What is Business Environment?

Last Updated on March 22, 2021 by Filip Poutintsev

The importance of the business environment

Like any human being, organizations do not live in an isolated environment. They are present in their business or market environment, growing and surviving. Therefore, not only should the business environment of organizations be identified and evaluated, but it should also respond to its constituents. Accordingly, the importance of identifying the market environment can be considered in the form of the following items:

1. Enables the organization to identify opportunities around it and take advantage of them.
2. Enables the organization to identify external threats and signal their presence ahead of competitors.
3. Indicating its useful and effective resources for the use of the organization in various sectors.
4. Makes coping and managing the organization’s external changes more efficient and effective.
5. Identifying the possibility of planning and macro-policy of the organization for its excellent management.

Define the business environment

Different definitions of the market environment have been presented in the world of management and each of the authors has looked at it from different dimensions. In this regard, extensive studies have been conducted on several areas such as why the market environment is studied and monitored, its components and its effects on the internal functions of the organization.

The business environment refers to a set of factors and conditions that are present in business and economics and affect the organization. These factors and conditions are outside the control of the organization and include complex, dynamic and diverse factors. Variables such as socio-cultural variables, competition, technological, economic, political, laws and regulations, natural factors and the like are among the most important components of the business environment.

Business environment features

The market environment has many distinctive features in terms of dynamism and considerable variety of variables, which are mentioned in the following lines:

Totality

The market environment is a set of all external variables that affect the performance of the organization.

General and specific

The market environment includes both general external factors (factors such as social, political, economic, etc.) and includes specific and external factors of each organization (such as suppliers, customers, etc.).

Reciprocal communication

There is an interrelationship between the components of the market environment that the interconnectedness of these variables will add to the complexity of the environment.

Dynamic nature

The business environment and its constituent variables are governed by dynamic relationships that sometimes make them very difficult to identify.

Uncertainty

Predicting the performance of an organization’s market environment in the future will be very complex and difficult due to its uncertain nature.

Complexity

Due to the high range of factors and variables that make up the business environment, there is a high level of complexity between them.

Dimensions of the business environment

Theorists have each considered different factors as dimensions of the business environment. But most of them have considered two types of environments in the form of a business organization environment. The first environment is called the close environment, or in other words, the competitive environment or the micro environment. Raw material suppliers, customers, intermediaries, competitors and the public sector are among them. The second environment is called the distant environment, the external environment or the macro environment, which includes variables such as economic, social, technological, political, legal and demographic factors.

Micro environment

Suppliers

Suppliers include all the people who provide the resources needed by the organization.

Market intermediaries

Market intermediaries include parties involved in the distribution of an organization’s product or service.

Partners

Partners are all separate entities that work with the organization. Such as advertising agencies, market research organizations, banking and insurance companies, transportation companies, brokers and so on.

Customers

Customers are composed of the target group of the organization.

Competitors

Competitors are actors in the same market who target similar customers of the organization.

Public Sector

The public sector is made up of any other group that has a real or potential interest or influence on the company’s ability to provide services to its customers.

Macro environment

Economic environment

The economic environment is perhaps the most important component of the business environment that is very important for the management of the organization in making its decisions. Some aspects of the economic environment include (1) the role of the private and public sectors, (2) GDP growth rate, GDP and per capita income, (3) savings and investment rates, (4) trade balance, (5) balance of payments, and (5) Transport and communication system

Social environment

The social environment is composed of the customs and traditions of the society in which the business exists. Some of the most important aspects of the social environment around the organization are (1) quality of life (2) the importance or position of women in the workforce (3) birth and death rates (4) customers’ tendency to innovate, lifestyle, etc. and (5) education rate And literacy

Political environment

The businessman must make changes in his organization based on the changing factor of the political environment. Attention to factors such as (1) the current political system (2) the country’s constitution (3) the profile of political leaders (4) government intervention in business and (5) government foreign policy are important points that the management of the organization should pay attention to. .

Legal environment

The legal environment is composed of various laws and regulations, and the management of the organization cannot ignore the regulations because business transactions must be done within the legal environment. Some of the most important factors affecting the legal environment of the organization are (1) different laws and legal materials (2) legal policies related to the establishment license (3) legal policies related to foreign trade (4) legal warnings of advertising and (5) monitoring laws advertising

Technology environment

The technology environment refers to changes in production methods, the use of new equipment and machinery to upgrade, and product quality. In this regard, we can mention several factors such as (1) various innovations and inventions (2) scientific improvements (3) development in the field of information technology (4) export and import of technology and (5) technological advances in computers.

Key points to adapt to the business environment

In the business world, change is inevitable, and if companies want to stay on track, they must adapt to the external changes of their organization. This section outlines 7 key points that managers and entrepreneurs need to make their decisions in order to survive their business.

1. Continuous attention to changes in the market environment
2. Accept the idea of change
3. Predict and prepare for the future and focus on the status quo
4. Adapting to various methods of managing the organization
5. Adaptability to new rhythms of the market environment
6. Monitor the performance of competitors in the face of market environment variables
7. Improving the internal processes of the organization around the anticipated changes in external factors of the market environment

The process of examining external factors

Examining the effective external factors should be done in a group with the participation of company managers. This will have a positive effect on the performance of managers and their better and more effective interaction with each other. The list of effective factors of the business environment should be prepared according to the opinions of managers and without considering the limitations, but by prioritizing according to their importance and impact.

Important point in the section, the identification of factors should be done by studying statistics and reliable information and data collected from the environment around the organization and should not be done only by relying on the intuitive and judgmental opinions of managers. It should also be noted that the statements made by managers are based on their experience and knowledge, but the existing information should also be verified and the value of their opinions should be measured in accordance with the data.