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BCK Chapter 2 Chart - CA Aakash Singhvi Nov 2020

ca foundation (Institute of Chartered Accountants of India)

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Handcrafted with Love for Students THE CHART BOOK BUSINESS AND COMMERCIAL KNOWLEDGE
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Contact: 8181 89 0808 CH:2 – BUSINESS ENVIRONMENT CAAAKASHSINGHVI

INTRODUCTION: • External Environment offers a range of Opportunities as ENVIRONMENTAL SCANNING:

well as threats to the Organization.
• The World Keeps Changing It Always Has and Always Will. • Environmental Scanning Can Be Defined as the Process by
• Sometimes even Organization can influence environment. Which Organization Monitor Their Relevant Environment to
• To Survive Over the Long-term Company Must Have Two
• Example: Patanjali’s Success Has took it to a Position Identity Opportunities and Threats Affecting Their
Capabilities Business for The Purpose of Thinking Strategic Decision.
Where It Can Influence the Market Surely.
(a) The Ability to Prosper
(b) The Ability to Change • Factors Which Need to Be Considered for Environmental
ORGANIZATION’S RESPONSE TO ITS Scanning Are
• Environment Influence Business and Also Gets Influenced
ENVIRONMENT:
by It. No Business Can Function Free of Interacting and a. Events –
Influencing Forces That Are Outside Its Periphery. • (Sir’s Note: Whenever there is a change in the
• Important and Specific occurrences happening in the
Environment, the organization must respond to it as early as
Meaning of Business Environment environment. (Sir’s eg. Corona Virus is an event).
possible or else the organization will become a failure like
• The Success of a Business is Generally Depended on Its
NOKIA)
Business Environment. b. Trends –
• A Successful business has To Identify, Appraise and • Suggests pattern of Change in the environment.
Administrative Response:
Respond to the Various Opportunities and Threats in Its • (Because of Corona trends for Malls declined Drastically
• The Most Common Organizational Responses Are
Environment. and people started shifting to Online OTT Platforms like
Administrative.
Netflix etc.)
Characteristics of Business environment • It includes Formation or Clarification of the Organization’s
Mission, the Development of Objectives, Policies and c. Issues –
Environment Mobile Phones Making Budgets. • Concerns arising in response to Events and Trends.
Consists of a Music, System Computer,
• (Sir’s Eg. CCTV camera installation in my Office Cafeteria) • (There is no money with people to subscribe online
Number of Factors, Books Obsolete, they Platforms etc.)
Events, Conditions keep changing hence Competitive Response:
Complex and Influences. business environment is • To Enhance the Organization’s Performance by Establishing d. Expectations –
Easier to complex. a Competitive Advantage (ie. Features that are unique, • Demands made by Interested group
understand in parts valuable and difficult to copy) over Its Rivals. • (Eg. Amazon Prime demanded Movie Release in its Platform
rather than totally even before Theatrical Release of the Movie)
• (Sir’s Note eg. Nestle Maggi has a competitive advantage
Business The Film Industry over all other noodles in mkt, if you ever tasted Patanjali
environment is Generates Revenue from
COMPONENT’S OF BUSINESS ENVIRONMENT:
Aata Noodles)
Constantly Changing Ring Tones /Caller Tunes
(shape and Rather than Sale of Collective Response: Business
Dynamic character) Music (Eg. Music played • Through Increased Coordination with Other Organization Environment
during IPL in the Stadium Methods as Bargaining Contracting, Co-Opting and Creating
also generates revenue to Joint Venture, Federations, Strategic Alliances and
the Music Composer) Consortia. External
Environment Internal
Seen When the Led and Plasma TV’s • (Eg. Vodafone and Idea tried to make a Collective Response Environment
Same Development Giving Way to Led and when Jio came by creating a Joint Venture, but failed
1. Value Systems
Is Welcomed as On Now LED’s Giving Way to miserably because Jio had a Greater Competitive
2. Mission and
Opportunity by One 3d TV’s. (Sir’s Eg. Plastic Advantage)
Multi- Objectives
Faceted Company While ban is an Opportunity for • (Sir’s note: Consortia are generally a group of banks/other
Micro Macro 3. Organisational
Another Company Paper Bags Manufacturer companies coming together to respond to environmental
Environment Structures
Perceives It as A and a threat to the changes). Environment
Threat. Plastic Manufacturing Co) 1.Organization 1. Economic 4. Corporate
Culture
ENVIRONMENTAL INFLUENCE ON BUSINESS: 2. Customers 2. Political-
Any Environment Adyta Birla Group Has 5. Quality of
3.Competitors Legal
Change Has an Moved from Textile to • To Be Successful Business Has to Not Only Recognize Human resources
Far Impact on the Cement to Retail and To 4. Market 3.Technologica
Different Elements of The Environment but Also Respect 6. Labour Unions
Reaching Organization in Financial Service as Well Adapt to Or Manage and Influence Them. 5. Suppliers 4. Global
Impact Several Different as Telecom Due to 7. Physical
• The Business Must Continuously Monitor and Adapt to the 6.Intermediar 5. Socio- Resources and
Ways Changing Circumstances ies cultural
Environment If It Is to Survive and Prosper. Technological
6.Demographic Capabilities
• A Successful business has to Identify Appraise and
Importance of Business Environment
Respond to the Various Opportunities and Threats in Its
1. Determining Opportunities and Threats.
Environment.
2. Giving Direction for Growth.
3. Continuous Learning. Framework to Understand the Environmental Influences:
4. Image Building – e.g. by establishing Captive Power Plants. • Firstly, It Is Useful to Take an Initial View of The Nature
5. Meeting Competitions. of The Organization Environment in Terms of How
INTERNAL ENVIRONMENT:
Uncertain It Is. (For. Eg. If the Area where you are
RELATIONSHIP BETWEEN ORGANIZATION AND • Internal Environment Is Composed of Multiple Elements
opening a business has 24-hour electricity, water, pollution
(Conditions, people, events and factors) Existing Within the
ITS ENVIRONMENT: etc.)
Organization Including Management, Current Employees and
Exchange of Information: Corporate Cultural, Mission Statement, Leadership Styles)
• Secondly, The Next Step Might Be the Auditing of
• The Organization Scans the External Environment Environment Influence (Eg. Checking if people around are • Sir’s eg.
Variables, Their Behaviour and Changes, Generates conducive to our business). i. On Corporate Culture - Internal Environment in Infosys
Important Information and Uses It for Its Planning which allows wearing Jeans and T-shirt in their office is
• The Final Step, Is to Focus More Towards, an Explicit
Decision- Making and Control Purpose. different from that of TVS Group where Uniform is
Consideration of The Immediate Environment Of The
• Information Generation Is One Way to Get Over the Compulsory.
Organization. (Eg. Focus on your Competitors in the
Problem of Uncertainty and Complexity of The External ii. On Leadership Style – In North Korea (By Kim Jong un)
Environment)
Environment. and in Australia is very different.

