Business and Its Environment

Nature of Business

Business is a legal economic activity directed toward earning profit through production and exchange of goods and services.

Business has four characteristics: 1. Economic activity, 2. Earning profit, 3. Production 4. Exchange.

Scope of Business

1. Manufacturer: Manufacturers is the person who converts raw materials or input to output or product.

2. Suppliers: Suppliers supply the raw materials to the manufacturers. 

3. Dealer: Dealer makes the goods available at the market.

4. Customer: Customers are the people who buy the products.

5. Banker: Banker finances various activities of organization.

6. Insurer: Insurant agent assumes the risk of company and customers.

7. Transport Agent: Transport agent assists to move goods and raw materials.

8. Advertising Agency: Advertising agency makes and inspires people know about the product.

9. Government: Business firms are subject to government control. They have to duly follow certain rules enforced by government.

10. Competitors:  We live in a world of competition. Competitors try to capture market therefore competition increases.

Characteristics of Contemporary/Today’s Business

     The followings are the characteristics of today’s business:

Business in Transition: At present, business is not like as it was before. Business system has changed and still changing and it is not stable. Business owners are compared with sandwich now because there in the middle of choosing old or new system.

Pressure Competition: Competition benefits the customers along rival firms. Because it defines new ways of doing business, helps build new capabilities, builds new customers satisfaction standards and makes business leaders more proactive.

Immense Opportunities: There are huge opportunities for a company if it identifies the gap of products in market. If there is any company that is not able to fulfill needs of customers, a company can target these customers. Also there are many other opportunities brought by technology.

Globalization: Going international is another feature of modern business. Political boundaries are no barriers to business. Production houses are being set up in different countries and products are being sold through a global network. Gradually, businesses are exposed to global competition which promises well for consumers.

Technology: Business is featured by increasing use of technology. The impact of technology is spreading. Every sector of a company is highly influenced by technology.

Waning Trust in Business: Trust in business is fading because of unlawful practices by businesses. Business need to practice legal and ethical practices so that people can trust them. It is very essential for a business to regain trust and build good relationships with stakeholders.

Government Interference: Government will obviously interfere in business by setting taxes and other rules regarding products and production.

Predominance of Small Business: Small business provides raw materials to large business.  Small businesses need to be more developed so that they can provide raw material to large firms. If small are weak or unable to supply raw material, then large organizations will not be able to produce goods.

Vision, Mission & Objectives

Vision: Vision is the broad explanation of why the firm exists and it is trying to lead. Vision is a beacon of light.  Vision seeks the answer of the following questions:

1.    Where do we go from here?

2.    What will success look like?

Mission: A mission statement outlines the basic purpose of the organization. A vision becomes tangible as a mission statement if the statement answers the question “Where do we go from here?” and “What is our business?”

Objective: Objectives represent a managerial commitment to achieve specified results in a specified period of time. Objectives state what is to be accomplished by when and should be qualified if possible.

Business Objectives

Profit: Making profit is the primary goal of every business. Profit motivates to carry risk also enable an owner to realize the firm’s objectives. Non-profit organizations are exceptions. 

Growth: Business should grow in all direction over specific period of time. The strategies adopted to achieve growth are:

a.    Add more products or markets

b.   Diversify into new areas

c.    Increase market share

d.   Expand market

e.   Cut down costs and increase productivity

Power: Business firms have vast resources in its control. These resources award huge economic and political power on owners and managers.

Employees Satisfaction: Management is now concerned about the satisfaction and development of employees. Business now provides monetary and others benefits for employees satisfaction.  

Quality Products and Services: Business now more focused on providing quality products and services for customer satisfaction and earning more profit and make loyal customers.

Market Leadership: To capture and retain market leadership is difficult in these days. Yet new technology and innovation and other things keep a business in the race and ahead of others.  

Joy of Creation: Through business strategies, new ideas and innovations are given shape and converted into useful products and services.

