“e Principles and Functions of Management. Business Finance and Marketing | Project Work * along with ° Objective Type Questions © Case Studies & Application-based Questions © NCERT Questions with Solutions © Scanner © CBSE Sample Question Paper (Solved) © Model Test Paper (Solved) © Self-Practice Paper sultan ed ¥ ao. Vijay Kapur Sandhita PurbiContents PARTA PRINCIPLES AND FUNCTIONS OF MANAGEMENT NATURE AND SIGNIFICANCE OF MANAGEMENT "Concept of Management a ‘Modern Concept of Management 1 Effectiveness and Efficiency 12 Characteristics or Features of Management 13 Objectives of Management 4 Importance of Management 15 Nature of Management a, ‘Management as a Science 16 Management as an Art 16 Management as a Profession 17 Levels of Management 18 Top-level Management 18 Middle-level Management 18 Lower-level Management 19 Functions of Management 19 Concept of Coordination 1.10 Characteristics of Coordination 1.10 Coordination as the Essence of Management Ll Importance of Coordination 112 2. PRINCIPLES OF MANAGEMENT 2.1-2.25 Concept of Principles of Management 2.2 Features of Principles of Management 22 Need or Significance of Management Principles 23 Fayol’s Principles of Management 24 \ciples 24 Taylor’s Principles of Scientific Management 2u1 Principles of Scientific Management 241 Scientific Techniques of Taylor 213 Advantages of Scientific Management 215 ‘Comparison between Fayol and Taylor 215 3. BUSINESS ENVIRONMENT 3.1-3.22 Concept of Business Environment 3 Features/Characteristics of Business Environment 32 Importance of Business Environment 33 Dimensions/Elements/Components of Business Environment 34 ‘New Economic Policy 1991: Transformation of Indian Economy 36 Impact of Changes in Economic Policy on the Business 38 ‘Managerial Responses to Changes in Business Environment 39 Demonetisation 39 Features of Demonetisation 3.10 Benefits of Demonetisation 3.1 4. PLANNING 41-421 Concept of Planning 42 Features of Planning 42 Importance of Planning 7 43 Limitations of Planning 44 Planning Process .Business Environment WaldvHO Prtherets nothing wrong with change. SYLUABUS AND LEARNING OBJECTIVES: + Business Environment—Concept and Importance . ‘© Dimensions of Business Environment—Economic, Social, Technological, Political and Legal + Demonetisation—Concept and Features ‘+ Impact of Government Policy Changes on Business with Special Reference to Liberalisation, Privatisation and Globalisation in India RISK MANAGEMENT, FRAMEWORK The risk landscape in the current business environment is changing dynamically with the dimensions of Cyber Security, Information Security and Business Continuity, Data Privacy and Large Deal Execution figuring prominently in the risk charts of most organisations. To effectively mitigate these risks, Wipro has employed a risk management framework, which helps proactively identify, prioritise and mitigate risk. The framework is based on the principles laid out in the four globally recognised standards as und: > Orange Book by UK Government Treasury ¥ COSO; Enterprise Risk Management—Integrating with Strategy and Performance (2017) by Treadway Commission > AS/NZS 1SO 31000:2009. Risk Management — Principles and Guidelines by AUS/NZ Standards Board 180-150 31000:2018. Risk Management—Guidelines Source: Wipro Annual Report 2018-19 CONCEPT OF BUSINESS ENVIRONMENT Business is an economic activity, which is related to continuous and regular production and distribution of goods and services for satisfying human wants. The word Environment is derived from the French word “Environ” which means “surrounding”, ie., external conditions involving manifold variables like objects or conditions affecting the development and growth of all living organisms including human beings. the right direction.” Winston Churchill = A business enterprise is an open system. It gets resources from the environment and supplies its goods and services to the environment. The environment surrounding the business enterprise involves multiple sets of complex economic, social or political forces including suppliers, customers, competitors, etc., having an impact on the operations of the enterprise.Ee Business Studies—CBSE xy fT Business Environment Forces outside Institutions outside the business the business ey « Forces = economic, social, political, technological, ete. + Institutions = suppliers, customers, competitors, ete. Every business organisation operates in a distinctive environment, as it cannot exist in vacuum. An environment influences business and also gets affected by its activities. There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business enterprise and using its resources more effectively. Business environment is the sum total of all external and internal factors that influence a business. “Business environment is the aggregate of all conditions, events and influences that surround and affect it”. “Business environment encompasses the climate or set of conditions economic, social, political or institutional in which business operations are conducted.” Yeu Leb alr iT 04 Business environment provides constraints as well as opportunities for a business enterprise. For example, technological improvements and upgrades in the market make the existing products obsolete. Features/Characteristics of Business Environment The various features or characteristics of business environment are as follows: 1, Integral: Environment is an integral part of any business. Any business enterprise cannot work in an isolated manner. An environment iffluences business and also gets affected by its activities. For example, business organisations continuously interact with its environment for inputs like raw materials, labour, etc., and transform the inputs received into final goods and services and supply the same to diverse customers in the environment. 2. Uncertainty and Risk: Uncertainty is an inherent part of business environment. Uncertainty implies lack of precise forecast of future happenings. There is no single best way to address environmental uncertainty. Generally, uncertainty like earthquake may impact all entities but certain uncertainty may be business-specific, ¢g., fluctuation in exchange rates, oil prices, etc. Thus, risk is an inherent part of any business environment which cannot be avoided. The best remedy to cope with uncertainty is to gather sufficient information about the various factors affecting the business environment. 3, Relativity: Business environment is a relative concept. The economic environment, local laws and regulations, climatic conditions, ete., differ from one country to another, from one region to another within the same country or even over a period of time within the same region. Thus, business environment shall be different for different business enterprises,Business Environment 4, Dynamic: Business environment is dynamic, that is, it keeps ch: nging with time. For example, change in taste and preferences of customers, change in government policies, etc., affects the business and its working. 5, Internal and External Forces: Business environment comprises internal and external factors. Internal environment includes plans, policies, goals, employees, etc, External environment comprises micro and macro environment. Micro environment has a direct impact on the business, g., customers, suppliers, et. Whereas, macro environment is the general environment, ¢g., social, economic, technological factors, ete. 6. Opportunities and Threats: Business environment presents both opportunities and threats. An opportunity is a favourable condition which enables an organisation to strengthen its position. A threat is an unfavourable condition in the business environment that affects an organisation's position adversely. 