BUSINESS AS A SYSTEM

Which of the following represent the Integrated Whole Thing :
Digestive System Sound System Music System Computer System
Political System Social System Cultural system Economic System Technological System Legal System
12/14/2008 manavazhaganr@bsnl.in

Digestive Method Sound Method Music Method Computer Method

Digestive Process Sound Process Music Process Computer Process

Contd 1

BUSINESS AS A SYSTEM
System will: Draw Input Process it Internally and Releases output into environment

Business
Draw Input
Material , Energy , Information

Process it Internally - Into different Material , energy and Information Releases output into environment
Tangible, Intangible and Information

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Contd 2

Business & Environment Interface
Interaction of Business & its Surroundings

I. Micro environment of business.
1) Suppliers

Supply raw materials and other components
(Inputs)

Importance Reliable supply continuous supply for smooth functioning
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Contd

3

Wholesale customers iii. 2) CUSTOMERS Different categories of customers i. Industrial customers ii. Government customers v. Retail customers iv.in Contd 4 .Business & Environment Interface Micro environment of business. Foreign customers 12/14/2008 manavazhaganr@bsnl.

ii. Middlemen. consulting firms) iv. Physical distribution Firms: (warehouses and transport firms) iii. media firms. 3) Market intermediaries i.in Contd 5 . Financial intermediaries 12/14/2008 manavazhaganr@bsnl.Business & Environment Interface Micro environment of business. Marketing service agencies (Advertising agencies market research firms.

Competitors:      The Threat of entry of new firms The Power of Buyers The Power of Suppliers The Power of Substitutes The Intensity of Rivalry among existing firms 12/14/2008 manavazhaganr@bsnl.in Contd 6 .  4.Business & Environment Interface Micro environment of business.

Absolute cost advantage 5.Business & Environment Interface Micro environment of business. Access to Channel 4.in 7 . Differentiation ‡ Economies of Scale ‡ Unit cost Inverse to units produced Measured by Minimum Efficient Scale Or Market share MES volume is necessary to compete at minimum cost. The Threat of entry of new firm 1. Strategy : Just in time & Lean manufacturing to counter economies of scale ‡ Capital requirement ‡ Internet / Knowledge based services less costly 12/14/2008 manavazhaganr@bsnl. Government Policy 7.  Competitors: 1. Expected Retaliation 5. Economies of scale 2. Capital Requirement 3.

Spice retaliated entry of CMDA player Reliance Communication to operate in GSM field Government Policy Import of sugar. Government Policy 7.  Competitors: 1. Liberation of Insurance & other sectors Differentiation Existing company Strong brand image. Differentiation Access to Channel Self help groups / Social networks New channels of distribution Absolute cost advantage Learning curve effect Cost advantage Expected Retaliation GSM Players like Airtel . Expected Retaliation 5. Access to Channel 4. Edible oils.Business & Environment Interface Micro environment of business. The Threat of entry of new firm 1. wide range of products to cover all segments 12/14/2008 manavazhaganr@bsnl. Economies of scale 2.in 8 . Capital Requirement 3. Absolute cost advantage 5. Steel .

Possibility of backward integration Concentration of buyers Small no. TVS etc Component cost as a % of total cost High proportion of component/material cost to finished goods leads to looking for alternatives.  Competitors: 2. Suzuki. The Power of Buyers: 1. of buyer + High Volume purchase High buyer power Coca-Cola cannot bargain with Malls Alternative source of supply More supply source high buyer power Bajaj Scooter Honda. Self help groups.in . MLM 9 12/14/2008 manavazhaganr@bsnl.Business & Environment Interface Micro environment of business. Concentration of buyers 2. Alternative source of supply 3. Possibility of backward integration Buyer s own supply chain more buyer power Co-opratives . Component cost as a percentage of total cost 4.

Dependence on customers Ariel . of Sellers High seller power Like Monopoly & Oligopoly 3.Business & Environment Interface Micro environment of business.SAP 3. The Power of Sellers: Switching Costs 1. Concentration of Sellers High switching cost to other seller source .of buyers more seller power Seller s own distribution operation More power 12/14/2008 manavazhaganr@bsnl.Supermarkets have to sell it Dependence on customers Possibility of forward integration Not depending on High volume small no. Rin . Brand power Brand Power 4. Switching costs High-Tec & Specialised goods . Possibility of forward integration High brand power High power 5. Concentration of Sellers  Competitors: Small no.Seller power increase 2.in 10 .

High threat Pet foods .  Competitors: 4. Threat of Substitution: Non-essential goods where there is the ultimate substitute of doing without That: 1.in 11 . Relative Price & Performance of substitutes 2.Business & Environment Interface Micro environment of business. Switching Costs 3. Malls Buyer s Willingness to substitute Low-cost articles & infrequent purchase of articles little effort made to go for substitutes Match box Lighter 12/14/2008 manavazhaganr@bsnl. Fast foods .Buyer s willingness to substitute Relative performance & Price of Substitutes Substitutes with same cost High threat Email replaced Post Offices Switching costs The Cheaper switching cost .