Service to Society:  Business is a part of society and has several obligations toward it. Some of them are:

a.    Providing employment

b.   Providing safe and quality goods at reasonable price

c.    Supporting culture and religious activities

d.   Maintaining and protecting ecology 

e.   Supporting minority, tribes and others

Challenges for Today’s Manager

1.    Responding to economic pressure: During difficult economic time, effective management is often at a premium. Difference between good and bad management is the difference between profit and loss of the organization.

2.    Responding to globalization: Currently, we are living in a global village. The challenges of a manager are to adopt the culture and situation of foreign country.

3.    Improving customer service: Organization does not exist without customers. Fulfilling the needs and demands of the customer has become a challenge for manager.

4.    Stimulating innovation and change: When a company buys new innovation or something, the organization structure becomes changed. At that time, a manager needs to motivate him and others about adopting the innovation or change.

5.    Coping with temporariness: Currently, change has become an inevitable part of every business. A manager is always concerned about the change. While change occurs, manager needs to adopt the change.

6.    Working in networked organization: Nowadays, organizations have become networked. So, a manager needs to work in that organization and communicate with the concerned bodies regularly.

7.    Help balancing work-life conflicts: While working in a company, sometimes a manager has to work all night or visit different cities. In this circumstance, a manager’s challenge is to balance between work-life conflicts.

8.    Improve ethical behavior: Good behavior is an ultimate tools for a manager and it is his challenge to maintain and improve good behavior with the employees and others.

What is Business Environment?

     Business environment are the external factors which can lead to opportunities or threats for the firm.  

     The business environment is divided into political environment, economic environment, socio-cultural environment, technological environment and natural environment.

The Relationship Between Business and Its Environment

     There is a symbiotic relationship between business and its environment. In other words, business is influenced by its environment and in turn to a certain degree, it will influence the external forces. A particular firm cannot change its environment, but with alliance of other firms it will be in a position turn the environment in its favor.

Components of PEST Analysis

Political Environment	Economic Environment	Socio-Cultural Environment	Technological Environment
Role of legislature	Growth strategy	Culture and globalization	Fast changing technology
Role of executive	Economic planning	Culture creates people	Increased productivity
Role o judiciary	Economic system	Family and marriage	System complexity
Constitution of country	Economic policy	Social responsibility	Social change
New direction for government’s role	Population	Corporate governance	Demand for capital

Limitation of Environmental Analysis

     Same as other analysis, environmental analysis has certain limitations. These limitations are:

1. Environmental analysis does not forecast the future, nor does it eliminate uncertainty for any organization. Organizations that practice environmental analysis also confront unexpected events because events are not anticipated by it. But it reduces the frequent occurrence.

2. Environmental analysis on and off itself, is not a sufficient guarantor of organizational effectiveness. It is only one of the inputs in strategy development and testing.

3. The potential of environmental analysis is often not realized because of how it is practiced. It is sometimes used as a crutch for post-hoc reflections. Many times, managers place uncritical faith in the data without thinking about the data’s verifiability or accuracy.

4. Too much reliance is often placed on the information collected through environmental scanning. When there is overloading of information, one is likely to get lost and become inactive, typical of ‘paralysis through analysis syndrome’.

The Process of Environmental Analysis/ How to Analyze Business Environment

     Environmental analysis is a strategic tool. It is a process to identify all the external and internal elements, which can affect the organization's performance. Environmental analysis comprises four steps: scanning, monitoring, forecasting and assessment. It is a challenging, time consuming and expensive task.

Scanning: Scanning is that indicates current changes and possible changes.

Monitoring:  There are three outcomes of monitoring. (1) A specific description of environmental trends and patterns to be forecast, (2) The identification of trends for further monitoring and, (3) The identification of area of further scanning.

Forecasting: Forecasting is the future orientation for strategic decision-making.

Assessment: The evaluation of the information, nature, quality, or ability of something.