module 1 ibe ppt

8/13/2019 Module 1 Ibe Ppt

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Business

ENVIRONMENTALANALYSIS

Monica M


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Business Environment

Business environment consist of all those factorsthat have a bearing on the business. The term'business environment implies those externalforces, factorsand institutionsthat are beyond

the control of individual business organizationsand their management and affect the businessenterprise.

All the factors which have direct/indirect affect on

the activity of the business.


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Features of business environment

Totality of external forces: Business environment is the sumtotal of all things external to business firms and, as such, isaggregative in nature.

Specific and general forces: Business environment includesboth specific and general forces. Specific forces affectenterprises in their day-to-day working. General forces have

impact on all enterprises and affect an individual firm onlyindirectly.

Dynamic nature: Business environment is dynamic in that itkeeps on changing whether in terms of technologicalimprovement, shifts in consumer preferences or entry of

new competition in the market. Uncertainty: Business environment is largely uncertain as it is

very difficult to predict future happenings, especially whenenvironment changes are taking place too frequently as in thecase of information technology or fashion industries.


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Importance of Business Environment(A) Determining Opportunities and Threats: The interaction betweenthe business and its environment would identify opportunities forand threats to the business. It helps the business enterprises formeeting the challenges successfully.

(b) Giving Direction for Growth: The interaction with the environmentleads to opening up new frontiers of growth for the business firms. Itenables the business to identify the areas for growth and expansionof their activities.

(c) Continuous Learning: Environmental analysis makes the task ofmanagers easier in dealing with business challenges. The managersare motivated to continuously update their knowledge,understanding and skills to meet the predicted changes in realm ofbusiness.


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Cont

(d) Image Building: Environmental understanding helps the businessorganisations in improving their image by showing their sensitivityto 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 ownrequirement of power.

(e) Meeting Competition: It helps the firms to analyse the competitorsstrategies and formulate their own strategies accordingly.

(f) Identifying irms Strength and Weakness: Business environmenthelps to identify the individual strengths and weaknesses in view ofthe technological and global developments.


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Characteristics of Business Environment

Business Environment is complex-Environment iscombination of many factors like political, legal, social,technological etc. these factors affect the business in manyways.

Business Environment is Dynamic-The business environmentis mixture of many factors and there are changes in them.These changes in factors of environment makes the businessdynamic.

Business environment has both long and short term impact onthe business.

Business environment is uncertain.

It includes both internal and external environment.


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INTRODUCTION

Business decisions are influenced by two sets of factors

Internal factors (The Internal Environment )

External Factors( The External Environment)

Business Environment presents two challenges to theenterprise

The challenge to combat the environmental threats

Exploit the business opportunities

Environmental Analysis is one of the first steps in StrategicManagement


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Environmental Analysis Definition

Environmental Analysis: The process by which strategistsmonitor the economic, governmental/legal,market/competitive, supplier/technological, geographic andsocial settings to determine opportunities and threats to their

firms

Environmental diagnosis consists of managerial decisionsmade by analysing the significance of data (opportunities andthreats) of the environmental analysis


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Environmental Scanning

Environmental Scanning is the monitoring, evaluatingand disseminating of information from the external andinternal environments to key people within thecorporation.A corporation uses this tool to avoid strategic surprise and to

ensure its long-term health. INTERNAL SCANNING: acquisition, analysis, use of

information from within the organisation that will helpthe management in determining future course of actionof business

EXTERNAL SCANNING: acquisition, analysis, use ofinformation about events & establishing the relationshipof business with its external environmental variables


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PROCESS OF ENVIRONMENTALANALYSIS

Scanning:Scanning is a process of analyzing the environmentfor the identification of the factors, which impact on or haveimplications for the business. general surveillance ofenvironmental factors & their interactions

Monitoring:tracking environmental trends, events Monitoringbrings about perspective follow up and a more in depthanalysis of the relevant environmental trends identified at thescanning stage.

Forecasting: Anticipating the future is essential for identifyingthe future threats and opportunities and for formulatingstrategic plans.

