Concept , Features, and Importance of Business Environment

What is Business environment ?

• Business environment refers to the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may effect its performance.
• The complete awareness  & understanding of business environment to identify the opportunities & threats affecting the business is known as environment scanning.

Features of Business environment

1. Totality of external forces – Business environment is the sum total of all the forces and factors external to a business firm.
2. Specific and general forces – Business environment includes both specific and general forces.

• Specific forces include investors, competitors, customers etc. who influence business firm directly     

while

• General forces include social, political, economic, legal and technological conditions, which affect a business, firm indirectly.

3. Inter-relatedness – Different elements or parts of a business environment are closely interrelated.

For example, increased awareness for health care has raised the demand for healthy oil free food and healthy lifestyle.

4. Dynamic nature – Business environment is dynamic in nature which means it keeps on changing with the change in technology, shift in consumer preferences etc.

5. Uncertainty – Business environment is highly uncertain, as it is difficult to predict the future happenings which may come in the business.

For example -frequent environmental changes in the field of technology and fashion industry.

6. Complexity – Business environment is a complex process, which is easier to understand in parts, but it is difficult to understand in totality because  the business environment consists of various inter-related and dynamic forces which is difficult to understand.

7. Relativity – Business environment is a relative concept whose impact differs from company to company, region to region & country to country.

For example:- In 2014 when Maggi was temporarily banned in  india, the other instant noodles companies like yipee & top raman acquire the place of maggi in Indian market.

• Fact info:- maggi was banned because food safety regulators from the Barabanki district of Uttar Pradesh reported that samples of Maggi Noodles had high levels of monosodium glutamate (MSG) & lead. The amount of lead found was over 1,000 times more than what Nestle India Ltd had claimed due to which India’s favourite two-minute noodles lost 80% market share.

Importance of Business Environment

1. It Helps  to get first mover advantage – It helps in recognise opportunities from business environment, thus , taking first mover advantage.
2. It Helps the firm to identify threats & early warning signals – Environmental awareness can help managers of an organization to identify various threats on time and serve as an early warning signal.

For example, Bajaj Auto made considerable improvements in its two wheelers when other companies entered the auto industry.

3. It Helps in tapping useful resources – Business Environment is a source of various resources such as man, machine, money, raw material, power etc. to a business firm. By understanding the business environment anenterprise can design policies to acquire the required resources and convert them into output that environment desires.

4. It Helps in adjusting with rapid changes – Business environment is very dynamic were changes are taking place at a fast pace & In order to cope with significant changes managers must understand business environment , examine, and develop a suitable course of action.

5. It Helps in assisting in planning and policy formulation – Understanding and analysis of business environment can be the basis for planning & policy formulation in an organization. It provides various clues about competitors , investors , customers and employees etc. which helps in planning & policy making.

6. It Helps in improving performance – The enterprise that continuously monitor the business environment and adopt suitable business practices are the ones, which not only improve their performance but also continue to succeed in the market for a long period.

MORE TOPICS RELATED TO THIS CHAPTER:

• Dimensions of Business Environment