Meaning of Business Environment
Business environment refers to the surrounding or factors which affect the operations of the business. It refers to the area where business exists. It consists of several factors that affect the functioning, growth, profitability and even continuation of the business. Factors that constitute a 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.
The business environment is a dynamic concept as it comprises of several factors which keep on changing continuously. It can be broadly classified into two different categories: Internal environment and external environment. The internal environment includes all those factors which are internal to the organisation and are under its control. These factors provide strengths and weaknesses to the organisation. Internal environment consists of physical resources, plan and policies, corporate culture, vision and objectives, human resources and organizational culture. Whereas the external environment includes all those factors which are external to organisation and are not under its control.
External environment brings opportunities or threats to 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. Features of Business environment are discussed in points below:
Features of Business Environment
Influence Business Planning and Performance
The business environment directly influence the planning and performance of business organizations. Business planning and the environment go together. All plans and policies of business are framed in accordance with situations of environment. The environment provides the basic framework within which business is required to operate. It influences the performance by providing various opportunities or obstructions. Business is able to operate efficiently with the support of their environment in which they exist.
Business for its continuity and growth is required to adapt environmental changes. In order to survive, business needs to works in accordance with its environment. Every change in business environment brings several opportunities and threats for it. It affects their performance and profitability. Business needs to continuously monitor these changes and should take all corrective measures accordingly. These changes are in terms of change in customer taste or preferences, technological improvements and entry of various new competitors.
Several factors which make up the business environment are interrelated with each other. Change in any one of the factor of business environment will bring changes in several other factors. With the rise in price of raw materials, final price of products will also go up due to which customers will either stop buying or will buy less of products thereby reducing the overall revenue of business. In this way all factors are connected with each other.
Business environment is uncertain in nature and cannot be predicted. Factors which constitute business environment changes very rapidly and no one can determine them in advance. Prediction of several future conditions which affect business is quite difficult because no one knows what is going to happen in future. These changes occur too frequently like change in IT, fashion, demand, technology, economic conditions etc.
Brings Strengths and Weakness
Environmental changes bring certain strength and weakness for business. They may pose unfavourable situations or threats to business and may even bring opportunities for business. Business should keep eye on all environmental changes to detect all opportunities as early as possible for taking maximum benefits out of it. Also in case of any unfavourable situations business can make effective plans timely to minimise the losses.
Relative in Nature
Business environment differs from business to business or from country to country. Environment of business have relativity to place where it operates. It changes in accordance with local conditions of area in which business exists. Business environment varies from place to place, region to region and country to country. Technology used in different countries differs from each other and accordingly business need to frame its policies. Nature of products demanded will vary from country to country like shalwar kameez will be in more demand in India than in U.S.A.
Environment around the business is dynamic in nature. It keeps on changing regularly. Business environment does not remain same for longer period of time and changes frequently. It is due to several factors which constitute the environment and their ever changing nature. All these always changing factors bring changes in character and shape of business environment making it dynamic.
Mutual Interdependence between Business and Environment
Business and its environment are interdependent on each other. Business depends on its environment for various inputs like raw materials, labour, machinery, capital etc. In the same way, environment is dependent on the business organisation for various goods and services manufactured by it. Businesses manufacture goods and deliver them to environment in return for inputs supplied by them.