Business Environment

Business & its Environment

Module: 1
 Business
⚫ Business is a generic term which comprises of all
primary and ancillary activities which are involved in
the production and distribution of goods and services.
⚫ The term business has varied interpretations. For a
consumer, business is supply of goods and services
required for daily life. For the government , business is
an important source of revenue. For environmentalist
business is responsible for pollution.
⚫ Basically all socially desired economic activities
adopted to earn profit can be defined as ‘Business’.
Definition
⚫The activities of buying and selling goods,
manufacturing goods or producing services in order to
make profit.

⚫Business is an institution organised and operated to

provide goods and services to society under the incentive
of private gains.

⚫Business is a human activity directed towards producing

or acquiring wealth thru buying and selling activities.
Features of Business
1. Dealings in Goods and Services
2. Production and/or Exchange
3. Creation of Form, Time and Place Utility
4. Regularity and Continuity in Dealings
5. Profit Motive
6. Risk and Uncertainty involved
7. Creative and Dynamic
8. Government Control
1. Dealings in Goods and Services
⚫Goods produced or exchanged, may be consumers'
goods, such as bread, rice, cloth, etc. or producers' goods
such as machines, tools, etc.
⚫The consumer goods are meant for direct consumption,
either immediately, or after undergoing some processes,.
⚫The producers' goods are meant for being used for the
purposes of further production. Producers’ goods are also
known as capital goods.
⚫Services include supply of electricity, gas, water finance,
insurance, transportation, warehousing, etc.
2. Production and/or Exchange
⚫Every business is concerned with production and
exchange of goods and services for value (money).
⚫Thus, goods produced or purchased for personal
consumption or for presenting to others as gifts do not
constitute business, because there is no sale or transfer
for value.
⚫For example, if a person cooks at home for personal
consumption, it is not business activity. But, if he
cooks for others in his 'dhaba', or restaurant and
receives payment from them, it becomes his business.
3. Creation of form, time and place utility
⚫All business activities create utilities for the society.
⚫Form utility is created, when raw materials are
converted into finished goods and services.
⚫Place utility is created, when goods are transported
from the place of production to the place of
consumption.
⚫Storage of goods creates Time utility, this helps in
preserving the goods, when not required and making
them available, when demanded by the consumers.
4. Regularity and Continuity in Dealings
⚫Regularity of economic transactions is the essence of
business.
⚫There should be continuity, or regularity of exchange
of goods and services for money.
⚫An isolated transaction cannot be called a business.
⚫For example, if a person sells his flat and earns some
profits, it cannot be called a business. But, if he
purchases and sells flats regularly to earn his
livelihood, it will be called his business.
5. Profit Motive
⚫The chief objective of a business is to earn reasonable profits or
'surplus'.
⚫The survival of a business depends upon its ability to earn profits.
⚫Every businessman wants to earn profits, to get return on his
capital and to reward himself for his services.
⚫Actually, profit is the spur that helps in the continuation of the
business.
⚫Profit is also essential for growth.
⚫Recreation clubs and religious institutions cannot be called
business enterprises, as they have nothing to do with the profit
motive.
6. Risk and Uncertainty involved
⚫Business activities are always risky and uncertain.
⚫Every businessmen has to undertake substantial risks
in his business.
⚫A business enterprise may suffer loss due to a number
of possible reasons such as changes in technologies,
changes in consumer tastes and preferences, market
competitions etc.
7. Government Control
⚫Government has to keep a watch on overall business
activities and see that they move in the right direction.
⚫For this , government control is a must.
⚫This may be in the form of suitable laws, rules,
regulations, sanctions and so on.
8. Creative & Dynamic
⚫Business activities are creative as they are normally for
the convenience of consumers. They are ever
changing.
⚫This is natural as business operates under changing
economic, social, and technological environment.
⚫Modern business is dynamic as it has to change and
adjust its activities as per the environmental factors.
Need / Function of Business
1. Regular supply of goods and services
2. Optimum & meaningful use of resources
3. Creation of employment opportunities
4. Provision of revenue to the government
5. Social welfare
6. Facilities economics growth
7. Capital Formation
Types of Business

