Business Studies Part I
Business Studies Part II

Business Environment: Importance

  1. It enables the firm to identify opportunities and getting the first mover advantage instead of losing them to its competitors.
  2. It helps the firm to identify threats and early warning signals which are likely to hinder a firm’s performance and take timely actions.
  3. It helps in tapping useful resources as the enterprise designs policies that allow it to get the resources that it needs so that it can convert those resources into outputs that the environment desires.
  4. It helps in coping with rapid changes as the managers are able to understand and examine the environment and develop appropriate courses of action.
  5. It helps in assisting in planning and policy formulation as its understanding and analysis can be the basis for deciding the future course of action or decision making.
    It helps in improving performance of an enterprise through continuous monitoring of the environment and adopting suitable business practices which help to improve both their present and future performance
  6.     It helps in improving performance: The final reason for understanding business environment relates to whether or not it really makes a difference in the performance of an enterprise. The answer is that it does appear to make a difference. Many studies reveal that the future of an enterprise is closely bound up with what is happening in the environment. And, the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

  1. Technological Environment is the component of business environment highlighted in the above Para. Technological Environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
  2. The two features of business environment as discussed by Professor Mehta with Naman and Govind are as follows:
    • Dynamic nature: It is dynamic in nature and keeps on changing due to technological upgradations, shifts in consumer preferences or increase in competition in the market.
    • Inter-relatedness: All the elements of business environment are closely interrelated. Therefore, any change is one element may necessitate corresponding changes in the other elements as well.
  3. The two points of importance of business environment as stated by Professor Mehta in the above situation are described below:
    • It enables the firm to identify opportunities and getting the first mover advantage: The dynamic business environment provides numerous opportunities for a business to evolve as per the changing needs. Therefore, early identification of the forthcoming opportunities helps an enterprise to be the first to exploit them instead of losing them to the competitors.
    • It helps the firm to identify threats and early warning signals: Sometimes the changes in the external environment may pose as a threat and hinder a firm’s performance. An awareness about the business environment helps the managers to identify such threats on time and take necessary decisions and action.