BUSINESS ENVIRONMENT- AN
INTRODUCTION
INTRODUCTION TO BUSINESS
Business is the organized efforts of enterprises to supply consumers with goods and services.
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Business is a commercial activity engaged in as a means of livelihood or profit, or an
entity which engages in such activities.
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It is an important institution in society and the role of business is crucial.
– Be it for the supply of goods and services
– Creation of job opportunities
– Offer of better quality of life
– Contributing to the economic growth of the country and putting it on the global map
OBJECTIVES OF BUSINESS
• Objectives of Business means the purpose for
which the business is established.
• The objectives of business can be classified
under three heads:
economic objectives
Social objectives
Human objectives
Economic Objectives
• Business is primarily an economic activity. The
major economic objectives to be achieved by
business are:
(1) Earning of profit
(2) Creation of market
(3) Innovations.
Social Objectives
• The social objectives of business are gaining
more and more recognition with each passing
year. The main social objectives of business
are:
 Supply of standard quality of goods
 Avoidance of anti-social practices
 Provision of more employment.
 Cooperation with the government
 Optimal use of national resources
Human Objectives
• The human objectives of business are
 the employees working in a business should be fairly
rewarded
 A healthy climate is created by providing opportunities
to the employers for deve new skills and abilities
 The employees should have say in the affairs which
directly affect them.
 thinking of modern business must go well beyond
material benefits of its employees. It must reduce
unpleasantness of work and plan for job satisfaction to
the workers.
ENVIRONMENT
• Environment refers to all external forces which
have a bearing on the functioning of business.
”Environment are largely if not totally
external, and beyond the control of individual
industrial enterprises and their management.
These are essentially the givers within which
firms and their managements must operate in
a specific country and they vary, from country
to country”.
BUSINESS ENVIRONENT
• Business Environment may be defined as a set
of conditions – Social, Legal, Economical,
Political or Institutional that are
uncontrollable in nature and affects the
functioning of organization.
BUSINESS ENVIRONMENT
Macro Environment
Micro Environment
Internal Environment
Financiers
Suppliers
Customers
Competitors
Public
Mktg Intermediaries
Mission / Objectives
Management Structure
Internal Power Relationship
Physical Assets & facilities
Business
Decision
Company image
Human resources
Financial Capabilities
Technological Capabilities
Marketing Capabilities
Economic
Technological
Global
Demographic
Socio-Cultural
Political
Internal Environment
 Any business has certain vision, mission and objectives and a
strategy to achieve them. Formulation of strategy is defined as
establishing a proper firm-environment fit. Indeed the objectives
should be based on an assessment of the external environment and
the organizational factors (internal environment).
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Vision
Mission
Objectives
Management Structure
Human Resources
Financial Factors
Company Image and Brand Equity
Micro Environment
• The Micro environment consists of different
types of stakeholders - customers, employees,
suppliers, marketing intermediaries,
competitors. It is also known as the Task
Environment and Operating Environment and
has a direct bearing on the operations of the
firm. Changes in the micro environment will
directly affect and impinge on the firm's
activities.
Macro Environment
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The macro environment consists of factors which are beyond the control
of the business. There is a symbiotic relationship between business and
the environmental factors, environmental factors are dynamic and a
particular business firm, by itself, may not be in a position to change it’s
environment. Macro Environment includes
Political Environment
Economic Environment
Technological Environment
Socio-cultural Environment
Demographic environment
Global Environment
Natural environment
Political Environment
Political Environment refers to the influence exerted by the three
political institutions ie. legislature, executive and judiciary in
shaping, directing, developing and controlling business activities.
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The constitution of a country
Political Organisation
Political Stability
Image of the country and its leaders
Foreign Policy
Laws governing business
Flexibility and adaptability of laws
The Judicial System
Economic Environment
 Economic Environment refers to all forces which have an economic impact on
Business. The economic environment consists of the demand dynamics, supply
situation, pricing factors, degree of competitiveness, and impact of profitability. It
includes the fiscal policy, monetary policy and the taxation policy, the FDI norms,
the investment criterion and financing decisions. Economic environment includes:
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Growth strategy
Industry
Agriculture
Infrastructure
Money and Capital Markets
Per capita and national income
Population
New Economic Policy
Technological Environment
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Technological is the systematic application of scientific or other organized knowledge to
practical tasks.Technological environment hold new technological innovation, new products,
the state of technology, the utilization of technology for maximum inputs and outputs, the
obsolescence of technology and the dynamic changes that frequently occur in technologies
which enable firms to get a competitive advantage
Technology reaches people through business
Helps in increased productivity
Business needs to spend on R & D and keep up with the technological advances around
them
Technology leads to introduction of new products and older products becoming outdated
and redundant.
Technological advances leads to high expectations of consumers in terms of quality
Leads to system complexity
Demand for capital
Socio- cultural Environment
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Culture creates people
Culture and globalization
Culture determines people’s attitude to business and work.
Caste system
Spirit of collectivism
Education
Ethics in business
Social responsibility
Social audit
Corporate governance
Demographic Environment
Demographic factors include:
 Size, growth rate, age composition, sex composition
etc of population
 Family Size
 Economic Stratification of population
 Educational level
 Caste , religion etc
Natural Factors
Natural factors include geographical and ecological
factors. These factors include:
 Natural resources endowments
 Weather and climatic conditions
 Topographical factors
 Location aspects
 Port facilities etc
Global factors
The global environment refers to those factors which are
relevant to business, such as the WTO principles and
agreements; other international conventions/ treaties /
agreements / sentiments in other countries etc. For eg hike in
crude oil prices has a global impact etc.
• World is becoming one market
• Improving quality
• Competition from MNCs
• Capital and technology transfers
• Deciding which markets to enter and what products to
manufacture
• Adjusting the management process
External Environmental Analysis
Environmental Analysis has three goals:
 Provides an understanding of current and potential changes taking place
 Environmental Analysis should provide input for strategic decision making.
 Facilitate and lead to strategic decisions within an organization.
Environmental Analysis and diagnosis give strategists time to anticipate
opportunities and to plan to take optional responses to these
opportunities. It also helps strategists to develop an early warning system
to prevent threats or to develop strategies which can turn a threat to a
firm’s advantage”. Firms which systematically analyse and diagnose the
environment are more effective than those which do not.
Process of Environmental Analysis
The analysis consists of four steps:
 Scanning : Detect early signals of possible environmental
change and detect environmental change already underway.
 Monitoring : Purpose of monitoring is to assemble sufficient
data to discern whether certain trends are emerging,
identification of the trends and identification of areas for
further scanning.
 Forecasting : It is concerned with developing projections of
the direction, scope and intensity of environmental change.
 Assessment : To determine implications for the organisation’s
current and potential strategy
Environmental Analysis and Strategic Management
Defining Business Mission and Objectives
SWOT Analysis
Environmental Analysis + Self Appraisal
Strategic Alternatives and Choice of Strategy
Implementation of Strategy
Evaluation and Control of Strategy