Business Environment

Definition
The word Environment doesnt refer to the natural or ecological environment. It is a generic concept which combined the totality of environment process which may influence any aspect of organizational activity. Business environment refers to the aggregate of all forces and institutions which are external to and beyond the control of individual business concerns and their managements C. B. Gupta.

Organizational environment is the combination of factors or elements that influence the way an organizations functions. Mosely

Willson has suggested 3 brode concept of the environment. According to him, the business environment may be viewed as: 1. An objective fact, a clear, measurable and definable reality. 2. A subjective fact, its particular characteristics being dependent or each individual interpretation and perception. 3. Enacted, where the division between organization and environment is not clear and where the environment is created and defined by individuals.

A Classification of Environmental Forces

Legal

Ecological

Competitive

Political

ORGANIZATION
Technological

Economic

Fig: LEPESTEC analysis.

Social

Dartboard Model

Technology sector

Government sector

Economy sector

Industrial raw material market Sector

Socio-culture sector

Human Resource sector

International sector

Finance sector

According to Peace & Robinson, They categorized a firm external environment into three groups: 1. Remote environment: It involves global and domestic political, social and technological sectors. 2. Industry environment: It involves competitive forces. 3. Operating environment: It involves mixed group of actors including suppliers and customers.

Basis of classification
Classification of the type outlined before attempt to figure out the business environment and although they tend to simplify reality, they help us to identify and understand what are complex environmental process and forces. These classifications serve as useful tools to aid/contribute the company for analyzing the environment. The real environment or reality means the complex array of inter-related courses to find out and gain the insight of the environment. In reality, there are number of forces that influence the organizational activities.

Environmental stakeholders
A stakeholder may be a person, organization, interest groups or other parties which holds interest and risk (stake) in the business. The prime concern with the stake holders concept is to identify and categorized the power groups as the part of organizations business environment.

Example: HIGHER EDUCATION The stakeholder of a university may be: Government. Department of education. Students. Quality assessment bodies. Local government. Local residence. Other regional higher educational institution. Tax payers. Finding body.

Geo-political scales
The Geo refers to geographical scale involving the levels of political govt. that influence the organizations variance activities. At the local level, in most countries there is a level or tire of govt. which is responsible for certain activities within a relatively small area. Most organizations are influenced by environmental forces operating at different geo-political levels.

The organization-environment relationship

The relationship or direction of influence between environment and organization is not unidirectional symbol or static.

Organizations have different type of influence which helps to form and give shape to the business environment. Environment then influences the organization to change. Thus, the reality is that, many profoundly shape to the business environment and that facing many other organizations. Each organization forms part of the business organization such as suppliers, competitors, buyers and so forth.

Filters

Organizations

Environment

Actions

Fig: the organization-environment relationship. Any organization especially sizable influences others; exert considerable pressures for change in their business environment. For example, BANGLALINK. The companies can control their future if they know how to influence the destiny of their industry. HAMEL & PRAHALAD.

Sometimes organizations within a business sector collaborate with each other in order to maintain a stable environment within known competitive conditions. For example, cement industry. External Environmental forces . operating at a Range of .. Geo-political scales

Information flows
O R G A N I Z A T I O N

Individual & organizational Perpetual filters

O R G

Decision making

A N I

operational and strategic action

Z A T

Implication for organization

I O N

Fig: Model of business environment. Information about an organizations environment may take a variety of forms. For example, it may combine sophisticated data from a strategic management information system.

Environmental information is always the result of human analysis. It has passed through the complex perceptual filters which exist within every organization equally. Perceptual filter means all the internal mechanism within an organization which enables managers to construct their own view of environmental realities. Managers at all levels utilize environmental information to facilitate their decision making in order to enable the organization to operate successfully. The environment often determines and always influences the future codes of action of organization.

Factors that affect/influence individual & organizational perception According to Miller, The managers perception of their environment has a greater influence on organizational decision making and eventual strategic direction. The main influences upon individual and organizational perception are given below: 1. Characteristics of individual such as background, education and duration of employment within the organization. 2. Organizational culture. 3. Organizational politics, structure and control mechanism. 4. History and development of an organization. 5. Industrial sector relationships.

