Chapter -1 Business Environment.docx

Business Business is an economic act which is carried out by an organisation to achieve some objectives related to production, marketing and sales, profit, diversification, technological up gradation, expansion etc. Each business requires some kinds of resources for the fulfilment of the objectives. The fulfilment of objectives of a business depends not only on its resources but also on the business environment. Environment by definition is something external to an organisation and it is beyond the control of an organisation. Therefore, in strict sense, business environment refers to all external factors which have a direct or indirect bearing on the activities of business. However internal factors also influence the business activities of an organisation. Internal factors are factors, which are controllable in nature. An organisation can create a favourable internal environment by controlling the internal environment effectively. Therefore business environment may be defined as the set of external factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors, geophysical factors, which are uncontrollable in nature and affects the business decisions of a firm or company. Business environment is a set of political, economic, social, technological and global forces that are largely outside the control and influence a business and that can potentially have both a positive and a negative impact on the business. Characteristic of Modern Business

Vastness

Globalisati on

Characteristi cs of Business

Information

Change: Change and change is the common feature of today’s business. The dynamic business environment expects changes in the types of business practices, products and

services offered by the business. Depending upon the situation a business organisation has to change its products and services, organisational structure, practice etc. If there is a single word that can best describe the dynamic business, it is change. Development of research and development facilities and the fast growing economies expects change in the business practise and the products and services offered by the business. The new inventions and the changing customer preferences forces business organisations to introduce new way of business practices and introduce new products and services which best suits the current market. Vastness: Mass production and mass marketing are the order of the day. Machines already replaced manual labours in the manufacturing process and all business activities. The bulk production lead to competition and aggressive marketing. Business need to find new channels of distribution to meet the global market and to expand the market. MNCs and mega projects are common in the present economic scenario. The effects mass production and existence of big business houses are very vast. Diversification: diversification is very common in the present business environment. The LPG policy adopted by the WTO member nations helps the big business houses to diversify their business into almost every field of business. Privatisation policy and the new industrial policy expanded the scope of diversification to the private business today. Today most of the big business houses operates in all the fields of business with the favourable changing environment. Careful diversifications helped big business houses to expand its territory and created wealth. Globalisation: One of the major contribution of WTO is globalisation of modern business. Going international market is easier with present trade policy and the political boundaries are no barriers to international business. Lack of resources in some nationals and abundant availability of certain resources in some others forced the business organisations to go global. With globalisation policy production facilities are being set up in different parts of the world market and products are being sold in world market. Technological innovation, free trade policy, transfer of capital and technology between nations, intensive local competition, changing life styles, demand for new products and growth and fall of economies forced the business to go global. Science: Scientific inventions will offer more and more opportunities to the business organisation. Research and development is the integral part of the present day’s business. R and D activities are very common in the modern business. With the help of R and D activities business organisations started producing new products and services and modernised its old products and services. Development of information technology revolutionised the business practice today. Information: Another common features of contemporary business is the need for and use of large information. Information is wealth for the modern business. Efficient management of information become very vital for the success of business. Information collection, data processing, information analysis, and preparation of records and reports plays crucial role in

