Business Environment
Learning Objective
➢ What is Business?
➢ What is Environment?
➢ Business Environment- Nature, Objective
➢ Types of Business Environment
➢ Interaction between Internal and External
Environment
➢ Importance of Business Environment
Business:
Business is a human activity carried out by the
unified efforts of different categories of people, to produce the
wealth through production and distribution of the goods and
services.
According to Malvin Anshen :
“ Business is the way by which men make their living.”
According to Bayard O’Wheeler :
“ Business is an institution organized and
operated to provide goods and services to society under the
incentive of private gain.”
Environment:
The birth, growth and continuous
development of organization are influenced by
a wide range of variables like employees,
customers, suppliers, producers, competition
etc.
Business Environment:
Business Environment refers to those
aspects of the surroundings of business enterprise,
which affect or influence its operations and
determine its effectiveness.
According to Keith Davis:
“Business environment is the aggregate of
all conditions, events and influence that surrounds
and affects it”
Business environment is Dynamic
• Trade is a key pillar of an economy, spurring investment, job creation,
economic growth, and raising living standards
• In 2023, Mexico became the largest goods trade partner of the US,
surpassing China and Canada, with a total trade of USD 798 billion.
Vietnam’s trade with China and the US has recently seen an increase.
• US imports from Vietnam more than doubled from USD 46 billion in
2017 to USD 114 billion in 2023. During the same time, Vietnam’s
imports from China rose from USD 58 billion to USD 111 billion.5
• In another instance, European economies are shifting their energy
imports from Russia to Norway and the US. EU’s pipeline gas imports
from Russia declined from 150.2 billion cubic meters in 2021 to 42.9
billion cubic meters in 2023. During the same time, its pipeline gas
imports from the US rose from 18.9 billion cubic meters to 56.2 billion
cubic meters.
Nature of Business Environment
Complex:
Environment consists of a number of factors, events, conditions
arising from different sources which impact business thus making the
business complex.
Interdependence :
Factors affecting business environment like social, economic, legal,
cultural etc are inter dependent.
E.g. A rich country can make sufficient expenditure on the research and
development.
Dynamic:
Business environment is dynamic as it keeps on changing in terms of
technological improvement, changes in consumer preferences, entry of new
competitors.
Uncertainty:
Business environment is largely uncertain as it is very difficult to
predict future happenings.
Relativity:
Business environment is a relative concept as it differs from
country to country and region to region.
e.g. Demand of saree is high in India comparative to other countries.
Specific and General forces:
Specific forces affects individual enterprises directly and
immediately whereas general forces have impact on all business
enterprises.
Forecasting is not possible for all developments:
Many developments such as interest rate fluctuations, the rate of inflation
etc are difficult to predict on log term basis which makes difficult to maintain
business environment.
Objectives of Business Environment
Knowledge of Information:
Every businessman should be aware about the current
environment of the business to change accordingly.
Basis of Decision:
It contains all the information which is needed for taking good
decision.
e.g. If a business knows about its competitors, suppliers and customers they
take decision about price, purchase, salary etc.
Helpful in making of policies:
For making good business policies one needs to know and scan
business through business environment.
Technological Planning:
In today's environment it is really important for the business houses
to keep themselves changing according to the technological changes in the
market.
Survive in the business:
Sometimes industry may face recession. In such condition only those
business will survive who estimate this entire situation in advance through
business environment study.
Types of Business Environment
Internal Environment External Environment
• Financial Resources
• Physical and human Micro Environment Macro Environment
Resources
• Objectives of Business
• Work Environment
• Corporate Image
• Labour management
Relationship
• 7) Technological Capabilities
Factors in Internal
To Organisations
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Internal Environment
An internal environment is an important component of the business environment.
It concentrates on the various factors that are present within an organization and
can affect how its workforce operates which has 8 components
1. Value System
2. Vision, mission and objectives
3. Organisational structure
4. Corporate culture
5. Management Style
6. Human resources
7. Labour Unions
8. Physical and technological resources
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Value System
Values that often make up companies’; value systems include:
✓Strong work ethic
✓Honesty
✓Self-respect
✓Respect for others
✓Integrity
✓Servant Leadership
✓Loyalty
Case Study: ‘Swiggy CEO Rohit Kapoor’s views on Night grind and Hustle culture’
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Value system
The value system of a company refers to the company's goals, norms
and moral beliefs that influence a specific mindset of its workforce
Establishing and maintaining a clear set of values creates organizational
consistency and integrity, which shows employees what their employer
stands for (Case study : Rohit Kapoor, CEO of Swiggy views on ‘Hustle
Culture’)
In many instances, employees may consider the company's specific
value system when making important decisions (Case study of “Work
Place stress- Zoho CEO Sridhar Vembu’s views”)
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Vision, Mission and Objectives
Vision
The company's vision is an idea that executives have about the
organization's future and what it can and aspire to become. By creating
a compelling, coherent vision for the company, they can inspire
employees and motivate their desire for success (e.g: To become a
Billion dollar company in next 5 years from a tiny 25 Million Dollar
company)
Mission
The organization's mission concentrates on the specific purpose
behind a company's existence and how the company plans to achieve
the vision and goals.