⚫Sole Trading Concern

⚫Partnership Firm
⚫Joint Stock Company
⚫Cooperative Society
⚫Joint Hindu Family Business
BUSINESS OBJECTIVES
 WHAT ARE BUSINESS OBJECTIVES?
⚫Every rational human activity needs well defined
objectives. Business is no exception to this rule.
⚫Profit making, social recognition and business growth are
some universally accepted Business objectives .
⚫Objectives indicate the destination towards which the
business unit desires to move.
⚫Running a business unit without well defined objectives
is like journey without fixed destination.
⚫On the other hand objectives means giving a definite and
clear direction to the activities of the organisation.
⚫Objectives are the ends which a business unit desires to
achieve. They are future destinations of an organisation.
They act as focal points before the business enterprise.
⚫Objectives are normally decided by the top management of
the company. Lower level are too busy in routine business
activities and do not have time to look after overall business
objectives.
⚫Top management should review the objectives periodically
and give proper direction to the whole organisation in this
regards.
⚫Objectives are not stable over a long period. In fact they are
redefined periodically as per the environmental changes.
Definitions of Business Objectives
⚫Objectives are the ends towards which activities of any
enterprise or department or project within it are aimed.

⚫Objectives are the goals, aims or purpose that

organisations wish to achieve over varying period of
time.

⚫A specific result that an organisation aims to achieve

within a time frame and with available resources.
Examples of Business Objectives
⚫Increase your product or service's market share
⚫Reduce employee turnover and increase satisfaction
⚫Maintain or increase profits
⚫Strengthen customer service
⚫Install tools and systems to increase productivity
⚫Improve company value
⚫Enhance the quality of a business's product or service
⚫Reduce Ongoing Business Expenses
Features/Characteristics of
Business Objectives
1. Lengthy Process
2. Clear and easily understandable
3. Concrete and Specific
4. Challenging
5. Time Frame
6. Profitability
7. Flexible
8. Hierarchy of Objectives
9. Qualitative and Quantitative
Importance/Significance of Objectives in
Business Management
⚫ Objectives justify the existence :
Every enterprise needs its own objectives. The objectives
offer social justification for its existence. A business
enterprise lacks moral right to operate if there is nothing to
achieve.
⚫ Facilitates planning process :
Business objectives facilitates management process which
includes planning, organising, staffing etc. Management
which does not define its objectives would not know
where it wants to go and will become a victim of
confusion. Objectives facilitates planning process.
⚫Define relationship with its environment :
Objectives suggest what the organisation desires to achieve
for its employees, customers and the society at large under
the prevailing circumstances. Well defined objectives give
convenience to the organisation and the outsiders also.
⚫Enable managers to work with confidence :
Objectives guide and motivate managers and thereby
enable them to manage business activities with confidence.
Managers set the objectives for them and also for the
organisation and see that they are achieved within the fixed
time limit.
⚫Facilitates correct Decision making :
Objectives help to coordinate strategic decision making
in the organisation. Decision making process becomes
easy, quick and correct in the light of the objectives.
⚫Provides standard for performance appraisal :
Objectives state the targets to be achieved within a
specific time limit. They can be used by judging actual
performance. Objectives provide clear cut basis for
evaluating the performance of an organisation.
⚫Brings uniformity in the activities of departments :
Objectives act as connecting link and bring integration in
the activities of different departments such as
production, sales, finance etc. Broad objectives are
divided into smaller parts and made applicable to
different departments. This ensures coordination and
uniformity in the working of different departments.
Organic/ Threefold /Basic
Objectives of Business
Organic/ Threefold /Basic Objectives of
Business
A business unit has to give attention to 3 basic
objectives.
1. Survival
2. Growth
3. Recognition/image
 Survival
⚫ Survival in the business is the basic objective of a business unit.
⚫ It is classified as organic/primary objective of business.
⚫ Survival comes first and profit comes next.
⚫ Other objectives can be thought of only if the business unit stands
independently in the market.
⚫ No company can take its survival for granted in the present complex
and highly competitive business environment.
⚫ Constant monitoring of the business situation and strategic planning are
necessary for survival in the competitive business environment.
⚫ For survival, full utilization of available resources, adjustment with the
environmental forces, enhancing competitive capacity and securing
support of various social groups are necessary.
⚫ Profit And Survival are supplementary, as survival in business is
just not possible without earning profits.
 Growth
⚫Growth is the second major business objective. It is next to
survival as a business unit can go for expansion only when it
gets adequate stability.
⚫Growth means expansion of business activities by introducing
new products, new plants, expansion of marketing activities,
diversification in new areas, foreign collaboration, takeovers
etc.
⚫A business unit can have expansion only when its survival
base is sound. Survival is essential for growth.
⚫Expansion and growth bring more profit, more business and
popularity to a business unit.
⚫Long term planning is necessary for orderly and multi
dimensional growth of an enterprise.
 Recognition /Image/ Prestige
⚫ A business unit desires to have social recognition i.e. market reputation.
This objective can be described as favourable image building of the
enterprise among consumers and other social groups.
⚫ After securing stable survival and growth an enterprise will like to give
attention to image building and market standing.
⚫ This can be done by sponsoring sports, cultural activities, educational
project and so on.
⚫ The basic purpose is to have a good public image.
⚫ The enteprise feels that others should have confidence on the company
and treat it as an honest and consumer friendly company.
⚫ Prestige generally comes due to standard quality of its products, regularity
in their supply, reasonable prices and satisfactory service to consumers.
⚫ Recognition indicates public confidence on an enterprise. Such
recognition is only possible after a long period of useful service to the
society.
Steps in formulating Business
Objectives
1. Consider Environmental Factors
2. Consider resources of the enterprises
3. Consider individual dominance
4. Consider value system
5. Consider past objectives
6. Determine final objectives
Business Environment
 Environment

