Business Environment for CA Foundation Business and Commercial Knowledge

1. 1
BUSINESS ENVIRONMENT
CHAPTER 2

2. 2

3. 2.1 Introduction
3

4. Introduction
Business is there to provide products and
services to customers
Reasonable return on investment
Two capabilities to survive:
Ability to prosper and
Ability to change
4

5. Introduction
5,00,00,000 new firms every year
Similar amount of closure
Some live longer
5

6. Introduction
Operates in their unique environment.
Environment influence businesses and also
gets influenced by it
What is environment?
The surroundings or conditions in which a
person, animal, or plant lives or operates.
6

7. Introduction
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.
7

8. Points to Note
• Products and services are being provided to
customers
• Return on investment
• Ability to prosper and change is must
• Operates in their unique environment.
• Environment and business influence each
other
• Business environment constitutes all of the
internal and external factors that affects the
business

9. 2.2 Meaning of
Business Environment
9

10. Meaning of Business Environment
Business environment
External forces,
Factors or
Conditions
Exert impact on
Business decisions,
Strategies and
Actions
10

11. Meaning of Business Environment
Success is dependent on business
environment.
Business has to
Identify,
Appraise, and
Respond to the various opportunities and
threats in its environments.
Business must continuously monitor and
adapt itself to the environment to survive
and prosper.
11

12. Meaning of Business Environment
12
“The environment includes factors outside the firm which
can lead to opportunities for, or threats to the firm.
Although, there are many factors, the most important of
the factors are socio-economic, technological, suppliers,
competitors, and government.” Gluek and Jauch

13. 2.3 Characteristics of
Business Environment
13

14. Characteristics of Business
Environment
14

15. Characteristics of Business
Environment
15

16. Points to Note 3.00 Minutes
External forces, factors or conditions constitute
environment
Impact on business decisions, strategies and actions
Business has to Identify, appraise, and respond to
the various opportunities and threats in its
environments
Most important of the factors are socio-economic,
technological, suppliers, competitors, and
government
Environment is characterized by – complex, dynamic,
multi-faceted, and far reaching impact.

17. 2.4 Importance of
Business Environment
17

18. Importance of Business Environment
Determining opportunities and threats
Giving direction for growth
Continuous learning
Image building
Meeting competition
18

19. 2.5 Relationship
between Organization
and its Environment
19

20. Relationship between Organization
and its Environment
20

21. Relationship between Organization
and its Environment
Major areas of relationship between
Organization and its environment :
Exchange of information
Exchange of resources – 5 Ms
Men,
Money,
Method,
Machine, and
Material
Exchange of influence and power
21

22. Relationship between Organization
and its Environment
Nature of relationship depends on:
Size of the organization
Age of the organization
Nature of business
Nature of ownership
Degree of professionalization of
management
22

23. 2.6 Organization
Response to its
Environment
23

24. Organization’s response to its
Environment
Three Classes of responses are:
1. Administrative Response – reactive or
proactive:
Mission;
Objectives,
Policies, and
Budgets;
24

25. Organization’s response to its
Environment
Three Classes of responses are:
2. Competitive Response
For profit
Non-profit
Competitive advantage on the basis of:
Unique,
Valuable, and
Difficult to imitate.
25

26. Organization’s response to its
Environment
Three Classes of responses are:
3. Collective Response
Coordination with other organizations
Help in
Bargaining,
Contracting,
Co-opting, and creating joint ventures,
Federations,
Strategic alliances, and
Consortia
26

27. Points to Note 2.00 Minutes
• Business environment is important for
opportunities and threats, growth, image
building, and competition
• Major interaction happens related to
exchange of information, resources, and
influence and power
• Three classes of responses are:
administrative, competitive, and collective.

28. 2.7 Environmental
Influence on Business
28

29. Business: Part of Broader Environment
Inputs:
Human,
Physical,
Financial and
Other related resources
Conversion through various processes as:
Products and/or
Services.
Exchanged with the external client groups,
say customers
29

30. Business: Part of Broader Environment
Surplus from exchange
Profits,
Reputation,
Good public image etc.
Inputs, processing, and outputs are different
for different organizations
30

31. Environmental influence on Business
31
A successful business has to:
Identify,
Appraise, and
Respond to
Various opportunities and threats in its
environment.

32. Environmental influence on Business
32

33. Environmental influence on Business
33

34. Environmental influence on Business
34
Lessons Learnt:
Respect of the complaints and taking note
of the fact that chocolates had worms
Adapting to change the packaging in a
record breaking time
Managing the crisis at the company
properly and keeping employee morale high
Influenced the market with great come back
advertisement campaign

35. Environmental influences on Business
Framework to understand environment of
organization is divided in three steps:
First: Nature of organizations environment:
Static or dynamic,
Simple or complex,
Second: Auditing of influences:
Identify the influencing factors and
Relate such influences
Third: Focus on explicit considerations of
the immediate requirement
35

36. Environmental influence on Business
36
Reality Bite: Mind map of the factors affecting the brand
Coca Cola. It may include all the factors such as
(positive/negative/good/bad etc.)

