Business Environment Lesson 2 PDF

LESSON 2  Objectives After this lesson, you should be able to: 1. Know the business condition in the external environment. 2. Know Environmental analysis and understand the importance of segmenting the market. 3. Know and understand the steps in environment analysis and 4. Know the dif...

LESSON 2  Objectives After this lesson, you should be able to: 1. Know the business condition in the external environment. 2. Know Environmental analysis and understand the importance of segmenting the market. 3. Know and understand the steps in environment analysis and 4. Know the different segmentation in the environment. An internal understanding of the business environment will make the executives understand the present and the future of the firm’s direction and growth. The general business environment is composed of dimensions in the broader society that influence an industry and the firms within it. The extent to which the business thrives depends on the manner in which it interacts with its environment. The success of the business operation is dependent on the capacity to favorably influence the business environment and earn the desired profit.  What is Business Business environment is the aggregate of all conditions, events and influences that surround and affect business. ( Keith Davis) Business environment refers to “the total of all things external to firms and industries which affect their organization and operation.(Bayord O. Wheeler) Business environment encompasses the climate or set of conditions, economic, social, political, or institutional in which business operations are conducted.( Arthtur M. Weimer) 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 sectors are socio- economic, technological, supplier, competitors, and government. (Glueck and Jauch) IMPORTANT FACTORS IN THE BUSINESS 1. General Environment The focus is seeing the industry in the future and how it will affect present and future operations. The general business landscape is wide and open for exploration and seeing the business condition miles ahead is an important factor in the survival of the business. 2. Industry Environment It refers to the analysis of the firm’s conditions profitability within the industry. The analysis will generate data on the firm’s capability to compete within the business industrial community on its products and services based on the programmed vision and mission. 3. Competitor It focus on predicting the dynamics of competition that are related to their operational actions, responses and intentions. Seeing how the competitors operate will give insights on what strategies will most likely overcome the mare Initially only external forces were considered as the business environment. But in modern scenario, business policies and actions are affected by internal forces also. Thus, the integral elements of business environment include both the internal as well as the external factors, as both have an impact on business.  What is Environmental Analysis? Environment Analysis is the process of identifying the relevant factors that have a direct or indirect impact on the effective and efficient functioning of the business. It is a process to identify all the external and internal elements, which can affect the organization’s performance. It is a strategic tool. The analysis entails assessing the level of threat or opportunity the factors might present. These evaluations are later translated into the decision-making process. The analysis helps align strategies with the firm’s environment.  STEPS IN ENVIRONMENTAL ANALYSIS 1. Scanning It is important to analyze the data carefully as the source of information is usually complete and unconnected. Generally, the important in highly volatile business environment. The process by which organizations monitor their relevant environment to identify opportunities and threats affecting their business for the purpose of taking strategic decisions. The process of gathering information regarding company’s environment, analyzing it and forecasting the impact of all predictable environmental changes. It helps the managers to decide the future path of the organization. 2. Monitoring The process of carefully observing the changes in the environment and seeing the effects from the scanning information. The trends and events are opportunities that should be explore by the firm and determine the degree of corporate adjustments. Monitoring the changes in technological innovations is important as today’s business changes so rapidly with new technology in the production of products and services. It is important to detect meanings in the changes of events and trends. 3. Forecasting The result of scanning and monitoring. The process of developing projections of what might happen and how quickly the company developed strategies to be competitive in the changing business environment. It is derived from results of the analysis of the changes in the environment. It may deal in the changes and training of the workforce and development of new marketing strategies to reach the consumers before the competitors get the market niche. 4. Assessing It is the process of determining the timing and significance of the effects of the environmental changes and trends on the strategic management of the company. The objective is to understand the general environment and to specify the actions that will be implemented to adjust the changes in the environment. The absence of assessment will leave the data useless as the unknown competitive relevance is not properly taken advantage by the firm. SEGMENTATION OF THE GENERAL ENVIRONMENT Segmentation The division into separate parts or sections. It is the process of dividing a company's target market into groups of potential customers with similar needs and behaviors. Segmentation in the Market It is the process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers based on shared characteristics Market Segmentation It creates subsets of a market based on demographics, needs, priorities, common interests, and other psychographic or behavioral criteria. It is a way of aggregating prospective buyers into groups with common needs and who respond similarly to a marketing action. For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements. Understanding these different market segments enables the athletic footwear company to market its branding appropriately.  5 Segments that affect operation of the firm 1. Demographic Segment It is concerned with the population’s size, age structure, geographic distribution system, ethnic groups, and economic index. It should be analyze on the global basis as it has potential effects across countries. It helps organizations understand consumer behavior accurately that in turn, helps them perform better.  Categories of Demographic Segment a. Population Size Population (population index) B. Age Structure Growth rate Middle age group dominate the population Other countries life span increases due to advancement of medical care and better lifestyle. C. Geographic Distribution Development of Urban centers are opportunities for corporate strategies. Growth of communication linkages due to increase of technologies. D. Ethnic Mix Ethnic groups begin to move from mountain residences to more populated centers. 2. Economic Segment It refers to the nature and directions of the country with economic stability. The center on the economic conditions within which organizations operate. It includes elements such as interest rates, inflation rates, gross domestic product, unemployment rates, levels of disposable income, and the general growth or decline of the economy. 3. Political and Legal Segment It is the arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations as well as between firms and various local governmental agencies. This segment is concerned with how interest groups and organizations attempt to influence representatives of governments (and governmental agencies) and how they, in turn, are influenced by them. It is also concerned with the outcomes of legal proceedings in which the courts interpret the various laws and regulations. 4. The Advancement on Technology Segment Firms and other organizations develop new technology and new products have great advantage in higher market share and earn considerable advantage. The role of executive is to scan and monitor the development of new technology and endeavor to identify the possible substitute for new systems and products that will give them the higher competitive market share. Companies and individual customers could have an easy access to information and make easy transactions using the information highway. Technology has the great medium change in the communication of the business and possess the greater competitive advantage in challenges. 5. The World of Business Segments Globalization of the business market creates both opportunities and challenges. The present scenario is trade and commerce is the creation of bordless flow of product and services. The nation’s development of industries and creation of investments for the production of goods are challenges not only for the firm but also for the government. Effective governance and political well pose the challenges to national leadership as well as those in the rural sectors where new industries could be developed.  THE END THANK