ENVIRONMENT

CONTEXT OF
MANAGEMENT
Chapter – 4
BBS – I
Principles of Management

1
Business Environment Concept
• There is no escaping the environment.
• Environmentis the circumstances, objects, events or conditions in
which someone is surrounded.
• Business environment is the sum total of all the internal and external
forces that directly or indirectly affects the operation of a business or
organization.
• The internal environment composes of conditions and forces within
the organization.
• Theexternal environment consist of everything outside the
organization’s boundary that affects/might effect the organization.
2
Business Environment Concept
• Environment play a very important role in the activities of any
organization.
• It determines the effectiveness and success of an organization.
• It also compels organization to do certain things for its
adaptation to the environment and its existence.
• An organization which cannot comprehend the environment in
which it operates faces failure.
• Hence, study of the environment and its forces is important for
success of any organization.
3
Organization-Environment Relationship
• Organization function and activities interact with the environment it operates
in.
• Organization is effected by and effects the environment in which it operates.
• There is inter-relationship between the environment and the organization.
• Organization is composed of a system involving input-process-output and
feedback.
• Organization receives input from the environment and gives its output to the
environment.
• Hence there is a complex and continuous relationship of organization and
environment.

4
 Organization-Environment Relationship
Simpl
Degree of homogeneity

Least Uncertainty Moderate Uncertainty

Moderate Uncertainty High Uncertainty

Comple
x

Stable Dynamic
Degree of Change 5
Organization-Environment Relationship
Importance:
• To maintain dynamism through continuous adaptation to environmental changes.
• To foster strategic thinking in the organization.
• To identify the opportunity and threats to the organization.
• To understand and form pressure groups for influencing the laws and government
policies on favor of business and organizations.
• To learn what competitive organizations are doing and accordingly develop
strategic plan.
• To enable organizations to foresee the impact of environmental changes and its
stability.

6
 Those factors
Internal
within the control
Environment
of organization
Types of Business Task
Environment Environment
Those factors
External outside the
Environment control of
organization
General
Environment

7
 Internal
Environment
Components

Organizations
Organizational Organization Organization
Goals and Other Factors
Resources Structure Culture
Principles

8
Components of Internal Environment

1. Organizational Resources
• Human resources, technology, capital, information,
financial resources.
• Human resources utilize all the other resources and
manage environment.
• Proper training and development required to formulate
plans and policies to coordinate all other resources
effectively
9
Components of Internal Environment

2. Organizational Structure
• Composed of framework that dictates organization’s roles,
rules, hierarchy, authority and responsibility relationships.
• Also includes interrelationship of different department and
units, groups and individuals.
• Formal and informal organization structure also has an
impact in the organization’s success.

10
Components of Internal Environment

3. Organization Culture
• Culture is the shared norms, beliefs and values that guide behavior
in organization.
• Culture provide shape to the overall organization’s effectiveness.
• It also provides guidelines to the new entrants about the
acceptable activities in organization.
• It has a powerful impact in the goals, objectives, function, change
and decision making.

11
Components of Internal Environment

4. Organizational Goals and Principles

• Goals are the desired outcome of an organization and
principles are the guidelines for achieving those goals.
• Every activity of an organization is conducted within the
framework of the goals.
• Organization goals, objectives, policies dictates the type
of relationship organization has with the environment.

12
Components of Internal Environment

5. Other Factors
• Trade unions and their activities.
• Shareholders.
• Communication system.
• Nature of products (goods and services)
• Size of organization.
• Leadership style.

13
 *Customers
*Suppliers and Distributors
*Financial Institutions
Task Environment *Interest and Pressure
Groups
*Government
*Competitors
External Environment

*Economic
*Political
General Environment *Socio-cultural
*Technology

14
External Environment
1. Task Environment
• The environment that impacts the task or activities of the
organization.
• It includes different stakeholders like customers, suppliers,
competitors, financial institutions, distributor and other interest
groups.
• They impact organization environment positively or negatively.
• Organization can control the task environment to some extent.

15
Components of Task Environment

1. Customers
• They are the main focus of organization.
• Most of the organization exist to serve its customers in one form
or the other.
• As taste, preference, wants, desires, interest of customers
change, organization should also change its products to satisfy
them.
• Customers can be used as effective source of information for
innovation of products and bringing change in organizations. 16
Components of Task Environment

2. Suppliers and Distributors

• Suppliers are those who provide resources and raw materials to the
organization.
• Distributors supply the finished goods and services to the customers of
organization.
• Healthy and long-lasting relationship with both these stakeholders are
important for organization success.
• The strength of these stakeholders affects the operation and management
of an organization.
17
Components of Task Environment

3. Financial Institutions
• Financial institutions are the arrangement where there is pool of
savings which can be used as capital and financial resources for
organizations.
• They also provide payment and other services vital for the
smooth functioning of organization.
• These services have short as well as long term impact to
organizations.
18
Components of Task Environment

4. Interest and Pressure Groups

• There are several interest and pressure groups surrounding an
organization.
• They advocate in favor of customers, society, environment and other
stake holders.
• The topics cover quality of goods and services, their price, environmental
protection, human rights, wastage management and the like.
• Such group create pressure to the organization to make decision on the
favor of things they are fighting for.
19
Components of Task Environment

5. Government
• Government is the maker of rules, regulations and acts that
directly and indirectly impact an organization.
• Government policies like liberalization, privatization, taxation,
centralization, fiscal and monitory policies, licensing, transfer
payments etc. have huge impact in organization’s operation.
• These are the important aspects of business and organizations.

