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Business Environment

Presented By: Sujaya Thapa VI Sem, KVC

The aggregate of all conditions, events and influences that surround and affect a business. Acc to Keith Davis. Business form exists in two worlds;
Internal Environment: includes, infrastructure, physical assets, human resource, structure External Environment; includes political, economical, socio-cultural & technological

Business System and Its Environment

A system is an entity consisting of functional and interdependent parts operating in a larger environment.


Facets of Business Environment

A) Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning. B) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions. C) The business environment is dynamic in nature, that means, it keeps on changing.

(d) The changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment. (e) Business Environment differs from place to place, region to region and country to country. Political conditions in India differ from those in Pakistan. Taste and values cherished by people in India and China vary considerably.

Importance of BE
(a) Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully. (b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities. (c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.

(d) Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power. (e) Meeting Competition: It helps the firms to analyse the competitors strategies and formulate their own strategies accordingly. (f) Identifying Firms Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.


Environmental Analysis
Acc to William F. Glueck, The process by which strategists monitor the economic, legal, competitive, geographic. Technical & social settings to determine opportunities & threats to their firms Philip Kotler classifies environmental signals & trends into three types;
Fad: temporary, unpredictable, without external factors Trend: direction or sequence of events, are predictable & durable Megatrends: large, external environment change, slow to form & effects for longer time

Various tools for Environmental Analysis

PEST analysis political, economical, cultural, technological PESTLE analysis legal, environmental STEEPLE analysis - ecological SLEPT analysis STEPE analysis ETPS analysis

Techniques of Environmental Analysis

Environmental Scanning
It is a method or technique of acquiring information & analyzing trends emerging in environment. It is prerequisite to the formulation and implementation of a business firms strategy.


Methods of environmental scanning

Exploration method: requires information from past to explore future Historical Analogy: trend is studied by establishing historical parallel with other trend Intuitive Reasoning: freethinking unconstrained by past experience & personal biasness Scenario Building: logical cause & effect relationship Delphi Technique: collection of expert opinion in varying stages, using feedbacks

SWOT Analysis
Identifying Strength, Weakness, Opportunity & Threat

Predictions, projections, or estimates of future situations It concerns is to reduce uncertainty that exists in some part of the future.

Process of continually comparing an organizations performance against the performance of best organization in similar business They are;
Internal measures & compares one unit with other unit of same organization External compares processes and practices with best organization

Scenario Development
An attempt to provide a realistic description of possible future developments on

Relationship between Environment & Strategic Management of a business

Concept of Strategic Management
Acc to W.F. Glueck, Set of decisions & actions that leads to the development of an effective strategy or strategies to help achieve corporate objectives. It is a process of a dynamic and adaptive nature. Systematic way of relating business firms resources to its environment. It is means to achieve organizational goals.

Process of Strategic Management

A. B. C. D. E. G. H. Goal Formulation SWOT Analysis Identification of Strategic Alternatives Strategy formulation Strategy Implementation Measurement & Evaluation Reformulation of the Strategy

Relationship between Strategy & Environment