PRESENTATION ON
BUSINESS
ENVIRONMENT
BY
K MEMCHA SINGHA
World College of Technology and Management
MBA 1st year
Submitted to Deepak sir
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What is Environment?
Environment refers to all external forces which have a bearing on the functioning of business.
The business environment poses treats to a firm or offers immense opportunities for potential
market exploitation. Stressing this aspect , William F. Gluek and Lawrence R. Jauch wrote
thus: “ 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 sectors are
socio-economic, technological, suppliers, competitors, and government.”
In simple words, Environment mainly refers to external
forces that impact business.
There are two more factors which are not included in the definition, and which exercise
considerable influence on business. They are physical or natural environment and global
environment. Including these two, the total environment of business for our purposes, will
include six factors, viz., political-legal, economic, social-cultural, technological, global and
natural.
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Concepts of Business Environment
Business organisation has to interact and transact with its environment. Hence, both the business
and environment are totally interrelated and mutually interdependent. Business environment
refers to those aspects of the surroundings business enterprise, which affect or influence its
operations and determine its effectiveness.
According to Keith Davis, “Business environment is the aggregate of all conditions, events and
influence that surrounds and affect it”.
According to Andrews, “The environment of a company as the pattern of all external influences
that affect its life and development”.
The business environment is always changing and is uncertain. It is because of dynamism of
environment. As it is already said that the business environment is the sum of all the factors
outside the control of management of a company, the factor, which are constantly changing, and
they carry with them both opportunities and risks or uncertainties which can, make or mark the
future of business.
Business environment encompasses all those factors that affect a company’s
operations
and includes customers, competitors, stakeholders, suppliers, industry trends, regulations other
government activities, social and economic factors and technological developments. Thus, business environment
refers to the external environment and includes all factors outside the firm,
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which lead to opportunities and threats of a firm.
Nature of Business Environment
The nature of business environment is as follows:
1. Complex: Business environment is compound in nature. Environment consists of a number of
factors, events, conditions and influences arising from different sources which impact business
thus making the business complex.
2. Interdependence: The environment of the business is made of social, economic, legal,
cultural, technological, and political factors. These factors of the environment are interdependable . The economic
status of a country affects the development of technology. A rich
country can make sufficient expenditure on the research and development.
3. Dynamic: Business environment is constantly changing process. Business environment is
dynamic as it keeps on changing in terms of technological improvement, shifts in consumer
preferences or entry of new competition in the market. The various forces in the environment
keep on changing from time to time thus making business dynamic and not static.
4. Inter-relatedness: The different factors of business environment are co-related. For example,
let us suppose that there is a change in the import-export policy with the coming of a new
government. In this case, the coming of new government to power and change in the import export policy are
political and economic changes respectively. Thus, a change in one factor
affects the other factor.
5.Impact: Business environment has both long term and short term impact. Environment
therefore has different effects on different firms in the same industry, for example, drugs.
6.Uncertainty: Business environment is largely uncertain as it is very difficult to predict future
happenings, especially when environment changes are taking place too frequently as in the case
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of information technology or fashion industries.
7. Relativity: It is a relative concept since it differs from country to country and region to region.
Political conditions in the USA, for example differ from those in China or Pakistan. Similarly,
demand for sarees may be fairly high in India whereas it may be almost non-existent in France.
Significance of Business Environment
Some of the direct benefits of understanding the business environment are given below:
1. Customer Focus: Environmental understanding makes the management sensitive to the changing needs
and expectations of consumers. For example: Hindustan Lever and several other FMCG companies
launched small sachets of shampoo and other products realising the wishes of customers. This move helped
the firms to increase sales.
2. Strategy Formulation: Environmental monitoring provides relevant information about the business
environment. Such information serves as the basis for strategy making. For example: ITC realised that
there is a vast scope for growth in the travel and tourism industry in India and the government is keen to
promote this industry because of its employment potential. With the help of this knowledge ITC planned
new hotels both in India and abroad.
3. Public Image: A business firm can improve its image by showing that it is sensitive to its environment and
responsive to the aspirations of public. Leading firms like Reliance Industries, ICICI Bank and others have
built good image by being sensitive and responsive to environmental forces. Environmental understanding
enables business to be responsive to their environment.
4. Continuous learning: Environmental analysis serves as broad based and ongoing education for business
executives. It keeps them in touch with the changing scenario so that they are never are caught unaware.
With the help of environmental learning managers can react in an appropriate manner and thereby
increase the success of their organisations.
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5. Giving Direction for Growth: The interaction with the environment leads opening up new
frontiers of growth for the business firms. It enables the business to identify the areas for growth
and expansion of their activities.
6. Change Agent: Business leaders act as agents of change. They create a drive for change at the grass root
level. In order to decide the direction and nature of change, the leaders needs to understand the aspirations
of people and other environmental forces through environmental scanning. For example: contemporary
environment requires prompt decision-making and power to people. Therefore, business leaders are
increasingly delegating authority to empower their staff and to eliminate procedural delays.
