Scribd
Upload
31 views19 pages

Indian Business Environment

Indian Business Environment 

Uploaded by

Srujal Parmar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
31 views19 pages

Indian Business Environment

Indian Business Environment 

Uploaded by

Srujal Parmar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
Br ~ Mw on ie NS a” INDIAN BUSINESS ENVIRONMENT UNIT L: INTRODUCTION TO. BUSINESS ENVIRONMENT Understanding the environment within which the business has to operate is very important for running a business unit siccessfutly at any place. Because, the environmental factors influence almost every aspect of business, be it its nature, its Jocation, the Prices of Products, the distribution system, or the personnel policies, Hence itis important to learn about the various components ofthe business environment, which consists ofthe economic aspect, the Socio cultural aspects, the political framework, the legal aspects and the technofogical aspects etc. In this chapter, we shall learr: about the concept of business environment, its nature and Significance and the various components of the environment. In addition, we shall also acquaint ourselves with the concept of social responsibility of busiuess and business ethics. iG OF BUSINESS ENVIR’ NT As stated carlier, the success of every businzss depends on adapting itself to the environment within which it functions. For example, when there is a change in the government Polices, the business has to make the necessary changes to adapt itself to the new policies. Similarly, a change in the technology may render the existing products obsolete, as we have seen that the introduction of computer has replaced the typewriters; the colour television has made the black-and white television out of fashion, Again a change in the fshion or customers” taste may shift the demand in the market for a particular procuct, eg, the demand for jeans reduced the sale of other traditional wear. All these aspects are extemal factors that are beyond the control of the business. So the business units must have to adapt themselves to these changes in order to - survive and succeed in business. Hence, itis very necessary to have a clear understanding of the concept of business environment and the nature of its various components. The term ‘business environment’ connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of a business enterprise, These include customers, ‘competitors, suppliers, goverament, and the social, political, legal and technological factors ete, While some of these factors or forces may have direct influence over the business firm, others may operate indirectly. Thus, business environment may be defined asthe total suroundings, which have a direct or indirect bearing on the functioning of business. It may algo be defined ay the set of extemal factors, such as economic factors, social factors, political and legal factors, demographic factors, technical factors ete., which are uncontrollable in nature and affects the business decisions of a firm. FEATURES OF BUSINESS ENVIRONMENT (On the basis of the above discussion the features of business environment can be summarised as follows (@ Business environment is the sum total of all factors external to the business fitm and that ‘greatly influence their functioning. Page |1 Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT (b) Tt covers factors and sorces like customers, competitors, suppliers, government, and the Sccial, cultura, political, technological and logal conditions, nt is dynamic in nature, that means, it keeps on changing. Nass in busitess environment are unpredctai. is very dffieult to predict the exaei CO nace fuite happenings and the changes in economic and social environment. © Business Environment differs from place to place, region to repion and eaunity 10 country. Fotieal conditions in India differ from those in Palkstan ‘Taste apd values hershed by people in India and China vary considerably. IMPORTANCE OF BUSINESS ENVIRONMENT. ‘Tete is close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources me effectively. As ited above, the business environment is multifaceted, complex, and dynamic in ratore and hes 8 far-rezching impact on the survival and growth of the business. To be move specific, proper Understanding ofthe socal, political, lega and economie environment belpe the business onc following ways: @ Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business ‘enterprises for meeting the challenges successflly, ©) Giving Direction for Growth: The interaction with the environment leads to pening up new frontiers of growth for the business firms. It enables the business to identify the areas for growtin and expansion of their activities, (© Continuous Learning: Environmental analysis makes the task of managers easier in dealing With business challenges. The managers are motivated to continuously update their knowiedge, ‘understanding and skills to meet the predicted changes in realm of businese (8) Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view ofthe shortage of power, many companies have set up Captive Power Plena (CPP) in their factories to meet their own requirement of power. (6) Meeting Competition: It helps the firms to analyse the competitors strategies and formulate their own strategies accordingly. (9 Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view ofthe technological and global developments, Page | 2 PREPARED BY: JAVKISHAN ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT ‘TYPES OF BUSINESS ENVIRONMENT. Confining business