Assessment: The purpose of environmental analysis is to assessthe impact of the environmental factors on the organizations

business or their implications for the organization.


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TYPES OF ENVIRONMENT

1) INTERNAL ENVIRONMENT

2) EXTERNAL ENVIRONMENT: Micro and Macro

1) Under Macro:

1) Economic and Non Economic Environment.

BUSINESSDECISION

INTERNALFACTORS

EXTERNALFACTORS

MacroEnvironmentMicro

Environment

NonEconomicEnvironment

EconomicEnvironment


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External Environment

Micro MacroInternal Environment

Environment of Business

BusinessEnvironment


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Internal Environment

Value system

Mission & objectives

Management

structure

& nature

Internal power

relationship

Human resources

Corporate Brand

Image

Internal

environment


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INTERNAL ENVIRONMENT

The internal environment is the environment that has adirect impact on the business. Here there are someinternal factors which are generally controllablebecause the company has control over these factors.Important internal factors are

1) Value SystemThe value system of founders and those at the helm of affairs hasimportant bearing on the choice of business, the mission andobjectives of the organization, business policies and practices.

2) Mission and ObjectivesThe business domain of the company , priorities , direction ofdevelopment, business philosophy, business policy etc. are guidedby the mission and objectives of the company


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3) Management Structure and NatureThe organizational structure, the composition of the Boardof Directors, extent of professionalization of managementetc. are important factors influencing business decisions.

4) Internal Power RelationshipFactors like the amount of support the top managementenjoys from lower levels and workers, share holders and

Board of Directors have important influence on thedecisions and their implementation.

The relationship between the members of Board of Directorsis also a critical factor.


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5) Human ResourcesThe characteristics of the human resources like skill,quality, morale, commitment, attitudes etc. could contributeto the strength and weakness of the organization.

The involvement, initiative etc. of the people at differentlevels may vary from organization to organization.

6) Company Image and Brand EquityThe image of the company matters while raising finance,

forming joint ventures or other alliances, soliciting marketintermediaries, entering purchase or sale contracts ,launching new products etc.


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OTHER F CTORS1. Physical Assets and Facilities

2. R&D and Technological Capabilities

3. Marketing Resources

4. Financial Factors


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EXTERNAL ENVIRONMENT

It refers to the environment that has an indirectinfluence on the business. The factors are

uncontrollable by the business. There are twotypes of external environment:

Two Types

a) Micro Environment

Consists of actors in the companys immediate environment, thataffects the performance of the company.

b) Macro EnvironmentConsists of larger societal forces that affect all the actors incompanys micro environment.


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MICROENVIRONMENT

Also known as task environment and operating environmentIncludeThe suppliers

Marketing intermediaries

Competitors

CustomersPublics

More intimately linked with the company than macro factors

The micro forces need not necessarily affect all the firms in a

particular industry in the same way.Some of the micro factors are particular to a firm

It consists of company's immediate environment that affects theperformance of the company. These includes customers,suppliers, market intermediaries, competitors and public.

Suppliers

Marketing

Intermediaries

Competitors Customers

Public


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Suppliers

Those who supply the inputs to the company.

Suppliers are persons who supply raw materials andcomponents to business.

If supplier is reliable, business will run smoothly & it will

have to stock less which will decrease its inventory cost.Source/Sources should be Reliable

Uncertainty regarding the supply or other supply constraintscompel companies to maintain high inventories causing costincreases.

Very risky to depend on a single supplierThe purchasing department should market itself to

suppliers, to obtain favourable treatment during the periodsof shortages.


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CustomersMajor task of business is to create and sustain customersDifferent categories of consumersIndividualsHouseholdsIndustries and other commercial establishmentsGovernment and other institutions

Depending on single customer is too risky Customers are of different types such as retailcustomers, industrial customers, govt. institutions. uccess of business depends upon identifying customers needs, likingsand enhancing customer satisfaction.Choice of customer should be done by consideringRelative profitabilitydependabilitystability of demandgrowth prospectusextent of competition


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Competitors

A firms competitors include not only the other firms whichmarket the same or similar product but also all those whocompete for the income of the consumers

Desire competition

Generic competition

Product form competitionBrand competition

Business has to adjust its various activitiesaccording to actions and reactions of competitors.

