{"id":85,"date":"2018-10-11T05:50:44","date_gmt":"2018-10-11T05:50:44","guid":{"rendered":"http:\/\/mgmtp03.epgpbooks.inflibnet.ac.in\/?post_type=chapter&p=85"},"modified":"2019-01-10T09:55:08","modified_gmt":"2019-01-10T09:55:08","slug":"environmental-factor-analysis","status":"publish","type":"chapter","link":"https:\/\/ebooks.inflibnet.ac.in\/mgmtp03\/chapter\/environmental-factor-analysis\/","title":{"rendered":"Environmental Factor Analysis"},"content":{"raw":"
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  1. Learning Outcomes<\/strong><\/li>\r\n<\/ol>\r\n \r\n\r\nAfter studying this module, you shall be able to\r\n\r\n \r\n\r\n1.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Understand the concept of business environment\r\n\r\n2.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Learn about its characteristics\r\n\r\n3.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Differentiate between internal and external environment\r\n\r\n4.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Analyse the different classifications of environment influencing the industry as well as strategy\r\n\r\n5.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Understanding the need to study the Business Environment\r\n\r\n \r\n\r\n2.\u00a0<\/strong>Concept of Business Environment<\/strong>\r\n\r\n \r\n

    Environment generally refers to the objects, surroundings, circumstances and the whole situation which affect someone or something existence. However, in context of business, environment refers to the factors which have a bearing on the working and functioning of business. It consists of all those forces both internal and external that affect the working of a business. It includes to the conditions, forces, events and situations within which business enterprises have to operate. Business and its environment are closely related and the effective of interaction of the two leads a business to success. An organisation can survive and grow only when it is able to keep pace with the changing environment.<\/p>\r\n \r\n\r\nDEFINITION<\/em><\/strong>\r\n\r\n \r\n

    \u201cBusiness Environment is the total of all things external to firms and individuals, which affect their organization and operations\u201d. \u2013<\/em> Wheeler<\/em><\/p>\r\n \r\n

    \u201cEnvironment factors of constraints are largely if not totally external and beyond the control of individual industrial enterprises and their arrangements. These are essentially the \u2018givers\u2019 within which firms and their managements must operate in a specific country and they vary, often greatly from country to country\u201d. \u2013<\/em> Barry M. Richman and Melvyn Copen<\/em><\/p>\r\n \r\n

    \u201cThe environment includes outside the firm which can lead to opportunities for or threats to the firm. Although, there are many factors, the most important of the sectors are socio \u2013 economic, technical, supplier, competitors, and government\u201d. <\/span>\u2013<\/em> Glueck and Jauch<\/em><\/p>\r\n\r\n<\/div>\r\n

    \r\n\r\n \r\n\r\n3.\u00a0\u00a0<\/strong>Characteristics of Environment<\/strong>\r\n\r\n \r\n

    A)\u00a0Environment is Complex <\/strong>\u2013 The business environment essentially includes many of factors, and is a combination of many factors like political, economic, legal, social, cultural, technological etc. These factors affect the business in many ways. Therefore, the influence that they exercise on business cannot be recognised independently.<\/p>\r\n \r\n

    B)\u00a0Environment is Dynamic <\/strong>\u2013 Environment is a mixture of many factors which are constantly changing. It is only because of these changes in the factors of environment that makes environment dynamic. The environmental factors changes with passage of time. The plans and policies of business also have to be changed to keep pace with changing environment.<\/p>\r\n \r\n

    C)\u00a0 \u00a0Environment affects different firms differently <\/strong>\u2013 It is not necessary that any particular change in environment should affect all businesses in a similar manner. One business may welcome a change in environment, while some other business may feel adverse effect of the same change. Therefore, environment may affect different business units in different manner.<\/p>\r\n \r\n

    D)\u00a0\u00a0<\/strong>Environment has both short-term and long-term impact \u2013 <\/strong>Every change in environment has both short-term and long-term impact on business. The changed environment affects the profitability, productivity and development of business in both short-term and long-term.<\/p>\r\n\u00a0<\/strong>\r\n

