"Man is a social animal."- Benedict Spinoza, Ethics

So are man made organizations!

Suggested Readings

• Francis Cherunilam; Business Environment - Text and Cases, Himalaya Publishing House

• Shaikh Saleem; Business Environment, Pearson Education India

• K. Aswathappa; Essentials of Business Environment, Himalaya Publishing House

BUSINESS ENVIRONMENT

• What is Business?

• What is Environment?

Business

All economic activities related to production or exchange of goods or

services for economic gain.

Business Environment

It consists of all those factors that have an influence on the working and

success or otherwise of a business

Internal vs. ExternalMicro vs. Macro

Classification of Environment

INTERNAL

EXTERNAL

Classification of Business and Industry

Business Classification: On the basis of activity

• Businesses that produce goods render services distribute goods facilitate distribution of goods

Industry Classification: on the basis of size

• Micro

• Small-scale

• Medium-scale

• Large-scale

Industry Classification: on the basis of competitive structure

• Perfectly competitive

• Monopolistically competitive

• Oligopoly

• Duopoly

• Monopoly

Industry Classification: on the basis of nature of work

• Primary

• Secondary

• Tertiary

Characteristics of Business

• Businesses involve production or exchange of goods or services

• Businesses involve profit motive

• Businesses involve ongoing activities

• Businesses involve risk

Characteristics of Modern Business

• Professionalism

• Modern businesses are big

• Technologically advanced

• Rapid innovations/changes

• Strategically oriented

• Global orientation

• Focused; diversified

Environmental Analysis

Meaning

A process for identifying all internal and external elements that can affect the performance of an organization and

evaluating the level of threat or opportunity they present in relation to

the internal strengths and weaknesses.

Steps in environmental analysis

• Scanning the environment

• Monitoring specific trends

• Forecasting the direction of future

• Assessing the impact on the organization

Approaches to environmental analysis

• Outside-in approach/ Macro approach

• Inside-out approach/Micro approach

Techniques for environmental scanning

• These refer to methods of gathering the relevant information for evaluating the environment

• Techniques (William Glueck)– Verbal and written information– Search and scanning– Spying

Environmental Forecasting

• Identifying environmental variables critical to the organization

• Collection of information

• Selecting forecasting technique

• Forecasting

• Monitoring

Types of forecasting

• Economic forecasts

• Social forecasts

• Political forecasts

• Technological forecasts

Techniques of Environmental Forecasting

1. Econometric Technique

2. Scenario Development

3. Delphi Method

4. Brainstorming

Benefits of Environmental Analysis

• Reveals organization & environment linkage

• Identification of present & potential threats and opportunities

• Designing of suitable strategies to align internal factors with external environment

• Helps make suitable adjustments in plans to meet changing environmental conditions

Limitations of Environmental Analysis

• Time Consuming

• Expensive

• Requires expert inputs

• Risk/Uncertainties of the environment cannot be removed completely

Models of

Environmental Analysis

I. SWOT Analysis

I. SWOT Analysis

• Strengths: Internal components that give a business an advantage over others

• Weaknesses: Internal components that give a business disadvantage relative to others

• Opportunities: External elements that the business could exploit to its advantage

• Threats: External elements that could cause trouble for the business

Advantages of SWOT Analysis

• Recognize and consolidate strengths

• Recognize and minimize weakness

• Helps to grab opportunities

• Facilitates planning to tackle threats

Also – – Facilitates exploring alternative options– Ensures survival & success

II. PEST Analysis

• P: Political Factors

• E: Economic Factors

• S: Social Factors

• T :Technological Factors

• Variants: SLEPT, PESTEL, PESTELD

Advantages of PEST Analysis• Simple framework. 

• Facilitates an understanding of the wider business environment.

• Helps in strategic thinking. – Enables the organization to anticipate

future business threats and to minimize their impact. 

– Enable the organization to spot business opportunities and exploit them fully. 

Porter’s 5-Forces model

• Michael E. Porter (Harvard Business School) in 1979

• Provides a framework for industry analysis and business strategy development

• Helps to understand the competitive structure of an industry

5 forces

• Intensity of rivalry among competitors

• Threat of new competitors

• Threat of substitute products

• Bargaining power of buyers

• Bargaining power of suppliers

Advantages of Porter’s model

• Helps in qualitative evaluation of a firm’s competitive position.

• It allows determining the attractiveness of an industry.

• It provides insights on profitability and thus supports decisions about entry to or exit from an industry.