How would you argue that the success of a business enterprise is significantly influenced by its environment?

Any organisation cannot function in isolation. Rather, it’s working and actions are influenced by many external forces such as social and political conditions, technological changes, etc. Such external forces compose environment for an organisation. It is of prime importance for any organisation to have an understanding of the business environment. A continuous study of the business environment enables an organisation to identify the forces that affects it functioning and thereby, helps it in reacting and coping with these forces in an appropriate manner. The following points highlight the importance of environment for the success of a business organisation.

(a) Identification of Opportunities: Changing business environment offers many positive opportunities for business. A careful analysis of the environment enables an enterprise to identify these positive opportunities and take first hand advantage in competition. That is, it enables the organisation to gain maximum benefit and move ahead of its competitors. For example, Tata recognised the demand for a small and economical car in India and thereby, launched the popular Tata Nano at a price of just one lakh. Thus, it became the leader in low cost car in India.

(b) Identification of Threats: Besides positive opportunities, certain changes in the environment may also affect the functioning of an environment adversely. A study of business environment helps an enterprise in the identification of these threats or negative signals. Thereby, it enables it to take appropriate preventive measures. For example, if a mobile manufacturing company finds that another company is coming up with new and improved features in its product, then it acts a competition for it. An identification of the threats can enable the organisation to take appropriate measures such as improving the quality and features of its mobile, advertising, etc.

(c) Accumulating Useful Resources: Environment acts a source of inputs or resources such as raw material, machinery, labour, etc. required for the functioning of an organisation. On the other hand, environment also acts a source of demand for goods and services produced by the organisation. Thus, it is rational for the organisations to take up those resources from the environment that can be converted into the desired output. This is possible only if the enterprises have an understanding of what the environment desires and what it can offer. For example, with a rise in demand for the touch screen technology in mobile phones, manufacturers are accumulating resources required for manufacturing touch screen phones.

(d) Adjusting to Changes: Business environment is dynamic in nature. Technology, consumers taste and preference, government policies, political conditions change continuously. A careful analysis and understanding of the environment helps an enterprise in dealing with these changes in a better manner and take appropriate actions. For example, by a study of business environment many bakery enterprises have realised the growing demand for sugar-free products and are increasing the production of such bakery products.

(e) Formulating Plans and Policies: With a continuous study of the environment an organisation can identify various threats and opportunities for its business. Accordingly, it can frame suitable plans and policies in view of the current scenario. For example, if on analysing the market for clothes in India, it is found that there is an increasing demand for western wear, then a cloth manufacturing company can frame policies and strategies to incorporate western wear in its production.

(f) Improving Performance: An analysis of the business environment helps the enterprises in identifying various threats and opportunities that affect its performance. It helps the organisation in dealing with these changes in an appropriate manner. Thereby, it helps it in improving its performance.

Importance of business environment 

(i) It Enables the firm to Identify Opportunities and Getting the First Mover Advantage: Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of loosing them to competitors, e.g., Eureka Forbes introduced Aquaguard and took away the cream of demand. 

(ii) It Helps the Firm to Identify Threats and Early Warning Signals: Environment happens to be the source of many threats. Environmental awareness can help managers to identify various threats on time and serve as an early warning signals e.g., Lakme took serious steps to improve the quality and types of products as foreign multinational cosmetics companies started coming to India after 1991. 

(iii) It Helps in Tapping Useful Resources: Environment offers various resources for running a business in return the business enterprise supplies the environment with its outputs such as goods and services for customers, taxes for government. In order to arrange for the best possible resources, better understanding of the environment becomes important. 

(iv) It Helps in Coping with Rapid Changes: It is not the fact of change itself that is so important as the pace of change. There are many changes taking place in the environment and at a fast speed. In order to effectively cope with these changes, managers must understand and examine the environment and develop suitable courses of action. 

(v) It Helps in Assisting in Planning and Policy Formulation: Since environment is a source of both opportunities and threats, its understanding and analysis only helps in formulating the best possible policies to handle the future properly. 

(vi) It Helps in Improving Performance: Continuous monitoring and adopting changes in an enterprise will help in improving not only their present performance, but also continue to succeed in the market in long run.

Importance of business environment 

1. It enables the firm to identify opportunities and getting the first mover advantage Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors, e g., Eureka Forbes introduced Aquaguard and took away the cream of demand.

2. It helps the Firm to identify threats and early Wamirng Signals . Environment happens to be the source of many threats. Environmental awareness can help managers to identity various threats’ in time and serve as an early warning signals e.g.-Lakme took serious steps to improve the quality and types of products as foreign multinational cosmetics companies started coming to India after 1991.

3. It helps in tapping useful resources : Environment offers various resources for running a business. In return, the business enterprise supplies the environment with its outputs such as goods and services for customers and taxes for Government. In order to arrange for the best possible resources, better understanding of the environment becomes important.

4. It helps in coping with rapid changes. It is not the fact of change itself that is so important as the pace of change. There are many changes taking place in the environment and at a fast speed. In order to effectively cope with these changes, managers must understand and examine the environment and develop suitable courses of action.

5. It helps in assisting in Planning and Policy Formulation : Since environment is a source of both opportunities and threats, it’s understanding and analysis only helps in formulating the best possible policies to handle the future properly. 

6. It helps in improving performance. Continuous monitoring and adopting changes in an enterprise will help in improving not only their present performance, but also continue to succeed in the market in long run.