unit 1 Introduction
(use it as a reference only!!)
- Business and Its Environment
Business consists of a number of elements such as production,
marketing of goods and services, distribution etc. for the purpose of earning
profits. A business is an economic activity concerned with the production and
distribution of goods and services to the society. Business helps to earn
profits by serving and satisfying the members of the society. Business denotes organized activities related to industry, commerce
and profession. Business is carried on by owners and it has some objective to
be achieved. The objectives of business can be profit, growth, survival,
leadership, efficiency and social responsibility. Business is a system. A system is an integrated whole. It operates
within the environment. Business system can be shown as below:-
Business environment refers to all internal and external forces,
elements and factors which influence the development, performance, and outcome
of a business. In short, business environment is the surroundings where
business firm grow up. Business is environment specific. It operates in a dynamic
environment. Environmental adaptation is the essence of business survival and
growth.The aggregate name of factors and forces that influence business and
business related activities is business environment. Business environment
consists of sum total of all factors forces, events and institutions that
surround business. They influence its performance, development and outcome. The internal environmental forces are located within the business and
can be controlled and define the scope of business, whereas external
environmental forces are located outside the business and are complex in
nature. However, both internal and external environmental forces play on
important role in influencing the outcome of business. “Business environment is the aggregate of all
conditions, events and influences that surround and affect it.” Keith Davis “Environment mainly refers to all external forces
that impact business.”
K Aswathappa “Environment
refers to institutions or forces that affect the organization’s performance.” S.P Robbins and
Marry Coulter
- Features
of Business Environment
1.
Complex
2.
Dynamic
3. Symbiotic
(Double side effect)
4.
Multi-Faceted
5. Far
reaching impact (long-term
impact)
- Importance of Business Environment
1.
Adaptation
2.
Strategy
Formation
3.
Boundary
Spanning
4.
Lobbying
5. Stability
Types
of Business Environment There are different types of business
environment. They are as follows:-
1.
Internal
Environment
The one and only
fully controllable environment by the business organization is internal
environments. Internal environment consists of condition, factors and forces
within the business organization that affect its performance and outcomes. Internal
environment defines the scope of business organization. It provides strength
and weakness to the organization. The inherent
capacity which organization can use to gain strategic advantage over its
competitor is known as strength and the inherent capacity which may create
strategic disadvantage for business is weakness. So, internal
environment consist those factor which gives both strength and weakness to the
organization. Components of Internal Environment of
Business are:- a. Goals, Policies, Strategies
b. Organizational Culture
c. Resources
d. Structure
2.
External
Environment
Generally,
business environment is regarded as external environment. External environment
is one that affects to the internal environment of business. External
environment consist of conditions and forces outside the business that
influence its performance, development and outcomes. It cannot be controlled by
business. It provides opportunities and threats that are lying in the outside
the business organization. Opportunity is a
favorable condition in the environment which enables to consolidate and
strengthen organization’s position. Business
organizations take inputs from the external environment transform them into
products and send them back to external environment as output. So the
performance of business starts from internal environment and ends to the
external environment. External
Environment can be divided into two parts:-
a.
Task Environment It consists of
outside forces and factors that are immediately relevant for achievement of the
goals of business organization. They affect ability to serve the customer. The
components of task environment are:-
·
Customer
·
Suppliers
·
Labor Union,
Media, Financial Institution, Pressure Groups
·
Competitors,
Market Intermediaries
b.
General
Environment It consists of
broad forces in business organizations surroundings. It influences business activities
by providing opportunities and threats. Components of general environment are:-
(PEST)
·
Political- Legal
Environment (consists of factors related to the management of public affairs,
its forces are: political system, political institutions, pressure groups,
political philosophies. Laws are rules of conduct enforced by state that treats
all persons equally. Legal factors which influences business are: Business Law,
Courts of Law, Law Administrators)
·
Economic
Environment (consist of economic parameters that influence business resources
allocation, cost and profit. Components of economic environment are: Economic
System, Economic Policies, Economic Condition, Globalization etc.)
·
Socio- Cultural
Environment (consist of factors related to human relationships that affect
business. Social factors that influences business are: Demographics, Social
Institution, Social Change)
·
Technology
(consist of skills, methods, systems and equipment. Factors that influences
business are: Level of Technology, Technological Change, Research and
Development, Technology Transfer).