7. Complexity: Environment comprises multiple, diverse and interrelated factors, Naturally all such factors interact with each other and thus, it is a very complex scenario and one cannot work out the individual effects of each factor. Any change in the environment can adversely affect the business organisation. The changes are unpredictable and non-uniform. Therefore, analysis of business environment becomes quite difficult. IMPORTANCE OF BUSINESS ENVIRONMENT Each business firm has to exist, survive and grow in relation to the various forces of the business environment. Since a business firm has no control on these forces, it has to adapt itself according to these forces. Understanding the importance of business environment will help seek more business opportunities. The importance of business environment is explained as follows: 1, Helps in Identification of Opportunities and Threats: An analysis of the external environment helps the business enterprise to identify the opportunities in the market. Early identification of business opportunities will help to capture the market first without losing the market share in favour of competitors. Every business has to face threat from its competitors, Early identification of threats and challenges helps the business to plan strategically and deal with the situations. Also, it helps to minimise the risk of loss. 2. Helps in Identification of Internal Environment: Business enterprises analyse the internal environment such as organisation structure, business policy, etc., to assess its own strengths and weaknesses, The management information system helps to analyse and predict the business environmental changes. 3. Provides First-mover Advantage: Business environment provides many opportunities to the firms to improve their performance. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. 4, Helps in Understanding the Economic Environment: The understanding of prevailing economic environment including economic policy and market conditions helps to assess the impatt on the business from a different perspective. For instance, business environment helps in understanding ‘economic policies like export-import policy, monetary policy, industrial policy, etc., which have quite significant impact on business, The study of business environment also helps in understanding the prevailing market structure, demand-supply relationships and thus, is necessary from operational point of view.Business Studies—CBSE xy 5. Helps in Understanding Future Problems and Prospects: ‘The study of business environment ance. This enables in adv. helps a business enterprise to understand future problems and prospects in the business enterprise to plan for the problems and cope with them, ness environment helps @ business 6. Helps in the Growth of Business: Understanding of busi pt, facing competition, etc., which in enterprise to make changes in its policies, capturing the market, turn, helps in the growth and survival of business. _DIMENSIONS/ELEMENTS/COMPONENTS OF BUSINESS ENVIRONMENT “The dimensions or the factors constituting the business environment ie Pi include political, social, technological, legal and economic factors coe cet got which are considered important for taking decisions and for improving the operations of a business enterprise, Management of every business environment can benefit from being aware of the environment in which it operates. Various factors of the general Business Environment Environment environment of business are as follows: Technological Environment Economic Environment Economic environment refers to all those economic factors, which have a bearing on the functioning of a business enterprise. Economic environment impacts the business environment directly, ¢g., rise in income of consumers increases their purchasing power and vice versa, increase in inflation rate increases the cost of living, ete Following are the main components of economic environment of a business: (a) Economic policies such as industrial policy, monetary policy, ete. (b) Inflation rate, tax rates; interest rates, etc. (©) Demand and supply pattern (d) Industrial and economic development (c) General price-level changes (f) Composition of trade, pattern of investment, etc: (g) Economic system (budgets, five-year plans, etc.) (h) Infrastructure (transportation, power, etc.) (i) Increase in consumer income Examples of Economic Environment Affecting the Functioning of Business Enterprise (i) Recent changes in economic and fiscal policy of India have encouraged foreign investors to invest in Indian companies. ‘ (ii) Changes in the interest rates affect the demand for goods and services. For example, low interest rates on home loans are beneficial for banks and consumers both, th (iii) Demonetisation of % 500 and & 1,000 notes affected the Indian economic environment.Business Environment S Social Environment Social environment of business comprises. all factors which socially affect a business enterprise. Social factors include customs, fashions, traditions, level of education, religious values, etc. For example, the young 4 ; + generation prefers to shop online while older generation will prefer Rosi traditional shopping methods, ie. by visiting the stores. Races ~ Following are the: main components of social environment: (a) Education level (b) Demographic trends (growth, structure and movement of population) (©) Customs, culture and traditions—as per culture and tradition, festivals like Eid, etc., provide opportunities for consumer durables, restaurants, sweets, etc. (d)_ Social trends—the craze for health and fitness led to a revolution in establi as diet foods. iwali, Christmas, ing fitness spas as well (e) Social concerns (¢., concern for pollution) (A) Business ethics and values Examples of Social Environment Affecting the Functioning of Business Enterprise (i) At the time of Diwali, there is an increase in the sale of sweets, gift packs, dry fruits, etc. (ii) Presence of women workers in the corporate sector is a sign of women empowerment. Legal Environment ‘The legal or regulatory environment comprises diverse laws, ¢g., The Indian Contract Act, 1872, The Sale of Goods Act, 1930, The Consumer Protection Act, 1986, various other industrial and labour laws, etc., passed by the government of a country, court judgements, administrative orders issued by government authorities, etc. For instance, companies in India are required to comply with the requirements of the Companies Act, 2013. It is important for business entrepreneurs to understand the legal framework in running the bi ss so that they can avoid legal consequences, if any. Following are the main components of legal environment: (a) Legislations passed by the government. (b) Court judgements and decisions rendered by various commissions and agencies of the government. (c) Administrative orders issued by various government authorities. Examples of Legal Environment Affecting the Functioning of Business Enterprise (i) Statutory warnings are to be printed on some specified products. For example, packets of cigarettes and tobacco must have statutory warning. (ii) Baby milk powder should necessarily inform the buyers that mother’s milk is the best for a baby.Business Studies—CBSE xi 36 ‘Technological Environment “Technological environment includes the discovery of new methods of producing goods and services, new techniques of operating business, innovations and improvements in the existing method of doing business, etc. The survival of @ business largely depends upon its technological advancements For example, innovations in mobile phone industry by the entry of smartphones had a great