Business Environment - Meaning and Importance

1. BUSINESS ENVIRONMENT
Meaning
Importance
Akshata Irkal

2. MEANING
The term ‘business environment’ means the sum total of all
individuals, institutions and other forces that are outside the
control of a business enterprise but that may affect its
performance.
“Just take the universe, subtract from it the subset that
represents the organisation, and the remainder is environment”.

3. examples
 Increase in taxes by government can make things expensive to buy.
 Technological improvements may render existing products
obsolete.
 Political uncertainty may create fear in the minds of investors.
 Changes in fashions and tastes of consumers may shift demand in
the market from existing products to new ones.
 Increased competition in the market may reduce profit margins of
firms.

4. FEATURES
1. Totality of external forces : sum total of all external forces to
business firms.
2. Specific and general forces: Business environment includes
both specific and general forces.
Specific forces - investors, customers, competitors and
suppliers affect individual enterprises directly and
immediately in their day-to-day working.
General forces - social, political, legal and technological
conditions have impact only indirectly.

5. 3. Inter-relatedness: Different elements of business
environment are closely interrelated.
For example, increased life expectancy of people and
increased awareness for health care in turn increases the
demand for health products and services.
4. Dynamic nature: Business environment is dynamic as it
keeps on changing.
5. Uncertainty : it is very difficult to predict future happenings,
especially as in the case of information technology or
fashion industries

6. 6. Complexity : environment is a complex phenomenon that is
relatively easier to understand in parts but difficult to grasp
in its totality. For example, it may be difficult to know the
extent of the relative impact of the social, economic,
political, technological or legal factors on change in
demand of a product in the market.
7. Relativity: Business environment is a relative concept since it
differs from country to country and even region to region.
example : demand for sarees is fairly high in India
whereas less or nill in other countries

7. Importance
1. It enables the firm to identify opportunities and getting the
first mover advantage: Early identification of opportunities
helps an enterprise to be the first to exploit them instead of
losing them to competitors. For example, Maruti Udyog
became the leader in the small car market because it was
the first to recognise the need for small cars in an
environment of rising petroleum prices and a large middle
class population in India
2. It helps the firm to identify threats and early warning
signals: Environmental awareness can help managers to
identify various threats on time and serve as an early
warning signal.

8. 3. It helps in tapping useful resources: the enterprise depends
on the environment as a source of inputs or resources and
as an outlet for outputs so the enterprise designs policies
that allow it to get the resources that it needs so that it can
convert those resources into outputs that the environment
desires.
4. It helps in coping with rapid changes : In order to effectively
cope with the significant changes, managers must
understand and examine the environment and develop
suitable courses of action.

9. 5. It helps in assisting in planning and policy formulation : its
understanding and analysis can be the basis for deciding
the future course of action (planning) or training guidelines
for decision making (policy).
6. It helps in improving performance : the enterprises that
continuously monitor their environment and adopt suitable
business practices are the ones which not only improve
their present performance but also continue to succeed in
the market for a longer period.

10. THANK YOU