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BCP 2.2.2 / BCH 2.2.

2 BUSINESS ENVIRONMENT
Unit -1:
Goal of Business , Business and Economic System, Business Planning ,and its Significant ,
importance, relevance, essentials of business policy, business objective & its characteristics,
business policy & corporate strategy, business policy formulation & implementation
Business
According to Stephenson business defines as, "The regular production or purchase and sale of
goods undertaken with an objective of earning profit and acquiring wealth through the
satisfaction of human wants."
According to Dicksee, "Business refers to a form of activity conducted with an objective of
earning profits for the benefit of those on whose behalf the activity is conducted."
Lewis Henry defines business as, "Human activity directed towards producing or acquiring
wealth through buying and selling of goods."
Thus, the term business means continuous production and distribution of goods and services with
the aim of earning profits under uncertain market conditions.
Environment
The term environment has been derived from a French word Environia means to surround
Environment is sum total of water, air and land interrelationships among themselves and also
with the human being, other living organisms and property.
Business Environment
Business Environment consists of all those factors that have a bearing on the business. The
survival and success of a firm, depend on two sets of factors viz, internal and external factors
that affect how the company functions including employees, customers, management, supply and
demand and business regulations.
The survival and success of a business firm depend on its innate strength resources at its
command and its adaptability to the environment and the extent to which the environment is
favorable to the development of the film.
Goal of Business
A goal may be defined as an intermediate result to be achieved in a certain time, as part of the
grand plan. Specific goals are usually referred to as targets. It may be noted that objectives are
the long-term results that an organization seeks to achieve, while goals are the short-term
benchmarks that organization strives to reach.
The most common goals of business include the following:
1. Profit: It is the main incentive and motivator for running the business. Even Non Profit
Making organizations need to work for a surplus- i.e excess of income over expenditure, to
ensure long-run survival and growth.
Even though profit is the most important criteria for business, progressive organizations work
towards the goal of profit optimization rather than profit maximization- the former often

involves exploiting the consumer and resorting to unethical and illegal means to enhance
profitability, while the latter duly emphasizes on increasing profits by ethical means and
genuinely working to satisfy the customers needs.
2. Growth: Every business house strives to grow over the time in terms of its size, market
coverage, market share, sales, profits, revenues, brand equity, customer patronage and the
like.
3. Power: Business confers enormous power on owner and endows them with vast resources.
Business executives make and unmake political parties and political leaders. The power
commanded by business personalities like Mittal, Tata, Vijay Malya, Ambanis and the like is
very much evident from their media posturing.
4. Employee satisfaction and development: Caring for employee satisfaction and providing for
their development has been one of the objectives of enlightened business houses. Providing
training and development programs, competency enhancement and career planning programs
for employees top the agenda of progressive organizations.
5. Quality Products and services: Offering quality products/ services keeps the firm ahead of
its competitors. So the firms desirous of long run survival make no compromise on quality of
products and services that they offer to the consumers.
6. Market Leadership: Firms do seek to carve a niche for themselves in the market place,
through innovation in various areas- product, advertising, distribution, finance and the like.
Pidilite, for instance, retains its market leadership in adhesive solutions market through its
leading brands Fevicol, Feviquick etc.
7. Challenging: Businesses endeavor to take on challenges from adverse elements, while
constantly posing challenges to the competitors. Maneuvering the rivals gives utmost
contentment to the firms.
8. Joy of creation: It is the ability of the business house to provide solution to the diverse needs
of various consumer groups through new ideas and innovations. .
9. Good Corporate Citizenship: It implies that the business unit complies with the rules of the
land, pays taxes to the government regularly, discharges its obligations to society and cares
for its employees and consumers.
10. Creation of Employment: One of the important national objectives of business is to create
opportunities for gainful employment of people. This can be achieved by establishing new
business units, expanding markets, widening distribution channels, etc.
Business and Economic System
An economic system is a system of production and distribution of goods and services as well
as allocation of resources in a society.
Business is a sub-system of the economic system of the country. Business system is engaged in
the production and distribution and distribution of want satisfying goods and services as
determined by the economic system.
It may be noted that economic system aims at utilizing the limited national resources to meet the
unlimited wants of the people. i.e. the economic system determines the pattern of utilization of
national resources by the business firms.
In other words, the business system has to operate within the limits imposed by the economic
system such as ownership and control of factors of production, property rights, price mechanism,
economic plans etc.

