BUSINESS

ENVIRONMENT

BBA 106
FACULTY: MS KAVYA MANGAL
 UNIT 1

•AN OVERVIEW OF
BUSINESS ENVIRONMENT
 Definition of Business
According to L. H. Haney, “Business may be defined as human activity
directed towards producing or acquiring wealth through buying and
selling of goods.”

Important Characteristics of a Business

1. Economic activity
2. Buying and Selling
3. Continuous process
4. Profit Motive
5. Risk and Uncertainties
6. Creative and Dynamic
7. Customer Satisfaction
8. Social Activity
9. Government control
10. Optimum utilization of resources
 Significance of Business FOR Society

1. Improvement in standard of living

2. Proper utilization of resources

3.Better quality and Large variety of goods and

services

4. Creates utilities

5. Employment opportunities

6. Workers' welfare Business

 Concept of Business Environment

The term business environment refers to the combination of

various factors and forces which have direct and indirect
influence on the functioning and growth of individual business.
These factors may be internal or external to a business unit.

According to Keith Davis, “Business environment is aggregate

of all conditions, events and influences that surround and
affect the business”.
 NATURE of Business Environment

1. Aggregative
2. Inter-related
3. Dynamic
4. General and Specific Forces: General forces, such as,
economic, political, natural forces affect all the business
enterprises in the economy in the same manner.
While specific forces, such as, competition, availability of
raw material, customers, etc., influence only a particular
business unit.
5. Uncertainty
6. Relative
7 Complexity
 Significance of Business Environment

(i) Help to understand Internal and external

Environment

(ii) Help to Understand Economic System

(iii) Help to Understand Economic Policy

(iv) Help to Understand Market Conditions

 TYPES of Business Environment

A business environment is a conglomeration of various

inner and outer forces, factors, and institutions that have
an effect on the functioning and development of
companies and firms.

The two main environment that affect the business are:

A. The Internal Business Environment

B. The External Business Environment

 TYPES of Business Environment
THE INTERNAL BUSINESS ENVIRONMENT

Mission , Management
Value Internal
Vision and structure
System Power
Objectives &
Relationships
Nature

INTERNAL Company
Human BUSINESS Image
Resource &
ENVIROMENT Brand Equity

Miscellaneous factors:
Physical assets and facilities
Research and Development
Marketing resources
Financial factors
 TYPES of Business Environment
The External Business Environment
It refers to the environment that has an indirect influence on the business. The
factors are uncontrollable by the business.

There are two types of external environment: MACRO & MICRO Environment.
 TYPES of Business Environment
The External Business Environment

Suppliers Customers

MICRO
Marketing
BUSINESS Financiers
Intermediaries
ENVIROMENT

Public
Media
Citizens
 SOCIO-CULTURAL Environment
The sociocultural environment refers to trends and developments in changes in attitudes, behavior, and
values in society. It is closely related to population, lifestyle, culture, tastes, customs, and traditions. These
factors are created by the community and often are passed down from one generation to another.

Socio-Cultural variables are :

Culture. Individual values and habits can change individuals through contact with specific
cultures.

Habits that represent how to behave in response to a given situation.

Beliefs and values. Belief refers to how we feel about something or someone. Meanwhile,
values are relatively long-standing beliefs and serve as guidelines for culturally appropriate
behavior.

Number and growth of population. Increasing the population indeed provides more
labor and demand for goods and services. On the other hand, it can lead to social problems
such as crime and poverty, especially when employment is inadequate.
 SOCIO-CULTURAL Environment
Socio-Cultural variables are
Age composition. In some countries, productive age populations dominate and provide
opportunities for economic growth and demand for goods and services. However, countries
like Japan, the elderly population dominates. It presents opportunities as well as challenges
for the economy and companies there.

Geography. Populations may be concentrated in some geographical regions, for example,

on arable agricultural land or in industrial areas.

Ethnicity. A country, like Indonesia, consists of a variety of different ethnic and ethnic
groups. It has implications for various aspects such as language, culture, habits, and tastes.

