Ever wonder why some

organizations consistently
deliver while others disappoint?
 Findings from the market
High performers are consistently:
• Seeking to develop a broader and deeper view
of their market opportunities, today and
tomorrow.eg. HUL, ITC, P&G
• Being more innovative in strategy and
structure than their competitors, more
collaborative with partners and more
questioning of themselves and their potential
eg. Pepsi and Coke
• Taking a much more holistic and long-term
approach to their people and communicating
more frequently and transparently to both
their internal and external stakeholders
• Broadening their understanding of risk in their
market and from their actions, and tightening
their execution and key support processes to
mitigate that risk
• Pursuing and attaining greater speed in
making and executing decisions to take
advantage of their changing market
 Why to study business
environment?
•Business is the integral part of the ecology
and social system since no business can
function in vacuum.
•Its decisions and performance are
influenced by a large no. of factors.
•Imp decisions like such as what business to
do, which customer segment to target,
formulation of strategies, when, where and
how to do a business.
• Whether to continue a business?
• Whether to expand a business?
• How to expand a business?
• How to be a more profitable enterprise? etc.
• Such decisions are influenced by a no. of
factors generally referred to as Business
Environment.
 IMPORTANCE OF ENVIRONMENTAL
STUDY
The benefits of environmental study are as follows;

• Development of broad strategies and long-term policies

of the firm.
• Development of action plans to deal with technological
advancements.
• To foresee the impact of socio-economic changes at the
national and international levels on the firm’s stability.
• Analysis of competitor’s strategies and formulation of
effective countermeasures.
• To keep oneself dynamic as per the changing envt.
BE consists of all those factors that have bearing
on business such as:
• Strengths, weaknesses, internal power
relationships and orientations of organisation.
• Govt. policies and regulations
• Nature of economy and economic conditions
• Socio cultural factors
• Demographic trends
• Natural factors
• Global trends and cross border developments.
 What is B.E(Meaning)
“BE refers to all internal and external factors
which impact the functioning/performance of
a firm and/or its decision making, particularly
strategies”
“the aggregate of all conditions, events, and
influences that surround and affect
it.”…..Davis Keith
In common usage it often refers to the external
factors.
 Business Ecology
• Business ecology is very similar to human
ecology
• Just like human beings success and survival of
any business enterprise depends on its innate
capability.
• Success of a business depends on two
factors:-
1. Innate capacity includes: resources at its
command, including physical resources,
financial resources, human resources skills,
synergy and inter linkages.
2. Adaptability of the firm to the environment
and the extent to which environment is
favorable to the development of
organisation.
 BUSINESS -ENVIRONMENT INTERRELATIONSHIPS
• Business is the product of the technological, political-
legal, economic, social –cultural, global and natural
factors amidst which it functions.
• Three features are common to this web of relationship
between business and its environment
1. There is symbolic relationship between business and its
environment and among the environmental factors. In
other words, business is influenced by its environment
and in turn, to certain degree, it will influence the
external forces. Similarly, political-legal environment
influences economic environment and vice versa. The
same relationship between other environment factors
too.
2.These environmental forces are dynamic. They
keep on changing as years roll by, so does
business.
3.The third feature is that a particular business
firm, by itself, may not be in a position to
change its environment. But along with other
firms, business will be in a position to mould
the environment in its favor
Factors affecting Business Decisions

Internal Business
E External
Environment Decision environment
 TYPES OF BUSINESS ENVIRONMENT

• INTERNAL ENVIRONMENT
 personnel, physical facilities, strategy, marketing
mix etc.

• EXTERNAL ENVIRONMENT
 MICRO ENVT:- It has direct or intimate impact on
the firm. Also known as task/ operating envt.
 MACRO ENVT:- It affects the industry very
generally.. Also known as general or remote envt.
• Internal environment reveals organisation’s
STRENGTH AND WEAKNESS
• External environment reflects the
OPORTUNITIES available and the THREAT a
company faces.
• These two factors control the business policy
of the organisation.
• Internal factors are known as controllable
factors.
• External factors are known as uncontrollable
factors.
COMPONENTS OF BUSINESS ENVIRONMENT

BUSINESS ENVIRONMENT

INTERNAL ENVT. EXTERNAL ENVT.

