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MBA 205:

Legal & Business Environment

Unit VII: Overview and Framework of Business Environment: Characteristics of

business environment, micro and macro business environment, tools and techniques
of business environment analysis; internal business environment, external business
environment, PESTEL, product-market analysis, portfolio analysis, balance score
card, porter five force model etc.

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1. Overview and Framework of Business Environment:

The business environment refers to the external factors that may impact the
activities and operations of a business. It includes factors such as political,
economic, legal, social and technological factors that may affect the overall
performance and success of a business.
.

2. Characteristics of business environment:

There are various characteristics of the business environment that impact the
business operations, strategy, and decision-making process. These include:

1. Dynamic nature: The business environment is continuously changing and evolving

due to the shifting political, economic, technological and social factors. This dynamic
nature requires businesses to stay updated and adapt to the changing conditions to
remain relevant and competitive.

2. Complexity: The business environment is complex due to the interdependence

between various factors. Businesses need to be aware of the possible impacts of these
complexities on their operations, strategy and decision-making processes.

3. Uncertainty: The business environment is highly uncertain, and businesses need to

have contingency plans and strategies in place to deal with unexpected situations.
4. Diversity: The business environment is diverse in terms of cultural, economic and
social factors. It is essential for businesses to be sensitive to the diversity of their
customers, employees, and stakeholders.

5. Globalization: The impact of the global environment on businesses has increased

over recent years. Businesses need to have a global outlook to remain competitive in the
current globalized world.The framework of the business environment comprises two
primary areas:

a) The internal environment and the external environment.The internal environment of

the business includes the factors within the organization that may impact its operations,
strategy, and decision-making processes. These factors include the organizational
structure, culture, leadership, employees, and resources.

b) The external environment of the business comprises the factors outside the
organization that may impact the business. This includes the political, economic, social,
technological and legal factors.

In conclusion, the business environment is an essential consideration for businesses as

it impacts their operations, strategy, and decision-making process. Understanding the
characteristics of the business environment, as well as its framework, is crucial for
businesses to remain relevant and competitive in the current globalized world.  

3. Business environment:
Business environment refers to the external factors that affect the operations of
a business. These factors can be categorized into two main categories: Micro and
Macro environment.

A) The micro environment involves the internal factors that affect a business, such as its
management structure, policies, employees, suppliers, etc. These factors can be
controlled to a certain extent by the business, and they have a direct impact on it. For
instance, if a company's employees are well-trained and motivated, they are likely to
produce high-quality products or services that customers find attractive.

B) On the other hand, macro environment factors are external forces that are beyond a
business's control. They include economic, political, social, technological, and
environmental factors. These elements can impact specific industries or the entire
economy, affecting all businesses within it. For instance, new government policies may
affect the market conditions, making some products more popular than others.

The main difference between micro and macro environments is that micro factors are
controllable, while macro factors are beyond control. This means that businesses can
adjust their internal policies to create an environment that is conducive to their success,
while the external forces cannot be changed.

In conclusion, both micro and macro environments are critical to a business's success.
Companies must be aware and study the changes in their external environment to adjust
to the changing circumstances. On the other hand, managing the internal factors can
create an environment that will help the business take advantage of opportunities within
the external environment. 

4. Business environment analysis:

It is the practice of evaluating the internal and external factors that affect a
business. These factors include market trends, consumer preferences, economic
conditions, competitive landscape, technological advancements, and regulatory policies.
To assess and analyze these factors, businesses use a variety of tools and techniques.
In this article, we will discuss the most commonly used tools and techniques of business
environment analysis.

1. SWOT Analysis:
SWOT analysis is a widely used tool for understanding a company's overall position by
evaluating its strengths, weaknesses, opportunities, and threats. This tool helps
businesses identify their internal strengths and weaknesses, as well as external
opportunities and threats. By examining these factors, businesses can develop
strategies to improve their competitive success.

2. PESTEL Analysis:
PESTEL analysis is a framework used to analyze the external macro-environment in
which a business operates. It considers the six main factors: political, economic, social,
technological, environmental, and legal. By assessing these factors, businesses can
identify potential risks and opportunities within their market. Moreover, PESTEL analysis
can help businesses to understand the implications of changes in the external
environment on their operations and strategies.

3. Porter's Five Forces Model:

Porter's Five Forces Model is a framework for analyzing the competition level within
an industry. The model considers five forces: the threat of new entrants, the
bargaining power of buyers, the bargaining power of suppliers, the threat of
substitute products or services, and the intensity of competitive rivalry. By analyzing
these forces, businesses can understand their competitive environment and develop
strategies to remain profitable and competitive.

