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Business Environment

Hello Friends! Today, In this blog we are going to discuss about "What Is Business Environment", "Nature Of Business Environment" and "Types Of Business Environment". Have a look so that all your doubts and queries regarding Business Environment could be solved.
The Term Business Environment means "The aggregate of all the forces, factors and institutions which are external to and beyond the control of an individual business enterprise but which exercises a significant influence on the functioning and growth of individual enterprises."

In other words, Business Environment refers to the total of all the things external to the firm and industry which affect their organization and operations.

Nature Of Business Environment

• Aggregative: Business Environment is the totality of all the external forces which influences the working as well as decision making of an enterprise.
• Inter-Related: Different elements of Business Environment are Inter-related and inter-dependent. A change in one element affects the other elements.For instance, Economic Environment affects the Non Economic Environment which in-turn influences or affects the Economic conditions.
• Relative: Business Environment is a Relative Concept. It differs from country to country an even region to region.so, Business Environment depends upon the region or country in which Business is operated or conducted.
• Inter-Temporal: Business Environment is also an inter-temporal concept as it changes overtime. In the short run, Business Environment may remain static but in the long run, it does change. so, Business Environment is more or less dynamic in nature.
• Uncertain: Business Environment is largely uncertain because it is very difficult to forecast the future environment. Further, when the environment changes very fast, uncertainty increases.

TYPES OF BUSINESS ENVIRONMENT

Business Environment can be classified in to two categories Namely:

1. Internal Environment: Internal Environment refers to the factors existing within a business firm. These internal factors are considered to be controllable because the enterprise has control over these factors. The main internal factors which influences Business Decisions are as follows:
   1. Culture: The values, beliefs and attitudes of the founder and top management of the company exercises a strong influence on what the company stands for, how it does things and what it considers important. When the value system is shared by all the members, the organization is likely to be more successful.
   2. Mission And Objectives: The Objectives of all the firms is assumed to be Profit Maximization in the long run. But Mission is different from this narrow objective of profit maximization. Mission is defined as the overall purpose or reason for existence which guides and influences a firm decisions and economic activities.
   3. Top Management Structure: The structure of the organization also influences the business decisions. The composition of the board of directors, the degree of professionalization of management and the organizational structure of a company have a important bearing on its business decisions.
   4. Power Structure: The internal power relationship between the board of directors and the Chief Executive Officer is an important factor. The extent to which the top management enjoys the support of shareholders and employees at different levels, also has an important bearing on decision making.
   
   
2. External Environment: External Environment refers to the factors existing outside a business firm. These External factors are considered to be uncontrollable because the enterprise has No or Partial control over these factors. Further, External Environment can be divided into two types Namely:

1. Micro Environment: Micro Environment consists of the factors in the company's immediate environment. These factors affects the performance of the company and its ability to serve the customers. Micro Environment consists of the following:
1. Customers: Customers constitutes an important segment of the micro environment. Customer is the king of the market and every business exists to serve its customers. A business has no meaning until and unless there are customers to serve.
2. Suppliers: Suppliers are the person who supply various inputs such as money, raw material, fuel, power etc. and help in the smooth conduct of business. Further, firms should have more than one supplier so that changes in the policies of one supplier does not effect their production schedules.
3. Competitors: Competitors form an important part of the Micro Environment. Business Firms compete to capture a larger share in the market. They constantly watch the competitors policies and adjust their policies to gain customer confidence.
4. Company Image And Brand Equity: The image and Brand Equity of the company plays a very important and significant role in raising finance, forming alliances, choosing dealers and suppliers etc.