the effective decision making process of an organisation. Management information system become a common features of modern business organisations for the effective management of information. Competition: Due to globalisation policy of most of the nation’s competition become a common challenge all over the global market. Completion helped business to acquire competitiveness in the international market in terms of quality, price, after sales services etc. competent business will survive in the current market and the inefficient firms will be forced to close their operations. Competition opened up wide challenges and opportunities to different kinds of business. Government Intervention: The LPG policy of the government forced more and more government intervention in the present business environment. Active participation of more and more private players in the economic activities demand government intervention to protect the interest of nation, consumers, nature, etc. Irrespective of the types of the economies governments monitors, controls and regulates the economic activities in one or other forms. BUSINESS OBJECTIVES: Business objectives are something which a business organization wants to achieve or accomplish over a specified period of time. These may be to earn profit for its growth and development, to provide quality goods to its customers, to protect the environment etc. These are the objectives of business. In the following section classify the objectives of business. Objectives render mission statements more concrete. In other words, mission statements seek to make a vision more specific and objectives are attempts to make mission statements more concrete. Mission statements are more specific than vision statements, but are not to be taken as concrete directions for action. In short, they are compatible to each other. Objectives, therefore, represent the operational side of an organisation. Sometime a business unit seeks to achieve more than one objective and there are always restraints to the attainment of some objectives. Further the objectives of a business organisations vary with the passage of time with the change in business environment. However most of the contemporary business organisations wish to achieve certain common objectives. 1. Profit: Earning profit is the primary goal of any business enterprise in the business world. Profit is the main incentive, motivator, strong sustainers for doing business and survival. Profit enables a businessman to realise his other objectives too along with the organisational objectives. In profit making enterprises, profit should not be the end in itself. Profit should be the beginning acting as seed money for more products, more plants, more dividends, more tax payments, more jobs, more opportunities and expansion of business. Profits should promote the well-being of all the rich and the poor; privileged and less privileged; consumers and

producers and investors and non-investors. Ignoring this and over-emphasizing profit may bring early closer to a business enterprise. 2. Growth: Growth is another primary objective of business organisations. Business should grow in all directions over a period of time. An enterprise which remains stagnant for long period is presumed to suffer from some deficiency or weakness.

Profit

Market leadership Business Objectives

The strategies adopted to achieve growth are: (a) (b) (c) (d) (e) (f)

Add more products/markets; Diversify into new areas; Integration—forward or backward; Increase market share; Expand markets or Cut down costs and increase productivity.

3. Power: Big Business enterprises have vast resources in terms of money, materials, men and technology at its command. With the help of these resources business enterprises/businessman acquire enormous economic and political power. It is the business people who enjoy considerable power in country. The late Aditya Birla used to assert that he built his empire to get more power. Several enlightened businessmen have used their power for the good of society. One such illustration in our country was J.N.Tata, was a pioneer in

industry, research, health care, art, literature and in many other areas. His name inspires admiration and respect. It is hard to imagine what would have happened to the industrial map of our country if J.N.Tata had not been born in 1839 in a family of Parsi priests in Gujarat. To his mind, wealth and the industry which led to wealth were not ends in themselves, but means to an end, the stimulation of the latent resources of the country and its elevation in the scale of nations.” They render all sort of services with its power to the society whenever it demands. 4. Employee Satisfaction and Development: “If you want to plan for a year, plant corn. If you want to plan for 30 years, plant a tree. But if you want to plan for 100 years, plant men”so goes a Chinese proverb. Caring for employee satisfaction and providing for their development has been one of the objectives of enlightened business enterprises. Concern for employees continues to be an importance issue to the management; contrary to the expectation that human element will lose its significance. In fact, quality of personnel is considered to be one of the hallmarks of best managed and highly respected companies. The Tata’s are a legend in pursuing this objective. Either in implementing labour welfare measures, constituting safety and security measures, or in providing training and development facilities, the name of Tata’s should be mentioned first. 5. Quality Products and Services: Providing quality products and services is yet another objective of business. It is also a prerequisite for the survival of a business enterprise. Those who insisted on and persisted in quality survived competition and stayed ahead of others in the market. Persistent quality of products earns brand loyalty, an important ingredient of success. Hindustan Unilever is flourishing mainly because of the quality of its products. Some of its products like Liril, Vim, Lifebuoy, Surf, Rin, Sunlight, Signal, Close-up, Rexsona, Pears and others have become household names throughout the country. These products are accepted by buyers as safe, of high quality and reasonably priced. Behind its quality products, Hindustan Lever has an excellent Research and Development (R&D) set-up and a high degree of professional management. There are other business people who believe in quick money. Quick money comes through shortcuts. These are the people who give us bulbs that do not give al least 100 light hours of service, leaky taps and adulterated goods. Such enterprises will not survive for long period. 6. Market Leadership: Catching market leadership is yet another objective of business. To earn a niche for oneself in the market, innovation is the key factor. Innovation may be in product, advertising, distribution, finance or in any other field. Blow Plast relations its market leadership by introducing soft luggage bags and totes. Hindustan Leaver earned leadership in tooth paste by introducing mouth washer in its ‘Close-up’. Asian Paints adopted unconventional channels for the sale of its paints, which has pushed them ahead of their competitors. Ambani of Reliance Textiles introduced convertible debentures which have become attractive. This and other financial wizardries enabled Reliance to receive unprecedented response from investing public to any of its issues of securities.

