IGNOU : M.COM : MCO 4 : UNIT 1 : Q - 1. What do you understand by business environment? Discuss its importance for the business.

Ans. Business environment may be defined as the total surroundings which have a direct or indirect bearing on the business activities. In this sense, the business environment refers to all the external factors which may influence the functioning of the business. But some experts have used the term business environment in a very broader sense. They are of the opinion that business activities are influenced not only by the external environmental forces but also by the internal environment existing in a business organization such as the resources at the command of business, the value system, the mission and objectives, etc. that its management 'has.

 

SIGNIFICANCE OF BUSINESS ENVIRONMENT

As stated above, business environment refers to surroundings, external objects, influences or circumstances under which the business operates and which , influences the business in multiple ways. A proper understanding of business environment helps an organisation to use its sources more effectively and adapt itself to its dynamism in a better way. For proper understanding of business environment, let us acquaint ourselves with the important features of its nature which can be summarised as follows.

·         Business environment is dynamic : Various factors comprising the business environment continuously keep on changing. Consequently, their impact on the business also keeps on changing. You know that, over period of time, the markets for a number of products have undergone phenomenal changes on account of economic, social and technological advances. The management has - to keep track of these developments and effect the necessary changes in its strategies well on time to meet the new challenges.

·         Business environment is complex : The environment consists of a number Environment of factors, events, conditions and influences which arise from different sources. These factors, events , conditions and influences do not exist in isolation but interact with each other to create a new set of influences. It is relatively easy to understand individual factors of environment but it is rather difficult to 'grasp the effect in its totality because of the mixed and conflicting responses required by various factors.

·         Business environment is multifaceted : The nature of business environment also depends upon the perception of the observer. A particular change in the environment may be perceived as an opportunity by some while it may be perceived as a threat by the others. As such the business environment is also multifaceted in nature.

·         Business environment has a far reaching impact : The environmental changes have a far reaching impact on the survival, continuity and growth of the business. Any environmental change may affect the demand for products and services of the business and thereby its profitability.

Since the nature of business environment is dynamic, complex, and multifaceted, and has far reaching impact on its survival, continuity, and growth, it is extremely important for every business organisation to understand and continuously monitor its environment. This shall enable the business strategists to adapt itself to the changes and make best use of its internal resources at a given point of time. It is these changes - actual or potential - in the environment that provide the necessary inputs for strategic decision-making. Mere monitoring of the environment is not enough. The information thus collected must be used for future planning and building up the appropriate strategies at various levels.