20
Components of Task Environment

6. Competitors
• Competition helps to create pressure in the organization to increase their
impact, efficiency and effectiveness in the market.
• Competition is inevitable part of an organization’s environment.
• Organizations become complacent without competition.
• Competition helps to decrease price while increasing quality of goods and
services.
• Managers should be able to understand the level of competition, potentiality
to increase competition and make business policies accordingly.
21
External Environment
2. General Environment
• It is the set of broader forces in organization’s surrounding.
• These forces are located outside the organization and cannot be
controlled by the organization.
• They continuously influence the organization activities and impact
every business in similar fashion.
• The major general environment are economic environment, political
environment, socio-cultural environment and technological
environment.

22
 General
Environment

1. Economic 2. Political 3. Socio-cultural 4. Technology

Environment Environment Environment Environment

23
1. Economic Environment
• Economic environment of an organization is the overall health
and vitality of the economic system in which the organization
operates.
• An organization is largely effected by economic system of a
country.
• Particularly
important economic factors for business are general
economic growth, inflation, interest rates, unemployment,
monetary and fiscal policies, role of private and public sectors,
business cycle, capital etc.

24
 A. Economic System

B. Economic Policy
1. Economic Environment
Components
C. Economic Condition

D. Globalization

25
Components of Economic Environment

A. Economic System
• Three models of economy in the world – capitalism, socialism and
mixed.
• Capitalism = open economy
• Socialism = closed economy
• Mixed = some components of open and close economy
• These economic system has some positive and negative impact in
the operation and existence of organization.
26
Components of Economic Environment

B. Economic Policy
• National policies are the course or principles of action adopted or
proposed by the nation.
• These policies directly or indirectly impact the operation of business.
• Fiscal policy, monetary policy, commercial policy, industrial policy,
labor policy, technology transfer policy, foreign investment policy,
trade and transit policy, employment policy etc. are important policies
for business organization.

27
Components of Economic Environment

C. Economic Condition
• Economic condition is the state of economy of a country.
• Indicators of economic conditions provide important insights to investors and
businesses.
• Investors use indicators of economic conditions to adjust their views on
economic growth and profitability.
• Economic growth rate, purchasing power, per capita income, size and nature of
economy, business cycle, availability and development of capital, infrastructure
development etc. are important factors that impact organizations.

28
Components of Economic Environment

D. Globalization
• Globalization and international environment also effects
organization’s economic environment.
• Inflation and economic growth rate of other countries and
international market affects organization environment.
• WTO, SAFTA, EU, IMF, WB, ADB and other international
organization have huge impact in the operation of
business/organizations.
29
2. Political Environment
• The political–legal dimension of the general environment consists of
government regulation of business and the relationship between business and
government.
• It includes constitution of a country, political system, separation of power,
government-business relationship, international political events and other
factors.
• This dimension is important for three basic reasons.
• First, the legal system partially defines what an organization can and cannot do.
• Second, pro- or anti-business sentiment in government influences business activity
• Finally, political stability has ramifications for planning. No business wants to set up
shop in another country unless trade relationships with that country are relatively
well defined and stable.

30
 A. Constitution of a
Country

B. Political System

C. Separation of
power
2. Political Environment
Components
D. Government
Business Relationship

E. International
Political Events

F. Others
31
Components of Political Environment

A. Constitution of a Country
• Constitution presents the fundamental rights of people.
• It sets power and limitation of its citizens.
• It also says what a citizen can do and cannot do.
• It is the basic and the most important legal document of
a country.

32
Components of Political Environment

B. Political System
• Political system of a country affects the general activities of an
organization.
• It consists of ideologies, political parties, their roles, election system, role
of political institutions etc.
• These factors play a significant role in formulating, and changing laws,
rules, regulations and policies.
• An efficient and stable political system inspires growth of organizations.

33
Components of Political Environment

C. Separation of Power
• Political system is comprised of three major branches: legislature, executive
and judiciary.
• Legislatures = creation of laws, rules and regulations – approves budgets,
indirectly controls government and also amends constitution when
necessary.
• Executive = handles day to day activities of a country.
• Judiciary = Ensures implementation of laws and rules as set by legislature.
• All these activities affect organization.
34
Components of Political Environment

Government-Business
D. Relationship
• They have interrelated relationship meaning, one effect and is affected
by the other.
• Business organizations help government by supporting their activities.
• Government help business by setting the basic framework for
operation, development of infrastructure, and other facilities.
• Government plays a vital role in encouraging or discouraging any type
of business in the country.

