Lesson 2

• Internal understanding of the business environment

  Makes the executives understand the present and the future of the firm's direction and growth
• General business environment


  Dimensions in the broader society that influence an industry and the firms within it
• Business environment


  The aggregate of all conditions, events and influences that surround and affect business
• Definitions of business environment

  • The total of all things external to firms and industries which affect their organization and operation (Keith Davis)
  • 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 (Glueck and Jauch)
• Important factors in the business environment

  • General Environment
  • Industry Environment
  • Competitor
• General Environment


  The focus is seeing the industry in the future and how it will affect present and future operations
• Industry Environment


  The analysis of the firm's conditions profitability within the industry
• Competitor


  The focus is on predicting the dynamics of competition that are related to their operational actions, responses and intentions
• Initially only external forces were considered as the business environment. But in modern scenario, business policies and actions are affected by internal forces also.
• Environmental Analysis


  The process of identifying the relevant factors that have a direct or indirect impact on the effective and efficient functioning of the business
• Steps in Environmental Analysis

  • Scanning
  • Monitoring
  • Forecasting
  • Assessing
• Scanning


  The process by which organizations monitor their relevant environment to identify opportunities and threats affecting their business for the purpose of taking strategic decisions
• Monitoring


  The process of carefully observing the changes in the environment and seeing the effects from the scanning information
• Forecasting


  The process of developing projections of what might happen and how quickly the company developed strategies to be competitive in the changing business environment
• Assessing


  The process of determining the timing and significance of the effects of the environmental changes and trends on the strategic management of the company
• Segmentation


  The division into separate parts or sections
• Market Segmentation


  The process of dividing a company's target market into groups of potential customers with similar needs and behaviors
• Segments that affect operation of the firm

  • Demographic Segment
  • Economic Segment
  • Political and Legal Segment
  • The Advancement on Technology Segment
  • The World of Business Segments
• Demographic Segment


  Concerned with the population's size, age structure, geographic distribution system, ethnic groups, and economic index
• Economic Segment


  Refers to the nature and directions of the country with economic stability
• Political and Legal Segment


  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
• 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 World of Business Segments

  Globalization of the business market creates both opportunities and challenges