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Business

The organized efforts of enterprises to supply consumers

with goods and services for a profit Purpose-To earn profit Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling goods - Lewis H. Haney Business represents the organized efforts of enterprises to supply consumer with goods and services - Musselman and Hughes

Characteristics of Business
1. 2. 3. i) ii) iii) 4. 5. 6. 7. 8.

Dynamism Vastness Diversification Concentric Diversification Horizontal Diversification Conglomerate Diversification Globalization Science Information Government interference Competition

Environment
The aggregate of all conditions, events and influences

that surround and affect it Environment factors or constraints are largely if not totally, external and beyond the control of individual industrial enterprises and their managements. These are essentially the givers within which firms and their managements must operate in a specific country and they vary, often greatly, from country to country. - Barry M. Richman and Melvyn Copen

Characteristics of environment
Complex 2. Dynamic 3. Multi-faceted 4. Has a far reaching impact
1.

Business environment
Refers to those aspects of the surroundings of business

enterprise, which affect or influence its operations and determine its effectiveness Business environment is the aggregate of all conditions, events and influence that surrounds and affect it - Kieth Davis The environment includes factors outside the firm, which can lead to opportunities for or threats to the firm. Although there are many factors, the most important of these factors are socio economic, technological, supplier, competitors and the government - W.F. Glueck and Lawrence R. Jauch

Nature of Business environment


1.
2. 3. 4. 5. 6.

Aggregative Inter-related Relative Inter-temporal Uncertain Contextual

Scope of the business environment


Production
Trade Banking Insurance Finance Advertising

Types of business environment


Internal environment 2. External environment
1.

Composition of business environment


Components of Business environment

Internal environment 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Financial resources Physical and human resources Objectives of business Managerial policies Morale and commitment of Human resources Value system Brand and corporate image Labor management relationship Technological and R&D capabilities Marketing resources

External environment

Micro/ Operating Environment 1. Suppliers 2. Customers 3. Market intermediaries 4. Competitors 5. Public

Macro/ General Environment 1. 2. 3. 4. 5. 6. 7. Economic Political Socio-Cultural Technological Natural Demographic International/ Global

Internal environment
Refers to factors existing within a business firm
Generally regarded as controllable factors

Elements of internal environment


1. 2. 3. 4. 5. 6. 7. i) ii) iii) iv)

Value system Mission and objectives Management structure and nature Internal power relationship Human resources Company image and brand equity Other factors Physical assets and liabilities R & D and Technological capabilities Marketing resources Financial factors

External environment
Refers to factors existing outside

the business firm Uncontrollable in nature Includes economic factors, sociocultural factors, government and legal factors, demographic factors, geo-physical factors etc,.

Elements of External environment


1. Micro environment i) Suppliers ii) Customers iii) Competitors iv) Marketing intermediaries v) Public 2. Macro environment i) Economic environment ii) Political environment iii) Legal environment iv) Social environment v) Demographic environment vi) Natural environment vii) Physical and technological environment viii) International environment

Interaction between Internal and External environment


Closed systems
Open systems

Relationship between Internal and External environment


External Environments Economic Employees Political Technological Customers

Inputs

The organization The Internal Environment


Social External Environments

Outputs

Competitive

Physical

Interaction matrix of different environmental factors Interaction Matrix 1


Economic environment Non Economic environment Economic system Economic structure (Anatomy) Functionin g of the economy (Sectors) Economic planning (Long term) Economic program mes (Short term) Economic PoliciesFiscal and Monetary Economic control and regulation Economic growth and developm ent

Sociological

Educational

Political/ Legal

Historical

Physical/ Geographical

Interaction Matrix II
National Environment Non National Environment Local Regional International Economic Non-economic Economic Non-economic Economic + + + + + + + + + + National Economic Environment National Non Economic Environment

Non-economic

Interaction Matrix 3
Present Environment Non-Present Environment PAST Economic Non-Economic Present Economic Environment Present NonEconomic Environme nt + +

+ +

FUTURE

Economic
Non-Economic

+
+

+
+

Significance of Business Environment


1.
2. 3. 4. 5. 6. 7.

