Business Environment

Definition
Business environment is defined as the combination of internal and
external factors and forces that influence the company’s business
operations. Among these some factors are controllable and some are
uncontrollable.
Features
1. Inseparable part of business- Environment is an integral part of any business. Business cannot work
without environment. Business requires good framework of legal, political, social, cultural and
economic factors. Both business and environment have influence over each other.
2. Dynamic nature- Business environment is dynamic in nature. Both internal and external factors are
changing . So a company must be up to date about the dynamic nature of business environment. For
Example: The era of digitization has through a big challenge to the companies. Those who cannot keep
pace with the new environment may lose their market share or become bankrupt.
3. Controllable and uncontrollable factors- There are some factors in business environment those are
controllable by the company such as company mission or value system. Macro-environmental factors
are almost uncontrollable in nature. These forces include such as political environment , technological
environment , legal environment , natural environment etc.
4. Environment is complex-In the Business Environment, there are numerous complex situations in
which one must understand in order to maximize the benefits of success. Modern business is more
complex, flexible and highly un-predictable. The modern business has grown in size and scope and so is
the environment.
5. Environment is multifaceted- Any change in the environment is followed by a chain of
positive and negative reactions. A change may be favorable to someone and unfavorable to
others. 
6. Reveals company’s strength, weakness, opportunities and threats
7. Regulates the scope of business- Environment provides a framework within which business
organization has to operate. All the business activities are expected to be conducted within
social, political, economic and legal structures. These changing structures should be minutely
monitored by the business firm for its survival and growth. 
8. Impact-The environment can have both positive and negative impact on the business. And
these impacts might be sometimes short term and sometimes long-term. For example impact
of digitization is a long-term effect of business. Again some natural disasters have short-term
effect.
9. Uncertainty- Most of the macro environmental factors are unpredictable in nature that
increases the uncertainty in business. For example when a a contry’s government is changed,
new business policies are formed that may affect negatively to many business organizations.
The Importance of Business Environment
1. 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.

2. Giving Direction for Growth

When a business interacts with its environment, it becomes easier to identify areas for growth and
expansion of its activities. 

3. 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. 
4. Essential for planning
An understanding of the external and internal environment is essential for planning for the future. A marketer needs
to be fully aware of the current scenario, dynamism, and future predictions of the marketing environment if he
wants his plans to succeed.
The Importance of Business
Environment
5. 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.

6. 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. 
Types of Business Environment
Basically business environment can be classified into
• Internal Environment
• External Environment

External environment can also be classified into

a. Micro-environment and
b. Macro-environment
Internal Environment
Internal environment includes all those factors which influence
business and which are present within the business itself. These
factors are usually controllable. The study of internal factors
helps to determine a company’s strengths and weakness. An
internal environmental analysis is must before setting a
company’s goal. The internal factors consist of
Value system
A value system is a set of consistent ethic values and measures used for the
purpose of ethical or ideological integrity. A well-defined value system is a moral
code. Managers can use the value system for the all-round development of their
employees. Values aid to vision.

Mission statement
A mission statement is a short statement of why an organization exists, what its
overall goal is, identifying the goal of its operations: what kind of product or service
it provides, its primary customers or market, and its geographical region of
operation. It may include a short statement of such fundamental matters as the
organization's values or philosophies, a business's main competitive advantages, or
a desired future state—the "vision"
Organizational structure
Organizational structure helps a company assign a
hierarchy that defines roles, responsibility, and
supervision. It’s the plan that outlines who reports to
whom and who is responsible for what. It’s usually
recorded and shared as an organizational chart that
includes job titles and the reporting structure.
Corporate culture
Corporate culture refers to the beliefs and behaviors that
determine how a company's employees and management
interact and handle outside business transactions.
Plans & Policies:
The plans and policies of the firm should be properly framed taking into consideration the
objectives and resources of the firm. Proper plans and policies help the firm to accomplish its
objectives.

Human Resources
The survival and success of the firm largely depends on the quality of human resources. The social
behavior of the employees greatly affects the working of the business. The characteristics of human
resource like skill, quality, morale, commitment can contribute to the success of the organization.

Labor Union
an organized association of workers, often in a trade or profession, formed to protect and
further their rights and interests; a trade union. Labour union creates pressure on
management.
External Environment
Micro Environment
The micro-component of the external environment is also known
as the task environment. It comprises of external forces and
factors that are directly related to the business. These include
suppliers, market intermediaries, customers, partners,
competitors and the public
• Suppliers include all the parties which provide
resources needed by the organisation.
• Market intermediaries include parties involved in
distributing the product or service of the organisation.
• Partners are all the separate entities like advertising
agencies, market research organizations, banking and
insurance companies, transportation companies,
brokers, etc. which conduct business with the
organisation.
• Customers comprise of the target group of the
organisation.
• Competitors are the players in the same market who
targets similar customers as that of the organisation.
• Public is made up of any other group that has an actual
or potential interest or affects the company’s ability to
serve its customers.
Macro Environment
The macro component of the marketing environment is also known as the
broad environment. It constitutes the external factors and forces which
affect the industry as a whole but don’t have a direct effect on the business.
The macro-environment can be divided into 6 parts.
Demographic Environment
The demographic environment is made up of the people who constitute the
market. It is characterised as the factual investigation and segregation of the
population according to their size, density, location, age, gender, race, and
occupation.
Economic Environment
The economic environment constitutes factors which influence customers’
purchasing power and spending patterns. These factors include the GDP,
GNP, interest rates, inflation, income distribution, government funding and
subsidies, and other major economic variables.
Physical Environment
The physical environment includes the natural environment in which the business
operates. This includes the climatic conditions, environmental change, accessibility to
water and raw materials, natural disasters, pollution etc.
Technological Environment
The technological environment constitutes innovation, research and development in
technology, technological alternatives, innovation inducements also technological barriers
to smooth operation. Technology is one of the biggest sources of threats and
opportunities for the organization and it is very dynamic.
Political-Legal Environment
The political & Legal environment includes laws and government’s policies prevailing in
the country. It also includes other pressure groups and agencies which influence or limit
the working of the industry and/or the business in the society.
Social-Cultural Environment
The social-cultural aspect of the macro-environment is made up of the lifestyle, values,
culture, prejudice and beliefs of the people. This differs in different regions.