2. Macro Environment: The Macro Environment consists of the Economic and Non-Economic variables that provide opportunities and threats to firms. This is largely uncontrollable and therefore, firms must adjust their operations to these environmental factors. Macro Environment consists of the following:
   1. Political Environment: Political Environment consists of the elements relating to government affairs. The political environment provides the framework within which business has to function. The main components of Political Environment are:
   • The Constitution of the Country.
   • Political Organization: includes Philosophy of political parties, ideology of the government, nature and extent of bureaucracy, influence of primary groups etc.
   • Political Stability: includes structure of Military and police force, election system, Law and order situation etc.
   • Image of the country and its leaders.
   • Foreign policy alignment or non-alignment.
   • Law Governing Business
   2. Economic Environment: The Economic Environment consists of the economic forces that affects the business activities. These forces influences the buying behavior and spending patterns of consumers and institutions. The main components of Economic Environment are:
   • Economic System: includes Capitalist, socialist and Mixed Economic System.
   • Economic Policies: includes Monetary Policy, Fiscal Policy, Supply side Policy etc.
   • Economic Indices: includes Gross Domestic Product, Consumer Price index, Per Capita Income etc.
   • Financial Market: includes Share Market, Money Market, Derivative Market, Capital Market.
   • Industrial Infrastructure etc.
   3. Social And Cultural Environment: Social Environment refers to the characteristics of the society in which a business firm exists and operates. The main components of social and cultural environment are:
   • Demographic Forces: includes Size, Composition and Mobility of Population.
   • Social Institutions and Groups.
   • Caste Structure and Family Organisation.
   • Educational System and Literacy Rate.
   • Customs, beliefs, values and life styles.
   • Tastes and Preferences of People.
   • Entrepreneurial Spirit.
   4. Technological Environment: Technology is changing at a fast pace and technological environment is dramatically affecting the business environment either due to easy import policies or because of technology up-gradation. The main components of Technological Environment are:
   • Rate of Technological change and Diffusion.
   • New approaches to the production of goods and services.
   • Use of New processes and equipment.
   • Transfer of Foreign Technology.
   • Impact of Technology on cost, quality and value chain.
   5. Legal Environment: The Legal Environment consists of the regulatory forces that will affect the business activities and operations. The main components of Legal Environment are:
   • Current Legislation.
   • International Legislation.
   • Regulatory bodies and processes.
   • Tax Regulations.
   • Competitive Regulations.
   • Industry Specific Regulations.
   • Government Regulations.
   6. Natural Environment: The main components under Natural Environment are:
   • Climatic Conditions.
   • Agriculture, Commercial, and other Natural Resources.
   • Ecological System.
   • Levels of Pollution.

So, From this blog, We have understood What Is The Concept Of Business Environment, Characteristics Or Nature Of Business Environment And The Various Types Of Business Environment. In short, Business Environment is the sum total of all the forces which affects the business organization and its various activities.

For any queries or doubts or anything that you haven't understood, you can comment me. Also Please do comment and tell us is the above information useful to you.

THANK-YOU FRIENDS

Environmental Analysis/Environmental Scanning

Hello Friends! Today, In this blog we are going to discuss about "What Is Environmental Analysis Or Environmental Scanning", "chracteristics Of Environmental Analysis", "Importance Of Environmental Analysis" and "Process Of Environmental Analysis or Environmental Scanning". Have a look so that all your doubts and queries regarding Environmental Scanning could be solved.

Environmental Analysis can be defined as the process which examines all the components whether internal or external that has an influence on the performance of the organization. Here, the internal components indicates the strength and weaknesses of the business entity whereas the external components indicates the opportunities and threats outside the organisation.

In other words, Environmental Analysis is the process through which an organisation monitors and comprehends various environmental forces so as to determine the opportunities and threats that lie ahead in the future. Further, Environmental Analysis is also known as Environmental Appraisal or Environmental Scanning.