7. Challenging: Business offers vast scope and poses tough challenges. Success in a business venture smacks of the abilities of individuals who own and failure betrays their inability and incompetence. The worth of an individual is tested more in business than in any other profession. For Ratan Tata running business has been a challenge. Confessed Tata in an interview thus: “I have asked myself this quite often. I don’t have monetary ownership in the company in which I work and I am not given to propagating the position I am in. I ask myself why I am doing this and I think it is perhaps the challenge. If had an ideological choice, I would probably want to do something more for the uplift of the people of India. I have a strong desire not to make money but to see happiness created in a place where there isn’t. 8. Joy of Creation: It is through business strategies new ideas and innovations are given a shape and are converted into useful products and services for the benefit of customers. Although it may be too difficult to list all the products and services that business houses have provided us til now, it is interesting to mention that in the coming two or three decades, following will receive considerable attention from researchers and business people:  

Readily available artificial human organs, except the brain. A means of transportation without an automobile, perhaps an individual flying machine.  Drugs to cure or prevent cancer and the common cold. Will there be a greater joy to a businessman coming out with a drug which can cure cancer? Its available in the market will be of benefit to those who need it. 9. Service to Society: Business is a part of society and has several obligations towards it. Some of them are:     

Providing safe and quality goods at reasonable prices; Providing employment; Patronising cultural and religious activities; Maintaining and protecting ecology and; Supporting less privileged sections of people in society like Scheduled Castes and Scheduled Tribes, the physically handicapped, women and children.

10. Good Corporate Citizenship: Good corporate citizenship implies that the business unit complies with the rules of the land, pays taxes to the government regularly, discharges its obligations to society and cares for its employees and customers. Bending rules of the land, evading tax payments by under-invoicing exports and dubious tax planning; cornering licences at the cost of others; adulteration of quality products; and indulging in other unethical practices may earn money. But such practices hardly speak highly of corporate citizenship. CRITICS OF BUSINESS

No doubt business enterprises provide enormous services to the society. There is also the negative side to it and the critics are not lagging behind in pointing out the shortcomings of business. The criticisms are many, but all are based on one idea, viz., people in business place profits before enduring values such as honesty, truth, justice, love, devoutness, aesthetic merit and respect for nature. Specific criticisms are the following: 1. 2. 3. 4. 5. 6. 7. 8.

Business activity has a corrosive effect on a range of cherished cultural values. Business dehumanises and exploits workers. Business harms interests of consumers. Business degrades nature and the environment. Business has destroyed handicraft and rendered artisans jobless. Business causes scams and scandals. Business multiplies needs and makes people greedy and avaricious. Business leaders bend rules, cut corners, bribe officials and challenge existing authority.

BUSINESS ENVIRONMENT A business does not function in a vacuum. It has to act and react to what happens outside the factory and inside the factory. The factors that happen outside the business are known as external factors or forces and the factors that happen inside the business are known as internal factors. Internal factors will affect the main internal functions of the business and possibly the objectives of the business and its strategies. Business environment refers to the surroundings and circumstances, which influence business operations. The business environment consists of the factors and forces to which an industry belongs to. This environment consists of forces and factors internal or external to a business firm. Many theorists have classified them as internal environment and external environment. Internal Environment: The skill and ability of employees, their attitude to work, relations between managers and subordinates etc. may be regarded as internal environment of business. It also consists of Customers, Suppliers, Board of Directors, and Lenders. These are important factors, which may affect business operations. But these are within the control of the businessman. By taking suitable steps the conditions can be improved or the business can convert the internal factors favourable to them by efficient management.