environment to uncontrollable external factors, it may be classified as (a) Economic environment; and (b) Non-economic environment. The economic environment includes economi conditions, economic policies and economic system of the country. Non- economic environment compriscs social, political, leyal, technological, demographic and natural environment. All these have a bearing on the strategies adopted by the firms and any change in these areas is likely to have a far-reaching impact on their operations. Let us have a brief idea about each of these areas of business environment, ECONOMIC ENVIRONMENT ‘The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are: (a) Economic Conditions: The economic conditions of a nation refer to a set of economic factors thet have great influence on business organisatiotis and their operations. These include gross domettic product, per capita income, markets for goods and services, availability ot capital, forcign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth. () Economic Policies: All business activitics and operations are directly influenced by the economic policis framed by the government from time to time. Some of the important economic policiss are ’) Industrial policy icy Gv) Foreign investmer policy (¥) Export Import policy (Exim policy) ‘The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario, political expediency and the changing requirement. Every business firm has to function strictly within the policy framework and respond to the changes therein, (©) Economic System: The world econonty is primarily govemed by three types of economic systems, viz., (i) Capitalist economy, (i) Socialist economy; and (ii) Mixed * economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector. NON-ECONOMIC ENVIRONMENT ‘The various elements of non-economic environment areas follow: The social environment of business inchides social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a. society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fais, pag: 13 PREPARED BY: JAYKISHAN ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT Mower, et. Due to increase in literacy rate the consumers are becoming more conscious of the ualty of the products, Duc to change in family composition, more nuclear families with single child concepts have come up. This increases the demand for the different types of household g00ds. It may be noted that the consumption pattems, the dressing and living styies of people belonging to different social structures and culture vary significantly. community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a reat extent. It sends a signal of strength, confidence to various interest gioups and investors. Further, ideology of the political party also influences the business organization and its ‘operations. You may be aware that Coca-Cola, a cold drink widely used even now, had to wind ‘up operations in India in late seventies. Again the trate uiion activities also influence the ‘operation of business enterprises. Most of the labour unions in Ind’a are affiliated to various political parties. Strikes, lockouts and labour disputes ete. also adversely affect the business operations. However, with the competitive business environment, trade unious are now showing feat maturity and started contributing positively to the success of the business organization and its operations through workers participation in management. {o) Legal Environment This refers to set of laws, regulations, which influence the business organisations and their ‘operations. Every business organisation hes to obey, and work within the framework of the law. ‘The important legislations that concern the business enterprises include: ) Companies Act, 1956 ii) Foreign Exchange Management Act, 1999 (Gil) The Factories Act, 1948 (iv) Industrial Disputes Act, 1972 (W) Payment of Gratuity Act, 1972 (vi) Industries (Development and Regulation) Act, 1951 (vii) Prevention of Food Adulteration Act, 1954 (viii) Bssential Commodities Act, 2002 (ix) ‘The Standards of Weights and Measures Act, 1956 (x) Monopolies and Restrictive Trade Practices Act, 1969 (xi) Trade Marks Act, 1999 (xii) Bureau of Indian Standards Act, 1986 (xiii) Consumer Protection Act, 1986 (xiv) Environment Protection Act (xv) Competition Act, 2002 : = Page 14 PREPARED BY: JAYKISHAN ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT Besides, the above legislations, the following are also form prt ot the legal environment of business. (2) Provisions of the Constitution: The provisions of the Articles of the Indian Constitution, particularly disective principles. rights and duties of citizens, legislative powers of the central and state government also influence the operation of business enterprises. Gi) Judicial Decisious: The judiciary has to ensure that the legislature and the government fanction in the interest of the pullic and act within the boundaries of the constitution. The various judgments given by the court in different matters relating to trade and industry also influence the business activities. (@) Technological Environment Technological environment include the methods, techniques and approaches adopted for Production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. For example, in USA and many other Countries electricai appliances are designed for 110 volts. But wher these are made for India, they have to be of 220 volis. In the modem competitive age, the pace of technological changes is Very fast. Hence, in order to survive and grow in the market, 2 business has to adopt the