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Business Studies
BUSINESS ENVIRONMENT
INTRODUCTION
Business may be understood as the organized efforts of enterprise to supply consumers with
goods and services for a profit. Businesses vary in size, as measured by the number of employees
or by sales volume. But, all businesses share the same purpose: to earn profits.
The purpose of business goes beyond earning profit. There are:
It is an important institution in society.
Be it for the supply of goods and services
Creation of job opportunities
Offer of better quality of life
Contributing to the economic growth of the country.
Hence, it is understood that the role of business is crucial. Society cannot do without
business. It needs no emphasis that business needs society as much.
Environment refers to all external forces, which have a bearing on the functioning of business.
Environment factors are largely if not totally, external and beyond the control of individual
industrial enterprises and their managements.
The term business environment means the sum total of all individuals, institutions and
other forces that are outside the control of a business enterprise but that may affect its
performance. Thus, the economic, social, political, technological and other forces which operate
outside a business enterprise are part of its environment. So also, the individual consumers or
competing enterprises as well as the governments, consumer groups, competitors, courts, media
and other institutions working outside an enterprise constitute its environment. The important
point is that these individuals, institutions and forces are likely to influence the performance of a
business enterprise although they happen to exist outside its boundaries. For example, changes in
government s economic policies, rapid technological developments, political uncertainty,
changes in fashions and tastes of consumers and increased competition in the market all
influence the working of a business enterprise in important ways.
On the basis of the foregoing discussion, it can be said business environment, has the following
features:
3. Inter-relation:
All the forces and factors of Business Environment are inter-related to each
other. For example with inclination of youth towards western culture, the
4. Uncertainty:
environment is changing very fast for example in IT, fashion industry frequent
5. Dynamic:
rigid that is why it is essential to monitor and scan the business environment
continuously.
6. Complex:
It is very difficult to understand the impact of Business environment on the
change may be minor but it might have large impact. For example, a change
in government policy to increase the tax rate by 5% may affect the income of
7. Relativity:
cold drinks, on the other hand it increased the sale of juice and other drinks.
(i) Identify the opportunities and getting the first mover advantage by being
aware of the changes in business environment, enterprises can identify opportunity
and strategize ways to capitalize on them.
(ii) Identify threats and early warning signals environment scanning helps in
detecting possible threats in future.
(iii) Basis for planning and policy for formulation identification of threats and
opportunity serves as basis for deciding the future course of action.
(iv) Tapping use full resources the resources are required to carry on a
successful business enterprise. These have to be procured from the business
environment.
(v) Helps in coping with rapid changes turbulent markets, less brand loyalty,
divisions and sub-divisions (fragmentation) of markets, more demanding
customers, rapid changes in technology and intense global competition combined
with complex business environment calls for a flexible planning to cope with the
changes.
Refers to all those forces that have economic impact on the business activity components of
economic environment are GDP, Inflation rate, interest rate, Rupee value, stock exchange
index, tax rate.For example, in case of construction companies and automobile manufacturers,
low longer-term rates are beneficial because they result in increased spending by consumers
for buying homes and cars on borrowed money.
3.Legal environment : refers to the framework of laws and various legislations within which
the business activities take place Components of legal Environment are Government
legislation, court judgments, Decision of various commissions. For example, the
advertisement of alcoholic beverages is prohibited. Advertisements, including pac- kets of
cigarettes carry the statutory warning Cigarette smoking is injurious to health . Similarly,
advertisements of baby food must necessarily inform the potential buyer that mothers milk is
the best. All these regulations are required to be followed by advertisers.
4.Social Environment: represents the customs and traditions, values, culture, social trends,
beliefs, norms and ethics of a society in which business enterprises operate. Components of
social Environment are customs traditions, social expectations, lifestyles, values, literacy level
.For example, the celebration of Diwali, Id, Christmas, and Guru Parv in India provides
significant financial opportunities for greetings card companies, sweets or confectionery
manufacturers, tailoring outlets and many other related business. Values refer to concepts that
a society holds in high esteem. In India, individual freedom, social justice, equality of
opportunity and national integration are examples of major values cherished by all of us.
As a part of economic reforms the Government of India announced New industrial policy in
July 1991 which emphasized on three major elements which were:
Liberalization from the clutches of licensing policy. Therefore, removal of entry and
growth restrictions on the private sector enterprises.
Globalization encouragement of foreign private participation in industrial
development. This step mainly intended at integrating the national economy with the
world economy through the removal of barriers on international trade and capital
movements.
Privatization - drastic reduction in the role of public sector. Future it aimed at transfer of
ownership, management and control of the public sector enterprise to the private sector.
