
SOCIAL
CULTURAL
FACTORS
Non - Economic
Environment

6. Types of Business Environment
The survival and success of a business firm depend on its strength , resources
like physical, financial, human resources, skill and organizations and its
adaptability to the environment. Hence business environment has two
components:
1. Internal Environment
2. External Environment
a. Micro Environment/task environment/operating environment
b. Macro Environment/general environment/remote environment

7. Internal Environment
Internal Environment refers to all the factors that are within an organization
which impart strengths or cause weaknesses of strategic nature. The components
of Internal Environment are as follows:
1. Value system
2. Mission and Objectives
3. Management Structure and Nature
4. Internal Power Relationship
5. Human Resources
6. Company Brand & Equity

8. Value System
A person's standards and self-discipline set, based on the common sense and
wisdom of knowing what the proper moral rules and discipline are, and the
amount of willingness to see themselves and others abide by them.

9. Values of Reliance Group of Industries
• Quality: We do not compromise – we have a passion for the best
quality.
• Innovation: We are innovative and wish to enthuse our clients.
• Ambition: We set high objectives and push to achieve the best results.
• Honesty: We are honest towards our clients, also when it may be
unpleasant.
• Integrity: We keep our word, guard confidentiality, and maintain a
high level of integrity.

10. Values of Airtel
• Alive : We are alive to the needs of our customers. We act with
passion, energy and a can-do attitude to help our customers realise
their dreams.
• Inclusive : Airtel is for everyone - we champion diversity, recognising
the breadth and depth of the communities we serve.
• Respectful : We live the same lives as our customers, sharing the same
joys and the same pains. We never forget that they are why we exist.
We act with due humility, always open and honest, to achieve mutual
respect.

11. How Values of Founder affects the Business

12. Vision, Mission & Objectives
The business domain of the company, priorities, direction of
development, business philosophy, business policy etc., are guided by
the vision, mission and objectives of the company.

13. B (Vision)
(where you want to be)
(objectives, strategy, actions)
A (Mission)
(Why we work)
(Purpose)

14. Tesla Motors Vision
“To create the most compelling car company of the 21st century by
driving the worlds transition to electrical vehicles.”
1. Most compelling shows leadership & excellence in work.
2. Car company.
3. 21st century.
4. Worlds transition to electric vehicles.

15. Tesla Mission
“To accelerate the world’s transition to sustainable transport”
1.Accelerate
2.World’s Transition
3.Sustainable Transport

16. Amazon Vision
“To be earth’s most customer centric company where customer can
find and discover anything they might want to buy online.”
1. Global reach
2. Customer centric company
3. Anything they might want to buy online

17. Amazon Mission
“ We strive to offer our customers the lowest possible prices, The best
available selection and the utmost convenience.”
1. The lowest possible price
2. The best available selection
3. The utmost convenience

18. Management Structure and Nature
The organization structures the composition of the Board of Directors, experts of
professionalization of management, shareholding pattern etc. are important factors
influencing business decisions.
Some management structures and styles delay decision while some other facilitate quick
decision making. The shareholding pattern could have important managerial
implications.
For e.g. There are some large company having majority of the share held by promoters
like Wipro and there are some large companies where the promoters position is not
important like Tata group of companies. The decision is so much influence by
management structure.
Cyrus Mistry to take Tata Group to court, resigns from Tata companies

19. Internal Power Relationship
• Factors like the amount of support the top management enjoys from
different level of employees, shareholders and board of directors
have important influence on the decisions and their implementation.
• The relationship between the members of Board of Directors and
between the chief executive and the Board are also critical factors.
• For e.g ICICI Bank chief executive Chanda Kochhar sanctioned a
loan of Rs 3,250 crore to the Videocon Group in 2012. Out of this
loan amount ICICI classified as an NPA of Rs 2,810 crore.

20. Human Resources
• The characteristics of the human resources like skill, quality, morale,
commitment, attitude etc. could contribute to the strength and weakness of an
organization.
• Some organization find it difficult to carry out restructuring or modernization
because of resistance by employees whereas they are smoothly done in some
others. The involvement and initiative of people at different levels may vary
from organization to organization.

21. Best e.g. of Human resources

22. Company Image and Brand Equity
• The image of the company matters while raising finance, forming,
joint venture or other alliances, entering purchase or sale contracts,
launching new products etc.
• For e.g Reliance Jio Infocomm Ltd. is now India's third-largest
telecom operator in short time due to strong company image and
brand.

23. Other Factors
• Physical assets
• R&D & technological capabilities
• Marketing resources
• Financial factors

24. External Environment
It includes all factors outside the organization which provide
opportunities or threats to the organization. These factors are
uncontrollable.
It consists of Micro and Macro environment.

25. Micro Environment
A company’s micro environment consists of elements that directly affect
the company such as competitors, customers and suppliers.
Thus, Micro Environment consists of all those factors which directly affect its
functioning. It includes:
• Suppliers
• Customers
• Marketing Intermediaries
• Competitors
• Financiers
• Public

26. Suppliers
• Suppliers are the people who supply the inputs to the business.(raw
materials, equipment, personnel, facilities)
• Suppliers hold an important value for a business as the suppliers are
responsible for helping a business meet its business demands.
• There should be more than one supplier in a company.

