SUSTAINABLE BUSINESS

ADMINISTRATION
TOWARDS SUSTAINABILITY IN
BUSINESS.
SUSTAINABLE BUSINESS
ADMINISTRATION
UNIT 1 : INTRODUCTION - BUSINESS
ENVIRONMENT – ENVIRONMENT IMPACT ON
BUSINESS – SOCIAL, ECONOMIC, POLITICAL,
CULTURAL, LEGAL AND CONSTITUTIONAL
SUB-SYSTMEMS OF ENVIRONMENT AND
THEIR IMPACT ON BUSINESS - COMPONENTS
OF ENVIRONMENT.
 BUSINESS EVIRONMENT

Environment : The term “environment”

refers to the totality of all the factors which
are external to and beyond the control of
individual business enterprises and their
managements.
 Business Environment
Major components of Business
Environment
Business Environment

Macro-Environment Micro-Environment
Factors Affecting Business Environment
Components of Macro Business
Environment.
Social Economic

Environment

Political
Physical
 Propositions on Business
Environment
Three basic propositions are given below :
1. Business is an economic and strategic
activity.
2. A business firm is an economic unit
existing in the context of a given
environment.
3. Business decision-making is an economic
and strategic process happening in the
context of such an environment.
 Objectives of a Business

The whole range of Human activities can be

classified in to :
1. Economic and Non-Economic activities.
Economic activities are further divided in to :
1. Business 2. Profession and 3. Employment.
Business is concerned [ie; business objectives]
with production and/ or exchange of goods and
services carried with the primary objective of
earning profits.
Activities concerned with the rendering of
personalized services of a specialized nature come
under profession.
 Objectives of a Business
Employment refers to the activity assigned to a
person by the employer under an agreement or
rules of service/engagement.
The main features/objectives of a Business
activity are:
1. Dealing in Goods and Services.
2. Production and/ or Exchange.
3. Regularity in dealings [ continuous
provision for production/exchange/service.]
The main objective of Business is to make
PROFIT.
Objectives of a Business

5. To bear risk in case of uncertainty.

6. Enterprise building [Entrepreneurial activity.]
7. Serving the Community/Society and the
Government.
8. Serving other stakeholders like shareholders,
intermediaries and customers.
Besides earning profit, Business organizations also
serve certain economic, [ helps in increasing
economic growth - > GDP] social [generating
employment, offering better standard of living to
people by offering new products and services] and
human objectives [meaningful engagement to people
employed and associated with Business.].
Environment’s influence on Business
The External Environment holds
considerable power over the Business
organization both by virtue of its being more
global and inclusive and also by virtue of its
command over information and other inputs.
Environment offers a range of opportunities,
incentives and rewards on the one hand and a
set of constraints, threats and restrictions on
the other. [SWOT analysis is used by
organizations to scan the environment.]
Environment’s influence on Business

In both ways, the organization is

conditioned and constrained.
The external environment is also in a
position to impose its will over the
organization and force it to fall in line.
Government control over the organization
is one such power relationship … other
organizations, competitors, customers,
suppliers, investors etc. also exercise
considerable influence over the managerial
processes of the organization.
Environment’s influence on Business

The influence of environment on the

organization is universal, as it depends on the
environment not only for procurement of
inputs, but also for sale of its output.
If the organization does not fulfill the norms
and requirements of society, it may not be able
to get further inputs and its products may be
rejected by the customers.
Sometimes , the organization may also be in a
position to wield considerable power over
some of the elements of EE by virtue of its
command over resources and information.
Environment’s influence on Business

To the extent that the organization is able

to hold power over the environment, its
autonomy and freedom of action is
increased.
It can dictate terms to the external forces
and mould them to its will , if it has greater
degree of power over the environment.
The dependence and influence between the
organization and the EE is reciprocal to a
considerable extent.
Environment’s influence on Business