35
Components of Political Environment
E. International Political Events
• International political events and decisions have huge impact in operation of an
organization.
• Political system of the neighboring country, international political incidents,
international laws and regulation impact the operation of businesses throughout the
world.
F. Other Factors
• Judicatory system of a country.
• Role of political parties.
• Political Stability.
• Condition of political and human rights.
• Influences organizations.
36
3. Socio-Cultural Environment
• Organizations are established in society and the people in the society form
certain type of culture.
• Hence, organization has to deal with the socio-cultural aspect of its
environment.
• It is composed of social institutions, attitudes and believes, religion,
language, culture, education level, class system, desire expectation, values,
norms etc. of people.
• An organization cannot operate against the socio-cultural realities.
• Activities of an organization are effected by problems of poverty and literacy,
family system, culture, religion, life styles etc.

37
 A. Social Institutions

B. Demographic Factor

C. Attitude and Belief

3. Socio-Cultural
Environment Components
D. Religion and Language

E. Social Class

F. Others
38
Components of Socio-Cultural
Environment

A. Social Institutions
• Family is one of the social institution based on kinship.
• Structure and process of social institution can affect organization.
• Sports club, music groups, local clubs, etc. are some of the examples of
social institution.
• They reflect what has been changing in the social and economic factors.
• These changes helps and shapes the organization structure and its
functioning.

39
Components of Socio-Cultural
Environment
B. Demographic Factors
• Demographic forces are composed of age, race, cast, gender, etc. of people living in the society.
• These are important factors for the operation of the business and organizations.
• They dictate what the organization should focus on and how and what activities are carries out
in organizations.

C. Attitudes and Beliefs

• Attitude is the way of thinking about different thing in the surrounding.
• Beliefs are the descriptive thoughts about something based on opinion, knowledge or faith.
• Organization is highly affected by the attitude and belief of its customers, employees and other
stake holders.

40
Components of Socio-Cultural
Environment
D. Religion and Language
• Religion is the major factor influencing attitudes, beliefs, social norms, ethics, motivations and
culture.
• Culture, festivals and language are inter related and largely dictate the social activities of individuals
and organization.

E. Social Class
• It is a rank within the society determined by its own members within the society.
• There are many social class among which upper class, middle class and lower class in one of them.
• People of same class have similar values, opinion, behavior, taste, preferences and purchasing
power.
• So organization should understand its targeted class to become successful.

41
Components of Socio-Cultural
Environment

F. Others
• Style of society.
• Literacy rate.
• Superstitions.
• Cast system.
• Technological adaptation.
• Trends, etc.
42
4. Technology Environment
• Technologies are any methods or processes available for converting
resources into products or services.
• Although technology is applied within the organization, the forms and
availability of that technology come from the general environment.
• The rapid infusion of the Internet and web-based technologies into all areas
of business also reflects the technological dimension.
• Another recent advancement is the rapid growth of integrated business
software systems.

43
4. Technology Environment
• New modes of communication, ranging from social network sites like
Facebook and Twitter to hardware like smartphones and the iPad, are also
influencing businesses in many different ways.
• Technology advancement helps in increasing efficiency and effectiveness of
organizations.
• The major components of technology environment are level of technology,
pace of technological change, acquisition or making policy, technology
transfer policy, and ICT.

44
 A. Level of Technology

B. Pace of Technological
Change

4. Technology C. Acquisition or Making

Environment Components Policy

D. Technology Transfer
Policy

E. ICT
45
Components of Technological
Environment
A. Level of Technology
• Level of technology used differs as per the organization.
• It depends upon the size, nature and economic condition of an organization.
• Organizations can choose labor intensive or machine based or robotic technology.
• It also depends upon skill level of HR as well as capital availability.

B. Pace of Technological Change

• Once investment in technology is made, it cannot be changed rapidly.
• It requires not only capital, but human and time resource to properly handle a technology.
• Changing technology rapidly means huge burden to time, HR and capital of company.

46
Components of Technological
Environment

C. Acquisition or make policy

• Organizations have choice to make their own technology or procure them
from the market.
• Both these options have their own advantages and disadvantages.
• Making or developing machine in house requires huge investment in
research, development and trial and errors.
• Purchasing machine means adapting to what is available in the market
rather than making machines to adapt to the organization environment.

47
Components of Technological
Environment
D. Technology Transfer Policy
• Technology can be transferred from one country to another but FITTA can play a major role in it.
• There are many considerations, limitations and legal criteria for transfer of technology from abroad.
• Methods of transferring technology includes FDI, globalization, strategic alliances, technical
assistance, licensing, franchising etc.

