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BUSINESS ENVIRONMENTDr. C.S. Siva PrakashBusiness ?PRODUCTION OF GOODS DELIVERY OF SERVICESALES OF GOODS

FOR WHAT ?

PROFITSUPPORT FOR ECONOMIC GROWTHSOCIAL COMMITMENTS Business Organization ?

Any Similarity between an INDIVIDUAL and a BUSINESS ORGANIZATION ?Industry?Major industries in India ? Automobile Industry Aluminum Industry Cement Industry Dairy Industry Fertilizer Industry IT Industry Jute Industry

Pharmaceutical Industry Petrochemical Industry Polymers Industry Steel Industry Sugar Industry Telecom IndustryElectronics/Electrical IndustryMajor industries in IndiaAviation IndustryBanking Industry Entertainment and Media IndustryInvestment Industry Insurance Industry Software Industry &OutsourcingEvent Management Industry Health Care IndustryHospitality Industry

Industry CharacteristicsIndustries are the circles in the supply chain process

Each industry is a set of firms that operate in the same space in a supply chain,

Also competing to control some of the space and so gain profit.Industries have structure, history/ trajectory and Competitive Dynamics that set the context for new entrants.

Industries operates within the set of environmental force.

So it is important to critically analysis the environment force to drive the organization successfully.

Cont.1950197019902010INDUSTRIAL TRANSFORMATION IN INDIA Environment ?Business Environment ?Internal EnvironmentExternal Environment

Micro Environment

Macro Environment

Firm/Organization:5MSVisionStructureCulture

IndustryGovernmentUnionCompetitorsCreditorsSuppliersCustomersCommunitiesStockholdersSocio culturalPolitical/LegalTechnologicalEconomic

Macro -EnvironmentMicro -EnvironmentInternal -EnvironmentNaturalMkt IntermediariesFinancial Intermediaries5MSVisionStructureCulture

Internal -Environment5MSVisionStructureCulture

STRENGTHWEAKNESSInternal -EnvironmentInternalGovernmentUnionCompetitorsCreditorsSuppliersCustomersCommunitiesStockholdersMicro -EnvironmentINTERNALSocio CulturalPolitical/LegalTechnologicalEconomic

Macro -EnvironmentMICRONaturalInternational EnvironmentMicro Environment

Macro Environment

OPPORTUNITIESTHREATS

SWOT ANALYSISSIVA PRAKASH C.S ,FACULTY ,IMKAlbert Humphrey at Stanford University in the 1960sSWOT Analysis

Finance Management Is the organization profitable? Marketing management orientation business towards market.Human resources good quality talent pool is an asset. Business processes- Are these effective/efficient? IT- Is IT integrated into all business processes(MIS)? Communication- Are there effective lines of communication? Management and Leadership- What are the management and leadership styles? Cost- What unique or lowest cost resources do you have access to? Competitive Advantage- What do you do better than anyone else? What advantages do you or your company have? R&D and innovation Resources- What unique or lowest cost resources do you have access to? Sales- What are the factors that have led to an increase or decrease in sales? INTERNAL ANALYSISCompetitors- What does their SWOT look like? Are competitors doing or changing anything?

Markets- Are there any new markets for our products or services? Is there any new products or services for our market?

Political/Environmental Climate- Is there any government legislation?

Demographics Are there any age or socio-economic factors?

Technology- Are there any new technological breakthroughs? Is changing technology giving competitors the edge?

Barriers- What barriers exist in the marketplace?

Trends- Are there any trends or patterns in the market? Are the industry, technology, socio-cultural trends changing?

EXTERNAL ANALYSIS

Strengths outweigh weaknesses, opportunities outweigh threats (SO) supports a growth strategy.

Strengths outweigh weaknesses, threats outweigh opportunities(ST) supports a maintenance strategy.

Weaknesses outweigh strengths, opportunities outweigh threats( WO) supports a harvest strategy.

Weaknesses outweigh strengths, threats outweigh opportunities (WT) supports a retrenchment strategy. STRATEGIES BASED ON SWOT ANALYSIS COMPETITIVE ENVIRONMENT OF INDUSTRY A competitive environment is where there are several similar firms that are competing for the same market segment.

These firms normally produce products of the same nature and form and whose uses are more or less the same.