Business is influenced by the overall economic system consisting of ownership of factors of


production, economic planning (centralized or decentralized), fiscal commercial and industrial
policies of the Government, etc.
Under a capitalist economy, business is largely operated by entrepreneurs for private profit.
Decisions relating to production, distribution and consumption are made through market forces
of demand and supply without much interference by the Government.
But in a communist or socialist economy, all business decisions are dictated and regulated by the
central agencies of the Government.
The business cannot take independent decisions here.
However, in a mixed economy like India, the businessmen have freedom of choice and action in
certain industries. Some industries are reserved exclusively for the public sector.
The private sector business enterprises have to be guided by the Government budgetary,
industrial and commercial policies. They are also expected to pursue their social responsibilities
as they operate under the socio-economic environment.
Business Planning
Business planning is the process whereby a company makes the following decisions:

What products or services it will deliver


Where it will compete
Why the customer should do business with the company
How it will organize and reengineer itself to accomplish its goals

A business unit may prepare a plan to achieve a particular objective. It is called a business plan
which includes production plan, sales plan, and so on.
A business unit prepares a master plan for the whole unit. Such master plan is again divided into
departmental plans for actual execution. Planning is a process of thanking to action. It is a means
to achieve well defined objectives. Business plan and business planning move together.
OBJECTIVES AND SIGNIFICANCE OF A BUSINESS PLAN
In general, a business plan is necessary to provide a clear, precise, and meaningful sense of
direction for a company for a specific period of timeusually 1 year. The preparation of an
annual plan forces management to think through its intended actions and shows how they will
affect various aspects of the business.

Beyond these overriding purposes, a business plan can have several different objectives that, in
turn, relate very closely to the plan's intended usesboth internal and external.

Internal Uses of a Business Plan


A business plan can provide several internal benefits for a company.

First, it can improve performance by identifying the strengths and weaknesses of the
company's operation and any potential or emerging problem areas. Improved performance
also will result from developing strategies that simultaneously build on the company's
strengths and correct its weaknesses.

Second, a business plan can communicate to management and staff clear expectations
regarding the company's performance and priorities.

Third, for companies with multiple divisions, units, or points of management responsibility,
a business plan can effectively coordinate and ensure consistency in the plans and operations
of the various units or divisions.

Fourth, a business plan provides a solid basis for measuring performance of the overall
company and of individual units and managers. It establishes a standard for deciding if actual
performance is good, bad, or indifferent. A business plan also establishes a framework for
reviewing key decisions in the ongoing management of the company. As new developments
and opportunities arise, a business plan provides a rational structure for evaluating their
impact on the operations and performance of the overall company and its individual units.

Finally, and perhaps most important, a business plan and the process of developing it can be
used to educate and motivate the key staffsuch as managers and supervisorsof the
company. Through participation in analyzing past performance, evaluating the impact of
trends and developments, and developing action plans for the future, managers and other key
staff can learn more about the total operation of a company and the relationship of their
specific areas of responsibility to the achievement of the company's overall goals.

External Uses of a Business Plan


A business plan has several uses in relationships with significant parties outside the company.

First, it can be used to educate outside parties regarding the objectives, structure, and
performance of the company. This use becomes important if the support, either financial or
nonfinancial, of outside parties is important to the company's success. A clear example is the
support of current or potential stockholders or investors.

Second, a business plan can be used to secure funding from outside investors, either
individual or institutional. If this use is intended, it is important to identify in advance the
issues and types of information that are of primary concern and interest to the investors.

A business plan also can communicate planned actions, deflecting competitive or regulatory
moves that may be under consideration by outside parties. By formalizing its intentions in a
business plan, a company commits itself to action. By communicating this commitment to
selected, significant outside parties, a company may preempt actions that could have a
negative impact on its own plans and actions.