• Promoters /share holders’
value
•Mission/ objectives
•Management str./ nature Micro envt. Macro envt.
•Internal power •Customers Economic factors
relationship •Suppliers Social/cultural fac.
•Co. image/brand eqty. •Competitors Demographic fac.
•Phy. Assets •Publics Political/govt.fac
•R&D /tech expertise •Financiers Natural fac.
•Human resource •Mktg. Tech. fac.
•Marketing capabilities. intermediaries Global fac.
 BUSINESS ENVIRONMENT
Macro Environment
Political/Govt.env. Legal envt .
Micro(task/operating) Environment
Financiers
Internal environment
supp promoter/shareholders’ value cus.
mission/objective, mgmt. str.
internal power relnship, physical assets &facilities
demo. global
envt. Buss. envt.
decision
co. image/brand equity
human resources
pub fin. capabilities, tech capabilities, mktg. capabilities comp

Socio cultural envt. Tech/natural envt.

 Internal environment
1. Value system: value system of organisation influences
its portfolio strategy, HRM, marketing strategy and
CSR.
eg. Core value of Infosys Technologies Limited:- to
achieve objectives in an environment of fairness, honesty,
transparency, and courtesy towards customers, employees,
vendors and society at large.
2. Vision, Mission, Objectives: the business domain of
the company, priorities, direction of development,
business philosophy, business policy are guided by
vision, mission and objective of the co.
eg. HSBC- world’s local bank, Big bazaar- good quality at
affordable prices, Ranbaxy- research based international
pharma co.
3. Management str. and nature: The
organizational structure, the composition of
the Board of Directors, extent of
professionalization of the management etc.
are important factors influencing business
decision. The quality of the board is very imp.
Factor for the development and the progress
of the company.
4. Internal Power Relationship: interaction of
the top management with employees,
shareholders and board of directors.
5.Human Resources: Skill, quality, morale.
Commitment, attitude and the other
characteristics of the human resources.
Restructuring and modernization is very difficult
in some organizations where as it is done very
smoothly in others?
6. Co. image and Brand Equity: These form the
reputation of the co. in market which matters
while raising finance, forming joint ventures,
launching new product, relationship with
intermediaries etc.
7. Misc. factors: some other factors which help in
decision making and contribute to biz success or
failure are as follows:
I. Physical Assets and Facilities
II. R&D and Technological Capabilities
III. Marketing Resources
IV. Financial Factors: financial policies, financial
position, capital
 EXTERNAL ENVIRONMENT
MICRO ENVIRONMENT
• Co.’s Immediate environment that directly affects
the performance of the co.
• Consists of suppliers, marketing intermediaries,
competitors, customers, publics.
MACRO ENVIRONMENT
• Co. and its micro envt. Operates in a large macro
envt.
• More uncontrollable than micro envt.
 MICRO ENVIRONMENT

• SUPPLIERS
• CUSTOMERS
• COMPETITORS
• MARKETING INTERMEDIARIES
• FINANCIERS
• PUBLICS
 MACRO ENVIRONMENT
• Social and culture Environment
Every business organisation operates within the norms of society
and exists primarily to satisfy it’s needs. While social factors
influence the policy and strategy of business, the organisation
strives to satisfy the needs and wants of the society.
It refers to people’s attitude to work and wealth; role of family,
marriage, religion and education; ethical issues and social
responsiveness of business.
• Global envt.
Thanks to liberalization, Indian companies are forced to view
business issues from a global perspective. Business responses and
managerial practices must be fine-tuned to survive in the global
environment. Global envt. refers to those global factors which are
relevant to biz like WTO principles and agreements,international
conventions, treaties,agreements,condition and sentiments in
other countries.
 MACRO ENVIRONMENT

• Technological Environment
Technology is understood as the systematic application of scientific
or other organized knowledge to practical tasks. Technology
changes fast and to keep pace with it, businessmen should be ever
alert to adopt changed technology in their businesses.
• Economic Environment
Economic factors such as per capita income, national income,
resource mobilization, exploitation of natural resources, infrastr.
dvlpt. , employment generation, propensity to consume, ind. Dvlpt
and so on influence biz envt.
There is close relationship between business and its economic
environment. Business obtains all its needed inputs from the
economic environment and it absorbs the output of business units.
 MACRO ENVIRONMENT

• Govt. envt.
govt. policies provide the basic envt for business. For eg govt’s policy to open up
Indian economy to integrate it with global economy has resulted into
liberalisation. Trade policies, labour policies, location policies,export-import
policies,foreign exchange policies, monetary and fiscal policies, taxation policies
etc pave ways for BE.

