BUSINESS ENVIRONMENT

Unit 1:

1.1 Concepts of business environment

1.1.1 Defination of BE
According to Arthur M. Weimer, business environment encompasses the ‘climate’ or set of
conditions, economic, social, political or institutional in which business operations are conducted.
(or)
Business Environment has been defined by Bayard O. Wheeler as “the total of all things external to
firms and industries which affect their organization and operation”.

1.1.2 concept of BE
A business firm is an open system. It gets resources from the environment and supplies its goods and
services to the environment. There are different levels of environmental forces. Some are close and
internal forces whereas others are external forces. External forces may be related to national level,
regional level or international level. These environmental forces provide opportunities or threats to the
business community. Business organizations cannot change the external environment but they just react.
They change their internal business components (internal environment) to grasp the external
opportunities and face the external environmental threats. the external forces acting on the business
consists of a large number of forces.
These are.
1. Demographic
2. Economic
3. Geographical
4. Ecological
5. Social and Cultural
6. Political & Legal
7. Technological
1. Demographic Factors:
Demography is a study of human population with reference to its size, density, distribution and other
connected vital statistics. This information is very essential in modern days for planning and
development and also for framing laws relating to society and business
2. Economic Factors:
The business enterprise is affected by various economic forces which cannot be controlled by the
business. These economic forces, can be divided into two categories, ie. Demand Force and Competitive
Force. For a business firm to survive and thrive, it should have adequate demand for its products. At the
same time, the firm has to complete with the rival firm producing similar products or substitute products.
3. Geographical facors:
Geographical conditions, to a greater extent, influence the type of industries and business in a region.
Generally, the people of a particular geographical region will have similar tastes, preferences and
requirements. The geographical situation, the physical feature, the climate, rainfall, humidity, the
 vegetation, etc., decide the type of living in a particular region and only those industries which could
cater to the needs of the people, could develop.
4.ecological factors:
Ecological is a study “dealing with the interaction of living organism with each other and with their
non-living environment”. It is a science telling about the relationship of all living beings. (ie., human
beings, animals, plants) with non- living beings (air, water, soil represented by atmosphere, rivers,
lakes, mountains and land).
5. Social and Cultural factors:
attitudes of a region influence the business organizations of the region influence the business
organizations of the region in a verity of ways. The business practices and the management
technique of the organization should cope with the social and cultural attitudes of the people.
6.Political Environment:
All business firms are directly affected to a greater or lesser degree by the government and its
programmes. Political forces will decide the nature of business, programmes and projects to be
undertaken for the development of the country. These political forces can be classified as long term
forces, quick changes, cyclical changes and regional factors.
Legal Environment:
Business in a country can be started and nurtured to grow into big business only within the legal system
of the country. In this connection, all countries of the word have a separate set of laws for the control and
direction of business. The business law of the country is a complex system of regulations and intervention
that form the legal environment of the business. All business managers should have the knowledge of
business law for taking management decision.
6. Technological Environment
Technology means “the systematic knowledge of the industrial arts”. ‘Technique’ denotes the method of
performance. These two are increasingly used in modern literature on industrial production. The present
age is the age of technology. Technology affects the business in two ways.
 Its impact on the society and
 Its impact on business operation.
1.2 Need of BE scanning

1.3 Process of environmental analysis

Environmental analysis is relatively qualitative and involves the identification of and analysis of
environmental variables, which affect the business.
Definition
Environmental analysis for a business looks at the factors inherent in a business's environment that
may have some impact thereof. This type of analysis is relatively qualitative and involves the
identifying, scanning, analyzing and forecasting of the environmental variables. Some frameworks of
environmental analysis have received large amounts of attention in the world of business
management literature, such as SWOT analysis and PESTEL analysis.
Identifying
To measure and/or improve the relative position of the business to the intrinsic environmental
factors, one must first identify those factors that affect the business. This will need to be done at
various internal levels, the company level, the regional level, the domestic level and the global level.
While several frameworks exist as an aid to this step of identification (such as SWOT and PESTEL),
they are merely tools that remind the identifier to consider certain types of factors. A good
identification of environmental factors can be had as the result of a good brainstorming session with
or without such frameworks. Those frameworks exist because of the ease of deployment and should
be consulted, flexibly.

