BUSINESS ENVIRONMENT

Name – Abhishek
Roll.no - 03
Q1. What do you mean by Business environment?
collection of all internal and external factors such as employees, customers needs
and expectations, supply and demand, management, clients, suppliers, owners,
activities by government, innovation in technology, social trends, market trends,
economic changes, etc. These factors affect the function of the company and how a
company works directly or indirectly.
Business Environment means a collection of all individuals, entities and other
factors, which may or may not be under the control of the organisation, but can
affect its performance, profitability, growth and even survival.
FEATURES OF BUSINESS ENVIRONMENT:

1. Dynamic: The environment in which the business operates changes

continuously because there is a wide variety of factors that exist in the
environment, causing it to change its shape and character.
2. Complex: There are many forces, events and conditions that constitute
business environment, arising from various sources. So, it is a bit difficult to
understand the relative influence of a particular factor, on the operation of the
organisation.
3. Uncertain: Uncertainty is an inherent characteristic of the business
environment because no one can predict what is going to happen in future.
4. Multi-faceted: A single change in the business environment, can be viewed
differently by different observers because their perceptions vary.
5. Far-reaching Impact: The survival, growth and profitability, of a business
enterprise, depends largely on the environment in which it exists. A small
change in the environment has a far-reaching impact on the organisation in
different ways.
6. Relative: The notion of a business environment is relative since it varies from
one location to another.

COMPONENTS OF BUSINESS ENVIRONMENT:

1. Internal Environment : The factors which exist within the organisation,

imparting strength or causing weakness to the organisation, comes under
internal environment. It includes: o Value System o Vision and
Mission
 o Objectives o Corporate Culture o Human Resources o Labour
Union
2. External Environment: External Environment consists of those factors which
provide an opportunity or pose threats to the business. It is further classified
as:
o Micro environment : The immediate periphery of the business that
has a continuous and direct impact on it is called Micro
Environment. It includes suppliers, customers, competitors,
market, intermediaries, etc. which are specific to the business. o
Macro environment : Macro Environment, is one such
environment that influences the functioning and performance of
every business organisation, in general. It comprises of the
demographic, socio-cultural, legal, political, technological, and
global environment TYPES OF BUSINESS ENVIRONMENT:
1. Economic Environment

2. Market Environment

3. Technological Environment

4. Socio-cultural Environment

5. Political Environment

6. Legal/Regulatory Environment

7. Suppliers’ Environment

8. International Environment

9. Demographic Environment

10.Natural Environment

Q2. Explain Internal and external environment in detail.

INTERNAL ENVIRONMENT:

Internal Environment is that part of the business environment which is concerned

with the different factors present within the organization. It comprises of conditions,
forces, members and events which has the capability to influence the company’s
decisions and operations.

It determines the procedures and methods in which activities are carried out in the
organization, as well as it includes all of the immediate and information resources,
such as technical, financial and physical resources of the organization. These
factors are:

• Value System: Value system can be defined as a set of rules and the logical
and consistent values adopted by the firm, as a standard guide, so as to
regulate the conduct in any type of circumstances.
• Vision, Mission and Objectives: Vision refers to the overall picture of what
the enterprise wants to attain, whereas mission talks about the organization
and its business, and the reason for its existence. Lastly, objectives refer to
the basic milestones, which are set to be achieved within the specific period
of time, with the available resources.
• Management structure and Internal Power Relationship: Management
structure implies the organizational hierarchy, the way in which tasks are
delegated and how they relate, a span of management, relationship amidst
various functional areas, the composition of the board of directors,
shareholding pattern and so forth.On the other hand, internal power
relationship describes the relationship and cordiality between the CEO and
board of directors. Further, the degree of support and contribution received
from the employees and other members of the organization strengthens the
organization’s decision making power and its organization-wide
implementation.
• Human Resource: Human resources are the most important asset of the
organization, as they play a critical role in making or breaking the
organization. The skills, competencies, attitude, dedication, morale and
commitment, amounts to the company’s strengths or weakness.
• Tangible and Intangible Assets: The tangible assets refers to the physical
assets which are owned by the company such as land, building, machinery,
stock etc. Intangible assets amount to the research and development,
technological capabilities, marketing and financial resources etc.