⚫The word Environment is derived from the French word

“Environ” which means “surrounding”.
⚫Environment means the surrounding within which
someone or something exists.
⚫It is like the climate or culture which surrounds us.
⚫Man and his environment are closely connected and
related.
 Business Environment
⚫ A business organisation does not exist in a vacuum.
⚫ It is in fact dependent on the environment.
⚫ For efficient and rational decision making a business
organisation must understand its relationship with its
environment.
⚫ Business has to operate within the situation created
by the environmental factors/forces. It has to adjust
its activities as per the environmental changes.
⚫ Such adjustability is essential for survival and growth
of business.
⚫ A business firm is an open system and it affects and is affected by
outside events and factors which make up the external
environment.
⚫ Business environment may offer opportunities for the firm or
threats to the firm.
⚫ A business firm is also affected by a number of internal factors,
which are forces inside the business organisation.
⚫ While the policy makers and the managers at the top level are
concerned with the external environment, the middle level and
lower level management are more concerned with the internal
environment.
 Definition
⚫The combination of internal and external factors that
influence a company's operating situation.
⚫The total of all things external to firms and individuals,
which affect their organisation and operations.
⚫The aggregate of all conditions, events and influences that
surround and affect it.
Features
⚫ Complex
⚫ Multifacet
⚫ Dynamic
⚫ Needs minute study
⚫ Not influenced by Businessmen
⚫ Creates a framework for business
⚫ Challenge and Opportunity
⚫ Different Components
Components / Types/ Areas of Business
Environment
Legal
Factor
 Internal Environment
1. Goals
2. Value Based Management
3. Corporate Image
4. R & D Facilities
5. Efficient Manpower / Human Resources
6. Physical & Financial Resources
7. Internal Relations
8. Business Plans & Policies
9. Organisational Structure
External Environment
• Micro Environment
• Macro Environment
Micro Environment