• Any Data Having Commercial importance is an Information.

Exchange of Resources:
• Organization Receives Inputs – Finance Materials,
Manpower, and Equipment Etc. From the External
Environment.
• The Resources Are Often Categorized as 5 M’s Men,
Money, Methods, Machine, and Materials.
Exchange of Influence and Power:
• External Environment Holds Considerable Power Over the
Organization Both by Virtue of Its Being More Inclusive as
Also by Virtue of Its Command Over Resource Information
and Other Inputs.
ENVIRONMENTAL ANALYSIS: SWOT:
Utility of Environment Analysis: • Business Firms Undertake SWOT Analysis to Understand
• Helps Strategists to Develop an Early Warning System to the External and Internal Environment. SWOT, Which Is
Prevent Threats or to Develop Strategies Which Can turn a the Acronym for Strengths, Weakness, Opportunities and
Threat into the Firm’s Advantage. Threat.
• SWOT Analysis Capitalizes on The Opportunities Through
Purpose of Environmental Analysis:
the Use of Strengths and Neutralizes the Threats by
• First the Analysis Should Provide an Understanding of
Current and Potential Changes Taking Place in The Minimizing the Impacts of Weakness.
Environment.
“Your Competition is with your Brain,
• Second, Environmental Analysis Should Provide Inputs for
Heart and your Soul and no one else”
Strategic Decision Making.
• Third Environment Analysis Should Provide Inputs for
Strategic Thinking in Organization. - CA Aakash Singhvi

