Business Environment Mr Manish Kumar IN THIS UNIT

Business Environment Mr. Manish Kumar

IN THIS UNIT YOU WILL STUDY ABOUT • Nature and significance of business environment. • Environment analysis. • Social responsibility of business and business ethics.

NATURE AND SIGNIFICANCE OF BUSINESS ENVIRONMENT CHAPTER 1

BUSINESS ENVIRONMENT Business Environment The environment includes factors outside the firm which can lead to opportunities for threats to the firm. Social Legal Business is an organised effort by individuals to produce goods and services in market place, and to reap some reward for these efforts. Economical Political

Business environment “ Business environment is the aggregate of all conditions, events and influences that surrounds and affect it” Keith Davis “Business environment is the climate or set of conditions-economic, social, political or institutional in which business operation and conducted” Arther M. Weimer “Business Environment is the total of all things external to business firms and industries which affect their organisations and operations” Bayard O. Wheeler

Features/ Characteristics of Business Environment Relativity Uncertainty Dynamic nature Specific and general Totality forces of external forces

Importance of business environment Firm to identify opportunities and getting the first mover advantage Firm to identify threats and early warning signals Coping with rapid changes Improving performance

Components of business environment Internal Environment External Environment

Internal Environment MATERIAL Y NE O M MA CH NE RY MA N NT ME GE NA MA Factor in control of business enterprise and can alter them according to their need

EXTERNAL ENVIRONMENT Macro environment Micro Environment Factors beyond the control of business enterprises are included in external environment.

dle n ma Ma rk age eting nci es Int erm. Finan edi cial ari es Int erm Phys edi ical ari es Mid s Go ver and nmen ins t titu other tio ns aile r Ret s ner eig For s ers rie ust Ind sal Wh ole rs plie Sup rs rie s pet ito lic Pub Com Ma Int rket erm edi a ers tom Cus Micro/Operating Environment The environment which is close to business and affects its capacity to work is known as Micro or operating environment

Macro/ General Environment Political Belief of Government Economic conditions of public Economic policies of the country Economic system Economic Environment Demographic Environment Socio-Cultural Environment Technological Environment Natural Environment It includes factors that create opportunities and threats to business units. Political Strength of the country Relations with other countries Defence and military policies Centre state relationship in the country

Factors affecting business environment Internal external

Internal Environment Value System Mission Objective Management Structure & Nature Physical Assets Internal Power Relationship Human Resource Miscellaneous Factors Research & development & Technological Capabilities Marketing Resources Financial Factors

External Environment • External Environment are by and large beyond the control of management & are regarded as uncontrollable factors. • Some of the external factors have direct impact on firm (Supplier & Distributor) & are called Micro Environmental Factor. • There are other external factors which affect on industry and are called macro environmental factor. Micro Environmental Factors Macro Environmental Factors

Micro Environment tors mpeti Co sto rs e m pp an ce rs cs bli Su Fin Pu lie rs Cu Mar Intermketing ediari es

Macro Environment Socio. Cultural Environment Demographic Environment International Environment Economic Environment Science & Technology Political and legal Environment

Chapter 2: Environment Analysis

Environment analysis • The approach of analysing the environment is formal forecasting and there are various techniques to study them. • 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. • These evaluations are later translated into the decision-making process.

Division of environment analysis Environmental evolution Stages of environmental analysis

Environmental Analysis • Environmental evolution can be completely predictable and sometimes it is dependent upon actions of the firm or other entities in the environment. • Sometimes changes in one segment may be result of driving forces in another segment. It includes: Types of future Forces evolution driving Types of changes

Objectives of environmental analysis • Analysis should provide understanding of current and potential change talking place in the task environment. • Environmental analysis should provide inputs for strategic decision making.

Stages of environment analysis Assessment Forecasting Monitoring Scanning Monitoring Forecasting Assessment

Scanning • Scanning involves general surveillance of all environmental factors & their interaction in order to: Identify early signals of possible environmental change, and Detect environmental change already underway. • Environmental scanning is used as an overview wide range of phenomenon in the environment, projected usually in a time period beyond the typical formula planning range and designed to stimulate thinking of managers and staff about potential events that will have an important impact on company affair.

Significance of Environment Scanning • Optimum utilisation of resources. • Strategic management starts with environment scanning. • Helps in converting threats into opportunities. • Constant monitoring of the environment. • Useful for the managers in compare the overall economic performance of the companies • Prediction of future.

Monitoring • Monitoring involves tracking the environmental trends sequence of events, or stream of activities. • The purpose of monitoring is to assemble sufficient data to discern whether certain trends and patterns are emerging. Three outcome emerge out of monitoring A specific description of environment trends & pattern to be forecast. The identification of trends for further monitoring The identification of areas for furthers scanning

Forecasting • Forecasting is concerned with developing probable projections of the direction, scope and intensity of environment change. It tries to layout the evolutionary path of anticipated change. Scanning Monitoring Forecasting Assessment

Techniques of Environmental Forecasting Expert opinion Market experiments Survey Delphi method Time series analysis( Trend Analysis, Seasonal Analysis, Cyclical Patterns, Random Fluctuations) • Scenario Planning • Issue Analysis • Trend Projections (Graphical Method, Least Square Method) • • •

Assessment • Assessment involves identifying and evaluating how and why current and projected environment changes affect or will affect strategic management of the organisation. • Scanning, monitoring and forecasting are not end in themselves unless their output are assessed to determine implications for the organisations current and potential strategies.

