chapter 1 introduction to shrm
TRANSCRIPT
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CHAPTER 1Business Environment & Importance
of Strategic Planning for Business
Success
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Learning Objectives
To familiarize the readers with the meaning of
business organization & how different types of
environmental forces affects its success.
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Introduction
How do we define Business Organization? & How it dif fers from other
types of organization?
On comparing various business organization, say a local grocery store
where we go to buy our regular provisions or a local garment shop that
sells a ready made shirts.
But We find certain common character istics among them.
Organization has to go to specific market to acquire goods & service.
This purchased goods are transformed & new shapes and forms given to them.
finally in another market these produced goods will be sold.
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Markets for
Inputs
Society usinessOrganization SocietyMarkets for
Outputs
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An organization consists of group of people who jointly work on the goods
that they acquire from society to transform in to some valued goods.
Business organization can have one or more owner
They employ people but they donthave property rights over organization.
Entrepreneur funds are used to procure physical resources like plants &
building of the organization.
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T-1 Bus iness Organ izat ion as a
system
IN MARKET ECONOMY LANGUAGE
A business organization is that which initiates the process of taking goods from
one market, converting them into some other goods (Added Value), and then
giving the final product back to the society.
This process can be performed by any kind of organization whether it is
individual, government or nongovernment organization.
This business organization initiate process of conversation & adds wealth to
society by generating surplus (profi t).
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How it is done???
Take a Example:
There is high demand for ready made shirts by local market & fabrics are
available in burabazar but local population did not have time & energy to go
their & to buy the fabric & stitch it to make final shirts.
BUT
They could pay higher amount for the shirts which they want.
Here, local garment shop owner simply took advantage of this hidden demand
of local population & buy fabric, appoint tailor, stitch shirt & sell to the
society.
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Ex: Shop keeper bought 200 meter cloth at 100/meter,
Appoints 2 tailors worth salary per 3000/month,
Selling at price of 100 rs.
Manager or agents will make systematic activities or operations.
An organization to claim itself as business organization, it must be able to do the
job of meeting the needs of group of people repeatedly over some time.
It can be created by formulating rules & regulation.
What advantages organization wi ll receive?
It ensures consistency in action across members, and across time periods also.
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T-2 Business Organization as an Efficient
Arrangement to create Wealth
Org. create wealth for the society.
It does so by buying certain goods & services at a lesser price
& then selling the same goods back to the society at higher
price.
Moreover, Society is comprise variety of people with variety it
needs, its needs get meet when business org. produce &
distribute different type of goods for different type of
individual.
This leads to the decentralization of decision making as they
are nearer to the end users.
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How Bus iness cons idered as an Eff ic ient
Arrangement?
Imagine situation when an individual sitting in delhi make
decision about how much what is to be bought from the
market to make bread to meet its requirement of different
population.
What might be prospect conditions that might prevailing:
- Too much bread remaining in the factory warehouse
-Too little bread reaching the people
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What cou ld be the reason for such a
si tuat ion?
Reason is population are not homogenous & population at
different place have different amount of needs / demands.
Under a pure socialist system of governance (China)
production decisions are taken at central level.
As demographic profile, consumer taste & preference will get
changed so it become to difficult to measures precise demand
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Sti l l Question:- Why an business Org. not any local level co-operative society can be considered as efficient wealth creator?
- A business org. is one that has clear ownership right & goal.
- They have property rights because they are the individuals who providefinance to from the organization & goal of org. is to generate simple
financial wealth.
- EX:- Bought Products @ 100 Rs, Sold @ 150 Rs.
- 50 rupees surplus generated by using plants & Employees.
- Those organsaiton which generate more surplus is considered as more eff icent
organization.
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T-3 Sources of Eff iciency of Business
Organization
A business org. arrangements are more efficient because of clear
ownership based business is faster making decision in
comparison to a multi owner co-operative arrangement.
1stSource: Time Consume for making decision.
2ndSource: Pre-determined behavior of all its members.
3rdSource: it is located close to the customer, it generates goods that
are liked by the customers.
4thSource: It is driven by a very well recognized and visible goal of
creating financial wealth.
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T-4 Measures of Eff iciency & Governance I ssues
Production & Distribution of goods according to business org. is an
efficient arrangement for meeting the requirements of people.
