Business EnvironmentIPCC Paper 7B: Strategic Management

Chapter 1 Part-3

CA. Deepak S Mulchandani, Indore

Learning objectives-1

1 • Business Environment

2 • Components of Business Environment

3 • Components Explained

4 • Relationship between Organization & it’s Environment

5 • Micro and Macro Environment

6 • Elements of Micro Environment

7 • Elements of Macro Environment

Overview of modern business World

Environment

Micro Environment

Strength Weakness

Macro Environment

Opportunity Threat

Business Environment ComponentsConsists of all the things

affecting the business factors which directly affect the day to day

functioning of the firm these factors

decide the overall direction, thinking

of firm

Micro Environment

• It consists of those factors which are not necessarily internal to the company but are the ones which directly affect the day to day functioning of the firm

• These factors vary from firm to firm

• Customer • Organisation • Market • I ntermediaries• Competitors • Suppliers

Macro Environment

• Demography • Socio-Cultural • Legal • Economical • Political • Technological

• It consists of the broader factors which may not directly affect the day to day operations but these factors decide the overall direction and line of thought for a firm

• These factors affect all firms simultaneously

Components Explained-1

STRENGTH • It is an inherent

capacity, which an organization can use to gain strategic advantage over its competitors.

Components Explained-2

WEAKNESS• It is an inherent

limitation or constraint, which creates a strategic disadvantage over its competitors.

Components Explained-3

OPPORTUNITY • It is a favourable

condition in the organization's environment, which enables it to consolidate and strengthen its position.

Components Explained-4

THREAT • A threat is an

unfavourablecondition in the organizations environment, which creates a risk for, cause a damage to, the organization.

Illustration to SWOT Nokia

Based on the current market position of Dec’12 following points can be gathered

• Strength – Features like Durability & Easy Navigation

• Weakness – Not able to cope with changing technology

• Opportunity- Wide Customer Base for its products

• Threat – Competitors at global as well as local level and fast changing technology

Effective OrganisationalStrategy

• Capitalize on Opportunities

o• Using

Strengths

s • Neutralizing Threats

T

• Minimizing impact of Weakness

w

Organisation & External Environment – Relation

Influence and power

Exchange of resources Exchange of information

Organisation’s response to Business Environment

• All organisations do not behave in the same way in relation to their external environment.

• Their structures and functions are shaped in tune with the demands of external environment

Different layers in which a firm operates

The outer most layer is for macro environment

The inner 3 layers comprise of micro components of business environment

Micro Environment Components Explained

Micro Environment Components

• Consumers/ Customers: The main aim of any business is to create and retain customers. They are the people who pay money to acquire the product and services of organisation.

• Organisation : An organisation has different kind of individuals working in different capacities having different kinds of interests. Organization comprises of Owners, Board f Directors, Employees

• Market –• Cost structure• Price sensitivity • Technological structure• Distribution system• Market maturity achieve a lot of significance.

• Intermediaries : These are the ones who act as a bridge many times between the manufacturer and the marketer of the product which at times may not be the same

• Competitors: They are the other entities that compete for resources as well as markets. They can be direct as well as indirect

• Suppliers: Suppliers with their bargaining power affect the cost structure. Major decisions of “out sourcing” and “in house production” are taken after considering the relations with suppliers.

Micro Environment Components

Macro Environment Components Explained

PESTLE Analysis

PoliticalEconomicSocio-culturalTechnologicalLegalEnvironmental

Macro Components Explained-1olitical :  

Pressure Groups  Influential organizations and Unions  Protests and Agitations against product  Moral Policing Groups  NGO/Consumer right organizations 

 

  

conomic : 

Current Income  Prices  Savings  Circulation of Money  Debt and Credit availability 

ocial 

Social Traditions  Values and Beliefs  Levels and Standards of Literacy and Education  Ethical Standards and State of Society  Extent of Social Stratification 

Macro Components Explained-2

echnological 

Pull of technological change  Opportunities arising out of technological innovations  Risk and Uncertainty of Technological development  Role of R&D in Country 

egal : A working knowledge of 

Consumer Protection  Competition  Organization  Intellectual Property  Foreign Exchange  Labour 

nvironmental 

Ecological/Environmental issues  Environmental Hazards  Environmental Legislation  Energy Consumption  Waste Disposal 

Macro Components Explained-3

End of Chapter-1 Part 3

Thank You