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Contact: 8181 89 0808 CH:2 – BUSINESS ENVIRONMENT CAAAKASHSINGHVI

Internal Environment: MACRO ENVIRONMENT: Social – Cultural Environment:

S - Using Strengths:
• A Strength Is an Inherent Capacity Which an Organization
Can Use to Gain Strategic Advantage over Its Competitors.
• Example: Research and Development is the strength of
Apple.
W – Minimizing Impact of Weakness
• A Weakness Is an Inherent Limitation or Constraint Which
Creates A Strategic Disadvantage
• Example: Over Dependence on A Single Product Line Which
Is Potentially Risky for A Company in Times of Crisis (For
eg. Micromax was over dependent on its 2g and 3g mobile
phones.)
External Environment
O – Capitalizing Opportunities:
• An Opportunity Is a Favorable Condition in The
Organization Environment Which Enables It to Consolidate
and Strengthen Its Position.
• Example: Growing Demand for the Product. (Sir’s Note:
Plastic ban is a good opportunity for manufacturers of
Paper Bags)
T - Neutralizing Threats:
• A Threat Is an Unfavourable Condition in The Organization
Environment Which Creates A Risk For, Or Causes Damage
to The Organization
• Example: Strong New Competitors (Eg. Jio mart is a huge
threat to Amazon in India)
• Factors Which Directly Affect the Day to Day Functioning
of The Firm Strengths and Weakness Pertains To Micro
Environment.
• Factors which decide overall thinking of firms
Opportunities and threats pertains to macro environment.
MICRO ENVIRONMENT:
• Is Related to Small Area or Immediate Periphery of An
Organization.
• Micro Environment Influences Regularly and Directly
Consumers / Customers:
• Customers are the People who pay money to acquire an
Organization’s Products.
• Organization cannot survive without customers
• Customer may or may not be a consumer. (For. Eg. Your
Father got you Domino’s Pizza and you ate entire Pizza
without Leaving even one Piece, in that case you are the
Consumer your Father is the Customer)
Competitors:
• Others Entities That Complete for Resources as Well As
Markets.
• Competitors may be Direct or Indirect Competitors.
• Sir’s Eg. A) Direct Competition between Burger King and
Mc.Donalds. B) Indirect Competition between Mc.Donalds
and Nestle Maggi.
Organization:
• Individuals occupying different positions or working in
different capacities in organizations consists of individuals
coming from outside.
• Consists of
a) Owners – i.e. Shareholders
b) BOD (Board of Directors) – Appointed by Shareholders
c) Employees of the company
• Macro Environment Is That Part of External Environment
Which Is Largely External to The Enterprise and Thus
Beyond the Direct Influence and Control of The
Organization
• Factors Decide the Overall Direction, Thinking of Firm.
Opportunity and Threat Pertains to Macro Environment.
Demographic Environment:
• The Term Demographics Denotes Characteristics of
Population in An Area, District, Country, Or in The World.
It Includes Factors Such as Race, Age, Income, Educational
Attainment, Asset Ownership, Home Ownership,
Employment Status and Location.
• Factors:
1. Population Size,
2. Geographic Distribution,
3. Ethnic Mix,
4. Income Distribution.
Economic Environment:
• Refers to The Nature and Direction of The Economy in
Which A Company Competes or May Compete.
• Factors that affect Economic Environment:
1. Economic Systems
a) Capitalism:
A Capitalist Economy is An Economy Where the Laws of
Demand & Supply Operate Freely. It Is Characterized by
Private Ownership Of The Means Of Production, Individual
Decision – Making And The Use Of Market Mechanisms.
(Eg. USA, Canada, European Countries)
b) Socialism:
The Means of Production Are Either Owned or Controlled
by the State and Where the Resources Allocation,
Investment Pattern, Consumption Income Distribution, Etc
Are Directed and Regulated by The State ie. The govt.
(eg. China, UAE, North korea)
c) Mixed Economy:
Private, Public and Joint Sectors and The Like All Have
