2. Environment of Business
Environment refers to something external to an individual or
an organization
Business Environment
• Business Environment refers to all external factors which
have direct or indirect bearing on the activities of
business
• The survival of a business firm depends on its innate
strength resources at its command and its adaptability to
the environment and the extent to which the environment
is favorable to development of the firm.
3. Environmental Analysis
Environmental Analysis and diagnosis give strategists time to
anticipate opportunities and to plan to take optional responses to
these opportunities. It also helps strategists to develop an early
warning system to prevent threats or to develop strategies which
can turn a threat to a firm’s advantage”. Firms which systematically
analyze and diagnose the environment are more effective than
those which do not.
Process of Environmental Analysis:
The analysis consists of four steps:
Scanning : Detect early signals of possible environmental change
and detect environmental change already underway.
Monitoring : Purpose of monitoring is to assemble sufficient data to
discern whether certain trends are emerging, identification of the
trends and identification of areas for further scanning.
Forecasting : It is concerned with developing projections of the
direction, scope and intensity of environmental change.
Assessment : To determine implications for the organization's
current and potential strategy.
4. Environmental Scanning
Environmental Scanning refers to the process of gathering large
amount of information to measure and study the changes in the
environment.
Modes of Scanning
• Systematic Scanning- Information related to markets and
customers, changes in legislation, regulations which have a direct
impact on organizational activities, government policies, etc
• Ad-hoc Scanning- Conducting special surveys and studies to deal
with environmental issues from time to time
• Processed form Scanning- Using information in a processed form
available from different sources inside and outside the organization
5. Features of Business Environment
• Sum total of all factors external to the business firm and
that greatly influence their functioning
• Dynamic in nature
• Includes customers, competitors, suppliers, government,
social, cultural, political, technological and legal
conditions.
• Changes are unpredictable (exact nature)
• Differs from place to place, region to region, etc.
6. Importance of Business Environment
• Determining Opportunities and Threats
• Giving Direction for Growth
• Continuous Learning
• Image Building
• Meeting Competition
• Identifying firm’s strength and Weakness
7. Economic Environment
a) Economic Conditions
(i) Gross Domestic Product
(ii) Per Capita Income
(iii) Market for goods and services
(iv) Availability of capital
(v) Foreign Exchange Reserves
(vi) Growth of foreign trade
(vii) Strength of Capital Market
b) Economic Systems
(i) Capitalism
(ii) Socialism
(iii) Mixed Economy
c) Economic Policies
(i) Monetary Policy
(ii) Fiscal Policy
(iii) Foreign Trade Policy
(iv) Industrial Policy
8. Non-Economic Environment
a) Social Environment
b) Political Environment
c) Legal environment
d) Technological Environment
e) Demographic Environment
f) Natural Environment
9. Diagrammatic Representation of
Business Environment
Business
Environment
Internal External
Environment Environment
Micro Macro
Environment Environment
10. BUSINESS ENVIRONMENT
Macro Environment
Micro Environment
Internal Environment
Financiers Mission / Objectives
Suppliers Management Structure Economic
Customers Internal Power Relationship Technological
Competitors Physical Assets & facilities Global
Public Demographic
Mktg Intermediaries Socio-Cultural
Business Political
Decision
Company image
Human resources
Financial Capabilities
Technological Capabilities
Marketing Capabilities
11. Internal Environment
• Includes 5 Ms i.e. man, material, money, machinery and
management, usually within the control of business.
• According to the change in the functioning of enterprise business
can make changes in the above factors.
• Vision
• Mission
• Objectives
• Management Structure
• Human Resources
• Financial Factors
• Company Image and Brand Equity
12. External Environment
Includes factors which are beyond control of Business Enterprise.
Micro Environment
The Micro environment consists of different types of stakeholders -
customers, employees, suppliers, marketing intermediaries,
competitors. It is also known as the Task Environment and
Operating Environment and has a direct bearing on the operations
of the firm. Changes in the micro environment will directly affect and
impinge on the firm's activities.
Macro Environment
The macro environment consists of factors which are beyond the
control of the business. There is a symbiotic relationship between
business and the environmental factors, environmental factors are
dynamic and a particular business firm, by itself, may not be in a
position to change it’s environment. Macro Environment includes:
• Political Environment
• Technological Environment
• Socio-cultural Environment
• Global Environment.
13. Technological Environment
• Technological is the systematic application of scientific or other
organized knowledge to practical tasks.
• Technological environment hold new technological innovation, new
products, the state of technology, the utilization of technology for
maximum inputs and outputs, the obsolescence of technology and
the dynamic changes that frequently occur in technologies which
enable firms to get a competitive advantage
• Technology reaches people through business
• Helps in increased productivity
• Business needs to spend on R & D and keep up with the
technological advances around them
• Technology leads to introduction of new products and older
products becoming outdated and redundant.
• Technological advances leads to high expectations of consumers in
terms of quality
• Leads to system complexity
• Demand for capital
14. Political Environment
Political Environment refers to the influence exerted by the three
political institutions ie. legislature, executive and judiciary in
shaping, directing, developing and controlling business activities.
• The constitution of a country
• Political Organization
• Political Stability
• Image of the country and its leaders
• Foreign Policy
• Laws governing business
• Flexibility and adaptability of laws
• The Judicial System
15. Economic Environment
Economic Environment refers to all forces which have an economic impact
on Business.
The economic environment consists of the demand dynamics, supply
situation, pricing factors, degree of competitiveness, and impact of
profitability. It includes the fiscal policy, monetary policy and the taxation
policy, the FDI norms, the investment criterion and financing decisions.
Economic environment includes:
Growth strategy
Industry
Agriculture
Infrastructure
Money and Capital Markets
Per capita and national income
Population
New Economic Policy
.
16. Global Environment:
The global environment refers to those factors which are relevant to business,
such as the WTO principles and agreements; other international conventions/
treaties / agreements / sentiments in other countries etc. For eg hike in crude
oil prices has a global impact etc.
• World is becoming one market
• Improving quality
• Competition from MNC’s
• Capital and technology transfers
• Deciding which markets to enter and what products to manufacture
• Adjusting the management process
Socio-Cultural Environment:
• Culture creates people
• Culture and globalization
• Culture determines people’s attitude to business and work.
• Caste system
• Spirit of collectivism
• Education
• Ethics in business
• Social responsibility
• Social audit
• Corporate governance
