Category: Commerce Notes PPT

An entrepreneur is a person who searches the market for its product by following an unconventional or already established path. Entrepreneurs create a route for others, but he/she always try to explore new courses on their own.

Businessmen follow a conventional path that is already walked by someone else. That’s why the entrepreneur is a market leader, and the businessman is a market player. 

For example, JRD Tata, Dhiru B Ambani, these personalities are an example of true entrepreneurs. However, Mukesh Ambani has the essence of a businessman as he is leading an already established company by his father.

has provided detailed notes on the difference between entrepreneur and businessman; you can read it for free on any device. Experts from the industries have made these notes to give students precise knowledge about the topics. 

Learn the Difference Between Entrepreneur and Businessman

Differences between the entrepreneur and businessman help you gain an understanding of the lifestyle both follow and the workload they handle. Entrepreneurs have to handle several things alone, but businessmen divide the entire work among their employees and work only as a guide in achieving the goals.

has included all the necessary things a commerce student must know as they most probably will work in the same field in future. Experts have explained each point in detail concerning the syllabus of the subject for the exam. Students can use these notes to revise things quickly, and the easy explanation can help them retain the topics for a long duration.

Types of Entrepreneurship and Businesses

In the notes, students can find an in-depth explanation of the types of entrepreneurship and businessman. Experts have talked about each type precisely to help students with their exams. You can find more information about the varieties on the website through the online tuition classes for commerce students.

Apart from this, notes have covered the advantages of being an entrepreneur and businessman. experts have explained each keyword so that all these can help students secure a good rank. 

Join to Learn more about Entrepreneur and Businessman

Students can join the online tuition classes at .com to study under the guidance of expert faculties who have wide experience in teaching and delivering good content. Also, you can attend the online class directly from any smartphone, and you get a chance to clear your doubts from the experts.

Brief into the Difference Between Entrepreneur and Businessman

One of the main differences between entrepreneurs and businessmen is how they approach the business. A businessman is an individual who conducts commercial activities by following an already established path. 

In contrast, an entrepreneur is someone who locates a demand for a particular product in the world and proceeds to take steps to fulfil it. He/she thereby, creates a new path for others to follow. Therefore, an entrepreneur is considered to be a market leader while a businessman is a market player. 

Solve it Yourself: find out the names of some entrepreneurs and businessmen

Business and Entrepreneurship

All commercial, professional, or industrial activities that are responsible for providing goods and services to consumers in exchange for profit is a business. Consequently, businessman meaning an individual who is responsible for running the business efficiently and fulfilling its objectives. There are different types of businesses such as Sole Proprietorship – This is a type of business where it is owned and run by the same person only. It is suitable for a small-scale business.

Partnership – As the name suggests, the responsibility of ownership and management is shared by two individuals. The profits and losses are also divided equally or as decided in the partnership agreement.

Corporation – Here, the business has a separate, legal entity from its owners or founders. The responsibility of running a company is shared by a board of directors. The company is responsible for its debts and assets. 

Cooperative Business – This type of business is owned equally by a group of individuals or entities, all of whom utilise the products and services offered by the business.

Now, on to entrepreneurship!

The difference between entrepreneur and entrepreneurship is that the process of setting up, organising and running a small enterprise is known as entrepreneurship. In contrast, an entrepreneur is someone who creates novel products and carves new paths for others. 

However, one should not confuse business and entrepreneurship. While businesses focus on selling already existing goods and services, entrepreneurship focuses on offering innovative products that will add value to customers. This value can range from aesthetic to social to financial. 

For instance, if you consider opening a pet store in your locality that does not have one, you are starting a business. That is because the idea of a store for selling pet products already exists. However, if you devise a new pet product and offer it for sell, then that will be considered as entrepreneurship. The different types of entrepreneurship ventures are – 

Public Entrepreneurship – Entrepreneurship that is undertaken and funded by the public sector. It facilitates the development of an economy.

Private Entrepreneurship – Enterprises that are created and initiated under the private sector. Sometimes, governments offer aid and funding to encourage more individuals to set up their businesses.

Opportunistic Entrepreneurship – The kind of entrepreneurship that identifies with an opportunity and makes use of it is regarded as opportunistic entrepreneurship.

Individual Entrepreneurship – When an individual sets up his or her enterprise, it is known as individual entrepreneurship.

