oe Chapter-1 The Business Environment « @ What is Business Environment? ” Business environment refers to the totality of internal and external environmental forces that Mluence any aspect of organizational activities. In other words, all the factors and forces and outside the organization, that may influence directly or indirectly the business activities of that organization is called business environment. * @ Classification of Environmental forces/ PEST Analysis/ LEPEST C Model/ Diverse or factors of Business Environment. There have been numerous happen to model the business environment either in its totality or in its aseptic elements. PEST analysis is one of them where, : P= Political Environment E+ Economic Environment S= Social Environment T= Technological Environment ‘Another model which is called LEPEST C model has added three more forces into the business environment where, : ; ; L= Legal Environment E> Ecological Environment P= Political Environment E> Economie Environment $Social Environment ~ Technological Environment C= Competitive EnvironmentThese different forces of environment are discussed below: 1. Legal Environment: A country's law and order, act and regulations create legal environment which is directly influence the orgonizational structure. For Example: + UGC rules and regulation for universities + Partnership act + Company act ete, 2, Ecological Environment: All the resources coming from nature create ecological Environment. For example: + Gas + Water + Oil + Wood * Soil etc. 3, Political Environment: Government policies, structure and regulation always create a major impact on business and these create the political environment for the organizations, For Example: + Government annual budget or fiscal policy © Export import rules and policies ‘* Government’ economic policies etc. . . 4, Economic Environment: A country’s economic condition such as exchange rate, inflation, GDP, GNP, interest rate etc. creates the economic environmentfor the business. 5, Social environment: A country’s culture, life style, religion, social class etc. create the social environment for the organization. 6. Technological Environment:Current and new technology and improvement in the current technology have significant impact on different business activities and decision.Competitive Environment; The number of competitors, policies, business decisions, financial and market position, performance of the competitors are included in the competitive environment. Ecological Competitive Political Organization ‘aoe Figure- LE PEST C Model(5)dart board mode’ How Dartboard factors influence international market? Dartboard model has developed in 1992. It was first introduced by Daft. Later Peace and Robinson has modified the mode in 1994, In order to succeed in international market each and every marketer should consider the element of the international environment.Dart model suggest that there are many external forces that are close to the organizational activities, For analytical purposes Peace and Robinson separate a firm’s external environment into three categories — 1, Remote Environment: This environment is uncontrollable for the organization which includes the global and domestic, political, social and technological concerns. 2, Industry environment: This factor-represents the overall industry environment or its competitive forces. . 3. Operating Environment: It comprises a mixed group of actors including suppliers and customers Robins suggest a typology of forces which affects the organizational activities. These forces are uussed below: + Economie seetor: International balance of payment, exchange rate, export import duties, etc, all are including in international economic sectors. «Technology sector: Strong technological development, infrastructure and technological structure, all are important for international business. + Raw materials: Availabilities of raw materials, sources of raw materials and cost of raw materials all are equally important, «Human Resources: Numbers of labors, cost and skills, all are important for production and distribution in international business. © Social Culture: In involves the life style, religion, education, income level of the people within a society. © Financial Sector: [t includes banking industries, financial services and investment opportunities. : © International Act: The international act such as sales act, corporate act, manufacturing act etc.* Government: ‘The roles of government of both host and home countries are also” important to be considered, Fig: The Dartboard Model of Business Environment 4. Relationship between Organization and Environment. ‘There, is a direct relationship between business activities and environment. All environmental sectors such as- legal, economic, political, ecological, social, technological, competitive etc. always influence the performance of business organizations in both positively and negatively.The influence of environment on various organizational activities are discussed i below- | 1. Production: In the case of production of the organization, it largely depends on all the i environmental forces like — | 2) Natural resources such as- gas, fuel ete. (Ecological environment) b) Machineries for production (technological environment) 5©) Customers buying power (Economical environment) 2. Sales and distribution: Organizations sales and distribution largely depends on- a) Customers’ needs and requirements (social environment) ») Political condition (Political environment) €) Sells data-base (Technological environment) 3. Promotio Promotional activities of the organization depend on the social, technological and competitive environment, ) Competitors promotion strategy (Competitive environment) ») Customers’ choice and needs (Social environment) 4. HIRM:An organization's human resource management acti the Legal, poli al, economic and competitive environment. a) Labor law b) Government regulations c) Compensation package 5. Accounting:Organization’s accounting depends on technological and political environment. Production Legal Sales and rT Economic Distribution Political |g Organization | Environment —————— Promotion Ecological (Advertisement) Social . HRM Technological ‘Accounting Competitive Figure- The relationship between organizational activities of environment The relationship between organizations and their environment is not a one way causal relationship because many organizations shape their own environment. The simplest example is 6 .that of a number of competing companies in an industrial sector. The activity of one will influence the activity and success of another. h organization forms part of the business environment of other organizations, as competitors, suppliers, buyers and so forth. Many organizations, especially, sizeable and or influential ones, exert considerable pressures for change in their business environment. 