148594955 94515505 Business Environment Ppt

8/13/2019 148594955 94515505 Business Environment Ppt

1/53

Business

Environment

-Purpose of Business Business may be in simple words understood as the organized efforts of enterprise

to supply consumers with goods and services for a profit.

However the purpose of business is not earning profits only.

Business is an important institution in society for the supply of goods and services.

Business helps in Creation of job opportunities

Business offers better quality of life

Business contributes to the economic growth of the country.


2/53

Business Goals

What can be set out as business goals?

Profit - Making profit is the primary goal of any business enterprise.

Growth - Business should grow in all facets over a period of time.

Power - Business houses have vast resources at its command and theseconfer enormous economic and political power.

Employee satisfaction and development - Business is people. Caring for

employee satisfaction and providing for their professional development is oneof the stated objectives of enlightened business enterprises.

Quality Products and ServicesEstablished and consistent quality ofproducts earns brand loyalty, a vital ingredient of success.


3/53

Business Goals

Market Leadership - To earn a niche for oneself in the market,innovation is one of the key factors.

Challenges of creation - Business offers vast scope and poses

formidable challenges.

Joy of creation - It is through business strategies new ideas andinnovations are given a shape and are converted into useful productsand services.

Service to society - Business is a integral part of society and has severalobligations towards it.


4/53

Business Environment

Environment of a business means the external forcesinfluencing the business decisions. They can beforces of economic, social, political and technological

factors.

These factors are outside the control of the business.The business can do little to change them.


5/53


Features of Business environment

Totality of external forces: Business environment is the sum total of all thingsexternal to business firms and, as such, is aggregative in nature.

Specific and general forces: Business environment includes both specific andgeneral forces. Specific forces (such as investors, customers, competitors andsuppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technologicalconditions) have impact on all business enterprises and thus may affect anindividual firm only indirectly.

Dynamic nature: Business environment is dynamic in that it keeps on changingwhether in terms of technological improvement, shifts in consumer preferencesor entry of new competition in the market.


6/53


Uncertainty: Business environment is largely uncertain and difficult topredict the future happenings. This is particularly relevant especiallywhen environmental changes are taking place very frequently as in thecase of information technology or fashion industries.

Relativity: Business environment is a relative concept since it differs fromcountry to country and even region to region. Political conditions in theUSA, for instance, differ from those in China or Pakistan. Similarly, demandfor sarees may be fairly high in India whereas it may be almost non-existent in other European countries.


7/53

Dimensions of Business Environment

The following are the key components of general environment of a business.

Economic environment:consists of economic factors that influence the business ina country. These factors include corporate profits, inflation rate, employment,balance of payments, interest rates, consumer income etc.

Social environment: It describes the characteristics of the society in which theorganization exists. Literacy rate, customs, values, beliefs, lifestyle, demographicfeatures and mobility of population are part of the social environment. It isimportant for managers to notice the direction in which the society is moving andformulate progressive policies according to the changing social scenario.


8/53


Political environment: It comprises political stability and the policies of thegovernment. Ideological inclination of political parties, personal interest onpoliticians, influence of party forums etc. create political environment. Forexample, Bangalore established itself as the most important IT centre of Indiamainly because of political support.

Legal environment: This consists of legislation that is passed by the parliamentand state legislatures.

Technological environment: It includes the level of technology available in acountry the pace of research and development and progress made in

introducing modern technology in production. Technology provides capitalintensive but a cost effective alternative to traditional labor intensive methods.In a competitive business environment technology is the key to development


9/53


Natural Environment: Business, an economic pursuit of man,continues to be dictated by nature. To what extent businessdepends on nature and what is the relationship between the twoconstitutes an interesting study.

Global or international Environment: Thanks to liberalization,Indian companies are forces to view business issues from a globalperspective. Business responses and managerial practices must befine-tuned to survive in the global environment


10/53

Environmental analysis process

The analysis consists of four sequential steps:

Scanning

It involves surveillance of all environmental factors and their interactions in orderto:

Identify early signals of possible environmental

change

Detect environmental change already underway

Monitoring

It involves tracking the environmental trends, sequences of events, or streams ofactivities. It frequently involves following signals or indicators unearthed duringenvironmental scanning.


11/53

Environmental analysis process

Forecasting

Strategic decision-making requires a future orientation. Forecasting is an essentialelement in environmental analysis. Forecasting is concerned with developingplausible projections of the direction, scope, and intensity of environmental

change.

Assessment

In assessment, the frame of reference moves from understanding theenvironment- the focus of scanning, monitoring and forecastingto identify what

the understanding means for the organization. Assessment, tries to answerquestions such as what are the key issues presented by the environment, and whatare the implications of such issues for the organization.