In a business organization, there are two types of members; the
owners and the employees;
:Debatable aspects to measure the eff iciency:
I s this best arrangements for distr ibution of tasks,
responsibil i ties, and wealth among owners? How does this arrangements allocate different jobs &
responsibil i ties to different employees?
What process they used to divide the wealth generated by the
firm?
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The owners provide initial capital for forming
the organization and the employees provide
service to run it;
Employees are hired on a fixed contract andthey are paid their dues first;
Once the employees due are paid the rest of
the wealth are distributed to the owners or theshare holders.
How it done in Capitalistic Economy System:
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Member Share
(F ir st Rights)
Owner Share
(Residual Rights)
T 5 Wh t i B i
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T-5 What is Business
Success ?
Traditional measures: Surplus fund generated
per unit of asset of related investment in the firm.
One can use many other measures forevaluating the success of a firm e.g. Ratio of total
employment to asset, ratio of revenue to asset
etc.
No matter what measure of success one uses,
an organizations success would depend on
many forces operating in the environment from
where it procures and sells its goods and
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T-6 What is Strategy?
Strategy is a set of intended actions e.g.
Building a new plant or closing an existing one;
Expanding ones distribution network;
Acquisition of new business or selling off an existing business;Launching of new products;
Going into new markets;
Expanding or contracting manpower in a selected division or dept.
Many of these decisions are taken with incomplete information
about the state of the world.
But for some companies and industries these issues are becoming
very critical now. Why ?
H th f b i
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How the success of a business
organization could get affected?
If it is unable to keep people working for it
because of
poor internal governance policy;
If it is unable to find goods in its inputs side;
If it is unable to sell the goods produced by it;
If Govt. and public concern for its actions places
extraburden on its operation.
If others have found superior means to reach out
the customers.
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Environmental Discontinuities
&
Importance of Strategic Planning
We have seen business as a small system operating within a sea of
No. of interacting & conflicting forces.
I f this forces are stable or slowly changing, a business manager
has less reason to worry about the future business prospects.
But when these same business environments become unstable due
to actions of other agents, or due to autonomous change in the
social environment, entrepreneur can no longer stick with
decisions made in past.
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A Few such notable discontinues were seen in
industries:
- Replacement of cumbersome electric valves by tiny transistors.
- Displacements of big photocopying system by instantphotocopying system.
- Intranet, E-Mail in place of paper-mode communication.
One Recent example of Serious Discontinuity was Recession
in 2008-09. (Implications was):
- Many Companies failed to perform their business like tatas
A countrysSocial & Pol i tical Environment may also
leads to sudden Changes.
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T-7 Environmental Forces Affecting
Business Organization
As per definition of business organization:
We can assume that an owner of a business has free reign to expand the
size of orgn. to any size owner wishes.
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Orgn. Can hardly know or predict the current composition &
future evolution of external forces that are likely to have aneffects on it.
So, to understand this environmental factors for growth &
sustain is must, and it is also complex to understand.
How Much to Invest in Business?is critical decision.
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7.1 The Regulatory System of
the Country or The Government
A country Government is the most influential agents in a business environment.
Government will provides regulatory & policy framework within which
business activities will be carried out.
To carry out business, Producer & buyer are needed.
However, Transactions carried out between two practices may faces problems.
Ex. Malpractices, Ethical dilemma and it requires third parties interventions
and that will be done by government rules & regulation like Government Act.
If not, business parties can take opportunism, exploitation or discrimination.
Sometime you will be charged high price for goods if you are unaware.
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A Regu latory s ys tem is l ike a referee in a foo tbal l
match
To reduce conflicts & maintain transparency government will formulate
policies & regulations.
Various Policies includes:
- Investment in industries (FDI, TRAIs)
- Labour Legislations
- Company Governance
- Industry Policies
- Trade Policies
A policies formulated in country also represent the political trends in
country.
(Refer Exhibit 1.1)
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7.1.a Economic Liberalization & Instability of Business Environment
Indian economy has been considered as mixed economy.
Government owned assets either in the form of PSU or Joint Venture with
private sector industrial houses.
There are 1300 publ ic sector undertaking mainly into defense &
railway industry.