First Mover Advantage Early warning signal Customer Focus Strategy formulation Change agent Public image Continuous learning

Overview of political environment


Meaning of Political

environment: The political environment consists of factors related to the management of public affairs and their impact on the business of an organization

Political system
A system of politics and government
Definition-a political system is a complete set of

institutions, political organizations, interest groups (such as political parties, trade unions, lobby groups), the relationships between those institutions and the political norms rules that govern their functions (constitution, election law) A political system is composed of the members of a social organization (group) who are in power

Types of political systems


Libertarian political system 2. Authoritarian political system 3. Totalitarian political system
1.

Types of political systems


1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

Anarchy Dictatorship Autocracy Oligarchy Theocracy Monarchy Democracy Indirect democracy Plutocracy Aristocracy Meritocracy Stratocracy Cleptocracy

Political systems and societies


Exchange Society
(Libertarian) Anarchist Classical L liberal

Welfare liberal Democratic Socialist

Libertarianism

Conservative

Socialism

Authoritarianism Dynastic (Authoritarian) Authoritarian Society

Communist (Totalitarian) Coercive society

Lascist

Business responsibilities towards government


Payment of tax International business can bring the foreign exchange Employment can be provided Provide information relevant during budget-source of information Information in Policy formulation For welfare of people, voluntary programs e.g. temple, shopping complex Infrastructure development help government by having contracts form government Eg. Dams

Governments responsibility towards business


To reduce excise duty To provide loans and credits Infrastructural development for the business eg. Electricity,

road transportation Technology, right types and at right time should be provided Govt. should take initiative in R & D Crumbling competition Restricting monopoly Encouraging small scale industries Increase export

Overview of socio-cultural environment


Meaning of socio-cultural environment:
Society and culture primarily govern the lifestyle of an

individual

Impact of Socio cultural environment on business


Family 2. Social class 3. Culture
1.

1. Family
Often called as basic social institution The minimal form of family consists of a husband, wife

and children A family is a group of persons united by the ties of marriage, blood or adoption constituting a single household, interacting and inter-communicating, with each other in their respective social role of husband and wife, mother and father, son and daughter, brother and sister, cradling and maintaining a common culture - Burgess and Locke

Characteristics of family
Primarily based on mating relationship
Reckoning of descent either through father or mother

is necessary Child bearing and economic factors Relationships are socially sanctioned and traditional in nature Living together

2. Social class
Used to describe the ranks of

people in a society Relatively permanent and homogenous divisions in a society into which individuals or families sharing similar values, life styles, interests, wealth, status, education, economic position and behavior can be catagorized. - Roger D. Blackwell

Classification of social class


1.
2. 3. 4. 5. 6.

Upper-Upper Lower-Upper Upper-Middle Lower-Middle Upper-Lower Lower-Lower

Components of social class


1.
2. 3. 4. 5.

Occupation Income Possessions Associations Level of influence

Culture
Culture is everything that is socially learned and shared by

the members of a society Culture is the sum of learned beliefs, values, and customs that serve to direct the consumer behavior of members of a particular society Beliefs-consist of the very large number of mental or verbal statements that reflect a persons particular knowledge and assessment of something Values-Are also beliefs Customs-are overt modes of behavior that constitute culturally approved or acceptable ways of behaving in specific situations

Values-Criteria
1.
2. 3. 4. 5.

They are relatively few in number They serve as a guide for culturally appropriate behavior They are enduring or difficult to change They are not tied to specific objects or situations They are widely accepted by the members of a society

Characteristics of culture
1. i) ii) iii) 2. 3. 4. 5. 6. 7. 8.