impact on camera companies like Kodak. Following are the main components of technological envi ronment: (a) Improvements and innovations for improving the quality of goods and services and new techniques for operating the business. (b) Improved scientific methods which provide new ways Examples of Technological Environment Affecting the Functioning of Business Enterprise (i) Online platforms like Bighasket and Grofers are providing facilities of ordering grocery items from their websites and apps. (i) Online booking of railway ar, and bus tickets saves a lot of time which was earlier needed when a person had to spend lots of time in queues for getting the tickets booked. of producing goods and services. (iii) Now people prefer to get a document photocopied instead of using carbon paper Political Environment The political environment in a country affects the business organisations. The political environment could change because of the policies of the government. Following factors affect the political environment: Political Environment (a) Policies of the ruling party (b) Political stability (c) Extent of government intervention in business Political Philosophies (d) Type of government (i, single party or multi-party) (c) Peace in the country Examples of Political Environment Affecting the Functioning of Business Enterprise (i) Swachh Bharat Abhiyan started by the BJP government in India. (ii) Subsidy provided by government for the textile industries has a positive impact on textile businessmen. NEW ECONOMIC POLICY 1991: TRANSFORMATION OF INDIAN ECONOMY New Economic Policy of indiaBusiness Environment ey Since 1991, Government of India has i economic crisis and to accelerate the rat reduced the import duties, opened reserv to increase export and reduce the advers the LPG Model of growth. These refor policy of LPG where L stands for libe: troduced diverse economic reforms to pull the country out of fe of growth, In 1991, the P. V, Narasimha Rao's government ed sector for the private players, devalued the Indian currency € Balance of Payments (BoP) situation. This is also known as ms are often described as the New Economic Policy (NEP) or Talisation; P stands for privatisation; G stands for globalisation. ‘The reasons for introducing New Economic Policy were: . ing Fiscal deficit Iereafing Fycal deficit Branches of New Economic Policy New Economic Policy Mounting adverse Balance of Payments Gulf crisis Fall in foreign exchange reserve # Rise in price levels + Poor performance of public sector Liberalisation refers to a relaxation of government restrictions, Th Liberalisation basic aim of liberalisation was to put an end to those restrictions which became hindrances in the development and growth of the nation, The features of liberalisation are as follows: (a) Abolishing licensing requirement of the industries except a few. (b) No restriction in deciding the scale of operating business. (c) Removal of restrictions on the movement of goods and services. (4) Freedom in fixing the prices of goods and services. (€) Reduction in tax rates and lifting of unnecessary controls over the economy. (8) Simplifying procedures for imports and exports. (g) Making it easier to attract foreign capital and technology to India: Privatisation Privatisation means the transfer of ownership or management of an enterprise from the public sector to the private sector. Privatisation is the increment of the dorninating role of private sector companies and the reduced role of public sector companies. The features of privatisation are as follows: (@) Disinvestment of public sector. Disinvestment: The literal meaning of disinvestment is selling of assets. In case of Public Sector Undertakings (PSUs), disinvestment means government selling/diluting its stake (share) in Public ‘Sector Undertakings, in which it has a majority holding. Disinvestment assumes significance due to the prevalence of a competitive environment, which makes it difficult for many PSUs to operate profitably. > (b) To achieve this, the government redefined the role of public sector in the New Industrial Policy of 1991, () The government has also made attempts to improve the efficiency of public sector by giving them autonomy in taking managerial decisions. (d) Setting up of Board of Industrial and Financial Reconstruction (BIFR) which aimed to revive sick units in public sector.ES Business Studies—CBSE xy Globalisation Globalisation means to integrate the economy of one country with the global economy. Globalisation ig attempting to create a borderless world, wherein the need of one country can Desoles from across the globe and turning it into one large economy. The features of globalisation are as follows: (a) Globalisation is the outcome of liberalisation and privati (b) © (d) Globalisation is generally understood to mean integration of the economy of a country with the world economy. Free flow of information and technology across the globe. Globalisation involves interaction and interdependence among the various nations to the global economy. (c) Free movement of capital across nations. (A) Physical geographical gap or political boundaries no longer remain a barrier to a business enterprise, IMPACT OF CHANGES IN ECONOMIC POLICY ON THE BUSINESS ‘The New Industrial Policy, 1991 brought several changes in LPG. These have posed several challenges to the business enterprises. These are discussed as follows: 1. . Rapid Changes in Technological Environment: Prior to the New . Need for Developing Human Resource: Prior to the New Increasing Competition: As a result of changes in the rules and regulations of LPG, competition of Indian business enterprises has increased. This is especially in the service sector like airlines, banking, insurance, etc., which were earlier in the public sector. Many business enterprises could not face the increasing competition and left the market. . More Demanding Customers: Customers these days are well informed about the products and changes in the market, As a result, they have choices available in the market and thus, they are more demanding these days. Market Orientation: Earlier, business enterprises used to manufacture products and then sell the same in the market. But, these days business enterprises are more market-oriented, ic, first they analyse and prepare strategies for the products to be manufactured and then hit the market where the demand is high. Economic Policy, there was competition started at the global level. develop new and innovative ways to ironment is a big challenge for business only internal competition. After the New Economic Policy, Increased competition forced the business enterprises to survive in the market, Rapidly changing technological envit enterprises. - Necessity for Change: Prior to the New Economic Policy, business enterprises could follow stable Policies but after 1991, business enterprises have to update and modify their polices from time to time Economic Policy, business enterprises arket conditions require highly skilled lop human resources. were managed by inadequately trained personnel. The new m: and trained personnel. Hence, there is a tising need to devel ed funds for growth, they will have to face disinvestment.susiness Environment MANAGERIAL RESPONSES TO CHANGES IN BUSINESS ENVIRONMENT 1, Acquisition and Mergers: Mergers, acquisition, takeovers, amalgamations are a common feature of post-liberalisation economy. The purpose of these acquisitions and mergers were to achieve entry, dominance in the market, access to technology, etc. Reliance gaining control over management of L&T is an example of acquisition. 