Interdependence sometimes brings about

collaboration and cooperation between the
organization and the external elements.
The nature of relationship between the
organization and the environment depends
on the size of the organization, its prestige,
nature of business, professionalization of
management, managerial processes like
communication, decision making,
motivation and control etc.
Environment’s influence on Business
Italso depends on the fact whether the
external environmental elements behave in a
random or structured manner, whether such
elements are placid or turbulent, whether they
are slow-changing or fast-changing and
whether they are simple or complex and so
on.
Organizations undertake scanning of the
environment from a strategic point of view to
understand the potential opportunities and
threats in the environment.
Environment’s influence on Business

 A Business Organization is an “Open

System” – that exchanges information and
resources with its environment.
It gets inputs such as materials , capital,
energy, human resources and information
from the environment.
The inputs are transformed in to products
and services which are supplied as outputs
to the environment.
Every organization has 2 types of
environment – internal and external.
Environment’s influence on Business
Environment’s influence on Business

Internal environment includes techniques of

production, structure, management
philosophy, human relations etc.
External environment represents forces
outside the organization and potentially
affects/influence its performance.
It is essential for organizations to understand
their external environment and take steps to
cope with the changing environment.
Organizations exist in the context of a given
society [socio-economic system].
 Environment’s influence on Business
No organization operates in a vacuum. It is
essentially influenced by the environment.
Business organizations derive their existence from
the environment. The formulation of corporate
strategy, the identification of its business mission
and purposes are largely governed by the top
management’s view of environmental
opportunities and threats.
A number of forces and factors combine to form
an opportunity or threat. Scanning the
environment is a prerequisite in any strategic
decision and SWOT is one technique of
Environmental analysis.
Characteristics of Business Environment
The difficulty in studying the Business environment
arises due to the following characteristics of the BE.
1.Complex: Environment consists of a number of
forces that interact with each other to create entirely
new set of forces, which make it complex.
The more complex the environment, the more
variables have to be taken in to consideration and
hence more difficult to make effective decisions.
The difficulty in coping with the wide range of
environmental influences is what makes the
strategic management complex.
Characteristics of Business Environment
2. Dynamic : The environment of an
organization is never static. It is constantly
changing.
Changes in technology, government
regulations, competitive forces etc. compel
organizations to shift gears and change
direction quite often.
At times, there could be too many changes
in too little time leading to surprises in the
market place [Toffler].
Characteristics of Business Environment
3. Uncertain : Environmental uncertainty
means the degree of complexity plus the
degree of change existing in an organization’s
external environment.
As more and more markets become global,
the number of factors a company must
consider become huge – that is it becomes
more uncertain.
With new technologies being discovered
every year, markets change and products must
also change with them.
Characteristics of Business Environment

On the one hand , environmental uncertainty is

a threat to strategic managers, because it
hampers their ability to develop long-range
plans and to make strategic decisions to achieve
a fit between the organization and the
environment.
On the other hand, environmental uncertainty is
also an opportunity, because it creates a new
playing field in which creativity and
innovation can have a major part in strategic
decisions.
Characteristics of Business Environment
4. Turbulent : When the rate of change in the
environmental factors is so fast that it makes the
environment unpredictable, such a phenomenon is called
“turbulence”.
Peter Drucker called this phenomenon “discontinuity” ,
because the things happening around the firm are almost
totally disconnected from the past experience of the firm.
Since the environment is complex, dynamic, uncertain
and/or turbulent and has far reaching impact on the
functioning of the firm, strategic managers have a clear
understanding of the environment in which they and their
organizations operate. This is done through
Environmental Analysis.
COMPONETS OF BUSINESS
ENVIRONMENT
Business Environment is the totality of
forces and entities that surround and
potentially affect the business of an
organization – its exchange of a particular
product / service.
BE is the aggregate of all conditions,
events and influences that surround and
affect a business organization.
Components of External Environment
From the perspective of Strategic
management, managers/organizations may
have to identify opportunities and threats
present in the environment. For this purpose ,
the total environment is generally examined
in three segments . These segments are :
1. Macro or Mega Environment.
2. Operating or Relevant Environment.
3. Industry or Competitive or Micro
Environment.
Components of External Environment
Macro Environment
The external environment consists of all those
factors which provide opportunities or pose
threats to the organization.
In a wider sense, the EE encompasses a
variety of factors like : political system,
economic forces, social changes, technological
advancements, legal changes, ecological
factors and many other macro level factors.
Macro environment is also called “remote
environment” or “mega environment” or
“general environment”. Some authors call this
“societal environment” or PESTEL factors.
Operating Environment
All organizations in some way or other are
affected by the general environment and it is
beyond the control of any single firm.
But the immediate concern of a firm is confined
to just a part of the general environment, which
is of high strategic relevance to the firm.
This part of the environment is termed as
‘relevant’ , ‘task’ or ‘operating’ environment. It
consists of suppliers, customers, financial
institutions, marketing intermediaries,
regulatory bodies and relevant factors in the
macro environment.
Variables in Societal Environment

