Business Environment is something which is very important to be aware of for an entrepreneur. Let us understand what exactly is business environment and the reason behind its complexity.
Business environment basically means anything which is not within the control of the business entity, but still it can influence the business significantly. They can be several factors, forces or even other individuals and institutions. For example, Company A deals in financial services. The government then introduces GST in the country. Now Company A has to charge more than before from its customers as GST collection, due to which their consumer bucket is going down. This fiscal factor is not under the control of Company A, but still it is affecting the company significantly. Therefore the introduction of new tax is an example of change in business environment. In layman language, Business environment is the surroundings in which a particular business exists.
Dimensions of Business Environment:
Dimensions basically refer to all those factors and forces which have an impact over the business. These are mainly of five types-
Economical Environment: Factors that affect the economy of the country, particularly GDP, employment rates or National Income, are known as Economical Environment. For example - The introduction of GST in India and the Demonetization of 500 and 1000 rupees notes. Both these changes will have a huge impact on the overall economy and business entities as well.
Political Environment: Factors related to the governments, like government attitude, decisions and policy changes are included in Political Environment. For example - Make in India scheme of the government and the current party ruling in the country and its attitude. Business will have to adapt itself according to these factors in order to sustain.
Legal Environment: Legal environment includes the changes in laws and regulations. For example - The introduction of FEMA instead to FERA, and introduction of new laws which affect the business entities.
Social Environment: The trends prevalent in the society and the world are covered in the social environment. The customs, traditions, or the current tastes of consumers constitute social environment. For example - Growing significance of women and the shift of trend towards digitalization.
Technological Environment: Factors relating to new innovations and scientific upgradations, leading to advanced technology constitute technological environment. For example - Introduction of digital payments and new updated accounting software instead of the degraded traditional tools.
Dynamic Nature of Business Environment
Business environment plays a very important role in the success of an economic organization. The ones who are able to scan the environment efficiently and take necessary decisions in time are able to grab the best advantage of changing business environment. Business Environment Scanning is a skill which is very necessary for managers and leaders for the constant advancement of business. Scanning basically means to have complete awareness and understanding of the business environment.
It requires great skill and knowledge in order to anticipate the effects of changes in business environment. A little deviation in the anticipation and reality can lead to disastrous results. Thus a leader has to be proactive regarding the dynamicity of business environment. It is next to impossible to predict what changes will come ahead in the environment. Thus it is the matter of experience and knowledge of the leader to predict reasonably and come up with an alternate plan also, if the deviation from prediction occurs.
Therefore, due to its vast scope, business environment becomes very flexible and keeps changing. It is not static or rigid. Thus it becomes essential to monitor and scan the business environment continuously and take necessary actions thereon, in order to sustain the going concern of the entity in the complex market.