2, Joint Ventures of Multinationals: Due to liberalisation policy, many multinationals have entered India through joint ventures. For example, General Motors entered through a joint venture with Hindustan Motors, Ford entered with Mahindra & Mahindra, 3, Brand Building: Many companies are increasing their expenditure to enhance their brands through promotional activities like advertisement, sales promotion, etc, For example, heavy expenditure ‘was incurred on launching Korean brands such as Hyundai, LG, Samsung, etc. Indian companies are also doing the same to build their brand value. 4, Distribution and Selling: Selling goods through direct marketing of products such as Amway has eased the selling cost of Indian companies because huge advertisement cost is being incurred to make the products famous. 5, Latest Technology: To capture the market, companies are adopting latest technologies for their products. The expenditure on research and development has increased many folds because companies are developing latest technologies. 6. Compensation of Personnel: There has been a drastic improvement in the compensation level of personnel. With the entry of multinational companies, there has been an improvement in the salary packages of managerial as well as technical service providing employees. 7. Customer Focus: The focus of market has totally shifted from product to customer. There has been a drastic change in the quality of goods provided to the customers. Public relation has become a very important ingredient of sales promotion. Companies are providing various customer-centric services to capture the market like 24x7 customer care services, doorstep bank account opening facilites, etc. DEMONETISATION On November 8, 2016, Prime Minister Narendra Modi announced the demonetisation of the currency notes of % 500 and % 1,000. Further, the government gave people a period of around 2 months to deposit all currency notes of the said denomination with any bank. In India, this is not the first instance of demonetisation. In 1946, the Reserve Bank of India had demonetised ® 1,000 and & 10,000 currency notes which were then under circulation. In 1954, the Government introduced new currency notes of € 1,000, & 5,000, and % 10,000. Further, these notes were demonetised in 1978 when the Morarji Desai government decided to curb illegal transactions and anti-social activities, === Demonetisation Demenctsaton is an act of canceling te | DEMONETISATION legal tender status of @ currency unit in Circulation. Demonetisation policy is 2 measure to counterbalance the current economic. condition, Countries across the globe have used demonetisation at some or the other time, to control situations such as inflation, illegal currency, corruption and to boost the economy. *usiness Studies—CBSE Xi Features of Demonetisation The L . Eradication of Corruption: High-value . Elimination of Counterfeit main features of demonetisation: the government demonetising. hi yy in the economy. ncy notes, following are the 8 ng demonetisation, people Elimination of Black Money: By wanted to eliminate the stock of blac! were forced to declare their unaccount igh-value currel kc mone; Followi ‘ed cash balances. currency notes are commonly accepted medium of bribe, The government wanted to eli ition by banning these notes. Currency: Note ban would have implied the eliminatio cy enhances money in circulation and contributes t n of counterfeit 0 inflation. It ninate corr currency. Counterfeit curren restricts economic development of a country: Jemonetisation was expected t the origins of mon sfers or commercial transactions. check money laundering. Money laundering ney obtained illegally by passing it through a Money Laundering: D Demonetisation would have is the illegal process of concealing complex sequence of banking tran’ hurt money laundering in a big way: nue: Demonetisation was expected to force many people to convert their ment. Accordingly, government Rise in Government Reve taxes and penalty to the govern' black money into white by paying revenue was expected to rise. Creating Digital Economy: Another imy economy. Demonetisation will promote ature of demonetisation is the creation of digital portant fe: will keep a check on ‘more electronic transactions which corruption. IMPACT OF DEMONETISATION ha wide array of motives like stripping the Indian eco he unaccounted pile of cash, curbing terrorism, pror nomy of its black money, Demonetisation was initiated wit moting the Digital India pushing people to pay taxes for th movement and making India 2 cashless economy. formed to savings accounts as people turn Demonetisation and Personal Finance: Piggybanks have been trans towards increasing bank balances instead of stashing emergency cash in different corners of the house. People Demonetisation proved that Indians can strive and adapt to finally began to trust the digital payment systems. any changes and made people financially aware about t ‘ne of the most important points that pushed people to support ‘an end to the black money problem in India, However, almost he statistics revealed that either the hoarders found a way to the different spending options. Demonetisation and Black Money: cdemonetisation was its associating with brin 99% of the money was deposited back to RBI. T legitimise their black money or did not hold them in the form of cash. Demonetisation ‘and Terror Funding: The second reason to support demonetisation was its role in curbing terrorism by increasing the obstacles in terror funding. Terrorist organisations were known to use fake Indian CE ecto, their projects and the government believed that this could be contained with the Pe Ei a oa oe towards becoming a cashless economy was another reason Demonetisation and Tax Payments: According to : ti ment to government reports, the income tax payers saw a record increase fat pecdetpoeain era, 9.1 million new taxpayers were added to the slab which was an 80% rise over the typical yearly rise. This increase in the number of taxpaying citizens in the country has been credited to demonetisation.business Environment Enel + Demonetisation and GOP: The ban on old notes is being cited as one of the key contributors to the economic slowdown. With the gross domestic product (GDP) for the April-June quarter slipping to 5.7%, the reality of the economic slowdown could not be ignored, ‘+ Demonetisation and MSMEs: Demonetisation had a lasting effect on Indian MSMEs (Medium, Small and Micro Enterprises). Various medium and small enterprises turned towards digitalisation, however, the micro industries were affected by the worst of its wrath. The micro industry owners were not a part of the black economy and they were clearly unprepared for the effects of demonetisation. Many micro industry workers returned back to villages and the growth rate of these companies went to as low as 1%. Source: The Economic Times, May 21, 2019 Benefits of Demonetisation 1, Increased Savings: When currency is demonetised, people tend to deposit their cash with a bank and store less physical currency at home. This helps in increased savings. 2. Lower Lending Rates: With currency demonetisation, money moves from people to banks and financial institutions. Therefore, there is a better circulation of money. Further, banks and financial institutions have a lower cost of funds which leads to lower lending rates. 3. Better Economic Development: Since demonetisation induces people to deposit their cash with the banks, there is a higher circulation of money in the economy. The government receives more taxes and can undertake more development projects. This helps to develop the economy in a better way, 4, Curbing Anti-social Activities: Anti-social elements like terrorists use cash as a mode of transaction. By demonetising currency notes, the government forced these anti-social units to find ways to get rid of the old notes. This allowed the government an opportunity to get a better control over the unaccounted money (black money) in the economy. 