Jyoti Gupta

OVERVIEW OF BUSINESS
ENVIRONMENT
UNIT-I

Jyoti Gupta

CHAPTER-1
INTRODUCTION TO BUSINESS
ENVIRONMENT

ENVIRONMENT
The environment of any organization is

"the aggregate of all conditions, events

and influences that surround and
affect it".

CONCEPT OF BUSINESS
ENVIRONMENT
Keith Davis The aggregate of all conditions, events
and influences that surround and effect business
Arthur M. Weimer Business Environment
encompasses the climate or set of conditions, economic,
social, political or institutional in which business
operations are conducted

Business Environment means the aggregate of all

the forces, factors and institutions which are
external to and beyond the control of an
individual business enterprise but which
exercise a significant influence on the
functioning and growth of individual enterprises.

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CHARACTERISTICS OF
ENVIRONMENT
Environment

is complex :-number of factors,

events, conditions, and influences arising from
different sources
Environment is dynamic. constantly
changing in nature
Environment
is multi-faceted. viewed
differently by different observers
Environment has a far-reaching impact.
impact on the organization in several different
ways

NATURE OF BUSINESS
ENVIRONMENT

Aggregative- Totality of all forces which influences

working and decision making of an environment

Inter-related- Example: (Social Environment) Social

pressure against pollution led to the (Legal Environment)
laws of anti-pollution

Relative- Different for region to region and country to

country.

Inter temporal: Business environment changes from

time to time. Eg. It is different from what it was in 1991

Uncertain: difficult to forecast

Contextual: Large environmental forces within which

individual enterprise works.

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SIGNIFICANCE OF BUSINESS
ENVIRONMENT
First mover advantage
Early warning signal
Customer focus
Strategy formulation
Change agent
Public image
Continuous learning

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Internal
Environment
(somewhat
controllable)

External
Environment
(beyond
control)

STRENGTHS
WEAKNESS

OPPORTUNITIES
THREATS

INTERNAL ENVIRONMENT
INTERNAL FACTORS INFLUENCING INTERNAL
ENVIRONMENT ARE:
Culture- Values, beliefs, attitudes of the founders and top management influence
the business.

Mission and objectives-

Top management structure: Composition of board of directors

influences business decision making.
Power structure: Internal power relationships among management,

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Priority and strategies of any business is guided

by their mission and objectives. Eg. Ranbaxy mission: To become a research based
international pharmaceutical company led it to enter in foreign markets.

employees, share holders etc. have an important bearing on the working of an

enterprise.

Company image and brand equity: Image and brand power plays
a significant role in raising finance, forming alliances, choosing dealers and
suppliers,etc.

Human and other resources:

If an organization wants to carry out

restructuring and modernization then it is necessary to have employees
support. Thus it also plays a significant role.

EXTERNAL ENVIRONMENT

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micro

macro

MICRO/TASK ENVIRONMENT

Micro/Task environment: Refers to those individuals, groups and

agencies which directly and frequently influences the functioning of the

business.

Customer- Individuals, households, commercial establishments,

government departments, etc.

Competitors- direct and Indirect competitors

Suppliers- suppliers of raw materials and other components
Marketing intermediaries- retailers, wholesalers, agents,

advertising agencies, transportation, marketing research, etc.

Financiers- shareholders, financial institutions, debenture holders,

banks, etc.

Publics: media groups, environmentalists, NGOs, etc.

Workers and trade union

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Elements of micro environment:

MACRO ENVIRONMENT

environment in which forces of micro environment operates.

A company does not directly or frequently deals with macro
environment.
Elements of macro environment:

Political and legal environment

Social and cultural environment
Economic and financial environment
Technological and physical environment
Natural environment
Global environment

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Macro environment: It refers to general or remote

IMPACT OF ELEMENTS OF MACRO

ENVIRONMENT ON BUSINESS AND STRATEGIC
ISSUES
1.

3.

4.

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2.

Economic environment significantly influence business as

the business firm is in itself an economic institution. Eg.
Decline in interest rates- Decline in cost of capital
Social and cultural environment- Social consciousness
requires utmost care in the matter of business
environment: Pepsi lost market share in many countries
where its slogan was come alive as it means come out of
the grave in their local language.
Political and legal environment provides the framework
within which business has to function- Favorable Political
environment significantly affect their functioning.
Effect of technological, physical and natural environment

COPING WITH ENVIRONMENTAL

CHANGES

Buffering: Used to soften the impact of environment on

Leveling: used to reduce the fluctuations in the environment.

Discounts and sales during off season for increasing sales.

Anticipation: acquiring information about probable changes in

the environment.

Rationing: allocating resources according to the system of

priorities.

Dominating: controlling the events for reducing dependence

on them. Firm develop several suppliers for reducing
dependence on any single supplier.