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Objectives
• Both company vision and mission directly impact each organization's
objectives. This is possible because a company objective is a specific
goal or outcome that leaders want the organization to achieve
through following its unique values and maintaining its vision.
✓Economic Objectives
✓Social Objectives
✓Human Objectives
✓Organic Objectives
✓Global Objectives
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Objectives of the organisation
• Economic Objectives may relate to the EBIDTA, Targeted Return on Products, SBU
wise economic performance
• Social Objectives may relate to social recognition of the organisation, well being of
the society dependent on it, taking care of environment
• Human Objectives, the employees whether direct or indirect are the valuable assets
contributing to the growth of the organisation rely on organisations to take care of
them today, tomorrow and next generations
• Organic Objectives, If an organisation is surviving and progressing because of its
stakeholders, if they are also growing organically with the organisation, they in turn
take care of the organisation in long term
• Global Objectives, the organisations dependent on business for marketing or
sourcing raw material wants to sustain those markets and vendors for its overall
growth. This is critical whenever domestic market is not doing well, the global
markets come to handy.
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Organisational Structure
• An organizational structure of a company is a set of rules that outline
reporting processes within the organization.
• There are various types of organizational structures that companies
can choose to implement, including a hierarchical or matrix
organizational structure.
• The organizational structure is how the company delegates roles,
responsibilities, job functions, accountability and decision-making
authority. The organizational structure often shows the “chain of
command” and how information moves within the company.
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Organisational Structure
• Hierarchical – Circular
• Flat and Vertical
• Centralised & Decentralised
• Function based
• Product based
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This structure is more applicable to follow Line and Staff departments
to fix responsibility for better performance
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Applicable to Units having Multi products like HUL, ITC –
Cosmetics, Stationery, Cigarettes, Processed foods etc.,
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Applicable to those organisations operate in Multi geographical locations
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Applicable to those organisations having Multi Locations manufacturing
and marketing in multi locations but the locations are different in both cases
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Corporate Culture
• The term 'corporate culture' refers to the beliefs and behaviours that a
company encourages, including the way in which employees and
managers interact with each other. Creating a healthy company culture is
an important goal for many companies regardless of their size, as doing
this often helps them make their employees happier and improve
employee retention.
• Four common types that businesses can use as inspiration, including:
• Caring workplace culture
• Purpose Driven Culture
• Playful work environment
• Result Oriented
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Caring work Culture
• A caring culture is an organizational culture in which leaders
consistently act in ways that help team members to thrive,
and team members consistently act in ways that help other
team members to thrive.
• As a result, the organization is able to care very well for
customers.
• The underperforming employees all the care and support till
they are able to perform on theirown.
• Leadership that truly cares about employees and consistently
demonstrates that care by putting people above profits will
see the benefits of this approach in their organizations
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Purpose Driven culture
• The imperative for organizations to consciously consider their social
impact is increasingly evident.
• In recent years, there has been growing recognition that organizations
have a responsibility not just to their shareholders, but to each of their
key stakeholders, including society.
• For example, Jaipur Foot is an organisation provides artificial limbs to
the people unfortunately lost their limbs for several reasons.
• This organisation do not look at the cost of the limb in providing to
the needy, they take whatever the patient can give, they do not ask for
payment if patient is not capable of.
• Secondly, they will support the patients till they are totally recovered
and are able to go back to regular works on their own and also
provide alternate living support also
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Playful work environment
• Employees should not work under stress and duress,
work should be a pleasure
• When such an environment is created, it will result
in accident free environment, contributory to more
than what is required from employees
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Result oriented organisation culture
• What Is a Results-Only Work Environment? In a ROWE, you
measure team members by their performance, results or
output, not by their presence in the office or the hours that
they work. You give them complete autonomy over their
projects, and you allow them the freedom to choose when
and how they will meet their goals.
• Most of the result oriented organizations pay will be linked to
their output and quality of the products and innovations they
bring in.
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Management Style
• Management style is a specific way in which managers approach their
leadership responsibilities. By following one style of management,
supervisors can ensure the team collaborates well and encourage a
positive work environment.
• Autocratic Management Style
• Democratic Management Style
• Persuasive Management Style
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Internal Environment:
Internal environment refers to factors existing within a business firm.These
factors are generally regarded as controllable factors because the
company has control over these factors.
