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Q. How Do We Manage External and Internal Business Environment?

Q. How Do We Manage External and Internal Business Environment?

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Published by: sakshi14991 on Sep 22, 2009
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11/29/2012

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 ASSIGNMENT 
 
Q. How do we manage external and internal business environment?
Business and the environment 
Business environment is a set of political, economic, social and technological (PEST)forces that are largely outside the control and influence of a business and that canpotentially have both a positive and a negative impact on the business. The business environment can be broadly divided into:(A)External environment(B)Internal environmentOne of the basic assumptions of business is that organisations are neither self sufficientnor self contained.Rather , they exchange resources with and are dependent upon theexternal environment, defined as all the elements outside an organisation that arerelevant to its operations. Organisations take inputs (raw materials, money, labour, andenergy) from the external environment. The many rapid changes taking place in the external environment of the organisationsrequire increasing attention from the managers. The external environment containsnumerous resources upon which the organisations rely. This means that theorganisations are inevitably affected by what goes on in the environment. The external environment has both direct-action and indirect-action elements . TheExternal Analysis examines opportunities and threats that exist in the environment. Bothopportunities and threats exist independently of the firm. The way to differentiatebetween a strength or weakness from an opportunity or threat is to ask: Would this issueexist if the company did not exist? If the answer is yes, it should be considered
external
to the firm. Opportunities refer to favorable conditions in the environment that couldproduce rewards for the organization if acted upon properly. That is, opportunities aresituations that exist but must be acted on if the firm is to benefit from them. Threatsrefer to conditions or barriers that may prevent the firms from reaching its objectives. The following area analyses are used to look at all
external
 
factors
affecting acompany:
Customer analysis: Segments, motivations, unmet needs
Competitive analysis: Identify completely, put in strategic groups, evaluate performance,image, their objectives, strategies, culture, cost structure, strengths, weakness
Market analysis: Overall size, projected growth, profitability, entry barriers, coststructure, distribution system, trends, key success factors
Environmental analysis: Technological, governmental, economic, cultural, demographic,scenarios, information-need areas.Goal: To identify
external
opportunities, threats, trends, and strategic uncertainties.External environment can be categorized into : 
 
I. Micro environment or direct action environment 
It involves individuals or organisations that a firm deals with on a regular basis. For example,suppliers, distributors, competitors, customers and employees are all members of the micro-environment. These groups are stakeholders of the business. They all have a direct interest in theactivities of the firm and are clearly affected by its actions. The micro environment therefore playsa critical role in the success and behaviour of a business.Micro environment can be further divided into:(a)
External
 
stakeholders
SUPPLIERS
: Organisations are dependent upon suppliers of materials and labour and willtry to take advantage of competition among suppliers to obtain lower prices, better-quality work, and faster deliveries. Every organisation buys inputs-raw materials, services,energy, equipment and labour from the environment and uses them to produce output.Organizations are therefore dependent upon suppliers of materials and labour and will tryto take advantage of competition among suppliers to obtain lower prices, better qualitywork, and faster deliveries. Some firms take quite an aggressive attitude towards theirsuppliers by trying to push down the prices and delay payments. Others view therelationship more as a partnership in which they are working together with suppliers andthat by helping each other both can benefit.
COMPETITORS
: The success and behaviour of any business will depend on the degree of competition in its market. In some markets one firm is dominant. This is called amonopoly. In other markets a few firms dominate; this type of market structure is calledan oligopoly. In oligopolistic markets there is a high degree of interdependence and so
 
firms will think carefully how their rivals might react to any actions they take. This canlead to an emphasis on non price competition; a price change is relatively easy to imitateand so firms may rely more on methods such as branding or product development.A business could react to an increase in competition (e.g. a launch of rival product) in thefollowing ways:
Cut prices
 
Improve quality
 
Spend more on promotion
 
Cut costs
, e.g. use cheaper materials, make some workersredundant
CUSTOMERS
: Customers are obviously the key to sales. Usually, a marketing manageranalyses the potential customers and market conditions and directs a marketingcampaign based on that analysis. Managers must monitor customer needs and try toanticipate how these will develop so that they can meet these requirements effectivelynow and in the future. To help understand their customers firms are increasingly trying togather information on them through mechanisms such as loyalty cards. By gathering dataon shopping patterns and matching this to data the individual shoppers firms can build updetailed pictures of their buyers and then offer them appropriate deals.
SPECIAL INTERST GROUPS
: They are groups of people who organise to use the politicalprocess to advance their position on particular issues, such as abortion and gun control.Managers must take both the present and future SIGs into account when settingorganisational strategy. Among the most important SIGs are consumer advocates andenvironmentalists.
MEDIA
: Today, managers at most large organisations realise they operate in a fishbowlwhere every action may be the subject of media scrutiny. To improve their communicationwith both internal and external audiences, they have developed sophisticated publicrelations and marketing departments. In addition, executives who regularly deal withmedia often seek professional coaching to improve their ability to present information andopinions clearly and effectively.
FINANCIAL INSTITUTIONS
: Both new and well establishes organisations may rely onshort term or long term loans. Because effective working relationships with financialinstitutions are so vitally important, establishing and maintaining such relationships isnormally the joint responsibility of the chief financial officer and the chief operating officerof the organisation.
DISTRIBUTORS
:
Often getting products to the end customers can be a major issue forfirms. Imagine you sell shampoo - what you need to sell this is to get it on the shelves inthe leading chemists and supermarkets but this means moving someone else's productsoff the shelves! So the challenge is to get stores to stock your products; this may beachieved by good negotiating skills and offering appropriate incentives. When selling via

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