Chapter 1 Introduction to SHRM

8/12/2019 Chapter 1 Introduction to SHRM

1/48

CHAPTER 1Business Environment & Importance

of Strategic Planning for Business

Success


2/48

Learning Objectives

To familiarize the readers with the meaning of

business organization & how different types of

environmental forces affects its success.


3/48

Introduction

How do we define Business Organization? & How it dif fers from other

types of organization?

On comparing various business organization, say a local grocery store

where we go to buy our regular provisions or a local garment shop that

sells a ready made shirts.

But We find certain common character istics among them.

Organization has to go to specific market to acquire goods & service.

This purchased goods are transformed & new shapes and forms given to them.

finally in another market these produced goods will be sold.


4/48

Markets for

Inputs

Society usinessOrganization SocietyMarkets for

Outputs


5/48

An organization consists of group of people who jointly work on the goods

that they acquire from society to transform in to some valued goods.

Business organization can have one or more owner

They employ people but they donthave property rights over organization.

Entrepreneur funds are used to procure physical resources like plants &

building of the organization.


6/48

T-1 Bus iness Organ izat ion as a

system

IN MARKET ECONOMY LANGUAGE

A business organization is that which initiates the process of taking goods from

one market, converting them into some other goods (Added Value), and then

giving the final product back to the society.

This process can be performed by any kind of organization whether it is

individual, government or nongovernment organization.

This business organization initiate process of conversation & adds wealth to

society by generating surplus (profi t).


7/48

How it is done???

Take a Example:

There is high demand for ready made shirts by local market & fabrics are

available in burabazar but local population did not have time & energy to go

their & to buy the fabric & stitch it to make final shirts.

BUT

They could pay higher amount for the shirts which they want.

Here, local garment shop owner simply took advantage of this hidden demand

of local population & buy fabric, appoint tailor, stitch shirt & sell to the

society.


8/48

Ex: Shop keeper bought 200 meter cloth at 100/meter,

Appoints 2 tailors worth salary per 3000/month,

Selling at price of 100 rs.

Manager or agents will make systematic activities or operations.

An organization to claim itself as business organization, it must be able to do the

job of meeting the needs of group of people repeatedly over some time.

It can be created by formulating rules & regulation.

What advantages organization wi ll receive?

It ensures consistency in action across members, and across time periods also.


9/48

T-2 Business Organization as an Efficient

Arrangement to create Wealth

Org. create wealth for the society.

It does so by buying certain goods & services at a lesser price

& then selling the same goods back to the society at higher

price.

Moreover, Society is comprise variety of people with variety it

needs, its needs get meet when business org. produce &

distribute different type of goods for different type of

individual.

This leads to the decentralization of decision making as they

are nearer to the end users.


10/48

How Bus iness cons idered as an Eff ic ient

Arrangement?

Imagine situation when an individual sitting in delhi make

decision about how much what is to be bought from the

market to make bread to meet its requirement of different

population.

What might be prospect conditions that might prevailing:

- Too much bread remaining in the factory warehouse

-Too little bread reaching the people


11/48

What cou ld be the reason for such a

si tuat ion?

Reason is population are not homogenous & population at

different place have different amount of needs / demands.

Under a pure socialist system of governance (China)

production decisions are taken at central level.

As demographic profile, consumer taste & preference will get

changed so it become to difficult to measures precise demand


12/48

Sti l l Question:- Why an business Org. not any local level co-operative society can be considered as efficient wealth creator?

- A business org. is one that has clear ownership right & goal.

- They have property rights because they are the individuals who providefinance to from the organization & goal of org. is to generate simple

financial wealth.

- EX:- Bought Products @ 100 Rs, Sold @ 150 Rs.

- 50 rupees surplus generated by using plants & Employees.

- Those organsaiton which generate more surplus is considered as more eff icent

organization.


13/48

T-3 Sources of Eff iciency of Business

Organization

A business org. arrangements are more efficient because of clear

ownership based business is faster making decision in

comparison to a multi owner co-operative arrangement.

1stSource: Time Consume for making decision.

2ndSource: Pre-determined behavior of all its members.

3rdSource: it is located close to the customer, it generates goods that

are liked by the customers.

4thSource: It is driven by a very well recognized and visible goal of

creating financial wealth.