Household and family structure. The population of a community can be broken down
based on the number of children.

Employment, for example, the composition of white-collar workers vs. blue-collar

workers.

Wealth and social class. People from different social classes can have different values
that reflect their position in society.
 Competitive Structure of Industries

In order to formulate appropriate strategies, a company

must identity and understands the nature and degree of
competition in the industry. Michal Porter has developed a
model that helps in identifying the forces that affect the
competitive dynamics of the industry.

According to the model, the competition in an industry

depends upon following five forces:
❖Rivalry among existing firms
❖Threats of new entrants.
❖Threat of substitutes
❖Bargaining power of suppliers
❖Bargaining power of Buyers
Competitive Structure of Industries
 Competitive Structure of Industries

A) Threat of New Entrants:

New entrants to an industry can raise the level of competition, thereby reducing its
attractiveness.

High entry barriers exist in some industries (e.g. ship building) whereas other industries are
very easy to enter (e.g. estate agency, restaurants). There are many barriers which can restrict
the entry of new industries.
The Key barriers to entry include:

Economies of scale

Capital/investment requirements

Customer switching costs

Government Policy

Access to industry distribution channels

 Competitive Structure of Industries

B) Threat of Substitutes:

The product of industries that serve identical consumer needs as those

of the industry being analysis.

The threat of substitute products depends on:

i. Buyers’ willingness to substitute

ii. The relative price and performance of substitutes

iii. The cost of switching to substitutes

 Competitive Structure of Industries
C) Bargaining Power of Suppliers:
Suppliers are the businesses that supply materials and other products
into the industry. The bargaining power of suppliers will be high when:

There are many buyers and few dominant suppliers.

There are undifferentiated, highly valued products.
Suppliers threaten to integrate forward into the
industry (e.g. brand manufacturers threatening to
set up their own retail outlets.).
The industry is not a key customer group to the
suppliers.
 Competitive Structure of Industries
D) Bargaining Power of Buyers:
The bargaining power of buyers is greater when:
There are few dominant buyers and many sellers in
the industry.
Products are standardized.
Buyers threaten to integrate backward into the
industry.
The industry is not a key supplying group for buyers.
 Competitive Structure of Industries
E) Intensity of Rivalry:

The intensity of rivalry between competitors in an

industry will depend on:

The Structure of Competition

The Structure of Industry costs
Degree of Differentiation
Switching costs
Strategic Objectives
Exit barriers
 Environment Analysis
MEANING OF ENVIRONMENT ANALYSIS

Environmental analysis is a systematic process of identifying and predicting the

potential environment variables that can influence the functioning and
profitability of a firm directly or indirectly.

Environment analysis helps in finding out the strengths and weaknesses,

opportunities and threats from internal and external business environment
respectively.
 Environment Analysis
Approaches for Environmental Analysis:

1) Systematic Approach: Under the systematic method, information for

the purpose of environment scanning is collected in a systematic way.

2) Ad-hoc Approach: Under this approach, different surveys and studies

are conducted time to time by an organization in order to deal with a
specific issue. Such studies or surveys are conducted at the time of
starting a new project, restructuring the plans and policies, etc.

3) Processed–form approach: when an organization uses information

supplied by Govt. or private agencies, it uses secondary sources of data
and the information gathered in a processed form.
.
 Environment Analysis
Objectives of Environment Analysis:

1) To Identify Threats, Opportunities, Strengths & Weaknesses

2) To Understand the Change in Environment

3) To Provide Inputs for Decision Making

4) To Formulate Appropriate Strategy

5) To Identify the International Events and their Impact on Business.

 Environment Analysis
Process of Environment Analysis:
 Environment Analysis
Techniques used for Environment Analysis:
Technique1: SWOT Analysis:
 Environment Analysis
Techniques used for Environment Analysis:
Technique 2 ETOP:
ETOP means environmental threat and opportunity profile. It is a technique of
environment analysis where organizations make a profile of their external
environment. It analyses information about environmental threats and
opportunities and their impact on strategic planning process.

