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BUSINESS ENVIRONMENT

Dr. C.S. Siva Prakash

Business ?
PRODUCTION OF GOODS
DELIVERY OF SERVICE
SALES OF GOODS

FOR WHAT ?
PROFIT
SUPPORT FOR ECONOMIC GROWTH
SOCIAL COMMITMENTS

Business
Organization ?

Any Similarity between an INDIVIDUAL


and a BUSINESS ORGANIZATION ?

Industry?
Major industries in India ?

Major industries in India


Automobile
Industry
Aluminum Industry
Cement Industry
Dairy Industry
Pharmaceutical Industry
Fertilizer Industry Petrochemical Industry
IT Industry
Polymers Industry
Jute Industry
Steel Industry
Sugar Industry
Telecom Industry
Electronics/Electrical Industry

Aviation Industry
Banking Industry
Entertainment and Media Industry
Investment Industry
Insurance Industry
Software Industry &Outsourcing
Event Management Industry
Health Care Industry
Hospitality Industry

Industry Characteristics
Industries are the circles in the supply chain
process

Each industry is a set of firms that operate


in the same space in a supply chain,
Also competing to control some of the
space and so gain profit.

Cont.
Industries have structure, history/ trajectory
and Competitive Dynamics that set the
context for new entrants.
Industries operates
environmental force.

within

the

set

of

So it is important to critically analysis the


environment force to drive the organization
successfully.

2010

INDUSTRIAL
TRANSFORMATION IN
INDIA

1990

1970
1950

Environment ?
Business
Environment ?
Internal Environment
External Environment

Micro Environment
Macro Environment

Macro -Environment
Economic

Socio cultural

Industry
Union

Communiti
es

Natural

Government

Stockholders

Firm/
Organization:
5MS
Vision
Structure
Culture

Creditors

Political/Legal

Customers

nternal -Environment

Competitors

Mkt
Intermediaries

Financial
Intermediaries

Suppliers

Technological

Micro -Environment

Internal -Environment

5MS
Vision
Structure
Culture

nternal -Environment
STRENGTH
5MS
Vision
Structure
Culture

WEAKNESS

Micro -Environment
Communiti
es
Government

Union
Competitors

Internal
Stockholders

Suppliers

Creditors
Customers

Macro -Environment
Socio
Cultural

Economi
c
MICRO

Natural

Political/Le
gal
International

INTERNAL

Technologic
al

OPPORTUNITIES

Micro Environment
Macro Environment

THREATS

SWOT ANALYSIS

SWOT Analysis
Albert Humphrey at Stanford University in the 1960s

SIVA PRAKASH C.S ,FACULTY


,IMK

INTERNAL ANALYSIS
Finance Management Is the organization profitable?
Marketing management orientation business towards market.
Human resources good quality talent pool is an asset.
Business processes- Are these effective/efficient?
IT- Is IT integrated into all business processes(MIS)?
Communication- Are there effective lines of communication?
Management and Leadership- What are the management and leadership styles?
Cost- What unique or lowest cost resources do you have access to?
Competitive Advantage- What do you do better than anyone else? What
advantages do you or your company have?
R&D and innovation
Resources- What unique or lowest cost resources do you have access to?
Sales- What are the factors that have led to an increase or decrease in sales?

EXTERNAL ANALYSIS
Competitors- What does their SWOT look like? Are competitors doing or changing
anything?
Markets- Are there any new markets for our products or services? Is there any new
products or services for our market?
Political/Environmental Climate- Is there any government legislation?
Demographics Are there any age or socio-economic factors?
Technology- Are there any new technological breakthroughs? Is changing technology
giving competitors the edge?
Barriers- What barriers exist in the marketplace?
Trends- Are there any trends or patterns in the market? Are the industry, technology,
socio-cultural trends changing?

STRATEGIES BASED ON SWOT ANALYSIS


Strengths outweigh weaknesses, opportunities outweigh
threats (SO) supports a growth strategy.
Strengths outweigh weaknesses, threats outweigh
opportunities(ST) supports a maintenance strategy.
Weaknesses outweigh strengths, opportunities outweigh
threats( WO) supports a harvest strategy.
Weaknesses outweigh strengths, threats outweigh
opportunities (WT) supports a retrenchment strategy.

COMPETITIVE ENVIRONMENT OF
INDUSTRY
A competitive environment is where there are several
similar firms that are competing for the same market
segment.
These firms normally produce products of the same
nature and form and whose uses are more or less the
same.
However, because of the competition that exists for the
market, these firms are likely to differentiate their
products to endear them to a larger number of
consumers compared to their rivals.

Porters Five Forces Model of


Competition
Threat of
Threat of
New
New
Entrants
Entrants

Y
S
R
S
T
E
S
N
U
E
D
V
I
N
I
T
C
A
R
T
T
A

Bargaini
ng
Power of
Supplier
s

Rivalry
Among
Competing
Firms in
Industry

Threat
of
Substitu
te
Products

Bargaini
ng
Power of
Buyers

BTE is High When .

