BUSINESS

ENVIRONMENT
Business Organization
&
Business Environment
 Introduction to Business

 Business is the organized efforts of enterprises to

supply consumers with goods and services.
 Businesses vary in size as measured by number of
employees or by sales volume.
 All businesses share the same purpose to earn
Profits. However, the purpose of business goes
beyond earning profits.

Society cannot do without business and vice versa.

 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
 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.
Components of the General Environment

Economic

Demographic
Sociocultural

Industry
Environment

Competitive
Environment

Political/L
egal Global

Technological
 Business Environment

 The external environment has two

components
 Business opportunities
 Threats to business.
 Simmilarly, the organisational environment
has two components
 Strengths
 Weaknesses
 A SWOT analysis is thus the first step in
strategy formulation
 BUSINESS ENVIRONMENT

Macro Environment

Micro Environment

Internal Environment
Financiers Mission / Objectives
Suppliers Management Structure Economic
Customers Internal Power Relationship Technological
Competitors Physical Assets & facilities Global
Public Demographic
Mktg Intermediaries Socio-Cultural
Business Political
Decision
Company image
Human resources
Financial Capabilities
Technological Capabilities
Marketing Capabilities
 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).
 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
 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
 Global Environment.
Technological Environment
 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
Technological Environment
 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
 Political Environment

 Political Environment refers to the influence

exerted by the three political institutions
1. Legislature
2. Executive
3. Judiciary

in shaping, directing, developing and

controlling business activities.
 Political Environment

 Political Environment consist of:

 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
o The demand dynamics
o Supply situation
o Pricing factors
o Degree of competitiveness
o Impact of profitability

.
 Economic Environment
 It includes the fiscal policy, monetary policy
and the taxation policy, the FDI norms, the
investment criterion and financing decisions.
 Economic environment includes:
 Growth strategy
 Industry
 Agriculture
 Infrastructure
 Money and Capital Markets
 Per capita and national income
 Population
 New Economic Policy

.
 Global Environment
 The global environment refers to those
factors which are relevant to business, such
as
 The WTO principles and agreements;
 International conventions/ treaties / agreements /
sentiments in other countries etc
 Improving quality
 Competition from MNCs
 Capital and technology transfers
 Deciding which markets to enter and what
products to manufacture
 Adjusting the management process
Socio-Cultural Environment
 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
Internal Environment
Analysis
 Introduction
 Strategic analysis of any Business
enterprise involves two stages: Internal
and External analysis.

 Internal analysis is the systematic

evaluation of the key internal features
of an organization.
 Four broad areas need to be considered
for internal analysis
1. The organization’s resources, capabilities
2. The way in which the organization
configures and co-ordinates its key
value-adding activities
3. The structure of the organization and the
characteristics of its culture
4. The performance of the organization as
measured by the strength of its products.
The External Environment
Analysis
Opportunities and Threats form a basis
for EXTERNAL analysis

 By examining opportunities, you can

discover untapped markets, and new
products or technologies, or identify
potential avenues for diversification.
 By examining threats, you can identify
unfavorable market shifts or changes in
technology, and create a defensive
posture aimed at preserving your
competitive position.
Influencing the Political
Environment
 The Political Environment
 One important aspect is the phenomenon of
ethnicity
Driving force behind political instability
 Firms must assess political risks
Government actions that could adversely affect
the long-run profitability or value of a firm
Political Risk – 7 Typical risk events
1. Expropriation of corporate assets without
prompt and adequate compensation
2. Forced sale of equity to host-country
nationals, usually at or below depreciated
book value
3. Discriminatory treatment against foreign
firms in the application of regulations or
laws
4. Barriers to repatriation of funds (profits or
equity)
Political Risk – 7 Typical risk events