• Political Factors:
The philosphy and approach of the political party in power substantially
influences the biz envt. Eg. Mamta Banerjee opposed TATA plant at Singur.
In Kingdom of Saudi Arabia biz envt and social systems are largely regulated by
Shariat.

• Legal Factors:
Every aspect of biz is regulated by law in India. Laws relating to industrial
licensing, Co. formation, Factory administration, industrial disputes, wages
paymenttrade unionship, controlling of monopoly etc.
• Natural environment: acc to Watrick and Woods
“the natural envt ultimately is the source and support
of everything used by any business”. The
geographical and ecological factors such as natural
resources, weather and climatic conditions, location
aspects, port facilities are all relevant to biz.
• Demoraphic envt: population size, birth rate,
changing age str, prefrences, migration and ethnic
aspects etc.
 CORPORATE GOVERNANCE
• Corporate failures and widespread dissatisfaction
with the way many corporate functions have led
to the realization, globally, of the need to put in
place a proper system for corporate governance.
• The aim is to align as nearly as possible the
interest of individuals, corporations, and society
• The incentive to corporate to adopt
internationally accepted governance standards is
that these standards will help them to achieve
their corporate aims and to attract investment.
 FOCUS
• Corporate governance is concerned with the values,
vision and visibility.
• It is about the value orientation of the organization,
ethical norms for its performance, the direction of
development and social accomplishment of the
organization and the visibility of its performance and
practices.
• Corporate management is concerned with the
efficiency of the resources use, value addition and
wealth creation within the broad parameters of the
corporate philosophy established by corporate
governance.
 Importance of corp. governance
• Markets and investors take notice of well-managed companies,
respond positively to them, and reward such companies, with
higher valuations.
• Strong corporate governance is indispensable to resilient and
vibrant capital markets and is an important instrument of investor
protection
• Under corporate governance, corporates are expected to
disseminate the material price sensitive information in a timely and
proper manner and also ensures that till such information is made
public, insiders abstain from transacting in the securities of the
company.
• Good corporate governance is considered vital from medium and
longterm perspectives to enable firms to compete internationally in
sustained way and make them, not only to improve standard of
living materially but also to enhance social cohesion.
 SOCIAL RESPONSIBILTY
• Social responsibility is the obligation of
decision-makers to take actions, which protect
and improve the welfare of society as a whole
along with their own interests
 ARGUMENTS FOR SOCIAL RESPONSIBILITY
• Business has to respond to the needs and expectations of society.

• Improvement of the social environment benefits both society and

business.

• Social responsibility discourages additional governmental regulation and

intervention.

• Business has a great deal of power, which should be accompanied by an

equal amount of responsibility.

• Internal activities of the enterprise have an impact on the external

environment.

• The concept of social responsibility protects interests of stockholders.

• Social responsibility creates a favorable public image.

• Business has the resources to solve some of society’s problems.

 SOCIAL STAKEHOLDERS
There are various interest groups which may affect the
functioning of a business organization and may be affected
by its functioning. Business enterprises are primarily
responsible to six major groups:

• Shareholders
• Employees
• Customers
• Creditors, suppliers and others
• Society and
• Government.

These groups are called interest groups or social stakeholders

 SOCIAL RESPONSIVENESS
Social responsiveness (SR) is “the ability of a
corporation to relate it operations and policies
to the social environment in ways that are
mutually beneficial to the company and to
society”.
In other words, it refers to the development of
organizational decision processes whereby
managers anticipate, respond to, and manage
areas of social responsibility.
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The social responsiveness of an organization can be
measured on the basis of the following criteria:
• Contributions to charitable and civic projects
• Assisting voluntary social organizations in fund-raising
• Employee involvement in civic activities
• Proper reuse of material
• Equal employment opportunity
• Promotion of minorities
• Direct corporate social responsiveness investment
• Fair treatment of employees
• Fair pay and safe working conditions
• Safe and quality products to consumers
• Pollution avoidance and control