12/53

Why Environmental Scanning?

Effective Utilization of Resources

Constant Monitoring of the Environment

Strategy Formulation

Identification of Threats and Opportunities

Useful for the Managers

Prediction of the Future


13/53

Approaches to Environmental Scanning

Systematic Approach

In this approach, information for environmental scanning is collected

systematically.

Information which is pertaining to business & industry could be collected

continuously to monitor changes & take the relevant factors into account.

Continuously updating such information is necessary, not only for strategic

management but also for operational activities.


14/53


Ad-hoc Approach

Under this approach, organizations may conduct special surveys & studies to deal

with specific environmental issues from time to time.

Such studies may be conducted when an organization has to undertake special

projects, evaluate existing strategies or to devise new strategies.

Changes & unforeseen developments may also be investigated with regard to their

impact on the organization.


15/53


Processed Form Approach

The organizations generally use information in processed form i.e. supplied by

Government agencies

or Private institutions.

The organizations also use secondary sources of data, available from different

sources, both, inside & outside the organization.


16/53

Macro Environmental Scanning

Environmental Scanning, usually, refers to the macro environment. It includes

Scanning the industry

Competitor analysis

Consumer analysis

New Product analysis

Scanning the internal environment


17/53


Macro environmental scanning involves the analysis of the following:-

Economy

Scanning the economic environment will involve:-

Gross Domestic Product

Per Capita income

Economic Growth Rate

Inflation rate

Unemployment level

Currency Exchange rates

Trade balances

Balance of payments

Consumers & Investors confidence

Future Trends


18/53


Government

Scanning of the Government policies will include:-

Political Climate Political stability & risk

Government Debt

Budget deficit or surplus

Corporate & Personal tax rates

Import tariffs & quotas Export Restrictions

Restrictions on foreign capital inflows


19/53


Legal

Scanning the legal environment would include:-

Business Laws

Environmental Protection laws

Foreign trade & investment laws

Consumer Protection laws

Employee Protection laws


20/53


Technology

Technological scanning would include the analysis of:-

Efficiency of infrastructure

Industrial Productivity

New manufacturing process

New Products & services of competitors

New Products & services of supply chain partners

New technology that could impact the economies

Cost & accessibility of electrical & other sources of power


21/53


Ecology

Ecological scanning involves the study of:-

Ecological concerns that affect the firms production processes

Ecological concerns that affect consumers buying habits

Ecological concerns that affect consumers perception of the

company or its product.


22/53


Socio-Cultural

Demographic Factors

Population size & distribution

Age Distribution

Educational levels

Income levels

Ethnic origins

Religious affiliations


23/53


Potential Suppliers

Scanning the potential suppliers would include suppliers of:-

Labor

Quantity & Quality of labor available

Stability of labor supply

Wages expectations

Labor turnover

Strikes & labor relations

Education facilities


24/53


Material

Quantity, quality, prices & stability of materials ,

Delivery time & delays,

Proximity of bulky or heavy materials,

Level of competition among suppliers,

Services

Quantity, quality, prices & stability of service facilitators,

Special requirements.


25/53


Stakeholders

Shareholders

Employees

Partners

Lobbyists


26/53

Importance of Environmental Analysis

The benefits of environmental study are as follows;

Development of broad strategies and long-term

policies of the firm.

Development of action plans to deal with technological

advancements.

To foresee the impact of socio-economic changes at

the national and international levels on the firms

stability.

Analysis of competitors strategies and formulation of

effective countermeasures.

To keep oneself dynamic.


27/53

Corporate Governance

Corporate failures and widespreaddissatisfaction with the way many corporates

function have led to the realization, across theworld the need to put in place a propersystem for corporate governance.


28/53

Corporate Governance

Corporate governance is concerned with holding the balancebetween economic and social goals and between individual andcommunity goals.

The governance framework is there to encourage the efficient useof resources and equally to require accountability for the usage ofthose resources.

The aim is to align as nearly as possible the interest of individuals,corporations, and society.


29/53

Relevance of Corporate Governance

Since 1991, the country has moved into an era of liberalization and one ofthe victims of the market-based economy is transparent and fair businesspractice. Several instances of mismanagement have been alleged, withsome well-known and senior executive being hauled up for non-performance and /or non-compliance with legal requirements.

With foreign investors driving the market and domestic investorsincreased awareness, both are demanding in their approach towards thecompanies in which they have invested their funds. They seek informationand want to influence decisions.

