QUESTION NO. 3
BUS 418 2008/2009 SESSION
a.
What
is a Business Environment?
b.
Discuss
in detail the major characteristics of the environment.
SOLUTION
TO QUESTION NO. 3a BUS 418 2008/2009 SESSION
BUSINESS ENVIRONMENT DEFINED
Business environment is the sum
total of all external and internal factors that influence a business. You
should keep in mind that external factors can influence each other and work
together to affect a business. For example, a health and safety regulation is
an external factor that influences the internal environment of business
operations. Additionally, some external factors are beyond your control. These
factors are often called EXTERNAL CONSTRAINTS. Let’s take a look at some key
environmental factors.
EXTERNAL FACTORS
POLITICAL FACTORS are governmental
activities and political conditions that may affect your business. Examples
include laws, regulations, tariffs, and other trade barriers, war, and social
unrest.
MACROECONOMIC FACTORS are
factors that affect the entire economy, not just your business. Examples
include things like interest rates, unemployment rates, currency exchange
rates, consumer confidence, consumer discretionary income, consumer savings
rates, recessions, and depressions.
MICROECONOMIC FACTORS are
factors that can affect your business, such as market size, demand, supply,
relationships with suppliers and your distribution chain, such as retail stores
that sell your products, and the number and strength of your competition.
SOCIAL FACTORS are basically
sociological factors related to general society and social relations that
affect your business. Social factors include social movements, such as
environmental movements, as well as changes in fashion and consumer
preferences. For example, clothing fashions change with season, and there is a
current trend towards green construction and organic foods.
TECHNOLOGICAL FACTORS are
technological innovations that can either benefit or hurt your business. Some
technological innovations can increase your productivity and profit margins,
such as computer software and automated production. On the other hand, some
technological innovations pose an existential threat to a business, such as
Internet streaming challenging the DVD rental business.
INTERNAL FACTORS
INTERNAL FACTORS are factors
from inside the organization that affect a business, such as organizational
culture, organizational structure, and management structure.
ORGANIZATIONAL STRUCTURE is the
framework of values, vision, norms, and customs shared by the members of an
organization. Your business culture affects how the employees in your business
interact with each other, its customers, and other stakeholders.
ORGANIZATIONAL STRUCTURE is the
manner in which the business is organized to conduct its activities.
Organizations can be organized fairly flat, with very few levels of hierarchy, or
organized very vertical, with many levels of hierarchy. The manner in which an
organization is structured will affect how your business is managed and how
much control individual employees have over their work.
MANAGEMENT STRUCTURE is the
manner in which your business is managed. Management may be centralized where
all decision-making is made at the top and filtered down throughout the
business, or it may be decentralized, where the decision-making is throughout
the organization and decisions are made closer to the relevant work activities
or problems.
SOLUTION
TO QUESTION NO. 3b BUS 418 2008/2009 SESSION
Following are the chief
characteristics of the business environment:
a. ENVIRONMENT IS COMPLEX:
The
environment is not made of any one simple constituent but consists of a number
of factors, events, conditions and influences, arising from different sources.
It
is difficult to guess the factors that constitute a given environment. Hence,
environment is at the same time complex and somewhat easy to understand in
parts, but difficult in totality.
b. ENVIRONMENT IS DYNAMIC:
The
environment does not remain constant but keeps on changing. For instance, the
environment changes with the competitor’s products and strategies, government, policies, customers’ preferences, etc. Hence, in order to
survive and grow, it becomes very important for every organization to
understand its impact and adapt itself with such changes.
c. ENVIRONMENT IS MULTI-FACETED:
Same
element or influence of environment affects different firms in different ways. This
is frequently seen when the same development, say liberalization, is welcomed
as an opportunity by one company while another company perceives it as a
threat.
d. ENVIRONMENT HAS A FAR REACHING
IMPACT:
The
environment has a long term and lasting impact on organizations. The growth and
profitability of an organization depend critically on the environment in which
it exists.
QUESTION
NO. 4 BUS 418 2010/2011 SESSION
a. Environmental scanning and SWOT
analysis in business are regarded as fundamental factors to guide against
business failure, meet up with hyper competition and ensure firms survival.
Discuss.
b. Write short but informative
notes on the following theories of strategic management.
i.
Strategic
adaptation theory
ii.
Goal-
setting theory
iii.
Complexity
theory
iv.
