CHAPTER-III

1/23/2013

CONCEPTS:

Environment means the surrounding, external

object, influences or circumstances under which someone or something exists.

Keith Davis (1986): business environment is

the aggregate of all conditions, events and influences that surround and effect a business.

1/23/2013

 Arthur M Weimer Business environment

encompasses the climate or set of conditions, economic, social, political or institutional in which business operations are conducted.
Richman

and Copan (1983): business environment constitutes the factors or constraints that are largely if not totally, external and beyond the control of individual business enterprises and management.
1/23/2013 3

INTERNAL ENVIRONMENT: Employees Organization (Structure, culture, resources) Shareholders Corporate Culture Union EXTERNAL ENVIRONMENT : Sub divided into macro (large) and micro (small)Environment.
1/23/2013 4

FIG.

1/23/2013

Factors or elements in an organization's immediate area of operations that affect its performance and decision-making freedom.
These factors include competitors, customers, distribution channels, suppliers, and the general public.

1/23/2013

The major external and uncontrollable factors

that influence an organization's decision making, and affect its performance and strategies.
These factors include the economic factors;

demographics; legal, political, and social conditions; technological changes; and natural forces.
1/23/2013 7

 It refers to government regulation and legal system

for business. Political Legal environment is the influence of three institutions- legislature, executive and judiciary. They plays major roles in directing, developing and controlling business. Component of political-legal environment: Constitution Political philosophy Political parties Political institution 1/23/2013 Legal institution 8

Those Economic factors which have their affect on the

working of the business is known as economic environment.

It includes system, policies and nature of an economy,

trade cycles, economic resources, level of income, distribution of income and wealth etc.

1/23/2013

It has mainly five main components:-

1. Economic Conditions 2. Economic System 3. Economic Policies 4. International Economic Environment 5. Economic Legislations

1/23/2013

10

 Economic Policies of a business unit are largely

affected by the economic conditions of an economy. Any improvement in the economic conditions such as standard of living, purchasing power of public, demand and supply, distribution of income etc. largely affects the size of the market.
Business cycle is another economic condition that is

very important for a business unit. Business Cycle has 5 different stages viz. (i) Prosperity, (ii) Boom, (iii) Decline, (iv) Depression, (v) Recovery.

1/23/2013

11

 An Economic System of a nation or a country may be

defined as a framework of rules, goals and incentives that controls economic relations among people in a society.
It also helps in providing framework for answering

the basic economic questions. Different countries of a world have different economic systems and the prevailing economic system in a country affect the business units to a large extent.
1/23/2013 12

 Government frames economic policies. Economic

Policies affects the different business units in different ways. It may or may not have favorable effect on a business unit.
The Government may grant subsidies to one business

or decrease the rates of excise or custom duty or the government may increase the rates of custom duty and excise duty, tax rates for another business.

1/23/2013

13

A set of beliefs, customs, practices and behavior that

exists within a population. International companies often include an examination of the socio-cultural environment prior to entering their target markets.
components:

Attitudes and beliefs, religion, languages, education, social organizations, class system.

1/23/2013

14

It is the process of converting input into output.

It refers to systematic application of organized

knowledge essential to do things. Its components are: Nature of technology Pace of technological change Technology transfer Research and development budgets.

1/23/2013

15

C0NT..

Technological forces: skills & equipment used in

design, production and distribution.

Result in new opportunities or threats to managers. Often make products obsolete very quickly. Can change how we manage.

1/23/2013

16

Organizational Structure
Managers can create new organizational

structures to deal with change.

Many firms use specific departments to respond to each

force.

Managers also create mechanistic or organic

structures.
Mechanistic structures have centralized authority. Roles are clearly specified. Good for slowly changing environments. Organic structures authority is decentralized. Roles overlap, providing quick response to change.
1/23/2013 17

Organizational Environment
Organizational Environment: those forces

outside its boundaries that can impact it.

Forces can change over time and are made up of

Opportunities and Threats.

Opportunities: openings for managers to enhance

revenues or open markets.

New technologies, new markets and ideas.

Threats: issues that can harm an organization. economic recessions, oil shortages. Managers must seek opportunities and avoid

threats.
1/23/2013 18

2- WAY PROCESS

1/23/2013

19

Managing the Organization Environment

Managers must measure the complexity of the

environment and rate of environmental change. Environmental complexity: deals with the number and possible impact of different forces in the environment.
Managers must pay more attention to forces with larger

impact. Usually, the larger the organization, the greater the number of forces managers must oversee.

