Unit 3

Lecture outline
Definition of business Characteristic of business Objective of business Business in the 21st century Environment :Political ,legal, economic,

social, international , technological Need to scan the business environment Techniques of scanning the business environment.

Introduction of business
A business (also known as enterprise or

firm) is an organisation designed to provide goods ,services, or both to consumer

Definition of Business
Prof.Richard Norman Owen : Business is

an enterprise engaged in the production and distribution of goods for sale in market or rendering service for a price.

Characteristics of business
Business has the following characteristics: business is dynamic. Diversification Globalisation Information Government Interference. Competition.

Objectives of business
Wealth maximisation Growth Efficient utilisation of resources. Employee satisfaction. Quality product and services Market leadership Services to society.

Business in the 21st Century

Globalisation. Libralisation. Knowledge based . Information Technology . Personal income higher .

Business in the 21st Century

Rising insecurities with rising income. Stressful environment. Striving of Work life balance. Customer oriented , customer focus,. Long term relationship based. Brand conscious. Outsourcing.

Environment
Environment refers to the forces that have

a bearing on the functioning of business.

Business environment consist of all those

factors that have a bearing on business

Definition
The aggregate of all conditions events and

influences that surround and affects it By (K.DAVIS)

Types of Enviornment
Internal and External Environment/ General/ Macro Micro.

Internal Enviornment
Culture and Value system Management structure Human resource

The Micro Environment

Customers: needs and wants. Employees: correct and motivated staff is essential to strategic planning. Training and development. Suppliers: Price of raw material . Shareholders: inward investment for growth. Satisfying shareholder needs can cause a change in strategy. Media: Positive or adverse attention.Consumer programs

Micro Environement
This environment influence the

organization directly . It includes the supplier , the consumers, the competitors, the stake holders.

Macro /External
Macro environment includes all those

factors that affect organsiation but are out of direct control of the organisation.

External Enviornment
External environment can be classified into Economic environment Political / legal environment Social environment Technological environment International environment.

Political and legal Environment

Political
Government stability Policies of govt.

Legal
Employment law. Consumer protection Act. MRTP Act

Socio-cultural Environment
Socio-cultural
Education Income Lifestyle changes

Technological Environment
Technological forecasting helps protect and improve the profitability of firms in growing industries. It alerts strategic managers to challenges and promising opportunities. The key to beneficial forecasting of technological advancement lies in accurately predicting future technological capabilities and their probable impacts.

Economical Environment
Economic
Business cycle Interest rates Inflation. unemployment

International Enviornment
The world is a global village and it is getting

closer and closer as far as business in concerned.

Monitoring the international environment

involves assessing each non-domestic market. Economic, political, legal, and social factors are used to assess international environments.

Need to Scan the business Environment

Environmental scanningis a process of

gathering, analyzing, and dispensing information .

To get an idea about the internal /external

environment.
To get an idea about business problems

and its complexities.

To study the dynamic behaviour of the

external environment.

Need to Scan the business Environment

International events , influence and

pressure.
Economic policies Profitability concept Maximum utilisation of resources. Scientific and technical changes

Techniques of Environment scanning

A business unit has to monitor key macro

environmental forces (economic, technological, political-legal, and socialcultural) and significant micro environmental factors (customers, competitors, suppliers) that affect its ability to earn profits

PESTL. Porters Five Force Model. BCG Matrix

Industry Analysis

Industry
A group of firms producing a similar product or service, such as soft drinks

Poters Five force Model

Bargaining Power of Suppliers

Suppliers are likely to be powerful if: Supplier industry is dominated by a few firms Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product Suppliers products are differentiated Suppliers products have high switching costs Supplier poses credible threat of forward integration

Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Bargaining Power of Buyers

Buyer groups are likely to be powerful if: purchases are large relative to sellers sales Products are undifferentiated Buyers compete with the supplying industry by:

Buyers face few switching costs

* Bargaining down prices * Forcing higher quality

Buyer has full information Buyer presents a credible threat of backward integration

Threat of Substitute Products

Products with similar function limit the prices firms can charge

Example:

Electronic security systems in place o security guards

Fax machines in place of overnight m delivery

Threat from New Entrant

Economies of Scale . Product differentiation.

Rivalry Among Existing Competitors

Cutthroat competition is more likely to occur when: Numerous or equally balanced competitors Slow growth industry

Lack of differentiation or switching costs

High exit barriers

BCG Growth Matrix