14/48

T-4 Measures of Eff iciency & Governance I ssues

Production & Distribution of goods according to business org. is an

efficient arrangement for meeting the requirements of people.

In a business organization, there are two types of members; the

owners and the employees;

:Debatable aspects to measure the eff iciency:

I s this best arrangements for distr ibution of tasks,

responsibil i ties, and wealth among owners? How does this arrangements allocate different jobs &

responsibil i ties to different employees?

What process they used to divide the wealth generated by the

firm?


15/48

The owners provide initial capital for forming

the organization and the employees provide

service to run it;

Employees are hired on a fixed contract andthey are paid their dues first;

Once the employees due are paid the rest of

the wealth are distributed to the owners or theshare holders.

How it done in Capitalistic Economy System:


16/48

Member Share

(F ir st Rights)

Owner Share

(Residual Rights)

T 5 Wh t i B i


17/48

T-5 What is Business

Success ?

Traditional measures: Surplus fund generated

per unit of asset of related investment in the firm.

One can use many other measures forevaluating the success of a firm e.g. Ratio of total

employment to asset, ratio of revenue to asset

etc.

No matter what measure of success one uses,

an organizations success would depend on

many forces operating in the environment from

where it procures and sells its goods and


18/48

T-6 What is Strategy?

Strategy is a set of intended actions e.g.

Building a new plant or closing an existing one;

Expanding ones distribution network;

Acquisition of new business or selling off an existing business;Launching of new products;

Going into new markets;

Expanding or contracting manpower in a selected division or dept.

Many of these decisions are taken with incomplete information

about the state of the world.

But for some companies and industries these issues are becoming

very critical now. Why ?

H th f b i


19/48

How the success of a business

organization could get affected?

If it is unable to keep people working for it

because of

poor internal governance policy;

If it is unable to find goods in its inputs side;

If it is unable to sell the goods produced by it;

If Govt. and public concern for its actions places

extraburden on its operation.

If others have found superior means to reach out

the customers.


20/48

Environmental Discontinuities

&

Importance of Strategic Planning

We have seen business as a small system operating within a sea of

No. of interacting & conflicting forces.

I f this forces are stable or slowly changing, a business manager

has less reason to worry about the future business prospects.

But when these same business environments become unstable due

to actions of other agents, or due to autonomous change in the

social environment, entrepreneur can no longer stick with

decisions made in past.


21/48

A Few such notable discontinues were seen in

industries:

- Replacement of cumbersome electric valves by tiny transistors.

- Displacements of big photocopying system by instantphotocopying system.

- Intranet, E-Mail in place of paper-mode communication.

One Recent example of Serious Discontinuity was Recession

in 2008-09. (Implications was):

- Many Companies failed to perform their business like tatas

A countrysSocial & Pol i tical Environment may also

leads to sudden Changes.


22/48

T-7 Environmental Forces Affecting

Business Organization

As per definition of business organization:

We can assume that an owner of a business has free reign to expand the

size of orgn. to any size owner wishes.


23/48

Orgn. Can hardly know or predict the current composition &

future evolution of external forces that are likely to have aneffects on it.

So, to understand this environmental factors for growth &

sustain is must, and it is also complex to understand.

How Much to Invest in Business?is critical decision.


24/48

7.1 The Regulatory System of

the Country or The Government

A country Government is the most influential agents in a business environment.

Government will provides regulatory & policy framework within which

business activities will be carried out.

To carry out business, Producer & buyer are needed.

However, Transactions carried out between two practices may faces problems.

Ex. Malpractices, Ethical dilemma and it requires third parties interventions

and that will be done by government rules & regulation like Government Act.

If not, business parties can take opportunism, exploitation or discrimination.

Sometime you will be charged high price for goods if you are unaware.


25/48

A Regu latory s ys tem is l ike a referee in a foo tbal l

match

To reduce conflicts & maintain transparency government will formulate

policies & regulations.

Various Policies includes:

- Investment in industries (FDI, TRAIs)

- Labour Legislations

- Company Governance

- Industry Policies

- Trade Policies

A policies formulated in country also represent the political trends in

country.

(Refer Exhibit 1.1)


26/48

7.1.a Economic Liberalization & Instability of Business Environment

Indian economy has been considered as mixed economy.

Government owned assets either in the form of PSU or Joint Venture with

private sector industrial houses.

There are 1300 publ ic sector undertaking mainly into defense &

railway industry.