Business has to analyze the strategies of competitors andmake counter strategies.

Business need to identify the weaknesses of its competitorsand use such weaknesses to strengthen its own business.


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Marketing intermediaries

Link b/w company and final consumer.

Firms that aid the company in promoting, selling anddistributing its goods to final buyers.

Include

the middlemen and merchants who help the company findcustomers or close sales with them

Physical distribution firms which assist the company in stockingand moving goods from their origin to their destinations

Marketing service agencies which assist the company intargeting and promoting its products to the right markets

Financial intermediaries which finance marketing activities andinsure business risks

Vital links between the company and the final consumers.


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Publics

Public can be said as any group that has an actual orpotential interest in or on an organizations ability toachieve its interest. Public include media and citizens.

Any group that has an actual or potential interest in or impact on anorganizations ability to achieve its interests

E.g. Media publics, citizens action publics, local publics

Media attack on any company can influence the governmentdecisions affecting the company.

Environmental pollution is an issue often taken up by number of

local publicsPublics are not always threat to the business.

Fruitful cooperation between a company and the local publics maybe established for the mutual benefit.


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MACRO ENVIRONMENTMacro environment is also known as General environment and

remote environment. Macro factors are generally moreuncontrollable than micro environment factors. When the macrofactors become uncontrollable , the success of companydepends upon its adaptability to the environment.

Consists of larger societal forces that affect all the actors in companys

micro environment-namely The Demographic,

Economic,

Natural,

Technological,

Political And

Cultural Forces

Also known as Societal Environment

The Societal Environment includes general forces that do not directlytouch on short-run activities of the organization but that can, and often

do, influence its long-run decisions.


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Macro Environment

Macro

Environment

Economic EnvironmentNon Economic

Environment

-- Economic Condition

-- Economic Policy

-- Economic System

-- Political Environment-- Legal Environment

-- Socio Cultural Environment

-- Demographic

-- Technological

-- Natural Environment

National Global


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Economic Environment

Economic environment refers to the aggregate of thenature of economic system of the country, businesscycles, the socio-economic infrastructure etc.

Important factors are:Economic conditions

Economic policiesEconomic systems

Economic conditionThe economic conditions of a countryfor example, the nature of

the economy, the stage of development of the economy, economicresources, the level of income, the distribution of income and assets,

etc.- are among the very important determinants of businessstrategies.

In a developing country, the low income may be the reason for thevery low demand for the product.


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Economic EnvironmentEconomic policies

All business activities and operations are directly influenced by the economicpolicies framed by the government from time to time. Some of the importanteconomic policies are:

(i) Industrial policy

(ii) Fiscal policy

(iii) Monetary policy

(iv) Foreign investment policy

(v) ExportImport policy (Exim policy)

Economic System: The world economy is primarily governed by three types ofeconomic systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed

economy. India has adopted the mixed economy system which implies co-existenceof public sector and private sector.

The scope of the private business depends on the economic system.

The freedom of the private enterprise is the greatest in the free market economy.


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Social EnvironmentThe social dimension or environment of a nation determines the value

system of the society which, in turn affects the functioning of thebusiness. Sociological factors such as costs structure, customs andconventions, mobility of labor etc. have far-reaching impact on the

business.The social environment of business includes social factors likecustoms, traditions, values, beliefs, poverty, literacy, life expectancyrate etc. The social structure and the values that a society cherisheshave a considerable influence on the functioning of business firms.

For example, during festive seasons there is an increase in thedemand for new clothes, sweets, fruits, flower, etc. Due to increasein literacy rate the consumers are becoming more conscious of thequality of the products.

Non economic Environment


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Political Environment The political environment of a country is influenced by the

political organizations

such as philosophy of political parties, ideology ofgovernment or party in power, nature and extent ofbureaucracy influence of primary groups etc.

This includes the political system, the government policiesand attitude towards the business community and the

unionism. All these aspects have a bearing on the strategies adopted

by the business firms. The stability of the government alsoinfluences business and related activities to a great extent. Political stability in the country.