⚫Firm
⚫Customer
⚫Suppliers
⚫Marketing Intermediaries
⚫Competitors
⚫Society
 External Environment
PESTLE ANALYSIS
⚫ P - Political Environment
⚫ E – Economic Environment
⚫ S - Socio Cultural Environment
⚫ T - Technological Environment
⚫ L - Legal Environment
⚫ E - Ecological Environment

PESTLE Analysis was created by Harvard Professor, Francis

Aguilar in 1967.
 1. Political Environment
⚫This includes the political system, the government policies
and attitude towards the business community and the
unionism.
⚫All these aspects have a bearing on the strategies adopted by
the business firms.
⚫The stability of the government also influences business and
related activities to a great extent.
⚫It sends a signal of strength, confidence to various interest
groups and investors.
⚫Further, ideology of the political party also influences the
business organisation and its operations
⚫Elections, assurances given by political parties, donations
to political parties, political developments like death of an
important political leader, political scandals, corruption
charges on leading political parties, war etc are major
political factors which affect the political environment.
⚫The success & growth of business depends upon stable,
dynamic, honest, people oriented government, proper law
and order situation, strong party in power, responsible
opposition and responsible role of press and publicity.
⚫Political friendship & diplomatic relations help in growth
of trade.
⚫Countries with stable government and political system
have enjoyed successful and efficient business operations.
USA is the best example.
⚫Business and Politics is inseparable. In fact business can
not remain unaffected by Politics.