5. Loss of technology or other intellectual

property (such as patents, trademarks, or
trade names)
6. Interference in managerial decision making
7. Dishonesty by government officials,
including canceling or altering contractual
agreements, extortion demands, and so
forth
 Managing Political Risk
 Avoidance – either the avoidance or withdrawal of
investment in a particular country
 Adaptation – adjust to the political environment
 Dependency – keeping the host nation dependent
on the parent corporation
 Hedging – minimizing the losses associated with
political risk events
Business as a Political Participant
 Many business executives and managers
see their role in the political process as
vital to the progress (and possibly
survival) of their company
 2009 Harris poll showed concern about
business influence:
85% of public polled felt business had too
much political power
85% felt political action committees (a
favorite business political tactic) were too
Types of Corporate Political Strategy
 Three strategic types
 Information strategy
 Businesses seek to provide government
policymakers with information to influence their
actions

 Financial-incentives strategy
 Businesses provide incentives to influence
government policymakers to act in a certain way

 Constituency-building strategy
 Businesses seek to gain from other affected
organizations to better influence government
Levels of Business Political Involvement
 Managing the Political Environment

 The role of the public affairs department is

to manage the firm’s interactions with
governments at all levels and to promote
the firm’s interests in the political process

 Eight of the 10 most frequently performed

activities by public affairs officers and
departments involve a political action
tactic and attention has increased for most
of these political activities during the past
few years.
Technology Environment
 THE HISTORY of
TECHNOLOGY USAGE
 S Curve
 Early development 10% population use new
technology/product
 Full usage 90%-100%
Slow track: 22-30 year
 Example: electricity, telephone, PC
Fast track: 10-15 year
 Example: car, TV, radio, internet
S CURVE
S CURVE FOR CAR
S CURVE FOR COMPUTER

2006 2015

1994

1977 19941990s
 TECHNOLOGY THAT WILL
CHANGE THE BUSINESS

 Internet hardware and software technology

 Internet is fast track path
 2015 will fully usage
 DEVELOPMENT TREND
 Voice activation
Computer activation by voice
Computer usage easier
 Teleconference
Business deal run on location
Not reach other place
8 TECHNOLOGY WILL IMPACT NEW
BUSINESS MODEL

1. Increase of computer strength

2. Mass PC usage
3. Computer become simple tool
4. Integrated microprocessor and internet
device
5. Online consumer growth fast
6. Bandwidth communication expansion
7. Object orientation programming
8. Increase of computer skill
 INCREASE OF COMPUTER
STRENGTH

 Double of chips strength (need 18 months)

 Reduce cost (30% a year)
 Will create computer with mainframe power and low price
 The new generation computer will substitute repetitive
function of left brain
 Doing house and office routine job
 Right brain more active (more creative)
 Spare time for fun or think

 Result:
 Create business opportunity
 Improve work process
 MASS PC USAGE
 PC become need not want (cheap PC)
 Trend
 1977-1983—innovation phase (launching Altair 8800 by
Apple)
 1984-1994—computer as use full business tool phase
 1995-2001—internet connection phase (rise productivity
and profit for business)
 2001-2010—simple computer tool phase (easier to use
computer)
 Result:
 All people use computer
 Consumer Revolution (online consumer)
 COMPUTER BECOME
SIMPLE TOOL

 New thing is always difficult in the early

 Electricity motor (discovered 1886), just
popular in 1918
Most of tool use electricity motor
Most of people able to use
 Computer as alike motor electricity
 INTEGRATED MICROPROCESSOR AND
INTERNET DEVICE

 Like electricity motor, processor become smaller

 Plug in many home and office appliance
 Connect to internet
 Develop new software
 Result: Able to operate all appliance by click
 Watch home
 Control children
 ONLINE CONSUMER GROWTH
FAST

 Routine job—monthly shopping—done by

internet
 More time for fun, sport, tour, together with
family, meet friend or neighborhood,
increase intellectual capacity .
 BANDWIDTH COMMUNICATION
EXPANSION

 Current problem is traffic jam

 Will be solved by low orbit satellite system
 Teledisc: developed by Craig Mc Caw in
collaboration with Boeing
Used by 20.000 simultaneously user and
translate to millions of consumer per day
 Iridium: with 66 low orbit satellite
 OBJECT ORIENTATION
PROGRAMMING