Interests of non-promoter shareholder and those of small investors areincreasingly being undermined. Several MNCs have sought to set up 100percent subsidiaries and transfer their businesses to them .In many cases,there was no thought of consultation with non-promoter shareholders.


30/53

Focus of Corporate Governance

Corporate governance is concerned with the values,

vision and visibility of the organization.

It is about the value orientation of the organization,ethical norms for its performance, the direction of

social development and accomplishment of the

organization.


31/53

Importance of Corporate Governance

How important is corporate governance to an organization?

Strong corporate governance practices are indispensable to strong, resilient andvibrant capital market. It acts as an important instrument of investor protection.

Corporate governance prevents insider trading.

Under corporate governance, corporates are expected to disseminate the materialprice sensitive information in a timely and proper manner and also ensures that tillsuch information is made public, insiders abstain from transacting in the securitiesof the company.


32/53

Prerequisites of good Corporate Governance

A system of good corporate governance requires the following:

Clearly defined and adequate structure of roles, authority andresponsibility.

Vision, principles and norms, which indicate the development path,guidelines and norms for performance.

Proper system for guiding, monitoring, reporting and control.


33/53

Social responsibility

Social responsibility is the obligation of decision-makers to take actions, which protect and improvethe welfare of society as a whole along with theirown interests.

Every decision or action the decision maker takes has

social implications.


34/53

Why Social responsibility?

Business has to respond to the needs and expectations of society.

Improvement of the social environment benefits both society and business.

Social responsibility discourages additional governmental regulation and intervention.

Business has a great deal of power, which should be accompanied by anequal amount of responsibility.

Internal activities of the enterprise have an impact on the external environment.

The concept of social responsibility protects interests of stockholders.

Social responsibility creates a favorable public image.

It is better to prevent social problems through business involvement than to cure them.


35/53

Arguments against social responsibility

Social responsibilities could reduce economic efficiency.

Social responsibility would create excessive costs for business.

Business has enough power, and social involvement would furtherincrease its power and influence.

Business people lack the social skills necessary to deal with the problemsof society.

Business is not really accountable to society.


36/53

Social Stake holders

Owners , who are concerned about corporate social responsibility, need to interactwith various interest groups which may affect the functioning of a businessorganization and may be affected by its functioning.

Business enterprises are primarily responsible to six major groups:

Shareholders

Employees

Customers

Creditors, suppliers and others

Society at large

and Government


37/53

Social Responsiveness

Social responsiveness (SR) is the ability of

business enterprises to relate it operations

and policies to the social environment in ways

that are mutually beneficial to the company

and to society.


38/53

Social Responsiveness

How to measure social responsiveness?

Contributions to charitable and civic projects

Assisting voluntary social organizations in fund-raising

Employee involvement in civic activities

Environmental responsibility

Equal employment opportunity

Promotion of minorities

Direct corporate social responsiveness investment

Fair treatment of employees Fair pay and safe working conditions Safe and quality products to consumers


39/53

Business ethics

An organizations social responsibility and responsiveness, depend on the ethicalstandards of mangers. The term ethics commonly refers to the rules or principlesthat define right and wrong conduct.

Ethics can be stated as the discipline dealing with what is good and bad and with

moral duty and obligation.

Business ethics is concerned with truth and justice and has a variety of aspectssuch as expectations of society, fair competition, Truthful and non competitiveadvertising, public relations, social responsibilities, and corporate behavior in thehome country as well as abroad


40/53

Types of Business Ethics

Moral management

Moral management strives to follow ethical principles andpractices. Mangers strive for success, but never violate the

parameters of ethical standards. They seek to succeed only withinthe ideas of fairness, and justice.

Moral managers follow the law not only in letter but also in spirit.The moral management approach is likely to be in the best interestsof the organization, long run.


41/53


Amoral management

This approach is neither immoral nor moral. It ignores ethical considerations.Amoral management can be categorized into two typesintentional andunintentional.

Intentional amoral managers exclude ethical issues because they think that generalethical standards are not appropriate to business.

Unintentional amoral managers do not include ethical concerns because they areinattentive or insensitive to the moral implications.


42/53


Immoral management

Immoral management can be closely identified withunethical practices in business.

Immoral management not only ignores concerns, it isactively opposed to ethical behavior


43/53

Need for Business Ethics

These basic ethical need compel the organizations to be ethically oriented.

Values create credibility with public. A company perceived by the public to beethically and socially responsive will be honored and respected.

The management has credibility with its employees precisely because it hascredibility with the public.

An ethical attitude helps the management make better decisions, because ethicswill force a management to take various aspects- economic, social, and ethical inmaking decisions.

