Business does not operate in isolation rather it works in a dynamic environment which has influence on the working. Degree of achievement of organizational goals depends on this environment. There are different factors which affects an organization be it positively or negatively. These factors are not always in control of the organization. Environment as the word suggests is the area or condition in which the living things operate. Similarly, business environment is the area or condition in which the business operates.
Meaning of business environment
Combining both the internal factors as well as external factors create a business environment as a whole. Internal factors are the factors which are mostly in control of the organization such as employees, labour unions etc. whereas external factors are the factors which are not inside the organization and are mostly not in control of the organization such as competitors, government policies and laws etc.
Types of business environment
Internal environment is the environment which is inside the organization. The factors which are there in the organization can the partly in control of the organization such as employees, labour unions, value systems etc. these factors can become the strength or weakness of the organization.
Example of internal environment are:
- value system
- corporate culture
- human resource
- objectives of the organization
External environment factors are the factors which are outside the organization are not completely in the control of the organization. They can become the opportunities or threats for the organization. These are of two types:
Micro environment includes the factors which have direct impact on the working of the business. These factors include
Macro environment includes the factors which do not affect the firm directly but exert the influence on the organization. This influence can be either positive or negative. These factors include:
- Political factors
- Socio- cultural factors
- Demographic factors
- Technological factors
- Economic factors
Features of Business Environment :
Business environment is dynamic
Business environment is dynamic because it keeps on changing on regular basis and due to this regular change organizations cannot ascertain the environment properly. Keen view on the environment is must to know all the changes in the environment and to keep the organization up to date.
Business environment has relativity
Business environment is different for each organization. Even the organization of same industry such as colgate and pepsodant have different business environment. Negative impact on one company can be positive for another , for example, decrease in sale of Iphones can be because of increase in sale of android mobile phones.
Business environment is unpredictable
Predicting a business environment change is nearly impossible. We cannot judge what will happen next as every factor is not in our control. We can try to control the internal factors for once but controlling external factors is really hard and nearly impossible such as, an organization cannot control the government policy change.
Business environment factors are inter-related
The factors of the environment of an organization are inter-related because one factor can lead to another. For example, when there is increase in price of petrol or diesel the sale of cars reduce to a certain extent and thus customers can revert to other options.
Importance of Business Environment:
- Helps in finding useful resources: Business organizations use several resources such as money, machinery, man power and material. These resources are limited and there is a lot of competition between the organizations. Whoever finds these resources at the earliest are at an advantageous position. Business environment thus helps in tapping the resources for our organization.
- Helps in dealing with the changes: The business environment is changing continuously and dealing with those changes is must. There are many changes which can turn into an opportunity and there are many changes which can turn into a threat or a disaster. An organization needs to keep a vigilant eye all the time to deal with these changes. Such as, if the raw material supplying company increases the price of raw material then the company needs to be aware on how to deal with that particular change.
- Helps in identifying opportunities: There are unlimited opportunities in an environment; an organization needs to see the opportunity and use for its own benefit. First mover advantage comes to those who look for the opportunities and if we wait we can lose those opportunities to our competitors. For example, Nokia lost its market because it did not use the opportunity to bring in android mobile phones.
- Helps in searching threats: Business environment helps in searching the threats which are likely to occur to organization. These threats can be internal as well as external. For example, labour union going on strike is a threat for the organization, if the organization finds that before the strike then strike can be avoided.
- Helps in formulating policies for the organization: Any organization makes the plans prior to starting the work and when the organization learns about its competitors and different policies of government and other related factors then it can make the policies and plans accordingly. For example, if an organization is going to make a plan or setting an objective to achieve increase in sales by 20% this year but there is increase in competition then it may have to change its objectives or plan a strategy accordingly.
- Helps in understanding internal environment: It is very important to understand the internal environment of an organization such as business policies, employees’ needs, objectives of an organization. Without proper understanding of its organization it will be impossible for the business to deal with other factors. Mostly internal factors are in control of the organization but for effective management predicting future changes is must.
- Helps in dealing with the competition: In any business, it is important to understand the strategies and policies of the competitors because without proper understanding of competitors we may lose the market share to a great extent. For example, when Jio came into market other telecom service providers did not react immediately and lost a big market share.
- Helps in improving performance: Constant improvement is the key to success. Every business should focus on improving itself and will ultimately become customer’s favourite. This constant improvement comes from proper analysis of the market. For example, Apple comes with constant improvement and keeps track of the needs of the customers and thus remains on the top in mobile handset providers.
Business is largely influenced by different factors in an environment and thus keeping track of these factors is really important. Business environment can be properly analysed by various methods such as surveys, feedback systems etc.