5, Reducing Counterfeit Currency Notes: During demonetisation, people deposit all old notes with banks that check if the notes are genuine or counterfeit before accepting them. Therefore, this allows the government to eliminate counterfeit currency. _SEGa + Business Environment: Business environment is the aggregate of all con that surround and affect it. ions, events and influences + Economic Environment: Economic environment refers to all those economic factors, which have a bearing on the functioning of a business enterprise, + Social Environment: Social environment of business comprises all factors which socially affect a business enterprise. Social factors include customs, fashions, traditions, level of education, religious values, etc. + Legal Environment: The legal or regulatory environment comprises diverse laws, e.g., The Indian Contract ‘Act, 1872, The Sale of Goods Act, 1930, The Consumer Protection Act, 1986, various other industrial and. labour laws, etc, passed by the government of a country, court judgements, administrative orders issued by government authorities, etc. + Technological Environment: Technological environment includes the discovery of new methods of Producing goods and services, new techniques of operating business, innovations and improvements in the existing method of doing business, etc.Business Studies—CBSE XII s organisations. The political ment in a country affects busines nments. nd to those restriction: The political environ .ge because of the polices of the gover ane + Political Environment: environment could chan + Liberalisation: The basic aim of liberalisation was tO put hindrances in the development and growth of the nation- 4 Privatisation: Privatisation is the increment of the dominating role of private sector companies and the reduced role of public sector companies. Globalisation means to integrate the stment is sel t selling/dilut s which became economy of one country with the global economy. ting of assets. In case of Public, Sector ing its stake (share) in Public Sector + Globalisation: investment: The Undertakings (PSUs), Undertakings, in which it has a major 4 Demonetisation: Demonetisation is an a circulation. Demonetisation policy is a mea iteral meaning of disinve westment means Government ity holding. ct of cancelling the legal ure to counterbalance th tender status of a currency unit in fe current economic condition. (iso easuleh MuLtipLe CHOICE QUESTIONS (MCcQs) is an example of social environment. 1. (a) Inflation (b) Legislation (€) Composition of family (d) Innovations 2 is not a branch of New Economic Policy. (a) Legislation (b) Liberalisation (Q) Privatisation (d) Globalisation 3. is a dimension of business environment. (a) Fashion {b) Economic environment (©) Legislation « (@) Monetary policy 4. Demonetisation is an example of environment. @) legal (b) political (Q) social (d) economic is not an ingredient of political environment. (a) Political system (b) Political institutions (©) Political philosophies (@) Monetary policy 6. According to Keith Davis, business environment is the aggregate of all conditions, and influences that surround and affect it. : (a) factors (b) events (Q) units (d) institutions }. Which of the following is not a characteristic of business environment? (a) Absolute (b) Integral {@) Dynamic (@) Complexitygases Emitonment ESE) 8, Which of the following is not (a) Composition of trade (0 Economie davelopment component of economic environment? (b) Infrastructure (4) Legislations passed by the government 9. “Baby milk powder should necessarily inform the buyers that mother’s milk Is the best for the baby.” Which component of business environment is highlighted In this ease? {a)_ Economic environment (0) Social environment (@) Political environment (4) Legal environment 10. “Online platforms like Bigbasket, Mikbasket, Amazon Pantry,ete,are providing facilities of ordering grocery items from their websites and apps." Which component of business environment Is highlighted in this case? (a) Economic environment (b) Technological environment (@) Political environment (d) Legal environment, 11, “Subsidy provided by the government for textile industries has a positive impact on textile businessmen.” Which component of business environment is highlighted in this case? {a) Economic environment {b) Technological environment (©) Political environment (d) Legal environment 12, Which of the following was not one of the reasons for introducing New Economic Policy? {a) Increasing fiscal deficit (© Gulf criss (d) Poor performance of public sector 113, Which of the following is not a feature of demonetisation? (b) Fallin price levels {a) Eradication of Corruption {b) Money Laundering (Elimination of Counterfeit Currency. (d) Gul Crisis 14 Which of the following is not a feature of business environment? (a) Relativity {b) Complexity (©) Uncertainty (a) Employees 15, The basic aim of ‘was to put an end to thase restrictions which became hindrances in the development and growth of the nation, (@) Liberalisation {(b) Privatisation, (©) Globalisation {d) Demonetisation ANSWERS 1@ 2 (a) 3. (b) 4d) 5. (d) 6. (b) 7. (a) 8. (d) 9.(d) 10, (b) We 1 te 14 15. (a) TRUE OR FALSE State with reasons whether the following statements are true or false, 1. Investors and customers are the two components of specifi forces of business environment, Ans, True, investors, customers, competitors, suppliers,EEC Business Studies—CBSE xy 2. Dynamic nature of business environment suggests that It Is pervasive. ‘Ans, False, dynamic nature of business environment suggests that It keeps on changing. 3, Privatisation Involves freedom for doing business. Ans, False, Liberalisation, 4. Political environment consists of political system and its working. ‘Ans. True, political environment includes politcal system and its working, 55, Business environment consists of factors which are certain by nature, Ans, False, there Is uncertainty In business environment. Aun eras s 1, Define business environment. Ans. According to Kelth Davis, Business environment is the aggregate of all conditions, events and influences that surround and affect it. 2. State any two examples of business environment, Ans, Economic environment, political environment. 3. What do you mean by economic environment? ‘Ans. Economic environment refers to all those economic factors, which have a bearing on the functioning of a business enterprise. Economic environment impacts the business environment directly ¢.g. rise in income ‘of consumers increases their purchasing power and vice versa, increase in inflation rate increases the cost of living, ete. 4. List any three components of social environment. Ans. (i) Education level (ii). Demographic trends (growth, structure and movement of population) (ili) Customs, culture and tradi 5, What is technological environment? ‘Ans. Technological environment includes the discovery of new methods of producing goods and services, new techniques of operating business, innovations and improvements in the existing method of doing business, etc. 6. List any three factors affecting the political environment. ‘Ans. Following three factors affect the political environment: (i) Policies of the ruling party Political stability Extent of government intervention in business ti 7. State the three branches of New Economic Policy? Ans. Liberalisation, Privatisation and Globalisation. 