E. ICT
• Information and communication technology is one of the rapidly growing tech in the world.
• It has a significant impact on an organization is operated.
• Processing, storage and transmission of data has become fast, secure, and efficient by the use of
ICT.

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Environment Scanning
• Environment scanning is the process of collecting business related
information from the environment.
• It is accumulating internal and external environmental factors that have
direct and indirect impact, short-term and long-term impact, operational
and strategic issues in the organization.
• Environmental scanning facilitates managers to identify current situation,
forecasting the future, and determine future direction of the organization.
• Environmental scanning is also used for formulating and altering a strategy.

49
Vital Information for Environment
Scanning
• Entire industry and its operating environment.
• Current level of services and how they might evolve.
• Current customers and how their expectations might change.
• Tangible and nontangible issues that might affect the employees and
workforce.
• Emerging and conversing technologies.
• Emerging shifts in normal operation of business.

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Environmental Scanning Importance
Since organization exist in the environment, its scanning is vital for existence
of organization.
Importance of environmental scanning can be highlighted as under:
1. SWOT Analysis
2. Optimal Use of Resources
3. Helps in Decision Making
4. Growth and Stability of Business
5. Business Strategy Formulation
51
Environmental Scanning Importance
1. SWOT Analysis
• Strength, weakness, opportunity, and threat analysis.
• Strength and weakness comes from internal environment.
• Opportunity and threat comes from external environment.
• It is a close analysis of internal and external environment for obtaining valuable
information about elements that supports and obstruct organization growth.

52
1. SWOT Analysis: Internal Analysis

A. Strength
• Those internal factors that enable organization for
competitiveness.
• Sufficiency and well management of factors of production or
resources provide strength to organizations.
• These strengths are necessary to grab market opportunities.
• Level of strength helps to estimate the productivity, efficiency,
effectiveness and growth of the organization.
53
SWOT Analysis: Internal Analysis

B. Weakness
• Deficiency and miss-management of factors or production or
resources provide weakness to organization.
• Lack of strength may lead to weakness of organizations, however
availability of strength doesn’t necessarily mean absence of
weakness.
• Weaknesses hinder the growth of organization as well as
decrease its competitiveness.
54
SWOT Analysis: External Analysis

C. Opportunity
• Opportunity is simply a chance for organizational growth, benefit
and stability.
• It is all the favorable situation that external environment provide
to the organization.
• By optimal use of organization strength, organizations can grab
opportunities from the environment.

55
SWOT Analysis: External Analysis

D. Threat
• It is the situation of hazard or risk to the organization that is posed by
external environment.
• It may arise due to weakness or organization or unfavorable change in
external environment.
• There may be single threat or multiple threat to the organization.
• Soft or lower level threat may hinder organizational growth whereas
higher level threat may lead to shut-down of organization.

56
2. Optimal Use of Resources
• Organization can get valuable information from environmental analysis.
• These information can be used for opportunity and threat analysis.
• Organization can capitalize on their opportunities and work on minimizing
their threats.
• They can do that by formulating appropriate strategies and action plan to tap
in opportunities and get stronger against threats.
• Environmental analysis helps organization in the optimal use of scarce
resources.

57
3. Helps in Decision Making
• Decision making is the act of choosing right alternative for the future course of
actions.
• The adequate and accurate information is available, the more effective the
managerial decision.
• Environmental analysis helps management to get more accurate and reliable
information.
• Accurate information on organization’s SWOT helps in making accurate decision on
capitalizing Strengths and Opportunities and minimize Weaknesses and Threats.
• All these allow making decision that facilitates organizational growth and prosperity.

58
4. Growth and Stability of Business
• Environment scanning techniques helps in collecting information regarding changes
in business environment.
• Such information provide valuable insight regarding
• What changes are happening or going to occur?
• When will the changes have highest impact?
• What will be the intensity of the change?
• What will happen to the organization and its operation?

• Based on such information, organization can formulate strategies to navigate the

future business environment.
• These strategies are focused on growth and stability of organization.
59
5. Business Strategy Formulation
• The information from the environmental analysis and SWOT analysis is essential for
formulating effective business strategy for the future.
• These helps in making expansion and contraction strategies for growth and stability
of organizations.
• These information also helps organization to take bold decisions that will have
impact in many years to come.
• Such decision should be based on accuracy and reliability of available information.
• Environment scanning provides such information so that organization can
formulate bold business strategies.

60
Environmental Scanning Methods
1. Exploration 2. Historical 3. Intuitive 4. Scenario
Method Analogy Reasoning Building

5. Cross-Impact 6. Morphological 7. Network

8. Model Building
Matrix Analysis Methods

9. Executive 10. Expert 11. Delphi

Opinion Method Opinion Method Technique
61
Environment Scanning Methods

1. Exploration Method
• In this method, past information are recorded and analyzed to
explore the future dimensions.
• The basic logic of this method is that the future is the
consequences of the past.
• Methods used in exploration: trend analysis, forecasting and
regression analysis.
• Basic assumption: environmental situations remain as previous.
62
Environment Scanning Methods

2. Historical Analogy
• In this method, historical parallels are prepared in order to estimate the
future.
• This method is used if exploration method cannot be used due to
unavailability of the information.
• For example: If a company is trying to work in a new project, it can collect the
historical data of other companies around the word which have carried
similar project in the past and use the projects to develop its own strategy.
• Assumption: historical data is freely and readily available.

