The document discusses business environment and environmental scanning. It defines business environment as the set of conditions that affect an organization and are beyond its control. The environment has internal and external components, with the external environment divided into micro/operating environment and macro/general environment. Environmental scanning involves gathering information about events and relationships within and outside an organization to help determine its future direction. The objectives of scanning are to detect trends, define threats and opportunities, and promote future orientation. Scanning can be ad hoc, periodic, or continuous. Internal analysis assesses strengths and weaknesses while external analysis identifies competitors, updates competencies, and allows adapting to changes.

1. Unit- I
Session- I
By: Ruturaj Baber

2. The term Business Environment is composed of two words
‘Business’ and ‘Environment’.
In simple terms, the state in which a person remains busy is known
as Business. The word Business in its economic sense means
human activities like production, extraction or purchase or sales of
goods that are performed for earning profits.
On the other hand, the word ‘Environment’ literally means
surroundings, external objects, Circumstances under which
someone or something exists. Therefore, Business Environment
may be defined as a set of conditions – Social, Legal, Economical,
Political or Institutional that are uncontrollable in nature and
affects the functioning of organization.
19-09-2014 MBA I Semester 2

3. Business Environment has two components:
1. Internal Environment
2. External Environment
1) Internal Environment:
It includes 5 Ms i.e. man, material, money, machinery and
management, usually within the control of business. Business can
make changes in these factors according to the change in the
functioning of enterprise.
2) External Environment:
Those factors which are beyond the control of business
enterprise are included in external environment. These factors are:
Government and Legal factors, Political Factors, Socio-Cultural
Factors, Demo-Graphical factors etc.
It is of two Types:
1. Micro/Operating Environment
2. Macro/General Environment
19-09-2014 MBA I Semester 3

4. Micro/Operating Environment: The environment which is close to business and
affects its capacity to work is known as Micro or Operating Environment. It
consists of Suppliers, Customers, Market Intermediaries, Competitors and
Public.
(1) Suppliers: – They are the persons who supply raw material and required
components to the company. They must be reliable and business must have
multiple suppliers i.e. they should not depend upon only one supplier.
(2) Customers: - Customers are regarded as the king of the market. Success of
every business depends upon the level of their customer’s satisfaction.
Types of Customers:
(i) Wholesalers
(ii) Retailers
(iii) Industries
(iv) Government and Other Institutions
(v) Foreigners
(3) Market Intermediaries: - They work as a link between business and final
consumers. Types:-
(i) Middleman
(ii) Marketing Agencies
(iii) Financial Intermediaries
(iv) 19-09-2014 Physical Intermediaries MBA I Semester 4

5. (4) Competitors: - Every move of the competitors affects the
business. Business has to adjust itself according to the strategies
of the Competitors.
(5) Public: - Any group who has actual interest in business
enterprise is termed as public e.g. media and local public.
2) Non-Economic Environment: - Following are included in non-economic
environment:-
(i) Political Environment: - It affects different business units extensively.
Components:
(a) Political Belief of Government
(b) Political Strength of the Country
(c) Relation with other countries
(d) Defense and Military Policies
(e) Centre State Relationship in the Country
(f) Thinking Opposition Parties towards Business Unit
(ii) Socio-Cultural Environment: - Influence exercised by social and cultural
factors, not within the control of business, is known as Socio-Cultural
Environment. These factors include: attitude of people to work, family system,
caste system, religion, education, marriage etc
19-09-2014 MBA I Semester 5

6. (iii) Technological Environment: - A systematic application of scientific
knowledge to practical task is known as technology. Everyday there has been
vast changes in products, services, lifestyles and living conditions, these
changes must be analysed by every business unit and should adapt these
changes.
(iv) Natural Environment: - It includes natural resources, weather, climatic
conditions, port facilities, topographical factors such as soil, sea, rivers, rainfall
etc. Every business unit must look for these factors before choosing the
location for their business.
(v) Demographic Environment :- It is a study of perspective of population i.e. its
size, standard of living, growth rate, age-sex composition, family size, income
level (upper level, middle level and lower level), education level etc. Every
business unit must see these features of population and recognize their various
need and produce accordingly.
(vi) International Environment: - It is particularly important for industries
directly depending on import or exports. The factors that affect the business
are: Globalisation, Liberalisation, foreign business policies, cultural exchang
19-09-2014 MBA I Semester 6