8, State any three features of Liberalisation. Ans. The features of liberalisation are as follows: (i) Abolishing licensing requirement of the industries except a few. No restriction in deciding the scale of operating business. Removal of restrictions on the movement of goods and services.: 5 Business Environment 9. What is disinvestment? ‘Ans. The literal meaning of disinvestment is selling of assets. In case of Public Sector Undertakings (PSUS), disinvestment means government selling/diluting its stake (share) in Public Sector Undertakings, in which it has a majority holding. Disinvestment assumes significance due to the prevalence of a competitive environment, which makes it difficult for many PSUs to operate profitably. 10. What is globalisation? ‘Ans. Globalisation means to integrate the economy of one country with the global economy. Globalisation is attempting to create a borderless world, wherein the need of one country can be fulfilled from across the globe, turning it into one large economy. 11, What is LPG. in the context of business environment? Ans. Liberalisation, Privatisation, Globali ion. 12. Under which environment fashion trends fall? ‘Ans., Social environment. 113. New products are launched using new innovations. Which environment is highlighted here? Ans. Technological environment. 14, State any three features of demonetisation. Ans, The following are the three main features of demonetisation: () Elimination of Black Money: By demonetising high-value currency notes, the government wanted to eliminate the stock of black money in the economy. Following demonetisation, people were forced to. declare their unaccounted cash balances. (ii) Eradication of Corruption: High-value currency notes are the commonly accepted medium of bribe. The government wanted to eliminate corruption by banning these notes. (ii) Elimination of Counterfeit Currency: Note ban would have implied the elimination of counterfeit currency. Counterfeit currency enhances money in circulation and contributes to inflation. It restricts economic development of a country. 15, Explain any two benefits of demonetisation. Ans. (i) Increased Savings: When currency is demonetised, people tend to deposit their cash with banks and store less physical currency at home. This helps in increased savings. (i) Lower Lending Rates: With currency demonetisation, money ‘moves from people to banks and financial institutions. Therefore, there is a better circulation of money. Further, banks and financial institutions have a lower cost of funds which leads to lower lending rates. 16. Why is environment an integral part of business? ‘Ans. Environment is an integral part of any business. Any business enterprise cannot work in an isolated ‘manner. An environment influences business and also gets affected by its activities, For example, business organisations continuously interact with its environment for inputs like raw materials, labour, etc, and transform the inputs received into final goods and services and supply the same to diverse customers in the environment.Business Studies—CBSE x1 STUDIES AND APPLICATION-BASED QUESTIONS Identify the dimension of environment highlighted in the points below: kets online (2) Booking movie (b)_ 70% women workers employed in ABC Ltd. (0) Bank reduces interest rate on loans (d) Prohibition on advertisement of tobacco (e) Swachh Bharat Abhiyan by BJP Ans. (a) Technological environment (b) Social environment (Economic environment (@) Legal environment {e) Political environment 2. The sale of sweets increases every year at the time of Diwali. Which environment is highlighted here? Ans. Social environment. 3. ABC Limited is a cosmetic company. It is targeting customers in the medium-income group so as to increase its turnover and is projecting to capture a revenue of around & 20 crore by the end of the [Link] came across a few new entrants in the cosmetic market with the same customer base [Link] maintain its position and safeguard its revenue interest, it employed its best professionals in the field of marketing, finance and technology to come up with solutions. On their advice, ABC Limited decided to expand its ‘operations to cross-border places, new techniques employed to manufacture cosmetics that can reduce the cost of production in other countries. Which features of business environment are highlighted in the case above? the above case. Features of the Ans. The influence of economic and technological dimensions is highlighte business environment are highlighted below: the environment. () Uncertainty—because ABC Ltd. has to change its plan due to chang: (i) Dynamic—because ABC Ltd, decided to adopt the changes to survive in the environment, ¢, technological upgradation. (ii) Relativity—because ABC Ltd. is moving to cross-border places to increase the customer base and it understands that different places inherit different cultures and entering to a new area can increase its customer base. 4, We can see that these days Chinese products dominate the electronics market. Local companies in India have to face challenge (like fall in revenue, high production cost) because of this dominance. In the above scenario, which dimension is affecting the business environment? ‘Ans. Technological dimension is affecting the business environment. The products manufactured by China are manufactured using advanced technology, as a result of which the production cost is low. Consuming tobacco is injurious to health. This fact is mentioned on the product range as disclaimer by the ‘companies. Which dimension of business environment is focused on by companies in this case?Business Environment chee ‘Ans. The dimension focused on in this case isthe legal environment. tis important to disclose all the facts and information on the product which affects the decision-making ability of the customer purchasing that particular [Link] is a part of the directives issued by the government. 6, In India, during the season of martiages, the sale of gold is increased. Which dimension of business environment is highlighted here? Ans, Social environment is highlighted in this case. 7. The sale of tradi al ehenga (traditional indian attire for women) is more in the state of Gujarat (India) rather than in any other country. Which feature of business environment is highlighted here? ‘Ans. The feature highlighted here is Relativity. People in different countries, places, states, etc, have different cultures and choices. Therefore, choice and culture are a relative concept. 8, ABC party won the elections and formed the government. Due to this, Sensex drops by 600 points.s there any correlation between these two factors on the business environment? Ans. Yes, the dimension highlighted here is political environment and it affects the business environment. 9. Ahousewife was running a tailoring shop at herr fence, but her customer base was not so good. She analysed the market and came to know the latest trends. She then converted her tailoring shop into a designer boutique with a well-designed website to showcase the variety of trendy designs that she is offering. After entering the electronic mode of business, her revenues increased by 30%.Which dimension of business environment is highlighted here? ‘Ans. Technological environment, because the housewife shifted to electronic mode of business. Social ‘environment, because the preference and choice of customers can be targeted by studying the social environment (in the present case, tailoring shop converted into a designer boutique). 