Apart from this government control economy by laying down policies.

Ex: license for business, subsidy policy, and reservation of industry for

small players.

By 1980s, state has realized that without relaxing some of its control

growth of Indian economy were unlikely to pick up.


27/48

Impact of liberalization has encountered on Indian domestic players by

increasing no. of players.

What are other thr eats that faced due to liberali zation?

MNCs are coming late so they bring innovation by having technology &skilled workforce.

Market Share: it has been also observed that existence players market

share has reduced an even some of the companies has closed their units.

Ex: Telecom Sector..


28/48

7.1.B. Active State Legislatures for protection of

consumer Rights, and Living Environment:

Increase Industrialization & consumption of various manufactured goods

around us our living is becoming more polluted & unfair for healthy

living.

Increase No. of people in urban area demand pressure on well

infrastructure like Road, Health Care Facility, Water Supply.

More Automobiles running on road rise as well as considerable rise in No.

of people drawing high salaries & demanding better Quality of Life.

These all have given sense to Government agents towards changing

demand of people & their concern for protection of consumer.


29/48

Thus, Gov. has passed various lesiglasation to protect

interest of consumer as well as Environment.

Ex of Gov. Lesiglasation are Ban of DDT for mosquito eradicator.

- Sales of Tobbaco Products

- Ban of product which is not follow Bharat Basel II Norms.


30/48

7.1.C. Government Tax Policy in Annual

Budget:

Tax policy represent allocation of funds for developing nations like

India.

It has signi f icance way How One Bus iness shou ld run their

bus iness Organization?

Major aim of having various Tax Incentive Scheme , Subsidies,

government want to channelize private resources in to public

interest.

Ex: Transferring tax from Sales Priced b ased tax regim e to

Value Added Tax Regime.


31/48

7.1.D. Change in Labour Laws:

Skilled workforce is essential for success of an organization.

So, orgn. Will enter in to contracts with an individuals to

ensure regular service from them.

In General Way, employer will do Economic Exploitation of

Employees.

When employer hire employees current labour legislation

has to be considered.

Ex: Minimum Wages, PF, Factory Act, and others..


32/48

7.1.E. Environmental Regulations:

Some of natural resources that lead to industrialdevelopment are getting depict at rapid rate.

Nature has a Mechanism by which it tries to maintain a

balance if its natural resources.

EX: when urban waste was dumped, the land on which itdumped used to get converted through natural bacterial

decomposition process into fertile agricultural land

BUT

Non- decomposable plast ics & chem ical are becom ing

parts o f Non-Waste, i t not only pol lute land bu t also

underground water to.

In Earlier Trends, in Europe & North America certain chemical


33/48

Industrialization is having harm impact on environment.

Some companies have already started taking measure to

reduce the emission of Green House Gas.

In fact, Many Orgn. Considered it as an opportunities.

United Nations Framework Convent ion on Cl imate

Contro l

Any company try to reduce omission of Co2 they will get

carbon credit and than they can trade with another company.

Apart from International Regulations, National Laws are also

their.


34/48

7.2. Social Forces

How business interacts with society?

All above are parts of social systems and

changing slowly & these change are

cumulative in natureTake example:- If societal level change there

might be significance shift that will be faced by

some industry.

Customers

providinggoods

Suppliers for

parts &components

Employees

for manpowerservice

7 2 A Slower Population Growth & Other


35/48

7.2.A. Slower Population Growth & Other

Demographic Changes:

Demand of industrial goods is directly

proportional to the No. of people living in

country, their income, age, cultural orientation.

All the above forces growing population haveincrease in potential buyers.

Ex. Increase in born rate demand for baby

setter, toy industry increase boon period. On the other hand, an ageing (Mature)

population, will not only have less income to

spend, but also less needs for life & living.


36/48

Though some kinds of goods & services will

be having more demands like Healthcare

Services, Insurance and Security products.

Next factors s low ing rate of populat ion :-

Growth rate was 2.22% during 1981 which

came down to 2.14% in 1991 and still it

reduced to 1.93% in 2001.Keep Table 1.1. (Population Distribution by

age)

Population who will seek job will increase in

the period of 20012011.