technological changes from time to time. It may be noted that scientific research for improvement and innovation in products and services-is a regular activity in most of the big indusirial organisations. Now a days infact, no finr can afford to persist with the outdated technologies. (©) Demographic Environment This refers to the size, density, distribution and growth rate of population. All these factors have 4 direct bearing on the demand for various goods and services. For example a country where Population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of citics and towns are different than the people of rural areas, The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production, Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such srea. For example, the business units from America, Canada, Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and reads them accurately will find ‘opportunities knocking at its door steps. (QNatural Environment The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, tc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where Page 15 PREPARED BY: JAYKISH AN ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT ing unit near U Sugarcane can be grown. It is always considered better to establish manufacturing uni tea pe sources of input. Further, government's policies to maintain ecological balance, conservation natural resources ete, put additional responsiblity on the business sector. ‘onstituents/Components/Classification of Business Environment Business environment can be divided into two parts: INTERNAL ENVIRONMENT Internal environment involves those forces which are with'n the control of business organization. Production planning, production policies, purchase policies and provision, position of suppliers and its condition, personnel policies and programmes, financial position of business organization tc. are the main components of intemal environment. These forces create weakmess and strength in an organization. Strengths in those forces isa favorable term “or business and it always should try to reduce weakness in intemal environment, Elements of Internal Environment ‘There are different components or clements that form the intemal environment of an organization. They are mentioned below: 4. Organizational goals and policies: Goals are the long term desired outcomes of an organization. They are the end results, All the organizational activities are directed towards the achievement of goals. Profit growth, market growth and social responsibility are some of the goals of a business. Policies are broad guidelines for organizational activites. They bring coordination among the organizational units or department. b. Organizational resources: Resources are the foundation for strategy. They are inputs into firm's production process, such as capital, equipment, employee skills, patents and finance. They unique bundles or resourves ‘generate competitive advantages. Resources may be tangible and intangible. ‘Tangible resources: They can be seen or touched. The following axe some ofthe tangible resources. Financial resources: Fund acquisition capacity, and internal fund generation capacity Organizational resources: Information, structure, formal planning, organizing, control and coordination Physical resources; Layout of machine and equipment and access to raw material faye PREPARED BY: JAYKISHAN ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT Intangible resources: They cannot be seen or touched. Following are some of the intangible resources. Human resources: Knowledge, skill, capability and leadership Innovation resources: Tactics, and innovation capacity Reputational resources: Customer relationship, brand loyalty, quality and reliability © Organizational structure: Organizational structure specifies jobs and relaionship. It defines the job allocation, responsibility and accountability. Clear and swift organizational structure is very important for the implementation of a particular strategy. 4. Organizational culture: The shared value, norms, behavior and belief of an organization is collectively known as organizational culture: It refers to the complex set of ideologies symbols, and core values that are Prevalent throughout the ‘irm. It influences how the firm conducts business. Culture is the social energy that drives the organization, ©. Othe~ internal factor: a: Value “system, mission and objective, ininagement structure and nature, internal power relationship, human resources, company insage and brand equity. B. EXTERNAL ENVIRONMENT External environment includes all those factors which influence business and exist outside the business. Business has no control over these factors. The information about these factors is important for the study of the extemal environment, Some of these factors are those with which a particular comnpany as very close relationship. However, there are some other factors which influence the entire business community. ( Micro Environment (ll) Macro Environment MICRO ENVIRONMENT ‘Micro environment means that environment which includes those factors with which business is closely related. These factors influence every industrial unit differently. These factors are as under: (i) Customers (ii) Suppliers (iii) Competitors (iv) Public (v) Marketing Intermediaries. Page | 7 PREPARED BY: JAYKISHAN ARORA Scanned with CamScanner ~ 2S ee ES REE Oars INDIAN BUSINESS ENVIRONMENT . They include © Customers: Customers of an industrial unit can be of different on aaa type of household, government, industy, commercial