CONCEPT OF BUSINESS ENVIRONMENT
Business environment refers to all internal and external forces, elements and factors which
influence the development, performance, and outcome of a business. In short, business
environment is the surroundings where business firm grow up. Business is environment specific.
It operates in a dynamic environment. Environmental adaptation is the essence of business
survival and growth. The aggregate name of factors and forces that influence business and
business related activities is business environment. Business environment consists of sum total of
all factors forces, events and institutions that surround business. They influence its performance,
development and outcome. The internal environmental forces are located within the business and
can be controlled and define the scope of business, whereas external environmental forces are
located outside the business and are complex in nature. However, both internal and external
environmental forces play on important role in influencing the outcome of business.
SALIENT FEATURES OF BUSINESS ENVIRONMENT
The salient features of the business environment are given hereunder:
1. Dynamic: The environment in which the business operates changes continuously because there
are a wide variety of factors that exist in the environment, causing it to change its shape and
character.
2. Complex: There are many forces, events and conditions that constitute business environment,
arising from various sources. So, it is a bit difficult to understand the relative influence of a
particular factor, on the operation of the organization.
3. Uncertain: Uncertainty is an inherent characteristic of the business environment because no one
can predict what is going to happen in future.
4. Multi-faceted: A single change in the business environment can be viewed differently by
different observers because their perceptions vary.
5. Far-reaching Impact: The survival, growth and profitability, of a business enterprise, depends
largely on the environment in which it exists. A small change in the environment has a far-
reaching impact on the organization in different ways.
6. Relative: The notion of a business environment is relative since it varies from one location to
another.
IMPORTANCE OF BUSINESS ENVIRONMENT
1) Determining Business Opportunities and Threats
One of the primary benefits of a business environment is that the interaction between a business and
its environment, usually, highlights the business opportunities and threats to the business.
2) Continuous Learning
Since the environment is inherently dynamic in nature, it constantly keeps changing. This keeps
the managers motivated to continuously update their knowledge and skills. This helps them prepare
for predicted and unpredicted changes in the realm of business. For example, after the introduction
of GST, how has your consumers’ buying behavior changed?
3) Image Building
The image of a business can improve to a great extent if the organization displays sensitivity to its
environment. Also, in order to do so, the business must understand its environment well. As an
example, many factories find power shortage as a factor in their business environment. Hence,
many companies have set up Captive Power Plants (CPPs) in their factories to fulfill their power
requirements.
4) Meeting Competition
In any business, it is important to be aware of the actions and strategies of their competitors. A
business environment enables firms to analyze their competitors’ strategies and actions. Further,
they can create their own strategies accordingly. If one takes a quick look at the telecom sector,
almost all providers offer similar services at similar prices. The reason is that most telecom
organizations ensure that they are abreast of the strategies and actions of their competitors.
The markets are highly competitive and firms face an uphill task to survive and grow in them.
Understanding the importance of business environment and deploying resources to analyze it
thoroughly can be a big stepping stone for the success of any business.
5) Coping with Changes
The business must be aware of the ongoing changes in the business environment, whether it be
changes in customer requirements, emerging trends, new government policies, technological
changes. If the business is aware of these regular changes then it can bring about a response to deal
with those changes. For example, when the Android OS market was blooming and the customers
were preferring Android devices for its easy interface and apps, Nokia failed to cope with the
change by not implementing Android OS on Nokia devices. They failed to adapt and lost
tremendous market value.
6) Assistance in Planning
This is another aspect of the importance of the business environment. Planning purely means what
is to be done in the future. When the Business Environment presents a problem or an opportunity, it
is up to the business to decide what plan would it have to come up with in order to address the
future and solve the problem or utilize the opportunity. After analysing the changes presented, the
business can incorporate plans to counteract the changes for a secure future.
7) Helps in Improving Performance
Enterprises that are thoroughly scanning their environment not only deal with the changes presented
but also flourish with them. Adapting to the external forces help the business to improve the
performance and survive in the market.
