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Natural and Technological Environment: Innovation

Natural Environment

The analysis of the mega environment must also cover aspects like extent of endowment of natural resources in the country, ecology, climate, etc. These constitute the natural environment.


(i) Natural Resources

Business firms depend on natural resources. The extent to which the country/region under reference is endowed with these resources has an impact on the functioning of the firms. Raw material is one major part of these resources and firms are concerned with their availability; they need to know whether there will be a shortage in any of the critical raw material. They also need to know the trends governing their costs. Besides raw materials, they are also concerned about energy, its availability as well as cost. Escalations in energy cost are of particular concern to any business firm.

(ii) Ecology

Firms are also concerned with ecology. In modern times, all societies are very much concerned about ecology, especially about issues like environmental pollution, protection of wild life and ocean wealth. Governments are becoming active bargainers in environmental issues. Business firms will have to know the nature and dimensions of environmental regulations and to what extent these factors will affect their business prospects. They also need to know the role of environmental activists in the region.

(iii) Climate

Climate is another aspect of the natural environment that is of interest to a business firm. Firms with products whose demand depends on climate, and firms depending on climate-dependent raw materials will be particularly concerned with this factor. These firms have to study the climate in-depth and decide their production locations and marketing territories appropriately.

In the case of India, the country is rich in natural resources like iron, coal, rare minerals, ocean wealth, etc. The country also receives good rainfall and has a strong network of rivers. As regards climate, the tropical climate in the country generally favors agriculture and industry.

Technology Environment

Today, technology is a major force which industry and business have to reckon with. Technology leads practically all the forces that shape people’s lives. For a business firm, technology affects not only its final products but also its raw materials, processes and operations as well as its customer segments. In the present times, rapid changes are taking place in the realm of technology. The IT industry is one example. Telecom is another.


(i) Options available in technology

The firm has to analyze carefully the overall technology environment and the technology options available in the given industry. The level of technology prevailing generally in the country is also a concern for the firm. It has to assess the relative merits and cost-effectiveness of alternative technologies. It has also to analyze technological changes taking place in its industry at the international level. In addition, it has to assess the scope of substitute products emanating from new technologies.

(ii) Technology selection

It is possible that several levels of technologies are floating at the same time in an industry. Firms have to scan the technology environment and select technologies that will be appropriate for the firm and the given product-market situation.

They have to forecast technological trends, assess current and emerging technologies, and develop the inputs for right technology choice. The policy of the government on technology import is also a concern in this regard. India is adopting a fairly liberal approach to technology import. It is also at the same time encouraging efforts of internal technology development by all sections of Industry by giving them tax rebates and concessions.

Indian government is very much encouraging the generation of power from natural resources like wind, tidal waves, hydro, solar. Organic wastes etc., by giving the entrepreneurs 100% loans with long term tax holiday.


The process of translating an idea or invention into a good or service that creates value or for which customers will pay.

To be called an innovation, an idea must be replicable at an economical cost and must satisfy a specific need. Innovation involves deliberate application of information, imagination and initiative in deriving greater or different values from resources, and includes all processes by which new ideas are generated and converted into useful products. In business, innovation often results when ideas are applied by the company in order to further satisfy the needs and expectations of the customers.

Technological change cannot occur naturally or automatically because any change is neither easy nor natural in organizations. Decisions about technology and innovation are very strategic and need to be approached systematically.

Two generic strategies a company can use to position itself in the market are

 (i) Low cost leader ship

(ii) Differentiation strategy

With low cost leadership strategy, a firm can maintain competitive advantage because its products have a lower cost than its competitors. With a differentiation strategy a firm can gain advantage from having a unique product or service for which customers are willing to pay a premium price. Technological innovations can support either of these strategies by providing

 (i) Cost advantage through low-cost product designs and creating low-cost processes or methods to perform the needed operations.

(ii) Differentiation by unique products or services which increase buyer value and thus command premium prices.

In a social context, innovation helps create new methods for alliance creation, joint venturing, flexible work hours, and creation of buyers’ purchasing power. Innovations are divided into two broad categories:

(i) Evolutionary innovations (continuous or dynamic evolutionary innovation) that are brought about by many incremental advances in technology or processes and

(ii) Revolutionary innovations (also called discontinuous innovations) which are often disruptive and new.

Innovation is synonymous with risk-taking and organizations that create revolutionary products or technologies take on the greatest risk because they create new markets.

Imitators take less risk because they will start with an innovator’s product and take a more effective approach. Examples are IBM with its PC against Apple Computer, Compaq with its cheaper PC’s against IBM, and Dell with its still-cheaper clones against Compaq.

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