The new industrial policy aimed at created a more competent environment in the economy so as
to strengthen the process of industrialization. Its features are as follows
Delicensing of all projects except six industries
Decreased role of public sector to merely 4 industries
Disinvestment: selling of a part or whole of the shares of the public sector undertaking
Liberalization of Foreign capital
Setting up of foreign Investment board (FIPB)
Liberal policy for technical collaboration
IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND INDUSTRY:
Increase in competition
Demanding customers
Technical changes and increased investment in R and D
Necessity of change
Development of human resource
Market orientation
Loss of budgetary support to the public sector.
SUMMARY
Meaning of business environment: The term business environment means the totality of all
individuals, institutions and other forces that are outside a business but that potentially affect its
performance. Business environment can be characterised in terms of
(a) totality of external forces
(b) specific and general forces
(c) inter-relatedness
(d) dynamic nature
(e) uncertainty
(f ) complexity
(g) relativity
Economic environment includes such factors as interest rates, inflation rates, changes in
disposable income of people, stock market indexes and the value of rupee.
Social environment includes social forces like traditions, values, social trends, society s
expectations of business, and so on. Technological environment includes forces relating to
scientific improvements and innovations which provide new ways of producing goods and
services and new methods and techniques of operating a business.
Political environment includes political conditions such as general stability and peace in the
country and specific attitudes that elected government representatives hold toward business.
QUESTION BANK
Ans. Complexity.
Que3. India food is popular in India as compared to china japan etc. identify the
characteristic of business environment.
Ans. Relativity.
Ans. Uncertainty.
Que5. What do you mean by first mover advantages?
Ans. confidence among the business people is built up to invest and take up new ventures.
Que9. Govt. of India is seriously thinking to allow oil marketing public sector
understanding to fix their own price for petrol and diesel. Which economic reform is
the reason of this change in government policy?
Ans. The reason for this change in the governments policy is liberalization.
Que10. Just after declaration of LokSabha elections 2009 results, the Bombay stock
exchanges price index (Sensex) rose by 2100 points in a day. Identifies the
environment factor which leads to this size.
SHORT ANSWERS.
1. Liberalization
2. Privatization
3. Globalization.
ANS. Liberalization- freeing the Indian business and industry from all unnecessary
government controls and restrictions
Privatization- giving greater role to the private sector in the nation building process and
drastically reducing the role of the public sector.
Globalization- it means the integration of our economy to the world economy.
OR
i. Totality of External forces: Business environment is the sum total of all the external factors
that influence the functioning of the business. Hence it can be called as the comprehensive
mega force consisting of all external inputs.
ii. Specific and general forces: Business environment is made up of both specific and general
force. Specific forces directly affect the working of the business. Customers, investors etc
come under specific forces while social conditions etc. belong to general forces.
iii. Inter- relatedness: Various element of environment are very closely related to each other .
For example arrival of large number of health product in Indian market have influenced our
lifestyles.
Que2. Why understanding of Business Environment important for managers? State any five
points.
OR
How does understanding of Business Environment help managers? Explain with the help of
any five points.
(i) Identification of opportunities and getting the first mover advantage Environment
understanding help the business firm to take advantage of early opportunities. Such
business firm likely to stay ahead of their competitors.
(iii) Environment awareness helps to recognize and make Use of qualitative information.This in
turn can make a business enterprise take necessary proactive measures well in time
i. image building
Environmental understanding generates a feeling among public that business is sensitive
and responsive to its environmental.
i. Improving performance
Environmental awareness provides a continuing, broad based education for management.
Objective qualitative information generated by such understanding provides a strong basis
for strategic thinking. The enterprises that monitor their environment closely can adopt
suitable business practices to not only their performance but also become leader in the
industry
Q3. What do you understand by economic environment? List the main aspects of
economic environment.
Ans- Economic environment consist s of factors likes inflation rates, interest rates, consumers,
incomes, economic policies, and market conditions etc. which affect the performance of a
business firm.
1. The role of public and private sector in the existing structure of the economy.
2. The rate of increase in GNP and per capita income both at current and constant prices.
3. Quantum of exports and imports of different products.
4. Increase in transportation and communication facilities.
5. Trends in agricultural and industrial productions.
6. Amount of savings and investment.
D. credited is now less expensive and many imports are duty free.
E. simplification of procedures related to export promotion.
3. Fiscal reforms
E. decreases in subsidies.
4. Monetary reforms
C. banks have now been allowed to access capital market for raising capital.
e. security and exchange board of India(SEBI) has been made a statutory body.
1. Global market
More and more Indian companies are directing three efforts towards global markets. Easy
flow of foreign capital and easy import of capital goods catalyze development of global
market.