The more forces, the more complex the mangers

job becomes.
1/23/2013 20

HOW ENVIRONMENTAL AFFECTS ORGANIZATIONS

Environmental change and complexity: the degree of

change is the extent to which the environment is relatively stable or dynamic.

The degree of homogeneity is the extent to which the

environment is relatively simple(few elements, much segmentation.

1/23/2013

21

COMPETITIVE FORCES
The model of the Five Competitive Forces was developed

by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors in 1980.
Porters model is based on the insight that a corporate

strategy should meet the opportunities and threats in the organizations external environment.
Especially, competitive strategy should base on and

understanding of industry structures and the way they change.

1/23/2013 22

FIG..

1/23/2013

23

Environmental Turbulence
Environmental Turbulences comes without warning.
Natural

calamities like earthquakes, volcanoes, landslides, flood etc. Highly destructive or damaging situation.

1/23/2013

24

How organization adopts to their environment.

Common strategies are as follows:
Information system Social responsibility

Strategic response
Organization design and flexibility Direct influence Merger, takeovers, acquisitions

1/23/2013

25

Managerial ethics

1/23/2013

26

meaning
Ethics is the set of moral principles and rules guiding an

individuals behavior.
Managerial ethics is the standard of behavior that guides

individual managers in their work.

Ethics is the personal beliefs of an individual about right or

wrong.
Managerial ethics is the standard of social norms and

values, truth and justice that is accepted by managers.

1/23/2013 27

SIGNIFICANCE OF MANAGERIAL ETHICS

Public image: in order to gain public confidence and

respect, organizations must ascertain that they are honest in their transactions.
Management credibility with employees: commons

goals and values are developed when employee feel that the management is ethical and genuine.
Better decision making: decision made by an ethical

management are in the best interests of the organization, its employees and the public.
1/23/2013 28

Cont..
Profit maximization: companies that emphasis on

ethical conduct are successful in the long run, even through they lose money in the short run.
Protection of society: in the absence of proper

enforcement, organizations are responsible to practice ethics and ensures mechanisms to unlawful events.

1/23/2013

29

Techniques of Managing Ethics

1/23/2013

30

FIG..
Top management: The senior management of a company

must be committed to ensure that ethical standards are met. Code of Ethics: one of the best practices for ethics is creating a corporate ethical statement and communicating it within that company. Ethics committee: advise on work related ethical issues. Ethics hotlines: It helps its employees report any ethical issues they face at work. Ethics training programs: most firms takes its seriously and provides training to managers and employees.
31

1/23/2013

Social Responsibility
Social Responsibility is the obligation to protect social

norms and rules.

Business organization are established, exists, and

perform function in the society.

They need to perform business within the existing

rules, regulation and norms of society.

1/23/2013

32

For CSR
Public Expectation Long Run Profit Ethical Obligation(responsibility) Public Image Better Environment

Against CSR
Violation of profit maximization Dilution (weakening)of purpose Cost Too much power Lack of skills

Stockholder interests
Possession of resources

Lack of accountability (answerable)

Lack of broad public support

1/23/2013

33

Approaches to Social Responsibility

There is controversy among managers regarding the

level of social responsibility. Griffin has given four approaches: Social obstruction Social obligation Social response Social contribution

1/23/2013

34

Fig..

1/23/2013

35

Area of social responsibility

The responsibilities of business:
Toward Investor(Shareholders) Towards Consumers

Towards Employees
Towards Government Towards Government Towards community (Public)

1/23/2013

36

Emerging Business Environment in Nepal

Emergence of open market economy (economic freedom to

private sectors) Increasing role of private sectors (hydro power, telecom, water supply, airways roads construction etc.) Emerging of multinational companies ( banking, finance, insurances, cold drinks, KFC etc.) Growth of service sectors( hotel ,restaurants, telecom, newspapers etc.) Development of information economy (e-mail, internet, networking, e- business, NGO, INGOs) Emergence of consumerism (selling market to consumer markets)

1/23/2013

37

Social cultural forces

Social cultural forces: result from changes in the

social or national culture of society.

Social structure refers to the relationships between

people and groups.

Different societies have vastly different social structures.