Given the many different objectives and uses of the business plan, management must decide
whether it is desirable or necessary to distribute its plan. If the plan is to be distributed, the
specific structure and content will be affected by the intended uses and target audience.

NEED & IMPORTANCE OF BUSINESS PLANNING


The need of planning is universally accepted in the business as well as in other aspects of life.
The following points justify the need of business planning/planning in business:
1. Increases efficiency: Planning makes optimum utilization of all available resources. It helps
to reduce wastage of valuable resources and avoids their duplication. It aims to give the
highest returns at the lowest possible cost. It thus increases the overall efficiency.
2. Reduces business-related risks: There are many risks involved in any modern business.
Planning helps to forecast these business-related risks. It also helps to take the necessary
precautions to avoid these risks and prepare for future uncertainties in advance. Thus, it
reduces business risks.
3. Facilitates proper coordination: Often, the plans of all departments of an organization are
well coordinated with each other. Similarly, the short-term, medium-term and long-term

plans of an organization are also coordinated with each other. Such proper coordination is
possible only because of efficient planning.
4. Aids in Organizing: Organizing means to bring together all available resources, i.e. 6 Ms.
Organizing is not possible without planning. It is so, since, planning tells us the amount of
resources required and when are they needed. It means that planning aids in organizing in an
efficient way.
5. Gives right direction: Direction means to give proper information, accurate instructions and
useful guidance to the subordinates. It is impossible without planning. It is because planning
tells us what to do, how to do it and when to do it. Therefore, planning helps to give a right
direction.
6. Keeps good control: With control, the actual performance of an employee is compared with
the plans, and deviations (if any) are found out and corrected. It is impossible to achieve such
a control without right planning. Therefore, planning becomes necessary to keep a good
control.
7. Helps to achieve objectives: Every organization has certain objectives or targets. It keeps
working hard to fulfill these goals. Planning helps an organization to achieve these aims, but
with some ease and promptness. Planning also helps an organization to avoid doing some
random (done by chance) activities.
8. Motivates personnel: A good plan provides various financial and non-financial incentives to
both managers and employees. These incentives motivate them to work hard and achieve the
objectives of the organization. Thus, planning through various incentives helps to motivate
the personnel of an organization.
9. Encourages creativity and innovation: Planning helps managers to express their creativity
and innovation. It brings satisfaction to the managers and eventually success to the
organization.
10. Helps in decision-making: A manager makes many different plans. Then the manager
selects or chooses the best of all available strategies. Making a selection or choosing
something means to take a decision. So, decision-making is facilitated by planning.

RELEVANCE OF BUSINESS PLAN


1. Describe Your Business -: Include detailed information about the overall industry and how
your business will maintain a sustainable competitive advantage. Tell about your history,
present status and future projections. Project a sense of what you expect to accomplish in the
first years.
2. Describe your Product(s)-: Outline your product or service in terms of marketability.
Describe the purpose of your product, the need it satisfies and what makes your product
unique. List future products or services you plan to provide.
If manufacturing, tell all about the manufacturing process. Give a detailed description of
your products from raw materials to finished items. Also describe product development and
research efforts. Describe the stage of development, formal testing and alternative uses for

your product. Include your quality assurance procedures. Identify your primary suppliers and
alter suppliers.
3. Proprietary Information-: Describe any specific knowledge or technology that you have
and your competitors do not. Describe any efforts taken to obtain patents, copyright
trademark or name registration.
4. Regulations -: Describe any regulations that affect the sale and use of your product.
Remember to check on the local, state and federal levels. Identify the agencies that must
regulate your business and the potential positive or negative impact.
5. Facility and Equipment-: Describe the building, its location and the equipment needs for
your business and how you determined this need. Also, describe how long the facility will
meet your needs and the actions you plan to take at that point.
If manufacturing, what is the maximum production capacity of the facility and equipment
and your expected level of production.
6. Operational Needs -: Describe your transportation and utility needs and any associated
costs.
7. Barriers -: Describe the most significant barriers you expect while launching and operating
your business. Explain how you expect to overcome these problems.
BUSINESS POLICY
Business Policy defines the scope within which decisions can be taken by the subordinates in an
organization.
It permits the lower level management to deal with the problems and issues without
consulting top level management every time for decisions.
Business policies are the guidelines developed by an organization to govern its actions. They
define the limits within which decisions must be made.
Business policy also deals with acquisition of resources with which organizational goals can
be achieved. Business policy is the study of the roles and responsibilities of top level
management, the significant issues affecting organizational success and the decisions
affecting organization in long-run.
Policies are guides to decision making and address repetitive or recurring situations.
Policy defines the area in which decisions are to be made, but it does not give the decision.
A policy is a verbal, written, or implied overall guide, setting up boundaries that supply the
general limits and direction in which managerial action will take place.
ESSENTIALS FEATURES OF BUSINESS POLICY