Financial Factors:
Factors like financial policies, financial procedures and capital structure
are also important internal environment affecting business performance,
strategies and decisions.
Physical and Human Resources:
The characteristics of the human resources like skill, quality, moral,
commitment etc., contribute to the strength and weakness of an
organization.
Objectives of Business:
The business domain of the company, direction of development,
business policy etc., are guided by the objectives of the company
Work Environment:
The organisational structure, company policies, extent of
professionalism in management etc., are important factors influencing
business decisions.
Company Image and Brand:
The image of the company matters while raising finance, forming
joint ventures, entering purchase or sales contract etc.
Labour Management Relationship:
Factors like the amount of support top management enjoys from
different level of employees, and other participants influences company
decisions and their implementations.
R&D and Technological Capabilities:
It determines a company’s ability to innovate and compete.
External Environment
The external environment refers to the factors existing outside the
business firm. The external factors are beyond the control of a
company, hence its success depends to the adaptability of the
environment.
Again external environment is divided in two parts:
1)Micro Environment
2)Macro Environment
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Micro Environment
The factors which are close to the company and affects its ability to work
constitutes micro environment. It is known as the operating environment of
business.
When competing form in the industry have the same micro elements, the
success of the firm depends on their relative effectiveness in dealing with these
elements.
Suppliers:
Suppliers are those who supply the inputs like raw material and
components to the company. Uncertainties regarding the supply
constraints the company to maintain high inventories causing cost
increase.
Customers:
Success of any business depends upon identifying customers, their needs,
likes etc., and enhancing the level of customer satisfaction. The major task of
a business is to create and sustain customers.
Competitors:
Competitors mans other business units which are marketing or producing
similar products or a very close substitute of our product. Business has to
adjust its various activities according to the action and reactions of
competitors.
Marketing Intermediaries:
These are the firms that aid the company in promoting , selling and distributing
its goods to final buyers. They are the vital links between the company and the
final consumers.
Public:
A public is any group that has an actual or potential interest in or impact on
an organization's ability to achieve its interest. Some companies are
seriously affected by such public.
E.g. Media
Macro Environment
Macro environment means general environment of business. Macro forces
are uncontrollable in comparison to the micro forces of environment. The
growth and survival of business depends upon its adaptability to macro
environmental factors.
The important macro environment are:
1)Economic Environment
2) Non Economic Environment
Economic Environment:
To know the economic environment of a country or a business one has to
understand the economic policies of the nation. These policies put direct
impact on the working and success of the business. Economic conditions,
economic policies (Industrial policies, monetary and fiscal policy etc) and the
economic system are the important factors that constitute economic
environment of the business.
Non Economic Environment
Socio cultural Environment:
The socio-cultural environmental factors consist of human relationship and
the development. Some of the important factors in the social environment are
the buying and consumption habit of people, their languages, beliefs and
values, custom and traditions, etc that effeccts the business.
Legal Environment:
Every country follows its own system of law. The companies operatiing in the
global market have to take into account the provisions with rspect to the legal
environment prevalent in the countries which thy do business. These law and
regulations affect the day-to-day operations of business.
International Environment:
The international environment is particularly important for industries
directly depending on imports or exports.
E.g. Import export policies of various countries.
Political Environment:
The political environment consists of factors related to the management of
public affairs that have a considerable impact on the business of an
organization. It impacts the legislations and government rules and regulations
under which business organizations operates in a country.
Technological Environment:
Technological environment comprises both machines (hard technology) and
scientific thinking (soft technology) used to solve problems and promote
progress. It also represents the degree of advancement of goods and services
that are prevalent in a country or a region.
Natural Environment:
Geographical factors such as natural resources endowments, weather and
climatic conditions, location aspects in the global context, port facilities etc., are
all relevant to business.
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Significance of Business Environment
First Mover Advantage:
Awareness of environment helps an enterprise to take advantage of early
opportunities instead of loosing them to competitors.
E.g. Maruti Udyog became leader in small car
Early Warning Signal:
Environmental awareness serves as an early warning signal. It makes a firm
aware of the future threats or crisis so that the firm can take timely action to
minimize the adverse effects.
Customer Focus:
Environmental understanding makes the management sensitive to the
changing needs and expectations of the consumers.
E.g. Apps in mobile
Strategy Formulation:
Environmental monitoring provieds relevant information about the
business opportunities on the basis of which firms makes their
stratrgies.
e.g. ITC in travel and tourism sector
Public Image:
A business firm can improve its imageby showing that it is sensitive to its
environment and responsiveas per the need of customers.
Continuous Learning:
Environmental analysis serves as broad and ongoing education for business
executive so that they can react in an appropriate manner to the changing
scenario and therby increase the success of their organization.