63
Environment Scanning Methods

3. Intuitive Reasoning
• In this method, scanner makes environmental analysis based on their
intuition i.e. personal thinking and justification.
• The assumption is that, the person making the intuitive reasoning is so
well versed in their job that they can predict the future movement or
trend in the environment without any direct evidence, data or reasoning.
• For intuitive reasoning, the person should have free thinking without any
constraints.

64
Environment Scanning Methods

4. Scenario Building
• In this method, future is forecasted based on logical and sequential
arrangement of events having cause-and-effect relationships.
• It is more helpful method in more certain environment.
• Scenario building is done in many cases such as arrangement of
stock for festive seasons, prediction of farm production based on
weather situation, or cope with unlikely situations like COVID by
anticipating the consequences of every possible event.
65
Environment Scanning Methods

5. Cross-Impact Matrix
• This method is specially used to forecast the future trend based on two scenarios at a
time.
• Under this method, potential impact of two different scenarios or tend or situations
in one situation is identified.
• This method is especially helpful in identifying the cross-impact of all the possible
future scenarios.
• To forecast in this method, a matrix is prepared which includes a; the possible
scenarios in the 1st column and 1st row of the matrix and the possible impact or
outcome is written in corresponding matrix.
66
Environment Scanning Methods

6. Morphological Analysis
• It is the study of non-quantitative structures of factors and forces that affect business decision making.
• It is a method for identifying, structuring and investigating the total set of possible relationships contained
in a given multidimensional problem complex.
• It allows small groups of subject specialists to define, link, and internally evaluate the parameters of
complex problems for solution and decision making.
• It is applied in strategic planning and decision support in various domains, such as governance of
technological development and modeling the Bioethics of drug redevelopment.
• It is intended to broaden the space of alternatives by systematic search for combinations of attributes and
systematically narrow them down through the results.
• MA provides an “if-then” analysis to identify a range of associated solutions for a problem, in order to test
various inputs against possible outputs

67
Environment Scanning Methods

7. Network Method
• It is a procedure of identifying active factors on a network by employing a feature or
features in a network.
• They are of two types:
• Contingency Tree: A graphical display of logical relationship among environmental
trends that focuses on contingency options in which several alternative outcomes
are possible.
• Relevance Tree: It is different than contingency tree in that it assigns the degree of
importance to the different contingency factors with reference to outcome.

68
Environment Scanning Methods

8. Model Building
• Similar to network method, however relies more on developing mathematical
representations of the environmental phenomena.
• A large number of scenario and outcome are developed based on computer
simulation model.
• Simulation use statistical and computer modelling to investigate the performance of
a business process either for a new situation or to improve an existing set of process.
• Helpful in managing traditional risk associated with change management initiatives.

69
Environment Scanning Methods
9. Executive Opinion
• Executives are top level people in the organization.
• Under this method, these executives present their opinion about the business environment
based on their experience and judgement.
• To balance the views of executives, a panel is formed to give the opinion on a specific field or
topic.

10. Expert Opinion

• Experts are someone who has special experience in a particular field.
• Under this method, experts from outside opinion are asked about the changes in the
environment and forecast them.
• Experts in marketing have better knowledge about market condition and consumer taste and
preference.
70
Environment Scanning Methods

11. Delphi Technique

• The Delphi method is a process used to arrive at a group opinion or
decision by surveying a panel of experts.
• Experts respond to several rounds of questionnaires, and the responses
are aggregated and shared with the group after each round.
• The experts can adjust their answer each round, based on how they
interpret the "group response" provided to them.
• The ultimate result is meant to be a true consensus of what the group
thinks.
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Environment Scanning Process
Scanning
Need Identification

Information Organization and Storage

Information Information Processing Information Information

Acquisition and Synthesizing Distribution Evaluation and Use

72
1. Scanning Need Identification
• Various information from internal and external is required for scanning.
• Thus the 1st thing for scanning is identifying what information and what
segment of information is required from internal and external environment.
• Internal environment, remote and operating environment need to be
assesses to collect the information.
• Issues and problems encountered by the organizations for which scanning
are to be conducted need to be clear.

73
2. Information Acquisition
• After determining what information is necessary, next step is to acquire the
required information.
• Required information are collected from the internal and external environment.
• In this stage, knowledge are normally gathered for accumulation.
• It is a continuous process as information are also collected during storage,
distribution, evaluation and usage phases.
• Depending on the collected information, the information can be readily used or
used for further processing.
• Quality and useful information can be used directly for strategy formulation.

