BUSINESS ENVIRONMENT ( BBS 3RD YEAR )

 

Chapter: 1

Business Environment

 

# Concept of Business Environment

          Business Environment refers to the set of all business condition that have direct and indirect bearing on the growth and development of the business. In other words, business environment is the aggregate of all conditions, events and influences that surrounded and affect the business. The factor affects the business is known as Business Environment. There are two types of business environment which affects the business directly and indirectly. They are: external and internal environment.

-         Internal Environment: It is composed of the elements within the organization including employees, shareholders, management and organizational structures. It affects the company’s working.

 

-         External Environment: It is composed of the elements outside a business including socio-cultural, economic, political, technological etc. It can affect its operation by influencing its activities. There are many obstacles to predict the situation of business environment. We should have the deep knowledge of SWOT analysis of business which means we must know the strength, weakness, opportunities and threat of an organization.

 

According to S.P. Robbins- “Business Environment refers to institutions or forces that affect the business organization performance.”

 

# Nature of Business Environment

          The natures of Business Environment are given as below:

i)                   Complex: The analysis of business environment is most difficult task in the business because we don’t have the exact measure about when the business affected by the environment and what will be the result of after affected. So, it is very complex to predict the Business Environment.

 

ii)                 Dynamic: The business environment is the process of continuously change. These changes are in terms of customer’s preferences, technological improvements, new competitor’s entry etc.  This everchanging factors bring changes in character and shape of business environment making it dynamic.

 

iii)               Inter-dependence/ Inter- relatedness: Factors of business environment are dependent on each other. Business environment include economic, social, legal, technological and political factors. Changes in anyone of the factors will bring changes in several other factors.

 

iv)               Multi-faceted: Business environment is multi-faceted as it is an opportunity for some people but at the same time it may be threat for others.

 

v)                 Far reaching impact/ Long-term impact: A one factor of business environment can affect in the business for long-term.

 

vi)               Aggregative factor: Business Environment is the totally of all the external forces which influences the working and decision making.

 

vii)             Reciprocal: The business environment is reciprocal. It receives inputs from the environment, converts them into outputs through productive facilities which are also receive from the environment and sends them back to the environment.

# Components of Business Environment (Variables)

 

i)                  Internal Environmental Variables

It consists of the conditions and resources which are internal to an organization. It is also called the firm or resource environment. It is controllable to the firm in the long run. A sound internal environment helps create competitive advantage that leads a business towards the way of goal achievement.

 

*Elements of Internal Environment

There are different elements that form the internal environment of an organization. They are mentioned below:

1.    Organizational goals and policies : Goals are the long-term desired outcomes of an organization. All the organizational activities are directed towards the achievement of goals. Profit growth, market growth and social responsibility are some of the goals of a business.

 

2.    Organizational Resources: Resources are the foundation for strategy. They are inputs into a firm’s production process, such as capital, equipment, employee skills, patents and finance. Resources may be tangible and intangible.

 

3.    Tangible Assets: They can be seen or touched . The following are some of the tangible resources.

·       Financial Resources

·       Organizational Resources

·       Physical Resources

 

 

Intangible Assets: They cannot be seen or touched. The following are some of the intangible resources.

·       Human Resources

·       Innovation Resources

·       Reputational Resources

 

4.     Organizational Structure: It specifies jobs and relationship. It defines the job allocation, responsibility and accountability. It is very important for the implementation of a particular strategy.

 

5.    Organizational Culture: The shared value, norms, behavior and belief of an organization is collectively known as organizational culture. It refers to the complex set of ideologies, symbols and core values that are prevalent throughout the firm.

 

 

ii)                 External Environmental Variables

It comprises the factors which are external to an organization. Firms understand the external environment by acquiring information about competitors, customers, stakeholders as well as other conditions. The external environment is composed of operating and remote environment.

 

*Elements of External Environment

            The external environment is composed of operating and remote environment. It may be further divided into two groups.

