TY BBA , SEMESTER-V

UNIT 1 – INTRODUCTION TO BUSINESS

ENVIRONMENT
 What is Business?
It is a continuous production and
distribution of goods and services with the
aim of earning profits under uncertain
market conditions.

It is a form of regular activity conducted

with an objective of earning profits for the
benefit of those on whose behalf the
activity is conducted.
 Nature of Business
An activity to earn profit by providing
goods/services

Main purpose should be earning i.e.

economic activity
An activity is said to be economic, if the purpose is
to earn profit not social service. i.e Running
restaurant – economic activity whereas ……
 Characteristics of Business
 Exchange of goods and services
 Deals in numerous transactions
 Profit is the main Objective
 Business skills for economic success
 Risks and Uncertainties
 Buyer and Seller
 Connected with production
 Marketing and Distribution of goods
 Deals in goods and services: Consumer goods &
Producer goods
 To Satisfy human wants
 Social obligations
 Objectives of Business
Profit
Growth
Customer Satisfaction
Employee Satisfaction
Quality products and services
Market Leadership
Employment creation
Service to Society
What is Business Environment?
 It is defined as the total surroundings, which
have a direct or indirect bearing on the
functioning of business. It may also be defined
as the set of external factors, such as economic
factors, social factors, political and legal factors,
demographic factors, technical factors etc.,
which are uncontrollable in nature and affects
the business decisions of a firm. It also includes
the internal factors of the business i.e. owners ,
employees and their relationship with each other
which can be controlled to some extent.
 Features of Business
Environment
 Business environment is the sum total of all
factors external to the business firm and that
greatly influence their functioning.
 It covers factors and forces like customers,
competitors, suppliers, government and the
social, cultural, political, technological and legal
conditions.
 It also includes the internal factors of the
business i.e. owners , employees and their
relationship with each other .
 Features of Business
Environment
 Business Environment differs from place to
place, region to region and country to country.
Political conditions in India differ from those in
Pakistan.

 Taste and values cherished by people in India

and China vary considerably.
 Types of Business Environment

 Internal Environment

 External Environment
 Internal Environment

 The factors which can be controlled by company

or

 Primary factors which directly affects the growth

of organization….. man, material, money,
machinery and management.
Types of Internal Environment

 Value System
 Mission & Objectives
 Management Structure and Nature
 Internal Power relationship
 Human Resources
 Company Image & Brand Equity
 Miscellaneous Factors
 External Environment
 Those factors which are beyond the control of
business enterprise are included in external
environment.
 External Environment is divided into two parts
 Micro Environment: The environment which is close to
business and affects its capacity to work is known as
Micro Environment.

 Macro Environment: It includes factors that create

opportunities and threats to business units. Following
are the elements of Macro Environment.
 Micro Environment
 Suppliers  Market Intermediaries
– Middleman
 Customers – Marketing Agencies
– Wholesalers –Financial Intermediaries
– Retailers – Physical Intermediaries
– Industries
– Government and  Competitors
Other Institutions
– Foreigners  Public
 Macro Environment
 Economic Environment: It is very complex and
dynamic in nature that keeps on changing with
the change in policies or political situations. It
has three elements:

 Economic Conditions of Public

 Economic Policies of the country
 Economic System
 Other Economic Factors: Infrastructural Facilities,
Banking, Insurance companies, money markets,
capital markets etc.
 Macro Environment
 Non-Economic Environment: Following are
included in non-economic environment:
 Political Environment: It affects different business
units extensively. Components are –
Political Belief of Government
Political Strength of the Country
Relation with other countries
Defense and Military Policies
Centre State Relationship in the Country
Thinking Opposition Parties towards
Business Unit
 Macro Environment
 Socio-Cultural Environment
Influence exercised by social and cultural factors, not
within the control of business, is known as Socio-
Cultural Environment.
These factors include: attitude of people to work,
family system, caste system, religion, education,
marriage etc.
 Technological Environment
A systematic application of scientific knowledge to
practical task is known as technology.
Everyday there has been vast changes in products,
services, lifestyles and living conditions, these
changes must be analyzed by every business unit
and should adapt these changes.
 Macro Environment
 Natural Environment

