Business environment is the sets of internal and external factors or conditions that directly or indirectly influence the actions and operations of the company.
Business environment may also be seen as the web of forces which form the setting in which the firm makes its decisions. For the firm to succeed, it must take its environment into account in making its decisions.
Basically, there two main components of the business environment -the internal and external environment.
Internal environment refers to the block of factors or conditions that exist within the organization while the external environment constitutes factors or conditions outside the organization that affect the actions and operations of the organization.
The study of business environment is necessary for the following reasons.
a. Determining opportunities and threats
The interaction between the business and its environment gives the advantage of identifying opportunities for and threats against the business. The business manager can then strategize to maximise the opportunities and minimise the threats.
b. Gives directional clarity
The interaction will lead to the opening up of new frontiers for growth and sustainability of the business.
c. Serves as a continuous learning process
Managers are motivated to continuously update their knowledge, understanding and skills to meet the challenges of business.
d. Image building
Business interaction with the environment helps the business organisations to improve their image by being socially responsible.
e. Identification of the firm’s strength and weakness
Business environment helps to identify strengths and weaknesses of the business
- COMPLEX: There are many forces, events and conditions that constitute business environment, arising from various sources. So, it is a bit difficult to understand the relative influence of a particular factor, on the operation of the organisation.
- UNCERTAIN: Uncertainty is an inherent characteristic of the business environment because no one can accurately predict what is going to happen in future.
- FAR-REACHING IMPACT: The survival, growth and profitability of a business enterprise depend largely on the environment in which it exists. A small change in the environment has a far-reaching impact on the organisation in different ways.
- RELATIVE: The notion of a business environment is relative since it varies from location to another.