CHARACTERISTICS OF ENVIRONMENTAL ANALYSIS

Some of the features or characteristics of Environmental Analysis are:

• Holistic View: Environmental Analysis is a holistic exercise in the sense that it must comprise a total view of the environment rather than viewing a trend piecemeal. The corporate must scan the circumference of its environment in order to minimize the chances of surprises and to maximize its utility.
• Continuous Process: The analysis of environment must be a continuous process rather than being an intermittent scanning system. It must operate continuously in order to keep track of the rapid pace of development. So, Environmental analysis becomes essential due to the dynamic nature of the environment.
• Exploratory Process: While the Monitoring aspect of the environment is concerned with the present development, a large part of the process seeks to explore the unknown dimensions of possible future. The analysis emphasizes on "What could happen" and not necessarily "What will happen."

IMPORTANCE OF ENVIRONMENTAL ANALYSIS

The Importance of Environmental Analysis are:

• First Mover Advantage: Awareness of environment helps an enterprise to take advantage of early opportunities instead of losing them to competitors. For instance, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars on account of rising Middle class.
• Early Warning Signal: Environmental awareness serves as an early warning signal. It makes a firm aware of the impending threat or crisis, so that the firm can take timely action to minimize the adverse effects if any. For instance, A MNC entering in to the Indian market would act as a early warning signal for Indian Firms.
• Focus On Customer: Environmental Understanding makes the management or Business organization sensitive towards the changing needs and expectations of customer. For instance, Several FMCG companies have launched small sachets of shampoo and other products realizing the wishes of customers.
• Strategy Formulation: Environmental Monitoring provides relevant information about the business environment. such information serves as the basis for strategy formulation. For Instance, ITC realized that there is a vast scope for growth in the travel and tourism industry in India and therefore ITC planned New hotels in India.
• Change Agent: Business leaders acts as the agents of change. They create a drive for change at the grassroot level. In order to decide the direction and nature of change, the leaders need to understand the aspirations of people and other environmental forces through Environmental Scanning.
• Public Image: A business firm can improve its image by showing that it is sensitive to its environment and responsive to the aspirations of public. Environmental understanding enables the business to be responsive to their environment.
• Continuous Learning: Environmental analysis keeps the organization in touch with the changing scenario so that thet are never caught unaware. With the help of Environmental learning, managers can react in an appropriate manner and thereby increase the success of their organization.

PROCESS OF ENVIRONMENTAL ANALYSIS/SCANNING

The Process of Environmental Analysis/Scanning consists of the following steps:

• Environmental Scanning: It means the process of analyzing the environment for identifying the factors which may influence the business. Environmental Scanning alerts an organization to potentially significant forces in the external environment, so that suitable strategic initiatives may be taken before the organization reaches to a critical situation.
• Environmental Monitoring: At this stage, the information from the relevant environment is collected. Once this information is collected, adequate data is gathered so as to find out the patterns and trends of the environment. Further Monitoring is a follow up and deeper analysis of environmental forces. Several techniques such as company records, spying, publication and verbal talks with the customers, employees, dealers and suppliers are the main sources of collecting data.
• Environmental Forecasting: Environmental Forecasting is the process of estimating the events of future based on the analysis of past records and present behavior. Further it is necessary to analyze or anticipate the future events before any strategic plans are formulated. Forecasts are made for economic, social and political factors. Several techniques such as Time series, Graph method, Delphi method etc. are used for this purpose.
• Assessment Or Diagnosis: At this stage, Environmental factors are assessed in terms of their impact on the organization. Some factors in the environment may entail an opportunity while others may pose a threat yo the organization. For this purpose, SWOT analysis and ETOP analysis are used.

Diagram Showing Process Of Environmental Analysis/Scanning

So, From this blog, We have understood What Is The Concept Of Environmental Analysis or Environmental Scanning, Characteristics Or Nature Of Environmental Analysis And The Process Of Environmental Analysis/Environmental Scanning. In short, Environmental Scanning is the process of monitoring the various environmental forces and taking first mover advantage in the industry.

For any queries or doubts or anything that you haven't understood, you can comment me. Also Please do comment and tell us is the above information useful to you.

THANK-YOU FRIENDS