After studying this chapter, you will be able to:
A business is created to provide products or services to customers. If it can conduct its operations effectively, its owners earn a reasonable return on their investment in the firm. In addition, it creates jobs for employees. Thus, businesses can be beneficial to society in various ways.
A business (or firm) is an enterprise that provides products or services desired by customers. Along with the large, well-known businesses such as the Coca-Cola Company and IBM, there are many thousands small businesses that provide employment opportunities and produce products or services that satisfy customers.
The world keeps changing. It always has and always will. The basic challenge for any company (or, for that matter, for any living thing) is survival. And to survive over the long term, a company must have two capabilities:
What is most surprising is the amount of change going on around us! And we notice, at the same time, how some organisations change very little.
Charles Darwin in Darwinism says:
“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” “Struggle for existence, survival of the fittest and origin of new species”.
Over any time period, say one, five, ten years, in any geographic region thousands upon thousands of new organizations are set up, and within the same time frame many thousands are dissolved, mostly small ones but sometimes very large ones too. An analysis says that approximately, 5,00,00,000 new firms are born every year across the globe or about 1,37,000 per day. And, similar number of firms are close as birth and
death rates are about equal, the same number of active firms, say 1,30,000 probably terminate trading each day, worldwide.
Some organisations go on for a very long time. For instance, the Tata Group established by Dorabji Tata has been flourishing since 1907 whereas few commercial organisations have survived for more than a century. On an average, however, the lifespan of commercial organisations in our country is about 50 years.
Over the years, surviving organisations change their structures as well as the composition of their activities. As they do so they either threaten or create opportunities for others. Whole new industries appear as new technologies are developed, creating niches of new activities for both new and old organisations, while other industries disappear.
Each business organization operates in its unique environment. Environment influence businesses and also gets influenced by it. No business can function free of interacting and influencing forces that are outside its periphery. In the emerging economy the facets of business are rapidly changing as compared to earlier years. The developments in technology and faster communication have lead to evolvement of newer kinds of
businesses. The concept of businesses such as online shopping were non-existent in yesteryears. Businesses are conducted through internet and have lead to virtual shrinking of physical boundaries between nations.
MEANING OF BUSINESS ENVIRONMENT
Business environment represents all external forces, factors or conditions that exert some degree of impact on the business decisions, strategies and actions taken by the firm. The success of a business is generally dependent on its business environment. A successful business has to identify, appraise, and respond to the various opportunities and threats in its environments. To be successful, the business has to not only recognize different elements of its own environment but also respect/ adapt and manage and influence
them. The business must continuously monitor and adapt itself to the environment if it is to survive and prosper.
According to Gluek and Jauch:
“The environment includes factors outside the firm which can lead to opportunities for, or threats to the firm. Although, there are many factors, the most important of the factors are socioeconomic, technological, suppliers, competitors, and government.”
|Modern authors include both Internal and external forces that influences business policies and actions as integral elements of business environment.|
CHARACTERISTICS OF BUSINESS ENVIRONMENT
Business environment exhibits many characteristics. Some of the important – and obvious – characteristics are briefly described here.
The environment consists of a number of factors, events, conditions and influences
arising from different sources. It is difficult
to comprehend at once the factors constituting a given environment.
but difficult to grasp in totality
Mobile phones making music system, computers books obsolete
The environment is constantly changing
in nature. Due to the many and varied influences operating, there is dynamism in the environment causing it to continuously
change its shape and character.
The film industry generates revenue from ring tones / caller tunes rather
than sale of music CD
What shape and character an environment assumes depends on the perception of the observer. A particular change in the environment, or a new development,
may be viewed differently by different observers. This is frequently seen when
the same development is welcomed as an opportunity by one company while
another company perceives it as a threat.
LCD and Plasma TV’s giving way to LED and now LED’s giving way to 3D TV's
The environment has a far-reaching impact on organizations. The growth and profitability of an organization depends
critically on the environment in which it exists. Any environmental change has
an impact on the organization in several
An organisation like Aditya Birla Group has moved from textile to cement to retail and to financial services as
well as telecom due to changing circumstances
IMPORTANCE OF BUSINESS ENVIRONMENT
There is a close and continuous interaction between a business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively. It helps the business in the following ways:
i. Determining Opportunities and Threats: The interaction between the business and its environment would bring out opportunities for and threats to the business.
ii. Giving Direction for Growth: The interaction with the environment enables the business to identify the areas for growth and expansion of their activities.
iii. Continuous Learning: The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in the realm of business.
iv. Image Building: Environmental understanding helps the business organizations in improving their image by showing their sensitivity to the environment in which they operate. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPPs) in their factories to meet their own requirement of power.
v. Meeting Competition: It helps the firms to analyze the competitors’ strategies and formulate their own strategies accordingly.
RELATIONSHIP BETWEEN ORGANIZATION AND ITS ENVIRONMENT
In relation to the individual corporate enterprise, the external environment offers a range of opportunities, limitations , threats and pressures and thereby influences the structure and functioning of the enterprise
The relationship between the organization and its environment may be discussed in terms of interactions between them in several major areas which are outlined below:
Reality Bite: Any data having commercial importance is information. For Example: change in the government law for new vehicles engine norms is data for a biscuit manufacturer but an information for an Automobile Manufacturer
Reality Bite: FMCG company Patanjali endorsed by Baba Ramdev’s is now a big player in the industry and is giving a tough competition to the well-established FMCG players like HUL, Godrej, Dabur, P & G etc. Now people prefer ayurvedic products over chemical products.
Patanjali’s success has taken it to a position where it can influence the market surely.
Patanjali gathers the information from the market, competitors, etc. about the public
preferences and demands and then uses it to fulfil them through modification in the existing products or launching new products.
In defining the relationship between the organization and the environment, one has to be clear on the diversity of both these entities. The nature of relationship depends on the size of the organization, its age, the nature of business, the nature of ownership, degree of professionalization of management, etc.
ORGANIZATION’S RESPONSE TO ITS ENVIRONMENT
Organizations must have the capacity to monitor and make sense of their environments if they are to respond appropriately. They must identify and attend to those environmental factors and features that are closely related to goal achievement and performance. Moreover, they must have the internal capacity to develop effective responses.
Three classes of responses are described below:
Reality Bite: Pharmaceutical firms are forming strategic alliances to distribute non-competing medications and avoid the high costs of establishing sales organizations; firms from different countries are forming joint ventures to overcome restrictive trade barriers, and high-technology firms are forming research consortia to undertake significant and costly research and development