An effective business policy must have following essential 1. Specific- Policy should be specific / definite. If it is uncertain, then the implementation
will become difficult.

2. Clear- Policy must be unambiguous. It should avoid use of jargons and connotations.
There should be no misunderstandings in following the policy.
3. Reliable/Uniform- Policy must be uniform enough so that it can be efficiently followed
by the subordinates.
4. Appropriate- Policy should be appropriate to the present organizational goal.
5. Simple- A policy should be simple and easily understood by all in the organization.
6. Inclusive/Comprehensive- In order to have a wide scope, a policy must be
comprehensive.
7. Flexible- Policy should be flexible in operation/application. This does not imply that a
policy should be altered always, but it should be wide in scope so as to ensure that the
line managers use them in repetitive/routine scenarios.
8. Stable- Policy should be stable else it will lead to indecisiveness and uncertainty in
minds of those who look into it for guidance.
EXAMPLE OF BUSINESS POLICIES
HR POLICY
MATERIALS POLICY
Hiring Firing
Quality -Quantity
Employee profile
vendors
Training
payment terms
Transfers
stores & Handling
Promotions
documentation
Wages
Incentive & Bonus
Marketing policy
Quality Policy
What to sell
Standards
Where
Checks & Controls
To whom
Feedbacks
Through whom
Corrective Measures
Communication

BUSINESS OBJECTIVE & ITS CHARACTERISTICS


The nature of business is very dynamic and it undergoes changes from time to time.
Business in 21st Century is characterized by intense competition among firms,
aggressive expansion, growth and diversification strategies, keeping pace with
sophisticated technology and the like.

Business may be defined as any economic activity on a continuous basis which involves
production or purchase of goods for sale, transfer or exchange goods, or supply of services for
the purpose of earning profit.
Example-: 1. Tata Companies-They manufacture so many things from salt to trucks and buses
and sell these to individuals like you and me. In the process, they earn a profit.
2. Shopkeeper nearby- What does he do? He buys products in bulk and sells us in small
quantities. He also earns some profit in the process.
Similarly,
3. Cable TV operator- provides us a connection at a price so that we watch various channels on
our television set. In this process the cable TV operator earns a profit.
BUSINESS OBJECTIVES
Types of Business Objectives are
.

Social
Objective

Economic
Objectives

OBJECTIVES
Human
Objectives

BUSINESS

of
National
Objectives

There are Four types of business objectives, viz.,


1.
2.
3.
4.

Economic Objectives,
Social Objective,
Human Objectives
National Objectives

Every business enterprise has certain objectives which regulate and generate its activities.
Objectives are needed in every area where performance and results directly affect survival and
prosperity of a business. Various objectives of business may be classified into four broad categories as follows:

1. ECONOMIC OBJECTIVES:
Business is basically an economic activity. Therefore, its primary objectives are economic in
nature. The main economic objectives of business are as follows:
(i) Earning profits:
A business enterprise is established for earning some income. It is the hope of earning profits that
inspires people to start business. Profit is essential for the survival of every business unit. Just as
a person cannot live without food, a business firm cannot survive without profit. Profits enable a
businessman to stay in business by maintaining intact the wealth producing capacity of its
resources.
Profit is also necessary for the expansion and growth of business. Profits ensure continuous flow
of capital for the modernisation and extension of business operations in future. Profit also serves
as the barometer of stability, efficiency and progress of a business enterprise.
(ii) Creating customers:
Profits are not created by God or by the force of nature. They arise from the businessman's
efforts to satisfy the needs and wants of customers. A businessman can earn profits only when
there are enough customers to buy and pay for his goods and services. In the words of Drucker,
"There is only one valid definition of business purpose; to create a customer.
No business can succeed without providing customers value for their money. Business exists to
satisfy the wants, tastes and preferences of customers.
In order to earn profit, business must supply better, quality goods and services at reasonable
prices. Therefore, creation and satisfaction of customers is an important economic objective of
business.
Business creates customers through advertising and salesmanship. It satisfies the needs of
customers by producing the required goods and services and by creating utilities.
(iii) Innovations:
Business is an organ of dynamism and change. Modern science and technology have created a
great scope for innovation in the business world. Innovation is not confined to the invention of a
new machine rather than go innovative work.
It comprises all efforts made in perfecting the product, minimizing the costs and maximizing
benefits to customers. It involves improvements in management, production, selling servicing,

methods of personnel and accounting, etc. Business firms invest money, time and efforts in
Research and Development (R&D) to introduce innovations.
They develop new technology; introduce new designs and new tools and processes to minimize
costs and to satisfy ever increasing wants of customers. In order to create customers business has
to explore new markets and attract more customers. It has also to retain old customers by
providing better services to them.
2. SOCIAL OBJECTIVES
Business does not exist in a vacuum. It is a part of society. It cannot survive and grow without
the support of society. Business must therefore discharge social responsibilities in addition to
earning profits.
According to Henry Ford, "the primary aim of business should be service and subsidiary aim
should be earning of profit." The socials objectives of business are as follows:
(i) Supplying desired goods at reasonable prices:
Business is expected to supply the goods and services required by the society. Goods and
services should be of good quality and these should be supplied at reasonable prices. It is also the
social obligation of business to avoid malpractices like boarding, Black marketing and
misleading advertising.
(ii) Fair Remuneration to employees:
Employees must be given fair compensation for their work. In addition to wages and salary a
reasonable part of profits should be distributed among employees in recognition of their
contributions. Such sharing of profits will help to increase the motivation and efficiency of
employees.
It is the obligation of business to provide healthy and safe work environment for employees.
Good working conditions are beneficial to the organization because these help to improve the
productivity of employees and thereby the profits of business.
(iii) Employment Generation:
Business should provide opportunities for gainful employment to members of the society. In a
country like India unemployment has become a serious problem and the Government is unable to
offer jobs to all.
Therefore, provision of adequate and full employment opportunities is a significant service to
society. If unemployment problem increases, the socioeconomic environment cannot be
congenial for the growth of business activities.

(iv) Fair return to investor:


Business is expected to pay fair return to shareholders and creditors in the form of dividend and
interest. Investors also expect safety and appreciations of their investment. They should be kept
informed about the financial health and future prospects of business.
(v) Social welfare:
Business should provide support to social, cultural and religious organizations. Business
enterprises can build schools, colleges, libraries, dharam shalas, hospitals, sports bodies and
research institutions. They can help non-government organizations (NGOs) like CRY, Help Age,
and others which render services to weaker sections of society.
(vi) Payment of Government Dues:
Every business enterprise should pay tax dues (income tax, sales tax, excise duty, customs duty,
etc.) to the government honestly and at the right time. These direct and indirect taxes provide
revenue to the Government for spending on public welfare.
Business should also abide faithfully by the laws of the country. Thus, businessmen should
pursue those policies and take those actions which are desirable in terms of the objectives and
values of our society.
3. HUMAN OBJECTIVES
Business is run by people and for people. Labour is a valuable human element in business.
Human objectives of business are concerned with the well-being of labour. These objectives help
in achieving economic and social objectives of business. Human objectives of business are given
below:

i .Labour welfare:

Business must recognize the dignity of labour and human factor should be given due recognition.
Proper opportunities should be provided for utilizing individual talents and satisfying aspirations
of workers. Adequate provisions should be made for their health, safety and social security.
Business should ensure job satisfaction and sense of belonging to workers.

