2. BUSINESS ENVIRONMENT
Business environment according to Prof. Keith Davis is “the aggregate of
all conditions, events and influences that surround and affect it”
Definition of Business Environment is sum or collection of all internal and
external factors such as employees, customers needs and expectations,
supply and demand, management, clients, suppliers, owners, activities by
government, innovation in technology, social trends, market trends,
economic changes, etc. These factors affect the function of the company
and how a company works directly or indirectly. Sum of these factors
influences the companies or business organisations environment and
situation.
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3. THE COMPANY AND ITS
ENVIRONMENT
Business environment helps in identifying business opportunities, tapping
useful resources, assists in planning, and improves the overall
performance, growth, and profitability of the business. There are various
types of Business Environment like Micro Environment and Macro
Environment.
In the process of formulation of strategy, one must analyze organization’s
resources, capabilities and competence.
Organization can gain competitive advantage only when it carefully
identifies its resources and capabilities and mobilize them effectively.
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4. Continued……
There are several ways in which strategic capability of an organization is
measured.
1. Value-chain analysis
2. Resource audit
3. Marketing/ Distribution
4. Finance and accounting
5. Production and operations
6. Human Resource Management
7. Research and development
8. General management capability
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6. VALUE
THEVALUE IS THE TOT
ALAMOUNT (i.e. TOT
AL
REVENUE) THA
T BUYERS ARE WILLING TO P
A
Y
FORAFIRM’S PRODUCTS.
THE DIFFERENCEBETWEEN THE TOT
ALV
ALUE
(ORREVENUE)ANDTHETOT
ALCOSTOF
PERFORMINGALLOFTHEFIRM’SACTIVITIES
PROVIDESTHEMARGIN.
THEV
ALUECHAINISATOOLDEVELOPEDBYDR.
MICHAELPORTER(HARV
ARDBUSINESSSCHOOL)
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7. What is the valuechain?
Porter’s definition includes all activities to
design, produce, market, deliver, and support the
product/service.
Thevalue chain is concentrating on the activities
starting with raw materials tillthe conversion into
final goods or services.
Two categories:
PrimaryActivities (operations, distribution, sales)
SupportActivities (R&D,Human Resources)
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8. What is value chainanalysis?
• Usedto identify sources of competitiveadvantage
• Specifically:
– Opportunities to secure costadvantages
– Opportunities to createproduct/service
differentiation
• Includes the value-creating activities of allindustry
participants
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9. Value Chain Model
(FISHBONEDIAGRAM)
Firm Infrastructure (General Management)
Human Resource Management
Technology Development
Procurement
Inbound
Logistics
Ops. Outbound
Logistics
Sales &
Marketing
Service and
Support
PRIMARY ACTIVITIES
SUPPORT
ACTIVITIES
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10. TYPESOFFIRMACTIVITIES
• Primary activities:
Thosethat are involved in the
creation, saleand transfer of
products (includingafter-sales
service)
Inboundlogistics
Operations
Outbound logistics
Salesand marketing
Serviceand support
• SupportActivities:
Thosethat merely supportthe
primary activities
Human resources
(general andadmin.)
Tech.development
Procurement
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12. Value Chain Model
from Michael E.Porter’s CompetitiveAdvantage
Firm Infrastructure (General Management)
Human Resource Management
Technology Development
Procurement
Inbound
Logistics
Operation Outbound
s Logistics
Sales & Service and
Marketing Support
PRIMARY ACTIVITIES
SUPPORT
ACTIVITIES
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16. Value Chain Model
from Michael E.Porter’s CompetitiveAdvantage
Firm Infrastructure (General Management)
Human Resource Management
Technology Development
Procurem ent
Inbound
Logistics
Ops. Outbound
Logistics
Sales &
Marketing
Service and
Support
PRIMARY ACTIVITIES
SUPPORT
ACTIVITIES
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17. SUPPORTACTIVITIES
1.FIRM INFRASTRUCTURE
Theactivities suchasOrganization structure, control system, company
culture are categorized under firminfrastructure.
2.HUMAN RESOURCEMANAGEMENT
Involved in recruiting, hiring, training,development and compensation.
3.TECHNOLOGYDEVELOPMENT
Theseactivities are intended toimprove the product and the process, can
occur in many parts of thefirm.
4.PROCUREMENT
Concernedwith the tasksof purchasing inputs suchasraw
materials, equipment, and even labor.
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18. USESOFVALUECHAINANALYSIS:
• Thesourcesof the competitive advantage of afirm canbe seenfromits
discrete activities and how they interact with one one another.
• Thevalue chain is atool for systematically examining the activities ofafirm
and how they interact with one another and affect eachother’s cost and
performance.
• Afirm gainsacompetitive advantage by performing these activities better
or at lower cost thancompetitors.
• Helpsyou to stay out of the “No Profit Zone”
• Presentsopportunities for integration
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19. RESOURCE AUDIT
Understanding what you have available to you as a business owner or
manager is a crucial part of the overall puzzle. If you don’t know what
resources you have at your disposal, you have no way to making good
decisions that maximize your opportunities while minimizing your risks.
That is the balancing act that every business must play, so understanding
exactly what resources are at your disposal should be high on your
priority list.
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20. Physical Resources
This is probably the first thing you think about when considering the
resources that you have on hand. These are things like equipment,
inventory, and even buildings that allow you to do what it is you do. Most
likely, you are already making the most of these resources since they are
the ones that get the most time and attention.
However, it is always worth taking a fresh look at your physical resources
to see if you could be getting more value from them than you currently
are. Is some of the space in your buildings going unused, or being wasted
on an unnecessary purpose? Are your machines being used to their
fullest capacity as frequently as possible? When you take the time to
review everything that you do and how you use what you have, you might
be surprised to notice inefficiencies where you didn’t think any existed.