 Computer programs more designed to

specific need (privately)
 Self programming
 Cyber Dog : special software that
create for sport writing
 INCREASE OF COMPUTER
SKILL
 Follow the future labor force (familiar with
computer)
 In two decade:
 Baby boomer generation will be 60s
 X generation will be 30s
 Millennium generation (born in 2000s) will be 20s
 Labor force will be millennium generation
 Need faster and more sophisticated computer
Environment Analysis
 SWOT Analysis
 Strengths
 Weaknesses
 Opportunities
 Threats
 The purpose of SWOT
Analysis
 It is an easy-to-use tool for developing
an overview of a company’s strategic
situation
It forms a basis for matching your
company’s strategy to its situation
 SWOT is the starting point
 It provides an overview of the strategic
situation.
 It provides the ―raw material‖ to do more
extensive internal and external analysis.
 Opportunities
 An OPPORTUNITY is a chance for firm
growth or progress due to a favorable
juncture of circumstances in the
business environment.
 Possible Opportunities:
Emerging customer needs
Quality Improvements
Expanding global markets
Vertical Integration
 Threats
 A THREAT is a factor in your
company’s external environment that
poses a danger to its well-being.
 Possible Threats:
New entry by competitors
Changing demographics/shifting demand
Emergence of cheaper technologies
Regulatory requirements
 Five-Forces Analysis
(Porter)
 The five forces are environmental forces
that impact on a company’s ability to
compete in a given market.
 The purpose of five-forces analysis is to
diagnose the principal competitive
pressures in a market and assess how
strong and important each one is.
Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants
 Threat of New Entrants
Economies of Scale

Barriers to Product Differentiation

Entry
Capital Requirements

Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent of

Scale

Government Policy

Expected Retaliation
 Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants

Bargaining
Power of
Suppliers
 Bargaining Power of Suppliers
Suppliers are likely to be powerful if:

Supplier industry is dominated by a few firms

Suppliers exert
power in the
industry by: Suppliers’ products have few substitutes
* Threatening to raise
prices or to reduce Buyer is not an important customer to supplier
quality
Powerful suppliers
can squeeze Suppliers’ product is an important input to
buyers’ product
industry
profitability if firms
Suppliers’ products are differentiated
are unable to
recover cost Suppliers’ products have high switching
increases costs

Supplier poses credible threat of forward

integration
 Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants

Bargaining Bargaining
Power of Power of
Suppliers Buyers
 Bargaining Power of Buyers
Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases are large

relative to seller’s sales Buyers compete with
the supplying industry
Purchase accounts for a significant fraction of by:
supplier’s sales

Products are undifferentiated * Bargaining down prices

Buyers face few switching costs * Forcing higher quality

Buyers’ industry earns low profits * Playing firms off

each
of
Buyer presents a credible threat of backward other
integration

Product unimportant to quality

Buyer has full information

 Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants

Bargaining Bargaining
Power of Power of
Suppliers Buyers

Threat of
Substitute
Products
 Threat of Substitute Products
Keys to evaluate substitute products:

Products with Products with improving

similar function price/performance tradeoffs relative
limit the prices to present industry products
firms can
charge

Example:

Electronic security systems in place o

security guards

Fax machines in place of overnight m

delivery
 Porter’s Five Forces
Model of Competition
Threat of
Threat
Newof New
Entrants
Entrants

Bargaining Rivalry Among Bargaining

Power of Competing Firms in Power of
Suppliers Industry Buyers

Threat of
Substitute
Products
Rivalry Among Existing Competitors
Intense rivalry often plays out in the following
ways:
Jockeying for strategic position

Using price competition

Staging advertising battles

Increasing consumer warranties or service
Making new product introductions

Occurs when a firm is pressured or sees an

opportunity
Price competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but may be

costly to smaller competitors
Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur
when:
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
High storage costs
Lack of differentiation or switching costs
Capacity added in large increments
Diverse competitors
High strategic stakes
High exit barriers
The Five Forces are Unique
to Your Industry
 Five-Forces Analysis is a framework for
analyzing a particular industry.
Yet, the five forces affect all the other
businesses in that industry.