Post on 08-Apr-2018
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Business Environment and Strategic
ManagementIntroduction
One of the most critical challenges is to cope up with
the environmental dynamics of change which many a
time assumes the nature of turbulence. The business
environment presents two challenges to the enterprise,
viz., the challenge to combat the environmental threats
(such as intensification of competition, decliningmarket etc.) and to exploit the business opportunities.
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Definition
Environmental analysis is defined as "the process bywhich strategists monitor the economic,
governmental/legal, market/competitive, supplier/technological, geographic, and social settings todetermine opportunities and threats to their firms.
"Environmental diagnosis consists of managerialdecisions made by analyzing the significance of thedata (opportunities and threats) of the environmentalanalysis.
Environmental analysis is an essential prerequisite forstrategic management decision-making.
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Just as the life and success of an individual depend on
his innate capability, including physiological factors,
traits and skills, to cope with the environment, the
survival and success of a business firm depend on itsinnate strength resources as its command,
including physical resources, financial resources, skill
and organization and its adaptability to the
environment.
Types of Business Enterprise
Every business enterprise, thus, consists of a set of
internal factors and is confronted with a set of externalfactors.
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The internal factors are generally regarded as
controllable factors because the company has control
over these factors; it can alter or modify such factors
as its personnel, physical facilities, organisation andfunctional means, such as marketing mix, to suit the
environment.
The external factors, on the other hand, are, by andlarge, beyond the control of a company. The external
or environmental factors such as the economic factors,
socio-cultural factors, government and legal factors,
demo-graphic factors, socio-cultural factors,government and legal factors, demo-graphic factors,
geo-physical factors etc., are, therefore, generally
regarded as uncontrollable factors.
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Internal
Environment
Business
Decision
External
Environment
Types of Business Environment
Value System
Mission and Objectives
Management Structure and Nature
Internal Power Relationship
Human Resources
Company Image and Brand EquityOther Factors
Micro Environment
Suppliers
Customers
Competitors
Marketing
IntermediariesPublics
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Internal Environment
Value System
The value system of the founders and those at thehelm of affairs has important bearing on the choice of
business, the mission and objectives of the
organisation, business policies and practices. It is a
widely acknowledged fact that the extent to which thevalue system is shared by all in the organisation is an
important factor contributing to success.
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Mission and Objectives
The business domain of the company, priorities,direction of develop-ment, business philosophy,business policy etc., are guided by the mission and
objectives of the company.
Management Structure and Nature
The organizational structure, the composition of theBoard of Directors, extent of professionalisation ofmanagement etc., are important factors influencingbusiness decisions.
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Internal Power Relationship
Factors like the amount of support the top
management enjoys from different levels of
employees, shareholders and Board of Directors have
important influence on the decisions and their
implementation .Human ResourcesThe characteristics of the human resources like skill,quality, morale, commitment, attitude etc., could
contribute to the strength and weakness of anorganisation. Some organizations find it difficult tocarry out restructuring or modernization because ofresistance by employees whereas they are smoothly
done in some others.
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Company Image and Brand
Equity
The image of the company matters while raisingfinance, forming joint ventures or other alliances,soliciting marketing intermediaries, entering purchaseor sale contracts, launching new products etc. Brandequity is also relevant in several of these cases.
Other Factors
Physical Assets and FacilitiesR & D and Technological CapabilitiesMarketing Resources
Financial Factors
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External Environment
Micro Environment
It is now unquestionably accepted that the prospects
of a business depend not only on its resources but
also on the environment. An analysis of Strengths,
Weaknesses, Opportunities and Threats (SWOT) isvery much essential for the business policy
formulation.
Suppliers
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Customers
The choice of the customer segments should be made
by considering a number of factors including therelative profitability, dependability, stability of demand,growth prospects and the extent of competition.
Competitors
This competition among these products may bedescribed as desire competition as the primary task
here is to influence the basic desire of the consumer.The competition among such alternatives whichsatisfy a particular category of desire is called generic
competition.
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In other words, there is a product form competition.
Finally the consumer encounters the brandcompetition i.e., the competition between the different
brands of the same product form.
Marketing Intermediaries
The immediate environment of a company mayconsist of a number of marketing intermediaries whichare "firms that aid the company in promot-ing, sellingand distributing its goods to final buyers.
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Publics
A company may encounter certain publics in itsenvironment. "A public is any group that has an actual
or potential interest in or impact on an organisation's
ability to achieve its interests". Media publics, citizens
action publics and local publics are some examples.
