Importance of Business Environment

An analysis of business environment helps to identify strength, weakness,

opportunities & threats. Analysis is very necessary for the survival and growth of
the business enterprise. The importance of business environment is briefly
explained in an analysis below.

(1) Identification of Strength: The analysis of the internal environment helps to

identify strength of the firm. For instance, if the company has good personal policies
in respect of promotion, transfer, training, etc than it can indicates strength of the
firm in respect of personal policies. This strength can be identified through the job
satisfaction and performance of the employees. After identifying the strengths the
firm must try to consolidate its strengths by further improvement in its existing
plans & policies.

(2) Identification of Weakness: The analysis of the internal environment

indicates not only strengths but also the weakness of the firm. A firm may be strong
in certain areas; where as it may be weak in some other areas. The firm should
identify sue weakness so as to correct them as early as possible.

(3) Identification of Opportunities: An analysis of the external environment

helps the business firm to identify the opportunities in the market. The business
firm should make every possible effort to grab the opportunities as and when they
come.

(4) Identification of Threats: Business may be subject to threats from

competitors and others. Therefore environmental analysis helps to identify threats
from the environment identification of threats at an earlier date is always beneficial
to the firm as it helps to defuse the same.

(5) Exploitation of Business Opportunities: Environment opens new

opportunities for the expansion of business activities. Study of environment is
necessary in order to discover and exploit such opportunities fully.

(6) Keeping Business Enterprise Alert: Environment study is needed as it keeps

the business unit alert in its approach and activities. In the absence of
environmental changes, the business activities will be dull and lifeless. The
problems & prospects of business can be understood properly through the study of
business environment. This enables an enterprise to face the problems with
confidence and secure the maximum benefits of business opportunities available.

(7) Keeping Business Flexible and Dynamic: Study of business environment is

needed for keeping business flexible and dynamic as per the changes in the
environmental forces. This will enable the development of business organization.

(8) Understanding Future Problems and Prospects: The study of business

environment enables to understand future problems and prospects of business in
advance. This enables business organizations to face the problems boldly and also
take the benefit of favorable situation.

(9)Making Business Socially Acceptable: Environment study enables

businessmen to expand the business and also make it acceptable to different social
groups. Business organizations can make positive contribution for maintaining
ecological balance by studying social environment.

(10) Ensures Optimum Utilization of Resources: The study of business

environment is needed as it ensures optimum use of resources available. For this,
the study of economic and technological environment is useful. Such study enables
organization to take full benefit of government policies, concessions provided, and
technological developments and so on.

(11) Ensures Survival and Growth: Business environment inform about suitable
changes to be affected in business policies. This helps the business organizations to
grow & prosper.

(12) Maintaining adaptability to changes: Business environment guides the

business organization about socio-economic changes & the organization must
accordingly adapt these change. This enables the business organization to survive
for a longer period.

Features of Business Environment

(1) Environment is the Surrounding Situation: Business environment means
the surrounding situation within which business organization has to operate. It is a
sum total of cultural, political, economical, social, physical, technological, legal and
global forces which move around the business organization. These forces
collectively create a socio-economic-political situation called business environment.
Environment is an inseparable part of business which can not operate in vacuum.

(2) Environment is Complex: Business environment has now become extremely

complex and the government intervention has become more frequent. Business
environment is a complex phenomenon and also difficult to grasp and face in its
totality. This is because it is governed by external factors. Environment develops by
chance and not by choice. In addition, the environment factors vary from country to
country. The business environment in India and in USA may not be identical.

(3) Environment is Dynamic: Business environment is dynamic and perpetually

evolving. It changes frequently due to various external forces i.e. economic,
political, social, international, technological and demographic. Such dynamism in
the environment brings continuous change in its character. Business enterprises
have no alternative but to operate under such dynamic environment. The only
remedy is adjust business as per environmental changes.

(4) Environment is Multi Faceted: Environmental changes are frequent but their
shape and character depends on the knowledge & experience of the observer. A
particular change in the environment may be viewed differently by different
businessmen. This change is welcomed as an opportunity by some organizations
while some others take it as a threat for their survival.

(5) Environment has Long Term Impact on Business: Environment has long
lasting impact on functioning of business organizations. Their growth and
profitability depends upon the environment under which they have to operate.
Environment influences business enterprises. Such influences may be positive or
negative & may affect the profitability, efficiency & development of business.

(6) Environment Needs Minute Study by Business Organizations: Every

business organization has to study changes constantly taking place in the
environment forces. This facilitates easy adjustments of business as per
environmental changes. Such adjustment is necessary for its survival and growth.
Environmental factors are, by and large, external as well as uncontrollable. In view
of these constraints businessmen have to study the environment minutely and face
it boldly. The success of business depends on its ability to adjust itself with the
local, national and international environment.

(7) Environment Influences Business Organization: Business organizations

have limited capacity to influence business environment as it is the result of
government policies and social and technological changes which are basically
external variables.

(8) Environment and Business Planning go Together: Business environment

and business planning

are closely related concepts. In fact, planning is necessary in order to derive

maximum benefit from favorable environment. Similarly, planning is useful for
dealing with the problems created by unfavorable environment.

(9) Environment needs Adaptability: Business have to learn adjust with ever
changing business environment

. One of the basic laws of nature is that adaptability is the price of survival. In the prehistoric ages,
the dinosaur and the mastodon – two of the strongest and largest animal that ever lived,
perished, while the insignificant cockroach survived. The reason was that those mighty animals
could not adjust themselves to changes brought about by the passage of centuries, while the
cockroach could. Businessmen have to adjust with the prevailing environment. This
adaptability is the price or the key survival in the business world.

(10) Business Environment Changes Regularly: The environment factors changes regularly. The
business environment in India is totally different as was in past. Future environment is the
product of past & present environ