CA IPCC Strategic Management Notes Business Environment Notes

CHAPTER 1 

Business Environment

I) RELATIONSHIP BETWEEN ORGANISATION AND ITS ENVIRONMENT :

The various interactions between organisation and environment can be analysed as under:

1. A.      EXCHANGE OF INFORMATION :

Inflow:

a)       Organisation analyses the external environment variables, generates important information, and uses it for its planning, decision-making and control purposes.

And to get over the problems of uncertainty and complexity..

b)       Information is to be generated on economic activity and market conditions, technological developments, social and demographic factors, etc.

Outflow:

The organisation transmits information to several external agencies:

a)       Voluntarily: Product Advertisement, Road Shows, etc.

b)       Inadvertently: It is possible to obtain information from the behaviour of the organisation itself. E.g. VRS Plan Announcement

c)       Legally: Reports/Returns to Governmental Agencies, investors, employees, etc.

1. B.       EXCHANGE OF RESOURCES :

        Inflow:

a)       Organisation receives inputs- human, physical, finance and technology from the external environment through contractual and other arrangements.

b)       A business enterprise competes and collaborates with other organisations for consistent supply of inputs.

              Outflow:

a)       Organisation is dependant on external environment for disposal of output of products and services to wide clientele.

b)       This is an interaction process – perceiving needs of external environment and catering to the needs of customers, employees, shareholders, creditors, etc.

1. C.       EXCHANGE OF INFLUENCE AND POWER :

          Inflow:

a)       The external environment holds considerable power over the organisation by virtue of its command over resources, information and other inputs.

b)       It offers a range of opportunities, rewards on one hand, and set of constraints, threats on the other.

              Outflow:

a)       External environment is subject to the influence and power of the Firm in some respects.

b)       Organisation can dictate terms to external forces. E.g., Resources which are consumed by and organisation should be utilized gainfully.

Direct competition is between organizations, which are in same business activity. At the same time, competition can also be indirect. For example, competition between a holiday resort and car manufacturing. Company for available discretionary income of affluent customers is indirect competition.

  II)  SUPERNATIONAL ENTERPRISE:

It is a worldwide enterprise chartered by a substantially non-political international body such as IMF or World Bank. Its functions are:

a)       International business service and it performs service in nations which permit its entry.

b)       It should be able to draw the economic world closer together.

c)       It could serve all nations without being especially attached to anyone of them.

III) COOPERATION IN A COMPETITIVE ENVIRONMENT:

In competitive environment, cooperation between different member firms can be compared to oligopoly. In oligopoly, a small number of only manufactures/sellers of a product may join together to have monopolistic behaviour. An example of oligopoly can be Organization of the Oil Exporting Countries (OPEC).

Cooperation can take the following forms –

➢  Cooperation in organisations forming cartels (a term used to define the groups in oligopoly) may be in form of deciding market shares, prices and profits.

➢  Business arrangement with enterprises in related activities. E.g. Co-branding, tie-up, etc

➢  Kieretsus.

IV)  KIERETSUS :

The benefits of cooperation are seen in Japan, where large cooperative networks of businesses are known as kieretsus.

These are formed in order to enhance the abilities of individual member businesses to compete in their respective industries.

In Kieretsu members remain independent companies in their own right: the only strategy they have in common is to prefer to do business with other kieretsu members, both when buying and when selling.

Kieretsu members are peers and may own significant amounts of each other's stock and have many board members in common.

They are different from conglomerates (Common in western countries and also found in India) wherein all members are lineated through ownership pattern.

A kieretsu also differs from a consortium or an association, as the primary purpose of a kieretsu is to share purchasing, distribution or any other functions.