In the next table ↓ shows the unfavorable impact of the factor on the
organization, → shows neutral effect on the organization and ↑ will depict the
favorable impact of the factors on the organization.
 Environment Analysis
Techniques used for Environment Analysis:
 Environment Analysis
Techniques used for Environment Analysis:
Technique 3: QUEST (Quick Environmental Scanning Technique):
B. Nanus proposed QUEST.

Following are the four steps involved in this technique:

1. Observe the events and trends of the organization.

2. Broadly consider important issues, which may affect the organization, using
environment appraisal.

3. Summarizing these issues, their effects and different scenarios to show the
implementation of these strategies, creates a report.

4. In the last step, make feasibility study of the suggested strategy that is
beneficial for the organization review reports and scenarios.
 Environment Analysis
Techniques used for Environment Analysis:
Technique 4: PESTLE
(Political, Economic, Social Technological Legal and
Environmental) Analysis

PESTLE analysis consists of various factors that affect the business environment. Each
letter in the acronym signifies a set of factors. These factors can affect every industry
directly or indirectly.
The letters in PESTLE, also called PESTEL, denote the following things:
Political factors
Economic factors
Social factors
Technological factors
Legal factors
Environmental factor
 Environment Analysis
Limitations of Environment Analysis
1) Unexpected and Unanticipated Events

2) Inaccurate Data

3) Involves Time and Cost

4) Based on Assumptions: The whole process of forecasting is

based on certain assumptions which may or may not be true.

 Environment Analysis
Environment Analysis & STARTEGIC MANAGEMENT
 Environment Analysis
Environment Analysis & STRATEGIC MANAGEMENT

1. Identification of Business Objectives and Purpose

2. Formulation of Strategies:
SWOT analysis focus attention on these four variables viz,
strengths, weaknesses, opportunities and threats. The first two are
internal whereas the last two are external to an organization.
 Environment Analysis
Environment Analysis & STARTEGIC MANAGEMENT

3. Implementation of the Strategy: The following are the

three important components of strategy:
(a) Resource implementation
(b) Organizational implementation
(c) Functional policy implementation
 Environment Analysis
Environment Analysis & STARTEGIC MANAGEMENT

4. Evaluation of Strategies: The evaluation process consists of the

following:
(i) Fixing standards.
(ii) Measuring Performance
(iii) Analyzing variations.
(iv) Taking corrective action.
 Managing Cultural Diversity
“Cultural diversity” is the presence of various cultural and ethnic groups within
a society. It’s also called “multiculturalism.”

Hofstede found significant differences in behaviour and attitudes of

employees and managers from different countries that worked for IBM.
He further found that national culture explained more differences in
work-related values and attitudes than the position within the
organization, profession, age, or gender.

Hofstede found that managers and employees vary on four primary

cultural dimensions:

1. Individualism/collectivism
2. Power distance.
3. Uncertainty avoidance.
4. Masculinity/femininity (Career success/quality of life).
Managing Cultural Diversity
Managing Cultural Diversity
 Managing WORKFORCE Diversity
Managing workforce diversity implies creating an organisational
climate in which a heterogeneous workforce performs to its best
potential; without the organisation favouring /dis-favouring any
particular segment of workforce with a view to facilitating the best
attainment of organisational goals.

Dimension of Workforce Diversity:

❖Age
❖Gender
❖Education
❖Culture
❖Psychology
 Managing WORKFORCE Diversity
Techniques of Workforce Diversity Management

❖Creating Awareness of Diversity

❖Creating Conditions for Common Organizational Culture

❖Programmes of Special Care for Diversified Workforce

❖Career Development Programmes

❖Avoiding Discriminations

❖Prevention from Unjust Activities

 Managing WORKFORCE Diversity
Significance of Workforce Diversity Management

❖Ability to Deal with Diverse Market

❖Better Decision-Making

❖Better Human Relations

❖Preventing Unnecessary Labour Turnover

❖Building of Goodwill of the Enterprise

THANK YOU