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Business Environment- Features,Meaning,Importance,Objectives & Porter's Model


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Competitive Structure Of Industries/Porter's Model, Strategic Groups & Types, Limitations, Critics Of Business Environment.

Published in: Economy & Finance

Business Environment- Features,Meaning,Importance,Objectives & Porter's Model

  2. 2. DEFINITION The definition of business environment means all of the internal and external factors that affect how the company functions including employees, customers, management, supply and demand and business regulations.
  3. 3. MEANING The term ‘business environment’ connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise. These include customers,competitors, suppliers, government, and the social, political, legal and technological factors etc.
  4. 4. MEANING
  5. 5. FEATURES OF BUSINESSENVIRONMENT (a) Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning. (b) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions.
  6. 6. FEATURES OF BUSINESSENVIRONMENT.. (e) The business environment is dynamic in nature, that means, it keeps on changing. (d) The changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment. (e) Business Environment differs from place to place, region to region and country to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.
  7. 7. CHARACTERISTICSOF INDIANBUSINESS BUSINESS Bigger Role For Govt. Competition Opportunities Management As a Science Globalisation Technology Waning Trust Transition
  8. 8. IMPORTANCE OF BUSINESS (a) Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully. (b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities. (c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.
  9. 9. IMPORTANCE.. (d) Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power. (e) Meeting Competition: It helps the firms to analyse the competitors’ strategies and formulate their own strategies accordingly. (f) Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.
  10. 10. OBJECTIVES Every business enterprise has certain objectives which regulate and generate its activities. Objectives are needed in every area where performance and results directly affect survival and prosperity of a business. The vision of Infosys – “To be globally respected corporation that provides best-of-breed business solutions, leveraging technology, vendors and society at large.”
  11. 11. Robosoft Technologies is an Indian information technology company which provides software product development services. Robosoft was founded in 1996 by Rohith Bhat, who established the company to develop software products for theMac market. The company's Corporate Office is located in Santhekatte near Udupi on National Highway 66.
  12. 12. ROBOSOFT TECHNOLOGIES VISION Creating memorable products for the world market by attracting and empowering the best minds MISSION To consistently win best-of- show and best-of-class awards for our products PURPOSE To artistically design, professionally develop, attentively test software & hardware products to make them easily accessible to millions of consumers which, in turn, will give the best to our people & customers
  13. 13. 1. EconomicObjectives Business is basically an economic activity. Therefore, its primary objectives are economic in nature. The main economic objectives of business are as follows (i) Earning profits (ii) Creating customers (iii) Innovations
  14. 14. 2.Social objectives Business does not exist in a vacuum. It is a part of society. It cannot survive and grow without the support of society. Business must therefore discharge social responsibilities in addition to earning profits. According to Henry Ford, "the primary aim of business should be service and subsidiary aim should be earning of profit." The socials objectives of business are
  15. 15. SOCIALOBJECTIVES.. Supplying desired goods at reasonable prices Fair Remuneration to employees Employment Generation Fair return to investor Social welfare
  16. 16. 3.HUMAN OBJECTIVES Business is run by people and for people. Labour is a valuable human element in business. Human objectives of business are concerned with the well-being of labour. These objectives help in achieving economic and social objectives of business
  17. 17. HUMAN OBJECTIVES.. Labour welfare Developing human resources Participative management Labour management cooperation
  19. 19. LIMITATIONS Unexpected and unanticipated events No sufficient guarantee Uncritical Faith Too much information
  20. 20. TYPES
  22. 22. 1.THREAT OF ENTRY Important common entry barriers are 1.Government Policy 2.Economies Of Scale 3.Cost Disadvantages Independent Of Scale 4.Product Differentiation 5.Monopoly Elements 6.Capital Requirements
  23. 23. 2.RIVALRY AMONG EXISTING COMPETITORS Factors influencing the intensity of rivalry 1.Number of Firms and their Relative Market Share, Strengths etc. 2.State of Growth of Industry. 3.Fixed or Storage Costs. 4.Indivisibility of Capacity Augmentation. 5.Product Standardisation & Switching Costs.
  24. 24. 2.RIVALRY AMONG EXISTING COMPETITORS.. 6.Strategic Stake 7.Exit Barrier 8.Diverse Competitors 9.Switching Costs 10.Expected Retaliation
  25. 25. 3.THREAT OF SUBSTITUTES An Important force of competition is the power of substitutes. “Substitutes limit the potential returns in an industry by placing a ceiling on the price firms in the industry can profitability charge .The more attractive the price performance alternative offered by substitute, the firmer the lid on industry profits.’’
  26. 26. BARGAINING POWER OF BUYERS Important determinants of the buyer power, explained by Porter, are the following 1.The volume of purchase relative to the total sale of the seller. 2.The importance of the product to the buyer in terms of the total cost. 3.The extent of standardisation or differentiation of the product. 4.Switching costs.
  27. 27. BARGAINING POWER OF BUYERS.. 5.Profitability of the buyer (low profitability tends to pressure costs down). 6.Potential for backward integration by buyer. 7.Importance of the industry’s product with respect to the quality of the buyer’s product or services. 8.Extent of buyers’s information.
  28. 28. BARGAINING POWER OF SUPPLIERS IMPORTANT DETERMINANTS 1.Extent of concentration & domination in the supplier industry. 2.Importance of the product to the buyer. 3.Importance of the buyer to the supplier 4.Extent of substitutability of the product 5.Switching costs 6.Extent of differentiation or standardisation of the product 7.Potential for forward integration by suppliers.
  30. 30. STRATEGIC GROUPS According to Porter, “a strategic group is the group of firms in an industry following the same or similar strategy along the strategic dimensions’’. Normally , a small number of strategic groups capture the essential strategic differences among firms in the industry although one may even think of the extreme cases of an industry having only one strategic group on the one end and each firm in an industry amounting to a strategic group on the other end.
  31. 31. IMPLICATIONS OF STRATEGIC GROUPS This concept has implications for industry analysis & identification of opportunities & threats 1.A company’s immediate competitors are firms within the same strategic group 2.The nature and intensity of competition & business prospects vary from strategic group to group. 3.High mobility barriers normally help insulate the group from new entrants and facilitate high profitability. 4.Just like entry barriers, mobility barriers can change; & as they do firms often abandon some strategic groups & jump into new ones,changing the pattern of strategic group. 5.The competitive standing of the different strategic groups would be different with respect to each of the five competitive forces.
  32. 32. LIMITATIONS OF PORTERIAN MODELSPorter has recognised the role of innovation in revolutionising industry structure. Innovations, according to him, can unfreeze & reshape industry structure. MICHAEL PORTER
  33. 33. ENVIRONMENTAL ANLYSIS & STRATEGIC MANAGEMENT Chandler describes strategic management as “the determination of the basic long-term goals & objectives of an enterprise & the adoption of courses and allocation of resources necessary to carry out these goals” Strategic management or business policy is, thus , the means to achieve the organisational purpose.
  34. 34. ENVIRONMENTAL ANLYSIS & STRATEGIC MANAGEMENT 1.Formulation of Mission & Objectives 2.SWOT Analysis 3.Strategic Alternatives & Choice of Strategy 4.Implementation 5.Evaluation
  36. 36. THANK YOU