30
International Societal Environments

31
Industry Environment

An industry is a group of firms producing a

similar product or service. Many business firms
have a diversified product mix which includes
product lines like machinery for cement plants,
electrical switchgear, computer peripherals and
so on.
Each product line belongs to a specific industry.
Through industry analysis, an organization, can
examine the structural realities of particular
industry and the extent of competition within
that industry.
Industry Environment
A firm can also find whether chosen field is
attractive or not and assess its own position
within the industry.
Industry analysis helps a firm find answers to
two questions basically. “ What characteristics
of the industry are important” and “how can a
manager enhance performance given those
characteristics?”.
When managers are able to pursue a strategy
that exploits the industry opportunities and
reduce negative impacts, the firm performs
better than its rivals in the industry.
Impact Of Environment on Business

ENVIRONMENTAL FACTORS
GOVERNMENTAL INTERNATIONAL
ECONOMICAL

POLITICAL
TECHNOLOGICAL

FIRM/BUSINESS
LEGAL
SOCIETAL

CULTURAL

34
Relationship between organization and
environment
We may view organization as an “input-output
system” which is linked with the external
environment in terms of certain flows and
processes.
As a system organization is concerned with 2
types of flows – flow of resources or inputs and
information in to the system and flow of
outputs and information to the environment.
The inputs obtained from the environment are
transformed in to outputs desired by the society.
Relationship between organization and
environment
Transformation involves use of specific
technology [machines, equipments etc] and
managerial processes including
communication, decision making,
motivation and control.
These processes also determine the nature
of organizations’ interface with the
environment.
The interface between the organization and
its environment is a 2 way process.
Relationship between organization and
environment
The relationship between the organization
and its environment may be studied in
terms of the following types of flows and
processes.
1. Exchange of Resources [ Flows of inputs
and outputs]
2. Exchange of Information.
3. Exchange of Influence.
Various elements of Micro and Macro
Environment
VARIOUS ELEMENTS OF VARIOUS ELEMENTS OF
MICRO ENVIRONMENT MACRO ENVIRONMENT
SUPPLIERS LEGAL
MARKETING INTERMEDIARIES POLITICAL
MARKETS : TYPES AND ECONOMIC
DEMAND
COMPETITION TECHNOLOGICAL
E-COMMERCE SOCIO-CULTURAL
SKILL LEVEL OF WORK FORCE NATURAL ENVIRONMENT
INDUSTRIAL RELATIONS
CLIMATE
REGULATORY PROVISIONS
FINANCIAL INSTITUTIONS
Elements of the Micro Environment
Elements of the Macro Environment
Competitive Environment
The policies and practices of competitors have
direct influence on a business unit.
If the competitors reduce the price of a product
or improve the quality, the concerned business
unit will face the threat of falling sales, if it
does not take appropriate actions immediately.
Competitive environment means how the
competitors are positioned with respect to a
given firm and how dynamics of the industry is
changing with reference to the actions of
various players. Clear picture is obtained by
industry analysis.
Porter’s Five Forces Model
In 1979, the Harward Business Review published
the article “ How competitive forces shape
strategy” by Harward Professor Michael Porter.
It started a revolution in the strategy field. In
subsequent decades, “ Porter’s Five Forces” have
shaped a generation of academic research and
business practice.
In essence, the job of the strategist is to
understand and cope with competition.
Porter’s FFM has been the most commonly used
analytical tool for examining competitive
environment.
Porter’s Five Forces Model
Porter’s Five Forces Model
According to this model, the intensity of
competition in an industry depends on five
forces. These are:
1. Threat of new entrants .
2. Intensity of rivalry among industry
competitors.
3. Bargaining power of buyers.
4. Bargaining power of suppliers.
5. Threat of substitute products and
services.
 Porter’s Five Forces Model
Each of these forces affects a firm’s ability to
compete in a given market. Together they
determine the profit potential for a particular
industry.
To understand industry competition and
profitability, one must analyze the industry’s
underlying structure in terms of the five forces.
Porter argues that the stronger each of these
forces are, the more limited is the ability of
established companies to rise prices and earn
greater profits.
NATURAL ENVIRONMENT – NATURAL
RESOURCES