Mission/ Objectives Marketing Capability

Promoters Values

Technological Capability

Managment Structure Internal Environment Internal Power Relationship

Financial Capabilities

Human Resources Company Image/Brand Equity

Physical Assets & Facility

External Environment: The External environment consists of factors and forces which are beyond the control of the organisation; they are Economic environment, technical environment, legal environment, political environment, cultural environment and Task Environment. Task Environment (Micro Environment) The micro environmental forces have a direct bearing on the operations of a business enterprise. It is quite obvious that the micro environmental factors are more intimately linked with the company than the macro factor. Some of the micro factors may be influence a particular business.

Suppliers

Publics

Customers

Micro Environmental Factors

Financiers

Competitiors

Market Intermediaries

All the micro evironmental factors influence the effective working of any business organisations. A business can manage these peoples with good relationships. Except competitiors all other micro environmental forces are directly connected with the business, hence efficient management of these forces are very much essential for the success of any business. Understanding the competition is also very much required for the successful marketing of products and services in the market.

Macro Environmental Factors: Macro environmental factors and forces which are beyond the control of the organisation; they are Economic environment, technical environment, legal environment, political environment, cultural environment and natural environment. Since these forces are beyond the control of business, organisations need to change or adjust its policy, practice according to the changing macro environmental forces.

Global Environment

Macro Environmental Factors

Socio-Cultural Environment

Economic Environment The economic environment consists of the demand dynamics, supply situation, pricing factors, degree of competitiveness, and impact of profitability. It has the fiscal policy, monetary policy and the taxation policy, the FDI norms, the investment criterion and financing decisions. Technological environment Technological environment hold new technological innovation, new products, the state of technology, the utilization of technology for maximum inputs and outputs, the obsolescence of technology and the dynamic changes that frequently occur in technologies which enable firms to get an competitive advantage. Legal environment

The legal environment plays a very important role, the laws of the country, the judicial system and the laws which affect business should be carefully concerned, for example there might be a sudden prohibition of tobacco and laws will get stricter, in this case the company should foresee all the aspects of legal environment. Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include: (i) Companies Act, 1956 (ii) Foreign Exchange Management Act, 1999 (iii) The Factories Act, 1948 (iv) Industrial Disputes Act, 1972 (v) Payment of Gratuity Act, 1972 (vi) Industries (Development and Regulation) Act, 1951 (vii) Prevention of Food Adulteration Act, 1954 (viii) Essential Commodities Act, 2002 (ix) The Standards of Weights and Measures Act, 1956 (x) Monopolies and Restrictive Trade Practices Act, 1969 (xi) Trade Marks Act, 1999 (xii) Bureau of Indian Standards Act, 1986 (xiii) Consumer Protection Act, 1986 (xiv) Environment Protection Act (xv) Competition Act, 2002 Besides, the above legislations, the following are also form part of the legal environment of business. 



Provisions of the Constitution: The provisions of the Articles of the Indian Constitution, particularly directive principles, rights and duties of citizens, legislative powers of the central and state government also influence the operation of business enterprises. Judicial Decisions: The judiciary has to ensure that the legislature and the government function in the interest of the public and act within the boundaries of the constitution. The various judgments given by the court in different matters relating to trade and industry also influence the business activities.