ii. Developing human resources:


Employees must be provided the opportunities for developing new skills and attitudes. Human
resources are the most valuable asset of business and their development will help in the growth
of business.
Business can facilitate self- development of workers by encouraging creativity and innovation
among them. Development of skilled manpower is necessary for the economic development of
the country.
iii. Participative management:
Employees should be allowed to take part in decision making process of business. This will help
in the development of employees. Such participation will also provide valuable information to
management for improving the quality of decisions. Workers' participation in management will
usher in industrial democracy.
iv. Labour management cooperation:
Business should strive for creating and maintaining cordial employer employee relations so as to
ensure peace and progress in industry. Employees should be treated as honourable individuals
and should be kept informed.
4. NATIONAL OBJECTIVES
National objectives of business are as follows:
(i) Optimum utilization of resources:
Business should use the nation's resources in the best possible manner. Judicious allocation and
optimum utilization of scarce resources is essential for rapid and balanced economic growth of
the country.
Business should produce goods in accordance with national priorities and interests. It should
minimize the wastage of scarce natural resources.
(ii) National self-reliance:
It is the duty of business to help the government in increasing experts and in reducing
dependence on imports. This will help a country to achieve economic independence. This
requires development of new technology and its application in industry.
(iii) Development of small scale Industries:

Big business firms are expected to encourage growth of small scale industries which are
necessary for generating employment. Small scale firms can be developed as ancillaries, which
provide inputs to large scale industries.
(iv) Development of backward areas:
Business is expected to give preference to the industrialization of backward regions of the
country. Balanced regional development is necessary for peace and progress in the country.
It will also help to raise standard of living in backward areas. Government offers special
incentives to the businessmen who set up factories in notified backward areas.
CHARACTERISTICS
1. Exchange of goods and services -:Business fundamentally involves exchange
of goods and services for income
2. Recurring Activity ; Activities of business enterprise are recurring in nature.
3. Profit motive-:It is the main characteristic of business; however the
enlightened organizations Endeavour to optimize the profits rather than to
maximize it.
4. Strategic approach -:Business firms of modern era are strategically oriented to
have optimum leverages of strengths, and minimize the impact of weakness and
adverse elements in the environment
5. Globalization-: is the order of the day, and business firms are increasingly
becoming global entities, posing and facing competition world over.
6. Growth of Management education and training contributed to professionalization
of business, alienating management from ownership.
7. Integrated supply chain management-: is one of the key characteristics of
business, which involves integrating procurement, production and distribution
operations in the most efficient manner.
8. Restructuring-: of organizational designs, marketing mix and business portfolio
is necessitated in the current business due to changes in global environment.
9. Co-existence of public and private sector, and increasing number of public
private partnerships (PPP) is another distinguishing feature of modern business.
Similarly small and medium firms co-exist with large conglomerates.
10.Intense competition-: among domestic firms, and between domestic and
multi-national firms: The competition poses several challenges to the firms, but
creates immense opportunities as well.
11.Business is characterized by increasing use of Technology. Technology
influences every sphere of business activity.
12.Information revolutionizes the way business is run. Timely availability of
reliable information is the key for making right decisions.

Business Policy, & Corporate Strategy


Business policy refers to the roles and responsibilities of top-level management, the significant
issues affecting company-wide performance and the decisions affecting companies in the long
run. Corporate strategy is the strategy developed and implemented to the goals set by the
companys business policy.

Difference between Policy and Strategy


The difference between policy and strategy can be summarized as follows1. Policy is a blueprint of the organizational activities which are repetitive/ routine in nature.
While strategy is concerned with those organizational decisions which have not been
dealt/faced before in same form.
2. Policy formulation is responsibility of top level management. While strategy formulation
is basically done by middle level management.
3. Policy deals with routine/daily activities essential for effective and efficient running of an
organization. While strategy deals with strategic decisions.
4. Policy is concerned with both thought and actions. While strategy is concerned mostly with
action.
5. A policy is what is, or what is not done. While a strategy is the methodology used to achieve
a target as prescribed by a policy.