Chaos
theory
c. As a potential strategic
manager, develop new company either manufacturing or service industry and
design the vision and mission statement of the company.
d. Diagrammatically present a
strategic management model.
e. How does strategic management
decision making evolve in a corporation? Discuss the process in detail and
identify weaknesses in the process.
SOLUTION TO QUESTION NO. 4a BUS
418 2010/2011 SESSION
A
SWOTkml analysis is an organized design method used to evaluate the strengths,
weaknesses, opportunities and threats complex within the person or the group or
the organization where the functional process takes place.
Corporate
planning is based upon the analysis of the strengths, weaknesses, opportunities
and threats (SWOT). The SWOT analysis is an excellent technique for strategy
formulation, which is an aspect of corporate planning that is involved with
deciding the strategies and policies to achieve corporate objectives, Strategy,
formulation consists of the following elements:
i.
Environmental
appraisal to identify opportunities and threats to the firm.
ii.
An
appraisal of the company’s strengths and weaknesses.
iii.
Identifying
and selecting alternative strategies.
SWOT was first developed by the
Harvard Business School, but has, over the years, gained acceptance throughout
the world. It helps to promote deep thinking and creative solution by
highlighting the root cause of problems within an organization. SWOT analysis
enables a company to choose and define its desired future. The first two words
in the acronym, SWOT, are the product of internal compatibility analysis, while
the last two represent external environmental/industry analysis. In the SWOT
analysis strength is any characteristic of a company or its subsystem, which
affords it a distinct competitive advantage. Strength is a distinctive
competence, which could be in terms of skills, resources or other advantages
relative to competitors that give the firm a comparative advantage in the
marketplace. Strength originates from its intrinsic capabilities and
environmental conditions.
Weaknesses are characteristics
wherein competitors have an advantage over the firm. A weakness can be seen
also as a limitation or deficiency in resources, skills and capabilities that
seriously impede effective performance. A weakness arises from adverse internal
and external factors. Strengths and weaknesses are not absolute in themselves
but comparative in nature. Opportunities for a firm imply the area for absolute
investment, created by growth of the industry and that of the country. In a
nutshell, it means the key favourable situation in the firm’s environment.
Threats are the key
unfavourable situations in the firm’s environment. Opportunities and threats,
on the other hand, are detected through an analysis of the firm’s external
environment. A matching of the corporate strength with opportunities and the
threats will help the company to make the most profitable deployment of its
resources.
SOLUTION
TO QUESTION NO. 4b BUS 418 2010/2011 SESSION
ii. GOAL- SETTING THEORY:
In 1960’s, Edwin Locke put
forward the Goal- setting. This theory states that “Goal setting is essentially
linked to task performance. It states that specific and challenging goals along
with appropriate feedback contribute to higher and better task performance. In
simple words, goals indicate and give direction to an employee about what needs
to be done and how much efforts are required to be put in. the willingness to
work towards attainment of goal is main source of job motivation. Clear,
particular and difficult goals are greater motivating factors than easy,
general and vague goals. Specific and clear goals lead to greater output and
better performance. Unambiguous, measurable and clear goals accompanied by a
deadline for completion avoids misunderstanding. Goals should be realistic and
challenging. This gives an individual a feeling of pride and triumph when he
attains them, and sets him up for attainment of next goal. Better and
appropriate feedback of results directs the employee behavior and contributes
to higher performance than absence of feedback. It helps employees to work with
more involvement and leads to greater job satisfaction.
Employees’ participation in
goal is not always desirable. Participation of setting goal, however, makes
goal more acceptable and leads to more involvement.
Self-efficiency- it is the individual’s
self-confidence and faith that he has potential of performing the task. The
higher the level of self-efficiency, the greater will be the efforts put in by
the individual when they face challenging tasks and vice versa.
Goal commitment- goal setting
theory assumes that the individual is committed to the goal and will not leave
the goal. The goal commitment is dependent on the following factors:
Goals are made open, known and
broadcasted. Goals should be set-self by individual rather than designated.
Individual’s set goals should be consistent with the organizational goals and
vision.
Clear goals are measurable and
unambiguous- When a goal is clear and specific, with a definite time set for
completion, there is less misunderstanding about what behaviours will be rewarded.
You know what’s expected, and you can use the specific result as a source of
motivation. One of the most important characteristics of goals is the level of
challenge. People are often motivated by achievement, and they’ll judge a goal
based on the significance of the anticipated accomplishment. When setting
goals, make each goal a challenge.
The last factor in goal setting
theory introduces two more requirements for success. For goals or assignments
that are complex, take special care to ensure that the work doesn’t become too
overwhelming.