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MACRO
ENVIRONMENT
ECONOM
IC
FACTOR
S
INTERNATION
AL
FACTORS
SUPP
LIER
SMICRO
BUSINESS
ENVIRONMENT
DEMOGRAPHIC
FACTORS
NATURA
L
FACTOR
S
MARKETING
INTERMEDIARIES
PUBLICS COMPETITORS
S
OCIO
CULT
URAL
FACTO
RS
POL
ITICAL&
GOVTFACTO
RSCUSTOMERS
Internal
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Macro Environment
Economic Environment
Economic conditions, economic policies and the
economic system are the important external
factors that constitute the economic environment
of a business.1. The economic conditions of a country - for
example, the nature of the economy, the stage of
development of the economy, economic resources,
the level of income, the distribution of income and
assets, etc. are among the very important
determinants, of business strategies
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2. The economic policy of the government, needless
to say, has a very great impact on business. Some
types or categories of business are favorablyaffected by government policy, some adversely
affected, while it is neutral in respect of others.
The scope of private business depends, to a largeextent, on the economic system. At one end, there
are the free market economies or capitalist
economies, and at the other end are the centrally
planned econo-mics or communist countries. In
between these two are the mixed econo-mies.
Within the mixed economic system itself, there are
wide variations
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Countries like the United States, Japan, Australia,
Canada and member countries of the EEC are
regarded as market economies.
China, East Germany Soviet Union, Czechoslovakia,
Hungary, Poland, etc., had centrally planned
economies. However, recently several of thesecountries have discarded communist system and
have moved towards the market economy.
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Political and Government Environment
Therefore a considerable part of the attention of a the
Chief Executive and his senior colleagues has tobe devoted to a continuous dialogue with various
government agencies to ensure growth and
profitability within the framework of controls and
restraints.
The differences in language sometimes pose a
serious problem, even necessitating a change in
the brand name. Preett was, perhaps, a goodbrand name in India; but it did not suit in the
overseas market;
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and hence it was appropriate to adopt 'Prestige' for
the overseas markets. Chevrolet's brand name
*Nova' in Spanish means "it doesn't go". InJapanese, General Motors' "Body by Fisher"
translates as corpse by Fisher". In Japanese,
again, 3M's slogan "sticks like crazy" translates as
"sticks foolishly". In some languages, Pepsi-Cola'sslogan "come alive" translates as "come out of the
grave.
The values and beliefs associated with colour varysignificantly between different cultures. Blue,
considered feminine and warm in Holland, is
regarded as masculine and cold in Sweden.
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Green is a favorite color in the Muslim world; but in
Malaysia, it is associated with illness. White
indicates death and mourning in China and Korea;but in some countries, it expresses happiness and
is the color of the wedding dress of the bride. Red
is a popular color in the communist countries; but
many African countries have a national distaste forred color.
There are also a number of demographic factors, such
as the age and sex composition of population,family size, habitat, religion, etc., which influence
the business.
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Demographic Environment
While dealing with the social environment, we must
also consider the social environment of the
business which encompasses its social respon-
sibility and the alertness or vigilance of the
consumers and of society at large.
Demographic factors like the size, growth rate, age
composition, sex composition, etc. of the
population, family size, economic stratification of
the population, educational levels, language,
caste, religion etc. are all factors which are
relevant to business.
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Natural Environment
Geographical and ecological factors, such as natural
resource endowments, weather and climatic
conditions, topographical factors, locational
aspects in the global context, port facilities, etc.,
are all relevant to business.
Physical and Technological Environment
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International Environment
The international environment is very important from
the point of view of certain categories of business.It is particularly important for industries directly
depending on imports or exports and import-
competing industries. For example, a recession in
foreign markets, or the adoption of protectionistpolicies by foreign nations, may create difficulties
for industries depending on exports. On the other
hand, a boom in the export market or a relaxation
of the protectionist policies may help the export-oriented industries. A liberalization of imports may
help some industries which use imported items, but
may adversely affect import-competing industries.
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Environmental Change
Business environment is dynamic. Many elements in
the environment undergo changes. Technological
changes are frequent. Tastes and the preferences of
the people change. The competitive situation changes.
Demographic factors, including population size,
change.Altitudes and value systems undergo changes.Economic factors, like income, change continuously.
Government policies and regulations also change to
cope with the changing environment.All these factors
indicate that a business policy should be dynamicenough to be successfully adaptable to the changing
environment. The success of a business depends on
its ability to foresee the environmental changes and to
modify its business strategies appropriately
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Techniques for Environmental Analysis
Verbal and written information
Search and scanning
Spying
Forecasting and formal studies
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Strategic Management
An analysis of SWOT (i.e., strengths and weaknesses
of the company and the opportunities and threats inthe environment) plays a very important role in the
strategic management process or the formulation of
business policy. A look at the strategic management
process would make the importance of the external-internal factors nexus more clear.
