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INTRODUCTION TO BUSINESS ENVIRONMENT

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Introduction to BE

Meaning and definition

The set of external factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors, geophysical factors, which are uncontrollable in nature and affect the business dimensions of a firm or a company.

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Importance of the study

Helps the organization to develop broad strategies and long term policies to analyze competitors strategies to keep the organization dynamic in approach the organization to foresee the impact of various changes in the external environment onIntroduction to BE its stability 4/1/12

Helps Helps

Enables

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The Business Environment

Internal External The The

Environment Environment

Micro Environment Macro Environment

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Internal Environment
Value

system and objectives Structure and nature Power Relationship Resources Image and Brand equity factors
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Mission

Management Internal Human

Company

Miscellaneous

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The Micro Environment

Suppliers Customers Labour Business

associates agencies

Competitors Regulating

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The Macro Environment

Economic environment
Economic Economic Economic Interest

conditions policies growth

rates exchange rates

Currency

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Political and Government environment

Legislature Executive Judiciary

Socio-cultural environment Natural Environment

Natural

resources endowments and climate conditions factors 4/1/12

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Weather

Topographical

Demographic environment
Size,

growth, composition of population size stratification of population level

Family

Economic

Educational Caste,

religion etc.

Technological environment International environment

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Competitive Structure of Industries

The state of competition in an industry depends on five basic competitive forces:
v Rivalry v Threat v Threat

among existing firms of new entrants of substitutes power of suppliers power of buyers
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v Bargaining v Bargaining

Nature of Business Environment

Complexity-

refers to the heterogeneity and range of activities that are relevant to an organizations operations.

Advantages of dealing with simple environment:

Fewer No

critically important information categories for decision making need to process complex Introduction to BE information 4/1/12
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Volatilityv the

refers to the degree of change that depends on frequency of change in relevant activities of difference involved in each of irregularity in the overall patterns of change

v Degree v Degree

Affects the task performance of the organizations

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Capacity

refers to the degree to which it can support growth

The environment can be of three types;

v Stable

environment environment environment

v Changing v Turbulent

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(i) Flow of inputs

Materials: Energy Information

Nature of organization environment interface

Operational and Product

(ii)Processes
Related

to the conversion of inputs into outputs for holding the various elements of the organization
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Necessary

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Implications of organization environment interaction:

The

organizational response to the environmental forces may not be uniform for different organizations; it is affected by different internal factors also. effects of various environmental factors on different sections of the organization. of environmental forces on the organization may not be quite 4/1/12 Introduction to BE deterministic.

Different

Impact

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The

environment is quite dynamic and turbulent and not static. The rate of change may also be different over the periods of time. organisation may also be in a position to wield considerable power over some of the elements of the external environment by virtue of its command over resources and information. dependence and influence between the organization and the 4/1/12 Introduction to BE environment is reciprocal to a large

The

The

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Problems in the organizationenvironment interface

Uncertainty Interdependence

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Strategies to deal with the environment

Strategies for insulation of the Organization Help to insulate the organization from the sources of uncertainty in the environment for minimizing the negative impacts of the environmental forces
Buffering:

enables the management to maintain operations when there are shortages of raw materials and when there are peaks and valleys in demand 4/1/12 Introduction to BE 18 for its products.
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Strategies for gaining control over the environment Aim at reducing the organizational dependence on the environment by increasing its power or control over some aspects of the environment
Creation

of prestige

Agreements Cooptation Procurement Lobbying

of key personnel
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Strategies for organizational adaptation

Adaptation Adaptation

of organizational structure of systems and processes

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