Scanning
This step in environmental analysis can be somewhat confusing. How does one scan for qualitative
factors that have already been identified? Scanning, in the context of environmental analysis, refers
to the process of distinguishing which of the identified factors have the most effect. Not all of the
factors identified in the first step will carry the same weight, and the recognition of environmental
factors most significant to the business will assist in rendering a course of improvement.

Analyzing
The next step in environmental analysis is to analyze the effect the relevant environmental variables
have on different levels of the business, including the business at large. There are a plethora of tools
available for this type of analysis, ranging from scenario building to benchmarking to the Delphi
technique. Which every tool, or tools, chosen, the information will be collected and analyzed in
similar fashions. Brainstorming, reviewing historical data and polling department heads and
managers serves to collect information that will be used for statistical analysis; types of analysis
include mean, mode, correlation and regression, among others. The methods of statistical analysis
chosen will vary based upon what is being analyzed and the form held by the data itself. Some
useful methods of analysis can be found in the techniques of company ratio analysis.

Forecasting
Once the environmental variables have been identified, deemed significant and analyzed, it
becomes necessary to forecast the effect that said variables would have in the future. This is the
primary function of the analysis of current and historical data. By looking at the trend each significant
environmental variable is forecasted to take, a strategy report can be created, from which
management can develop a business strategy in response thereto.
1.4 techniques of environmental scanning:

Some frameworks of environmental analysis have received large amounts of attention in the world of
business management literature, most widely used there are three techniques

1) SWOT analysis
2) PESTEL analysis.
3) Industry Analysis
4) QUEST Analysis

1.4.1 SWOT
(Strength-Weakness-Opportunity-Threat)

Identification of threats and Opportunities in the environment (External) and strengths

and Weaknesses of the firm (Internal) is the cornerstone of business policy
 formulation; it is these factors which determine the course of action to ensure the
survival and growth of the firm.

1.4.2 PESTEL Analysis:

 Political factors. These refer to government policy such as the degree of intervention
in the economy. What goods and services does a government want to provide? To
what extent does it believe in subsidising firms? What are its priorities in terms of
business support? Political decisions can impact on many vital areas for business
such as the education of the workforce, the health of the nation and the quality of
the infrastructure of the economy such as the road and rail system.

 Economic factors. These include interest rates, taxation changes, economic growth,

inflation and exchange rates. As you will see throughout the "Foundations of
Economics" book economic change can have a major impact on a firm's behaviour.
For example:

               - higher interest rates may deter investment because it costs more to borrow
               - a strong currency may make exporting more difficult because it may raise the
price in terms of foreign currency
               - inflation may provoke higher wage demands from employees and raise costs
               - higher national income growth may boost demand for a firm's products

 Social factors. Changes in social trends can impact on the demand for a firm's
products and the availability and willingness of individuals to work. In the UK, for
example, the population has been ageing. This has increased the costs for firms who
are committed to pension payments for their employees because their staff are living
longer. It also means some firms such as Asda have started to recruit older
employees to tap into this growing labour pool. The ageing population also has
impact on demand: for example, demand for sheltered accommodation and
medicines has increased whereas demand for toys is falling.

 Technological factors: new technologies create new products and new processes.

MP3 players, computer games, online gambling and high definition TVs are all new
markets created by technological advances. Online shopping, bar coding and
computer aided design are all improvements to the way we do business as a result of
better technology. Technology can reduce costs, improve quality and lead to
innovation. These developments can benefit consumers as well as the organisations
providing the products.
 Environmental factors: environmental factors include the weather and climate
change. Changes in temperature can impact on many industries including farming,
tourism and insurance. With major climate changes occurring due to global warming
and with greater environmental awareness this external factor is becoming a
significant issue for firms to consider. The growing desire to protect the environment
is having an impact on many industries such as the travel and transportation
industries (for example, more taxes being placed on air travel and the success of
hybrid cars) and the general move towards more environmentally friendly products
and processes is affecting demand patterns and creating business opportunities.

 Legal factors: these are related to the legal environment in which firms operate. In
recent years in the UK there have been many significant legal changes that have
affected firms' behaviour. The introduction of age discrimination and disability
discrimination legislation, an increase in the minimum wage and greater
requirements for firms to recycle are examples of relatively recent laws that affect an
organisation's actions. Legal changes can affect a firm's costs (e.g. if new systems
and procedures have to be developed) and demand (e.g. if the law affects the
likelihood of customers buying the good or using the service).