Environmental forecasting
Forecasting may be viewed as an uncertain science that time is not spend attempting to foresee what is often regarded as the unforeseeable. Managers preferred to be influenced by a combination of information resulting from their accumulated experience in business and a variety of perceptual measures of their environment. Normally forecasting is the process of assessing the potential impact of lightly changes in the environmental offers organization and advantage over their competitors by enabling decision makers to narrow the range of option.

Approaches for forecasting

Managers need to take a step by step approach to the forecasting. Their model outlined 5 steps: 1. Selection of environmental variables that is critical to the organization. 2. Selection of sources of information about those variables. 3. Evaluation of forecasting techniques. 4. Integration of the result of forecasting into the strategic management process. 5. Monitoring and evolution of the critical aspects of these forecast.

Techniques for forecasting

1. Time series model: It attends to identify trends in variable based on historical data or cyclical factor and exert influence into the future. For example, based on population then forecast the future demographic change. 2. Judgmental model: This mainly based upon the subjective forecast, based upon the informed opinion of people in the relevant field. For example, forecasting by sales force personnel. 3. Brainstorming: It can usually be implied to estimate future trends in technology development. 4. Delphy method: It is more systematic technique than brainstorming. This method attends to gain consensus among a group of people such as a senior strategic management group. 5. Scenario development: It recognizes judgmental and non-quantitative information such as changing fashions. Scenarios are pictures or stories of what might be the case on some future date and take these into consideration in the planning process. 6. Potential risk rating: This take into consideration, the stability and creditability of nations and their governments and advice commercial organization and govt. on the risk involved in overseas investment.

Impact Analysis
These involve ascertaining a series of potential environmental changes and assessing the probable effect of these on a range of organizations usually direct competitors. The impact of a change is firstly assessed as either positive or negative influence.

Environmental Scenario Ecological Economic Political

Company 1 ++

Company 2 -

Company 3 +++ -

Fig: A model of impact analysis. Impact analysis enables managers or analysts to assess the effects of environmental change on an organization and upon its competitors clearly, where such changes are likely to adversely affect on organization more than its competitors. For this, contingency planning needs to be considered.

Environmental Analysis and strategic process

Structure of business Environment
1. Machine structure: In environment, there are certain and stable organization will tend to develop a front and structure which is most efficient in relation to that environment probably want with a high degree of managerial control and mechanistic structures and systems. 2. Organic structure: If an organizations environment is uncertain and complex, managers design structures with greater flexibility. The success of commercial firms depends on their ability to foresee and subsequently act upon environmental information. According to Miles & Snow (1978) There are various types of organization which causes quite different capabilities and motivations in this respect. Their typology of organizations refers to the style in which they operate strategically.

This style influences their relationship with the business environment and in turn is influenced by that environment.

Types of organizations

Organizations
Defenders
Prospectors Analyzers

Reactors

1. Defenders org.: This type of organizations attempt to create a stable environment which suits or matches their non-dynamic structure and strategy. 2. Prospectors org.: They view their environment as ever changing and seek continuous strategic and structural adjustment to cope with those changes. They are continuously searching for new opportunities and in the process may create change and uncertainty for others within competitive environment. 3. Analyzers org.: These types of organizations are capable of acting in both stable and unstable environment. 4. Reactors org.: They act when environmental change forces them to do so. They are not proactive organization.

Types of approaches affecting the business environment

Approaches Of Business environment

Rationalist Approach

Subjectivist Approach

1. Rationalists approach: It argues that strategic planning should be undertaken in a logical and largely linear fashion. It is suggested that organizations monitor their business environment and analyze their internal resource position in order to assess what strengths and weaknesses they have which might facilitate the exploitation of environmental opportunities and the avoidance of environmental threats. A stakeholder analysis is also important at this stage. 2. Subjectivist approach: This approach based on imperial research and intuitive judgment and attempts to explain the actual processes that take place in organizations. This approach tends to be less prescriptive. Organizations are not entirely rational or logical in their environmental decision making process. Organization level filters of an intensely human nature may disrupt mechanical linear planning process, influence the nature and quality of information available and severely limit the range of strategic choices. The firms then do seek adoption to their environment according to their limitation and repeation as competitors.

Many successful organizations use resources more creatively and challenge environmental assumptions.