Some Say in The Major Designs. (eg. India)
2. Economic Conditions or factors:
It includes factors such as GDP, Per Capita Income, Forex
Reserves, Unemployment, Inflation etc.
3. Economic Policies
a) Industrial Policy:
Principles, Policies, Rules, Regulations and procedures
implemented by govt. for Industrial Development. (Eg.
MSME Policies,)
b) Fiscal Policy:
Public Expenditure, Taxation and Public Debt. (Eg. Annual
Budget announced on Feb 1st Every year)
c) Monetary Policy:
That Aim at Smooth Supply of Credit to the Business. (Eg.
Repo rate, CRR, SLR given by RBI etc.)
d) Foreign Investment Policy:
For Speeding Up Industrial Development. (Eg. FDI Policies
on Media)
e) Export – Import Policy (Ex-Im Policy):
Increasing Exports and Bridge the Gap between Export
and Import. (Eg. Importing of products from Pakistan is
Banned)
• It Represents A Complex of Factors Such as
a) Social Traditions, Values and Beliefs,
b) Level and Standards of literacy and education,
c) State of Society,
d) The Extent of Social Stratification, Conflict and
Cohesiveness and so Forth.
• Eg. Role of Women in society, Position of Children and
Adolescents in Family and Society.
Technological Environment:
• The Most Important Factor, which is Controlling and
Changing Peoples Life, Is Communicate with the Advent of
Internet and Communication System.
• Technology Can Act as Both Opportunity and Threat to a
Business.
• Factors: 1) Increased Productivity, 2) Technology Reaches
People though people, 3) Jobs become more Intellectual
etc.
Global Environment:
• Today’s Competitive landscape requires that companies
must analyse global environment as it is also rapidly
changing.
• Due to Economic Reforms, The Indian Firms are also out to
See Beyond the Physical Boundaries of The Country.
• They Are Acquiring Business in Different Countries.
PESTLE ANALYSIS
• The Term PESTLE is used to Describe a Framework for
Analysis of Macro Environment Factors.
• It Involves Identifying the Political, Economic, Socio-
cultural, Technological, Legal and Environment.
• The PESTLE Matrix explains us what all has to be analysed
to get a complete understanding of the Macro environment
of any Nation.
STRATEGIC RESPONSE TO THE ENVIRONMENT:
Least Resistance:
• Just Manage to Survive By Way Of Coping with Their
Changing External Environment Eg. BSNL which will wake up
only after rest of the world is awake.
• It is a slow response to environmental changes.
Proceed with Caution:
• Take an Intelligent Internet to Adapt with the Changing
External Environment Eg: Airtel.
Dynamic Response:
• Their Feedback Systems Are Highly Dynamic and Powerful.
They Not Merely Recognize and Ward off Threats: They
Convert Threats into Opportunities. Eg: Jio.
“Choose one mentor, who can
empathize you and go along with him
blindly”
- CA Aakash Singhvi

Political Legal Environment:

Market:
• Market is Larger than customers.
• It is to be Studied based on its Actual Size and future
Growth Prospects.
• (Eg. The Market of Stock market Investors which is
currently 4%, can go up to 40% of the Population in the
Future)
Suppliers:
• They Provide Raw Materials, Equipment’s etc.
• Suppliers with their own Bargaining Power Affect the Cost
Structure of the Industry. (Eg. Onion Suppliers increase
the Price by storing it and creating Demand for Onions)
Intermediaries:
• Ones Who Act as a Bridge between the Manufacture and
the Marketer.
Government:
Business is Guided by Govt. Policies; hence the type of
Government Running A Country has A Powerful Influence on
Business.
For Example, Govt Policies Like Make in India.
Legal:
Business Prefer to Operate in a Country Where There is a
Sound Legal System. Hence business must have knowledge of
Major laws of the Country or State.
For Example; New GST Law Will Influence Most of The
Business.
Political:
Political Pressure Groups Influence and Limit Organizations.

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