TYPES OFInfluencing

Factors BUSINESS ENVIRONMENT

Business Environment

Task or specific environment includes those sectors that have a direct working relationship with the
organization. Example, customers, competitors, and suppliers.

 Customers are defined as people and organizations who acquire goods or services from the organization.

 Example, patients are the customers of hospitals, students are the customers of schools, and travelers the
customers of airlines.

 Competitors are other organizations in the same industry or type of business that provide goods or
services to the same set of customers.

 Example, Coca-Cola and Pepsi are competitors in the soft-drink market. Blue Dart and FedEx are
competitors in courier industry.

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 TYPES OFInfluencing
Factors BUSINESS ENVIRONMENT
Business Environment

 Suppliers provide the raw materials that organization uses to produce its output.

 Example, a steel mill requires iron ore, machines, and financial resources that are provided by suppliers.

 Many companies are using fewer suppliers and trying to build good relationships with them so that they will
receive high-quality parts and materials at lower prices.

 The relationship between manufacturers and suppliers is important because:

 saving money

 maintaining quality

 speeding products to market

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 IMPORTANCE OFofBUSINESS
Importance ENVIRONMENT
Business Environment
• Enables to identify business opportunities

• Helps in tapping useful resources

• Coping with changes

• Assistance in planning

• Helps in improving performance

• To adopt flexible style of management

• To facilitate quick decision-making process with changing tastes, preferences of

customers.

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 ENVIRONMENTAL APPRAISAL
Environmental Appraisal
 Business environment is rapidly changing and it has a great impact on the
functioning of the business.

 Environmental appraisal is the process of identifying opportunities and

threats facing an organization.

 Environmental appraisal help the firm to:

 understand what is happening both inside and outside the organization.

 congruence of organizational strategies with business environment.

 identify strength, weakness, opportunities and threats of business

environment.

 ‘SWOT’ analysis is necessary for the survival and growth of every business
enterprise.

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 APPROACHES OF ENVIRONMENTAL
Approaches of Environmental Appraisal
APPRAISAL
• Systematic Approach: Information for environmental scanning is collected systematically. Information related to
markets and customers, changes in legislation and regulations, government policy statements, etc., could be
collected. Continuous updating is necessary not only for strategic management but also for operational
activities.
• Ad hoc Approach: Here, an organization conduct special surveys and studies to deal with specific environmental
issues from time to time. Such studies may be conducted, for instance, when organization has to undertake special
projects, evaluate existing strategy or devise new strategies. Changes and unforeseen developments may be
investigated with regard to their impact on the organization.
• Processed-form Approach: The organization uses information in a processed form, available from different
sources both inside and outside the organization. When an organization uses information supplied by government
agencies or private institutions, it uses secondary sources of data and the information is available in processed form.

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TECHNIQUES OF ENVIRONMENTAL
APPRAISAL
SWOT ANALYSIS ETOP ANALYSIS
• Strength, Opportunity, • Environmental Threat and
Weakness and Threat Profile Analysis

PESTLE ANALYSIS
• Political, Economic, Social,
Technological, Legal and
Environmental analysis

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 INDUSTRY
IndustryAPPRAISAL
Analysis

 Industry analysis is performed by business proprietors and other management experts to evaluate the
present business environment.

 Industry analysis reviews the economic, political and market factors that influence the way the
industry develops.

 Industry analysis enables small business owners to identify the threats and opportunities facing
their businesses, and to focus their resources on developing unique capabilities that could lead to a
competitive advantage.

 It consists of three major elements: the underlying forces at work in the industry; the overall
attractiveness of the industry; and the critical factors that determine a company's success within
the industry.

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 PORTER’S FIVE
Porters FORCES
Five Forces ModelMODEL

 The Five Forces Model was published in Michael E. Porter's book, Competitive Strategy: Techniques
for Analyzing Industries and Competitors in 1980.

 Porter's model identifies and analyzes five competitive forces that shape every industry and helps
determine an industry's weaknesses and strengths.

 Five Forces analysis is frequently used to identify an industry's structure to determine corporate
strategy.

 It can be applied to any segment of the economy to understand the level of competition within
the industry and enhance company's long-term profitability.

