Design Parameters

The classification of the general environment into sectors helps an organisation to cope with its complexity, to comprehend the difference influences operating in the environment, and to relate the environmental changes to its strategic management process. Different bases for classification have been adopted by different authors but the basis itself is not as important as the fact that all the relevant factors in the environment have to be considered. Depending on a variety of factors, such as, the size of the organisation, the level and scope of activities, the geographical spread of markets, the nature of the product, the type of technology used, and managerial philosophy, an organisation may divide its environment into sectors capable of being analysed conveniently.

In this unit we are using an eight -category classification of the environment. These eight sectors of the environment are: market, technological, supplier, economic, regulatory, political, socio-cultural, and international sectors of environment. We will now take up each of these sectors for discussion.

3.5.1 Market Environment

The market environment consists of the factors related to the groups and other organisations that compete with and have an impact on an organisation‘s markets and business. Some of the important factors and influences operating in the market environment are as follows:

Customer or client factors, such as, the needs, preferences, perceptions, attitudes, values, bargaining power, buying behaviour and satisfaction of customers.

Product factors, such as the demand, image, features, utility, function, design, lifecycle, price, promotion, distribution, differentiation, and the availability of substitutes of products or services.

Marketing intermediary factors, such as, levels and quality of customer service, middlemen, distribution channels, logistics, costs, delivery systems, and financial intermediaries.

Competitor-related factors, such as, the different types of competitors, entry and exit of major competitors, nature of competition, and the relative strategic position of major competitors.

The market environment depends largely on the type of the industrial structure. In monopolies and oligopolies, the concern for the market environment is lesser than what it is in the face of pure competition. In a controlled economy, like that of India, public utilities like electricity boards and most public sector companies such as petrol and cooking gas companies operated in a protected environment.

Here are several examples to show how the market environment affects, and is taken into consideration by the companies.

Growing international trade, massive investment in infrastructure, increasing levels of disposable income and strong manufacturing and retail sectors have combined to produced a dynamic market environment. Customers and their needs have been featuring more

prominently in the business strategies in several industries. Other marketing-related actions include investments in retail networks, increasing opportunities for customer interactions, improving customer service, customer-focused advertising, demonstrating a more visible presence and improving the overall customer experience.

There is a distinct trend of growing preference for natural products around the world and this trend is also prevalent in Nigeria. Eco-friendly products whether in agriculture, clothing, cosmetics or healthcare are seen as better substitutes for synthetic products.

Nigerians are paying increasingly greater attention to personal grooming. Changing lifestyles, increasing disposable incomes, availability of local and internal brands, and influence of satellite television and better awareness of global brands are some of the major factors that have led to an increasing demand for cosmetics. The cosmetics and personal care industry has been growing a t a high rate during the last few years. With the demand for cosmetics on the rise and opening of the market to foreign companies, there is increasing competition offering greater product choice and availability to the fashion-conscious Nigerian women and men in urban as well as rural areas.

Sales promotion, advertising, and market research, all of which had not occupied an important position in the marketing policies of companies have now assumed a greater significance. Distribution has been strengthened so that customers are not put to inconvenience. After-sales services, especially for consumer durables, have become a significant component of the marketing strategies of many companies.

The market environment is one of the most dynamic sectors of the environment. Nigerian marketers are facing a daunting challenge in coming to terms with the dynamism and the ever-changing nature of the Nigerian markets.

3.5.2 Technological Environment

The technological environment consists of those factors that are related to the knowledge applied and the materials and machines used in the production of goods and services which have an impact on the business of an organisation. Some of the important factors and influences operating in the technological environment are as follows:

Sources of technology, like company sources, external sources, and foreign sources; cost of technology acquisition; collaboration in and transfer of technology.

Technology development, stages of development, change and rate of change of technology, and research and development.

Impact of technology on human beings, the man-machine system, and the environmental effects of technology.

Communication and infrastructural technology in environment.

Strategists can ill afford to ignore the technological environment, as technology, besides customer groups and customer functions, defines the business of their organisations. According to Boris Petrov, there are three strategic implications of technological change: it can change relative competitive cost position within a business, it can create new markets and new business segments, and it can collapse or merge previously independent businesses by reducing or eliminating their segment cost barriers.

3.5.3 Supplier Environment

The supplier environment consists of factors related to the cost, reliability, and

availability of the factors of production or service that have an impact on the business of

an organisation. Some of the important factors and influences operating in the supplier environment are as follows:

Cost, availability and continuity of supply of raw materials, subassemblies, parts and components.

Cost and availability of finance for implementing plans and projects.

Cost, reliability and availability of energy used in production.

Cost, availability and dependability of human resources.

Cost, availability and existence of sources and means for the supply of plants and machinery, spare parts and after-sales service.

Infrastructural support and ease of availability of the different factors of production, the bargaining power of suppliers, and the existence of substitutes.

The supplier environment occupies a dominant position in strategy formulation because of the fact that Nigeria is a developing country with problems of scarcity of capital. Unlike some of the western nations and Japan, the reliability of supply is very low causing companies to devote a lot of attention and energy to maintain the continuity of supply. Almost all annual company reports lament the shortage of power and cite the high costs of petroleum products as the reason for low profitability.

3.5.4 Economic Environment

The economic environment consists of macro-level factors related to the means of production and distribution of wealth which have an impact on the business of an organisation. Some of the important factors and influences operating in the economic environment are:

The economic stage at which a country exists at a given point of time.

The economic structure adopted, such as, a capitalistic, socialistic or mixed economy.

Economic policies, such as, industrial, monetary and fiscal policies.

Economic planning, such as, five-year plans, annual budgets, and so on.