1.4.5 Industry Analysis

An industry is a group of firms producing a similar product or service

An examination of the important stakeholders’ group in a particular corporation’s task
environment is a part of industry analysis

1.4.5.1 Porter’s approach to Industry Analysis

 A corporation is most concerned with the intensity of competition within its industry
 The level of this intensity is determined by basic competitive forces
 In scanning its industry, the corporation must assess the importance to its success of each of
the five forces

Other stakeholders, potential entrants, suppliers, buyers, substitutes,

1.4.6 QUEST

Nanus proposed Quick

E nv i r o n m e n t a l S c a n n i n g
Te c h n i q u e s ( Q U E S T ) fo r
envi ronmental scanning, which
includes a four step process:
 (1) Strategists make observations
about the major events and
trends in their industry.
(2) Then, they speculate on a wide
range of important issues that
might affect the future of their
organizations by scanning the
e nv i r o n m e n t a l b r o a d l y a n d
comprehensively.
(3) The QUEST director prepares
a report summarising the major
issues and their implications,
and three to five scenarios
incorporating the major themes
of the discussion.
(4) The report and scenarios are
r ev i ew e d by t h e g r o u p o f
strategists who identify feasible
strategic options to deal with
t h e evo l v i n g e nv i r o nme n t a l
condi t ions. The opt ions are
ranked and teams are
d e s i g n a t e d t o d ev e l o p
strategies

1.4 practices regarding scanning of external environment in indian corporate sector:

S t ra t e g i s t s m ay c h o o s e t h e
techniques which suit their needs
in terms of the quantity, quality,
availability, timeliness, relevance
a n d c o s t o f e nv i r o n m e n t a l
information

Scenario Writing, Decision Tree

Analysis, Trend Analysis, Customer
Di a l o g u e a n d B a s i c S t a t i s t i c a l
Fo r e c a s t i n g and Quest analysis a r e t h e imp o r t a n t
techniques which are used by
m a j o r i t y o f o r g a n i a s a t i o n s in India fo r
e nv i r o n m e n t a l s c a n n i n g
1.6 characteristics of BE:

1. It is complex
2. It is dynamic
3. It is multi-faceted
4. It has a far reaching impact

Unit 4:

4.1 Technological environment:

This is a very significant external factor determining the destiny of business

organizations. Supported by computerize operations, modem business
organizations have succeeded in analyzing customers, minimizing the defects in
products, ensuring service at the right time and place, etc. While
communications use to take unduly long time in those days, business
communications are instantaneous these days, thanks to modem satellite
technology. Modern organizations have recognized that research and
development alone can ensure organizational growth and stability. They have
become more and more pro-active and remain as change agents of the economy.
Governments have also become more technology conscious that right from
police controls to registration of title deeds, computerizations has been adopted.
Customer servicing through call centers is the latest necessity of organizations.
Manufacturing activities have become more and more technically
sophisticated. Therefore business environment has become highly dynamic.

4.2 features and impact of technology:

The tremendous technological growth that we have been experiencing is made possible
through extensive programmes of technological research being conducted by many types of
researchers working within universities, business, and non-profit research organizations.
Technological developments are strong and all pervasive forces of the business
environment. Technology is the scientific knowledge to practical problems.

Technology feeds on itself and it affects business in two major ways:

1. Through its impact on society in general

2. Through its direct influence on business operations and activities.

Technology affects society. In fact, we feel its effect on our everyday life. It affects
economic growth, our standard of living and our culture. However, some of the effects of
technology are highly beneficial and some detrimental. One should be careful that these
effects on members of the society in turn affect business practices.

Technology affects our everyday life. We are surrounded by so much of technology, that we
take it for granted and usually do not realize how much it affects us until we have to do
without electricity, water, transport or telephone. Technological developments have raised
the standard of living. In spite of inflationary pressure and considerably a high degree of
unemployment, generally families eat better, wear a wider variety of clothing, and live in
more comfortable homes.

Technology also influences basic aspects of our culture, including religion, education,
mobility, health care, art, language, laws and their enforcement. For example, technological
advances in health care allow physicians to treat their patients in a virtual environment
through video conferencing, which again is helpful in legal environment too for the judges to
proceed with investigations on hard core criminals, who need not be produced before the
court for security reasons.