Apart from this government control economy by laying down policies.
Ex: license for business, subsidy policy, and reservation of industry for
small players.
By 1980s, state has realized that without relaxing some of its control
growth of Indian economy were unlikely to pick up.
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Impact of liberalization has encountered on Indian domestic players by
increasing no. of players.
What are other thr eats that faced due to liberali zation?
MNCs are coming late so they bring innovation by having technology &skilled workforce.
Market Share: it has been also observed that existence players market
share has reduced an even some of the companies has closed their units.
Ex: Telecom Sector..
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7.1.B. Active State Legislatures for protection of
consumer Rights, and Living Environment:
Increase Industrialization & consumption of various manufactured goods
around us our living is becoming more polluted & unfair for healthy
living.
Increase No. of people in urban area demand pressure on well
infrastructure like Road, Health Care Facility, Water Supply.
More Automobiles running on road rise as well as considerable rise in No.
of people drawing high salaries & demanding better Quality of Life.
These all have given sense to Government agents towards changing
demand of people & their concern for protection of consumer.
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Thus, Gov. has passed various lesiglasation to protect
interest of consumer as well as Environment.
Ex of Gov. Lesiglasation are Ban of DDT for mosquito eradicator.
- Sales of Tobbaco Products
- Ban of product which is not follow Bharat Basel II Norms.
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7.1.C. Government Tax Policy in Annual
Budget:
Tax policy represent allocation of funds for developing nations like
India.
It has signi f icance way How One Bus iness shou ld run their
bus iness Organization?
Major aim of having various Tax Incentive Scheme , Subsidies,
government want to channelize private resources in to public
interest.
Ex: Transferring tax from Sales Priced b ased tax regim e to
Value Added Tax Regime.
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7.1.D. Change in Labour Laws:
Skilled workforce is essential for success of an organization.
So, orgn. Will enter in to contracts with an individuals to
ensure regular service from them.
In General Way, employer will do Economic Exploitation of
Employees.
When employer hire employees current labour legislation
has to be considered.
Ex: Minimum Wages, PF, Factory Act, and others..
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7.1.E. Environmental Regulations:
Some of natural resources that lead to industrialdevelopment are getting depict at rapid rate.
Nature has a Mechanism by which it tries to maintain a
balance if its natural resources.
EX: when urban waste was dumped, the land on which itdumped used to get converted through natural bacterial
decomposition process into fertile agricultural land
BUT
Non- decomposable plast ics & chem ical are becom ing
parts o f Non-Waste, i t not only pol lute land bu t also
underground water to.
In Earlier Trends, in Europe & North America certain chemical
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Industrialization is having harm impact on environment.
Some companies have already started taking measure to
reduce the emission of Green House Gas.
In fact, Many Orgn. Considered it as an opportunities.
United Nations Framework Convent ion on Cl imate
Contro l
Any company try to reduce omission of Co2 they will get
carbon credit and than they can trade with another company.
Apart from International Regulations, National Laws are also
their.
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7.2. Social Forces
How business interacts with society?
All above are parts of social systems and
changing slowly & these change are
cumulative in natureTake example:- If societal level change there
might be significance shift that will be faced by
some industry.
Customers
providinggoods
Suppliers for
parts &components
Employees
for manpowerservice
7 2 A Slower Population Growth & Other
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7.2.A. Slower Population Growth & Other
Demographic Changes:
Demand of industrial goods is directly
proportional to the No. of people living in
country, their income, age, cultural orientation.
All the above forces growing population haveincrease in potential buyers.
Ex. Increase in born rate demand for baby
setter, toy industry increase boon period. On the other hand, an ageing (Mature)
population, will not only have less income to
spend, but also less needs for life & living.
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Though some kinds of goods & services will
be having more demands like Healthcare
Services, Insurance and Security products.
Next factors s low ing rate of populat ion :-
Growth rate was 2.22% during 1981 which
came down to 2.14% in 1991 and still it
reduced to 1.93% in 2001.Keep Table 1.1. (Population Distribution by
age)
Population who will seek job will increase in
the period of 20012011.
