Definition: Business Environment defines a collection of all individuals, entities, internal and external factors, which may or may not be under the control of a company or organization, but can affect a company’s functionality, performance, profitability, growth, and also the survival of the company directly or indirectly.
Knowledge of the business environment helps businesses to outperform their competitors and also improve the company’s growth and longevity of their business.
Importance Of Business Environment
Regardless of the size of a business, there will be a close and continuous exchange between the business and its environment. Also, that exchange can help businesses to strengthen their firm and use their resources effectively. Hence, clearly understanding the business environment could help businesses to grow their opportunity.
Determining Business Opportunity and Threats
One of the most important benefits of a business environment is that the exchange between the business and environment helps the businesses to find their opportunity and also their threat to the business.
Direction For The Growth
When a business interacts with its environment its makes them easier to identify areas for growth & expansion, Helps businesses are their consumers moving away from their products or services offered and also features or offers that you want to add to your products that are being offered by your competitors.
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 so well. As an example, many factories find water shortage as a factor in their business environment. Hence, many companies have set up borewells in their factories to fulfill their water requirements.
Since things and interests of consumer changes constantly businesses need to concentrate on their environment passively so that businesses can adapt to new things and trends. which can helps businesses to sustain predictable and unpredictable situations.
Features Of Business Environment
- Dynamic: The environment that business operates constantly evolves because there is a variety of factors that exists in the environment, causing the business to change their structure and character.
- Uncertain: In business, environment uncertainty is the inherent characteristic because no one can predict what’s going to happen in the future. As an Example In 90’s Yahoo had a chance to buy Google for just $1 billion but it denied it now we know what happened to Yahoo.
- Multi-Faceted: One change in the business environment, can be viewed differently by a number of viewers because nobody can think the same.
- Far-reaching Impact: The growth, profitability, survival, and sustainability of the business hugely depend on their business environment. so, one change in the business environment has a far-reaching impact on the company in different ways.
- Complex: There is n number of forces, events, and conditions that constitute a 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.
- Relative: The idea of a business environment is relative since it varies from county to county, place to place, and region to region.
Types of Business Environment
The Business Environment is classified into two categories:
- Internal Environment: This factor exists within the company, which has an impact on the strength and weakness of the company. comes under an internal environment, Its Includes.
- Value System
- Vision and Mission Statement
- Corporate Culture
- Human Resources
- Labor Union
2. External Environment: External Environment consists of those factors which provide an opportunity or pose threats to the business. It is further classified as:
- Micro Environment: The immediate margin of the business that has a continuous and direct impact on it is called a Micro Environment. It includes suppliers, customers, competitors, markets, intermediaries, etc. which are specific to the business.
- Macro Environment: Macro Environment, is one such environment that influences the functioning and performance of every business organization, in general. It comprises the demographic, socio-cultural, legal, political, technological, and global environment.