1.   General/ Remote/ Macro Environment

The general environment is composed of the factors that are broad and affect the industries and the firms competing each other. The different components of general environment are:

 

·        Economic Environment: The economic environment refers to the nature and direction of the economy in which a firm competes or may compete. In general, firms seek to compete in relatively stable economy with strong growth potential. The components of economic environment are:

 

-         Economic System: Free market economy, Centrally-planned economy, mixed system

-         Economic Policies: Monetary policy, Fiscal policy, Industrial   Policy

-         Economic Conditions: Gross Domestic Product (GDP), Inflation, Employment     indicators, Balance of Payment, Income Distribution, Business Cycle

-         Economic Integration

 

·        Political Environment: The political environment refers to the government actions which affect the operations of a business. These actions may be local, regional, national or international level. The basic components of political environment are:

 

-         Political Ideology: Democratic, Totalitarian

-         Constitution

-         Political Parties

-         Government and Its Branches: Legislative, Executive, Judiciary, Other constitutional bodies

 

·        Legal Environment: The legal environment is composed of the constitution, business related laws, courts and law administration. The components of the legal environment are:

 

-         Constitution

-         Business Laws

-         Courts of Laws

-         Law administrative

 

·        Socio- Cultural Environment: It is the sum of all cultural elements that affect the operation of a business directly or indirectly. The components of the Socio- Cultural Environment are:

 

-         Beliefs

-         Attitudes

-         Religion

-         Language

-         Education

-         Family structure and social organizations

 

·        Technological Environment: It includes the institutions and activities involved in creating new knowledge and translating it into new products, processes and materials. The components of the Technological Environment are:

 

-         Level of technology

-         Pace of change

-         Technology Transfer

-         Research and development budget

 

·        Physical/ Natural Environment: It refers the business practices that are intended to positively respond to physical changes. The components of the Physical/ Natural Environment are:

 

-         Energy Consumption

-         Environment Policy

-         Compliance of environmental Laws

-         Natural Resources

 

·        Global Environment: The global environment includes the relevant global markets, international political events, and critical cultural characteristics of global markets. The components of the Global Environment are:

 

-         Relevant global market

-         International political events

-         Degree of regional and global integration

 

 

2.   Operating/ Task Environment

          It composed of the factors that are directly related to the competitive position of a business. It consists of different stakeholders who have direct or indirect interest in the performance of the business. The components of task environment are mentioned below:

·       Customer

·       Suppliers

·       Competitors

·       Creditors/Financial Institutions

·       Distributors

·       Media

·       Government

·       Pressure Groups

 

 

 

 

# Concept of Environmental Analysis/ Scanning

          Environmental analysis is a detailed and micro study of environment. The environmental uncertainty, complexity and dynamism are studied to assess the trend of environment. The main objectives of external environmental analysis is to assess the likely opportunities and threats arising.

 

# Process of Environmental Analysis

          Environmental Analysis is an ongoing process of monitoring the environment. The following is the process of environmental analysis:

1)    Scanning:

Environmental scanning is a detail and microstudy of the environment. It is a continuous process of study and analysis of environment to detect the emerging trend in the environment.

It’s types:

i)                   Centralized scanning

ii)                Comprehensive scanning

 

It’s approaches:

i)                   Systematic approach

ii)                Ad.hoc approach

iii)              Processed from approach

 

2)    Monitoring:

    It involves observation of environmental changes to see the trend. It detects in different environmental events and trends. It helps to identify the effect of environment in terms of opportunity and threats as well as weak and strength.

 

3)    Forecasting:

    It involves developing feasible projections of what might happen and how quickly. It is done on the basis of changes and trends.

 

4)    Assessing:

 It determines the timing and significance of the effects of environmental changes and trends that have been identified. It specifies the implications of that understanding. Assessing connects the data and information with competitive relevance.

 

# Process of Environmental Scanning

1)    Study the forces and nature of the environment.

2)    Determine the sources of the environment.

3)    Determine the techniques of environmental scanning: Executive Opinion Method, Expert Opinion Method, Delphi Method, Historical Analogy.

4)    Scan and Assess the trend ( opportunities and threats )

 

 

 

 

  # Techniques/Methods of Environmental Scanning

1)    Executive Opinion Method

2)    Expert Opinion Method

3)    Delphi Method

4)    Extrapolating Method

5)    Historical Analogy

6)    Intuitive Reasoning

7)    Scenario Building

8)    Cross- impact Matrix

 

# Importance of Environmental Scanning

1)    Signals Threats

2)    Customers needs

3)    Capitalize opportunity

4)    Qualitative information

5)    Intellectual simulation

6)    Image

 

# Importance of the study of Business Environment

 

1)    First move advantage

2)    Strategy Formulation

3)    Competitive Analysis

4)    Strategic Control

5)    Adaptation

6)    Stability and Sustainability

7)    Dynamism

8)    Lobbying