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Individuals requirements will be different at
different age, such changes will have
significant effects on the growth potentials of
certain industries.Ex.:- If young population is increasing, the
demand for housing facility, education,
transportation & electronics industries will be
growing. Similar for ageing population
7 2 B Consumer Income Education
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7.2.B. Consumer Income, Education,
Awareness of Rights & changing
preferences:-
How Educat ion level affects an o rganizat ion :-
It is believed that education raise ones
capacity to acquire & process information
required for making decision of life
Year Details of Universities No. of Students
1981 132 Universities &Deemed Universities
2.3 Million Students
2001 272 Universities &
Deemed Universities
7 Million
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Educated individual contribute to and participates in forming
public opinion on utility or disutility of many industrial products.
Gap has identify between CONSUMER EXPECTATION &
PRODUCT UTILITY.
A consumer as an individual does not have power to stop sale
& distribution of a product that does not meet consumer
expectation.
Although, Education has no direct relation to preference & taste
for a product, but an individual with good educational level:
- will draw good salary,- which has direct bearing on his / her choice of lifestyle &
needs.
How Educational Level arise awareness of consumer?
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7.2.C. Political Process & Its effect on Business:
People select & express their wishes in the form of
Government they elect.
Unstable National Government creates uncertainty about
business regulation.
Ex: Tax or Subsidiary policy for different sector of economy.
In Heterogeneous Society, people have strong holds towardstheir respective ethnic groups.
Hence, planning should be done carefully by considering
political forces for investment decisions.
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7.2.D. Cultural Changes & Its effects on
Business:
It is an unwritten code of conduct on acceptance behavior
expected by the member of a social group.
This codes are developed through cumulative experiences &
beliefs of people.
Ex: In Most cities most of these functions are managed by
business organizations irrespective of their social & religious
affiliation.
Over a period of time, these culture have been changed as
peoples from different societies & culture interacts with each
others.
When people of 2 countries interest with each other, they
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Ex: demand for personal health, hygiene, or cosmetic
products in India.
Reason
Our contacts & acquisition of Western Value System.
The culture also affects different peoplesValue System.
Considered, while HR Policies & practices are designed inthe organization employees motivation to work & respond
to orgn. Policies are heavily influenced by his / her cultural
background.
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7.3 Forces Of Competition:
7.3.A. Economic Liberalization & Change in
Structure of Industry:
Changes in govn. Policy sometimes alters the nature of
competition that an industrial orgn. Faces.
Before Liberalization, PSUs were operating with limited
competition.
As an implications, they were enjoying monopoly. (BSNLConnection)
So, consumer had faced certain problems due to regulatory
restriction on investment.
As, Regulation were lifted, competition has been arised in the
industry & many orgn.
7 3 B Vanishing Industrial
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7.3.B. Vanishing Industrial
Boundary:
In 1980s, communication revolution removed the
boundaries of computer industry.
Organization which produces computer equipments
faced challenges.
As Regulatory restrictions get relaxed, the banking
business get merged.
In earlier times such additional business would have
been considered as a strategy of diversification.
As industrial boundary is falling apart, this requires more
skill manpower.
7 3 C M & A i iti & N
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7.3.C. Merger & Acquisition & New
Competitors:
This strategy used to go inorganic growth to its own
stagnant organization by acquired another highly efficient &
growing industry.
7.3.D. Joint Venture, Strategic Alliance & Competitive
Pressure:
M&A Joint Venture
7 3 E E t f L C ti ith
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7.3.E. Entry of Large Corporations with
operations in Many Countries:
Entry & Exist of one or more players in an industry is
continuous process, yet the same cannot be with major / big
organization.
With open economy, more no. of big player coming is
increased.
Some of these new players are having operations in many
countries & they are having advantages over single country-
based competitors.
ADVANTAGES:
Availability of Raw Materials from different country.
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7.4. Technological Change:
A) Technological Change with its effects on Product Life
Cycle:
Technology is appearing at a much faster pace.
- As an effect of this PLC is getting compressed every
year.
EX: any company which is planning to launch new product willget fewer years to reap revenue from sales of products.
- Cost of Developing new product has been increased.
B) Product Standardization, Widespread of
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) oduct Sta da d at o , desp ead o
IT, and Decline in Manufacturing Plant Size:
Manufacturing Industry has gone from major changes