Product Differentiation 5. Extra Capacity in large increments May lead to intermittent Over-capacity Steel war -1990 6. Industry Growth maintain turnover 2.Intense competition Creates short term over capacity .Business & Environment Interface Micro environment of business. High exit barriers Homogeneous products More intense Industry Growth: the rivalry .High Fixed costs 1990 UK & USA accused each of dumping Steel on Export market 3. Competitive Rivalry: In depression times Price war to 1. Balance of firms Product Differentiation 7.in 12 .Steel Rapid Growth Competition need Extra capacity in large increments not be intense Maturity Phase. Honda Nissan plant in UK 12/14/2008 manavazhaganr@bsnl. High fixed costs  Competitors: High Fixed cost High break even point 5. Volatile Demand Volatile Demand 4.

High Fixed costs 3. Industry Growth 2.Business & Environment Interface Micro environment of business. Extra Capacity in large increments 6. Balance of firms 7.in 13 . Volatile Demand 4. High exit barriers Balance of firms If the no. Clear market leader can bring discipline High exit barriers High exit barriers Excess capacity to persist and rivalry to be intense 12/14/2008 manavazhaganr@bsnl. Competitive Rivalry: 1.Product Differentiation 5.  Competitors: 5. of firms is large / similar size the rivalry will be intensive.

 1. Drivers of Population Changes 3. of deaths per 1000 Migration Country to Country movement Implication Consumer.Av.Business & Environment Interface Macro environment of business.in 14 . No. 1. of births per 1000 population Fertility Rate. Employment participation manavazhaganr@bsnl. Implications of Demographic Changes Population Growth: Year 1000 Estimated 300 million Year 1750 Actual 728 million Year 1900 Actual 1500 million Year 1960 Actual 3 billion Year 2000 Actual 6 billion 12/14/2008 Drivers of Population Changes Birth Rate No. of birth per women Death Rate . Demography:  Quantitative aspects of population.No. Ethnicity of Population 4. Labour .  Qualitative aspects of population. Population Growth 2.

Economic environment i. Business Cycle. Balance of Payment. Fiscal Policy.in GDP. Interest Rate.Capitalistic. Unemployment. Exchange rate Policy. Contd 15 .Business & Environment Interface Macro environment of business. Economic system. ii. Economic conditionsEconomic policies a) Budget b) Industrial policy c) Trade policy d) Agricultural policy iii. 2. Mixed 12/14/2008 manavazhaganr@bsnl. Monetary Policy. Socilalitic. Inflation.

Supreme Court.Labour Laws like Factories Act. Executive. Tax Laws i. 3. Legislature . Minimum Wages Act. Tribunals 12/14/2008 manavazhaganr@bsnl. Industrial Disputes Act.District. EPF Act.Political environment i. ESI Act. FERA. Companies act. etc MRTP Act. High Courts.Administrators ii. Law of Contracts. Import & Export Control act. Payment of Wages Act.in Contd 16 . Judiciary .Business & Environment Interface Macro environment of business. IDRA Act.

Marriage.in Contd 17 . Education vi. Ethical issues vii. Attitude of people towards work and health.Business & Environment Interface Macro environment of business. Socio cultural environment i. Role of family. v. iv. Religion. iii. 4. Social responsibility of business 12/14/2008 manavazhaganr@bsnl. ii.

in Contd 18 . Natural environment i. Natural resources. Nearness to port facilities. 12/14/2008 manavazhaganr@bsnl.Business & Environment Interface Macro environment of business. iv. Locational aspects. ii. Weather and climatic conditions. iii. 5.

Nature of technology ii. Scope for innovation 12/14/2008 manavazhaganr@bsnl. 6.Business & Environment Interface Macro environment of business. Technological environment i.in Contd 19 .

Legal iv. Technology 12/14/2008 manavazhaganr@bsnl. 7.in Contd 20 . Demography v. Economic ii. Political iii. International environment i.Business & Environment Interface Macro environment of business.

Business & Environment Interface Uses of environment studies 1) Awarness 2) Policy decisions 3) Demand forecasting 4) Competitor s strategies. 5) To innovate 12/14/2008 manavazhaganr@bsnl.in 21 .

in 22 .Business & Environment Interface Techniques for environmental studies i. Forecasting and formal studie 12/14/2008 manavazhaganr@bsnl. Verbal and written information ii. Search and scanning iii.

Business & Environment Interface Limitations of environmental analysis a) Unexpected events b) Future is not a guarantee c) Too much of information.in 23 . d) Overcautions approach 12/14/2008 manavazhaganr@bsnl.

in 24 . Banking. Transport 12/14/2008 manavazhaganr@bsnl. Insurance. Mining Secondary sector . Commerce.Business Sectors Primary Sector Agriculture.Manufacturing Industries Manufacturing activities Electricity Generation and Construction Tertiary Sector Services industries Trade .Repair.

Will not undergo any processing . Business which Produce Goods: Two categories of Goods: a.Classification of Business Based on Scope of Business 1. Diaries. Fisheries. Commodities Goods produced by Primary sector . Producing goods for consumption 12/14/2008 manavazhaganr@bsnl. b.Agriculture . Products .in 25 .Farms. Materials for -other business.Goods produced by Secondary sector Conversion of Raw material into another form . -Manufacturing Enterprises Machinery. Mining.