Political environment The political environment is a very important factor that needs to be taken into consideration, the example of Augusto Pinochet serves as a classic example, Political lobbying, the practices of the ruling parties and the stability of the ruling parties plays a very role as in developing countries the political system keeps on changing. The political environment includes regulatory burden and red tape, taxes, levels of political corruption, public works services, labour market regulation, policy predictability, property rights, contract enforcement, regulations controlling start up and bankruptcy, competition law, and entry to finance and infrastructure markets. Cultural and Social Environment Social and cultural factors of nation affect the activities of the business. These factors include attitude of the people to work, attitude to wealth, family, marriage, religion, education, ethics,

human relations, social responsibilities etc. Culture is, the thought and behaviour patterns that member of a society learns through language and other forms of symbolic interaction their customs, habits, beliefs and values, the common viewpoints, which bind them together as a social entity. Cultures change gradually picking up new ideas and dropping old ones, but many of the cultures of the past have been so persistent and self-contained that the impact of such sudden change has torn them apart, uprooting their people psychologically.” Culture is:  Derived mostly from the climatic conditions of the geographical region and economic conditions of the country.  A set of traditional beliefs and values which are transmitted and shared in a given society. A total way of life and thinking patterns that are passed from generation to generation  Norms, customs, art values etc. Global Environment Companies operating internationally must understand the business environment of the host countries they are operating in. Today there are thousands of MNCs which operate in many parts of the globe. Such companies should familiarise themselves with the languages, cultures and the business environments of the countries in which they are operating. The global business environment can be defined as the environment in different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision making on resource use and capabilities. This includes the social, political, economic, regulatory, tax, cultural, legal, and technological environments. The political environment in a country influences the legislations and government rules and regulations under which a foreign firm operates. The economic environment relates to all the factors that contribute to a country's attractiveness for foreign businesses. Every country in the world follows its own system of law. A foreign company operating in that particular country has to abide with its system of law as long as it is operating in that country. The technological environment comprises factors related to the materials and machines used in manufacturing goods and services. Receptivity of organizations to new technology and adoption of new technology by consumers influence decisions made in an organization. As firms have no control over the external environment, their success depends upon how well they adapt to the external environment. A firm's ability to design and adjust its internal variables to take advantage of opportunities offered by the external environment, and its ability to control threats posed by the same environment, determine its success. Natural Environment The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those

places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input. Further, government’s policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility on the business sector.

External Environmental factors and their features Global Environment 

  

Increasing Opportunity as world has become one market Improving quality Competition from MNCs Capital and technology transfers



Deciding which markets to enter and how to enter



Adjusting the management process

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India and WTO

Technological Environment  Technology reaches people through business  Increased productivity  Need to spend on R&D  Fast changing technology  Rise and decline of products and organisations  High expectations of consumers  Problem of techno structure  System complexity  Increased regulation and stiff  Demand for capital  Social change

Economic Environment  Growth strategy  Economic system  Industry  Agriculture  Infrastructure  Money and capital markets  Per capita and national income  Population  New Economic policy

Political Environment  Role of legislature 

Role of executive

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Role of judiciary

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Constitution of India



New direction for government’s role

social-cultural Environment  Cultural creates people  Culture and globalisation  Culture determines foods and services  People’s attitude to business and work  Caste system  Spirit of collectivism  and individualisatio n  Education  Family and marriage  Authority  Scientific spirit  Ethics in business

Natural Environment  Manufacturing depends on physical inputs  Mining and drilling depend on natural deposits  Agriculture depends on Nature  Trade between two regions depends on geographical factors  Transport and communication depend on geographical factors

Changing External Environment and Environmental Analysis As firms have no control over the external environment, their success depends upon how well they adapt to the external environment. A firm's ability to design and adjust its internal variables to take advantage of opportunities offered by the external environment, and its ability to control threats posed by the same environment, determine its success. Markets are changing all the time. It does depend on the type of product the business produces, however a business needs to react or lose customers. Some of the main reasons why markets change rapidly:     

Customers develop new needs and wants. New competitors enter a market. New technologies mean that new products can be made. A world or countrywide event happens e.g. Gulf War or foot and mouth disease. Government introduces new legislation e.g. increases minimum wage.

