SIGNIFICANCE OF ENVIRONMENTAL ANALYSIS
Under the Guidance of
Lecturer in Management,
Hind Seva Parishad’s Public Night Degree College,
Meaning & Definition6
Types of Business Environments9
Techniques of Environmental Analysis11
Every business firm or organisation is influenced by the environment it operates in, which is complex and dynamic in nature. Environment refers to all factors, the forces of influence of which have a bearing on functioning of the business. These factors may be internal such as the personnel and internal mechanism of the organisation; or external such as competition, government policies, customer preferences, etc.
Internal factors are controllable in nature. They include human resources, financial strength, marketing resources, physical assets, technological competitiveness, management structure and nature, company image and brand equity, value system, etc. These factors highlight the strengths and weaknesses of the organisation. Weaknesses must be minimized or they may prove fatal to its survival.
External factors are beyond the control of the organisation. They refer to the external environment – Macro-environment (General environment) as well as Micro-environment (Operating environment). Micro-environmental factors tend to have a direct impact on the firm and are more intimately linked with the company than Macro-environmental factors. Micro-environmental factors include customers, competitors, channel intermediaries, suppliers, etc. Macro-environmental factors may be Demographic such as population size and density, literacy rate; Economic such as economic and fiscal policies of government, national and international trade situation, demand and supply factors; Physical environment and ecological factors such as availability of natural resources, pollution situation; Technological factors such as availability of latest and competitive technology; or Political and Legal factors such as structure of legislature and stability of ruling political party.
The success of every business firm or organisation depends on adapting itself to the environment within which it operates. For example, when there is a change in the government policies, it has to make necessary changes to adapt it to new policies. Similarly, a change in technology may render existing products obsolete, as we have seen that the introduction of computer has replaced the typewriters. Again a change in the fashion or customers’ taste may shift the demand in the market for a particular product, e.g., the demand for jeans reduced the sale of other traditional wear.
Hence, it is very necessary to have a clear understanding of the concept of business environment and the nature of its various components.
Every business must have a strategic management mechanism in order to ensure its survival in the present competitive world.
Strategic management involves formulating, implementing and evaluating cross functional decisions that will enable the organisation to achieve its objectives. It is the process of specifying the organisation’s objectives, developing policies and plans to achieve these objectives and allocating resources to implement the policies and plans to achieve the organisation’s objectives. It, therefore, combines the activities of all the various functional areas. It ensures correct direction for the enterprise.
Strategic management does not replace traditional management activities such as budgeting, planning, monitoring, marketing, reporting and controlling. Rather, it integrates them into a broader...