Acquisitive Entrepreneurship – It associates with learning from other competitors in the market and using the knowledge to develop a new way of offering a service or running a business.

Additionally, we can differentiate entrepreneur vs businessman on other vital points. These pointers are given in the table below – 

Think and Answer: Can you name some other differences between businessman and entrepreneurs?

Advantages of Business and Entrepreneurship

Nevertheless, despite the entrepreneur and businessman difference, advantages offered by them are mostly similar. Some of them have been listed below – 

Suitable for the Economy – Businesses help in boosting the economy of a country.

Provides Job Opportunities – Both businesses and entrepreneurship offers employment opportunities and improves the quality of life.

Independence – A businessman is his/her boss. They decide how to run the business, with whom they will do business and more control over their work hours. Additionally, businesses are financially more rewarding compared to salaried jobs. 

Creative Freedom – There are fewer restrictions and more room for entrepreneurs to showcase their creativity.

Personal Satisfaction – Owning and running a business gives rise to a sense of fulfilment. 

Facilitates Research and Development – Entrepreneurs carry out a lot of research and experiments before launching any particular product. 

Do it Yourself: can you think of any other advantages of entrepreneurship and businesses that benefit the society

The objective of cost accounting is only to smoothen the accounting or calculation process. While to attain this objective of cost accounting, two very different approaches are chosen. These are standard costing and budgetary control. At first glance, both of them might appear similar because they share two dominant traits: a forward-looking nature and a predetermination of expenses. The approaches have several differences. To understand these differences, you must first learn what budgetary control means. You will then progress to inculcate the fundamentals of standard costing. Once you know the modus operandi of these approaches, you will be able to appreciate their sharp delineations.

Here we start our discussion. 

Defining Budgetary Control

Budgetary control is essentially a management function, which has to achieve a trickle-down effect for it to fully take shape and yield fruit. In this method, the management decides and regulates the business approaches that need to be adopted for their organisation to perform at its full potential.

In essence, this is an exercise in control.

That means the management sets aside a goal and corpus for a particular set of tasks to be completed by their organisation at the end of a predetermined period. Once that time is past, the management will then analyse and evaluate if their slated objectives have been met. 

If the management believes that there are some loopholes, they will then take a series of coordinated and crafted strategic and tactical measures, both corrective and coercive.

Some Key Characteristics of Budgetary Control

• Companies dictate their budgets in line with their expected objectives and expert opinions on how much resources might be needed in practice.

• Budgetary control is a constant endeavour. The management – upper, middle and lower tiers – are observing how well their plans are playing out, sometimes in real-time thanks to modern accounting techniques and ERP software.

• Since there is constant supervision, revisions and course corrections are also routinely carried out. These changes are managerial decisions and must reflect the organisation’s vision and mission statements.

• Finally, if there are failures or shortcomings noticed, the management will look into the concerned areas closely. Appropriate action will then be proceeded with.

Do you reckon that the lower-tier personnel are not given their say in decision-making? You probably know that a democratic organisation – one where feedback and suggestions are welcome – fares better in the long run. 

Two good examples are Apple and Google. 

You can have a group discussion with your peers and seek your answers to these questions. These queries are not just theory: their use in daily businesses and decision-making procedures cannot be understated.

Features of Standard Costing System

There are various features of the Standard Costing System like 

• It is a predetermined cost and is based on past experience and is referred to as a common-sense cost, reflecting the best judgement of management.

• This cost relates to a product, service, process or operation. Standard costing is also determined for a normal level of efficiency of operation.

• It is also used to measure the efficiency of future production or future operations. And thus, it provides a useful basis for cost control.

• Standard cost can also be expressed in terms of money or other exact quantities.

Defining Standard Costing

Without knowing about standard costing, you obviously cannot solve the standard costing vs budgetary control riddle, can you? Standard costing measures how well resources, including manpower, materials, and other overheads, are performing and how they should ideally perform.

In essence, standard costing is an exercise in correction.

If variances are found between actual and expected performances, corrective measures will be taken. The reasons why these variances are occurring will also be probed, and any fault lines will be sealed.

While the management is fully involved, theirs is not a hands-on operation. Most operations in this second category are conducted by industry experts and third-party auditors and controllers.

