Meaning and Definition of Business Environment
Business environment may be considered as a set of factors that influence the functioning and effectiveness of a business. Interacting and transacting with the environment is the basic need of every business organisation thus, there is a mutual interdependence between business and the environment.
According to Keith Davis___ ” Business environment is the aggregate of all conditions, event and influence that surrounds and affect it”.
According to Andrews___ ” The environment of a company as the pattern of all external influences that affect its life and development”.
According to W.F. Glueck and Lawrence R.Jauch___ ” The environment includes factors outside the firm,which can lead to opportunities or threats to the firm. Although there are many factors, the most important of these factors are socio-economic, technological,supplier, competitors and government”.
The nature of business environment is ever changing and stable. The future of any business enterprise is dependent and determined by the relevant risks and opportunities. The risks and opportunities are those factors which lie beyond the control of a company’s management system. The customers, competitors, stakeholders, brokers, business trends, policies government activities, social and economic factors, and technological advancement are all the components of an organisation which combine to form the business environment.
Nature of Business Environment
- Environment is Inseparable from Business: The most essential element of any business is the ‘environment’ No business can function without its environment-legal,political , social, cultural and economic environment. There is a mutual relationship between the business and environment. Therefore, the success and failure of business is influenced by the changes in the environment. The enterprise comprises of an interactive process which collects the input like raw materials, manpower energy. etc., from the environment, converts them into finished goods and returns them back to the environment.
- Environment is Dynamic: It is difficult for any business environment to remain constant for a long period of time. Thus, environment is considered dynamic in nature. The environmental factors undergo changes according to the tastes and preferences of the customer, amendments made in the government policies, up gradation in technology, etc. All these factors affect the business in their decision-making process. Hence,the ability of adapting the changes and implementing them into action leads to success and growth of the business.
- Business Lacks Control Over Environment: Business environment keeps on changing continuously. Business can influence the internal environment not the external environment. Therefore, it may be considered that environment is controllable and external environment is uncontrollable.
- Internal and External Factors: There are internal and external factors which influence the business environment. The factors such as business objectives, policies, staff members, etc., combine to from the internal environment. Whereas, the external environment comprise of micro and macro factors. The micro factors involve consumers, competitors,suppliers,s society, etc., macro factors include economic, legal,political, cultural, technological and other external factors.
- Environment is Complex: There are several difficult situation in business environment which the enterprise must be aware of, and must make the best use of them. In comparison with the traditional form, the modern business is much more complex and unstable in nature. The scope and size of modern business is as wider as its environment. The changes like increasing government interference and social awareness unfavorably affects the business enterprise
- Environment is Multifaceted: There is always a positive and negative outcome to the changes made in the environment. Different people perceive differently upon the changes. For instance, the changes may prove to be an opportunity to some while threat to other.
- Opportunities and Obstacles: The business environment is flexible in nature. Therefore, the business may act as an opportunity or an obstacle to organisation depending on the situation. Opportunity provides scope for expansion whereas obstacle curbs growth of the organisation.
- Regulates the Scope Business: Business organisation functions within a environmental framework. This can be in form of social, political, economic and legal structures, within which all business activities are carried out. For the growth and survival of the business organisation, the changing structure should be analysed effectively and adapted efficiently.
- Long Lasting Impact: Business can be affected by the environment either positively or negatively. This can bring in along lasting impact on the conduct of business activities. Therefore, business analysis and diagnosis the strength and opportunities and formulate strategies and policies to avoid risks and threats of the environment.
- Uncertainty: There is always a possibility of frequent changes in the business environment. These changes are highly uncertain . Thus it becomes difficult for the business to forecast its future events. The business must constantly keep a check on the environmental changes in order to improve not just the present as well as its future performance.
Scope of Business Environment
- Strategies and Policies: Strategy is a short-term business approach incorporated in a business to attain success in the marketplace against its competitors, whereas, policies are the predefined rules and regulations of a business enterprise which help to design the business processes, features, scope and related practices. Thus the detailed knowledge of business environment helps the organisation to design its strategies and policies for long-term.
- Competitors Analysis: A business should monitor the plans and policies of its competitors to become more competitive in the market. This helps the business enterprise to develop an effective strategy against its competitors. SWOT analysis is the perfect tool to evaluate one’s own business strategies to deal with its competitors.
- Dynamism: It enables the business environment to understand the constantly changing environment. This keep the organisation dynamic in its nature.
- Impact: The impact of environment factors helps to forecast the changes made in the business environment and to analyse its stability at domestic and global level.
- Adjustment: By studying the business environment, it becomes easy for the business executives to understand and follow the existing conditions of the business.