LESSON 1: The Factors That Impact on Business
According to Brooks and Weatherston (2000) business environment is a general concept which embraces the totality of external environmental forces which may influence any aspect of organizational activity.
Mission / Objectives
Internal Power Relationship
Physical Assets & facilities
LESSON 2: The internal and external business environment
The Internal factors:
Any business has certain vision, mission and objectives and a strategy to achieve them. Formulation of strategy is defined as establishing a proper firm-environment fit. Indeed the objectives should be based on an assessment of the external environment and the organizational factors (internal environment).
Company Image and Brand Equity
The Micro environment consists of different types of stakeholders – customers, employees, suppliers, marketing intermediaries, competitors. It is also known as the Task Environment and Operating Environment and has a direct bearing on the operations of the firm. Changes in the micro environment will directly affect and impinge on the firm’s activities. Macro Environment
The macro environment consists of factors which are beyond the control of the business. There is a symbiotic relationship between business and the environmental factors, environmental factors are dynamic and a particular business firm, by itself, may not be in a position to change it’s environment. Macro Environment includes: ?
Technological is the systematic application of scientific or other organized knowledge to practical tasks.
Technological environment hold new technological innovation, new products, the state of technology, the utilization of technology for maximum inputs and outputs, the
obsolescence of technology and the dynamic changes that frequently occur in technologies which enable firms to get a competitive advantage ? Technology reaches people through business
Helps in increased productivity
Business needs to spend on R ; D and keep up with the technological advances around them
Technology leads to introduction of new products and older products becoming outdated and redundant.
Technological advances leads to high expectations of consumers in terms of quality ? Leads to system complexity
Demand for capital
Political Environment refers to the influence exerted by the three political institutions ie. legislature, executive and judiciary in shaping, directing, developing and controlling business activities.
The constitution of a country
Image of the country and its leaders
Laws governing business
Flexibility and adaptability of laws
The Judicial System
Economic Environment refers to all forces which have an economic impact on Business.
The economic environment consists of the demand dynamics, supply situation, pricing factors, degree of competitiveness, and impact of profitability. It includes the
fiscal policy, monetary policy and the taxation policy, the FDI norms, the investment criterion and financing decisions. Economic environment includes: ? Growth strategy
Money and Capital Markets
Per capita and national income
New Economic Policy
The global environment refers to those factors which are relevant to business, such as the WTO principles and agreements; other international conventions/ treaties / agreements / sentiments in other countries etc. For eg hike in crude oil prices has a global impact etc. ? World is becoming one market
? Improving quality
? Competition from MNCs
? Capital and technology transfers
? Deciding which markets to enter and what products to manufacture ? Adjusting the management process
? Culture creates people
? Culture and globalization
? Culture determines people’s attitude to business and work. ? Caste system
? Spirit of collectivism
? Ethics in business
? Social responsibility
? Social audit
? Corporate governance
External Environmental Analysis
Environmental Analysis has three goals:
Provides an understanding of current and potential changes taking place
Environmental Analysis should provide input for strategic decision making.
Facilitate and lead to strategic decisions within an organization.
Environmental Analysis and diagnosis give strategists time to anticipate opportunities and to plan to take optional responses to these opportunities. It also helps strategists to develop an early warning system to prevent threats or to develop strategies which can turn a threat to a firm’s advantage”. Firms which systematically analyse and diagnose the environment are more effective than those which do not.
Process of Environmental Analysis:
The analysis consists of four steps:
? Scanning : Detect early signals of possible environmental change and detect environmental change already underway.
? Monitoring : Purpose of monitoring is to assemble sufficient data to discern whether certain trends are emerging, identification of the trends and identification of areas for further scanning.
? Forecasting : It is concerned with developing projections of the direction, scope and intensity of environmental change.
? Assessment : To determine implications for the organisation’s current and potential strategy
Environmental Analysis and Strategic Management
Defining Business Mission and Objectives
Environmental Analysis + Self Appraisal
Strategic Alternatives and Choice of Strategy
Implementation of Strategy
Evaluation and Control of Strategy
An environmental analysis in strategic management plays a crucial role in businesses by pinpointing current and potential opportunities or threats outside the company in its external environment. The external environment includes political, environmental, technological and sociological events or trends that can impact the business directly or indirectly. An environmental analysis is generally conducted as part of an analysis of strengths, weaknesses, opportunities and threats (SWOT) when a strategic plan is being developed. Managers practicing strategic management must conduct an environmental analysis quarterly, semiannually or annually, depending on the nature of the business’s industry. Being able to identify events or conditions in the external environments helps businesses achieve a competitive advantage and decrease its risk of not being prepared when faced with oncoming threats.
The purpose of an environmental analysis in strategic management is to help in strategy development by keeping decision-makers within an organization informed on the external environment. The external environment includes changing of political parties, increasing regulations to reduce pollution, technological developments and shifting demographics. If a new technology is developed and is being used in a different industry, a strategic manager would see how this technology could also be used to improve processes within his business. An environmental analysis in strategic management allows businesses to gain an overview of their environment to find opportunities or threats.
Brooks, I., Weatherston, J (2000). The Business Environment. Prentice Hall Baron, D. Business and its Environment (2010). Prentice Hall