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OVERVIEW OF BUSINESS ENVIRONMENT OVERVIEW OF BUSINESS ENVIRONMENT

OVERVIEW OF BUSINESS ENVIRONMENT - PowerPoint Presentation

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OVERVIEW OF BUSINESS ENVIRONMENT - PPT Presentation

1BUSINESS ENVIRONMENT DEFINED All those internal amp external factors which affect the function and performance of firm and its decision making particularly strategies In a broad sense business environment includes internal and external factors ID: 789857

factors environment strategic analysis environment factors analysis strategic business strategy firms instance external competition management internal amp firm competitors

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Slide1

OVERVIEW OF BUSINESS ENVIRONMENT

Slide2

1.BUSINESS ENVIRONMENT DEFINED

All those internal & external factors which affect the function and performance of firm and its decision making particularly strategies.

In a broad sense, business environment includes internal and external factors.

1.1 Business Ecology

Refers to the interplay between internal and external environment

Internal environment

anlyis

involves two

factos

-strengths and weaknesses.

External environment includes analysis of two factors-opportunities and threats

Slide3

Schematic representation

Business

Decision

Internal environment

External environment

Business decision depends on effective interplay of internal & external environment

Slide4

SWOT analysis

An interplay of internal and external environment implies a SWOT analysis

The key elements in a SWOT analysis are

Strengths

- what are my key strengths or core competence.

Internal analysis

Weakness: What are my major weaknesses

Opportunities- opportunities available for growth

Threats

- What are the growth inhibiting factors external analysis

The firm needs to identify its core competence, say human resources, scale advantage, strategic location etc, weakness, like, attrition etc, weak supply links , opportunities for growth like organic route(own expansion) or inorganic (acquisitions) and threats like competitors, regualtory

regimes, geopolitical tensions etc.

Slide5

Types of environment- in detail

Internal environment defined:

Internal factors are regarded as controllable factors. This refer to factors which are within the control of the firm and can be altered. For instance, the rate of attrition. HR policies etc.

External environment –(Micro & macro environment)

These are factors which are outside the firm’s control and is difficult to alter. For instance, economic factors, socio-cultural factors, geo-political factors,

Further divided into

micro & macro environment

.

Micro environment

refers to those external factors which have a direct and immediate impact on the firm, such as suppliers and distributors. Also known as task environment or operating environment.

Macro environment refers to those factors which affect the indstry

generally such as socio politcal and demographic factors.

Slide6

INTERANL ENVIRONMENT

These include the value system of the

organisation

, its vision and mission, strategies etc.

Vision & mission statements

are an integral part and are used to communicate the strategies and desires of the firm to the stakeholders. Also communicates business domain of the company, priorities, directions, business philosophy etc.

Management structure & nature

: The organizational structure, composition of Board of Directors, extent of professionalism of management are also important factors. Quality of Board is a determining factor.

recent issues in this regard- PSBs- focus on Board competence, splitting Chairman & MD posts.

Internal power relations-amount of support from employees-HR-quality of human relations- skill levels-

Brand equity is important while raising equity. For instance AAA rated

corporates

have an advantage in raising low cost finance

Slide7

INTERNAL ENVIRONMENT CONTD….

Other factors

Physical assets and facilities like the technology, production capacity, logistics etc.

R& D and technological capabilities

Marketing resources, quality of marketing team, brand equity etc

Financial factors like financial policies, financial position, capital structure etc.

Slide8

EXTERNAL ENVIRONMENT

Micro environment:

This consists of factors which affect the company’s immediate environment such as suppliers, customers, marketing intermediaries, competitors etc. Micro environment has the following constituents.

1.

Suppliers:

An important source is suppliers, or those who supply inputs and raw materials to the company. Uncertainty regarding supply leads to high inventories

For instance, factories in India maintain stocks for 3-4 months and imported stocks for 9 months as against an average of a few hours to 2 weeks in Japan. Many companies resort to vertical integration to solve this problem

ie

establishing captive capacities- good vendor management is essential. SMEs face this problem. For efficient supply chain management companies resort to relationship marketing

Slide9

EXTERNAL ENVIRONMENT CONTD..

2. Customers:

Customer is the king, that should be the motto. The emphasis should be caveat

vendittor

’ rather than ‘caveat

emptor’Caeat

venditor means sellers beware, In a competitive

amrket

, poor quality would be punished. Corproates should also take care to diversify customer base.3. Competitors:

This is a widely defined term and not restricted to other firms supplying same product but also include all industries competing for the customers’ discretionary income. We may loosely define

monopolistic competition as the real competition existing in the world market. This may be called

desire competition and is usually found in countries with limited disposable income.

