Business Environment

Importance of Business Environment


Regardless of the type or size of a business, there is a close and continuous interaction between the business and its environment. Also, it is this interaction which helps strengthen the firm and use its resources effectively. Hence, understanding the importance of the business environment will help to seek more business opportunities too. Let’s learn about it point-by-point.

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The Importance of Business Environment

Determining Business Opportunities and Threats

One of the primary benefits of a business environment is that the interaction between a business and its environment, usually, highlights the business opportunities and threats to the business.

Giving Direction for Growth

When a business interacts with its environment, it becomes easier to identify areas for growth and expansion of its activities. Are consumers moving away from certain goods or services? Also, are your competitors offering features that you should include in your products too? A firm can get answers to similar questions by tapping into its business environment.

Continuous Learning

Since the environment is inherently dynamic in nature, it constantly keeps changing. This keeps the managers motivated to continuously update their knowledge and skills. This helps them prepare for predicted and unpredicted changes in the realm of business. For example, after the introduction of GST, how has your consumers’ buying behavior changed?

business opportunities

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Image Building

The image of a business can improve to a great extent if the organization displays sensitivity to its environment. Also, in order to do so, the business must understand its environment well. As an example, many factories find power shortage as a factor in their business environment. Hence, many companies have set up Captive Power Plants (CPPs) in their factories to fulfill their power requirements.

Meeting Competition

In any business, it is important to be aware of the actions and strategies of your competitors. A business environment enables firms to analyze their competitors’ strategies and actions. Further, they can create their own strategies accordingly. If you take a quick look at the telecom sector, almost all providers offer similar services at similar prices.

The reason is that most telecom organizations ensure that they are abreast of the strategies and actions of their competitors. The markets are highly competitive and firms face an uphill task to survive and grow in them. Understanding the importance of business environment and deploying resources to analyze it thoroughly can be a big stepping stone for the success of any business.

Think about it. A few decades back, Maruti Udyog analyzed its business environment and saw an opportunity in the form of a need for small cars. It started manufacturing budget-friendly small cars and soon became a leader of the small car market. Any organization which is not tapped into its environment is oblivious to the threats and/or opportunities lurking around the corner.

Solved Example on Importance of Business Environment

Q1. What are the most important features and benefits of a business environment?

Answer: There are many features and benefits of a business environment for a firm. Of these, the most important ones are:

  • Enabling firms to determine threats as well as business opportunities
  • Identification of growth areas
  • Creating a better brand image
  • Staying in sync with the competition
  • Also, keeping the managers at the top of the learning curve
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