Economic indices like national income, distribution of income, rate and growth of gross national product (GNP), per capita income, disposable personal income, rate of savings and investments, value of exports and imports, the balance of payments, etc. and so on.

Infrastructural factors, such as, financial institutions, banks, modes of transportation, communication facilities, and so on.

Strategists are acutely aware of the importance and impact of the economic environment on their organisations. Almost all annual company reports presented by the chairman devote attention to the general economic environment prevailing in the country and an assessment of its impact on their companies.

3.5.5 Regulatory Environment

The regulatory environment consists of factors related to planning, promotion, and regulation of economic activities by the government that have an impact on the business of an organisation.

Some of the important factors and influences operating in the regulatory environment are as follows:

The constitutional framework, directive principles, fundamental rights, and division of legislative powers between central and state governments;

Policies related to licensing, monopolies, foreign investment, and financing of industries;

Policies related to distribution and pricing, and their control;

Policies related to imports and exports;

Other policies related to the public sector, small-scale industries, sick industries, development of backward areas, control of environmental pollution, and consumer protection.

3.5.6 Political Environment

The political environment consists of factors related to the management of public affairs and their impact on the business of an organisation. Some of the important factors and influences operating in the political environment:

The political system and its features, like the nature of the political system, ideological forces, political parties and centres of power;

The political structure, its goals and stability;

Political processes, like the operation of the party system, elections, funding of elections, and legislation with respect to economic and industrial promotion, and regulation;

Political philosophy, government‘s role in business, and its policies and interventions in economic and business development.

3.5.7 Socio-cultural Environment

The socio-cultural environment consists of factors related to human relationships within a society; the development, forms and functions of such a relationship; and the learnt and shared behaviour of groups of human beings which have a bearing on the business of an organisation.

Some of the important factors and influences operating in the social environment are:

Demographic characteristics, such as, population, its density and distribution, changes in population and age composition, inter-state migration and rural-urban mobility, and income distribution;

Socio-cultural concerns such as environmental pollution, corruption, use of mass media, the role of business in society, and consumerism;

Socio-cultural attitudes and values, such as, expectation of society from business, social customs, beliefs, rituals and practices, changing lifestyle patterns, and materialism;

Family structure and changes in it, attitude towards and within the family, and family values;

The role and position of men, women, children, adolescents, and the aged in family and society;

Educational levels, awareness and consciousness of rights, the work ethic of the members of society, and the attitude towards minority and disadvantaged groups.

The socio-cultural environment primarily affects the strategic management process within the organisation in the areas of mission and objective-setting, and decisions related to products and markets. Strategists do not seem to be fully aware of the impact of the socio-cultural environment on business or they are so preoccupied with other environment influences that they do not give a high priority to socio-cultural factors. One reason for such a lack of interest could be the nature of socio-cultural influences. Socio -cultural changes take place very slowly and do not seem to have an immediate and direct impact on short-term strategic decisions.

3.5.8 International Environment

The international (or global) environment consists of all those factors that operate at the transnational, cross-cultural, and across-the-border level which have an impact on the business of an organisation. Some of the important factors and influences operating in the international environment are as below:

Globalisation, its process, content, and direction;

Global economic forces, organisations, blocs, and forums;

Global trade and commerce, its process and trends;

Global financial system, sources of financing, and accounting standards;

Geopolitical situation, equations, alliances, and strategic interests of nations;

Global demographic patterns and shifts;

Global human resource – institutions, availability, nature and quality of skills and expertise, mobility of labour and other skilled personnel;

Global information systems, communication networks, and media;

Global technological and quality systems and standards;

Global markets and competitiveness;

Global legal system, adjudication and arbitration mechanisms;

Globalisation of management and allied disciplines, and the diffusion of management techniques in industry.

The international environment constitutes a special class of the environmental sector. While the preceding seven sectors are largely limited and exclusive in nature, the international environment encompasses all the sectors, albeit in the global context. What we mean to say is that while for instance, the political environment within a country could consist of certain factors related to national politics; the international environment would also have a geopolitical component including the political factors and influences at the global level.

This section of the unit has been devoted to a discussion of eight different sectors constituting the environment of an organisation. By no means is it claimed that our coverage of environmental sectors is all- encompassing. There are other sectors too which are worthy of consideration. For instance, the natural, physical or geographical environment, to which a passing reference has been made while discussing regulatory environment, is also of great concern to companies.

Environmental protection is of paramount importance in a world where the issues of sustainable development have assumed great significance. The corporate sector is now required to adhere to a plethora of regulations for environmental protection and control of pollution. This is especially relevant for polluting industries, like, processing plants and refineries.

It should be noted that any classification of the environment into sectors is artificial and is meant solely to gain an understanding of the different environmental factors. In reality, the dividing line between the different sectors of the environment is hazy and there is a high level of interaction between variables belonging to various environmental sectors. For example, market demand, which is a part of the market environment, does not exist in isolation but is dependent on other factors, such as, the general state of the economy, buyer motivation or technical quality of the products.

Apart from the inter-sectoral interaction, there are complex inter-linkages existing among the factors in the same sector of the environment. To consider an example of such an inter-linkage, the technological environment has a number of factors and influences. Among these, collaboration in and transfer of technology affect the development of technology in a particular company and also in the industry as a whole. When the technological level is raised, it has repercussions on human beings and the man-machine system. There are also implications for the environmental effects of technology.

The intersectoral and intrasectoral nature of the environmental factors have to be considered while understanding the different environmental sectors. Strategists have to constantly monitor the environment and its different sectors for opportunities and threats that have, or are likely to have, an impact on their organisations. Such a monitoring is done through environmental scanning.