7. Importance of business environment
• Identification of strength
• Identification of weakness
• Identification of opportunities
• Identification of threats
• Exploitation of Business Opportunities
• Keeping business enterprise alert
• Keeping business flexible and dynamic
• Understanding future problems and prospects
• Making business socially acceptable
• Ensures survival and growth
19-09-2014 MBA I Semester 7

8. The nature of Business Environment is simply and better
explained by the following approaches
19-09-2014 MBA I Semester 8

9. Nature of business environment (Contd.)
• System Approach: In original, business is a system by which it
produces goods and services for the satisfaction of wants, by using
several inputs, such as, raw material, capital, labour etc. from the
environment.
• Social Responsibility Approach: In this approach business should
fulfill its responsibility towards several categories of the society such
as consumers, stockholders, employees, government etc.
• Creative Approach: As per this approach, business gives shape to the
environment by facing the challenges and availing the opportunities
in time. The business brings about changes in the society by giving
attention to the needs of the people.
19-09-2014 MBA I Semester 9

10. Environmental
Scanning

11. What is Environmental Scanning
‘the study and interpretation of the political, economic, social and
technological events and trends which influence a business, an industry or
even a total market’ Kroon (1995)
Environmental scanning 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.
Environmental Scanning is a kind of radar to scan the world systematically
and signal the new, the unexpected, the major and minor.
Brown andWeiner (1985)
19-09-2014 MBA I Semester 11

12. Objective of Environmental Scanning
• Detecting trends in political, economical, socio-cultural and
technological events important to business
• Defining potential threats.
• Promoting future orientation and in thinking of management staff.
• Alerting management and staff to trends that are converging and
taking place in the environment.
19-09-2014 MBA I Semester 12

13. Types of environmental scans
Ad Hoc Periodic Continuous
General
Character-istics
 Usually performed in response to
crisis
 Not as in-depth
 Forecasts are more short-term
 Tied to planning cycle (e.g.,
every 3 years)
 In-depth
 Forecasts 5 to 10 years
 Also called Continuous Learning
 Structured, in-depth data collection and
analyses by dedicated staff
 Data gathered is more comprehensive
Pros
 Allows for quicker turn-around of
scan results
 Lower commitment of resources
over time
 Predictable frequency allows
for appropriate budget
planning
 Frequency provides timely
information gathering for
planning
 Planning is proactive…
 Dedication of time by researchers
allows incorporation of data from more
sources
 Provides planners with more
comprehensive information
 Informs planners of critical changes
sooner
 Plans can be adjusted or adopted more
proactively
Cons
 Data can be more superficial
 Results may address immediate
issues, but are less generalizable
 If only conducted in response to
crises, indicates lack of organized
institutional planning efforts
 Planning response is reactive
 Reaction to unforeseen
changes in environment (e.g.,
onset of recession) may
require Ad Hoc scan to
supplement information.
 Planning response is then
more reactive
 Requires ongoing institutional
commitment of resources (funding,
personnel, and time)
19-09-2014 MBA I Semester 13

14. Internal analysis of the environment
• Internal analysis of the environment is the first step of environment scanning. Organizations
should observe the internal organizational environment. This includes employee interaction with
other employees, employee interaction with management, manager interaction with other
managers, and management interaction with shareholders, access to natural resources, brand
awareness, organizational structure, main staff, operational potential, etc.
• Also, discussions, interviews, and surveys can be used to assess the internal environment.
Analysis of internal environment helps in identifying strengths and weaknesses of an organization.
19-09-2014 MBA I Semester 14

15. External Analysis of the Environment
• As business becomes more competitive, and there are rapid changes in the external
environment, information from external environment adds crucial elements to the
effectiveness of long-term plans.
• As environment is dynamic, it becomes essential to identify competitors’ moves and
actions. Organizations have also to update the core competencies and internal environment
as per external environment.
• Environmental factors are infinite, hence, organization should be agile and vigil to accept
and adjust to the environmental changes.
19-09-2014 MBA I Semester 15

16. THANK
YOU
19-09-2014 MBA I Semester 16