Environmental Analysis Business analysis, as a discipline, has a heavy overlap with requirements analysis, but focuses on identifying requirements in the context of helping organizations to achieve strategic goals through internal changes to organizational capabilities, including changes to policies, processes, and information systems. Business analysis helps an organization to improve how it conducts its functions and activities in order to reduce overall costs, provide more efficient use of resources, and better support customers. It introduces the notion of process orientation, of concentrating on and rethinking end-to-end activities that create value for customers, while removing unnecessary, non-value added work Enterprise analysis focuses on understanding the needs of the business as a whole, its strategic direction, and identifying initiatives that will allow a business to meet those strategic goals. The process of starting up and developing a business is not just an adventure, but also a real challenge in the present dynamic environment. Ensuring easier access to funding, making legislation clearer and more effective and developing an entrepreneurial culture and support networks for businesses are all instrumental as far as the setting up and growth of businesses are concerned. However, creating a favourable business environment does not mean simply improving the growth potential of businesses. It also means turning nation into a place in which it is advantageous to invest and work. Developments across a range of factors will have an impact on business or industry. The environmental analysis/scanning identify major of external and internal factors that affect the ability of your organization to survive and prosper.

Environmental scanning is carried out with a view to (a) understand the working of the economic system and its relationship with the business sector, (b) analyze the impact of the changing policy regimes on business and (c) anticipate the policy changes that are likely to occur or should occur in view of the national and international developments. Environmental analysis/scanning is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering. Most commentators feel that in today's turbulent business environment the best scanning method available is continuous scanning because this allows the firm to act quickly, take advantage of opportunities before competitors do and respond to environmental threats before significant damage is done. Environmental scanning usually refers just to the macro environment, but it can also include industry, competitor analysis, marketing research (consumer analysis), new product development (product innovations) or the company's internal environment. Macro environmental scanning involves analysis of the following factors: Economy           

GDP per capita economic growth unemployment rate inflation rate consumer and investor confidence inventory levels currency exchange rates merchandise trade balance financial and political health of trading partners balance of payments future trends

Government         

political climate - amount of government activity political stability and risk government debt budget deficit or surplus corporate and personal tax rates payroll taxes import tariffs and quotas export restrictions restrictions on international financial flows

Legal 

minimum wage laws

       

environmental protection laws worker safety laws union laws copyright and patent laws anti- monopoly laws Sunday closing laws municipal licences laws that favour business investment

Technology       

efficiency of infrastructure, including: roads, ports, airports, rolling stock, hospitals, education, healthcare, communication, etc. industrial productivity new manufacturing processes new products and services of competitors new products and services of supply chain partners any new technology that could impact the company cost and accessibility of electrical power

Ecology   

ecological concerns that affect the firms production processes ecological concerns that affect customers' buying habits ecological concerns that affect customers' perception of the company or product

Socio-cultural       

demographic factors such as: population size and distribution age distribution education levels income levels ethnic origins religious affiliations

Attitudes towards:      

materialism, capitalism, free enterprise individualism, role of family, role of government, collectivism role of church and religion consumerism environmentalism importance of work, pride of accomplishment

Potential suppliers  

Labour supply quantity of labour available

     

quality of labour available stability of labour supply wage expectations employee turn-over rate strikes and labour relations educational facilities

Material suppliers    

quality, quantity, price, and stability of material inputs delivery delays proximity of bulky or heavy material inputs level of competition among suppliers

Service providers  

quantity, quality, price, and stability of service facilitators special requirements

Stakeholders      

Lobbyists Shareholders Employees Partners Costumers Creditors

Scanning these macro environmental variables for threats and opportunities requires that each issue be rated on two dimensions. It must be rated on its potential impact on the company, and rated on its likeliness of occurrence. Multiplying the potential impact parameter by the likeliness of occurrence parameter gives a good indication of its importance to the firm. The process of Environmental Analysis Environmental analysis is a challenging, time consuming and expensive affair. The analysis consists of four sequential steps: (i) scanning, (ii) monitoring, (iii) forecasting, and (iv) assessment. Scanning – Being the first step in the process of environmental analysis, scanning involves general surveillance of all environmental factors and their interactions in order to (a) identify early signals of possible environmental change, and (b) detect environmental change already under way. The potentially relevant data for scanning are unlimited but are scattered, vague, and imprecise. The fundamental challenge for analysis in scanning is, therefore, to make sense out of vague, and imprecise. The fundamental challenge for analysis in scanning is, to make sense out of vague, ambiguous, and unconnected data.