37. 2.8 Why Environmental
Analysis
37

38. Why Environmental Analysis?
If not done:
No change as per demands
Decline in performance
Three basic goals of Environmental Analysis:
1. Understanding of current and potential
changes
2. Inputs for strategic decision making
3. Facilitate and foster strategic thinking
38

39. Points to Note 2.30 Minutes
• Input, processing, and output is the basic for
business.
• business has to identify, appraise, and
respond to various opportunities and threats
in its environment.
• Organization need to understand the nature
of environment, identify different influencing
factors, and focus towards immediate
environment.

40. 2.9 Environmental
Scanning
40

41. Environmental Scanning
Environmental scanning can be defined as
the process by which organizations monitor
their relevant environment to identify
opportunities and threats affecting their
business for the purpose of taking strategic
decisions.
41

42. Environmental Scanning
42

43. Environmental Scanning
Factors to be considered for environmental
scanning :
1. Events: Events in internal and external
environment
2. Trends: Course of action along which
events occur
3. Issues: current concerns that arise in
response to events and trends.
4. Expectations: Demands made by
interested groups on issues.
43

44. 2.10 Components of
Business Environment
44

45. Components of Business Environment
45

46. Components of Business Environment
Internal environment – existing within
organization
External environments - existing outside
organization
Two major types:
Micro and
Macro
Micro: Factors directly affecting the day to
day functioning of the firm
Macro: Factors decide the overall direction,
thinking of firm

47. Components of Business Environment
Four environmental influences:
47
Inherent
Capacity –
strategic
advantage
Inherent
limitation –
strategic
disadvantage
Unfavourable
condition –
risk or
damage
Favourable
condition –
strengthen
position

48. SWOT Analysis:
48
Strategy
Capitalizes opportunities by using strengths
Neutralizes threats by minimizing the impact of
weaknesses

49. Points to Note 2.00 Minutes
• Environmental scanning is monitoring of
relevant environment to identify
opportunities and threats for taking strategic
decisions
• Factors of environmental scanning Events,
Trends, Issues, Expectations
• Internal and external environment
• External environment – Micro and Macro
• SWOT analysis

50. 2.11 Micro and Macro
Environment
50

51. Micro and Macro Environment
51

52. Micro Environment
52

53. Micro and Macro Environment
53

54. Points to Note 1. Minutes
• Micro Environment: customer, organisations,
market, intermediaries, competition, and
suppliers.
• Macro Environment: demographic, political,
economic, social, technological, government,
legal, and global

55. 2.12 Elements of Micro
Environment
55

56. Elements of Micro Environment
Consumers/Customers:
Who are the customers/consumers?
What benefits are they looking for?
What are their buying patterns?
Competitors:
Who are the competitors?
What are their business objectives and
strategies?
Who are the most aggressive and powerful
competitors?
56

57. Elements of Micro Environment
Competition is direct or indirect:
Direct – same business
Indirect - different types of products/services
that satisfy the same needs
Pizza shop competes indirectly with a fried
chicken shop, but directly with another
pizza shop
57

58. Elements of Micro Environment
Organization
Owners
Board of Directors
Employees
Market
Cost structure
Price sensitivity
Technological structure
Existing distribution system
Maturity level - reached a state of equilibrium
58

59. Elements of Micro Environment
Suppliers
Raw material
Equipment
Services etc.
Make or buy decision
Reality Bite: Packet of biscuit
59

60. Elements of Micro Environment
Intermediaries are link between producer
and consumer like:
Local retailers,
Big departmental stores or
Online stores
60

61. Points to Note 3.00 Minutes
• Who are Consumers/customers, benefits they
are looking for, and buying pattern
• Who are the competitors, their objectives and
strategies, and most aggressive competitor
• Who are the owners, members of board, and
employees
• Market – cost structure, price sensitivity,
technology, and maturity level
• Suppliers leading to outsourcing/in-house
production
• intermediaries

62. 2.13 Elements of Macro
Environment
62

63. Demographic Environment
Characteristics of population in a area,
district, country or in the world like:
Race,
Age,
Income,
Educational attainment,
Asset ownership,
Home ownership,
Employment status and
Location
Affect on market size
Leading to opportunities or threats
63

64. Demographic Environment
64

65. Economic Environment
General economic situation in resource
markets 5 Ms
Men, money, material, machine, method
It influence:
Supply of inputs
Their costs,
Quality,
Availability and
Reliability of supplies
Determines the:
Strength and
Size of the market
65