Changing: change in the operations or output of an

organization to cope up with environmental changes. Eg.

Change in product line for meeting customer preferences.

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organization. Stocking materials, preventive maintenance, employee

training, building inventory, etc.

CHAPTER-2
ENVIRONMENTAL ANALYSIS
Environmental analysis is the exploratory
process through which an organization monitors
and comprehends various environmental forces
so as to determine the opportunities and threats
that lie ahead.
Also known as environmental appraisal and
environmental scanning

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ENVIRONMENTAL
SCANNING

Process by which organizations

monitor their environment to
identify factors affecting their
business is known as
environmental scanning.

PROCESS OF ENVIRONMENTAL
ANALYSIS

Collecting relevant
information about the
identified factors from
sources like company
records, publications, etc.

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Environmental
scanning

Process of identifying
factors which may
influence the business.

Environment
monitoring
Forecasting future behavior of
Environmental different aspects of
environment which affects
forecasting
business by regression, time
series, delphi, etc.

Assessing factors in
terms of their impact on Diagnosis(assess
environment, favorable
ment)
or unfavorable by
ETOP,SWOT,etc.

IMPORTANCE OF ENVIRONMENTAL
ANALYSIS
Creates awareness amongst managers about the
events and their linkages with business.
Keep managers alert and informed
Helps in identifying threats and opportunities.
Provides early warning signals
Continuous learning about the transformation in
the industry.
Helps in narrow down the range of available
alternatives while taking decisions
Formulation of strategies.

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LIMITATIONS OF ENVIRONMENTAL
ANALYSIS
Based on assumptions
Not accurate and absolutely true
Time consuming and expensive

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APPROACHES TO ENVIRONMENTAL SCANNING

Systematic
approach.
Continuously
updating

Ad hoc
approach
to deal with
specific issues

Processed-form
approach
secondary
sources of data

Ad Hoc
Usually performed in response
General
to crisis
Character Not as in-depth
istics
Forecasts are more short-term

Periodic

Continuous

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

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

Pros

Allows for quicker turn-around

of scan results
Lower commitment of
resources over time

Cons

Data can be more superficial

Reaction to unforeseen
Results may address
changes in environment
immediate issues, but are less
(e.g., onset of recession)
generalizable
may require Ad Hoc scan
If only conducted in response
to supplement
to crises, indicates lack of
information.
organized institutional planning
Planning response is
efforts
then more reactive
Planning response is reactive

Requires ongoing institutional

commitment of resources (funding,
personnel, and time)

SOURCES OF
INFORMATION
Documentary
or secondary
sources of
information
External
agencies

Mass media

Internal
sources

Formal studies

Spying and
surveillance

SOURCES OF INFORMATION FOR ENVIRONMENTAL

SCANNING IN INDIA (CAN OVERLAP)

International
publications

Government
publications

Institutional
publications

Periodicals
and
newspapers

Online
databases
and systems

Agencies

SOME TECHNIQUES USED FOR

ENVIRONMENTAL SCANNING
(EXTERNAL+INTERNAL)

QUEST (Quick
environmental
scanning
technique),

Environmental
threat and
opportunity
profile (ETOP)

SWOT

PESTLE
ANALYSIS

PORTERS
FIVE FORCES

QUEST (QUICK
ENVIRONMENTAL SCANNING
TECHNIQUE)

Strategists make observation about the major events and trends in

their industry

Then they speculate on a wide range of important issues that might

affect the future of their organizations by scanning the environment
broadly and comprehensively

The QUEST director prepares a report summarizing the major issues

and their implications, and three to five scenarios incorporating the
major themes of the discussion

The report and scenarios are reviewed by a group of strategists who

identify feasible strategic options to deal with the evolving environment.
The options are ranked and teams are designated to develop strategies

ENVIRONMENTAL THREAT AND

OPPORTUNITY PROFILE (ETOP)
The

preparation of ETOP involves dividing the

environment into different sectors and then
analyzing the impact of each sector on the
organization.
A comprehensive ETOP requires subdividing
each environmental sector into sub factors and
then the impact of each sub factor on the
organization is described in the form of a
statement

ETOP

FOR A BICYCLE COMPANY

Environmental sector

Nature of
impact

Impact of each sector

Market Environment

Growth rate 7-8% per year, sports

cycle growth rate 30%

Technological

Technological up gradation in
progress, import of machinery
simple

Supplier Environment

Mostly ancillaries and associated

companies supply parts and
components; imported raw
materials easily available

Economic Environment

Growing affluence among urban

customers; export potential
promising

Regulatory

A thrust area for exports

Environment

Environment
Socio-cultural

Customer preference for sports

SWOT

PORTERS FIVE FORCES:

COMPETITIVE STRUCTURE OF INDUSTRIES

ENVIRONEMTAL ANALYSIS AND

STRATEGIC MANAGEMENT

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Defining
business
objectives and
mission

Environmental
analysis

Strategic
alternatives
and choice of
strategy

Implementatio
n of strategy

Evaluation and
control of
strategy

Jyoti Gupta

CHAPTER-3
MANAGING DIVERSITY

DIVERSITY
Variety
Mixture
Mix
Multiplicity
Co-existance of people from different
backgrounds.