However, because of the competition that exists for the market, these firms are likely to differentiate their products to endear them to a larger number of consumers compared to their rivals.INDUSTRY ATTRACTIVENESSThreat of New EntrantsThreat of New EntrantsPorters Five Forces Model of CompetitionBargaining Power of SuppliersBargaining Power of BuyersThreat of Substitute ProductsRivalry Among Competing Firms in Industry2511Barriers to EntryHigh Economies of ScaleHgih Access to input High Product Differentiation/ Brand EquityHigh Capital RequirementsHigh Switching CostsHigh cost of accessing Dist ChannelsHigh Absolute Cost Advantages(Experience, Technology, IPR,)High Expected RetaliationHigh Level of Government ProtectionBTE is High When .2612Suppliers exert power by:* Threatening to raise prices or to reduce quality Suppliers are likely to be powerful if:Few Firms Dominate Supplier IndustryFew Substituted for Supplier Products (SP)Buyer Not an Imp Customer for SupplierSP important (price/quality) to BuyerSP is Highly DifferentiatedSP Has High Switching CostsSP high with threat of Foreward Integration Low Threat of Backward Integration by Buyer2715Buyers exercise power by* Bargaining down prices* Forcing higher qualityBuyer groups are likely to be powerful if:Buyer concentration is highPurchase accounts for a significant fraction of suppliers salesProducts are undifferentiatedBuyers least switching costsBuyers industry earns low profitsBuyer presents a credible threat of backward integration2818Substitutes limit the prices firms can chargeThreat of Substitute Products Close Substitute Available Low Switching Cost High Price Value Performance of Substitutes High Profitability of Producers of substitutesHigh When 2921Cutthroat competition is more likely when:Rivalry Among Existing Competitors

Large number of competitors (Low Concentration Ratios)Many equally balanced competitors Slow growth industryIndustry at shakeout stage High fixed costs & High Storage CostsChanging conditions of demand and supplyLack of product differentiationLow switching costs between rivals productsHigh strategic stakesHigh exit barriers

3026Highly Specialized assetsHigh Fixed Cost of exit (e.g., labor agreements)High Government and social restrictionsHigh Strategic interrelationshipsRivalry Among Existing CompetitorsExit barriers are High When 3127 The Five Forces Framework Industry CompetitorsFactors affecting Rivalry:Industry growthConcentration and balanceFixed costs/value addedIntermittent overcapacityProduct differencesBrand identitySwitching costsInformational complexityDiversity of competitorsCorporate stakesExit barriers Industry CompetitorsFactors affecting Rivalry:Industry growthConcentration and balanceFixed costs/value addedIntermittent overcapacityProduct differencesBrand identitySwitching costsInformational complexityDiversity of competitorsCorporate stakesExit barriers New EntrantsEntry Barriers:Economies of scaleBrand identityCapital requirementsProprietary product differencesSwitching costsAccess to distributionProprietary learning curveAccess to necessary inputsLow-cost product designGovernment policyNew EntrantsEntry Barriers:Economies of scaleBrand identityCapital requirementsProprietary product differencesSwitching costsAccess to distributionProprietary learning curveAccess to necessary inputsLow-cost product designGovernment policyExpected retaliation SubstitutesThreat determined by:Relative price performanceof substitutesSwitching costsBuyer propensity to substitute SubstitutesThreat determined by:Relative price performanceof substitutesSwitching costsBuyer propensity to substitute SuppliersSources of Bargaining Power:Switching costsDifferentiation of inputsSupplier concentrationPresence of substitute inputsImportance of volume to suppliersImpact of inputs on cost or differentiationThreat of forward/backward integrationCost relative to total purchases in industrySuppliersSources of Bargaining Power:Switching costsDifferentiation of inputsSupplier concentrationPresence of substitute inputsImportance of volume to suppliersImpact of inputs on cost or differentiationThreat of forward/backward integrationCost relative to total purchases in industry BuyersBargaining Power of Buyers:Buyer concentrationBuyer volumeSwitching costsBuyer informationBuyer profitsSubstitute productsPull-throughPrice sensitivityPrice/total purchasesProduct differencesBrand identityAbility to backward integrateImpact on quality/performanceDecision makers incentives BuyersBargaining Power of Buyers:Buyer concentrationBuyer volumeSwitching costsBuyer informationBuyer profitsSubstitute productsPull-throughPrice sensitivityPrice/total purchasesProduct differencesBrand identityAbility to backward integrateImpact on quality/performanceDecision makers incentives32Characteristics Of Business Environment1. Business environment is compound in nature.2. Business environment is constantly changing process.3. Business environment is different for different business units.4. It has both long term and short term impact.5. Unlimited influence of external environment factors.6. It is very uncertain.7. Inter-related components.8. It includes both internal and external environment. How the organization sets future direction for sustainable growth?

SET VISIONSET MISSIONS DO ENVIRONMENTAL SCANNINGDO SWOT ANALYSISDO COMPETITIVE ANALYSISSET CROSS FUNCTIONAL OBJECTIVES MONITOR ,CONTROL TO ATTAIN VISION