1. New technology
Companies are upgrading their technologies. Producers are using world class technology.
This has led to more investment in research and development (R&D), innovation, product
development etc. resulting, cost of production reduces and efficiency increase.
1. Brand building
Business enterprises are emphasizing more on brand building. They are becoming more
aggressive towards brand building and are spending huge amounts on brand equity.
Q.7. discuss the impact of government policy changes on business and industry in
India.
1. Increased competition.
2. Need to develop human talent.
3. Rapidly changing technological environment.
4. Market orientation.
HOTS
1. It is the process by which government control over the industry, being loosened. Give the
term to which this statement is trying to indicate.
Ans Liberalization.
Q.1. Bhupesh , a manager of the firm always takes into account the changes taking
place in business enviornment while determing plans he accepts changes readily and
gives useful suggestions to his superiors. he enjoys coodial relations with his co
workers and make plans in consultaions with his team to achieve organisational
goals.which values are exhibited by bhupesh?
ans.
CHAPTER 4
PLANNING
INTRODUCTION
Every organization as part of its life cycle constantly engages in the four essential functions of
management planning, leading, organizing and controlling. The foremost of this is planning. It
is the part of management concerned with creating procedures, rules and guidelines for achieving
a stated objective. All other managerial functions must be planned if they are to be effective.
Managers at all levels engage in planning as objectives and goals have to be set up for the day-
to-day activities as well as the broader long-term initiatives.
Planning is deciding in advance what to do and how to do. It is one of the basic managerial
functions. Before doing something, the manager must formulate an idea of how to work on a
particular task. Thus, planning is closely connected with creativity and innovation. But the
manager would first have to set objectives, only then will a manager know where he has to go.
Planning seeks to bridge the gap between where we are and where we want to go. Planning is
what managers at all levels do. It requires taking decisions since it involves making a choice
from alternative courses of action.
Thus, It is the process of setting objectives and targets for a given time period and formulating an
action plan to achieve them effectively and efficiently. It concerns itself
With both ends and means that is what is to be done and how it is to be done.
DEFINITION OF PLANNING
According to Alford and Beatt, Planning is the thinking process, the organized foresight,
the vision based on fact and experience that is required for intelligent action.
According to Theo Haimann, Planning is deciding in advance what is to be done. When
a manager plans, he projects a course of action for further attempting to achieve a
consistent co-ordinate structure of operations aimed at the desired results.
FEATURES OF PLANNING
The main characteristics or nature of planning is given below:
4. A continuous Process
Planning is a continuous process and a never ending activity of a manager in an enterprise based
upon some assumptions which may or may not come true in the future. Therefore, the manager
has to go on modifying revising and adjusting plans in the light of changing circumstances.
According to George R. Terry, Planning is a continuous process and there is no end to it. It
involves continuous collection, evaluation and selection of data, and scientific investigation and
analysis of the possible alternative courses of action and the selection of the best alternative.
Establishing objectives
The first and primary step in planning process is the establishment of planning objectives or
goals. Definite objectives, in fact, speak categorically about what is to be done, where to place
the initial emphasis and the things to be accomplished by the network of policies, procedures,
budgets and programmes, the lack of which would invariably result in either faulty or ineffective
planning.
It needs mentioning in this connection that objectives must be understandable and rational to
make planning effective. Because the major objective, in all enterprise, needs be translated into
derivative objective, accomplishment of enterprise objective needs a concrete endeavor of all the
departments.
Evaluation of Alternatives
Having sought out the available alternatives along with their strong and weak points, planners
are required to evaluate the alternatives giving due weight-age to various factors involved, for
one alternative may appear to be most profitable involving heavy cash outlay whereas the other
less profitable but involve least risk. Likewise, another course of action may be found
contributing significantly to the companys long-range objectives although immediate
expectations are likely to go unfulfilled.
Evidently, evaluation of alternative is a must to arrive at a decision. Otherwise, it would be
difficult to choose the best course of action in the perspective of company needs and resources as
well as objectives laid down.
An organisation without planning is like a sailboat minus its rudder. Without planning,
organisation, are subject to the winds of organizational change. Planning is one of the most
important and crucial functions of management.
According to Geroge R. Terry, Planning is the foundation of most successful actions of any
enterprise. Planning becomes necessary due to the following reasons:
1.Reduction of Uncertainty
Future is always full of uncertainties. A business organisation has to function in these
uncertainties. It can operate successfully if it is able to predict the uncertainties. Some of the
uncertainties can be predicted by undertaking systematic. Some of the uncertainties can be
predicted by undertaking systematic forecasting. Thus, planning helps in foreseeing uncertainties
which may be caused by changes in technology, fashion and taste of people, government rules
and regulations, etc.