74
3. Information Processing and
Synthesizing
• Synthesizing is the process of combining components or elements to form a
connected whole.
• Hence, in information processing and synthesizing, the acquired information
are processed to make some sense of it.
• In this process, information are verified and classified into most essential,
influential, less essential, and useless categories based on their usefulness
and impact to the organization.
• After synthesizing, the information is ready for distribution, strategy
formulation and modification.

75
4. Information Distribution
• The processed information is distributed to different people, units, level and
departments in the organization as per the need and requirement.
• As all the information is not important for all, considerable care should be
taken while distributing information.
• Management information system, decision support system, customer
relationship management etc. programs store and supply necessary
information to necessary department.
• Many large institutions maintain information center to continuously
process, store and disseminate information in organization.

76
5. Information Evaluation and Use
• Processed information are finally evaluated for the appropriateness to
formulate the strategy.
• Only the appropriate information are used for the purpose.
• This step also provide feedback information to the scanning process.
• It also identifies the scope and need of further information.

77
SWOT Analysis
• Strength – Weakness – Opportunity – Threats
• SWOT is very important for building strategy of a country.
• SWOT is the combination of
• Internal Factors Analysis Summary (IFAS)
• Strategic Advantage Profile (SAP)
• External Factor Analysis Summary (EFAS)
• Environmental Threats and Opportunity Profile (ETOP)

• It presents the information of internal and external environment in structured

form.
78
SWOT Analysis
• It helps in systematically comparing key external opportunities and threats with
key internal strengths and weaknesses.
• By doing so business can formulate the strategies that reflect the best match of
strengths, weaknesses, opportunities and threats.
• It is based on the logic that an effective strategy maximizes a business strengths
and opportunities and at the same time minimizes its weakness and threats.
• The objective of SWOT analysis is to provide framework to reflect the
organizational capabilities to avail opportunities or to overcome threats
presented by the environment.

79
1. Strengths
• It is the basic capabilities of the organization in which it can be used to gain competitive
advantages.
• Examples:
• Well-developed strategy
• Strong financial condition
• Human resource competency
• Strong brand name/image/reputation
• Strong advertising
• Broad market coverage
• Things the an organization does well
• Other qualities that separate organization from competition etc.

80
2. Weaknesses
• It is the basic limitation or constraints of the organization which creates competitive disadvantages.
• Examples:
• Weak marketing plan
• No clear strategic direction
• Weak financial position
• Inadequate human resources
• Obsolete technology
• Loss of brand name
• Raising manufacturing cost
• Things that competitors do better
• Resources limitations
• Unclear unique selling proposition etc.

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3. Opportunities
• It is the favorable condition posed by organization’s external environment which allows
organization to use their strengths in better way.
• Examples:
• Expanding new geographical area/new market
• Diversify the business
• Acquisition of rivals
• Alliance or joint ventures
• Expand core business
• Exploit new technologies
• Serving additional customer group
• Emerging needs for offered products or services
• Press/media coverage of organization etc.

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4. Threats
• It is the unfavorable condition posed by organization’s external environment which causes risk
or damage to the organization position.
• Examples:
• Growing power of customers and suppliers
• Keen competition
• Change in consumer taste, preference and fashion
• Rise of new or substitute product
• Increase in industry rivalry
• Rising labor cost
• Attack on core business
• Negative press/media coverage
• Change in regulatory environment etc.

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 SOCIAL
RESPONSIBILITY AND
ETHICS
Chapter 4 (II)
BBS – I
Principles of Management

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Social Responsibility of Business
• Organizations conduct their activities within the society.
• Organizations use factors of production and resources from the society.
• Hence, they must bear some obligation for the benefit of the different stake
holders of the society.
• This activity of organization for added benefit to the society is called
responsibility towards the society.
• While bearing social responsibility, organizations make decisions that assure
actions to protect and improve the welfare of the society along with their own
interest.
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Social Responsibility of Business
• R.W. Griffin
• Social responsibility is the set of obligations an organization has to protect
and enhance the societal context in which it functions.

• David and Blomstorm

• Social responsibility is obligation of decision makers to take action which protects
and improves the welfare of society as a whole along with their own interests.

• SR safeguards the interest of stakeholders of the entire society such as

investors, customers, employees, government and community.

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Arguments in Favor of SR
• Social responsibility is the only way to compensate for the problems created by
business in the society.
• Corporations are like citizens in the society, so to become socially responsible is just
like the responsibility of a good citizens.
• Business always use resources of the society to achieve its goals hence, business should
work for the betterment of the society in return.
• Business must bear social responsibility in order to reduce the political risk in the
society.
• Customers have soft spot for the companies that conduct social responsibility. Hence,
organization has no option but to involve in SR activities.