National culture includes the values that characterize a

society.

Values and norms differ widely throughout the world.

These forces differ between cultures and over time.

1/23/2013

38

Political-legal forces
Political-legal forces: result from changes in the

political arena.
These are often seen in the laws of a society. Today, there is increasing deregulation of many state-run

firms.

Global forces: result from changes in international

relationships between countries.

Perhaps the most important is the increase in economic

integration of countries. Free-trade agreements (GATT, NAFTA, EU) decreases former barriers to trade. Provide new opportunities and threats to managers.
1/23/2013 39

ARGUMENTS FOR SOCIAL RESPONSIBILITY

Public Expectation Long Run Profit Ethical Obligation Public Image Better Environment Discouragement for further Government Regulations Balance of responsibility and power Stockholder interests Possession of resources Superiority of prevention over cures
40

1/23/2013

LIFE CYCLE

1/23/2013

41

Demographic forces
Demographic forces: result from changes in the

nature, composition and diversity of a population. These include gender, age, ethnic origin, etc.
For example, during the past 20 years, women have

entered the workforce in increasing numbers.

Currently, most industrial countries are aging. This will change the opportunities for firms competing in these areas. New demand for health care, assisting living can be forecast.
1/23/2013 42

Global forces
Global forces: result from changes in

international relationships between countries.

Perhaps the most important is the increase in economic

integration of countries. Free-trade agreements (GATT, NAFTA, EU) decreases former barriers to trade. Provide new opportunities and threats to managers.

1/23/2013

43

Environmental change
Environmental change: refers to the degree to

which forms in the task and general environments change over time.
Change rates are hard to predict. The outcomes of changes are even harder to identify.

Managers thus cannot be sure that actions taken

today will be appropriate in the future given new changes.

1/23/2013

44

Reducing Environmental Impact

Managers can counter environmental threats by

reducing the number of forces.

Many firms have sought to reduce the number of

suppliers it deals with which reduces uncertainty.

All levels of managers should work to minimize

the potential impact of environmental forces.

Examples include reduction of waste by first line

managers, determining competitors moves by middle managers, or the creation of a new strategy by top managers.
1/23/2013 45

Scanning and Monitoring

Environmental scanning is an important boundary

spanning activity.
Includes reading trade journals, attending trade shows, and

the like.

Gate keeping: the boundary spanner decides what

information to allow into organization and what to keep out.

Must be careful not to let bias decide what comes in.

Interorga-nizational Relations: firms need alliances

globally to best utilize resources.

Managers can become agents of change and impact the

environment.
1/23/2013 46

Task Environment
Task Environment: forces from suppliers,

distributors, customers, and competitors. Suppliers: provide organization with inputs

Managers need to secure reliable input sources.

Suppliers provide raw materials, components, and even

labor.

Working with suppliers can be hard due to shortages, unions, and lack of substitutes. Suppliers with scarce items can raise the price and are in a good bargaining position.

Managers often prefer to have many, similar suppliers of

each item.
1/23/2013 47

CONT..

Distributors: organizations that help others to

sell goods.
Compaq Computer first used special computer stores to

sell their computers but later sold through discount stores to reduce costs. Some distributors like Wal-Mart have strong bargaining power.

They can threaten not to carry your product.

Customers: people who buy the goods. Usually, there are several groups of customers.

For Compaq, there are business, home, & government buyers.

48

1/23/2013

ARGUMENTS against SOCIAL RESPONSIBILITY

Violation of profit maximization
Dilution (weakening)of purpose Cost

Too much power

Lack of skills Lack of accountability (answerable) Lack of broad public support

1/23/2013

49

CONT

Competitors: other organizations that produce

similar goods.
Rivalry between competitors is usually the most serious

force facing managers. High levels of rivalry often means lower prices.

Profits become hard to find.

Barriers to entry keep new competitors out and result

from:

Economies of scale: cost advantages due to large scale production. Brand loyalty: customers prefer a given product.
50

1/23/2013

The General Environment

Consists of the wide economic, technological,

demographic and similar issues.

Managers usually cannot impact or control these. Forces have profound impact on the firm.

Economic forces: affect the national economy and

the organization.
Includes interest rate changes, unemployment rates,

economic growth. When there is a strong economy, people have more money to spend on goods and services.
1/23/2013 51

1/23/2013

52