5. Environmental stake-holders All organizations, whatever their size, have a number of stakeholders. A stakeholder is a person, organization, interest group or other body which holds stake or interest in the business. In addition to having-an interest in the activities of the organizations some stakeholders have power to influences these activities. For example: Government often holds a controlling influence over public sector organizations and is vital stakeholders for those organizations. Several stakeholders of a business organization are as follows: i. Investors ii, Stockholders i. Lenders iv. Employees vy, Customers vi. Suppliers, Utility Providers viii. Government ix. Surrounding People x. Quality assessment institution . Competitors xii, Partners Research institutes ete.6. Types of organi ation Miles and Snowtypology of organization refers to style in which organizations operate strategically. They have identified five types of organization on the basis of the strategy they use to do their business- 1. Defender organization: It concentrates on protecting its current market, maintaining stability and serving current customers. 2, Prospective organization: The organization which secks new market and new opportunities is oriented towards growth and risk taking -is called prospective organization. 3, Analyzer organization: These organizations maintain current markets and current customers’ satisfaction with moderate emphasis on innovation. 4, Reactor organization: These organizations react to environmental changes only. That ‘means this organization only act when environmental change forces them to change. 5, Proactive organization: This organization forecast to environmental forces and identify the strategies before the change or problem occurs. * 7. What is environmental forecasting? Forecasting is a process of predicting future on the basis of present and past condition. It is a process of planning about future direction activities and strategies on the basis of present and past data. Environmental forecasting is considered as the prediction of changes in the environment before they arise. 8. Forecasting techniques / Methods of Forecasting Several popular methods of forecasting are discussed below-+ Time series Analysi Under this technique manager attempt to identify a trend from past data and take a decision about future on the basis of it * Judgmental, Technique: It is a technique where a company assumes the environmental changes or future business activities by using the opinion, experience, intuition and judgment of the experts usually the managers, * Brainstorming: It is a systematic forecasting technique where a group of people are inspired to Benerate as many ideas possible by withholding criticism and inter-personal communication. * Delphi Technique: Under this technique,an intermediary collects information from a group of. experts (called Delphi group), who forecast by using their knowledge and experience without meeting each-other. + Scenario Development technique: Under this technique, a company may develop two or three likely scenarios for some future date and takes this into consideration into their planning process. ‘They may develop contingency plan to cope with each scenario, if arise. 9. What is geopolitical scale? Geo-political scale is the study of the effects of geo-graphic politics on the business activities and decision. Here political implies level or tier of the government, For example, at the local evel in the most countries there is a tire of government which is responsible for certain activities relatively small area. Similarly, there is a tire of government, often very important and influential, at a national scale. In addition, there are, tiers of government which regulates the activities related to regional and global affairs. That means there are 4 geo political scales- 1, Local seale 2. National scale 3. Regional scale 4, Global seale Most organizations are influenced by environmental forces operating at different geo political levels.10. What is Perceptual Filters? Different organizations in the same industry often view environmental forces quite differently from one another (even though these forces maybe very similar) due to their different perception filters. Perception filter is the process through which organizations filter the information collected from the environment on the basis of their managerial cognition, organizational culture and politics. 11. A model of the business environment ‘The model of business environment indicates how the various environmental forces pass through perceptual filters. These filters include all the internal mechanism within organization which enables manager to construct their own view of environmental realities. An organization that does not have an active environmental scanning capability may miss numerous, potential opportunities, while an organization which is managed by those who have faith in their organizations invincibility can face the hostile environment influences.This perceptual filter actually change and shape reality for organization. Managers af all levels utilize environmental information to facilitate their decisions making in order to enable the organization to operate successfully. A thorough awareness of the nature of ‘an organization’s environment is essential prerequisite for strategy management. The future course of action is often determined and influenced by the environment. External Geo-political Environmental | ....operating at Scales Forces a range of. 10 «Information Flows =sateREesosoL = Individual and organizational perceptual fiters \ Decision Making | Operational and strategic action Implications for organization 20+4>N-z>0n0|°> Figure- Model of the business environment "