Standard costing is the process of estimating the expense of a production process. Standard costing is a branch of cost accounting that is used by a manufacturer to plan their costs for the coming year on various expenses such as direct material, direct labour or overhead. The manufacturers using Standard costing will also be able to compare the standard cost to the actual costs. Standard costing is the second-best cost control technique, the first best being budgetary control. Standard costing is also one of the most recently developed refinements of cost accounting. This technique is used in many industries due to the limitations of historical costing. Historical costing basically refers to the task of determining costs after they have been incurred, providing management with a record of what has happened.

Speaking of Variances, There are Two Subtypes Here:

1. Favourable Variation: It occurs when actual costs incurred are lower than expected or standard thresholds. It indicates that the organisation is going in the right direction, and also that minimal coercive action is needed.

2. Adverse Variation: It is the polar opposite of the former type. It signifies that operations need some corrective measures.

Some of the Key Characteristics of Standard Costing are:

• Standards are pre-fixed. The results of operations and mechanisms are calculated and compared later. 

• Comparisons are made on actual figures and are not notional, unlike budgetary costing. In this regard, standard costing has a slight upper hand.

• Analysing and reporting variances and tolerances are standard practises.

DIY Task

The gems and jewellery industry is one where standard costing is carried out extensively. Only a select group of companies in this sector has budgetary costing planned for an FY. Find out why.

(Hint: It has to do with the very high procurement costs and high seasonal sales)

Difference between Standard Costing and Budgetary Control

Now that you know both these methods of cost accounting let’s dive straight into the labyrinths of standard costing vs budgetary control.

For Simplicity, the Differences are Tabulated For You.

We hope you can now clearly see the differences between budgetary control and standard costing.

It must be said here that these two methods cannot be compared objectively and no organisation can choose any one avenue. Both these ways are often intertwined.

You can refer to ’s official website for articles on more such topics. Additionally, you can make use of our study materials for more efficient self-study sessions. 

Budgetary Control

This is basically determining various actual results with budgeted figures for the enterprise for the future period and standards set then comparing the budgeted figures with the actual performance for calculating variances. At first, budgets are prepared and then actual results are recorded. So budgetary control is a continuous process that helps in planning and coordination. Budgetary control provides a method of control too. Budgetary control is the end result of budgets. It is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.

There are various features of budgetary control like 

• Budgetary control is establishing budgets for each functional area, for example, sales, production, purchase, etc., the policies and various activities which might be adopted for achieving them.

• Budgetary control is recording the actual performance of each functional area.

• Budgetary control is analysing the reasons for variances and identifying the persons responsible.

Difference Between Standard Costing and Budgetary Control

Following are the difference between Standard costing and Budgetary control:

• Budgetary control mainly deals with the operation of a department or business as a whole while standard costing mainly applies to the manufacturing of a product or providing a service. 

• Standard costing can be implemented in a business without any particular policy while in the case of budgetary control it is necessary to lay down the objective or the policy of the firm for the period for which budgets are being laid down.

• Budgetary control is practised by statistically putting the budgets and actuals side by side while under the Standard Costing system, actuals are recorded in accounts and thus the variances are revealed through different accounts.

• Budgetary control is basically the projection of financial accounts while standard costing is the projection of cost accounts.

As the story of globalization progressed, it was always accompanied by several socio-cultural changes but no change was as prominent as the development of modern technology and one of the most important technological advancements of this period was the growth of the Internet. With the rapid expansion of the internet, the traditional and digital economies are slowly merging into one. And as the name suggests, the digital economy refers to the economy based on computing and digital technologies. It includes the economic, business, cultural, and social activities that are highly dependent on the internet. Digital technology in essence refers to the transactions and commerce activities that take place in the online domain.

 

Components of Digital Economy

In the context of the present circumstances of the world, the Digital economy can be divided into three key components that are: 

Key Attributes of Digital Economy

Some of the key attributes of the digital economy are:-

• It is Digitized: Various analogue objects produce digital signals which can be easily measured, tracked, and even analyzed for efficient decision making. Also, lower costs for modern technology are allowing operators to invest more processing out into the business.

• It is Connected: The Workers, assets, suppliers, and even stakeholders are all linked together by wireless communications. It enables various people to make better decisions that promote safety, visibility, and efficiency across the enterprise.

• It is Shared: The digital economy operates on the principle of sharing. Buying only what is required often reduces costs and allows the companies to pay only for the value received.

• It is Personalized: One of the most important characteristics of the digital economy is customer personalization. Hence, it enables customers to get benefits from their favorite brands whenever and wherever they want.