Culture is invented An ideological system A technological system An organizational system Culture is learned Culture is socially shared Cultures are similar but different Gratifying and persistent Adaptive Organized and integrated Prescriptive

Elements of culture
Knowledge and beliefs 2. Ideals 3. Preferences
1.

Impact of culture on Business


1. 2.

3.
4. 5. 6. 7. 8. 9.

10.
11. 12.

13.

Culture creates people Culture and globalization Culture determines goods and services Peoples attitude to Business Attitude to work Collectivism and individualism Ambitious or complacent Education Family Authority View of scientific method Ethics in business Religion

Contd..
14. Marriage
15. Time dimension 16. Cultural resources

Overview of legal environment


Opportunities that are created by government:

Governments are large purchasers of goods and services 2. Governments subsidize firms and industries and thus help them survive and prosper 3. Governments protect home industries against unfair foreign competition
1.

Legislations Passed by the Govt.


1.
2. 3.

4.
5. 6.

7.

Industries act 1951 Indian companies Act 1956 Income tax act 1961 MRTP act 1969 Foreign exchange regulation act 1973 Sick industrial companies act 1985, and Consumer Protection Act 1986

SEBI
Constituted in 1988 and made statutory in 1992
Objective/ Purpose of the SEBI Act : To protect the interest of the investors To promote the development of the securities market To regulate the securities market For matters connected there with or incidental there to

Overview of technological environment


Refers to the state of science and technology in the

country and related aspects such as rate of technological progress, institutional arrangements for development and application of new technology etc. Systematic application of scientific or other organized knowledge to practical tasks - J.K. Galbraith

Features of technological environment


1.
2. 3. 4. 5.

Component of macro or indirect action environment Dynamic which cause s Future shock Has far reaching effects Self-reinforcing Different from science

Technology
Knowledge of methods to perform certain tasks or

solve problems pertaining to products or services Provides information about Product design, Production techniques, quality assurance measures, human resource development and management systems

Features of technology
Change
Widespread effect Self-reinforcing

Transfer of technology
The process by which commercial technology is

disseminated May or may not be legally binding contract but involves the communication, by the transferor, or the relevant knowledge to the recipient

Types of transfer transactions


The assignment, sale and licensing of all forms of

industrial property, except for trademarks, service marks and trade names when they are not part of transfer of technology transactions The provision of know-how and technical expertise in the form of feasibility studies, plans, diagrams, models, instructions, guides, formulae, basic or detailed engineering designs, specifications, equipments, for training, services involving technical advisory and managerial personnel and personnel training

Contd..
The provision of technological knowledge
The provision of technological contents

Manufacturing technology transfer matrix


Documentation Type of technology Manuals and docume nts -----------------------------------------------------------------Regular reports Training Formal on the job training ----------------------------------------------------------------------------Informal on the job training --------------------------------------------------------------------------Conferen ce and seminars -----------------------------------------------------------------------Visits and exchanges Equipment selection Commu nication problem s ---------------------------------------------------------------------------------------

Proposal and planning Product design Manufacturing technology Quality assurance Plant design & Construction Start up Value engineering Product development External support

-------------------------------------------------------------

-------------------------------------------------------------------------

----- Indicates the requirement

Factors for the choice of technology


1.
2. 3. 4. 5.

6.
7.

Product competitiveness and market potential Customer preferences Speed of introduction of new products and processes Comparative studies of technology gap between India and outside Availability of technology for import in strategic areas Suitability of technology in context to organizational culture Outflow of resources, foreign exchange etc.