Barriers to
Entry

High Economies of Scale

High Capital Requirements

High Expected Retaliation

Hgih Access to input


High Product Differentiation/ Brand
Equity
High Switching Costs
High cost of accessing Dist Channels
High Absolute Cost Advantages
(Experience, Technology, IPR,)
High Level of Government Protection

Suppliers are likely to be powerful if:

Suppliers
exert
power by:
*
Threatenin
g to raise
prices or to
reduce
quality

Few Firms Dominate Supplier Industry

Buyer Not an Imp Customer for Supplier

Low Threat of Backward Integration by


Buyer

Few Substituted for Supplier Products


(SP)
SP important (price/quality) to Buyer
SP is Highly Differentiated
SP Has High Switching Costs
SP high with threat of Foreward
Integration

er groups are likely to be powerful if:

Buyer concentration is high


Purchase accounts for a
significant fraction of
suppliers sales

Products are
undifferentiated

Buyers least switching


costs

Buyers industry earns low


profits
Buyer presents a credible
threat of backward

Buyers
exercise
power by
* Bargaining down
prices
* Forcing higher
quality

Threat of Substitute Products


High When
Substitu
tes limit
the
prices
firms
can
charge

Close

Substitute Available

Low Switching Cost


High Price Value Performance of
Substitutes

High Profitability of Producers of


substitutes

Rivalry Among Existing Competitors


Cutthroat competition is more likely when:

Large number of competitors (Low


Concentration Ratios)
Many equally balanced competitors
Slow growth industry
Industry at shakeout stage
High fixed costs & High Storage Costs
Changing conditions of demand and supply
Lack of product differentiation
Low switching costs between rivals products
High strategic stakes
High exit barriers

Rivalry Among Existing Competitors


Exit barriers are High When
Highly Specialized assets
High Fixed Cost of exit (e.g., labor agreements)
High Strategic interrelationships
High Government and social restrictions

The Five Forces Framework


Suppliers
Suppliers
Sources
Sourcesof
ofBargaining
BargainingPower:
Power:
Switching
Switchingcosts
costs
Differentiation
Differentiationofofinputs
inputs
Supplier
concentration
Supplier concentration
Presence
of
substitute
Presence of substituteinputs
inputs
Importance
Importanceofofvolume
volumetotosuppliers
suppliers
Impact
of
inputs
on
cost
Impact of inputs on costorordifferentiation
differentiation
Threat
Threatofofforward/backward
forward/backwardintegration
integration
Cost
relative
to
total
purchases
Cost relative to total purchasesininindustry
industry

New
Entrants
New
Entrants

Industry
IndustryCompetitors
Competitors

Entry
EntryBarriers:
Barriers:

Factors
Factorsaffecting
affectingRivalry:
Rivalry:

Economies
Economiesof
ofscale
scale
Brand
Brandidentity
identity
Capital
requirements
Capital requirements
Proprietary
Proprietaryproduct
productdifferences
differences
Switching
Switchingcosts
costs
Access
to
distribution
Access to distribution
Proprietary
Proprietarylearning
learningcurve
curve
Access
Accesstotonecessary
necessaryinputs
inputs
Low-cost
product
design
Low-cost product design
Government
policy
Government policy
Expected retaliation

Industry
Industrygrowth
growth
Concentration
Concentrationand
andbalance
balance
Fixed
costs/value
Fixed costs/valueadded
added
Intermittent
overcapacity
Intermittent overcapacity
Product
Productdifferences
differences
Brand
Brandidentity
identity
Switching
Switchingcosts
costs
Informational
Informationalcomplexity
complexity
Diversity
of
Diversity ofcompetitors
competitors
Corporate
stakes
Corporate stakes
Exit
Exitbarriers
barriers

Buyers
Buyers
Bargaining
BargainingPower
Powerof
ofBuyers:
Buyers:
Buyer
Buyerconcentration
concentration
Buyer
Buyervolume
volume
Switching
Switchingcosts
costs
Buyer
Buyerinformation
information
Buyer
Buyerprofits
profits
Substitute
Substituteproducts
products
Pull-through
Pull-through
Price
Pricesensitivity
sensitivity
Price/total
Price/totalpurchases
purchases
Product
Productdifferences
differences
Brand
Brandidentity
identity
Ability
Abilitytotobackward
backwardintegrate
integrate
Impact
Impacton
onquality/performance
quality/performance
Decision
Decisionmakers
makersincentives
incentives

Substitutes
Substitutes

Threat determined by:


Threat determined
by:
Relative
Relativeprice
priceperformance
performance
ofofsubstitutes
substitutes
Switching
Switchingcosts
costs
Buyer
Buyerpropensity
propensitytotosubstitute
substitute

Characteristics Of Business Environment


1. Business environment is compound in nature.
2. Business environment is constantly changing process.
3. Business environment is different for different
business units.
4. It has both long term and short term impact.
5. Unlimited influence of external environment factors.
6. It is very uncertain.
7. Inter-related components.
8. It includes both internal and external environment.

How the organization


future
direction
sustainable growth?

sets
for

SET VISION
SET MISSIONS
DO ENVIRONMENTAL SCANNING
DO SWOT ANALYSIS
DO COMPETITIVE ANALYSIS
SET CROSS FUNCTIONAL OBJECTIVES
MONITOR ,CONTROL TO ATTAIN VISION