• It is Direct: The Leveraging of remote intelligence to monitor, manage, report, and resolve asset problems throughout the service lifecycle, eradicates the need to have local personnel on the ground. 

Dual aspect accounting is a concept that suggests double entry of every business transaction while preparing a financial or accounting report. Also known as duality principle, dual aspect concept involves every transaction being recorded in debit and credit accounts.

In the Double Entry accounting system, every transaction has an equal and corresponding effect, i.e. it affects two accounts. Every financial transaction is recorded in two accounts. Transactions are recorded in the double-entry system as debits and credits. Because a debit in one account cancels out credit in another, all debits must equal all credits. The double-entry bookkeeping method standardized the accounting process and increased the quality of financial statements generated, allowing for better identification of mistakes. In the double-entry system of accounting, there are seven different types of accounts in which the accounts are classified. They are as follows: assets, liabilities, revenue, expenditure, equities, gains, losses. In this system of accounting, transactions are recorded in terms of debit and credit. 

Unlike the single entry system of accounting which recorded only one end of a transaction, like that of a sale; this system also records the other action which is that of receiving payment.

Forming the basis of double-entry accounting, this concept classifies every transaction into two segments. These are explained below in detail.

• Debit: When a transaction is classified in this double entry system, debit refers to the increase in assets and expenses. Additionally, it also refers to decrease in liabilities, income and equity.

• Credit: Credit in dual aspect concept in accounting refers to decrease in assets and expenses. Furthermore, it also indicates any increase in liabilities, income and equity due to a transaction.

Real-World Example of Double-entry System

A bakery purchases a number of refrigerated delivery trucks on credit; the total credit purchase was Rs.250,000. These new trucks will be used in business operations and will not be sold for at least 10 years, i.e. their estimated useful life.

For credit purchase of new trucks, transactions must be recorded in their respective accounts. A debit to the asset account for the amount of the purchase (RS. 250,000) will be made since the company has acquired more assets. A credit entry of RS. 250,000 will be made to notes payable to account for the credit purchase. The asset balance is increased by the debit entry, and the notes payable liability balance is increased by the same amount by the credit entry.

Double entries are also possible within the same class. If the bakery made a cash transaction, in this scenario a cash account would be credited and the asset account would be debited, resulting in a balance.

Features of Dual Aspect Accounting

To understand dual aspect accounting properly, it is important to note that every transaction has these following features.

• It simultaneously decreases an asset, while increasing another.

• Similarly, it also decreases a specific liability, while increasing another.

• There is a simultaneous increase of both, an asset and its related liability.

• Contrarily, in the case of decrease of an asset, related liability is also decreased.

Dual Aspect Accounting Equation

A vital aspect of overall financial accounting definition, dual aspect accounting features can be a little difficult to understand unless explained with its equation and relevant examples. According to this concept, the basic accounting equation is as follows.

A = E + L

where, A stands for asset

E stands for equity,

and L stands for liabilities.

In this given formula, assets represent both fixed and current assets. Furthermore, liabilities represent long term liabilities along with current liabilities.

Examples of Dual Aspect Accounting

As a practical field of study, it is vital for students to understand accounting concepts with examples since it offers enhanced clarity. A few examples are given below to clearly explain this concept.

1. Issuing An Invoice To A Customer: The first entry appears in its income statement indicating increase in sales. Additionally, its accounts receivable asset in the balance sheet is also increased, while change in income due to increase in sales are recorded in retained earnings. This is a part of the section of equity in a balance sheet.

2. Receiving An Invoice From A Supplier: First portion of this entry records increase of expense or asset account. This can appear either in the income statement for an expense or in the balance sheet  for assets. Second portion of this entry increases accounts payable liability. Furthermore, this change in income recorded due to an expense appears in retained earnings as a part of the equity section in a balance sheet.

While these examples demonstrate a scenario, to explain accounting concepts to students illustrative examples must also be presented.

Consider a startup by Mr. X which has a financial asset of Rs.1 lakh. In this situation, double-entry accounting shows the following.

This entry changes when Mr. X purchases goods of worth Rs. 20,000 from another firm on credit. After this purchase, this accounting looks as follows.

Related Types of Accounting Concepts

Along with dual aspect accounting, there are quite a few types of accounting concepts which are vital for a better understanding of the subject. Some of these crucial concepts are explained below.