2.Better Utilization of Resources
An important advantage of planning is that it makes effective and proper utilization of enterprise
resources. It identifies all such available resources and makes optimum use of these resources.
5.Concentration on Objectives
It is a basic characteristic of planning that it is related to the organizational objectives. All the
operations are planned to achieve the organizational objectives. Planning facilitates the
achievement of objectives by focusing attention on them. It requires the clear definition of
objectives so that most appropriate alternative courses of action are chosen.
6.Helps in Coordination
Good plans unify the interdepartmental activity and clearly lay down the area of freedom in the
development of various sub-plans. Various departments work in accordance with the overall
plans of the organisation. Thus, there is harmony in the organisation, and duplication of efforts
and conflict of jurisdiction are avoided.
8.Encouragement to Innovation
Planning helps innovative and creative thinking among the managers because many new ideas
come to the mind of a manager when he is planning. It creates a forward-looking attitude among
the managers.
10.Delegation is Facilitated
A good plan always facilitates delegation of authority in a better way to subordinates.
LIMITATION OF PLANNING
i) planning does not work in a dynamic environment- planning also has to work amidst the
influence of external environment which can render even the most effective plan inoperative.
ii) Planning is a time consuming process as it requires collection of information, its analysis
and interpretation. It becomes a difficult exercise in times of unexpected emergencies.
iii) It involves huge cost in its formulation. As a lot of money needs to be expended in the
collection, analysis and interpretation of data
iv) It creates rigidity in the mode of functioning. As the employees are required to function as
per the dictates of the predetermined policy.
vi) It reduces creativity as the middle level managers and the other decision makers have to
only follow and are not allowed to deviate from the plans.
vii) The human element can give way to errors or mistakes through wrong assumption.
viii) It is prone to external influence which can reduce its impact like natural calamity,
technology changes, policy changes, competition.
TYPES OF PLAN
A. Standing or Repeatedly used plans: As their name indicates that these plans are
formulated once and they are repeatedly used. These plans continuously guide the
managers. That is why it is said that a standing plan is a standing guide to recurring
problems. These plans include:
1. Objectives
2. Strategies
3. Policies
4. Procedures
5. Methods and
6. Rules
B. Single use special or Adhoc plans: These plans are connected with some special problem.
These plans end the moment the problems are solved. After having been used once there is no
importance of these plans and in future, whenever they are needed they are re-created. These
plans include
1. Budget and
2. Programme.
DIFFERENCE BETWEEN STANDING PLAN AND SINGLE USE PLAN
1. Objectives Are the ends which the management seeks to achieve by its operation.
Represent the end point of management.
Set by top management.
Defines the future state of affairs.
Guides the overall business planning.
Can be expressed in specific terms. They can be measured.
2.Strategy provides broad shape of organizations business, refers to the future objective,
adoption of a particular course of action and allocation of resources.
3.Policies are general statements which guide thinking in decision making.
They are based on objectives.
They guide managerial action and decisions.
They exist at all levels and departments of the organization.
7.Programmes detailed statements which are combination of goals, policies, procedures, rules
tasks, human and physical resources required and the budget to implement any course of action.
All these plans together form a Programme.
8.Budget Is a statement of expected results expressed in numerical terms for a definite period
of time in the future.
SUMMARY
Planning Planning is deciding in advance what to do and how to do. It is one of the basic
managerial functions. Planning therefore involves setting objectives and developing an
appropriate course of action to achieve these objectives.
Importance of Planning
Planning provides directions, reduces risks of uncertainty, reduces overlapping and wasteful
activities, promotes innovative ideas, facilitates decision making, establishes standards for
controlling.
Features of Planning
Planning focuses on achieving objectives; It is a primary function of management; Planning is
pervasive, continuous, futuristic and involves decision making; It is a mental exercise.
Limitations of Planning
Planning leads to rigidity; reduces creativity; involves huge costs; It is a time consuming process;
Planning does not work in a dynamic environment; and does not guarantee success.
Planning Process
Setting objectives: Objectives may be set for the entire organisation and each department or unit
within the organisation.
Developing premises: Planning is concerned with the future which is uncertain and every planner
is using conjucture about what might happen in future.
Identifying alternative courses of action: Once objectives are set, assumptions are made. Then
the next step would be to act upon them. Evaluating alternative courses: The next step is to
weigh the pros and cons of each alternative.
Selecting an alternative: This is the real point of decision making. The best plan has to be
adopted and implemented.
Implement the plan: This is concerned with putting the plan into action. Follow-up action:
Monitoring the plans are equally important to ensure that objectives are achieved.