Simply,
environmental analysis is the assessment of opportunities and threats in the
external environment of business. To evaluate and judge the trend of
environment outside the firm is known as environmental analysis. Environment is
dynamic. It keeps changing. Business is environment-specific it takes birth in
environment, survives in environment and declines as well. Business must be
aware about conditions and forces that influence its performance and outcomes. Business must
keep track of emerging signals and trends through environmental analysis. Every
business is aware that the present trend is changing but unaware that where it
is tending to change. Environment is getting complex day by day so to survive,
environmental analysis must be done. The environment
signal can be of 3 types:- a. Fad (temporary)
b. Trend (some momentum and durability, predictable)
c. Megatrend (longer duration)
Managers should pay attention to trend and
megatrends. They should anticipate them, understand them and identify
opportunities and threats in them.
- Process/ Techniques of Environmental Analysis
1.
Scanning
Scanning involves
acquiring information from external environment to try to detect trends in some
way. It detects emerging trends that have potential impact on business.
2.
Monitoring
The scanned
information should be monitored and analyzed that in which way they are beneficial
to the organizations. The monitoring helps to forecast the future trends. It
involves tracking environmental trends and events.
3.
Forecasting
This is the step
to forecast the future situations. It focuses on what is likely to happen. It
lays out a path for anticipated changes. Scenario building, Delphi technique,
extrapolation can be useful for forecasting.
4.
Assessment
This step identifies key opportunities and threats.
In this step, organization evaluates how it has been success to forecast the
environments and how the organization stands in relation to other competitors
for same resources and customers. It is review phase.
Environmental
Scanning [Scanning Method] The careful
monitoring of an organization’s internal and external environments for
detecting early signs of opportunities and threats that may influence its
current and future pan is known as environmental scanning. Environmental
scanning is the acquisition and use of information about events, trends and
relationships in an organization’s external environment, the knowledge of which
would assists management in planning the organization’s future course of
actions. Some of the
scanning methods are as follows:-
1.
Delphi
Technique
To gather related
and relevance information from different expertise is known as Delphi
technique. It is the systematic collection of views of expert.
2.
Intuitive
Reasoning
The rational
intuition by scanner for free thinking. The scanner should be unconstrained by
past experiences and personal biases.
3.
Extrapolation
The use of past
information to explore future is extrapolation. The extrapolation technique can
be of forecasting, trend analysis, regression analysis etc.
4.
Survey
Method
In survey method;
the information are gathered from opinions of experts, customers and others
about their future anticipation.
5.
Scenario
Building
Gathering the
information by constructing a time-order sequence of events that have logical
cause and effect relationship is scenario building. It is the study of cause
and effect relationship and predicts the future trend by analyzing it.
6.
Brainstorming
The personal
experience of scanner, deep thinking and personal qualification is used in this
method to anticipate the future.
- Process of Environmental Scanning
1.
Identify
Relevant Forces
First of all, to
scan, the relevant data are required. To acquire relevant data, we should
identify the relevant forces. The most relevant forces must be chosen. They can
be external forces. (PEST Forces)
2.
Determination
of Sources of Observations
To acquire
information and other relevant data, different sources of observation could be
used. These are determined by top level management. Personal experiences,
employees and competitors, meetings, conference, newspapers etc. are sources of
observation.
3.
Select
Scanning Methods
The appropriate
scanning methods should be selected. The various scanning methods are described
early. This is the process that starts after sufficient information is
gathered.
4.
Respond
to Data
The collected
data is studied, analyzed, assessed, interpreted, correlated, and understood.
Crucial developments are pin-pointed. They can be:- a.
Events (specific
occurrences)
b.
Trend (direction
or sequence of events)
c.
Issues (current
concern arise from event and trends)
d. Expectations (stakeholders demand arising from
issues)
After completion
of scanning process, corporate strategies are formulated.
- Environmental Analysis and Strategic
Management
Strategies provide
long term direction and scope to business organizations. Strategic management
is concerned with decisions and actions of top management to implement
strategies. 
Environment Analysis is the starting
point for strategic management. It defines strategic positions.
- Uses of Environmental Analysis in Strategic
Management
1.
Goal Formulation
2.
Identification of
unique resources and core competencies
3.
Help in SWOT
analysis
4.
Formulation of
strategies by matching opportunities
5.
Development of
options to make strategic choices for strategy formulation
6.
Assessment of
effectiveness of strategies to achieve mission and goals
7. Corrections
needed in strategies to adapt them to environmental changes. Reformulation of
strategies.
Thanks
to Rajan
Thapa Student MMC BBA
Note:- Please use it as reference only.
If any mistakes found please contact me via phone call/email/group/or my
personal Facebook account. I hope you will enjoy reading….!!!
Nice article on Business Environment.
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