1. Accrual Concept: This concept suggests that revenue should be recognised and recorded on its realisation rather than that of its actual receipt. Additionally related costs are not left till payment, but recorded when it is incurred. This concept requires proper adjustment and citation while preparing income statements of revenue and costs.

2. Business Entity Concept: The main idea behind this concept is that a business in itself is separate from all its stakeholders or capital investors. It stresses the importance of maintaining proper transactional records of a firm. Here a proprietor is considered to be the creditor.

3. Cost Concept: This concept directs recording of fixed assets at their original cost when they were acquired. This price which is paid to acquire an asset is the relevant cost. This forms the basis of every accounting of this asset that is to follow.

4. Going Concern Concept: A vital concept dealing with the longevity of a business venture, this focuses on profitability of a firm. Consequently, any business enterprise which is making profit can continue with their venture and are known as going concerns. Here, accounting reports are recorded as going concerns, similar to that against liquidation.

5. Money Measurement Concept: A simple accounting concept, it suggests that every transaction which involves liquid cash should be recorded while bookkeeping. Vitally, this concept requires every transaction to be recorded only in monetary terms.

Along with this concept of dual aspect accounting there are many other accounting concepts which students must understand in detail for their 10 + 2 curriculum. To this effect, they can also refer to other study materials offered by us, along with the option of attending live online classes for better understanding. Try ’s app for a single platform functionality.

In the Study of Management, one of the important aspects of Managing the whole organization is ‘Directing’. Without Directing, planning, organization, staffing will not be effective. Directing helps the employees of the organizations to be guided in a particular direction.

In this content, we will talk about this aspect of Management, which helps the overall organization to remain focused on the goal. Else, without Direction the whole organization will be a non-arranged group of people working together. Students are guided in the details of this content as this element is quite an important one.

What is the Meaning of Direction?

For a layman, direction will mean the technique or the process of guiding, instructing, leading people to achieve a predetermined motive. 

In Managerial terms, Directing is a process where the managers instruct, guide and oversee the fellow employees in his team. Leading their way towards the accomplishment of organizational goals, and this goes on throughout the life of the organization. 

Direction is said to ‘Initiate the Action’. Direction is where the actual action starts. This aspect of management includes the human factor basically, this provides guidance to the workforce. 

According to Human, “Directing consists of a process or technique by which instruction can be issued and operations can be carried out as originally planned”. Hence, we can say that, Directing is the function of guiding, inspiring, overseeing and instructing people towards accomplishment of organizational goals.

Technique of Directing

Direction in the organization is to be implemented in a methodical way. Various Techniques are used that prove good when used as Direction in the organization.

Let us now discuss the various techniques used in the process of Direction:

1. Consultative Direction: Here the superiors in the organization system consults the decisions with their subordinates or team members, before implementing it or putting it into action.

2. Free-Rein Direction: In this type of Direction, the educated and experienced subordinates take decisions on their own. Decisions are relied on and they also take the accountability of the decision. 

3. Autocratic Direction: Here the superior clearly sets the directions and gives precise orders to the subordinates to accomplish a predetermined goal. He does not take the suggestions or viewpoints of the subordinates.

4. Supervision: Supervision is only overseeing the subordinates at work. He gives a clear-cut instruction about the work. Skills, group togetherness and coordination affect the direction of supervision.

5. Motivation: In this type, the direction does not only limit till giving orders or instructions, it is rather a force that creates a burning desire among the subordinates to perform the task. Motivation is the driving energy that keeps the subordinates interested in the work, this can also be fulfilled by offering them incentives.

Elements of Directing

Direction includes elements that affect the factor. We will further talk in brief about the elements of motivation. The elements are discussed as under –

1. Motivation: Motivation is said to be the positive force that compels one to do a set work. It is a way to initiate action among the subordinates to a defined goal. Motivation is actually the ‘stimulus to achieve the goal’. Motivation hits the mental process, the attitude that gives rise to physical action which will result in the accomplishment of a goal.   

2. Communication: Communication is the process of passing information from one person to another. In the directing process, communication is a must in a group. It should be checked mandatorily that there happens to be effective communication that will help the form at the organizational level. As communication, will only initiate a direction. To complete the circuit of communication, a single person cannot fulfill it, he needs his fellow teammates to cooperate. 

3. Leadership: Leadership is not about directing or giving orders, it is about the influence. The characteristics a leader possesses must influence the group positively and hence this element is one of the chief criteria for direction.