Glueck defines strategy as a "unified, comprehensiveand integrated plan relating the strategic advantages
of the firm to the challenges of the environment. It is
designed to ensure that the basic objectives of the
enterprise are achieved
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Strategic management is defined as that set of
decisions and actions which leads to the developmentof an effective strategy or strategies to help achieve
corporate objectives.
Chandler describes strategic management as the
determination of the basic long-term goals and
objectives of an enterprise and the adoption of
courses of action and allocation of resourcesnecessary to carry out these goals.
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Strategic management or business policy is the means
to achieve the objectives. Strategic managementprocess involves ascertaining the objectives, analysis
of the environmental opportunities and threats and
appraising the strengths and weaknesses of the firm to
tap the opportunities or to combat the threats,formulating strategies to achieve the objectives on the
basis of the SWOT analysis, choosing the most
appropriate strategy, implementation of the strategy
and reformulation of the objectives or strategy, ifneeded
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Formulation of
Objectives
SWOT
Analysis
Consideration of
Strategic
Alternatives
Choice of
StrategyImplementation Evaluation
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A strategy is, in fact, a means to achieve the ends or
objectives. Objectives should not be static, they should
be dynamic.
To formulate clear objectives, it is essential to get
definite answers to certain questions, viz., "what
business the company is in?" "What should the
company's business be?" "What will the company'sbusiness be?"
Environmental analysis will help find answer to the
question what should the company's business be?. If
'what should be the business' is different from 'what isthe business', there is certainly a need for redefining
the business, matching the company resources to the
environment.
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Identification of the threats and opportunities in the
environment and the strengths and weaknesses of the
firm is the cornerstone of business policy formulation;
it is these factors which determine the. course/coursesof action to ensure the survival and/or growth of the
firm.
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A company which plans to market its products in
foreign markets may have the following
alternatives:
1. Manufacture the product completely in the home
country and export it to the foreign market.
2. Establish manufacturing facility in a free area like
an export processing zone and make exports fromthere.
3. Establish manufacturing facility in the foreign
country and undertake the complete manufacturing
of the product there.
4. Manufacture the components at home and
assemble the product in the foreign market.
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Implementation
A good strategy is not a sufficient condition for
success; its effective implementation is equally
important. Many good strategies fail to achieve the
results because of poor implementation. It isnecessary to formulate a detailed plan to achieve
the objectives by means of the chosen strategy.
The term implementation is used in a broad sense
so that it encompasses also the formulation of theplan to implement the strategy.
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In a multi-unit business, formulation of different levels
of strategies is an essential and important aspect
of implementation. There are three levels-of
strategies applicable to such a business.
Corporate Level Strategy:This is the master strategyto achieve the overall corporate objectives. The
other levels of strategies are designed to
implement the corporate strategy and they are,
therefore, formulated with reference to the
corporate strategy.
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SBU Level Strategy:It is the strategy to achieve the
specific objectives of the strategic business unit
(SBU) so as to help achieve the overall corporate
objectives. A SBU is an operating division of a firm
which serves a distinct product/market segment or
a well-defined set of customers or a geographicarea. The SBU is given the authority to make its
own strategic decisions within corporate guidelines
as long as it meets corporate objectives. The SBU
is also known as operating division.
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Functional Level Strategy:
The task of implementation involves mobilization and
deployment of resources, including personnel,
needed for implementation, organizing and
assigning tasks to the various elements of the
organization. For effective implementation of the
strategy it is essential to formulate an
implementation strategy.
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Evaluation
Evaluation of strategy is that phase of the strategic
management process in which the top managersdetermine whether their strategic choice as
implemented is meeting the objectives of the
enterprise
Failure to achieve the results may arise from any one
or more of the following:
1. Improper implementation of the strategy.
2. Environmental changes which were not anticipatedwhile formulating the strategy.
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3. Inappropriate strategy.
Improper implementation of the strategy may be due to
a) inappropriateness of the implementation strategy.b) inefficiency and/or lack of commitment of the
personnel in charge of implementation.
c) wrong assignment of the tasks; ord) inadequacy of resources.
Environmental changes such as increase in
competition, changes in consumer preferences or
altitudes, technological changes which could not
be anticipated while formulating the strategy etc.
may come in the way of achieving the results.
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Conclusion
The key to business success is the most effective
utilization of the company's resources (resourceshere mean not only the existing resources but also
the additional resources it can mobilize and
augment for any specific task). This involves the
evaluation of the company's strengths andweaknesses in the light of the environmental
threats and opportunities and taking appropriate
measures to harness the opportunities or to
combat the threats and formulation of strategies
accordingly.