Every new technology is a force involved in creative destruction. Say, television hurts
movies, synthetic fibres, rival for cotton fibre. The discovery of new technology even
sometimes affects economic growth-TV with its high entertainment value takes away
productive hours of mankind. Each new technology creates major long term consequences,
that are not always foreseeable. How do you justify nations spending more money to
develop missiles, nuclear weapons and bombs for the sake of security?

Developing nations have to buy technology from foreign countries, as they are not
resourceful in terms of capital needed for Research and Development, expertise, patents,
licenses, equipments and so on. This transfer of technology involves huge costs as a result
of which a vicious circle is formed, in which weak technology creates dependence and
dependence creates weakness.

The recent trend can be enumerated through this slogan, "Conserve, reduce and recycle".
The stress today is on clean production measures, advanced robotics, zero-emition vehicles,
material recycling and alternative fuels and materials. This change towards love for
environment by the technologists is a sure sign of positive development.

4.3 Technology and society

Technology and society or technology and culture refers to cyclical co-dependence, co-

influence, co-production of technology and societyupon the other (technology upon culture, and
vice-versa). This synergistic relationship occurred from the dawn of humankind

Sociological factors and effects

Values
The implementation of technology influences the values of a society by changing expectations and
realities. The implementation of technology is also influenced by values. There are (at least) three major,
interrelated values that inform, and are informed by, technological innovations:

 Mechanistic world view: Viewing the universe as a collection of parts, (like a machine), that can
be individually analyzed and understood.[3] This is a form of reductionism that is rare nowadays.
However, the "neo-mechanistic world view" holds that nothing in the universe cannot be understood
by the human intellect. Also, while all things are greater than the sum of their parts (e.g., even if we
consider nothing more than the information involved in their combination), in principle, even this
excess must eventually be understood by human intelligence. That is, no divine or vital principle or
essence is involved.

 Efficiency: A value, originally applied only to machines, but now applied to all aspects of society,
so that each element is expected to attain a higher and higher percentage of its maximal possible
performance, output, or ability.[3]
 Social progress: The belief that there is such a thing as social progress, and that, in the main, it is
beneficent. Before the Industrial Revolution, and the subsequent explosion of technology, almost all
societies believed in a cyclical theory of social movement and, indeed, of all history and the universe.
This was, obviously, based on the cyclicity of the seasons, and an agricultural economy's and
society's strong ties to that cyclicity. Since much of the world is closer to their agricultural roots, they
are still much more amenable to cyclicity than progress in history. This may be seen, for example,
in Prabhat rainjan sarkar's modern social cycles theory. For a more westernized version of social
cyclicity, see Generations: The History of America's Future, 1584 to 2069 (Paperback) by Neil Howe
and William Strauss; Harper Perennial; Reprint edition (September 30, 1992); ISBN 0-688-11912-3,
and subsequent books by these authors.
[edit]Lifestyle

In many ways, technology simplifies life.

 The rise of a leisure class

 A more informed society
 Sets the stage for more complex learning tasks
 Increases multi-tasking (although this may not be simplifying)
 Global networking
 Creates denser social circles
 Cheaper prices
 Greater specialization in jobs

In other ways, technology complicates life.

 Pollution is a serious problem in a technologically advanced society (from acid rain to Chernobyl
and Bhopal)
 The increase in transportation technology has brought congestion in some areas
 Technicism (although this may not be complicating)
 New forms of danger existing as a consequence of new forms of technology, such as the first
generation of nuclear reactors
 New forms of entertainment, such as video games and internet access could have possible social
effects on areas such as academic performance
 Increased probability of some diseases and disorders, such as obesity
 Social separation of singular human interaction. Technology has increased the need to talk to
more people faster.
 Structural unemployment
 Anthropogenic climate change
[edit]Institutions and groups

Technology often enables organizational and bureaucratic group structures that otherwise and heretofore
were simply not possible. Examples of this might include:

 The rise of very large organizations: e.g., governments, the military, health and social welfare
institutions, supranational corporations.
 The commercialization of leisure: sports events, products, etc. (McGinn)
 The almost instantaneous dispersal of information (especially news) and entertainment around
the world.
[edit]International

Technology enables greater knowledge of international issues, values, and cultures. Due mostly to mass
transportation and mass media, the world seems to be a much smaller place, due to the following, among
others:

 Globalization of ideas
 Embeddedness of values
 Population growth and control
 Others