27. How Supplier can impact company
• Quality: Suppliers components can positively or negatively affect the
quality of our product. Higher quality increases customer satisfaction and
lower quality decreases customer satisfaction.
• Timeliness: Their timely deliveries are crucial. A quick turnaround can
become the key to minimize your inventory, which in turn translates to less
risk of inventory obsolescence and lower cash needs. A delay by suppliers
would result in loss for the business and it would result in customers
moving to another business.
• Additional Finance: If you are loyal in timely payment to supplier. Then
you can enjoy the benefit of additional financing when you have high
demand for product or you are facing cash crunch situation.

28. How you maintain good relation with supplier
• Talk to your suppliers regularly.
• Pay your suppliers' accounts promptly.
• Communicate with a supplier before the due date for payment, should you foresee
a delay in paying an account.
• Build good relations with your current suppliers' representatives.
• Avoid rush orders wherever possible – they can cause significant stress in your
business and put a strain on the relationship with your suppliers.
• Refer damaged or faulty goods to the supplier promptly, with supporting
documentation.
• Be prepared to review and renegotiate the terms of trade with your suppliers from
time-to-time.

29. Customers
• The people who buy a firm’s products and services are its customers. A business
exists to create and satisfy customers. A firm may have different types of customers
like individuals, households, Government departments, commercial establishments,
etc.
• For example, the customers of a paper company may include students, teachers,
educational institutions, business firms and other users of stationery.
• For e.g the customers of a tyre company may include individual automobile owners,
automobile manufacturers, public sector transport undertakings and other transport
operators.
• Due to technological change the taste of customer is changing earlier people use
keypad mobile and Nokia is the market leader but as technology change Nokia was
fail because they cannot understand the taste of customers. Therefore company should
understand the customers taste and preference.

30. Marketing Intermediaries
Marketing intermediaries are the firms that aid the company in promoting,
selling and distributing its goods to final buyers.
Marketing intermediaries are vital links between the company and the final
consumers. A dislocation or disturbance of the link, or a wrong choice of the
link, may cost the company very heavily.
For e.g Hindustan Lever faced major challenge when it faced a collective
boycott in Kerala on the issue of trade margin.
Chinese mobile phone brand VIVO faced a boycott in Tamilnadu on the issue of
trade margin.
Coca-Cola acquired Parle was to gain access to the distribution network of Parle,
which was wide and penetrated.

31. Competitors
• The competitors affect the business's profits by trying to take business away
from them. Their activities affect business profits.
• No single competitive strategy is best for all companies.
• A business needs to carefully analyze its competitors’ strategies in order to
develop counter strategies and deal with the competition well. A competitors
strategy when carefully analyzed becomes an opportunity.
• A firm's competitors include not only the other firms which market the same or
similar products but also all those who compete for the discretionary income of
the consumers.

32. What you need to know about your competitors
• The products or services they provide .
• The prices they charge.
• How they distribute and deliver.
• The devices they employ to enhance customer loyalty and what back-up service they offer.
• Their brand and design values.
• Whether they innovate - business methods as well as products.
• Their staff numbers and the caliber of staff that they attract.
• How they use IT - for example, if they're technology-aware and offer a website and email.
• Who owns the business.
• Their annual report - if they are a public company.
• Their media activities - check their website as well as local newspapers, radio, television and
any outdoor advertising.

33. Financiers
The shareholders, financial institutions, debenture holders and banks
provide finance to a company.
Financial capacity, policies and attitudes of financiers are important
factors for the company. Besides the financing capabilities, their policies
and strategies, attitudes (including attitude towards risk), ability to
provide financial assistance are very important.
For example, the company cannot raise funds through shares if the
financiers are not risk taking.
For e.g Subhiksha was started in 1997 and it had 1600 retail outlets
selling groceries, fruits and vegetables. But it was closed down in 2009
due to severe cash crunch and poor financial management. There was an
overstatement of accounts, fake inventory and fake bills.

34. Public
• Publics include all those groups who have an actual or potential,
interest in the company or who influence the company’s ability to
achieve its objectives. Media groups, environmentalists, non-
government organisations (NGOs), consumer associations and local
community are examples of publics.
• These publics can have both positive and negative impact on a
business firm.
• For e.g Tata Nano Singur Controversy: The project faced massive
opposition from displaced farmers. The unwilling farmers were given
political support by West Bengal's opposition leader Mamata Banerjee.

35. Macro Environment
It comprises general trends and forces that may not immediately affect
the organization but sooner or later will alter the way organization
operates. Macro Environment includes all those factors which
indirectly influence the business. It includes :
• Economic Environment
• Political Environment
• Socio-Cultural Environment
• Natural Environment
• Technological Environment
• Legal Environmennt
• International Environment

36. Environmental scanning
• Environmental scanning is a process of gathering, analyzing, and
dispensing information for tactical or strategic purposes.
• Careful monitoring of an organization's internal and external
environments for detecting early signs of opportunities and threats that
may influence its current and future plans.
• It is monitoring and interpreting of social, political, economic,
ecological, and technological events to spot budding trends that could
eventually impact industry.