External Environment

External Business environment comprises of all the extrinsic factors, influences,

events, entities and conditions, often existing outside the company’s boundaries but
they have a significant influence on the operation, performance, profitability and
survival of the business enterprise.

For the purpose of continuous and uninterrupted functioning of the business, the
enterprise has to act, react or adjust according to these factors. These factors are
not under the control of the enterprise. The elements of the external environment are
divided into two categories:

Micro Environment

Otherwise called as task environment, these factors directly influence the company’s
operations, as it covers the immediate environment that surrounds the company.
The factors are somewhat controllable in nature. It includes:

• Competitors: Competitors are the business rivals, which operate in the same
industry, offering the same product and services, and cater to the same
audience.
• Suppliers: To carry out the production process, the raw material is required
which is provided by the suppliers. The behaviour of the supplier has a direct
impact on a company’s business operations.
• Customers: Customers are the target audience, i.e. the one who purchases
and consumes the product. The customers are given the most important
place in every business, because, the products are created and promoted for
customers only.
• Intermediaries: There are a number of individuals or firms that help the
business enterprise in the promotion, selling, distribution and delivery of the
product to the end buyer, which are called as marketing intermediaries. It
includes agents, distributors, dealers, wholesalers, retailers, delivery boys,
etc.
• Shareholders: Shareholders are the actual owners of the company, as they
invest their money in the company. They get their share in the profits also, in
the form of a
dividend. In fact, they have the right to vote at the company’s general meeting. •
Employees: Employees refers to the company’s staff, who are hired to work
for the company to help the company reach its mission. Therefore, it is very
important for the firm, to employ the right people, retain and keep them
motivated so as to get the best out of them.
• Media: Media plays an important role in the life of every company because it
has the capability to make the company’s product popular overnight or it can
also defame them, in just one go. This is due to the fact that the reach of
media is very large and so every content which is going to air on any form of
media can affect the company positively or adversely depending on what kind
of information it contains.

Macro Environment

Otherwise called as general environment, macro environment affects the entire

industry and not the firm specifically. That is why these factors are completely
uncontrollable in nature. The firm needs to adapt itself according to the changes in
the macro-environment, so as to survive and grow. It includes:

• Economic Environment: The economic conditions of the region and the

country as a whole has a significant bearing on the company’s profitability.
This is because the purchasing power, saving habits, per capita income,
credit facilities etc. depends greatly on the country’s economic conditions,
which regulates the demand for the company’s products.
• Political and Legal Environment: The political and legal environment
consists of the laws, rules, regulations and policies which the company needs
 to adhere. The changes in these laws and government may affect the
company’s decisions, open doors of new opportunities for the business or
pose a threat to the business.

• Technological Environment: Technology is ever-changing, as everyday a

new and improved version of something is launched which is created with the
state-of-the-art technology.This can be a plus point if the company is the first
mover in the race, subject to the success of the product. However, if it turns
out as a failure, it will prove as a wastage of time, money and efforts. Further,
every company has to keep itself updated with the changing technology.

• Socio-Cultural Environment: Socio-cultural environment consist of those

factors which are concerned with human relationships such as customs,
traditions, beliefs, values, morals, tastes and preferences of the society at
large. The company must consider these factors on various matters such as
the hiring of employees, advertising the product and service, decision making
etc.
• Demographic Environment: As the name suggests, the demographic
environment covers the size, type, structure, education level, and distribution
of population in a geographical area. The knowledge of this environment will
help the firm in deciding the optimal marketing mix for the target population. •
Global Environment: Due to liberalization domestic company’s can
offer their products and services for sale to other countries. In fact, there are
many companies which are operating in a number of nations
worldwide.Hence, such companies have to follow the laws prevalent in these
countries as well as they have to adhere to international laws and guidelines.
Further, the responses and the company’s norms must be in alignment with
the global environment.

Q3. What is SWOT analysis? What are its main components? How is it useful in
business?

SWOT analysis is a process where the management team identifies the internal and
external factors that will affect the company's future performance. It helps us to
identify of what is happening internally and externally, so that you can plan and
manage your business in the most effective and efficient manner.

A SWOT analysis is an incredibly simple, yet powerful tool to help you develop your
business strategy, whether you’re building a startup or guiding an existing company.