Political Ideology of the country. Welfare activities of the govt. Relation of the govt. with other countries. Centre State Relationship


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Legal Environment This refers to set of laws, regulations, which influence the

business organizations and their operations. Every businessorganization has to obey, and work within the framework ofthe law. The important legislations that concern the businessenterprises include:

(i) Companies Act, 1956(ii) Foreign Exchange Management Act, 1999(iii) The Factories Act, 1948(iv) Industrial Disputes Act, 1972(v) Payment of Gratuity Act, 1972

(vi) Industries (Development and Regulation) Act, 1951Legal environment includes flexibility and adaptability of

law and other legal rules governing the business. It mayinclude the exact rulings and decision of the courts.


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Legal EnvironmentLegal environment of country constitutes of legislations related to

property and business organizations, laws of contract, mutualobligations of labour, etc.

Economic legislations may be facilitative or restrictive in nature.

MRPT and FERA are restrictive in nature .Objectives of MRTP( Monopoly and Restrictive Trade Practices )Prevention of concentration of economic power to common

determinant

Control of monopolistic, restrictive and unfair trade practiceswhich are against public interest.


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Cont.

Objectives of FERA foreign exchange regulation act )To regulate dealings in foreign exchange

To regulate transaction affecting foreign exchange

To regulate exchange of import and export of foreign currencyin country

To conserve foreign exchange reserve of country and to utilizethe same in interest of economic development in country.

To regulate holding of immovable property outside India

To regulate employment of foreign nationals in country

Consumer protection act of 1986 : is intended to protect thelegitimate interest of consumers against traders, suppliers etc.Consumer councils and courts have been set up for settlement ofconsumer disputes in country.


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Technical EnvironmentThe business in a country is greatly influenced

by the technological development. Thetechnology adopted by the industriesdetermines the type and quality of goods andservices to be produced and the type and

quality of plant and equipment to be used.Technological environment include the methods,

techniques and approaches adopted for

production of goods and services and itsdistribution. The varying technologicalenvironments of different countries affect thedesigning of products.

P liti l & G t


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Political & GovernmentEnvironment

Has close relationship with the economic system andeconomic policy.

In many countries regulations to protect consumer interestshave become stronger.

Some governments specify certain standards for the productsto be marketed in the country; some even prohibit themarketing of certain products.

Promotional activities are subject to various types of controls.

Eg: In India, Advertisement of alcoholic product is prohibited.and the packages must carry injurious to health warnings

when there is a change in the government polices thebusiness has to make the necessary changes to adapt itself tothe new policies


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Socio-cultural environmentIt includes social and cultural factors such as:a) Caste system.b) Family system.c) Religion.d) Education.e) Marriage. f) Habits and preferences.

g) Customs and traditions

Major factors are: the buying and consumption habits of people, their language beliefs and values,customs and traditions,

tastes and preferences,Education

Strategy should be appropriate in the socio-culturalenvironment.Eg: nestle brews a very large variety of instant coffee to satisfy different

national tastes


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Cont.

Even when people of different cultures use the same product;the mod of consumption, conditions of use, purpose of use orthe perceptions of the product attributes may vary so muchso that the product attributes, method of presentation,

positioning or method of promoting the product may have tobe varied to suit the characteristics of different markets.

E.g.: Vicks Vaporub, the popular pain balm is used as mosquitorepellent in some tropical countries


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Cont.

Language difference pose a serious problem.e.g.Preet-> Prestige for overseas market

In Japanese, General Motors body by Fisher means Corpse byfisher

ColourBlue: feminine and warm in Holland ; but masculine and cold in

Sweden

Green: favourite in Muslim world; but represents illness inMalaysia

Red: popular in communist countries; but represents disaster inAfrica

White: death and mourning in China and Korea; but it expresseshappiness in some countries. Also it is the colour of bridal dress.


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Demographic environment

This refers to the size, density, distribution and growth rate ofpopulation. All these factors have a direct bearing on the demandfor various goods and services. For example a country wherepopulation rate is high and children constitute a large section ofpopulation, then there is more demand for baby products.