Telephone . Business which Facilitates Distribution of Goods: Warehouse. Advertising. Electric Light . Financing 5. Business which Distribute Goods: Wholesale merchants Retail Merchants Importers & Exporters 4. Co-Operative Banks. Insurance Stock Exchange 12/14/2008 manavazhaganr@bsnl.in 26 . Development Bankd.Hotels . Business which Produce Services: Transport .Entertainment 3.Classification of Business Based on Scope of Business 2. Business which Deals in Finance: Commercial Banks. Auction Houses.

Capital goods Industries : Machines 3. Road 5.Extractive Industries: Extract goods from natural resources. Dams. Tubes 4.in 27 . Farming. Genetic Industries: Produce goods by breeding. Buildings. Service & IT Industries 12/14/2008 manavazhaganr@bsnl.Classification of Business Based on the Nature of Activity 1. Steel 2.Oil extraction. Road. Manufacturing Industries: Process Raw materials into finished goods 4 Types 1. Construction Industries Canals. Fishing 2. Basic Industries : Iron. Bio Tech 3.Poultries.Consumer goods Industries : Soap 4. Intermediate Industries : Tyre .

Chemicals 2. 3.Classification of Business Based on Uses of Goods Produced 1.in 28 . Intermediate Goods Industries : Goods already had undergone manufacturing process but which forms input for industries for further processing Tyre . Steel. Capital goods Industries : Instrumental in producing goods and services Do not directly produce goods for consumption Capital intensive Machines.Consumer goods Industries : For consumption Durable / Nondurable goods Durable Usage for more than 3 years Non-durable Usage within 3 years other 12/14/2008 manavazhaganr@bsnl. Fertilizer. Tools. Tubes 4. Basic Industries : Provide essential inputs to other industries Iron.

Classification of Business Based on Competitive Structure 1. Oligopoly Only few firms holding 80 to 85 % market share 4.Perfect competition Large sellers & Homogeneous & free entry .Duopoly Two sellers 3.in 29 . 12/14/2008 manavazhaganr@bsnl.Monopolistic competition Large sellers & similar but not Substitute products Textile 5. exit & no single firm has any control over the market & Perfect knowledge about market & no transport cost & complete mobility of factors of production between industries. Monopoly : Single Firm Industry Monopsony Single Buyer Bilateral Monopoly single Buyer and Single seller MRTP Act 2.

Non-Profit Objective Supply Quality Products.in 30 . Tax evation 12/14/2008 manavazhaganr@bsnl. Customer Satisfaction.Business Motives & Objectives Objective: The end actions Motive: The desire which stimulate action Motive Profit. Exploit labour.

Provide Direction 3. Help coordination 4.in 31 .Provide standards for assesment & control 5. Help decentralisation 12/14/2008 manavazhaganr@bsnl. Justifies existance 2.Business Motives & Objectives Importance of Objectives 1.

b) Creation of customers c) Innovation d) Generation of employment e) Control of inflation f) Economic development g) Reduction of inequalities of income 12/14/2008 manavazhaganr@bsnl.Business Motives & Objectives I. Economic Objectives a) Earning of adequate profit.in 32 Contd .

b) Good treatment of customers. Social Objectives a) Supply of goods and services. g) Pollution control.in 33 Contd .Business Motives & Objectives II. c) Fair treatment of employees. d) Good working environment e) Customer Counseling f) Social responsibility. 12/14/2008 manavazhaganr@bsnl.

c) Democratic practices.in 34 Contd . b) Payment of taxes. National Objectives a) Implement of government laws.Business Motives & Objectives III. 12/14/2008 manavazhaganr@bsnl.

12/14/2008 manavazhaganr@bsnl. Customers and shareholders is unethical.right and wrong actions of Business Dishonesty Unethical .Business Ethics Study of good and evil .in 35 Contd . then being dishonest with employees. Protecting others from harm Ethical then recalling defective products is ethical action.

Child marriage. Untouchability.Sathi.in 36 Contd . Labour laws etc 12/14/2008 manavazhaganr@bsnl.Business Ethics Sources of Business Ethics : Religion Culture & Law Religion : Advocate orderly social system Culture : Rules and standards transmitted among generations to produce behaviours. Joint family Law : Rules of conduct approved by Legislators Companies act .

in 37 Contd . 12/14/2008 manavazhaganr@bsnl. customers.Business Ethics Codes of Business Ethics : Codes of conducts of business FICCI 1. 3. employees. Business must maintain highest standard of behaviour for the benefit of industry. shareholders Goods and services must conform to committed quality Customers must be treated with respect and fairness 2.

Kentucky Fried Chicken ( KFC ) Use of Harmful hormons & Monosodium glutamate to fatten the chicken 2. Neem Oil : Ptent by U.S company 3. Women Harassment Infosys Sacking of Chief Executive of 12/14/2008 manavazhaganr@bsnl.Business Ethics UnEthical Actions : 1.in 38 Contd .