Environment Scanning
The word scanning means to look carefully into or to examine. The
term Environmental Scanning in business means to “Carefully
analyze the various factors influencing the business”.
Environmental Scanning is a continuous process. It is a process by
which the organizations monitor their relevant environment to
identify opportunities and threats affecting their business.
According to B.W.Denning “The advocates of systematic corporate
planning (strategic management process) base their case on the
view that the determination of the future can be improved by a
systematic analytical approach which reviews the business as a
whole in relation to the environment.”
Need of Environment Scanning
Effective Utilization of Resources:
The key to business success is the most effective utilization of
resources. Companies which fails to do so are doomed to failure.
Helps in Converting threats into Opportunities:
Environmental scanning allows the strategies to anticipate
opportunities and plan alternative responses to these opportunities.
Environmental scanning helps in preventing the threats or develop
strategies that can turn threats to opportunities for the benefits of
organization. If all the companies were able to do that, then every
company would have earned good profits, growth and reputation.
Useful for the managers:
A business manger should be able analyze the environment to grasp
the
Strategic Management Starts with Environmental Scanning:
Environmental scanning is the starting point of strategic
management. strategy formulation and strategy implementation are
the outcome of environment scanning. To implement the strategy,
the first thing is formulation of strategy. Again this strategy
formulation is based on what impact the environment has on
organization in terms of opportunities and threats.
Constant Monitoring of the Environment:
Environmental scanning provides a clear idea about the existing
environment. Without environment scanning it would not be possible
to know the change in customers tastes=, preferences, competitors
moves, latest policies etc.
opportunities or face the threats.
Narrowing Down the Opportunities:
An in-depth and meaningful environmental scanning assists the
strategists to reduce the range of available alternatives and
eliminate options that are totally inconsisten with the forecast
opportunities or threats. Of these alternatives and options, which is
the viable and promising has to be traced out.
Process of Environment Scanning
Identifying Environmental Factors
Scanning & Selecting Relevant & Key Factors
Defining Variables for Analysis
Using Different Methods, Techniques & Tools
Forecasting Environmental Factors
Designing Profiles
Strategic position and Report Writing
Environmental analysis process is not static but a dynamic process.
It may differ depending on the situation. However general process with
few common steps can be identified as the process of environmental
analysis they are:
Identifying Environmental Factors:
All strategist should identify all the relevant factors that might affect
their business. In this process, one should first know what the internal
areas (internal structure, culture, labour management) of the
business are. Similarly, a business daily interacts with the close
environmental components outside the business such as customers,
competitors. Furthermore, general factors such as political, legal,
economic etc. are to be identified.
Scanning and Selecting Relevant Key Factors:
Out of all the business environmental factors, a strategist should focus
on the relevant factors for analysis. This step basically avoids the
overload of unnecessary information.
Defining Variables for Analysis:
Selected environmental factors are to be further specified into the
variables. For example, political situation can be measured using few
variables such as instability, reliability and long term effect. Economic
environment might cover many variables such as per capita, GDP etc.
Using Different Methods, Techniques and Tools:
Some of the major methods of analysis can be Scenario building,
Benchmarking, Network methods.
Scenario presents overall picture of its total system with affecting
factors. Benchmarking is to find the best standard in an industry and
to compare the one’s strength and weakness wit the standard.
Network method is to assess organizational system and its outside
environment to find out the SWOT of an organization.
Some of the techniques are Survey, Brainstorming, Historical Enquiry.
Analysis tools can be statistical such as general descriptive tools as
mean, median, mode, frequency. Finance & accounting use mostly
profitability, leverages and other similar financial tools for analysis.
Forecasting Environmental Factors:
Collecting relevant information and to identify the variables are
basics of analysis. Analyzing the past information to predict the
future is the main objective of this step.
Designing Profile:
After analyzing the environmental factors they are recorded into the
profiles. Such profile record each component or variable into left
side and their positive, negative or neutral indicators including their
statement in the right side.
Internal areas are recorded in Strategic Advantage Profile (SAP)
and external areas are recorded in Environmental Threat and
Opportunity Profile (ETOP).
Strength, Weakness, Opportunity and Threat (SWOT) profile can be
designed combining both of these two profiles into one.
Strategic Position and Report Writing:
After preparing the profiles strategists prepare formal report that
describes the business environment. The report might present
issues and best strength of business environment. Based on this
report future strategies can be made effectively.
SWOT Analysis
A SWOT analysis is structured planning
method used to evaluate the strengths,
weaknesses, opportunities and threats
involved in a project or in a business venture.
It involves specifying the objective of the
business venture or project and identifying the
internal and external factors that are favorable
and unfavorable to achieve that objective.
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