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Business Environment

Meaning and Characteristics of Business Environment

Each business operates in its unique environment. For that matter, businesses cannot function independently of the interacting and influencing forces outside its periphery. In this article, we will look at the meaning and characteristic features of the business environment.

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Meaning of Business Environment

A business environment includes all external factors and forces which have a certain degree of impact on the business actions, decisions, and strategies of the firm. Usually, the success of a business is dependent on its environment. Businesses are expected to identify, appraise, and respond to all threats and opportunities in their environments.

In order to survive and grow, a business must constantly monitor its environment and adapt to it. The Glueck and Jauch model of a business environment is shown below:

features of business environment

According to them: “The environment includes factors outside the firm which can lead to opportunities for or threats to the firm. Although, there are many factors, the most important of the factors are socioeconomic,
technological, suppliers, competitors, and government.

Nowadays, both internal and external forces influencing business policies and decisions are considered an integral part of the business environment.

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Characteristic Features of Business Environment

Some important characteristic features of the business environment are listed below:

Complex

A business environment has a plethora of factors, events, conditions, and influences arising from a variety of sources. Therefore, it is very difficult to understand all the factors affecting a given environment at any time. Although we can understand it in parts, it is impossible to grasp it in totality.

For example, when mobile phones were released, the firms manufacturing music systems could not envisage phones taking over their business. Neither did book publishers imagine that print books will face a declining demand.

Dynamic

Like the natural environment, a business environment also keeps changing constantly. This is due to a wide range of influencing factors. These factors create dynamism in the environment causing it to continuously change its shape and character.

For example, there was a time when the film industry made revenue selling music CDs. Today, the industry makes more revenue from ringtones and caller tunes.

Multi-faceted

Due to the complexity and dynamism of a business environment, it continuously changes its shape and character. However, different observers view the changes differently. Therefore, a particular observer might see a specific change in the environment as an opportunity while someone else might perceive it as a threat.

For example, Plasma TVs and LCD’s gave way to LEDs. Some manufacturers saw it as an opportunity and started producing LEDs instead of LCDs or Plasmas. Now, LEDs are giving way to 3D TVs. Depending on the perception of the firm, it might see it as an opportunity to create new products or as a threat to its current sales.

Far-reaching impact

A business environment has a far-reaching impact on the organization. Businesses who realize the impact of the environment on their growth and profitability ensure that they adapt constantly to be in sync with it.

For example, an organization like the Aditya Birla Group tapped into the changes in its environment and moved from textile to cement to retail to financial services and to telecom as well.

Solved Question on Features of Business Environment

Q1. Which of the following exhibit characteristics of Business Environment?

  1. Environment is static
  2. It is dynamic
  3. The environment is simple
  4. It has a short-term reach

Answer: A business environment is complex, dynamic, and has a far-reaching impact. Therefore, the correct answer is the option (b) – it is dynamic.

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