Impact of technology on business


Higher productivity
Global competitiveness Changing job profile Need for multi skilling and multi tasking Difficulty in motivation Increasing need for capital Increasing Obsolescence Organizational restructuring Resistance to change Social implication

Overview of global environment


Significantly influenced by WTO
Liberalization of trade

Nature of global environment


Should be accurate in providing the information
The information should be timely Should be large in size Market segmentation Should have more potential than the domestic

markets

Trends in world trade and economic growth


International trading has suffered from gross

inequalities and imbalances The global economic environment is characterized by intermittent recessions during the last two decades The GDP and exports of the developing countries are projected to grow

GATT
Signed at Geneva on 30th November 1947
Came into force on 1st January 1948 Objective of GATT: To raise standard of living To ensure full employment To ensure a large and steadily growing volume of real

income and effective demand To develop the full use of the resources of the world To expand production and international trade

WTO
Established on 1st Jan 1995
India is one of the founder members of WTO Objectives: To improve standard of living of people in the member

countries To ensure full employment and broad increase in effective demand To enlarge production and trade of goods

Other objectives of WTO


To enlarge production and trade of services
To ensure optimum utilization of World resources To accept the concept of sustainable development To protect environment

Environmental scanning
Meaning and definition:

Scanning-to look carefully into or examine


Environmental scanning- Carefully analyze the

various factors influencing the business Environmental analysis is the process by which strategists monitor the environmental factors to determine opportunities for and threats to their firms. Environmental analysis also consists of managerial decisions made by assessing the significance of the data (opportunities and threats) of the environmental analysis - Jauch and Glueck

Characteristics of Environmental scanning


Continuous process 2. Exploratory process 3. Holistic exercise
1.

Scope of environment scanning


External analysis Scanning Monitoring Forecasting Assessing Strategic Directions Strategic Plans

Internal analysis Vision Mission Strengths Weaknesses

Role of external analysis in strategic planning

Approaches to Environmental scanning


Systematic approach 2. Process information approach 3. Ad Hoc approach
1.

Sources of information for environmental scanning


1.
2. 3. 4. 5. 6.

Documentary and secondary sources Mass media Internal sources External agencies Formal studies Spying and surveillance

Factors affecting environmental appraisal


1.
2. 3. 4. 5. 6. 7. 8.

Strategist-Related factors Age of the organization Size and power of the organization Geographic dimension of the organization Type of business Influence of business organization Volatility of environment Managerial caliber

Process of environmental scanning


Assess the nature of the environment
Audit environmental influences Identify key competitive sources through structural analysis

Identify strategic position

Identify key opportunities and threats

Significance of environmental scanning


1.
2. 3. 4. 5. 6. 7. 8.

Effective utilization of resources Helps in converting threats to opportunities Changing color of environment Narrowing down the alternatives Strategic management starts with environmental scanning Constant monitoring of the environment Useful for the managers Prediction of future

Role of environmental scanning in organizations


Function-oriented role 2. Integrated strategic planning role 3. Policy oriented role
1.

Techniques of environmental analysis


SWOT analysis 2. ETOP analysis
1.

SWOT analysis
Credited by Albert Humphrey
Helpful Harmful

Internal origin

W
T

External origin

SWOT analysis
A strength could be:
Your specialist marketing expertise. A new, innovative product or service. Location of your business. Quality processes and procedures. Any other aspect of your business that adds value to

your product or service.

SWOT Analysis Dell


Strengths
Dell is the World's largest PC maker. Profits for the 3 months to July

2005 were in excess of $1 billion US, representing a growth of around 28%. For the last couple of years it has held its position as market leader (it took it from rivals Hewlett-Packard). The Dell brand is one of the best known and renowned computer brands in the World. Dell cuts out the retailer and supplies directly to the customers. It uses information technology, and Customer Relationship Management (CRM) approaches to capture data on its loyal consumers. So a customer selects a generic PC model, and then adds items and upgrades until the PC is kitted out to the customer's own specification. Components are made by suppliers, never by Dell. PC's are assembled using relatively cheap labour. You can even keep track of your delivery by contacting customer services, based in India. The finished goods are then dropped off with the customer by courier. Dell has total command of the supply chain.

SWOT analysis
A weakness could be:
Lack of marketing expertise. Undifferentiated products or services (i.e. in relation

to your competitors). Location of your business. Poor quality goods or services. Damaged reputation.