Directing in Management

Any institute, organization or firm needs management. Hence Management is to be issued using a distinct directional process. To understand Directing in Management, we include the following points in our discussion –

1. Pervasive Function: Directing is an all-round function. Every level of managers provides the subordinates with guidance to complete the work.

2. Continuous Activity: Throughout the existence of an organization, direction is automatic.

3. Human Factor: To fulfill the sphere of Direction, human factor is the basic factor required. Humans are engaged in delivering the instructions as well as in following those delivered instructions.  

4. Creative Activity: Direction instills creativity. Direction makes things happen else the organization will be without any work.

5. Executive Function: Direction initiates the workforce to work towards a defined goal, and thus it is said to be an executive function.

6. Delegate Function: Direction is a delegative function, while the superiors delegate responsibilities to their subordinates they fulfill the direction.

Importance of Directing in Management  

Like planning, organizing, and controlling, directing is also an important tool for managers. All the activities in an organization start with directing in order to achieve the common organizational objective. With directing, managers can instruct and guide their team members on how to perform a particular task. Read the following points to understand the importance of directing in management: 

1. Provides Balance and Stability: Managers have to work with their team members to achieve organizational objectives. However, sometimes individual goals can cause conflicts among employees and the management. With direction, managers can acknowledge the efforts of their employees with rewards and recognition. This way, employees can achieve their individual goals as well as the organizational objectives. 

2. Improves Efficiency: With direction, managers can motivate and encourage employees to work more efficiently to achieve a common objective. With motivation, people work to the best of their abilities, which improves the overall efficiency of the team. 

3. Improves Communication: Direction encourages effective communication between the employees and the management. It ensures free flow of communication in the company, which avoids errors and mistakes that restricts the company from achieving its goals.

4. Creates Flexibility: The direction function allows the organization to cope with the changing situations through leadership and communication. For example, if there is a change in the use of technology, the production process will change too. With effective directing, managers will be able to deal with these changes and improve the efficiency of operations. Sometimes, employees are against the changes that take place in the company. Managers can talk to them about their issue and help them adapt to the change. 

5. Integrates Employee Efforts: In an organization, the performance of an employee can affect the performance of the entire organization. Managers assign interrelated work to their employees, integrating their efforts in order to achieve the main objective. With directing, managers can supervise and guide employees on what to do and how to do it.  

6. Initiates action: The primary aim of direction is to guide employees to work towards achieving the goals of the company. Also, direction makes all the other functions of management, such as planning and organizing, more effective. Directing initiates action as managers instruct the employees and supervise their work.

How to learn the Elements of Directing – Meaning, Technique and Directing in Management?

Learning the Elements of Directing – Meaning, Technique and Directing in Management requires a lot of your time and attention. The direction function of the management is as important as any other function. To understand the elements of directing, you have to give a significant amount of your time to each and every topic that comes under this concept. If you want to pursue a career in the management field, learning the Elements of Directing – Meaning, Technique and Directing in Management will be quite important for you. Through direction, you can ensure a smooth flow of communication and operations in an organization, which ensures success in achieving the predetermined objectives. Here are some tips you can use to start learning this concept: 

• While studying the Elements of Directing, you should note down all the important points and create a summary of the concept. This way, you can take a quick glance at the entire concept and revise it quickly before the exam.  

• You should learn other functions of management such as planning, organizing, and controlling to get a better understanding of the Elements of Directing – Meaning, Technique and Directing in Management.  

• Once you have understood the Elements of Directing, you should try to answer the questions based on this concept to test your knowledge. 

• Go through illustrations and case studies, provided in your textbook, based on the Elements of Directing, to get a better understanding of the concept.

Environmental scanning is a process of gathering information about the events and their relationship with the internal and external environment of the organization. The primary aim of environmental scanning is to find out the future prospects of business organization. 

As a significant resource to the management, the Environmental Scanning Committee enables the management to make decisions from fundamental analysis of historical events to estimate future events. The committee also helps in creating action plans to address these upcoming events, analyzing action plans and arranging appropriate resources for those plans, and putting management in contact with fellow employees with the knowledge set to provide quality data for decision making.

Environmental Scanning Definition

The process of collecting, evaluating, and delivering information for a strategic purpose is defined as environmental scanning. The process of environmental scanning requires both accurate and personalized data on the business environment in which the organization is operating or considering entering.