Business firms depend on natural resources.

The extent to which the country/region under
reference is endowed with these resources
impacts the functioning of the firms.
Raw materials are one major part of theses
resources and firms are concerned with their
availability; they need to know whether there
will be shortage in any of the critical raw
materilas.
NATURAL ENVIRONMENT – NATURAL
RESOURCES
They also need to know the trends
governing their costs.
Besides , raw materials they are also
concerned about energy, its’ availability as
well as cost. [ the reserves of fossil fuels are
depleting and alternative sources of energy –
like wind energy, solar energy , tidal energy
etc. are to be tapped.].
Escalation of energy cost is of particular
concern to any Business firm.
ECOLOGY

Firms are also concerned with ecology. In modern

times, all societies are very much concerned about
ecology, especially about issues like environmental
pollution, protection of bio-diversity, wild life and
ocean wealth.
And Governments are becoming active bargainers
in environmental issues.
Business will have to know the nature and
dimensions of environmental regulations and to
what extent these factors will affect their business
prospects.
They also need to know the role of environmental
activists in the region.
 GREEN MARKETING
There is now a greater concern for environment from
the consumers’ side.
All consumers expect companies to reduce their
adverse impact on the environment.
This is the general expectation of the general public
as well.
The point is that in future, companies cannot go by
growth irrespective of “any cost” to the environment.
As society has become more concerned with the
environment, businesses have begun to modify their
behaviour and strategies in an eco-friendly manner.
GREEN ECONOMY
UNEP [United Nations Environment
Programme] describes green economy as one
that results in improved human wellbeing and
social equity, while significantly reducing
environmental risks and ecological scarcities.
Governments may have to insist on green
policies . Insisting Green Protocol for public
functions and meetings is a right step in this
direction. [Avoiding plastics will to a great
extent reduce the environmental pollution.]
GREEN MANAGEMENT

Sustainable management – green

management means, managing Business
processes based on their environmenatal
benefits.
Green management [Sustainable
management] means adopting business
strategies and activities that protect, sustain
and enhance the human and natural
resources that will be needed in the future,
even while meeting the needs of the
enterprise and its stakeholders today.
GREEN MANAGEMENT

Green and sustainable management is

associated with reduction of carbon
emission, thus minimizing the use of
energy by improving processes and
efficiency.
 SUSTAINABLE BUSINESS –
SUSTAINABLE RESOURCE UTILIZATION

Growing civil society awareness and

tougher regulations by the state will drive
Business policies.
Competitiveness as well as profitability will
increasingly depend on a company’s ability
to adopt sustainable business practices with
respect to utilization of natural resources
and environmental protection.
SUSTAINABLE RESOURCE UTILIZATION

Business organizations will be required to

craft strategies that not only deliver unique
value to customer, but concurrently ensure
positive environmental foot print.
Environmental analysis has strategic
implications … future is GREEN … THAT
IS THE WAY FORWARD … here lies the
significance of SUSTAINABLE
BUSINESS ADMINISTRATION.