Weaknesses
The company has such a huge range of products and

components from many suppliers from a plethora of countries, that there is the occasional product recall that can cause Dell some embarrassment. In 2004 Dell had to recall 4.4 million laptop adapters because of a fear that they could overheat, causing electric shocks or fires. Dell is a computer maker, not a computer manufacturer. It buys from a group of concentrated hi-tech component manufacturers. Whilst this is a tremendous advantage in terms of business operations, allowing Dell to focus on marketing and logistics, the company is reliant on a few large suppliers, and to an extent is locked in for periods of time (i.e. unable to switch supply dues to the lack of large suppliers in the World).

SWOT analysis
An opportunity could be:
A developing market such as the Internet. Mergers, joint ventures or strategic alliances. Moving into new market segments that offer improved

profits. A new international market. A market vacated by an ineffective competitor.

Opportunities
Kevin Rollins replaced Michael Dell in 2004 as Dell's Chief Executive Officer.

Dell remained the company's Chairman. Despite founder Dell's massive success, new blood and a change in management thinking could lead the company into a new, even more profitable period. Dell was born in 1965, and founded Dell in 1984 with $1000 whilst studying at the University of Texas. He became the youngest Fortune 500 CEO in 1992, and will be a tough act to follow. Dell is pursuing a diversification strategy by introducing many new products to its range. This initially has meant good such as peripherals including printers and toners, but now also included LCD televisions and other non-computing goods. So Dell compete against iPod and other consumer electronics brands. Dell is making and selling low-cost, low-price computers to PC retailers in the United States. The PC's are unbranded and should not be recognised as being Dell when the consumer makes a purchase. Rebranding and rebadging for retailers, although a departure for Dell, gives the company new market segments to attack with the associated marketing costs.

SWOT analysis
A threat could be:
A new competitor in your home market. Price wars with competitors. A competitor has a new, innovative product or service. Competitors have superior access to channels of

distribution. Taxation is introduced on your product or service.

Threats
The single biggest problem for Dell is the competitive rivalry that exists

in the PC market globally. As with all profitable brands, retaliation from competitors and new entrants to the market pose potential threats. Dell sources from Far Eastern nations where labour costs remain low, but there is nothing stopping competitors doing the same even sourcing the same or similar components from the same or similar suppliers. Remember, Dell is a PC maker, not a PC manufacturer. Dell, being global in its marketing and operations, is exposed to fluctuations in the World currency markets. Although it is a very lean organization, orders do have to be placed some time ahead due to their size or value. Changes in exchange rates could leave the company exposed to potential loses in parts of its supply chain.

Criteria
Historical criteria 2. Normative criteria 3. Competition equality criteria
1.

Applications of SWOT analysis


Provides a logical framework guiding systematic

discussion of the business situation, alternative strategies, and finally the choice of strategy Key external opportunities and internal threats are systematically compared to internal strengths and weakness in a structured approach

Application of SWOT analysis in the choice of strategy


Numerous environmental opportunities Cell 3 Turnaround Strategy Cell 1 Aggressive growthOriented strategy Substantial Internal Strengths Cell 4 Defensive Strategy Cell 2 Diversification Strategy

Critical Internal Weaknesses

Major environmental threats

ETOP Study
Involves dividing the environment into different

sectors and then analyzing the impact of each sector


ETOP for a bicycle company Environment Social Political Impact Customer preference for sports cycles which are fashionable, easy to ride and durable No significant impact

Economic
Regulatory Market Technological - Favorable impact

Growing affluence among urban consumers, export potential high


Bicycle industry a thrust area for exports Industry growth rate for sports cycles is high at 30% Technological up gradation in progress - Neutral impact - Unfavorable impact

Dimensions of ETOP
Issue selection 2. Accuracy of data 3. Impact studies 4. Flexibility in operations
1.