Factors:

Size, growth rate, age composition, sex composition of population,family size, educational levels, economic stratification of thepopulation, language, caste, religion, etc.

E.g.

Decline in birth rates in USA have affected the demand for babyproducts. So Johnson &Johnson repositioned their products like babyshampoo and baby oil, to the adult segment, particularly to females.


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Natural environmentThe natural environment includes geographical and ecological factors

that influence the business operations. These factors include theavailability of natural resources, weather and climatic condition,location aspect, topographical factors, etc

Geological and ecological factors, such as natural resourcesendowments, weather and climatic conditions, topographical factors,location aspects in the global context, port facilities etc., are relevant tobusiness.

Differences in geographical conditions between markets may sometimes call for changes in the marketing mix. Geographical andEcological factors also influence the location of certain industries. E.g.industries with high material index tend to be located near the rawmaterial sources.

Topographical factors may affect the demand pattern

E.g.. In hilly areas with difficult terrain, jeeps may be in a greater demandthan cars.

Ecological factors have recently assumed great importance. Thedepletion of natural resources, environmental pollution and thedisturbance of ecological balance have caused great concern.


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Technological environmentBusiness prospects demands availability of certain physical facilities E.g. demand for electrical appliances is affected by the extent of electrification and

the reliability of power supply.Demand for LPG stoves depend on rate of growth of gas connections E.g. Many appliances are designed for 110 V in USA. They should be converted for

240v in India

A change in the technology may render the existing products obsolete, aswe have seen that the introduction of computer has replaced the

typewriters; the colour television has made the black and white televisionout of fashion. Again a change in the fashion or customers taste mayshift the demand in the market for a particular product, e.g., the demandfor jeans reduced the sale of other traditional wear. All these aspects areexternal factors that are beyond the control of the business. So thebusiness units must have to adapt themselves to these changes in order tosurvive and succeed in business.

Technological developments may increase or decrease the demand for someexisting products E.g. voltage stabilizers help increase in sale of electrical appliances in markets

characterised by frequent voltage fluctuations Introduction of TVs, Refrigerators, etc. with in-built stabilizers adversely affects

the demand for voltage stabilizers.


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International EnvironmentParticularly important for the industries directly depending on

imports or exports and import-competing industriesRecession, economic boom, liberalizationMajor international developments have their spread effects on

domestic business.E.g. Oil price hikes increased the cost of production and the prices of

certain products such as fertilizers , synthetic fibres. So usually, thedemand for natural fibres and manures increased.Also demand for automobiles that economise energy consumption got

increased.

The oil crisis also promoted some companies to resort todemarketing

demarketing refers to the process of cutting consumerdemand for a product back to the level that can be supplied bythe firm.E.g. The Indian Oil Corporation have publicised tips on how to

cut oil consumption


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Environmental Scanning & Monitoring-

Techniques

SWOT (Strength-Weakness-Opportunity-Threat)Identification of threats and Opportunities in theenvironment (External) and strengths and Weaknesses of thefirm (Internal) is the cornerstone of business policy

formulation; it is these factors which determine the course ofaction to ensure the survival and growth of the firm.

PEST AnalysisA scan of the external macro-environment in which the firmoperates can be expressed in terms of the following factors:

PoliticalEconomicSocialTechnological


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TECHNIQUES FOR ENVIRONMENTALSCANNING

Involve two phases: Information gathering and Evaluation1) Verbal & Written Information:

verbal information includes, information obtained by direct talkwith people, by attending seminars, meetings, etc..

Written or documentary information includes both published andunpublished materials

2) Search and Scanning:

this involves research for obtaining the required information

3) Spying:

Eve though it is not considered as ethical, spying to get informationabout the competitor is not uncommon

These 3 pertains to source of information/methods of gatheringinformation


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4) Forecasting:

done by corporate planners or other staff personnelor consultants

This pertains to use the information gathered byabove mentioned 3 methods for picturing the futurescenario.


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THANK YOU

module 1 ibe ppt

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