"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. External Micro 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: o n the basis of size Micro Small-scale Medium-scale Large-scale

Industry Classification: o n 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

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.