What is the meaning of Business Environment and it’s significance?

What is the meaning of Business Environment and it's significance?
Representative Image.

No business can prevail in their operations in a vacuum or confinement. The sustaining time and path to success broadly rely upon strategies that fit into environmental changes present in the surroundings of a business. In a dynamic environment, the outcomes of businesses get affected (considering profitability) due to specific changes in an environment. The process of pondering about strategy is critical initially. When functional, an organisation meets with the numerous forces in its environ­ment, which could be in different ways such as receiving inputs, sending outputs and working on recommendations to alter inputs and the improvement process. 

Business environment means the aggregate of all those involved such as people, organisations, technological, courts, media and other elements outside the industry space, but that may result in a different production outcome than expected. Also, the customer teams, opponents and other establishments are part of its environment.

A complete understanding of the environment by business managers enables them to identify and evaluate and respond to the elements outside the enterprises.

According to Professor Keith Davis, “Business environment is an aggregate of all conditions, events and influences that surround and affect it. It is broad and ever changing as its separate elements interact. A single firm’s environment is narrower in scope than the total environment of business. It is complicated and continuously changing.”

Features of Business Environment:

  1. General and Specific Forces: General forces are those forces that do not affect the operations of business enterprises directly. For example, Social, Political, Economic, Legal and Technological conditions, while Specific forces are those forces that directly affect the functional work of the business enterprise. For example; Customers, Suppliers, Investors, competitors, Competitors.
  2. Change of nature: The nature of business being dynamic, the business environment keeps on changing when it comes to shifts in preferences by customers, some technological improvements, new competition in the market. For example, with the emergence of Patanjali products, numerous already set-up companies in the FMCG (Fast Moving Consumer goods) sector emphasise producing natural ingredients.
  3. Multi-faceted: As there is complexity and rapidly changing nature of a business environment, it differs in character and shape. Although, many viewers see the changes differently. Hence, a specific observer might see some changes in the background as an opportunity while someone else might take it as a risk. For example, LCDs and Plasma TVs led to the growth of LEDs. Some manufacturers viewed it as an opportunity and began producing LEDs instead of LCDs or Plasmas. Now, LEDs are leading to 3D TVs. It could see it as an opportunity to develop fresh products or as a risk to its current sales, considering the perspective of a firm.
  4. Geographical difference: Business Environment depends from one place to another, region to region, as well as country to country. For example: In India, higher utilisation of electricity brings inexpensive electricity, resulting in less production and extra costs related to it, whereas the electricity to the industry in China is offered at reasonable rates as the utilisation rises, and that is why it has produced in massive amounts.
  5. Wide impact: A business environment has a vast effect on the organisation. Businesses who understand the impact of the environment on their performance and profitability make sure that they fit in regularly to be in sync with it. For example, an organisation such as Aditya Birla Group tapped into the changes in its environment and shifted from textile to cement to retail to financial services and telecom.

Businesses manage the environment by following transactions:

  1. Receiving Inputs: The manufacturer gets raw materials for use, a stockbroker receives the details related to financing, and a local authority gets data on housing requirements
  2. Improving Inputs: The manufacturer produces the goods from the raw materials, the stockbroker comprehends the details, and the local authority executes housing ideas.
  3. Produce Outputs: The manufacturer sells products, the stockbroker recommends and the local sets up houses.