⚫Business and Politics are inseparable. Business cannot

remain unaffected by politics.
Features
⚫Influencing factors
⚫Favorable or Unfavorable
⚫Sensitive and flexible
⚫Closely related to Economic environment
⚫Importance of stable Political environment
 2. Economic Environment
⚫Economic conditions, economic policies and economic system
are the factors that constitute the economic environment.
⚫It is multi dimensional in nature & includes all factors
connected with the working of the economic system.
⚫Economic environment includes investment trends, inflation,
monetary policy, fiscal policy, budgetary policies, business
laws, industrial licensing, foreign exchange policies, Exim
policy, labour policies, balance of trade, balance of payment,
economic planning, commercial policies etc.
⚫Economic environment is basically the net result of economic
policies of the government.
⚫Businessmen have to study the prevailing economic
environment and adjust their business plans accordingly.
⚫Favourable business environment bring rapid expansion of
business activities including marketing, manufacturing,
exporting and so on.
⚫Economic Environment is supplementary to political
environment and is influenced by political decision and
political events.
Features of Economic Environment
⚫Influencing factors.
⚫Multi Dimensional in nature.
⚫Influential role of government in shaping economic
environment.
⚫Limited influence of business on economic
environment.
 3. Socio Cultural Environment
⚫Society includes different social groups i.e. consumers,
investors, local community and employees.
⚫The needs and expectations of these social groups create
Social Environment for business.
⚫Social Environment is supplemented by cultural
environment which is the result of cultural factors as
cultural values and beliefs, morals, art, customs, religion
and so on.
⚫Progressive changes takes place in cultural aspects ex
festivals, music, dance etc this creates demand for new
products and changes in the demand for existing ones.
⚫ Even changes in fashions, lifestyles, religious and cultural festivals,
marriage, birth etc needs to be studied by businessmen in order to
adjust business activities as per the change in the cultural
environment.
⚫ Thus these social norms have the influence on business activities.
This is natural as business needs social support for its survival and
growth.
⚫ For example, during festive seasons there is an increase in the
demand for new clothes, sweets, fruits, flower, etc.
⚫ Nestle brews a very large variety of instant coffee to satisfy different
national tastes. Even when people of different cultures use the same
product.
⚫ Color : Blue : feminine and warm in Holland , but masculine and
cold in Sweden.
Features
⚫Influencing factors.
⚫Dynamic nature.
⚫Special significance.
⚫Growing strength of consumerism
⚫Importance of adjustment.
4. Demographic Environment
⚫This refers to the age, sex, family size, density, distribution ,
standard of living and growth rate of population. All these factors
have a direct bearing on the demand for various goods and
services.
⚫ For example a country where population rate is high and children
constitute a large section of population, then there is more demand
for baby products.
⚫ Similarly the demand of the people of cities and towns are different
than the people of rural areas.
⚫ The high rise of population indicates the easy availability of labour.
These encourage the business enterprises to use labour intensive
techniques of production.
⚫Moreover, availability of skill labour in certain areas
motivates the firms to set up their units in such area. For
example, the business units from America, Canada,
Australia, Germany, UK, are coming to India due to easy
availability of skilled manpower.
⚫Thus, a firm that keeps a watch on the changes on the
demographic front and reads them accurately will find
opportunities knocking at its doorsteps.
⚫Decline in birth rates in Japan have affected the demand for
baby products. So Johnson &Johnson repositioned their
baby products like baby shampoo and baby oil to the Adult
segment particularly to females.
Features
⚫Influencing factors.
⚫Effects on labour supply
⚫Creates Opportunities and problems.
⚫Adjustment with demographic environment is essential
 5. Natural/Physical/Ecological
Environment
⚫ The natural environment includes geographical and ecological factors
that influence the business operations.
⚫ These factors include the availability of natural resources, weather
and climatic condition, location aspect, topographical factors, rainfall,
minerals, soils, land forms, flora and fauna etc.
⚫ Business is greatly influenced by the nature of natural environment. For
example, sugar factories are set up only at those places where sugarcane
can be grown.
⚫ It is always considered better to establish manufacturing unit near the
sources of input.
⚫ In hilly areas with difficult terrain, jeeps may be in greater demand than
cars.
⚫ Further, government’s policies to maintain ecological balance,
conservation of natural resources etc. put additional responsibility on
business sector.
Features
⚫Influencing Factor.
⚫Imposes restrictions.
⚫Importance of pollutions control.
 6. Technological Environment
⚫Technological environment include the methods,
techniques and approaches adopted for production of
goods and services and its distribution.
⚫The varying technological environments of different
countries affect the designing of products.
⚫In the modern competitive age, the pace of technological
changes is very fast.
⚫Hence, in order to survive and grow in the market, a
business has to adopt the technological changes from time
to time.
⚫ It may be noted that scientific research for improvement and
innovation in products and services is a regular activity in most of
the big industrial organizations.
⚫ Now a days in fact, no firm can afford to persist with the outdated
technologies. It becomes necessary to use the new technology in
place of old. Ex : Telephone is replaced by mobile phones, DVDs
by Pen Drive and camera by Cell phone cameras.
⚫ Business prospects demands availability of certain physical
facilities. For Ex: demand for electrical appliances is affected by
the extend for electrification and the reliability of power supply.
Demand for LPG stoves depends on rate of growth of gas
connections.
Features
⚫Influencing factors.
⚫Growing significance.
⚫Role of R&D
⚫Flexible character.
 7. Regulatory (Legal) Environment.
⚫This refers to set of laws, regulations, which influence the
business organisations and their operations.
⚫It creates a framework of regulations and legal provisions
within which the business units have to operate.
⚫What business can and what business cannot do are decided
by regulatory environment.
⚫Thus it is the net result of various laws, rules, procedures and
regulations made by the government from time to time in
regard to the formation and operations of business enterprises.
The important legislations that concern the business enterprises
include:
⚫Companies Act, 1956
⚫ Foreign Exchange Management Act, 1999
⚫ The Factories Act, 1948
⚫ Industrial Disputes Act, 1972
⚫Payment of Gratuity Act, 1972
⚫Prevention of Food Adulteration Act, 1954
⚫Essential Commodities Act, 2002
⚫The Standards of Weights and Measures Act, 1956
⚫Monopolies and Restrictive Trade Practices Act, 1969
⚫Trade Marks Act, 1999
⚫Consumer Protection Act, 1986
⚫Environment Protection Act, 1986
⚫Competition Act, 2002
Features
⚫Influencing factors.
⚫Creates legal framework.
⚫Laws and regulations create Regulatory Environment.
⚫Provides protection to ecology.
Difference between
Micro & Macro
Environment
 Limitations