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Arguments Against of SR
• The purpose of business is profit or wealth maximization. SR reduces the
portion of profit of the organizations.
• Involving in social responsibility gives business too much power which
becomes the license for misuse of social resources.
• Business lack the expertise to manage social programs. So, it cannot perform
social responsibility properly.

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89
Approaches of Social Responsibility
• Lowest Level of SR
1. Social Obstruction Approach

2. Social Obligation Approach

3. Social Response Approach

4. Social Contribution Approach • Highest Level of SR

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Approaches of Social Responsibility

1. Social Obstruction Approach

• Managers think there is no reason to bear any social responsibility.
• They are of the opinion that
• Organizations cannot solve social problems hence should not
waste time in it
• SR is waste of time and money of the firm.
• They often cross the legal or ethical boundary of SR and cover up or
deny any legal actions.
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Approaches of Social Responsibility

2. Social Obligation Approach

• Under this approach organization conduct minimum SR that is
required only for formalities and nothing more.
• Managers insist that their job is to generate more profit and
nothing more.
• Hence they try to minimize their expenditure on SR (it is an
expense and thus reduces profit.
• The minimum SR is only for protection from legal obligations.
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Approaches of Social Responsibility

3. Social Response Approach

• Under this approach an organization fulfills its SR to fulfill legal
and ethical requirements but only in selected cases.
• These organizations participate in SR programs only when
organizers and the community has to convince that the program
is worthy of their support.
• These organization want to show that they contribute for the
benefit of the society.
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Approaches of Social Responsibility

4. Social Contribution Approach

• This is the highest degree of social responsibility.
• Organizations following this approach consider themselves as a citizen
of the society.
• They proactively seek opportunities to contribute to the society.
• They believe that social responsibility is just cultivating their business
for future.
• Thus, they contribute maximum as possible amount in social welfare.

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 Consumer

Investors
Responsibility
Towards
Areas of Social
Employees
Responsibility

Government

Community
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Management Ethics
• Let’s answer some of these questions:
• Is it ethical for business houses to bribe electricity authority staff to cut power?
• Is
it ethical for a individuals to bribe electricity connection staff for not reporting leakages in electricity by that
individual?
• Is it ethical for a sales person to bribe a purchasing agent as an inducement to buy?
• Would it make a difference if the bribe came out of the sales rep’s commission?
• Is it ethical for someone to use a company car for private use?
• How about using company e-mail for personal correspondence or using the company phone
to make personal phone calls?
• What ifyou managed an employee who worked all weekend on an emergency situation and you told him to take
off two days sometime later and mark it down as “sick days” because your company had a clear policy that
overtime would not be compensated for any reason? Would that be okay?
• How will
you handle such situations? As managers plan, organize, lead, and control, they must consider ethical
dimensions.

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Management Ethics
• Ethics: Individual’s personal belief regarding what is right and wrong or good or bad.
• Ethical Behavior: Behavior that confirms to generally accepted norms.
• Unethical Behavior: Behavior that do not confirm to generally accepted norms.
• Individual ethics are determined by:
• Family Influence
• Peer Influence
• Life Experiences
• Personal Values
• Moral Factors
• Situational Factors

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Management Ethics
• Managerial ethics are the standard of behavior that guides individual manager in
their works.
• Ethical behaviors of managers are influenced by
• Action of peers
• Actions of top managers
• Organizational culture
• Other internal and external environmental factors

• Decision of managers are largely affected by their ethical standards.

• Their belief, attitude, and entire behaviors, which are guided by ethics, are
responsible for the long-run success of the organization.
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Management Ethics
• Managerial ethics are the standard of behavior that guides individual manager in
their works.
• Ethical behaviors of managers are influenced by
• Action of peers
• Actions of top managers
• Organizational culture
• Other internal and external environmental factors

• Decision of managers are largely affected by their ethical standards.

• Their belief, attitude, and entire behaviors, which are guided by ethics, are
responsible for the long-run success of the organization.
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Management Ethics: Significance

1. How organization treats its employees

2. How employees treat the organization

3. How the organization treats the economic agents

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101
Business Ethics
• Business Ethics: Generally accepted principles, beliefs, conscience and morals.
• It is integrity on actions and beliefs, actions and principles, and action and set
policies.
• Ethics helps to identify what is good and what is wrong.
• This may be different across gender, community, society, culture, religion,
country and sub-groups.
• Business ethics broadly states having right practices that is beneficial to the
consumer and treating them well.

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Business Ethics: Features
• Code of Conduct
1.
• Framework for Business Activities
2.
• Moral and Social Values Based
3.
• Relative Term
4.
• Focus on Protection to Stakeholders
5.
• Voluntary
6.
• Comprehensive
7.
• Completely New Concept
8.

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Business Ethics: Features
1. Code of Conduct
• Code of conduct: set of activities or action to be followed while conducting business.
• It is a list of things regarding what to do and what not to do within business.
• These things are carried on for the welfare of consumers, channel members, society
and the government.