4. Benchmarking:
Benchmarking is a tool used to evaluate a company's performance relative to that of
its competitors. By analyzing key performance indicators (KPIs), businesses can
identify the areas in which they are outperforming or underperforming compared to
their competitors. This information can help businesses set realistic goals and
develop strategies to improve their operations.

5. Customer Surveys:
Customer surveys provide businesses with valuable insights into their customer
base. These surveys are used to gather information on customer satisfaction,
preferences, and expectations. Through analyzing customer feedback, businesses
can identify areas for improvement, assess their competitive position within the
market, and develop strategies to meet their customers' needs.

In conclusion, there are various tools and techniques that businesses can use to
analyze their environment. These tools provide valuable insights into a company's
position within the market, helping them to identify opportunities for growth and areas
for improvement. However, it is important to use a combination of these analysis
techniques to get a more comprehensive picture of the business environment.  
5. The internal business environment:

The internal business environment of a company refers to the factors that are within
the company's control, such as its management style, organizational culture, and
human resources policies. In contrast, the external business environment refers to
the outside factors, such as market trends, competition, regulatory changes,
economic conditions, and societal and environmental factors that can influence the
company's operations, growth, and success. .

The internal business environment plays a significant role in a business's success,

as it sets the tone for the organization's efficiency, productivity, and overall
performance. An effective management style that values transparency,
communication, and collaboration can boost employee morale, satisfaction, and
retention. A strong organizational culture that aligns with the company's vision,
values, and mission can foster a sense of belonging, purpose, and loyalty among
employees.

Moreover, human resource policies that promote diversity, equity, and inclusion can
attract and retain top talent, boost innovation, and create a competitive advantage in
the market. On the other hand, a dysfunctional internal business environment,
characterized by poor communication, conflicts, low employee morale, lack of clarity
in roles and responsibilities, and rigid or unjust policies, can hinder the company's
growth and lead to a negative impact on its reputation, customer satisfaction,and
financial performance.

6. The external business environment:

External business environment refers to external factors and forces outside the
organization that may affect its operations, performance, and success. These
external factors are beyond the control of the company and may pose a threat or
create opportunities. An organization needs to analyze and adapt to the external
environment to remain competitive and achieve its goals.
.

Some of the significant elements of the external business environment include

economic conditions, technological advancements, legal and regulatory framework,
politicalstability, social and cultural aspects, and competition..

a) Economic conditions play a vital role in the external business environment. The
organization needs to keep an eye on factors such as inflation, interest rates, and
economic growth to align its policies and strategies accordingly. Technological
advancements such as automation, artificial intelligence, and the internet of things
have revolutionized industries and disrupted traditional business models. It is critical
for an organization to stay abreast of such technological advancements to remain
relevantand competitive. .

b) The legal and regulatory framework has a significant impact on the external
business environment. Regulations and laws governing aspects such as labor laws,
environmental laws, and taxation can have a profound impact on a company's
operations, profitability, and reputation. Organizations need to ensure that they
comply with relevant laws and regulations while making informed decisions.

c) Political stability affects the external business environment. Changes in

government policies, regulations, and economic reforms can create opportunities or
threats for organizations. An unstable political environment can create uncertainty
and affect business operations, while a stable political environment can present
growth opportunities and favorable business conditions.
.

d) Social and cultural aspects of the external business environment include

demographics, beliefs, values, and behaviors of the target market. Organizations
need to understand the social and cultural landscape of their target market to create
effective marketing strategies and products that cater to their needs.

e) Finally, competition plays a significant role in the external business environment.

Competition provides a benchmark for the organization's performance, and the level
of competition determines the level of customer loyalty, profitability, and growth
prospects. Understanding the competition allows companies to identify their
strengths and weaknesses and make informed decisions to remain competitive.

In conclusion, the external business environment encompasses many factors that

can influence an organization's performance, profitability, and success. Adapting to
the external environment is essential for organizations to remain competitive,
innovate, and thrive in today's dynamic business environment

7. Comparison between the internal and the external business environment:

The internal business environment refers to the factors and conditions within
an organization that affect its operations and decision-making processes. This
includes aspects such as the company's culture, leadership, policies and
procedures, staff, and resources.

On the other hand, the external business environment pertains to the

conditions that exist outside of an organization and can affect its operations and
profitability. It includes factors such as the economic, political, technological, and
social factors that can influence the company's success.

