What is a Business Environment? | Definition, Features, And Importance

When I asked someone “What is Environment?”  During my job. He replied, “Everything we depend on.”  I like this statement and since then, my thinking of the environment and its value hasn’t changed much. In the same line of thought let us understand some of the environment and business relations, definition, some of the features of and the importance of the business environment.

Introduction to Business Environment

A business can be established, but to growth and success of a business depend on the resources. Such as the business needs resources like Human Resources, for which it has to depend on Human resource agencies or departments.

Acceptance of Political, social, and cultural norms, for which it has to depend on Political parties, society, and cultures. Proper market conditions, for which it has to depend on the market. The sale of products/services, for which it has to depend on the customers.

As examples of resources and their importance to the business organization, the word business Environment can be defined in various ways.

The word ‘Business Environment’ has been defined by various authors is as follows:

“It encompasses the -climate’ or set of conditions, economic, social, political or institutional in which business operations are conducted.”

Arthur M. Weimer

“Environment contains the external factors that create opportunities and threats to the business. This includes socio-economic conditions, technology, and political conditions.”

William Gluck and Jauch

‘‘It is the aggregate of all conditions, events, and influences that surround and affect it.”

Keith Davis

“The environment of a business consists of all those external things to which it is exposed and by which it may be influenced directly or indirectly”.

Reinecker and Schoell.

“The total of all things external to firms and industries that affect the function of the organization is called business environment.”

Wheeler

“Civilizations require challenges to survive. Thus the environment also contains hostilities and dangers that may be overcome by individuals and organizations.“

Arnold J. Toynbee

On the basis of the above definitions, it is very clear that the business environment is a mixture of complex, dynamic, and uncontrollable external factors within which a business is to be operated.

Apart from this, It can also be defined as a set of conditions – Social, Legal, Economical, Political, or Institutional that are uncontrollable in nature and affects the functioning of the organization.

Features of Business Environment

Following are the features of the business environment:

Dynamic

It is dynamic in nature which means, it keeps on changing as time passes by.

Unpredictable

The change in the business environment is unpredictable. It is very difficult to predict the exact nature of the future happening and the changes in the economic and social environment.

Differ from place to place

The business environment differs from place to place, region to region, and country to country. Political, economic, etc. Conditions in America differ from China and other nations.

Interrelatedness

The different factors of the business environment are co-related. For example, Change in government may lead to a change in economic policies

Complex

It comprises many factors. All these factors are related to each other. Therefore, their individual effect on the business cannot be recognized. This is perhaps the reason which makes it difficult for the business to face them.

Significance/Importance of Business Environment

It refers to the “Sum total of conditions which surround man at a given point in space and time. In the past, the environment of man consisted of only the physical aspects of the planet Earth (air, water, and land) and the biotic communities.

But in due course of time and advancement of society, the man extended his environment through his social, economic and political function.”

In a globalized economy, It plays an important role in almost all business enterprises. The significance of the business environment is explained with the help of the following points:

Help to understand the internal Environment:

It is very much important for business enterprises to understand their internal environment, such as business policy, organization structure, etc. In such a case an effective management information system will help to predict the business environment changes.

Help to Understand Market Conditions:

It is necessary for an enterprise to have knowledge of the market structure and changes taking place in it. The knowledge about the increase and decrease in demand, supply, monopolistic practices, government participation in business, etc., is necessary for an enterprise.

Determining Opportunities and Threats:

The interaction between the business and its environment would identify opportunities and threats to the business. It helps the business enterprises for meeting the challenges successfully.

Giving direction for growth:

The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

Continuous learning:

The environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding, and skills to meet the predicted changes in the realm of business.

Image building:

Environmental understanding helps the business organization in improving their image by showing their sensitivity to the environment in which they are working.

Meeting competition:

It helps the firms to analyze the competitors’ strategies and formulate their own strategies accordingly.

Identifying the firm’s strengths and weaknesses:

The business environment helps to identify the individual strengths and weaknesses in view of technological and global developments.

Bonus Tips

Environment-Business Relations

Business is the product of the technological, political-legal, economic, social-cultural, global, and natural factors amidst which it functions. Three features are common to this web of relationships between a business and its environment.

• There is a symbolic relationship between a business and its environment and among the environmental factors. In other words, business is influenced by its environment, and in turn, to a certain degree, it will influence the external forces. Similarly, the political-legal environment influences the economic environment and vice versa. The same relationship between other environmental factors too.
• These environmental forces are dynamic. They keep on changing as years roll by, and so does business.
• The third feature is that a particular business firm, by itself, may not be in a position to change its environment. But along with other firms, the business will be in a position to mold the environment in its favor.

Conclusion/ Summary of the business environment

Hence, The Business Environment is a Mixture of dynamic, uncontrollable, complex, and Unpredictable internal and external factors within where our business is operating.

It has so many features such as Dynamic, Unpredictable, Differs from place to place, Interrelatedness, Complex. Before starting and growth of our business, we must understand the common as well as unique features of the business environment.

For the growth and smooth functioning of our business, we must understand some major and necessary elements of the business environment. It plays an important role in all most enterprises. It can be understood by some of the major points such as:- Help to understand the internal Environment, Helping to Understand Market Conditions, Determining Opportunities and Threats, Giving direction for growth, Continuous learning, Image building, Meeting competition, Identifying the firm’s strengths and weakness, etc.

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