37. Purpose of Environmental scanning
• Effective utilization of resources
• Constant monitoring of resources
• Strategy formulation
• Identification of threats and opportunities
• Useful for the managers in decision making
• Prediction of future

38. Factors to be Considered for
Environmental Scanning

39. Factors to be Considered for
Environmental Scanning
1. Events are important and specific occurrences taking place in
different environment sector.
2. Trends are the general tendencies or courses of action along which
events takes place.
3. Issues are the current concerns that arise in responses to events and
trends.
4. Expectations are the demands made by interested groups in the light
of their concern for issues.

40. Approaches for Environmental Scanning
• Systematic Approach : In this approach information is collected
relating to market, customers, changes in legislation, govt. policy
which have a direct impact on organization in a systematic and
continuous manner.
• Adhoc Approach : Organisations conduct special surveys and studies
to undertake special projects, evaluate existing strategies or devise
new strategies.
• Processed form Approach : Information used is supplied by
government agencies or private institutions. Secondary data is used.

41. Sources of Information
The sources of information could be formal, or informal , written as
well as verbal and external or internal.
External sources like newspaper, magzine, journals, books, trade and
industry association newsletter, govt. publications etc.
Media sources like radio, television, internet.
Information through customer, supplier, marketing intermediaries,
finaciers.
Internal sources company files, documents , misdatabase , company
employees , consultants.

42. ETOP
ETOP analysis (environmental threat and opportunity profile) is the
process of gathering information about events and their relationships
within an organization’s internal and external environments.
The basic purpose of environmental scanning is to help management
determine the future direction of the organization. Structuring of
environmental issues is necessary to make them meaning full for
strategy formulation.

43. Steps involved in the preparation of ETOP
• Dividing the environment into different sectors
• Analysing the impact of each sector on the organisation
• Subdividing each environmental factor into sub factors for a
comprehensive ETOP
• Analysing the impact of each subfactor on the organisation in the form
of a statement
• Preparing a summary to show the major factors for the sake of
simplicity

44. Example of ETOP

45. SWOT Analysis
• SWOT stands for Strengths, Weaknesses, Opportunities and Threats
• Identification of the threats and opportunities in the external
environment and strengths and weaknesses in the internal environment
of the firms are the cornerstone of business policy formulation.
• It is the SWOT analysis which determines the course of action to
ensure the growth / survival of the firm.

46. Strengths
• What are the unit’s advantages?
• What does the unit do well?
• What is market share ?
• About Distribution channel?
• About Production process and quality?
• What relevant resources do you have access to?
• What do other people see as your strengths?

47. Weakness
• What can be improved?
• What is done poorly?
• What should be avoided?
• What are you doing as an organization that you feel could be done
more effectively/efficiently?
• What is this organization NOT doing that you feel it should be doing?

48. Opportunities
• Unfulfilled customer need,
• Arrival of new technologies,
• Amendment in regulations,
• Global influences,
• Economic boom,
• Demographic shift
• Market developments

49. Threats
• Shifts in consumer tastes,
• New regulations,
• Political or legislative effects,
• Environmental effects,
• New technology,
• Loss of key staff,
• Demographic shifts,

50. TOWS Matrix
• Tows matrix developed by Heinz Weihrich
• TOWS matrix has a wider scope than SWOT analysis.
• TOWS examines a company's external opportunities and threats and
compares them to the firm's strengths and weaknesses. This analysis forms
the basis to develop TOWS strategies and to form actionable tactics.
• TOWS Matrix is an action tool whereas SWOT analysis is planning tool.
• TOWS Matrix is a relatively simple tool for generating strategic options. It
provides 4 distinct strategies.

52. SO Strategy
• Strength can be used to capitalize or build existing or emerging
opportunities.
• Use of internal strengths to exploit external opportunities.
• For e.g diversify into new markets, improve the quality of products
and reduce the costs of top-selling products.

53. WO Strategy
• The strategies which are developed need to overcome organizational
weakness if existing opportunities are to be exploited to maximum.
• After identifying weaknesses, focus on ways to resolve them in a goal
to take advantage of opportunities. This might require finding new and
cheaper suppliers, developing more aggressive marketing campaigns
and reviewing operational processes to reduce costs.

54. ST Strategy
• Firm tries to minimize existing or emerging threat through its
strengths.
• If the company has a strong research and development department, for
example, start new product development projects to enter different
markets.

55. WT Strategy
• WT Strategy is pursued to minimize or overcome weakness and cope
with existing or emerging threats.
• This could involve closing out poor-selling products, terminating
under-performing employees and developing more aggressive selling
techniques.

57. PESTEL
PESTEL analysis is a scan of the external macro-environment in which
an organization exists. It is a useful tool for understanding the political,
economic, socio-cultural and technological environment that an
organization operates in.

58. Factors in PESTEL
• What are the key political factors?
• What are the important economic factors?
• What socio-cultural aspects are most important?
• What technological innovations are likely to occur?
• What current and impending legislation may affect the industry?
• What are the environmental considerations?