2. Framework for Business Activity

• It provides a basic guideline for doing business.
• It gives socio-cultural, economic, legal and other limits to business activities.

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Business Ethics: Features
3. Moral and Social Values Based
• Business ethics is normally formulated and practiced based on the moral and social values
of business.
• Business ethics serves as a self-control of the business actions.
• The concept of consumer protection, employee welfare, social responsibility etc. are
derived from moral and social values.

4. Relative Term
• Business ethics is relative term.
• It is understood differently in different situations, contexts and by different people.

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 Business Ethics: Features

5. Focus on Protection of Stakeholders

• Business ethics focus on protection of the stakeholders such as consumers, employees, creditors,
channel members, government, shareholders, etc.
• Right and interest of different stakeholders can be protected by conducting ethical activities.

6. Voluntary
• Generally, business ethics is voluntarily developed and practiced.
• However, regulators may prepare code of conducts for regulations.
• Voluntary acceptance enhance the application and following rate of the codes of conducts
and ethics.

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Business Ethics: Features
7. Comprehensive
• Business ethics should be comprehensive meaning it should include all the stakeholders
and related people in the business.
• It should also be acceptable and contributing.
• All related people should be motivated to follow the business ethics.

8. Comparatively New Concept

• Business ethics in relatively new concept.
• It is mostly followed in developed countries.
• Its concept is gaining popularity and wider acceptance.

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Business Ethics: Significance
1. • Prevents Malpractices
• Improves Confidence
2.
3. • Survival and Growth of Business
• Protection of Consumer’s Rights
4.
5. • Develops Good Relation
• Good Organization Image
6.
• Protects Employees and Shareholders
7.
8. • Healthy Competition
9. • Smooth Functioning
10 • Consumer Satisfaction
.
11. • Supportive Employees
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Business Ethics: Significance
1. Prevents Malpractices
• BE prevents malpractices like black-marketing, unnatural price hike, artificial
shortages, adulteration, cheating in weight and measures, selling date expired
products, false commitment, abuse of resources, etc.
• Entire society gets benefitted due to business ethics.

2. Improved Confidence
• It requires considerable confidence and belief in company for customers to
make purchasing decision.
• Customers are more confident to purchase the products of business that
follow ethical practice.
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Business Ethics: Significance

3. Survival and Growth of Business

• Businesses following good business ethics practices generally witness better
consumer retention.
• Reversely, companies not following good business ethics practices find it difficult to
retain customers.
• Research shows that, when customer feels cheated they will share it to 10 people and
when customers are satisfied they share it with 4 peoples.
• Hence, survival and growth of business is highly dependent upon the business ethics
practice followed by the organization.

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Business Ethics: Significance

4. Protection of Consumer’s Right

• Consumer’s right:
• Right to information
• Right to choice
• Right to compensation
• Right to health and safety
• Right to be heard
• Business ethics helps to safeguard these and other rights of customers.

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Business Ethics: Significance
5. Develops Good Relations
• BE follows fair treatment principles to the entire stakeholders and other businesses.
• Entire community takes the business following good BE practices as a good
organization.
• This helps to develop good and friendly relationship between business and society.

6. Good Organization Image

• Community always support the businesses that follow necessary BE.
• Organization following BE are fully accepted by the society.
• Ability of organization to maintain good organization image or goodwill ensures
favorable growth of organization.

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Business Ethics: Significance
7. Protects Employees and Stakeholders
• BE focus on protecting the interest of employees, shareholders, competitors, dealers, suppliers,
customers, government, etc.
• It protects them from exploiting each other through unfair trade practices like cheating, fraud,
competition etc.
• Also, BE compels every participant to adhere to established code of conduct.

8. Healthy Competition
• Following business ethics compels companies to adhere to established code of
conduct.
• This creates fair competition which fosters creativity, innovation, competitive
pricing, affordable services, corporate responsibility, etc.

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Business Ethics: Significance
9. Smooth Functioning
• Treating stakeholders well and giving them priority makes them happy.
• Happy stakeholders completely support the activities of the organization.
• They also work as a volunteer ambassador of the business.
• This helps in smooth functioning of the business.

10. Consumer Satisfaction

• Satisfied consumers are the source of business success.
• BE inspires business to make customers the center of their operation.
• With business ethics, businesses can manage the customer’s expectation at their best
level.

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Business Ethics: Significance

11. Supportive Employees

• Employees are the life blood of organization and play vital role in organization’s
success.
• Through fair treatment in compensation management, growth opportunity,
participation, providing good working environment, incentives plan etc. companies
can improve employee’s satisfaction.
• Satisfied employees put more effort to the organization leading to success of the
organization.

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Important Questions
• “Business is an economic institution operating in socio-political
environment”. Do you agree? Give arguments.
• What is meant by business environment? Discuss the organization-
environment relationship.
• Business can run no longer without management and business ethics. On the
light of this statement explain the concept of management and business
ethics and their significance.

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