Value driven companies are sure to be successful in the long run, though in theshort run, they may lose money.

Ethics is important because the government, law and lawyers cannot doeverything to protect society.


44/53

Ethical Guidelines

Obeying the rule of law: Obedience to the law, both in letter and in spirit .

Tell the Truth: To build and maintain long-term, trusting and win-win relationshipswith relevant stockholders.

Uphold human dignity: Giving due importance to the element of human dignityand treating people with respect.

Adhere to the golden rule: Do unto others as you would have others do unto you

Allow Room for participation: Soliciting the participation of stakeholders rather

than paternalism.

Always Act When entrusted with responsibility: Managers have the responsibilityof taking action whenever they have the capacity or adequate resources to do so.


45/53

Tools for Ethical Management

Top management commitment: Top management demonstrates ethicalbehavior and practices and act as role models for others to follow.

Code of Ethics: A formal document that outlines an organizations primaryvalues and the ethical rules it expects employees to follow. The code ishelpful in maintaining ethical behavior among employees.

Ethics committee: Appointment of an ethics committee, consisting ofinternal and external directors is essential for institutionalizing ethicalbehavior.

Ethics Audit: Systematic assessment of conformance to organizational ethical

policies, and identification of serious deviations requiring remedial action.

Ethics training: Ethical training enables managers to integrate employeebehavior in ethical arena with major organizational goals.

Ethics Hotline: Whistle blower policy.


46/53

Economic System

Economic system is constituted of all those individuals, households, farms, firms,factories, banks and government, which act and interact to produce and consumegoods and services.

Individuals and households put their resources (land, labor, capital and skill) to oneor more of their alternative uses and make their living

Firms buy various materials required for production

and produce goods and services, and sell them to their consumers.

A modern economic system is enormously complex. Millions of people participateand contribute to its working in different capacitiesas producers, traders,workers, consumers and financers and so on.


47/53

Kinds of Economic Systems

Free Enterprise Economy

This economic system works on the principle of Laissez Faire system, i.e., theleast interference by the government or any external force. The primary roleof the government, if any, is to ensure free working of the economy byremoving obstacles to free competition.

A free Enterprise Economy is characterized as follows:

Means of production are privately owned by the people who acquire and

posses them

Private gains are the main motivating and guiding force for carrying outeconomic activities


48/53

Free Enterprise Economy

Both consumers and firms enjoy the freedom of choice; consumers have thefreedom to consume what they want to and firms have the choice to producewhat they want,

The business owners enjoy the freedom of occupational choice, i.e., they are free

to use their resources in any legal business or occupation,

There exists a high degree of competition in both commodity and factormarkets,

and

The government is supposed to limit its traditional functions viz, to Defence,police, justice, some financial organizations and public utility services.


49/53

Government Controlled Economy

The government-controlled economies can also becalled as Command, Centrally planned or Socialisteconomies.

Such economies are, in comparison to the freeenterprise economies, controlled, regulated andmanaged by the government agencies.


50/53

Government Controlled Economy

The other features of a pure socialist economy are:

Means of production are owned by the society or by the state in the name of thecommunityprivate ownership of factors and property is abolished,

Public welfare is the guiding factor for economic activitiesprivate gains,motivations and initiatives are absent,

Freedom of choice for the consumers is curbed to what society can provide for all,

and

The role of market forces and competition is eliminated by law.


51/53

Mixed Economy

A mixed economy is one in which there exists both government andprivate economic systems. It is supposed to combine good elements ofboth free enterprise and socialist economies.

A mixed economy has both Public sector (the government economy) andPrivate sector (the private economy).

The private sector has features of a free enterprise economy and thepublic sector has features of socialist economy.

It is important to note here that most economies in the world today areMixed Economies.


52/53

Mixed Economy

There are two different forms of the Mixed Economies.

Mixed Capitalist Economies

A mixed Capitalist economy is a variant of the free enterprise economicsystem. To this category fall the highly developed nations like the UnitedStates, U.K., France, Japan etc. though these economies have a very largegovernment sector, their private sector works on the principle of the freeenterprise system.

The government plays a significant role in preserving the capitalist modeof production, ensuring a workable competition in the markets, providesinfrastructure for promotion of private sector economic activities.


53/53

Mixed Economy

Mixed Socialist Economies

Countries which have adopted Socialist pattern of society andeconomic planning as the means of growth and social justice (e.g.

India) and the former communist countries (e.g.. Russia and china)which have carried out economic reforms and liberalized theireconomies for private entrepreneurship.

The government of these countries control and regulate the privatesector activities in accordance with the overall objectives.

Documents

148594955 94515505 Business Environment Ppt