Goals must be understood and
agreed upon if they are to be effective. Employees are more likely to “buy
into” a goal if they feel they were part of creating that goal. Feedback
provides opportunities to clarify expectations, adjust goal difficulty, and
gain recognition. Its important to provide benchmark opportunities or targets,
so individuals can determine for themselves how they’re doing.
iii.
COMPLEXITY
THEORY AND ORGANIZATIONS, also called complexity strategy or complex adaptive
organization, is the use of complexity theory in the field of strategic
management and organizational studies.
Complexity theory has been used
in the fields of strategic management and organizational studies. Application
areas include understanding how organizations or firms adapt to their
environments and how they cope with conditions of uncertainty. The theory
treats organizations and firms as collections of strategies and structures. The
structure is complex; in that they are dynamic networks of interactions, and
their relationships are not aggregations of the individual static entities.
They are adaptive; in that the individual and collective behavior mutate and
self-organize corresponding to a change-initiating micro-event or collection of
events.
Organizations can be treated as
complex adaptive systems (CAS) as they exhibit fundamental CAS principles like
self-organization, complexity, emergence, interdependence, space of
possibilities, co-evolution, chaos, and self-similarity. A typical example for
an organization behaving as CAS, is the Wikipedia collaborated and managed by a
loosely organized management structure, composed of a complex mix of
human-computer interactions. By managing behavior, and not only mere content,
Wikipedia uses simple rules to produce a complex, evolving knowledge base which
has largely replaced older sources in natural use. Other examples include – the
complex global macroeconomic network within a country or group of countries;
stock market and complex web of cross border holding companies; manufacturing
businesses; and any human social group-based endeavor in a particular ideology
and social system such as political parties, communities, geopolitical
organizations, and terrorist networks of both hierarchical and leaderless
nature. This new macro level state create difficulty for an observer in
explaining and describing the collective behavior in terms of its constituent
parts; as a result of the complex dynamic networks of interactions, outlined
earlier.
CAS are contrasted with ordered
and chaotic systems by the relationship that exists between the system and the
agents which act within it. In an ordered system the level of constraint means
that all agent behavior is limited to the rules of the system. In a chaotic
system, the agents are unconstrained and susceptible to statistical and other
analysis. In a CAS, the system and the agents co-evolve; the system lightly
constraints agent behavior, but the agents modify the system by their
interaction with it. This self-organizing nature is an important characteristic
of CAS; and its ability to learn to adapt, differentiate it from other self
organizing systems. CAS approaches to strategy seek to understand the nature of
system constraints and agent interaction and generally takes an evolutionary or
naturalistic approach to strategy. More recently, work by organizational
scholars and their colleagues have added greatly to our understanding of how
concepts from the complexity sciences can be used to understand strategy and
organizations. Much of this later research integrates computer simulation and
organizational studies.
iv.
THE
CHAOS THEORY
The
chaos theory is a complicated and disputed mathematical theory that seeks to
explain the effect of seemingly insignificant factors. The chaos theory name
originates from the idea that the theory can give an explanation for chaotic or
random occurrences. The first real experiment in the chaos theory was done in
1960 by a meteorologist, Edward Lorenz. He was working with a system of
equations to predict what the weather would likely be.
In
1961, he wanted to recreate a past weather sequence, but he began the sequence
mid-way and printed out only the first three decimal places instead of the full
six. This radically changed the sequence, which could reasonably be assumed to
closely mirror the original sequence with only the slight change of three
decimal places. However, Lorenz proved that seemingly insignificant factors can
have a huge effect on the overall outcome. The chaos theory explores the
effects of small occurrences dramatically affecting the outcomes of seemingly
unrelated events.
The
chaos theory has been applied to many specific areas, including finance. In
finance, the chaos theory has been used to argue that price is the last thing
to change for a security. Using the chaos theory, a change in price can be
determined through mathematical predictions of the following factors: a
trader’s personal motivations (such as doubt, desire or hope that are
non-linear and complex), changes in volume, acceleration of changes and
momentum behind the changes. The application of the chaos theory to finance
remains controversial.
SOLUTION
TO QUESTION NO. 4c BUS 418 2010/2011 SESSION
VISION
AND MISSION
VISION:
It
outlines what the organization wants to be, or how it wants the world in which
it operates to be. It is a long-term view and concentrates on the future. It
can be emotive and is a source of inspiration. For example, a charity working
with the poor might have a vision statement which reads “A World without
Poverty”.
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