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CULTURAL DIVERSITY (MULTI

CULTURALISM)
With Globalization and introduction of MNCs, the
need of management of multi-culturalism arise.
Multi-culturalism refers to cultural factors such
as race, gender, physical ability, etc.

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Some key cultural aspects, basic to business

management are: Attitude towards work, future,
decision making, authority, family, expression of
disagreement, etc.
Eg. Language barrier- Making a circle with finger
and thumb means OK for us but in Japan it
means you are asking for a bribe.

MULTI CULTURALISM

Hofstedes dimensions of multi culturalism

Power distance
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The extent to which employees follows managers decisions. High power

distance means employees diligently follows managers but in low power
distance employees do not follow managers blindly thus decision making is
decentralized.
Uncertainty avoidance
The extent to which workers avoid or accept the feelings of uncertainty
individualism

Individualism means the philosophy by which people think of themselves first

as an individual and give priority to their own best interest.
masculinity
Masculinity refers to the extent of dominant values in culture of an
organization and femininity refers to the nurturing and concern for others.

IMPORTANCE OF MANAGING
DIVERSITY
Lower costs
Better staffing
Marketing advantage
Creativity
Problem solving
Flexibility

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FRAMEWORK FOR MANAGING DIVERSITY

Higher career
involvement of women:
1. dual career 2. sexual
harassment 3. work
family conflict

Mindsets about diversity:1.

problem or opportunity 2.
challenges met or barely
addressed 3. level of
majority culture (resistance
or support)

managing
diversity

HR Management
systems(BIAS FREE):
1. Recruitment 2.
Training and
development 3.
Performance appraisal
4. compensation and
benefits 5. promotion

Cultural differences: 1.
promoting knowledge and
acceptance 2. taking
advantage of the
opportunities that diversity
provides

Education problems: 1.
improve public schools
2. educate management
on valuing differences

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Heterogeneity in race/
ethnicity/ nationality 1. effects
on cohesiveness,
communication, conflict,
morale 2. effects of group
identity on interaction 3.
prejudice(racism)

Organisation culture:
1.valuing differences 2.
prevailing value system
3. cultural inclusion

WELL DESIGNED PROGRAMME FOR

MANAGEMENT OF DIVERSITY WILL CONSIST
OF THE FOLLOWING:
Strong and viable support from top management
Continuous efforts to assess the diversity management programme
Flexible programme for the recruitment, training, retention and upward
mobility of the diverse workforce
Programmes to accommodate family needs such as day care, etc.
Alternative work schedules, including part time work, job sharing,
flextime
Telecommunication opportunities for non conventional workers and
foreign who do not wish to immigrate.
Diversity and language training
Mentoring or the use of high level managers to guide high potential
women, minorities, etc.
Support groups that can help build minority networks for the support
and guidance of applicable employees.
Career development and promotions to maximize the upward mobility
of diverse employees to overcome the glass ceilings that tend to hold
them back.

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Jyoti Gupta

CHAPTER 4:
NATURE AND SCOPE OF BUSINESS

CONCEPT OF BUSINESS

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Business is an economic institution as it is

engaged in production and exchange of goods and
services in order to earn profits.

CHARACTERISTICS OF BUSINESS
Sale, transfer or exchange
Dealing in goods and services
Continuity in dealings
Profit motive
Risk or uncertainty

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SCOPE OF BUSINESS
commerce

Extractive
industries

Hindrances :

Genetic
industries

Of person
Of place

Trade

Transportation
Internal and
home trade

Of time
Manufacturing
industries
Construction
industries

Of risks
Of exchange
Of knowledge

Warehousing
and storage
Insurance

International
and foreign
trade

Banking
advertising

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Industry

Auxiliarie
s to trade

COMPARISON BETWEEN INDUSTRY

COMMERCE AND TRADE
Basis of

Industry

Commerce

Trade

Meaning

extraction.,
reproduction,
conversion processing
and construction of
useful products.

Activities involving
distribution of goods
and services

Purchase and sale of

goods and services

Scope

Consists of all
activities involving
conversion of
materials and semi
finished products into
finished goods

Comprises trade and

auxiliaries to trade

Comprises exchange
of goods and services

Capital

Large amount of
capital

Need for capital is

comparatively less

Capital needed to
maintain stock and to
grant credit

risk

High risk

Relatively less risk

Relatively less risk

comparison

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Thank you

Jyoti Gupta