Monitoring – Monitoring involves tracking the environmental trends, sequences of events, or streams of activities. It frequently involves following signals or indicators unearthed during environmental scanning. The purpose of monitoring is to assemble sufficient data to discern whether certain trends and patterns are emerging. Thus, as monitoring progresses, the data turn frequently from imprecise to precise. Three outcomes emerge out of monitoring: (a) a specific description of environmental trends and patterns to be forecast; (b) the identification of trends for further monitoring, and (c) the identification of areas for further scanning. These outputs (particularly the first) became inputs for forecasting. They will also cause for further scanning and monitoring. Forecasting – Scanning and monitoring provide a picture of what has already taken place and what is happening strategic decision-making, however, requires a future orientation. Naturally, forecasting is an essential element in environmental analysis. Forecasting is concerned with developing plausible projections of the direction, scope, and intensity of environmental change. It tries layout the evolutionary path of anticipated change. For example, how long will it take the new technology to reach the market place? Are current life-style trends likely to continue? These kinds of questions provide the grist for forecasting efforts. Unlike scanning and monitoring, forecasting is well focussed is well focussed and is much more deductive and complex activity. This is so because the focus, scope and goals of forecasting are more specific than the earlier two of environmental analysis. Assessment – Scanning, monitoring and forecasting are not ends in themselves. Unless their outputs are assessed to determine implications for the organisation’s current and potential strategies, scanning, monitoring and forecasting simply provide ‘nice-to-know’ information. Assessment involves identifying and evaluating how and why current and projected environmental changes affect or will affect strategic management of the organisation. In assessment, the frame of reference moves from understanding the environment – the focus of scanning, monitoring and forecasting – to identifying what the understanding means for the organisation. Assessment, therefore, tries to answer questions such as what are the key issues presented by the environment, and what are the implications of such issues for the organisation?

Benefits/importance of environmental Analysis Environmental analysis plays vital role in the decisions making process of an organisation. Some of the benefits of environmental analysis are described below.

1. The very idea of the analysis makes one aware of the environment – organisation linkage. 2. Development of broad strategies and long – term policies of the firm. 3. To foresee the impact of socio-economic changes at the national and international levels on the firm’s stability. 4. Analysis of competitors’ strategies and formulation of effective counter-measures. 5. Environmental analysis helps an organisation to identify the present and future opportunities and threats. 6. Environmental analysis will provide a necessary and very useful picture of the important factors which influence the business. 7. Environmental analysis helps to understand the transformation of the industry environment. 8. Technological forecasting will indicate some of the future opportunities and challenges. 9. A very important benefit of environmental analysis is its contributions to identifications of risks. 10. Environmental analysis is a prerequisite for formulation of right strategies - corporate, business and functional. 11. Environmental monitoring helps suitable modifications of the strategies as and when required. 12. Environmental analysis keeps the managers informed, alert, and often dynamics.

Limitations of Environmental Forecasting/Analysis Environmental forecasting has several limitations. Some of the limitations arise from the forecasting techniques used. Further there are also changes of certain errors affecting the reliability of the forecasts. They are 1. The selection of the variables included in the predictive model 2. The selection of the functional form for linking these predictor variables to the variables to be predicted. 3. The estimation of the correct values for the predictor variables. 4. Several techniques use opinions of people and they may be affected by subjectivity. 5. Environmental analysis does not foretell the future, not it eliminates uncertainty for any organisation. 6. Environmental analysis on and of itself, is not a sufficient guarantor of organisational effectiveness. It is only one of the inputs in strategy developments and testing. 7. The potential of environmental analysis is often not realised because of how it is practised 8. Too much reliance is often placed on the information collected through environmental scanning. When there is overloading of information, one is likely to get lost and became inactive typical of ‘paralysis through analysis syndrome’.