Business environment and its importance

An organization is a part of society and the business environment has a direct relationship with the policy of the organization. The environment may imposes several constrains on the organization as it has a tremendous impacts and influence. The organization on the other hand, has very little control over its environment. Therefore, the success of an organization depends to a very large extent on its adaptability to the environment.

Business organizations are neither self-sufficient nor self-contained. They exchanges resources with outside environment and depend on it for their survival. They draw inputs such as raw materials, capital, labor, energy and information from the external environment. They transform inputs into products and services and supply as outputs to the external environment.

Davis Keith defines the business environment as - “aggregate of all conditions, events, and influences that surround and affect it.”

There are two sets of environment: internal and external environment, which influences the business policy of an organization. The internal environment is known as controllable factors because the organization has control over these factors. They consist of employees, shareholders and board of directors, and culture. Organization can modify or alter such factors to suit the environment.

The external environment is known as uncontrollable factors because such factors are largely beyond the control of the legal and technological environment. They are uncertain and complex.

The importances of business environment are as follows:

1) The study of the business environment helps an organization to develop its broad strategies and long term policies.

2) It enables an organization to analyze its competitor’s strategies and thereby formulate effective counter strategies.

3) The environment is constantly changing. Knowledge about the changing environment will keep the organization dynamic in its approach.

4) Such a study enables the organization to foresee the impact of the socio-economic changes at the national and international level on its stability.

5) As a result of the study, executives are able to adjust to the prevailing conditions and thus, influence the environment in order to make it suitable to business.