enterprises, ete. The num Customers highly influences a firm, S firm h For example, suppose a firm supplies goods only to the government. It ara erie mia Sne customer, If because of some reason ther relations get soured, the supply of et aed in that case the closure ofthat firm is certain, This leary indicates thatthe customers do influence business. Therefore, a firm should make efforts to have different kinds of customers. Gi Suppliers: Like the enstomers, the suppliers also influence business. Ifa business has only one supplier and he gets annoyed bi ceause of some reason, the supply of goods can be stopped and the very seanes ofthe business canbe threatened or endangered. Hence, efforts should be made to have various suppliers. Gi) Competitors: ‘The competing fims ean influence business in a number of ways, They can do so by bringing Ball Shes? Products in the market, by launching some sale promotion scheme or tare similar methods. (iv) Public: Public hes different constituents like the local public, press o media, etc, The attitude or behavior of these constituents can affect business units, For erample, the local population can (PPose some established firm whose business is excessively noisy. Similarly if te media gives some favorable report about a particwlar. company the price of its share can register an increase on this count. (9) Marketing Intermediaries: ‘The marketing intermediaries play a significant role in developing any ‘hose persons who reduce the distance between the pro 'y business unit. They are ducers and agents, For example, a company sell its gaods with the help oF agents and ifhecause of some reason all the agents get annoyed with the company and refuse to sell 8 goods, there can be a crisis for the company. open MACRO ENVIRONMENT r General/Remote/Macro environment The general environment is composed of the factors th tare broad and affect the firms competing each other. The general cnvire * the industries and mament should be Scanned, monitored, Page 18 PREPARED BY: JAVKISHAN ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT to recognize and evaluate forecasted, and assessed to determine their effects on the firm opportunities and threats. The different components of general environment are: * Economic Environment: The economic environment refers to the nature and direction ofthe economy in which a firm competes or may compet. In general, firms seck to compete in relatively stable economy With strong growth potential The state of economic enviconment determines the general health and well heing of an ‘organization. The components of economic environment are; Economic system: It determines the degree of private participation in economy and role of ‘market forces. Thrce type: of economic system are prevalent. They are; Free market economy: It is based or private sector ownership of the factors of production. Centrally planned economy: Its based on public ownership of all the factors of-production. ‘Mixed system: It is based ont co-existing both private and public sectors. Economic policies: ‘They are the economic guidelines of the goverment. They aim at de of different sectors of economy. Some “of the important economie poli Monetary policy: It deals with money supply, interest rates, credit availability and exchange rates. Fiscal policy: It is related to taxation and government expenditure and regulates the level of aggregate economic activity. Industrial policy: It is concerned with industrial licensing, location, incentives, facilities, forcign investment, technology transfer, and nationalization of industries. Economic conditions: ‘They represent economic soundness of a country. They are represented by, Gross domestic product (GDP): Its the broadest measure of a country’s economy. It represents the total market value of all goods and services produced in a country during a siven year, Inflation: Xt represents changes in the level of retail prices for the basie consumer basket Inflation is ted directly to the purchasing power of a currency. Employment indicators: They involve number of jobs created or destnicted; percentages of ‘active and unemployed workforce. They indicate the economic health of a country, Balance of payment: It represents the ratio between the amount of payments received from abroad and the amount of payments going abroad. Income distribution: 1t shows how a notion’s total GDP is distributed amongst its _ population, Page 19 PREPARED BY: JAYKISHAN ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT Business Cyctes: (contraction), They affect the health of organization. They may be depression recovery (revival), prosperity and recession. Regional and global economic integration are also the important cemponens of eeonomig Savitonment. Economie integration facilitates removing or minimizing tariffs and othe, tea nctions on economy at intemational level. It promotes cooperation end free trade among the countries. Economic integration has been promoted by SAARC, APEC, ASEAN, EU and the WTO Political environment of busin: operation of a business. These level. Managers pay close attent actions will less refers to the govemment actions-which affect the actions may be on local, regional, national or international tion to the political environment to measure how goverument affect their ‘company. The political segment represents how organization try to influence government and they ‘understand the influences of govemment actions on ir strategic move, Political Wdeotogy: It may be defined asa se of ideas, principles end Philesophy. The main Political