⚫Does not foretell the future

⚫Does not guarantee a firm’s effectiveness
⚫Capacity of environment study is not realized
⚫Too much importance is placed on information thru
environment study
⚫Makes managers too cautious
SWOT Analysis
 SWOT Analysis

Strengths Weakness
Excellent R & D facilities Low Productivity
Supremacy of improved technology Narrow Product Range
High Brand Equity Poor capital Structure
Best Talent at Work High Employee Turnover
Strong Financial Position Ineffective Sales Promotion

Opportunities Threats
Attractive Overseas Markets Political Instability
Business friendly Tax System Strict Government Controls
Diminished Competition Entry of Global Giants
Booming Stock Market Union Military
New Uses of the Product Fluctuations in foreign exchange rates
⚫SWOT analysis is a fundamental step in business
environment.
⚫It is a systematic approach to understand the environment
influencing business.
⚫SWOT analysis stands for Strength, Weakness,
Opportunities and Threats.
⚫This analysis provides a systematic insight into the
internal strengths and weaknesses of a business firm along
with external opportunities and threats.
⚫It provides a good overview of whether the overall system
is healthy or unhealthy.
Definition
⚫It is a simple but powerful tool for sizing up a
company's resource capabilities and deficiencies its
market opportunities and the external threats to its
future well being.

⚫Situation Analysis in which internal strengths and

weaknesses of an organization, and external
opportunities and threats faced by it are closely
examined to chart a strategy.
Strengths
⚫Strengths are something a company is good at doing
and improves its ability to compete.
⚫They are internal to business and they are controllable
premises.
⚫It enables the company to gain strategic advantage.
⚫It helps a company to better its performance than its
competitors.
⭢Patents
⭢Strong brand name
⭢Good reputation amongst the customers
⭢Cost advantages
⭢Exclusive excess to high grade natural resources
⭢Support from distributive network
⭢Broad product line
⭢Committed employees
Weaknesses
⚫They are the competitive deficiency.
⚫It is something a company falls short of, in comparison
to its competitors.
⚫It is internal to the business and is a controllable
premises. Weaknesses decreases the competencies of
the company and create strategic disadvantages.
⚫It is the inability of the company to perform certain
activities not as good as its competitors.
⭢Lack of patent protection
⭢Weak brand name
⭢Poor reputation among the customers
⭢High cost structure
⭢Lack of access to high grade natural resources
⭢Lack of access to key distribution channels
⭢High employee turnover
⭢Huge debts
⭢Waste of raw materials
Opportunities
⚫They are external to business. They are passing phase.
⚫If a business does not take advantage of it, the
competitors snatch away the benefits.
⚫It is an uncontrollable premises.
⚫Favorable opportunities enable a company to
consolidate and strengthen its position.
⭢An unfulfilled customer needs
⭢Arrival of new technology
⭢Favourable changes in regulations
⭢Removal of trade barriers
⭢Availability of easy bank loan
⭢Tax holidays
⭢Limited competition
Threats
⚫They are external to business.
⚫There is hardly any protection against threats.
⚫It is an unfavorable condition in the organisations
environment.
⚫A company that is not competent to handle risks faces
threats.
⚫Managers can visualize that a threat exists but there is
very little one can do to save the business from the
threats.
⭢Change in consumer behavior
⭢Emergence of substitute product
⭢New stringent regulations
⭢Imposition of trade barriers
⭢Unethical competitors
⭢Aggressive trade unions
Advantages of SWOT Analysis
1. Capitalize on Strengths
2. Win over Weaknesses
3. Benefit from Opportunities
4. Correct visualization of threats
5. Improvement of business
6. Future oriented
7. Provides alternative choices
Conduct a SWOT of any
Company of your choice
THANK YOU