Page 56 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes So it is quite obvious that success in a business depends upon better understanding of the
environment. A successful organisation doesn’t look at the environment on an ad hoc basis but
develops a system to study the environment on a continuous basis to try and protect the
organisation from every possible threat and to take the advantage of every opportunity. Some
times better and timely understanding of the environment can even turn a threat into an
opportunity.

Importance of Business Environment

1. Environment is Complex: The environment consists of a number of factors, events,
conditions and influences arising from different sources. All these interact with each other
to create new sets of influences.

2. It is Dynamic: The environment by its very nature is a constantly changing one. The
varied influences operating upon it impart dynamism to it and cause it to continually
change its shape and character.
3. Environment is multi -faceted: The same environmental trend can have different effects
on different industries. For instance, GATS is an opportunity for some companies but a
threat for others.

4. It has a far-reaching impact: The environment has a far-reaching impact on organisations
in that the growth and profitability of an organisation depends critically on the
environment in which it exists.
5. Its impact on different firms with in the same industry differs: A change in environment
may have different bearings on various firms operating in the same industry. In the
pharmaceutical industry in India, for instance, the impact of the new IPR (Intellectual
Property Rights) law will different for research-based pharmacy companies such as
Ranbaxy and Dr. Reddy’s Lab and will be different for smaller pharmacy companies.

6. It may be an opportunity as well as a threat to expansion: Developments in the general
environment often provide opportunities for expansion in terms of both products and
markets.

Example: Liberalization in 1991 opened lot of opportunities for companies and
HLL took the advantage to acquire companies like Lakme, TOMCO, KISSAN etc. Changes
in environment often also pose a serious threat to the entire industry. Like Liberalization
does pose a threat of new entrants to Indian firms in the form of Multi National Corporation
(MNCs).

7. Changes in the environment can change the competitive scenario: General environmental
changes may alter the boundaries of an industry and change the nature of its competition.
This has been the case with deregulation in the telecom sector in India. Since deregulation,
every second year new competitors emerge, old foes become friends and M&As follow
every new regulation.
8. Sometimes developments are difficult to predict with any degree of accuracy:
Macroeconomic developments such as interest rate fluctuations, the rate of inflation, and
exchange rate variations are extremely difficult to predict on a medium or a long term
basis. On the other hand, some trends such as demographic and income levels can be easy
to forecast.

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