idevlogies are: © Democratic: Under democratic ideology, rights are ensured. The private sector is development of the country. % Totalitarian: Under it, the power is central Parties of differing opinion. The private s the power is vested on people. Fundamental regarded as the indispensible part of ized to the government that does not tolerate ctor doesn’t flourish under such ideology. Constitution: Constitution isthe fundamental law ofthe country. Itis the duty of every citizen to follow the constitution. Political parties: Political parties are regarded as the pill of democratic system. They ‘ty to win the support of the people to elect their representatives ant form legislation. Atinvolves legislative, ny end other constitutional bodies, timain responsibilty is formulation and enactment of Taw. Ttalso forms the executive i.e. the government. Executive: Ii refers t0 the organ of the state that n, It is composed of the government sera Posie for the overall administation and its organs ag bureaucracy, army and Page | 10 PREPARED BY: JAVKISHAN ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT sudiciary: I refers to the court of law. It is responsible for settling disputes and interpreting the rules and laws if required. It has the right of judicial review under ‘The constitution, Other Constitutional Bodies: They involve the constitutional bodies created by law. Some ‘of them are; The Commission for the Investigation of Abuse of Authority, Oifice of the Auditor General, Federal Public Service Commission, Election Commission and National Human Rights Commission Legal Environment: The legal environment of a business is composed of the constitution, business related laws, courts and law administration, The legislative framework of a country provides both ‘opportunities and threats to the business. ‘The components of the legal environment are mentioned below: Constitution: It isthe ~— fundamental = taw = ofa country, Business Law: They consist of an array of laws that regulate business activities. Courts of law: They are the institutions to define and solve legal disputes. Law administrators: They are the various law enforcement agencies, which ensure irmplementation of the laws as well as judgments made by the courts of law. Socio:Cultural Znvironment: ‘A business isa social system. It conduets its activities in the society. Socio-Cultural environment is the sum ofall the cultural elements that affect the operation of a business directly or indirectly. ‘The norms, value, belief, attitudes, language, symbols, and behavior which are learned and developed over time collectively from culture. It is a complex phenomenon and transfers over generations. Some of the important constituents of socio-cultural ‘environment are mentioned below: Attitudes: Ibis a positive or negative concept towards product, person, organization, und other elements. Beliefs: Beliefs a experience and religion, Religion: Religion reflects and shapes culture. It is shared beliefs, values and rituals, -—— Language: Itis a medium of communication. It also reflects culture. Education: Its a continuous process of learning. Education is very important for developing and nurturing culture, Family structure and social organizations. Sccial organization are in the form of descriptive thoughts about something. They art based on knowledge, PREPARED BY: JAYKISHAN ARORA Page | (1 Scanned with CamScanner ENT INDIAN BUSINESS ENVIRONM cludes the institutions and {Be tesnological semen of sits envionment includes th | Aste involv in creating new knowlege and arsaig tO Treats and metals. Tecbology es pervasive an ee ci itl affects many parts of a society. Given te rapid pace ereaaslael oa i Ee Rem to study the technological segment thoroughly. The imporane® higher returns ioPlers of new technology often achieve higher market shares and es The following are the important elements of technological environ: a Level of technology: 1 may be manual, mechanized, automated, comp robotized technology. Pace of chanye: isthe stage and speed ofthe technological change. Technology transfer: It implies technology imported from foreign cote | Research and development budge: Itis the spending by the government or business ‘organizations for technological adaptation, up-gradation and development. \ ‘The physical environment refers o potential and actual changes inthe physical | cnvironinent. I also refers the business practices that are intended to posiuvely respond | | to those changes, There are mary parts ofthe physical environment that firms should | consider. \| Energy consumption: iis concemed with both organizations and nations Environment policy: Companies are required to develop environmentally friendly | policies due to increasing concem about sustaining the quality of the physical environment, | Compliance of environmental tavs: Business sould comply laws. Besides, they should seek to undeistand their impact and cont | business practices in many areas Natural resources: I ivolves the availability and te sustainable use ofthe natural {1 ‘esources like water, land, forest, mines and minerals. all environmental tinuously improve the {0 enter new markets as well ¢. The markets from which fi | income ar one indeaor of he degree to whch they ae pa } Geonomy. Firm competing in global markets shoud recognise te ‘and institutional attributes of ffabal markets, ms generate sales and icipeting in the global different socio-cultural | Page | 12 PREPARED BY: saVKISHAW ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT Environmental scanning Environmental