Limitations of environmental analysis • Environmental analysis does not foretell the future, nor does it eliminate uncertainty for any organisation. • Environmental analysis on and off itself is not a sufficient guarantor of organizational effectiveness. • The potential of environmental analysis is often not realized because how it is practised. • Too much reliance is often placed on the information collected through environmental scanning. When there is overloading of information, one is likely to get lots and become inactive.

Chapter 3: Social responsibility of Business and Business ethics

Social Responsibility of Business • Obligation to act in a manner which will serve the best interest of the society. • The social obligation is different from legal obligation. • Social responsibility is based on the assumption that “What is good for the society is also good for the business”.

Social responsibility of Business means • Conducting business in an ethical way and in the interests of the wider community. • Responding positively to emerging societal priorities and expectations • A willingness to act ahead of regulatory confrontation • Balancing shareholders interests against the interests if the wider community • Being a good citizen in the community.

Social Responsibility “ A social responsibility of business refers to the obligation of business to pursue those policies to make those decisions or to follow those lines of action which are desirable in terms of the objectives and value of society. ” Koontz and O’Donnell “Business has only economic objective” View Classical “Business is an ecological and according to which business is an integral part of the society to serve a social purpose” Contemporary Views

Dimensions of Social responsibilities Economic Voluntary and Philanthropic Being a good corporate citizen Ethical Dimensions of social responsibilities of business Legal

Environment Scope of Social responsibility Consumers SCOPE Human Resources Community Involvement

Importance of Social responsibility of Business Need of Social responsibility Avoidance Morale of Social Entity Self Interest Public Image Justification government intervention Consumer Awareness

Social Responsibility of business towards different interest group Investors Community & Society Creditors Government Employees Suppliers Consumers

Responsibility towards owners/ investors • The primary responsibility of management is to assure a fair, reasonable rate and regular return on investment of owners or shareholders. • To ensure the safety of investment • To strengthen the financial position of the company so as to ensure capital of the company. • To keep the owner well informed about the progress and financial position of the company. • To safeguard the assets of the business. • To protect the interst of all types of investors in the business.

Responsibility towards employees • To pay the fair wages and salaries to its employees so that they may satisfy their needs and lead a good life. • To provide the good working conditions to maintain the health of the workers. • To provide the service benefits such as housing and medical facilities, insurance in the business. • To win the cooperation of the workers by creating better human relations in the business • To recognize the worker’s right to participate in decision affecting their working life, to form trade unions and to go on strike for the protection of their intersts. • To provide adequate opportunities to the workers to develop their skills through training and education.

Responsibility towards customers • To produce the goods which meet the needs of the consumers of different class, tastes and with different purchasing power. • To provide the goods to the customers at reasonable prices. • To provide prompt, adequate and courteous services to the consumers. • To handle the customers grievances quickly and carefully. • To ensure regular supply of goods and services. • To follow fair trade practices.

Responsibility towards suppliers • To ensure regular payments to the suppliers. • To assist the small scale suppliers by placing orders with them. • To avoid exploitation of the suppliers. • To help the suppliers in improving the quality f their products.

Responsibility towards the governments • To abide by the laws of the nation and also policies of guidelines issued by the government. • To pay taxes honestly and in time to the government • To avoid corrupting government employees • To discourage the tendencies of concentration of economic power and monopoly • To encourage fair trade practices in the country. • To adopt fair dealings in foreign trade.

Responsibility towards the community and society • To work for the improvement of the local environment where the plant is located. • To provide for welfare of the local community through opening dispensaries, etc. • To ensure safety of local surroundings • To take steps against air, water and noise pollution. • To ensure efficient use of national resources. • To generate employment opportunities • To provide high quality product to the society. • To improve the quality of life of the workers.

Responsibility towards creditors • Provide accurate information regarding the financial position of the organisation. • Ensure a reasonable price for the articles supplied, and make prompt repayments. • Promote a healthy atmosphere where creditors, are treated as patterns in a cooperative endeavor

Business Ethics • The term business ethics refers to the system of moral principles and rules of conduct applied to business. • There should be business ethics means that the business should be conducted according to certain self recognised moral standards. • “There is neither is a separate ethics of business not is one need” Peter Drucker

Ethical principle that a business should follow • Do not deceive or cheat customers by selling sub-standard o defected products, by under-measurement or by any other means. • Do not resort to hoarding, black marketing or profiteering. • Do not destroy or distort competition. • Ensure sincerity and accuracy on adverting, labelling and packaging. • Do not tarnish the image of competitors by unfair practices. • Make accurate business records available to all authorised persons. • Pay taxes and discharge over obligation promptly • Do not cartel agreement, even informal, to control production, price, etc, to common detriment • Refrain from secret kick backs or pay off to customers, suppliers, administrators, politician, etc. • Ensure payment of fair wages to and fair treatment of employees.

Business and culture • The business culture of India is a reflection of the various norms and standards followed by its people. • Culture is a shared, learned, symbolic, system of values beliefs and attitudes that shapes and influences perception and behaviour- an abstract “mental blueprint” or “medical code” • Culture is the systems of knowledge shared by a relatively large group.

Characteristics of culture Learned Internalised Shared Characteristics of culture Arbitrary Patterned Symbolic Mutually Constructed

Levels of Culture The National Level The regional Level The gender level The social Level The Corporate level

Culture and Organisational Behaviour Centralised Vs Decentralised Decision Making Stability Vs Innovation Safety Vs Risk Co-operation Vs Competition Individual Vs Group reward Informal Vs Formal Procedures

Question and Answer Session