10. Asa result of the demons public. Which dimension is highlighted here? isation decision by government, banks now have more money to grant loans to ‘Ans. Economic environment is the dimension highlighted in this case, 11. In each of the cases below, explain the impact on the performance of business enterprise: (2) Political instabil (b) Advanced technological upgrade (©) Tax rate increased by the government (4) Change in fashion trends Ans. (a) Investors feel insecure while investing in projects because of political instability. (b) Existing product range may become obsolete and new range may be introduced. (0) Cost of production is increased and products turn out to be expensive, {d) Demand of fashionable products increases. 12. Recently Delhi Government announced“Odd-Even Rule” for cars in Delhi. Asa result, employees who were ‘commuting by office cars were not able to reach office. So, ABC Limited decided to arrange more cars to ‘ater to the employee [Link] dimension of business environment is highlighted here? Ans, Political environment.Business Studies—CBSE xy 13. Identify the type or dimension of environment to which the following are related: (Banks reducing interest rates on housing loans. (i) An increasing number of working women. (ii) Booking of air tickets through internet. (iv) Alcohol beverages are prohibited to be advertised on ‘Doordarshan: Ans. (i) Economic Environment (ii) Social Environment (iil) Technological Environment (iv) Legal Environment 14. The Government of India has recently come up with an amendment to Section 6 of the Payment of Wages ‘Act, 1936, to allow employers of certain industries to make payment through various electronic modes of payments. The amendment will be applicable to all the public sector undertakings for wages disbursement Using e-payment options. This is another milestone in the direction to further push to cashless economy, Identify and explain any two dimensions of business environment which relate to the above-mentioned case. ‘Ans. In the given case, the two dimensions of business environment are: (a) Legal Environment: Business firms have to function within the framework of laws and regul: the country. For example, Payment of Wages Act, 1936, Companies Act, 2013, etc. (b) Technological Environment: It covers forces relating to scientific improvements and innovations which result in new, better and economical means of producing goods and services and new methods and techniques of operating a business. For example, online transfer of wages/salaries. 15, My Car Limited is a cab company running petrol and diesel taxis in Delhi and [Link] control the pollution, a ruling was passed in the year 1998 to convert all commercial vehicles into CNG. Soon after the ruling, the company sold off its diesel cars and converted petrol cars into CNG. Delhi Government introduced the scheme of odd-even’ car in January, [Link] in the year, the Supreme Court passed the verdict that only CNG commercial vehicles could ply in Delhi and NCR. The company started earning huge profits while its competitors ran out of business. (a) Identify the dimension of the business environment discussed in the above case. (b) State two reasons why the profits of the company surged. Ans. (a) The dimension of business environment discussed in the above case is legal environment. (b) The profits of the company surged due to the following reasons: () Identifying Opportunity and Getting First-mover Advantage: Early identification of opportunity has given My Car Limited first-mover advantage against its competitors. (ii) Identifying Threats and Early Warning Signals: The company has been able to identify the threat of running out of business on time. They have identified the government ruling as an early warning signal. 16. Neha and Govind, after finishing their graduation under vocational stream, decided to start their own travel agency which will book rail tickets and air tickets on commission basis. They also thought of providing tickets within ten minutes through the use of internet. They discussed the idea with their Professor ‘Mr. Mehta who liked the idea and suggested them to first analyse the business environment which consists of investors, competitors and other forces like social, political, etc, that may affect their business directly of indirectly. He further told them about the technological improvements and shifts in consumer preferences that were taking place and hence they should be aware of the environmental trends and changes whichBusiness Environment may hinder their business performance. He emphasised on making plans keeping in mind the threzt posed by the competitors, so that they can deal with the situztion effectively. This alignment of business operations with the business environment will resut in better performance. @) Identify and state the component of business environment highlighted in the above paragraph. () State any two features of business environment as discussed by Professor Mehta with Neha and Govind. (c) Also state two points of importance of business environment as stated by Professor Mehta in the above situation, ‘Ans. (2) Technological Environment: It covers forces relating to scientific improvements, which provide new ways of producing goods and services and new methods and techniques of operating a business. (b) Two features of business environment: (Business environment is a combination of both Specific and General Forces. (i) Itis dynamic in nature due to technological improvement and environmental trends. (0 @ Ithelps the firm to identify threats and early warning signals. Gi) Ithelps in planning and policy formulation. 17. Political conditions in Uttar Pradesh differ from those in Maharashtra. Similarly, demand for lehenga is fairly high in Gujarat whereas itis quite lov in Punjab. Identify and state the feature of business environment. Ans. Relativity. Business environment is a relative concept. Since the economic environment, local laws and regulations, climatic conditions, etc, differ from one country to another, from one region to another within the same country or even over a period of time within the same region. Thus, business environment shall be different for different business enterprises. 18. Polythene bags are banned by the government as they are harmful for the environment. Identify and explain the dimension of business environment. ‘Ans. Legal Environment. The legal or regulatory environment comprises diverse laws, eg.,The Indian Contract Act, 1872, The Sale of Goods Act, 1930, The Consumer Protection Act, 1986, various other industrial and labour laws, etc, passed by the government of a country, court judgements, administrative orders issued by government authorities, etc. For instance, companies in India are required to comply with the requirements of the Companies Act, 2013. {t is important for the business entrepreneurs to understand the legal framework in running the business so that they can avoid legal consequences if any. 19. According to Consumer Protection Act, 1986, manufacturers are required to provide all the relevant information like MRP, manufacturing date, expiry date, ingredients, etc, about the product manufactured by them. Identify and explain the components of the dimension of business environment highlighted in this case. ‘Ans. Legal Environment. Following are the main components of legal environment: (i) Legislations passed by the government. (i) Court judgements and decisions rendered by vatious commissions and agencies of the government. (ii) Administrative orders issued by various government authorities.a Business Studies CBSE xy DOT of business environment. 1. Define business environment. Explain any four features nment. 2. Write a short note on the importance of business em 3. Explain economic environment and its components. 4, Write a short note on New Economic Policy. 5. Explain privatisation with its features. 