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BEP Module 1 notes

The document discusses the business environment, which encompasses internal and external factors affecting a company's operations, including economic, social, technological, political, and legal dimensions. It highlights the importance of understanding these factors for identifying opportunities, assessing risks, and adapting strategies. Additionally, it introduces the PESTEL framework as a strategic tool for analyzing the business environment.

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0% found this document useful (0 votes)
13 views10 pages

BEP Module 1 notes

The document discusses the business environment, which encompasses internal and external factors affecting a company's operations, including economic, social, technological, political, and legal dimensions. It highlights the importance of understanding these factors for identifying opportunities, assessing risks, and adapting strategies. Additionally, it introduces the PESTEL framework as a strategic tool for analyzing the business environment.

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arunsbabu66
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We take content rights seriously. If you suspect this is your content, claim it here.
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NAIPUNNYA SCHOOL OF MANAGEMENT

CHERTHALA, ALAPPUZHA
BBA SEMESTER III – MODULE I NOTES
BUSINESS ENVIRONMENT AND POLICY
BUSINESS ENVIRONMENT
 Business Environment is sum or collection of all internal and external factors such as
employees, customer’s needs and expectations, supply and demand, management,
clients, suppliers, owners, activities by government, innovation in technology, social
trends, market trends, economic changes, etc.
 These factors affect the function of the company and how a company works directly or
indirectly.
 Sum of these factors influences the companies or business organisations environment
and situation.
 The business environment is dynamic and constantly evolving, influenced by both
internal and external forces.
 Understanding and analysing the business environment is crucial for organizations as it
helps them identify opportunities, assess risks, and adapt their strategies accordingly.
 Business environment encompasses the climate or set of conditions, economic, social,
political, or institutional in which business operations are conducted.
DIMENSIONS/COMPONENTS OF BUSINESS ENVIRONMENT
1. Economic Environment:
 It has immediate and direct economic impact on a business.
 Rate of interest, inflation rate, change in the income of people, monetary policy, price
level etc. are some economic factors which could affect business firms.
 Economic environment may offer opportunities to a firm or it may put constraints.
2. Social Environment:
 It includes various social forces such as customs, beliefs, literacy rate, educational
levels, lifestyle, values etc.
 Changes in social environment affect an organization in the long run.
Example: Now a day's people are paying more attention towards their health, as a result of which demand
for mineral water, diet coke etc. has increased while demand of tobacco, fatty food products has
decreased.
3. Technological Environment:
 It provides new and advance ways/techniques of production.
 A businessman must closely monitor the technological changes taking place in the
industry as it helps in facing competition and improving quality of the product.
For Example, Digital watches in place of traditional watches, artificial fabrics in place of traditional cotton
and silk fabrics, booking of railway tickets on internet etc.
4. Political Environment:
 Changes in political situation also affect business organizations.
 Political stability builds confidence among business community while political
instability and bad law & order situation may bring uncertainty in business activities.
 Ideology of the political party, attitude of government towards business, type of
government-single party or coalition government affects the business.
Example: Bangalore and Hyderabad have become the most popular locations for IT due to supportive
political climate.
5. Legal Environment:
 It constitutes the laws and legislations passed by the Government, administrative
orders, court judgments, decisions of various commissions and agencies.
 Businessmen have to act according to various legislations and their knowledge Very
necessary.
Example: Advertisement of Alcoholic products is prohibited and it is compulsory to give statutory warning
on advertisement of cigarettes.
CHARACTERISTICS/ NATURE/ FEATURES OF BUSINESS ENVIRONMENT
1. Totality of External Force Business environment includes all the external forces so it
is aggregative in nature.
2. Specific and General Forces
 Specific forces are those forces which directly affect the operational activities of the
business enterprise. Example: Suppliers, Customers, Investors, Competitors, Financers etc.
 General forces are those forces which indirectly affect the functioning of business
enterprises. Example: Economic, Social, Political, Legal and Technological conditions.
3. Inter-relatedness
 Different forces of business environment are interrelated to each other.
 One component of the business environment affects the functioning of other
components.
 Example: The increased life expectancy of people and awareness of health consciousness has