scanning is one of the essential components of the global cnvironmental analy: Environmental-monitoring, Assessment complete the global [Link] analysis. Environmental forecasting and environmental The global environment refers to the macro enviroument which comprises industries, markets, companies, clients and competitors. Consequzntly, there exist corresponding analyses on the micro-level. Suppliers, customers and competitors representing the micro environment of a company are analyzed within the industry analysis. Environmental scanning can be defined asthe study and. interpretation of the political, economic, social and technological events and trends which influence a business, an industry or even a total market’. The factors which need to be considered for environmental scanning are events, trends, issues and expectations of the different interest groups, Issues are often forerunners of trend breaks. A trend break could be a value shift in society, a technological innovation that might be permanent or paradigm change. Issues are less deep-seated and can be ‘a temporary short-lived reaction to asocial [Link]'.A trend can be defined as an ‘environmental phenomenon that has adopted a structural character. Environmental scanning is an ongoing process and organizations are always refining the way their particular company or business goes through the process, Environmental scanning. reinforces productive strategic plans and policies tnat can be implemented to make the organization get the maximum use of the business environment they are in. Environmental scanning not only helps the business find its strengths in its current enviroument but it also finds the weakness of competitors, identifies new markets, potential customers and up and coming, technological platforms and devices that can be best used to sell/market the product or service. Environmental scanning helps a business improve their decision-making process in times of risk to the external and internal environments the business isin, APPROACHES OF ENVIRONMENTAL SCANNING 4. Systematic Approach: Under this approach, information for eavironmental scanning is collected. systematically. Information related to markets and customers, changes in legislation and regulations that have @ direct impact on an organization’ssctivities, government policy statements pertaining the Page | 13 PREPARED BY: JAYKISHAN . RORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMEN’ updating. such organization's business and industry, etc, could be collected continuous - ional activities. information is necessary not only for strategic management but also for operational 2. Ad hoc Approach: Using this approach, an organization may conduct special surveys and studies to deal with may te conducted, for instance, specific environmental issues from time to time. Such s when organization has to [Link] special projects, evaluate existing strategy or devise new strategies. Changes and unforeseen developments may be investigated with regard to their impact on the organization. 3. Processed-form Approach: For adopting this approach, the organization uses information in a processed form available from different sources both inside rnd outside the organization, When an organization uses information supplied hy government agencies or private institutions, it uses secondary sources of data and the information available in processed form, ‘Scan and Assess the Trend: ‘This is the final step of environmental scanning process. It involves a detailed and micro study of the environment to identify the early signals of potential changes in' the enwvironment. It also detects changes that are already under way and shows the tend of the environment. The trend should be assessed in terms of opportunities and threats. PROCESS OF ENVIRONMENTAL ANALYSIS: Environmental scanning involve the study ofthe genera environment It helps to identity the sity signals of potential changes in the environment 1 azo detects changes that are alread under way, It nonrally reveals ambiguous, incomplete, or unconnected data and information The scanning system should be aligned wih the organienional context. Hence, a scanning Page | 14 PREPARED BY: JAYKISHAN ARORA, Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT system designed for a volatile environment may be inappropriate fora stable environment. Many organizations even use special software and internet for environmental scanning, Monitoring involves observation of environmental changes to see the trend. It detects meaning in Gifferent environmental events and [Link] and monitoring are particularly important when a firm competes in a highly volatile environment. They help gather knowledge about ‘markets and other components, Forecasting: Scanning and monitoring are concemed with events and trends in the general environment at a point in time, Forecasting .avolves developing feasible projections of what might happen and how quickly. It is done on the basis of changes and trends. Forecasting isa challenging work. Assessing: Assessing determines the timing and signi lends that have been identified. It specifies the implications of that understanding, Assessing interpreting, cance of the effects of environmental changes and connects the datarand information with competitive relevance. Equally important is the data ond information to determine the trend as opportunity or threat for the organization. SOURCES OF INFORMATION ‘A company can obtain information from different sources, but it should be ensured that the information is corest. The