The operations of a firm are affected by several external and internal factors that cannot be controlled by it. These factors are the basis of the concept of a business environment. Any business must work according to its business environment. It must frame its policies, and follow strategies that take into account the changes that might occur in these factors so that its own operations are not affected by them. In today’s world where changes are fast and far-reaching, it is always in the best interests of the business to be prepared for them. This can be done by understanding what the business environment is.

 The concept of business environment

The concept of business environment states that any and all factors and forces, both external and internal, that influence, affect, or shape in any way the policies, decisions, strategies, and operations of a business comprise the business environment of that business. This business environment can be divided into two parts:

• The internal environment is made up of all the factors that are under the control of the firm. The business can change these to fit its policies and objectives. So changes in these factors and the effect they will have are predictable and can be easily adjusted by the business.
• External environment: These are factors that cannot be controlled by the company. These factors are usually unpredictable as well. Due to their unpredictable nature, the effects they have on the business cannot be foretold. These effects can be beneficial or harmful for the company.

 Components of business environment

Business environment can be divided into two components – the internal environment, and the external environment.

Internal environment: This component of the business environment is made up of many forces and factors that the company can control or modify to suit its aims and objectives. These factors are:

• Belief system of the firm: The organisational structure, work culture, management practices and all the rest of the regulatory framework is guided by and is a reflection of the values and ethics that s company adopts. These beliefs also underpin the larger aims and objectives of the firm.
• Larger aims, mission, objectives: Any firm is guided by the long term plans that it sets for itself. These plans are the course that the company needs to follow to achieve its larger objectives and ultimate aims.
• Organisation: This structure lays down a system for the distribution of authority, roles, responsibilities, chain of command. All these things work together to facilitate the achievement of short term and long term goals of the firm.
• Human resources: This is all the employees of the firm. It is the most important aspect of any company’s working since it forms the basis of all the successes of the firm.
• Physical and technical resources: These are all the physical assets and technical expertise at the disposal of the firm.

External environment: The external environment is further classified into the micro and macro environment.

• Microenvironment: These factors constitute the immediate environment of the firm and influence the firm. These are not in the control of the business but the business can be managed in a way that it can work alongside these forces and mould its strategies to be productive in spite of or because of these factors. The microenvironment consists of:

○  Competitors: The other players in the market who work with the same resources and target the same market.

○  Suppliers: All the sources that provide the business with the resources essential for its products and operations.

○  Partners: All those parties that work with the company to help with customer service. These may include consultancy firms, advertising agencies, market research agencies, etc.

○  Public: Any party or parties that can influence the company’s service to customers.

○  Customers: This is the target group that the company aims to serve and obtain revenue from in exchange for services or products.

○  Media: The source through which the company markets its products or services.

○  Intermediaries: All those groups through whom the services or products of the company pass before reaching the customers.

• Macro Environment: These factors usually have a very big impact on any business because they affect the industry as a whole. These comprise of:

○  Economical factors: These are the markers of the economy of the country and consist of GDP growth, exchange rate, inflation, interest rates etc.

○  Technological factors: These are usually advancements in technology that change the way a business functions. Examples of business environment technological changes may be computerisation of operations, the introduction of the automated factory line, etc.

○  Environmental factors: Such factors as the climate, changes in weather, environmental policies, etc come under this category.

○  Political factors: These range from government policies to the law and order situation in an area or country.

○  Social factors: These factors include the growth rate of the population, health consciousness, education, etc.

○  Legal factors: These are all the laws that are b=industry specific or related to business. 

Conclusion

In a time when the markets are inundated with competition, it is a healthy practice to understand and keep track of all the forces that can affect the working of the company. By understanding these factors of the business environment companies can plan for the future, they can make strategies that can keep their productivity intact or even increase it with respect to the changes that might occur with the changes in the business environment.