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21. Financial Resources
Another category that receives plenty of attention. Unless your
organization is hopelessly disorganized, you certainly already know what
kind of financial resources you have available to you. Accurate financial
records are one of the essentials for any organization, so this is an area
that you hopefully have under control already.
As with your physical resources, a review of financial resources is
something that should be happening on an ongoing basis. You should
always be finding ways to be more efficient with your money, so that the
organization squeezes every last cent out of each dollar. In the
competitive business environment that exists today, no company can
afford to just give away money due to poor decision making or laziness
among management. If you aren’t going to be smart with your financial
resources, you can assume that your competitors will be.
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22. Human Resources
This is where it starts to get interesting from a management perspective,
and where you can start to make real improvements in your organization.
Each person that works within your company has a specific set of skills
and experiences that is unique to them. If you want to get the best
possible performance from your business as a whole, it starts by getting
the most out of each individual person that you have available to you.
Wages make up a huge part of any organizations budget, so make sure
you get getting the best possible return from the investment you have
made in these people.
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23. 3. Marketing/Distribution
Marketing function is a key area for the success of an organization.
Analysis of marketing capabilities should be done taking following areas
into consideration
• Market share of the organization
• Product line
• Pricing strategy
• Nature of the product
• Channel of distribution
• Brand image
• Market research
• Packaging
• Marketing policy
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24. 4. Finance and Accounting
Proper functioning of different functions of an organization is highly
dependent on the availability and utilization of financial resources.
Planned acquisition and utilization, control of expenditure and timely
reporting of financial performance to the concerned manager is essential
requirement for the success of an organization. Analysis should be done
considering the following
• Financial resources and strength
• Capital structure and cost of capital
• Relation with shareholders, bankers etc.
• Financial planning and budgeting
• Accounting system and audit procedure
• Tax planning and tax advantages.
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25. 5. Production and operation
6. HRM
7. R&D
8. General management capacity
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27. According to Keith Devis
Business Environment is the aggregate of all
the conditions, events, and influences that
surround and affect it.
It refers to those aspects of the surroundings of the
Business enterprise which affect or influence its
operations and determine its effectiveness.
BUSINESS
ENVIRONMENT
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28. • Environmental Scanning is the data collection
practice.
• It is aimed at collecting information about an
environment such as an office or institution that
can be used in planning, development, and
ongoing monitoring by managers and supervisors.
ENVIRONMENTAL
SCANNING
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29. Need to SCAN the Business Environment
1
• Identification of Strengths
2
• Identification of
Weakness
3
• Identification of
Opportunities
4
• Identification of
Threats
5
• Optimum use of
Resources
6
• Survival and Growth
7
• To plan long term Business
Strategy
8
• Environmental Scanning aids Decision
Making MANASA N
31. Some Factors in
Micro Environment
•
•
•
•
Suppliers are the people who provide necessary resources needed to produce goods & services.
Policies of the suppliers have a significant influence over the marketing manager’s decisions. A
company must build cordial & long-term relationship with suppliers.
Marketing Intermediaries are the people who assist the flow of products from the producers to the
consumers; they include wholesalers, retailers, agents, etc. These people create place & time utility. A
company must select an effective chain of middlemen, so as to make the goods reach the market in
time.
• Consumers are the center point of all marketing activities. The main aim of production is to meet the
demands of the consumers. Each type of consumer has a unique feature which have to be considered
by the marketers before taking the decisions. otherwise the company is bound to fail in achieving its
objectives. A company’s marketing strategy is influenced by its target consumer
Competitors: A prudent marketing manager has to be in constant touch regarding the information
relating to the competitor’s strategies. He has to identify his competitor’s strategies, build his plans to
overtake them in the market to attract competitor’s consumers towards his products.
Public: A Company’s obligation is not only to meet the requirements of its customers, but also to satisfy
the various groups. A public is defined as “any group that has an actual or potential ability to achieve its
objectives”. The significance of the influence of the public on the company can be understood by the fact
that almost all companies maintain a public relation department. A positive interaction with the public
increase its goodwill irrespective of the nature of the public. A company has to maintain cordial relation
with all groups, public may or may not be interested in the company, but the company must be interested
in the views of the public.
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32. •
•
•
•
•
Demography is defined as the statistical study of the human population & its distribution that forms
the market. A company should study the population, its distribution, age composition, status, etc
before deciding the marketing strategies.
Economic Environment: The economic environment affects a consumer’s purchasing behavior either
by increasing his disposable income or by reducing it. Eg: During the time of inflation, the value of
money comes down. Hence, it is difficult for them to purchase more products.
Physical Environment or Natural Forces: A company has to adopt its policies within the limits set by
nature. A man can improve the nature but cannot find an alternative for it. Nature offers resources, but
in a limited manner. Companies must find the best combination of production for the sake of efficient
utilization of the available resources. Otherwise, they may face acute shortage of resources. Eg:
Petroleum products, power, water, etc.
Technological Factors: Every new invention builds a new market & a new group of customers. A new
technology improves our lifestyle & at the same time creates many problems.
Social & Cultural Factors: Most of us purchase because of the influence of social & cultural factors.
The lifestyle, values, believes, etc are determined among other things by the society in which we live.
Each society has its own culture which shapes our behavior. A marketing manager must study the
society and culture in which he operates and must try to anticipate the changes and new marketing
opportunities.
• political Factors includes all laws, government agencies, and groups that influence or limit other
organizations and individuals within a society. It is important for marketers to be aware of these
restrictions as they can be complex and can profoundly affect a firm’s marketing.
Macro Environment
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