Competition among alternative product categories offering similar level of utility is termed generic competition

. As in pharma industry.

Slide10

External environment contd

Product competition

: This implies the choice as to which particular format is to be chosen. For instance a choice between black and white and color TVs.

Brand competition

: This implies the choice as to which brand to choose from among competing brands.

4.

Marketing intermediaries:

This include other firms that aid the concerned firms in marketing and distributing their produce to the final buyer. These include middlemen, warehousing firms, transportation firms, media agencies, advertising agencies, financial intermediaries etc. They are the vital link between the company and final consumer.

5. Financiers

: They are another important factor. 6. Public groups/pressure groups

are other agents. They may include Citizen Forums, media groups, NGOs etc. However, not all pressure groups are bad and some can be used to disseminate useful information about the company.

Slide11

MACRO ENVIRONMENT

Macro environment also known as general or remote environment

refer to factors which affect the firm in general. Macro environment is generally more uncontrollable than micro environment and the company has top adapt to the environment to be successful.

Some of the important macro environmental factors are

Economic environment

Political and regulatory environment

Social/cultural environment

Demographic environment

Technological environment

Global environment

Slide12

MACRO ENVIRONMENT CONTD

Economic environment:

This include

performnce

of global financial systems

suchn

as the U.S, European Union, China etc. For instance, subdued and muted growth in these regions adversely impacts India’s exports with concomitant impact on other areas.

Political/regulatory environment

Policies pursued by various regimes impact domestic corporations. For instance, the U.S immigration Bill and cap on visas has the potential to adversely impact IT companies.

Social/cultural environment

also has an impact. The

sicla value system and culture impact

corporates. For instance, Mc Donalds

’ find it difficult to penetrate Chennai since there is a strong favour

for South Indian dishes

Slide13

MACRO ENVIRONMENT CONTD

4

.

Demographic environment:

This is a major factor

.

In the present age, every company ahs to design [products that suit customer demographics. The tastes and aspirations of customers in different demographics segments vary and products have to be attuned to suit those needs.

5. Technological environment:

Keeping abreast with technology is of utmost importance. In the present er

, technology is changing very fast. A company which does not keep updated with latest technological developments will be at a loss. 6

. Global environment: This is an extremely important variable.

Variosu developments in the global sphere such as rules framed by WTO, bilateral treaties entered into by nations etc profoundly impact global environment

India’s recent stance at WTO regarding food subsidies.

Slide14

COMPETITIVE STRUCTURE OF INDUSTRIES

The sate of competition can be explained using Michael

Porters’five

forces model. They are

Rivalry among existing firms

Threat of new entrants

Threat of substitutes

Bargaining power of suppliers

Bargaining power of buyers

Some of the common entry barriers are the following

Government policy- a good example is the situation before and after liberalization

Economies of scale- This is size advantage and threatens entry

Cost advantage, both due to economies of scale and also due to other factors such as proprietary know how.

Slide15

COMPETITIVE STRUCTURE OF INDUSTRIES

Product differentiation

characterized by brand image, customer loyalty, product attributes etc.

Monopoly power

; The MRTP being replaced by CCI has reduced this barrier to a certain extent.

Capital requirements: High capital intensive nature of the industry.

Porters model in detail

Rivalry among existing companies

: factors influencing rivalry among existing companies Are the following.

No of firms and their relative market share

State of industry growth

Fixed and storage costs

High exit barriers leading to enhanced competition

Diversity of competitors

Slide16

2.

2. Threat of substitutes

Substitutes limit the pricing power and potential returns by imposing a ceiling on the price level. The earlier instance of monopolistic competition is a good example for this. Substitutes might be close or perfect substitutes though perfect substitutes are not in practice.

3.

Bargaining power of buyers:

By virtue of their bargaining power, buyers can force changes in price levels. Major factors impacting buyers’ bargaining power are the following.

Volume of purchase relative to the total sale

Importance of the product to the buyer

Degree of

standardisation

or differentiation

Switching costsBuyers’ profits ( low buyer profits forces price down)

Slide17

Bargaining power of suppliers

Extent of domination in the supplier industry

Importance of the product to the buyer

Importance of the buyer to the supplier

Substitutabiloity

of the product

Switching costs

Extent of differentiation or

standardisation

Slide18

STRATEGIC GROUPS

Strategic groups

These

are groups of firms within an industry following the same or similar set of rules within an industry. These group help point out the differences among firms within an industry. Some time each firms may be a strategic group. In the U.S for

eg

, there are two strategic groups in

pharma

industry. One manufacturing patented drugs focusing on R&D and the other on generic products that is off patented drugs. In India , for instance, there are both organized and unorganized players in various market segments and within each of these categories there may be strategic groups.