What are the Characteristics of Environmental Scanning?

The characteristics of environmental scanning are as follows: 

1. Continuous Process- The analysis of the environment is a continuous process rather than being sporadic. The rapidly changing environment has to be captured continuously to be on track.

2. Exploratory Process- Scanning is an exploratory process that keeps monitoring the environment to bring out the possibilities and unknown dimensions of the future. It stresses the fact that “What could happen” and not ”What will happen”.

3. Dynamic Process- Environmental scanning is not static. It is a dynamic process and depends on changing situations.

4. Holistic View- Environmental Scanning focuses on the complete view of the environment rather than viewing it partially.

Components of Environmental Scanning

1. Internal Environmental Components- The components that lie within the organization are internal components and changes in these affect the general performance of the organization. Human resources, capital resources and technological resources are some of the internal environmental components.

2. External Environmental Components: The components that fall outside the business organization are called external environmental components. Although the components lie outside the organization, they still affect the organizational activities. The external components can be divided into microenvironmental components, and macro environmental components.

 

Microenvironmental components include competitors, consumers, markets, suppliers, organizations, etc. Macro environmental components include political, legal, economical, cultural, demographic, and technological factors.  

 

Techniques of Environmental Scanning

1. SWOT Analysis- SWOT analysis is an acronym for Strengths, Weaknesses, opportunities and threats analysis of the environment. Strengths and weaknesses are considered as internal factors whereas opportunities and threats are external factors. These factors determine the course of action to ensure the growth of the business.

2. PEST Analysis- PEST stands for Political, economic, social, and technological analysis of the environment. It deals with the external macro-environment.

3. ETOP- ETOP stands for the Environmental Threat Opportunity Profile. It helps an organization to analyze the impact of the environment based on threats and opportunities.

4. QUEST- QUEST stands for the Quick Environmental Scanning Technique. This technique is designed to analyze the environment quickly and inexpensively so that businesses can focus on critical issues that have to be addressed in a short span.

 

Process of Environmental Analysis

1. Scanning-  The process of analyzing the environment to spot the factors that may impact the business is known as Environmental Scanning. It alerts the enterprise to take suitable strategic decisions before it reaches a critical situation.

2. Monitoring- The data is gathered from various sources and is utilized to monitor and find out the trends and patterns in the environment. The main sources of collecting data are spying, publication talks with customers, suppliers, dealers and employees.

3. Forecasting- The process of estimating future events based on previously analyzed data is known as environmental forecasting.

4. Assessment-  T In this stage, the environmental factors are assessed to identify whether they provide an opportunity for the business or pose a threat.

 

Importance of Environmental Scanning

• Goal Accomplishment: The objectives of an organization cannot be fulfilled unless it adapts itself to environmental changes. One has to adjust the strategies to fit in the changing demands of the environment.

• Threats and Weakness Identification: For an organization to grow, it must minimize its threats and identify its weaknesses. This is made possible with the help of environmental scanning with which better strategies can be developed.tz

• Future Forecast: Environmental changes are often unpredictable. An organization cannot anticipate all the future events but based on the analysis, it can make better strategic decisions in the future. Hence, environmental analysis helps to forecast the prospects of the business.

• Market Knowledge: Every organization must be aware of the ongoing changes in the market. If it fails to incorporate strategic changes due to changing demands, it will not be able to achieve its objectives.

• Focus on the Customer: Environmental scanning and analysis make an organization sensitive  to the changing needs and expectations of the customer.

• Opportunities Identification: With the analysis of the current environment, an organization will be able to identify the possible opportunities and take necessary steps.

 

Limitations of Environmental Scanning

• Overloading of information may sometimes result in indecision. Hence it is not completely reliable.

• It does not forecast the future or eliminate uncertainties. Organizations may face unexpected events. However environmental scanning should aim at minimizing such threats to the business.

• It often makes an organization cautious and thereby delays decision making. It is better to have a strategic approach to analyze the environment and take decisions or actions on time.

• When the organizations rely completely on the analyzed information without data verification and accuracy, it may lead to deviation in the desired outcomes.

 

Conclusion

At last, it is concluded that environmental scanning is beneficial for an organization as it helps the business to identify their competitive advantage, disadvantages, and how they are measured. Adopting a simple SWOT analysis helps an organization to determine their strength, weakness, opportunities, and threat to enhance the sustainability of an organization. This information also helps an organization to determine its future strategies.