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 PORTER’S FIVE
Porters FORCES
Five Forces ModelMODEL

 The Five Forces model is widely used to analyze the industry structure of a company as well as its corporate strategy.
 Porter identified five undeniable forces that play a part in shaping every market and industry in the world, with
some caveats.
 The five forces are frequently used to measure competition intensity, attractiveness, and profitability of an industry
or market.
 Porter's five forces are:
 Competition in the industry
 Potential of new entrants into the industry
 Power of suppliers
 Power of customers
 Threat of substitute products
Source: Robbins, S.P. and Coulter, M. (2012), Management, Prentice Hall, New Jersey, USA.
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NEED FOR RESOURCE AND CAPABILITY ANALYSIS

 Contemporary era demands optimal and effective utilization of scarce organizational resources and
capabilities.

 Resource-based View considers firm as a bundle of resources and capabilities.

 These distinct resources and capabilities underpin competitive advantage.

 Specific combination and coordination of resources is critical to competitive advantage.

 Strategy based on skilled diagnosis and creative solutions are crucial for organizations.

 Detailed knowledge of market and competitive conditions is critical.

 Strategy based competitive analysis create value for organization and society at large.

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 RESOURCES AND CAPABILITIES

 Resources and capabilities are the sources of competitive advantage and the primary source of
profitability for any firm.

 Collective competencies are built on the premise of resource pool’s experience, skills and knowledge.

 Resources and capabilities empower a company to drive the business and face competition with
their products and offerings for the need of customers.

 Capabilities are essential in order to enhance resource efficiency and effectiveness.

 Resources and capabilities together ensure that you develop a competitive advantage that leads to a
sustainable competitive advantage for the future.

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 RESOURCES

What is Resource: A resource is anything that a firm has or has learned to do that enables it to conceive and
implement strategies that improve its efficiency and effectiveness. (Haberberg and Rieple, 2001)

Resources can be divided into:

• Tangible : Physical and financial assets (Eg: Machinery, offices, warehouses)

• Intangible : Skills, reputation and brand names (Eg: Goodwill, Brand value)

• Human Resources: Skilled Employees

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 ANALYSIS OFofRESOURCES
Analysis resources
 Resource-based view of a firm is a concept developed by Jay Barney to analyze operations and measure performance of
an organization.

 According to Barney, a firm has to identify its resources, evaluate them to identify the key resources which give the firm its
competitive advantage and protect them to maintain the strategic advantage.

 The resources are classified on four criteria, VRIN defined as below:

 V for valuable resources, using which a firm can devise strategies for improving efficiency and effectiveness.

 R for rare resources, which are not available for competitors.

 I for imperfectly imitable, meaning those that can not be easily imitated or copied to appear as those belonging to the
firm, and,

 N for non-substitutable, meaning which cannot be substituted by any other easily available resource.
(Source: Barney, J. 1991: Firm Resources and Sustained Competitive Advantage).

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 CAPABILITIES
 Capability is the knowledge set that distinguishes and provides competitive advantage (Leonard-Barton, 1992).

 Identification of core competencies or capabilities can be useful in identifying what contributes more to
customer value and which market segments to target.

 A firm must analyze which resources and capabilities are most important in providing a sustainable competitive
advantage to the firm.

 It should also identify its strengths and weaknesses with respect to its competitors.

 The firm must ensure that all resources and capabilities are fully employed and exploited.

 It must focus on regenerating valuable resources and building competencies.

 In a rapidly changing external environment, a focus on internal resources and capabilities is more secure than
market focus.

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 CAPABILITIES CAN BE ?

 Specialized knowledge

 Customer service orientation

 Design expertise

 Application expertise

 Ability to utilize relevant technologies

 System design capability

 Fact and flexible response capability

 Situation handling capability

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 SUGGESTED READINGS
 Leonard-Barton, D. (1992). "Core capabilities & core rigidities: A paradox in managing new product
development”, Strategic Management Journal, 13(special): 111-128.

 Ulrick, D. and D. Lake (1991). “Organizational capability: Creating competitive advantage.” Academy of
Management Executive, 5(1): 77-91.

 Yeung, K. A. and B. Berman (1997). “Adding value through human resources: Reorienting human
resource measurement to drive business performance.” Human Resource Management, 36(3): 321-335.

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