It includes natural resources, weather, climatic conditions,

port facilities, topographical factors such as soil, sea, rivers,
rainfall etc.
Every business unit must look for these factors before
choosing the location for their business.
 Demographic Environment

It is a study of perspective of population i.e. its size, standard

of living, growth rate, age-sex composition, family size,
income level (upper level, middle level and lower level),
education level etc.
Every business unit must see these features of population
and recognize their various needs and produce accordingly.
 Macro Environment
 International Environment

It is particularly important for industries directly

depending on import or exports.

The factors that affect the business are

 Globalization
 Liberalization
 Foreign business policies
 Cultural exchange
 Environmental Analysis
 Environmental analysis is a strategic tool. It is a process
to identify all the external and internal elements, which
can affect the organization’s performance. The analysis
entails assessing the level of threat or opportunity the
factors might present. These evaluations are later
translated into the decision-making process. The
analysis helps align strategies with the firm’s
environment.

 The most used detailed analysis of the environment is the PESTLE

analysis.

 PESTLE analysis consists of various factors that affect the business

environment.
 Environmental Approaches
 Outside-in approach

 Inside-in approach
 Importance of Environmental
Analysis
 Identification of strength
 Identification of weakness
 Identification of opportunities
 Identification of threat
 Optimum use of resources
 Survival and growth
 To plan long-term business strategy
 Environmental scanning aids decision-making
 Limitation of Environmental
Analysis
 Lack of Forewarning of Unforeseen Events

 No Assurance as to Organization Effectiveness

 Not fully Reliable

 Absence of Strategic Approach

 Process of Environmental
Analysis
Scanning the environment to detect
warning signals
Monitoring specific environmental threats
Forecasting the direction of future
environmental changes
Assessing current and future
environmental changes for their
organizational implications
 Scanning
Scanning is the process of analyzing the
environment for the identification of the
factors which impact on or have
implications for the business. Such factors
may include those which have appeared
suddenly or evolved over the time,
identification of emerging trends etc.
 Monitoring
It is a perspective follow up and a more in
depth analysis of the relevant
environmental trends identified at the
scanning stage. The effort here is more
focused and systematic than in scanning.
The purpose of monitoring is to assemble
sufficient data to discern whether certain
patterns are emerging. However they are
likely to be a complex of discrete trends.
 Forecasting
Anticipating the future is essential for
identifying the future threats and
opportunities and for formulating strategic
plans. Forecasting is concerned with the
development of the plausible directions,
scope, speed and intensity of
environmental change, to lay out the
evolutionary path of anticipatory change.
 Assessment
The purpose of environmental analysis is
to assess the impact of the environmental
factors on the organizations business or
their implications for the organization.
Assessment thus involves drawing up
implications/ possible impacts.
 Steps in Environmental
Forecasting
Forecasting is a process of predicting or
estimating the future based on past and
present data.

Identification of relevant Environmental

variables
Collection of information
Selection of forecasting technique
Monitoring
 Identification of relevant
environmental variables
 Include all variables that would have a
significant impact although their probability of
occurrence is low

 Disregard major disasters such as nuclear war

 Aggregate when possible into gross variables

 If the value of one variable is based on the value

of the other, separate the dependent variable for
future planning
 Collection of Information
This involves identification of the sources
of information, determination of the types
of information to be collected, selection of
methods of data collection and collection
of the information.
 Selection of forecasting
technique
• The choice of forecasting depends on
such considerations as the nature of
forecast decision, the amount and
accuracy of available information, the
accuracy required, the time available, the
importance of the forecast, the cost and
the competence and interpersonal
relationships of the managers and
forecaster involved.
 Types of Forecasting
Economic forecast
Social Forecast
Political Forecast
Technological Forecast
 Monitoring
The characteristics of the variables or their
trends may undergo changes.
New variables may emerge as critical or
the relevance of certain variables may
decline.
Sometimes the changes may be very
significant so as to call for a re-forecasting.