One major difference between the two is that while the internal environment is within
the organization's control, the external environment is not. Businesses can make
modifications in the internal environment to adapt to changes, but external factors
such as market conditions, legal requirements, and consumer behavior may be
beyond their reach.

Another difference is the way they affect the business. The internal environment
primarily affects the organization's day-to-day operations, performance, and
productivity, while the external environment impacts the competitiveness, growth,
and long-term sustainability of the business.

Moreover, the internal environment is unique for each organization, as it is shaped

by the organization's goals, vision, and mission. In contrast, external environments
have common factors that affect all companies operating within the same industry or
region.

In summary, the internal and external business environment are both important
aspects of a company's success. An organization must consider both when making
decisions that impact the company's operations and growth. While the internal
environment is within the organization's control, the external environment requires
businesses to adapt to changes that may be beyond their reach

8. PESTEL :

PESTELis a strategic management tool that is used to analyze the external macro-
environmental factors that may affect a business or organization. It provides a
systematic framework for assessing the opportunities and threats presented by
uncontrollable aspects of the business environment.
The acronym PESTEL stands for Political, Economic, Social, Technological,
Environmental, and Legal factors that can impact an organization's operations. Below is
a brief overview of each of these factors:

A) Political: These are government policies and regulations that may affect an
organization's operations, including tax laws, trade regulations, and labor laws. Changes
in political regimes can also impact an organization's operations.

B) Economic: These factors include economic growth or contraction, inflation, interest

rates, exchange rates, and unemployment rates. Economic factors can influence
consumer behavior and purchasing power.

C) Social: Social factors include demographic trends such as age, gender, and income
levels, as well as cultural norms and societal values. These factors have a significant
impact on consumer behavior and preferences.

D) Technological: Technological advancements can create new opportunities or disrupt

existing industries or businesses. New technological innovations can also create new
products and services.

E) Environmental: Environmental factors include natural resources, climate change,

and other ecological concerns. Businesses are expected to take measures to protect the
environment, and changing environmental regulations can have implications for
businesses.

F) Legal: Legal factors include laws and regulations that impact businesses, such as
consumer protection, health and safety, and employment laws. Legal changes can
impact operations and may require businesses to adapt to new regulations.

By analyzing these external factors, organizations can identify potential opportunities

and threats and adjust their operations accordingly. PESTEL analysis is an essential tool
for developing effective business strategies and monitoring changes to the external
environment. It helps organizations understand how external factors are likely to impact
their operations and create plans to mitigate potential risks.

9. Product-market analysis:

It is a crucial step in developing a successful business strategy. It involves

identifying the target market for a particular product or service and evaluating the
competition within that market. By analyzing the market demand and competition, a
business can determine the potential for success and make informed decisions about its
product development, marketing, and distribution.

The first step in a product-market analysis is to define the product or service being
offered. This includes identifying the features and benefits of the product, as well as any
unique selling points that set it apart from the competition. Once the product is defined,
the target market must be identified. This involves analyzing demographic, geographic,
and psychographic data to determine the characteristics of the ideal customer.
Next, the competition must be evaluated. This includes identifying the major players in
the market, as well as their strengths and weaknesses. The competitive analysis should
also evaluate the pricing and distribution strategies of the competition.
After completing the product-market analysis, a business can use the information to
develop a targeted marketing strategy. The marketing strategy should focus on the
unique selling points of the product and target the ideal customer identified during the
analysis. The distribution and pricing strategies should also be aligned with the target
market and competition.

In conclusion, product-market analysis is an essential tool for businesses to develop a

successful business strategy. By analyzing the target market and competition,
businesses can make informed decisions about product development, marketing, and
distribution. This allows businesses to maximize their potential for success and gain a
competitive advantage in the market. 

10. Portfolio analysis:

Portfolio analysis is the evaluation of a group of investments or assets to determine their
performance, risk, and potential for achieving investment goals. It is a critical tool for
investors as it helps them to make informed decisions on their investment strategies.

The primary goal of portfolio analysis is to diversify investments to minimize risk while
maximising returns. The analysis entails a comprehensive review of the portfolio, which
includes critical metrics like asset allocation, individual asset performance, volatility, risk,
and returns. These metrics are essential in giving investors insight on how their
investments are performing and how they can adjust their strategies for better results.

The portfolio analysis process is usually undertaken by financial advisors, analysts, fund
managers, and researchers. They examine past performance, future growth prospects,
and the overall strength of an investment to determine whether it will contribute positively
or negatively to the portfolio.