    E)\u00a0\u00a0<\/strong>Unlimited effect of external environmental factors <\/strong>\u2013 External factors of business environment are uncontrollable. These factors have very deep effect on business. Sometimes the effect of these factors is so deep that it may take the business to closure e.g. decision of government to ban tobacco will compel such businesses to wind-up its operations.<\/p>\r\n\u00a0<\/strong>\r\n

    F)\u00a0\u00a0<\/strong>Uncertain \u2013 <\/strong>The external environment is very uncertain. There can be sudden change in it at any time. Because of its uncertain nature, its study and analysis is difficult.<\/p>\r\n \r\n

    G)\u00a0\u00a0<\/strong>Interdependent components \u2013 <\/strong>Various components of business environment are interdependent of each other. Different components of environment affect each other. For example, economic environment affects social environment and is also affected by it.<\/span><\/p>\r\n \r\n

    H)\u00a0<\/strong>Includes both internal and external environment <\/strong>\u2013 Business environment includes both internal and external environments. Internal environment relates to environment within the organisation which is controllable. External environment is outside the organisation which is uncontrollable. Business organisations have to change its activities along with changes in external environment.<\/span><\/p>\r\n \r\n

    4.\u00a0<\/strong>Components of Business Environment<\/strong><\/p>\r\n \r\n

    An organisation functions in the business environment which can be further divided into two components \u2013<\/span><\/p>\r\n\r\n<\/div>\r\n

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    A)\u00a0\u00a0 The Internal environment (Related with the factors internal to an organisation, which are considered as controllable)<\/p>\r\n \r\n

    B)\u00a0\u00a0\u00a0 The External environment (Related with the factors external to an organisation, and are uncontrollable)<\/p>\r\n \r\n\r\n\"\"\r\n\r\n<\/div>\r\n

    \r\n\r\n \r\n\r\nINTERNAL ENVIRONMENT <\/strong>\u2013\r\n\r\n \r\n

    A number of elements which exist inside an organisation are termed as its internal environment. These factors act as strengths for an organisation and may also become a reason of weaknesses of the organisation. These internal factors have an impact on the organisational decisions and strategy. The following are some of the internal factors of the internal environment:<\/p>\r\n \r\n

    1.\u00a0\u00a0\u00a0Management Philosophy and value system \u2013 <\/strong>The values and ideologies of the promoters and founders of the organisation affect the selection of business, working of the organisations, principles and policies adopted, its working culture. These values, when shared and followed across the organisations facilitate the success.<\/p>\r\n \r\n

    2.\u00a0Mission and Objectives \u2013 <\/strong>The mission of a business enterprise expresses its vision in words, while its objectives are the actionable and measurable steps to achieve the mission. The mission and objectives guide the business philosophy, policy, priorities and its business domain<\/p>\r\n \r\n

    3.\u00a0<\/strong>Management Structure and Nature \u2013 <\/strong>Business decisions are also influenced by the structure of organisation, board of directors\u2019 composition, organisational hierarchy, extent of professionalization of management etc.<\/p>\r\n \r\n

    4.\u00a0\u00a0<\/strong>Internal\u00a0 Power\u00a0 Relationship\u00a0 \u2013\u00a0 <\/strong>Top\u00a0 management\u2019s\u00a0 support\u00a0 to\u00a0 the\u00a0 lower\u00a0 levels\u00a0 of management, workers, shareholders and BODs also impacts the decision-making and working of the organisation.<\/p>\r\n \r\n

    5.\u00a0\u00a0<\/strong>Human Resources <\/strong>\u2013 The success of the organisation depends on the quality of people it has. The skills, quality, morale, commitment and attitude of the human resources may acts as a source of strength or weakness for the organisation.<\/p>\r\n \r\n

    6.\u00a0<\/strong>Company Image and Brand Equity <\/strong>\u2013 The reputation and image of the company is critical for raising capital and finances, making joint ventures and other alliances. Brand equity also plays a relevant role in sale and purchase contracts, new product launches etc.<\/p>\r\n \r\n

    In addition to the above, few other elements internal to business enterprise influence the decision making. These are \u2013<\/p>\r\n\r\n