Types of Plans
Objectives: Objectives therefore can be said to be the desired future position that the
management would like to reach.
Strategy: A strategy provides the broad contours of an organisation s business. It will also refer
to future decisions defining the organisations direction and scope in the long run.
Policy: Policies are general statements that guide thinking or channelise energies towards a
particular direction.
Procedure: Procedures are routine steps on how to carry out activities. Rule: Rules are specific
statements that tell what is to be done. Programme: Programmes are detailed statements about a
project which outlines the objectives, policies, procedures, rules, tasks, human and physical
resources required and the budget to implement any course of action.
Budget: A budget is a statement of expected results expressed in numerical terms. It is a plan
which quantifies future facts and figures.
QUESTION BANK
Que1. Name the feature of planning which says planning is a forward looking function
Ans. Planning is an intellectual activity of thinking rather than doing because planning
determines the action to be taken.
Ans. Planning creates rigidity by putting adverse effect on initiative taken by the managers and
not giving them any flexibility to be able with the rapidly changing circumstances and sticking
to pre-determined plans.
Que4. State the features of planning which help managers know whether they have
actually been able to attain goals and correct the deviations.
Ans. No, I don not agree because planning only anticipates not eliminates change
/uncertainties.
Que8. What is meant by follow-up action as the step involved in the planning
process?
Ans. Follow up action means checking weather the plans are being implemented and activities
are performed according the schedule.
Que11. Name the type of plans that are used once. Also give two examples of that
plan.
Que12. Name the type of plans that are used again and for for an indefinite period.
Example of that Also gives two plans.
Ans. Procedure consists of series of step whereas policies are guidelines for decision making.
Que14. Name the type of plan which tells what is to be done and what is not to be done.
Ans. Rules.
Ans.Cash budget.
Que16. Jagat Ltd. Decides to advertise its product which are newly launched on
television and radio. What type of plan it is?
Ans. Strategy.
Que17. XYZ Ltd. Company select its employees thought written test along with interview.
Identify the plan.
Ans. Procedure.
Ans.The ideal plan is the most feasible, profitable and with least negative consequences.
Q.20. NAME THE TYPE OF PLAN WHICH IS ALSO A CONTROL DEVICE FROM WHICH
DEVIATION CAN BE TAKEN CARE OF.
Ans. Budget.
Ans. Policies provide a basis for interpreting strategy. They are guides to managerial action
and decisions in the implementation of strategy.
Q.22. NAME THE TYPE OF PLAN THAT DOES NOT ALLOW FOR ANY FLEXIBILITY OR
DISRETION.
Ans. Rule.
Q.1. Define Planning .List any two reasons why planning is essential.
Ans. Planning means setting objectives for a given time period ,formulating various courses of
action to achieve them and then selecting the best possible alternative from among the various
courses of action available.
i. Provides directions.
ii. Reduces the risk of uncertainty.
iii. Reduces overlapping and wasteful activities.
iv. Promotes innovative ideas.
v. Facilitates decision making.
vi. Establishes standards for controlling.
i. Setting up of objectives.
ii. Developing premises.
iii. Identifying alternative courses of action.
iv. Evaluating alternative courses.
v. Selecting an alternative .
vi. Implementation of plan.
vii. Follow up action .
LONG QUESTION ANSWER
Q1. Though planning is an important tool of management, yet it is not a remedy for all
types of problems. Do you agree with this statement? Give any five reasons in support
your answer.
OR
In spite of best efforts of managers sometimes planning fails to achieve desired result
due to its limitation. Explain any five limitation of planning.
Hots
Ans. Policy.
2. An employee will be selected through a written test. What type of plan it is?
Ans. Procedure.
3. Shoguns ltd. decides to sell television sets through exchange of old television sets. What
type of plan is it?
Ans. Strategy.
Q.1. In a visit to restaurant, some youngsters were found smoking in spite of sign board
indicating no smoking zone.
Suggest the values which will help the youth to become responsible citizens of the
nation.
Obedience
Self-discipline
Concern of health of other people.
Respecting the law of the land.
Q2 The CEO of XYZ Ltd. an automobile enterprise dreams of his company becoming the
best player in future, for which he sets the objectives, forecasts the future and develops
various courses of action.
i) Identify the management function which is highlighted here. ii) What are the various
values the CEO is striving to achieve?
i. Social responsibility
ii. Empathy, Harmony
iii. Motivation,
iv. Cooperation
Q4. Planning is a mental exercise. What human value is being
Emphasized?
Ans Adaptability
Team spirit,
Sense of judgement.
Ans.: Initiative,
Motivation,