The most common methods of portfolio analysis include fundamental analysis, technical
analysis, and quantitative analysis. Fundamental analysis assesses individual assets
and their market performance, while technical analysis examines the trends and patterns
of investments.

On the other hand, quantitative analysis uses mathematical models to assess risks and
expected returns. It measures various aspects of investments to indicate their
performance.

One significant benefit of portfolio analysis is the ability to minimize risk. Diversifying the
portfolio by investing in different asset classes such as stocks, bonds, and real estate
can help reduce the risk of losses. Additionally, the analysis can help identify risks and
make informed decisions on how to mitigate them.

Another advantage is the ability to achieve investment goals. The analysis helps
investors to identify the best-performing assets and potential growth areas in their
portfolios. This information is crucial in making informed decisions that will ensure the
investor achieves their financial objectives.

In conclusion, portfolio analysis is an essential tool for investors looking to evaluate their
investments' performance, risk and determine how to achieve their investment goals
effectively. By using the various methods of analysis, investors can assess their
portfolios, make informed decisions, and ensure that they achieve their financial
objectives. 

11. The balanced scorecard:

It is a strategic management tool that is used to measure and manage an
organization's performance. It is a tool that helps organizations to identify their key
performance indicators (KPIs) and then track and measure their progress towards
achieving their objectives. The balanced scorecard was first introduced by Dr. Robert
Kaplanand Dr. David Norton in the early 1990s.

The balanced scorecard is based on four key perspectives: financial, customer,

internal processes, and learning and growth. Each perspective represents a different
aspect of the organization's activities, and by measuring and tracking performance in
each area, organizations can get a more complete picture of their over performance.

The financial perspective is concerned with financial performance measures, such as

revenue growth, profit margins, return on investment (ROI), and cash flow. This
perspective is essential for understanding the financial health of an organization and
ensuring that it is financially sustainable.

The customer perspective is concerned with measuring customer satisfaction,

loyalty, retention, and customer acquisition. This perspective is important for
organizations that want to focus on delivering high-quality customer experiences and
buildinglong-term relationships with their customers.

The internal process perspective is concerned with measuring the efficiency and
effectiveness of an organization's internal processes, such as production processes,
supply chain management, and customer service. This perspective is important for
organizations that want to optimize their operations and reduce costs.

The learning and growth perspective is concerned with measuring the effectiveness
of an organization's learning and development programs, employee engagement,
and innovation. This perspective is important for organizations that want tofoster a
culture of continuous improvement and innovation..

The balanced scorecard is a useful tool for organizations that want to align their
activities with their strategic objectives and measure their progress towards
achieving them. By measuring and tracking performance in each of the four key
perspectives, organizations can get a more complete picture of their overall
performance and make informed strategic decisions to drive business growth and
success.

12. The Porter Five Force Model

It is a widely used strategic analysis tool that was proposed by Michael

Porter in his book, "Competitive Strategy: Techniques for Analyzing Industries and
Competitors". It is used to analyze the competitiveness of a market or industry by
identifying its five competitive forces, namely, the threat of new entrants, the
bargaining power of suppliers, the bargaining power of buyers, the threat of
substitutes,and the intensity of competitive rivalry..

The first force is the threat of new entrants, which refers to the possibility of new
entrants into the market. The more barriers to entry in a market, the less likely it is
that new competitors will enter the market. Barriers to entry could be in the form of
economies of scale, brand recognition, patents,regulations, and accessto distribution
channels.

The bargaining power of suppliers is the second force. This refers to the ability
of suppliers to increase prices or reduce the quality of inputs. The more suppliers a
company has, the less bargaining power each supplier has. On the other hand,
fewer suppliers with amonopoly on an essential input can demand higher prices.

The bargaining power of buyers is the third force. This refers to the ability of
buyers to demand lower prices, better quality, or specific features. The more buyers
a company has, the less bargaining power each buyer has. However, buyers can
gain bargaining powerby purchasing large amounts or by having alternatives..
The threat of substitutes is the fourth force. This refers to the possibility of
customers using alternative products or services. The more substitutes a company
has, the less bargaining power it has. Substitutes can be in the form of direct or
indirect competitors or new technology.

The intensity of competitive rivalry is the fifth and final force. This refers to the
level of competition among existing competitors in the market. The more competitors
a company has, the more intense the competition. This can lead to price wars,
aggressive marketing, and lower profits.

Overall, the Porter Five Force Model can help businesses understand the
competitive dynamics of a market, identify potential opportunities and threats, and
develop strategies to gain a competitive advantage.