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

Strengths and weaknesses are internal to your company—things that you have
some control over and can change. Examples include who is on your team, your
patents and intellectual property, and your location.
Opportunities and threats are external—things that are going on outside your
company, in the larger market. You can take advantage of opportunities and protect
against threats, but you can’t change them. Examples include competitors, prices of
raw materials, and customer shopping trends.

COMPONENTS OF SWOT ANALYSIS:

1. Strengths describe what an organization excels at and what separates its

from other competition: a strong brand, loyal customer base, a strong balance
sheet, unique technology, and so on. For example, a hedge fund may have
developed a proprietary trading strategy that returns market-beating results. It
must then decide how to use those results to attract new investors.
2. Weaknesses stop an organization from performing at its optimum level. They
are areas where the business needs to improve to remain competitive: a
weak brand, higher-than-average turnover, high levels of debt, an inadequate
supply chain, or lack of capital.
3. Opportunities refer to favorable external factors that could give an
organization a competitive advantage. For example, if a country cuts tariffs, a
car manufacturer can export its cars into a new market, increasing sales and
market share.
4. Threats refer to factors that have the potential to harm an organization. For
example, a drought is a threat to a wheat-producing company, as it may
destroy or reduce the crop yield. Other common threats include things like
rising costs for materials, increasing competition, tight labor supply and so on.

Benefits of swot analysis in businesses:

1. It provides a clear view of your strengths, and allows you to build on them
to meet your business objectives

2. It showcases your weaknesses and provides a chance to reverse them

3. It gives you a sneak peek into the opportunities that lies ahead. Using this
you can draft your strategic growth plans based on your strengths and
weaknesses

4. It helps you analyze possible threats to your business, and make

necessary changes to the business policies and growth plans.
Additionally, it facilitates making supplementary or alternative plans,
contingency plans, and so on

5. One of the major benefits of conducting SWOT analysis is that helps you
create matching and converting strategy
 6. It helps you employ a strategy to match your strengths and opportunities;
and employ those strategies for converting your weaknesses and threats
into your strengths and opportunities.
USES OF SWOT ANALYSIS IN BUSINESS:

1. Strategic planning, brainstorming and decision making

A SWOT analysis is a useful tool for brainstorming and strategic planning. You'll get
more value from a SWOT analysis if you conduct it with a specific objective or
question in mind. For example, you can use a SWOT analysis to help you decide if
and how you should:

a. take advantage of a new business opportunity

b. respond to new trends
c. implement new technology
d. deal with changes to your competitors' operations.

2. Building on strengths

A SWOT analysis will help you identify areas of your business that are performing
well. These areas are your critical success factors and they give your business its
competitive advantage.

Identifying these strengths can help you make sure you maintain them so you don't
lose your competitive advantage. Growing your business involves finding ways of
using and building on these strengths.

3. Minimising weaknesses

Weaknesses are the characteristics that put your business at a disadvantage to

others. Conducting a SWOT analysis can help you identify these characteristics and
minimise or improve them before they become a problem. When conducting a
SWOT analysis, it is important to be realistic about the weaknesses in your business
so you can deal with them adequately.

4. Seizing opportunities

A SWOT analysis can help you identify opportunities that your business could take
advantage of to make greater profits. Opportunities are created by external factors,
such as new consumer trends and changes in the market.

Conducting a SWOT analysis will help you understand the internal factors (your
business's strengths and weaknesses) that will influence your ability to take
advantage of a new opportunity. If your business doesn't have the capability to seize
an opportunity but decides to anyway, it could be damaging. Similarly, if you do have
the capability to seize an opportunity and don't, it could also be damaging.

5. Counteracting threats

Threats are external factors that could cause problems for your business, such as
changes to the market, a competitor's new advertising campaign, or new
government policy. A SWOT analysis can help you identify threats and ways to
counteract them, depending on your strengths and weaknesses.

6. Addressing individual issues

You can conduct a SWOT analysis to address individual issues, such as:

a. staffing issues
b. business culture and image
c. new product development
d. organisational structure
e. advertising
f. financial resources

g. operational efficiency.

When you're conducting an individual SWOT analysis, keep in mind that a strength
for one issue might be a weakness for another. You might also identify a weakness,
such as a gap in the market that you're not covering, that could be an opportunity for
your business.