Slide19

Implications of strategic groups

The concept has implications for industry analysis and identification of opportunities an d threats. A company’s competitors are firms within the same strategic group.

The nature and intensity of competition and business prospects vary from one strategic group to another.

High

mobility barriers

ensure profitability of firms in the group are high.

If mobility barriers change, firms in one strategy group might migrate to another strategy group and this can even change the very nature of a strategy group

The competitive standing of different strategy group would be different with respect to each of the five competitive forces. For instance, patented drugs has less threat from new entrants.

Slide20

Limitation of Porters Five Forces model

The model did not initially recognized the impact of innovation. However, Porter himself recognized it at a later stage. For instance, he says that after innovation, a new system can emerge and ultimately it can again settle down . This period when there is a disruption created due to innovation is termed as

punctuated equilibrium.

Thus, there is an unfreezing and refreezing process.

Slide21

Competitor analysis

encompasses goals , strategies, capabilities and perceptions (Porter) . Competitor analysis is important for the formation of the right strategies. It seeks to find answers to certain basic questions such as

Who are the competitors

What are the current strategies of the competitors

What are their future goals and likely strategies?

What drives the competitor

Where is he vulnerable

How competitors respond to others strategies?

An analysis of these forces will help formulate the competitor response profile.

Slide22

Future goals

: Analysis of future goals help to identify the future strategies and whether they re satisfied with the current position.

Knowledge of competitor goals may help to reaction to strategic changes

Future goals of the parent and the business unit needs to be examined.

It is also essential to understand

The competitors assumptions about itself

The competitors assumptions about the industry and other companies.

Identification of the current strategy of competitor is a very useful element in competitor analysis.

Slide23

Value chain

:

A firms value chain is an important determinant of competitor advantage. Value is the amount customer pays a firm. A firm must strive to create value for buyers that exceed the cost of doing so.

There are two types of value

activities-primary and support

Primary activities include

Inbound logistics

Operations (processing etc)

Marketing and sales

Services

Slide24

Support activities include

1. Procurement

2. Technology development

3. Human resource management

4. Firm infrastructure

Slide25

Structural analysis

Purpose of structural analysis is to

diagonise

the competitive forces and to identify the strengths and weakness of the firm vis-à-vis the industry and help formulate and effective strategy

Structural analysis enables the firm to answer the following questions such as

Howa re the entry barriers?

Threat of substitutes

Nature of supplier power

Power of buyers

SWOT analysis of established competitors

Slide26

ENVIRONMENTAL ANALYSIS AND STRATEGIC MANAGEMENT

Strategic management defined

: Strategic management is defined as the set of decisions and actions that lead to the development of an effective strategy to help achieve corporate objectives

Strategic management involves the decision making and activities which

Have wide ramifications

Have a long time perspective and which

Use critical resources towards perceived opportunities and threats

Slide27

Elements in strategic management

Formulation of mission and objectives:

Mission and objectives define the philosophy, scope and task of an organization. Objectives must be appropriate to the environment. It should answer two questions- what is the business and what should be business be and if the two are different then there is need to reorient.

SWOT analysis-whether the company ahs the competence to survive in the environment.

Liberalization of

indian

economy has provided great impotence to strategic management. New forms of competition has emerged.

Changes in business environment might change the scenario. For instance, US, which once used to export electronic goods now imports the same from Japan and Korea due to lack of

copmparative

advantage.

Slide28

Strategic alternatives

A company may be

facd

with

severasl

alternatives such as

Should they be involved in the same line of business?

If it continues, should it do so through organic or inorganic mode?

Should it diversify or grow by vertical integration etc

A company wishing to penetrate foreign market has the

followig alternatives

Manufacture at home and export Manufacturig

in areas such as EEZ or SEZDo the entire manufacturing abroad

Manufacture at home and assemble abroadContract manufacturing and do only marketing

Establish a JV abroad

Slide29

In a multi unit business, formulation of strategies are essential. There are 3 levels of strategies

Corporate level strategy which is the master strategy aimed at the organization as a whole

SBU level strategy which is aimed at various business units

Functional level strategy: Effectiveness of business strategy depends on its translation into functions such as R&D,

Implementation in involves mobilization and deployment of resources

Evaluation of strategy is essential. A strategy

m,ay

fail because of the following

. Improper implementation

Environmental changes

Inappropriate strategy

Slide30

Strategy management

Mission

Objectives

SWOT analysis

Strategic

alternativess

Choice of strategy

Implementation

Evaluation & control