Meaning of Business Environment
Business environment refers to the surrounding or factors which affects the operations of business. It refers to the area where business exists. It consists of several factors which affect the functioning, growth, profitability and even continuation of business. Factors which constitute business environment are customers, suppliers, competitors, investors, technology, economic conditions, government etc. These all factors affect the success or failure of any business and bring several opportunities, threats and challenges to it.
Business environment is a dynamic concept as it comprises of several factors which keeps on changing continuously. It can be broadly classified in two different categories: Internal environment and External environment. Internal environment include all those factors which are internal to organisation and are under its control. These factors provide strengths and weakness to the organisation. Internal environment consists of physical resources, plan and policies, corporate culture, vision and objectives, human resources and organisation culture. Whereas external environment includes all those factors which are external to the organisation and are not under its control. External environment brings opportunities or threats to the business. It includes factors like customers, supplier, competitors, society, technology, economic, political and cultural environment.
Proper understanding of business environment helps in framing better strategies as per business opportunities and enhances the overall performance. Scope of Business Environment is explained in points given below:
Scope of Business Environment
Identifies Business Opportunities and Threats
Business environment helps business in identification of various opportunities and threats. When business is able to detect market opportunities timely, they can easily take advantages of such opportunity at earliest. They can earn maximum returns by availing such opportunity before the competitors. By proper interaction between business and its environment all threats can be easily detected. It will enable business in taking corrective measures timely.
Helps in Planning and Policy Formulation
Proper understanding of business environment helps in formulating better policies and strategies. It conveys all current information regarding market conditions to business. All opportunities and threats are scanned through the study of the business environment. Businessmen are properly aware of environment and thereby take all decisions according to it. Their entire plan can be changed effectively and efficiently through environmental awareness.
Provides Useful Resources
Business depends on the environment in which they operate for several resources. Business environment supplies several inputs like raw materials, capital and labour which are used by the business for its operations. These inputs are converted into goods and services for satisfying the needs of the market. Without proper supply of inputs, business cannot continue its operations. It is fully dependent upon environment for taking inputs and delivering the required goods or services.
Business environment has an effective role in accelerating the overall performance of business organisations. Through continuous environmental awareness, managers update their knowledge and skills. Environmental study serves as the medium of educating management. Monitoring of environment provides qualitative information which helps in developing strategic thinking. It enables managers to adopt suitable management practices to control and improve the performance of business.
Helps in Coping with Rapid Changes
Factors which constitute business environment are dynamic in nature. They keep on changing continuously from time to time. These changes include changes in customer’s preferences, fashion, technology, economic conditions etc.
Proper understanding of the business environment helps business in detecting all these frequently occuring changes easily. It enables them in dealing with these changes efficiently by taking appropriate actions at right time. Managers through continuous monitoring of environment are sensitive to such changes and respond effectively.
Enhances Business Image
Business through proper understanding of its environment are able to improve its public image. They are more responsive and sensitive to the environmental needs through proper knowledge of business environment. Study of environment provides them information for making realistic plans and implementing them effectively. Businesses are able to provide better service and serve the interest of entire society. People are happy with the business and develop confidence towards it. This enables in developing a better image in market.
Assist in Facing Competition
Business environment communicates all details about competitors in market to business. Awareness regarding the actions and strategies of competitors is crucial for every business for meeting competition effectively. It helps business in formulating plans and policies in accordance with the competitor’s actions. Businesses are able to face challenges and competition in market through systematic planning in an efficient way.