Environment Scanning
What is Environmental Scanning?
Environmental scanning is an examination of all external factors to determine the ones that have an effect on a
business. Usually, the main objective of environmental scanning is to identify and consult factors outside the
business environment. Though most times, these factors are beyond the organization’s control, it is essential to
consider them during the decision-making process of the organization
Thus, Environmental scanning is a process that systematically surveys and interprets relevant data to identify
external opportunities and threats that could influence future decisions. It is closely related to a S.W.O.T.
analysis and should be used as part of the strategic planning process.
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One known way of environmental scanning is the renowned SWOT analysis. S stands for strength, W stands for
weakness, O stands for opportunity while T stands for threat. The strength and opportunities are factors that can
be controlled by the organization inwardly, while the weaknesses and threats come from the uncontrolled factors
outside the organization.
When firms are directing their resources and manpower towards an environmental scan, they want the feedbacks
to be as deep as possible. Most environmental scans entail a thorough check on the economic, technological,
social, demographic, and legal factors to make an informed decision.
Environmental scanning is a crucial aspect of the business process as it is the task of any serious
organization to keep a close tab on things that can affect the chances of the organizations in satisfying
the consumers and making profits.
The staff of the organization source for the prominent internal and external threats which negatively
affect the organization. Big firms have employees that are specially trained and dedicated towards
research purposes that continuously learn about market trends, changes and provide information to the
senior management, which will aid them in meeting up with industry trends. Having adequate
knowledge about the trends in business and market changes will help management make informed and
productive decisions that will help the company profitably.
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Components of Environmental Scanning
The environment of a business organization can be split into two types, which are the external environment and the
internal environment. There are different dimensions to both the internal and external environments.
1.Internal Environmental
Internal environmental components are the ones that lie within the organization, and changes in these components
affect the general performance of the organization. There are different internal environmental like human resources,
capital resources, technological resources, and a lot more like objectives, Organizational structure, Value system,
corporate structure, and labour union, etc.
These components play a crucial role in building the future of an organization; therefore, it is essential to examine
these components as a part of environmental scanning thoroughly.
2.External Environmental
External components are the components that are outside the walls of the business organization. Although these
components are outside the organization, they still affect the activities of the organization. This external environment
can be divided into two categories, like the micro environmental components and macro environmental components.
 Micro environment components are competitors, suppliers, industry, organization, consumers, and market, etc.
 Macro environmental components are made up of things like demography, environment, and economic, political,
cultural, and technological factors.
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Scope of Environmental Scanning
 It Helps to Identify The Strengths of the Organization
The strength of the business implies the ability of the firm to have an advantage over its competitors. The analysis of
the internal business environment helps to highlight the power of the firm. After identifying the strength, the firm must
strive to build on or maximize its advantage by making improvements in its immediate plans, strategies, and
resources.
 It Helps to Identify the Organization’s Weaknesses
Recognizing the weakness of an organization means unearthing the limitations of the firm. Assessing the internal
environment helps to highlight not only the strength but also the limitations of the firm. A firm may be firm in specific
areas but may be weak in others. For continuous growth and expansion, the weakness should be highlighted and
corrected as soon as possible.
 It helps to Identify Opportunities:
Environmental scanning helps to identify and understand the opportunities in the market. The firm should take every
necessary step to take advantage of the opportunity that comes.
 It Helps to Identify Threats:
Business is open to threats from competitors and several factors. Environmental scanning helps them to discover a
threat from the external environment. When risks are detected early, it is good as it helps to eliminate them without
much stress.
 Environmental Scanning Helps Organizations to Optimize Resources
An ideal environmental scanning helps to make use of an organization’s human, natural, and capital resources.
Proper environmental scanning helps to limit wastage and optimize all other available resources.
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 It Ensures Survival and Growth:
Systematic scanning of the business environment helps the firm to optimize its strength, reduce its weakness, take
advantage of the opportunity, and diffuse threats. This helps the firm to survive and grow in the eternal competitive
business world.
 It helps to Plan a Long-Term Business Strategy:
Every business organization has short term and long-term objectives. The accurate environmental scanning of
environmental factors helps the business organization to make plans and policies that will help in achieving
organizational goals.
Without planning an excellent environmental scanning, the firm cannot map out a winning
strategy for sustained business success.
 Environmental Scanning Helps in Making Productive Decision-Making:
Decision-making is a process of choosing the best alternative among several available alternatives. An
environmental assessment is an essential tool in making the right decisions in the business world. The success of
any organization depends mainly on the decision making capability of senior management. Thus, environmental
scanning is highly crucial in shaping the company’s business decisions.
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Conclusion
Environmental scanning provides a business with many advantages irrespective of their industry or market
environment. This is why companies need to dedicate their resources towards understanding their environment.
They need to identify their strengths and weaknesses, bank on opportunities in the environment, and get rid of
any potential threats that may affect the business negatively.
Consequently, to grow and succeed in the ever-changing business and dynamic environment, all serious
organizations must take adequate measures in understanding their environment to make informed and productive
business decisions.
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