66. Economic Environment
The purchasing power depends on:
Current income,
Prices,
Savings,
Circulation of money,
Debt and credit availability.
Income distribution pattern determines the
marketing possibilities
66

67. Factors Affecting Eco Environment
Economic systems
Capitalism
Socialism
Mixed Economy
Economic policies
Industrial
Fiscal
Monetary
Foreign investment
Export-import
67

68. Factors Affecting Eco Environment
Economic conditions or factors
Gross domestic product,
Per capita income,
Markets for goods and services,
Availability of capital,
Foreign exchange reserve,
Growth of foreign trade,
Strength of capital market,
Interest rates,
Disposable income,
Unemployment,
Inflation
68

69. Political-Legal Environment
Three important elements:
Government:
Law and order situation,
Purposefulness and efficiency of governmental
agencies,
Extent and nature of governmental intervention
in the economy and the industry,
Policies - Social, Monetary, Industrial, Labor and
Export-import,
69

70. Political-Legal Environment
Three important elements:
Legal
Specific legal enactments and framework
Degree of effectiveness in implementation,
Political
General state of political development,
Degree of politicization of business and
economic issues,
Level of political morality,
Political stability,
Political ideology of the ruling party,
70

71. Points to Note 2.00 Minutes
• Demography: population characteristics,
affect on market, opportunities and threats
• Economy: 5Ms, influence of economic
environment on market, purchasing power
• Economic systems and policies
• Political-legal: government, legal, and political

72. Socio-Cultural Environment
Socio-cultural environment factors:
Related to human relationships and
Impact of social attitudes and cultural values
Important factors:
Social concerns:
Role of business in society,
Environmental pollution,
Corruption,
Use of mass media, and
Consumerism.
72

73. Socio-Cultural Environment
Important factors:
Social attitudes and values:
Expectations of society from business,
Social customs,
Beliefs,
Rituals and practices,
Changing lifestyle patterns, and
Materialism.
73

74. Socio-Cultural Environment
Important factors:
Family:
Family structure and changes in it,
Attitude towards and within the family, and
Family values
Role of women in society,
position of children and adolescents in family
and society.
Society:
Educational levels,
Awareness and consciousness of rights, and
Work ethics of members of society.
74

75. Technological Environment
The pull of technological change
Opportunities arising out of technological
innovation
Risk and uncertainty of technological
development
Role of R&D in a country and government’s
R&D budget
75

76. Technological Environment
76

77. Assessing Technological Environment
Technologies for production and
information used by the company
Technologies utilized in the company's
business, products, or their parts
Criticality of each technology to products
and businesses
Which external technologies might become
critical and why?
Will they remain available outside the
company?
77

78. Assessing Technological Environment
Investment in the product and in the
process side of these technologies:
For the company
For its competitors
Design
Production
Implementation and service
Which technological investments should be
curtailed or eliminated?
Additional technologies required to achieve
business objectives?
78

79. Global Environment
Environment in different sovereign
countries, with factors exogenous to the
home environment of the organization,
influencing decision making on resource use
and capabilities.
79

80. Global Environment
Factors that should be assessed:
Potential positive and negative impact of
events like sport meet or a terrorist attack
Changing and emerging global markets
Shifts in newly industrialized countries
Cultural and institutional attributes of
individual global markets
There is a need to think and act from global
perspective
80

81. Global Environment
81

82. Points to Note 2.45 Minutes
• Socio-cultural environment: social concerns,
attitudes and values, family, society
• Technological environment: opportunities,
risk and uncertainties, R&D spending
• Assessing technology: technology used and its
criticality
• Global environment: different from local
environment, changes in global markets, think
and act from global perspective

83. 2.14 PESTLE Analysis
83

84. PESTLE Analysis
Framework for analysis of macro
environmental factors:
Political,
Economic,
Socio-cultural,
Technological,
Legal and
Environmental
84

85. PESTLE Analysis
85

86. PESTLE Analysis
86

87. PESTLE Analysis
87

88. 2.14 Strategic response
to the Environment
88

89. Strategic response to the Environment
Strategically, businesses should:
Exploit the opportunities and
Overcome the threats
Approaches of Strategic response to
Environment:
Least resistance – passive
Proceed with caution – alert
Dynamic response – proactive
89

90. Points to Note 3.00 Minutes
• PESTLE: political, economic, socio-cultural,
technological, legal and environmental
• Businesses should exploit the opportunities and
overcome the threats
• Response to Environment may be in the form of
• Least resistance – passive
• Proceed with caution – alert
• Dynamic response – proactive

91. Thank You & Best of Luck!
Please solve questions at the end of SM
Please solve questions available on website
In case of any difficulty, please visit and ask
at
www.scannerclasses.com
91