increased the demand for many health products like diet coke, olive oil, and so many health products.
4. Dynamic Nature
 The business environment is dynamic in nature and keeps on changing in terms of:
a) Technological improvement,
b) Shifts in consumer preferences,
c) The entry of new competition in the market.
 Example: Many established companies in FMCG (Fast Moving Consumer goods) sector are focusing
on producing the goods with natural ingredients with the entry of ‘Patanjali Products’.
5. Uncertainty Business environment is uncertain and these changes are difficult to
predict.
6. Complexity Business environment is difficult to understand.
7. Relativity
 Business environment is a relative concept whose impact differs from country to
country, region to region and firm to firm.
 Example: In China, the electricity to the industry is provided at cheaper rates as the consumption
increases and hence, it leads to mass production whereas, in India, it is otherwise, higher consumption
of electricity leads to costly electricity which results in lower production & higher cost of production.
IMPORTANCE/ SIGNIFICANCE/ RELEVANTS/ ROLE/ ADVANTAGES/ BENEFITS/
NEED/ OBJECTIVES/ AIM/ USE/ PURPOSE OF KNOWING THE BUSINESS
ENVIRONMENT
1. It Benefits in Tapping Useful Resources
 Business environment makes available various resources such as capital, labour,
machines, raw material etc. to a business firm.
 In order to know the availability of resources and making them available on time at
economical price, knowledge of business environment is necessary.
Example: With the demand for the latest technology, manufacturers will tap the resources from the
environment to manufacture LED TVs and Smart TVs rather than collecting resources for colour or black &
white TVs.
2. It Helps in Coping with Rapid Changes
 Knowledge of environmental changes sensitises the management to make new
strategy to copy with the emerging problems of changes.
Example: Jack Ma started Alibaba as he could see huge potential in E-Commerce.
3. Business environment enables the firm to Identify opportunities to get the first
mover advantage:
 The environment provides numerous opportunities, and it is necessary to identify the
opportunities to improve the performance of a business.
 Early identification gives an opportunity to an enterprise be the first to identify
opportunity instead of losing them to competitors.
Example: ‘Airtel’ identified the need for fast internet and took first-mover advantage by providing 4G speed
to its users followed by Vodafone and Idea.
4. It helps the firm to Identify threats and early warning signal:
 Environmental awareness can help managers of an organization to identify various
threats on time and serve as an early warning signal.
For example, Bajaj Auto made considerable improvements in its two wheelers when other companies
entered the auto industry.
5. It helps in assisting in planning and policy formulation:
 Understanding and analysis of business environment helps an organization in
planning & policy formulation.
 An understanding of the business environment helps business managers to make
realistic plans and policies, and also ensure their effective implementation.
For example, ITC Hotels planned new hotels in India after observing boom in tourism sector.
6. It helps in improving performance:
 The enterprise that continuously monitor the environment and adopt suitable
business practices are the ones, which not only improve their performance but also
continue to succeed in the market for a long period.
7. Helps in dealing with the competition:
 In any business, it is important to understand the strategies and policies of the
competitors because without proper understanding of competitors we may lose the
market share to a great extent.
For example, when Jio came into market other telecom service providers did not react immediately and lost
a big market share.
8. Understand the growth opportunity
 When a business interacts with its environment, it becomes easier to identify areas
for growth and expansion of its activities.
 Are consumers moving away from certain goods or services?
 Also, are your competitors offering features that you should include in your products too?
 A firm can get answers to similar questions by tapping into its business environment.
9. Image Building
 The image of a business can improve to a great extent if the organization displays
sensitivity to its environment.
 Also, in order to do so, the business must understand its environment well.
10. Reduce risk
 Understanding and analysis of business environment helps an organization in
reducing risk
TYPES OF BUSINESS ENVIRONMENT
A. 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:
 Mission and objectives of the organization also influences the business decisions
 The Objectives of all the firms is assumed to be Profit Maximization in the long run.
 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 an 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.
B. 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:
a) Micro Environment:
 Micro Environment consists of the factors in the company's immediate environment.
 These factors affect 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 affect 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 competitor’s 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.
b) 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 influence the buying behaviour 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.