37/48

Individuals requirements will be different at

different age, such changes will have

significant effects on the growth potentials of

certain industries.Ex.:- If young population is increasing, the

demand for housing facility, education,

transportation & electronics industries will be

growing. Similar for ageing population

7 2 B Consumer Income Education


38/48

7.2.B. Consumer Income, Education,

Awareness of Rights & changing

preferences:-

How Educat ion level affects an o rganizat ion :-

It is believed that education raise ones

capacity to acquire & process information

required for making decision of life

Year Details of Universities No. of Students

1981 132 Universities &Deemed Universities

2.3 Million Students

2001 272 Universities &

Deemed Universities

7 Million


39/48

Educated individual contribute to and participates in forming

public opinion on utility or disutility of many industrial products.

Gap has identify between CONSUMER EXPECTATION &

PRODUCT UTILITY.

A consumer as an individual does not have power to stop sale

& distribution of a product that does not meet consumer

expectation.

Although, Education has no direct relation to preference & taste

for a product, but an individual with good educational level:

- will draw good salary,- which has direct bearing on his / her choice of lifestyle &

needs.

How Educational Level arise awareness of consumer?


40/48

7.2.C. Political Process & Its effect on Business:

People select & express their wishes in the form of

Government they elect.

Unstable National Government creates uncertainty about

business regulation.

Ex: Tax or Subsidiary policy for different sector of economy.

In Heterogeneous Society, people have strong holds towardstheir respective ethnic groups.

Hence, planning should be done carefully by considering

political forces for investment decisions.


41/48

7.2.D. Cultural Changes & Its effects on

Business:

It is an unwritten code of conduct on acceptance behavior

expected by the member of a social group.

This codes are developed through cumulative experiences &

beliefs of people.

Ex: In Most cities most of these functions are managed by

business organizations irrespective of their social & religious

affiliation.

Over a period of time, these culture have been changed as

peoples from different societies & culture interacts with each

others.

When people of 2 countries interest with each other, they


42/48

Ex: demand for personal health, hygiene, or cosmetic

products in India.

Reason

Our contacts & acquisition of Western Value System.

The culture also affects different peoplesValue System.

Considered, while HR Policies & practices are designed inthe organization employees motivation to work & respond

to orgn. Policies are heavily influenced by his / her cultural

background.


43/48

7.3 Forces Of Competition:

7.3.A. Economic Liberalization & Change in

Structure of Industry:

Changes in govn. Policy sometimes alters the nature of

competition that an industrial orgn. Faces.

Before Liberalization, PSUs were operating with limited

competition.

As an implications, they were enjoying monopoly. (BSNLConnection)

So, consumer had faced certain problems due to regulatory

restriction on investment.

As, Regulation were lifted, competition has been arised in the

industry & many orgn.

7 3 B Vanishing Industrial


44/48

7.3.B. Vanishing Industrial

Boundary:

In 1980s, communication revolution removed the

boundaries of computer industry.

Organization which produces computer equipments

faced challenges.

As Regulatory restrictions get relaxed, the banking

business get merged.

In earlier times such additional business would have

been considered as a strategy of diversification.

As industrial boundary is falling apart, this requires more

skill manpower.

7 3 C M & A i iti & N


45/48

7.3.C. Merger & Acquisition & New

Competitors:

This strategy used to go inorganic growth to its own

stagnant organization by acquired another highly efficient &

growing industry.

7.3.D. Joint Venture, Strategic Alliance & Competitive

Pressure:

M&A Joint Venture

7 3 E E t f L C ti ith


46/48

7.3.E. Entry of Large Corporations with

operations in Many Countries:

Entry & Exist of one or more players in an industry is

continuous process, yet the same cannot be with major / big

organization.

With open economy, more no. of big player coming is

increased.

Some of these new players are having operations in many

countries & they are having advantages over single country-

based competitors.

ADVANTAGES:

Availability of Raw Materials from different country.


47/48

7.4. Technological Change:

A) Technological Change with its effects on Product Life

Cycle:

Technology is appearing at a much faster pace.

- As an effect of this PLC is getting compressed every

year.

EX: any company which is planning to launch new product willget fewer years to reap revenue from sales of products.

- Cost of Developing new product has been increased.

B) Product Standardization, Widespread of


48/48

) oduct Sta da d at o , desp ead o

IT, and Decline in Manufacturing Plant Size:

Manufacturing Industry has gone from major changes

Chapter 1 Introduction to SHRM

Documents

Transcript of Chapter 1 Introduction to SHRM