correct source should be tapped for specific information for more ‘accuracy. Information received form secondary sources may sometimes even misguide strategy managers. Hence it is important that information should be verified for correctness belore itis processed and decisions are taken based on it. ‘The various sources from where information ean be gathered include: . An_intemal document viz, files, records, management information system, employees, standards, drawings, charts, etc, Page | 15 PREPARED BY: JAVKISHAN ARORA, Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT % Tinde directors, jourals, magazines, newspapers, books, newsetr. governmen Publications, annual reports of companies, ease studies, et. 3 Intemet, television, radio news et “*- Extemal agencies like customers, supplies, inpeation agencies, marketing intermediaries, Ase, adversisers, associations, unions, goverment agencies, shareholders, competitor, ce 5, Market research reports, consultants, eucatonal institutions, testing laboratories ee, S Spying considered asa powerful way of extracting information from ather companies 1s found that chronological order of information is also quite important for siategy managers. ‘Usually information received from govemament agencies is quite complex since processing takes ‘more time, The information recived ffom competitns is quite expensive ‘at itis usually fresh and is quite useful SWOT ANALYSIS AS A METHOD OF ENVIRONMENTAL SCANNING SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats, By definition, Strepaths (S) and Weakmesses (W) ate considered to be intemal facors ever ohne you have fo be crea ereettol Also, by definition, Opportunities (0) and Threats (1) are considered to be extemal factors over which you have essentially no contror hat will best align an organization's resources and eapabiliice te rent in which the firm operates, Im other words, itis the foundation for evaluating the intemal potential and limitations and the Probablelikely epporuniies and treats fom the extemal environment views Positive and negative factors inside and outside the firm that affect the success. A concre study of the environment in which the firm operates helps in forecasting/predicting the changing trends and ‘lso helps in including them in the decision-making process of the organization, An overview of the four factors (Strengths, Weaknesses, Opportuni below- and Threats) is given |. Strengths = Strengths are the qualities that enable us to accomplish the organization's mission, These are the esis on which continued succesa ton pe ‘made and continued/sustained. Page | 16 PREPARED BY: JAVK:SHAN ARORA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT Strengths can be either tangible or intangible. These are what you are well-versed in or What you have expertise in, the traits and qualities your employees possess (individually and as a team) and the distinct features that give your organization its consistency. Strengths are the beneficial aspects of the organization or the capabilities of an Organization, which includes human competencies, process capabilities, financial Fesources, products and services, customer goodwill and brand loyalty. Examples of organizational strengths are hug. financial resources, broad product line, no debt, committed employees, ete. 2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our tnission and achieving our full potcntial. These weaknesses deteriorate influences on the organizational success and growth. Weaknesses are the factors which do not meet the standards we feel they should meet, iting machinery, insufficient research and poor decision-making, etc. Weaknesses are eliminated. For instance - to overcome wehased. Other examples of organizational complex decision making process, ere, ‘Weaknesses in-an organization may be depr development facilities, narrow product range, controllable. They must be minimized and obsolete machinery, new machinery can be pu; weaknesses are huge debts, high employee tumover, narrow product range, large wastage of raw materials, 3. Opportunities - Opportunities are presented by the environment within which our organization operates. These arise when an organization can take benefit of conditions in ite environment to plan and execute strategies that enable it to become more profitable. Organizations can gain competitive advantage by making use of opportunities. Organization should be careful and recognize the opportunities and grasp them whenever they arise. Selecting the targets that will best serve the clients while getting desired results is a difficult task. Opportunities may arise fiom market, competition, industry/govemment and technology. Inereasing demand for teleommuntcations accompanied by deregulation is a great opportunity for new firms to enter telecorn sector and compete with existing firms for revenue. 4. Threats - Threats arise when conditions in external environment jeopardize the reliability and profitability of the organization's business. They compound the vulnerability when they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability and survival can be at stake. Examples of threats are - unrest among employees; ever changing technology; increasing competition leading to excess capacity, price wars and reducing industry profits; etc. Page | 17 PREPARED BY: JAYKISHAN AR RA Scanned with CamScanner INDIAN BUSINESS ENVIRONMENT Advantages of SWOT Analysis SWOT Analysis is ins 'strumental in strategy formulation and selection. It is a strong tool, but it involves a grent

You might also like