ENVIRONMENTAL ANALYSIS IS A STRATEGIC TOOL.


 It is a process to identify all the external and internal elements, which can affect the
organization’s performance.
 The analysis entails assessing the level of threat or opportunity the factors might
present.
 These evaluations are later translated into the decision-making process.
 The analysis helps align strategies with the firm’s environment.
 Businesses are greatly influenced by their environment, so they must constantly
analyse the trade environment and the market.
PESTEL FRAMEWORK
 There are many strategic analysis tools that a firm can use, but some are more
common.
 The most used detailed analysis of the environment is the PESTEL analysis.
 This is a bird’s eye view of the business conduct.
 Managers and strategy builders use this analysis to find where their market
currently.
 It also helps foresee where the organization will be in the future.
 A PESTLE Analysis studies the key external factors (Political, Economic,
Sociological, Technological, Legal and Environmental) that influence an
organisation.
 PESTEL analysis consists of various factors that affect the business environment.
 These factors can affect every industry directly or indirectly.
 P Is for “Political.  E Is for “Economic”.  S Is for “Social”.  T Is for “Technological”.

 E Is for “Environmental”.  L Is for “Legal”.


1) POLITICAL FACTORS
 The political factors take the country’s current political situation.
 It also reads the global political condition’s effect on the country and business.
 Some of the factors considered for analysis are:
 Government policies
 Taxes laws and tariff
 Stability of government
 Entry mode regulations
2) ECONOMIC FACTORS
 Economic factors involve all the determinants of the economy and its state.
 These are factors that can conclude the direction in which the economy might
move. So, businesses analyze this factor based on the environment.
 It helps to set up strategies in line with changes.
 Some of the determinants considered for analysis are:
 The inflation rate
 The interest rate
 Disposable income of buyers
 Credit accessibility
 Unemployment rates
 The monetary or fiscal policies
 The foreign exchange rate
3) SOCIAL FACTORS
 Countries vary from each other.
 Every country has a distinctive mind-set.
 These attitudes have an impact on the businesses.
 The social factors might ultimately affect the sales of products and services.
SOCIAL FACTORS:
 Some of the social factors analysed:
 The cultural implications
 The gender and connected demographics
 The social lifestyles
 The domestic structures
 Educational levels
 Distribution of Wealth
4) TECHNOLOGICAL FACTORS
 Technology is advancing continuously.
 The advancement is greatly influencing businesses.
 Performing environmental analysis on these factors will help you stay up to date
with the changes.
 Technological factors will help you know how the consumers react to various
trends.
 Social media has become a vital part of any business now-a-days.
5) TECHNOLOGICAL FACTORS
 Companies will have to perform this analysis for their benefit. It helps them:
 New discoveries
 Rate of technological obsolescence
 Rate of technological advances
 Innovative technological platforms
6) ENVIRONMENT FACTORS
 The location influences business trades.
 Climatic changes can affect the trade of businesses.
 The consumer reactions to particular offering can also be an issue.
 This most often affects agri-businesses.
 Some environmental factors to be noticed are:
 Geographical location
 The climate and weather
 Waste disposal laws
 Energy consumption regulation
 People’s attitude towards the environment
7) LEGAL FACTORS
 Legislative changes take place from time to time.
 Many of these changes affect the business environment.
 If a regulatory body sets up a regulation for industries, for example, that law
would impact industries and business in that economy.
 So, businesses should also analyze the legal developments in respective
environments.
 Some of the legal factors to be aware of:
 Product regulations  Patent infringements
 Employment regulations  Health and safety regulations
 Competitive regulations

ENVIRONMENTAL AUDIT
 An environmental Audit provides an assessment of the environmental performance of a
business or organization and reveals details about the activities of a company and its
compliance with environmental regulations.
 Audit information is presented to the management team and employees.
 An environmental audit evaluates and quantifies the environmental performance. It
identifies compliance problems or management system implementation issues.
TYPES OF ENVIRONMENTAL AUDITS
1. Environmental Compliance Audits
 The Environmental Compliance Audits are authorised to review the applicant
company’s compliance measures, whether they are being followed in accordance with
the State and National rules and regulations established by the Government of India
and if the compliance measures are legally binding.
2. Environmental Management Audits
 The Environmental Management Audits assist the applicant company in
understanding the procedure of operating their company in accordance with the
Environmental Performance Standards.
3. Functional Environmental Audits
 Functional Environmental Audits are responsible for measuring the consequences of
specific environmental pollution or hazard caused.
 This particular auditing is authorised for investigating specific concern areas such as
evaluation of the monitoring of the maintenance of the air quality, waste management,
etc.
ENVIRONMENTAL AUDIT STEPS
The environmental audit process includes the following steps as a minimum:
1) Planning the audit, including activities to be conducted and responsibilities for each
activity
2) Review the company’s environmental protection policy and the applicable requirements,
federal, state, and local requirements.
3) Assessment of the organization, it’s management, and equipment
4) Gather data and relevant information
5) Evaluate overall performance
6) Identify areas needing improvement
7) Report findings to management
IMPORTANCE/ SIGNIFICANCE/ RELEVANTS/ ROLE/ ADVANTAGES/ BENEFITS/
NEED/ OBJECTIVES/ AIM/ USE/ PURPOSE OF ENVIRONMENTAL AUDITING
1. Provide management with information about the management and performance of the
company’s environment as input for making decisions,
2. Identify risks related to environmental responsibility and take action to implement them,
3. Ensure company operations comply with environmental laws and requirements and, if
not, take necessary corrective actions,
4. Identify environmental management system weaknesses before they cause problems,
5. Develop organizational culture and increase environmental awareness among people
within the company,
6. Identify opportunities for improvement in environmental management and performance
to drive increased efficiency and cost savings,
7. Improve company transparency to stakeholders such as government, customers, and
investors to support long term good relationships with them,
8. Encourage positive publicity by publishing audit results, thereby enhancing the
reputation and image of the company, and
9. Develop marketing strategies and strengthen brand equity, encourage consumers to
remain loyal to the company.

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