“When a flower doesn’t bloom, you fix the environment in which it grows, not the flower.”– Alexander Den Heijer
This beautiful yet straightforward quote makes one reflect upon life so much. We, as humans, are social living beings, and our circumstances influence everything we do, our thoughts, and our actions. When we make any decisions, we consider various factors and anticipate their outcomes and consequences.
Similarly, at work also, the environment of our work affects us. Our results, output, and productivity at work are dependent on our work environment. If we are running a business organisation, a good work environment for our staff is our responsibility. Any successful business owes its success to its human resources, and the human resource of an organisation is the pillar on which it stands firm. And therefore, the workplace must be a comfortable place for the staff to thrive.
Table of Contents
What is a Business Environment?
“The aggregate of all conditions, events and influences that surround and affect the business.”– David Keith
When you say business, it includes not just your product, not just your sales, and not just your revenues either. Instead, it is all about the ‘who, what, where, when, and how of your business. Your business environment comprises every factor that affects your business, whether directly or indirectly. Therefore, it becomes imperative that a business organisation has a suitable environment for the overall business to function.
The business environment depends from organisation to organisation. There are specific set standards for certain forms of business organisations, such as companies, corporates, etc., which differ from other organizations.
Forms of Business Organisations
There exist various kinds of business organisations around the globe. The primary forms of business organisations that exist around the world are –
1. Sole Proprietorship
2. Partnership Firms
4. Limited Liability Partnerships (LLPs)
5. Hindu Undivided Family (HUFs, in India)
The structure of each kind of organisation is different, and so are their environments.
Types of Business Environment
An organisation’s business environment can be divided into two parts: the internal business environment and the external business environment. At the same time, both affect the functioning of the business organisation.
1. Internal Business Environment
The internal business environment means the factors of a business that may directly impact the business. It may include business policies, revenues, top management, etc. These are primarily controllable and can be altered according to the organisation’s needs.
2. External Business Environment
The external business environment are factors that may indirectly affect the business organisation. It includes factors such as the government, domestic economy, world economy, disasters, political changes etc. The business organisation doesn’t have control over these factors.
Factors Affecting Business Environment
Various factors affect the business environment of an organisation. Some of them are listed below –
1. Values and Policies
2. Vision and Mission
3. Human Resource
5. Management Hierarchy
6. Technological Developments
8. Financial Management of the Organisation
10. Cultural Factors
Dimensions of Business Environment
The dimensions of the business environment are bifurcated into the following –
1. Economic Environment
The economic environment consists of factors such as the country’s taxation system, the budget, fiscal policies, the international economy etc.
2. Legal Environment
The legal environment means the effect of the legislature of the country. In India, Companies are regulated by the Companies Act, 2013, the Partnership Firms by the Indian Partnership Act, 1932, and the LLPs by the Limited Liability Partnership Act, 2008. Besides these, various laws apply to business organisations, such as employment laws, labour laws, environmental laws etc.
3. Social Environment
The social environment includes the social culture, traditions, and regional culture’s impact on your work environment. When you run a business organisation having people working for you, you build networks or connections.
Instead, you make a community of people passionately moving towards a common goal, a vision. Hence, traditions, festivals, a healthy work environment, and good infrastructure are essential.
4. Political Environment
The political environment means government decisions, elections, changes in government etc.
5. Technological Environment
The technological environment includes technological innovations, devices with the latest features, tech-savvy staff etc.
Importance of Business Environment
1. Business Planning
The business environment is the core of a business plan, and the business plan is made only after understanding your organisation’s business environment.
2. Utilisation of Resources
Understanding the business environment can give us a better understanding of how we should allocate our business resources. If we allocate resources in an optimised manner, it can increase the productivity of the resources and, thereby, the results.
3. Business Opportunities
The business environment plays a vital role in creating business opportunities such as partnerships, collaborations, ventures etc. It is through a healthy business environment that you sustain it.
4. Market Competition
As a going concern, a business is bound to face competition in the market. A healthy business environment can make you a formidable competitor as it directly affects your revenues, operations, sales, efficiency and productivity.
5. Brand Image
A healthy business environment creates goodwill for your business, not just numbers. It is employee satisfaction, customer support, and stakeholders’ correspondence. It is about having a healthy place and environment in which a business thrives, and these are the very factors that transform a business into a brand.
The business environment of an organisation consists of all the factors that affect the business directly or indirectly. It can be the infrastructure, the work policies, the human resource, the management, the external factors, anything.
However, a business should always focus on creating a healthy business environment for the owners and the staff and all the stakeholders. The business environment can help build a good reputation. Therefore, while managing a business, you need to understand what may affect your business environment and not hinder your growth.