6. Explain globalisation with its features. 7. Write a short note on the dimensions of business environment. 8. What is demonetisation? What are the features of demonetisation? 9. How does the management of a company respond to changes in the business environment? 10. Write a note on the impact of changes in economic policy on business. NCERT: QUESTIONS, Very SHORT ANSWER TYPE QUESTIONS (SOLVED) 1. What is meant by business environment? fate or a set of conditions—economic, social, political or Ans. Business environment encompasses the institutional—in which business operations are conducted. 2. How does understanding of business environment help in improving performance of a business? Ans. Each business firm has to exist, survive and grow in relation to the various forces of the business environment. Since business firms have no control on these forces; it has'to adapt itself according to these forces. Understanding the importance of the business environment will help to seek more business opportunities. Give an example to show that a business firm operates within numerous interrelated factors constituting the business environment. ‘Ans. People are now focusing more on using organic products. This trend is part of the social environment. However, this trend in the society presupposes the economic dimension of the environment that people are now having more disposable income. 4, Krishna Furnishers Mart started its operations in the year-1954 and emerged as the market leader in the industry because of their original designs and efficiency in operations. They had a steady demand for their products bist over the years, they found their market share declining because of new entrants in the field The firm décided to review their operations and decided that in order to meet the competition, they need to study and analyse the market trends and then design and develop their products accordingly. List any two impacts of changes in business environment on Krishna Furnishers Mart’s operations. ‘Ans, The two impacts of changes in the bu: () Increased Competition: The competition for Indian firms has greatly increased due to the result of liberalisation, privatisation, and globalisation. Krishna Furnishers Mart is also facing it because of the expansion of the current market scenario, (i) Market Orientation: Krishna Furnishers Mart earlier produced goods and then sold in the market later. This was a production-oriented market set-up. Now the focus has changed to the concept of less environment on Krishna Furnishers Mart's operations are: customer is King.‘Business Environment ee 5, Name any two specific forces of business environment affecting business, ‘Ans. Delay in the supply of raw material and change in taste and preference of customers, SHORT ANSWER TYPE QUESTIONS (SOLVED) 1. Why is it important for business enterprises to understand their environment? Explain, ‘Ans, Each business firm has to exist, Survive and grow in relation to the various forces of the business environment. Since business fi ims have no control on these forces, it has to adapt itself according to these forces, Understanding the importance of the business environment will help to seek more business opportunities. Understanding of business environment helps the business enterprise to make changes in its policies, capturing the market, facing competition ete, which, in tur, of business, helps in the growth and survival 2, Explain the following terms: () Uberalisation (i) Privatisation ii) Globalisation ‘Ans. (i) Liberalisation refers to a relaxation of government restrictions. The basi im of liberalisation was to put an end to those restrictions which became hindrances in the development and growth of the nation, (i) Privatisation means the transfer of ownership or management of an enterprise from the public sector tothe private sector Privatisation isthe increment of the dominating role of private sector companies and the reduced role of public sector companies, Li) Globalisation means to integrate the economy of one country with the global economy. Globalisation 's attempting to create a borderless world, wherein the need of one country can be fulfilled from across the globe and turning into one large economy. 3. Briefly discuss the impact of government policy changes on business and industry, Ans. (Increasing Competition: As @ result of changes inthe rules and regulations of LPG, competition of Indian business enterprises has increased. This is especially in the service sector like airlines, banking, insurance, etc, which were earlier in the public sector, Many business enterprises couldn't face the increasing competition and left the market. Ai) More Demanding Customers: Customer these dys are well informed about the products and changesin the market. Asa result,customers have choices available in the market and thus, customers are more demanding these days. i) Market Orientation: Earlier business enterprises used to manufacture products and then sell the same in the market, But these days business enterprises are more market-oriented, ie, fist they analyse and prepare strategies for the products to be manufactured and then hit the market where demand i high. 4. National Digital Library of India (NDL Inca) isa pilot project initiated by the HRO ministry t works towards Geveloping a framework of virtual repository of learning resources with a single-window search fai. 't provides support to all academic levels including researchers life-long learners and differently-abled learners free of cost. State the dimensions of business environment highlighted above Ans. Technological environment is highlighted here. Technological environment includes the discovery of new methods of producing goods and services, new techniques of operating business, innovations and Improvements in the existing method of doing business, etc. The survival of a business largely depends ‘upon its technological advancement.ee business Sues C056 5. State the impact of demonetisation on interest rates, private wealth and real estate. Ans. (i) Interest Rates: Bank deposits increased with an increase in financial savings. Cash transactions reduced. Further, banks and financial institutions have a lower cost of funds which leads to lowe, lending rates. Private Wealth: Real Estate: Prices of real estate fell. LONG ANswer TYPE QUESTIONS 1, How would you characterise business environment? Expl and specific environment. ate wealth declined. with examples, the difference between gener) 2. How would youargue that the success of a business enterprises significantly influenced by its environmen) 3. Explain, with examples, the various dimensions of business environment. 4. The Government of India announced demonetisation of € 500 and & 1,000 currency notes with effect from the midnight of November 8, [Link] a result, the existing & 500 and & 1,000 currency notes ceased to by legal tender from that date, New currency notes of the denomination of € 500 and & 2,000 were issued by Reserve Bank of India after the announcement. This step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e-wallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection. (Enumerate the dimensions of business environment highlighted above, i) State the features of demonetisation. 5. What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry? 3. What are the essential features of (Liberalisation, (li) Privatisation, and (iii) Globalisation?BUSINESS STUDIES Our Other Popular Titles Textbooks for CBSE Class Xl + Double Entry Book Keeping + Aecounting for Not-for-Profit Organisations: and Partnership Firms (Vol. 1) TS. Grevial + keceortng for Companies Vol.) TS. 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