Unit 1(P15): The Environmental Context: Introduction

Environment?

• Environment refers to the forces that create conditions and influences on the capacity of an organization to make adjustment in the current system and compete in the market.
• The condition that affect or influence the behavior and development of something.
• 'The set of forces surrounding an organization that have the potential to affect the way it operates and its access to scarce resources'. Gareth
• An environment refers to institutions or forces that are outside the organization and potentially affect the organization’s performance.
• Business organization is an open system which, regularly interacts between the business system and its environment.

Characteristic:

1. Environment is complex:
• The environment is not made of any one simple constituent but consists of a number of factors, events, conditions and influences, arising from different sources.
• It is difficult to guess the factors that constitute a given environment. Hence, environment is at the same time complex and somewhat easy to understand in parts, but difficult in totality. 
2. Environment is dynamic:
• The environment does not remain constant but keeps on changing, For instance, the environment changes with the competitor's products and strategies, government policies, customers' preferences, etc.
• Hence, in order to survive and grow, it becomes very important for every organization to understand its impact and adapt itself with such changes. 
3. Environment is multi-faceted:
• Same element or influence of environment affects different firms in different ways.
• This is frequently seen when the same development, say liberalization, is welcomed as an opportunity by one company while another company perceives it as a threat.
4. Environment has a far reaching impact:
• The environment has a long term and lasting impact on organizations. The growth and profitability of an organization depend critically on the environment in which it exists.

Importance

1. Identification of Strength: The analysis of the internal environment helps to identify strength of the firm. For instance, if the company has good personal policies in respect of promotion, transfer, training, etc than it can indicates strength of the firm in respect of personal policies. This strength can be identified through the job satisfaction and performance of the employees. After identifying the strengths the firm must try to consolidate its strengths by further improvement in its existing plans & policies.
2. Identification of Weakness: The analysis of the internal environment indicates not only strengths but also the weakness of the firm. A firm may be strong in certain areas; where as it may be weak in some other areas. The firm should identify sue weakness so as to correct them as early as possible.
3.  Identification of Opportunities: An analysis of the external environment helps the business firm to identify the opportunities in the market. The business firm should make every possible effort to grab the opportunities as and when they come.
4. Identification of Threats: Business may be subject to threats from competitors and others. Therefore environmental analysis helps to identify threats from the environment identification of threats at an earlier date is always beneficial to the firm as it helps to defuse the same.
5. Exploitation of Business Opportunities: Environment opens new opportunities for the expansion of business activities. Study of environment is necessary in order to discover and exploit such opportunities fully.
6. Keeping Business Enterprise Alert: Environment study is needed as it keeps the business unit alert in its approach and activities. In the absence of environmental changes, the business activities will be dull and lifeless. The problems & prospects of business can be understood properly through the study of business environment. This enables an enterprise to face the problems with confidence and secure the maximum benefits of business opportunities available.
7. Keeping Business Flexible and Dynamic: Study of business environment is needed for keeping business flexible and dynamic as per the changes in the environmental forces. This will enable the development of business organization.
8. Understanding Future Problems and Prospects: The study of business environment enables to understand future problems and prospects of business in advance. This enables business organizations to face the problems boldly and also take the benefit of favorable situation.
9. Making Business Socially Acceptable: Environment study enables businessmen to expand the business and also make it acceptable to different social groups. Business organizations can make positive contribution for maintaining ecological balance by studying social environment.
10. Ensures Optimum Utilization of Resources: The study of business environment is needed as it ensures optimum use of resources available. For this, the study of economic and technological environment is useful. Such study enables organization to take full benefit of government policies, concessions provided, and technological developments and so on.
11. Ensures Survival and Growth: Business environment inform about suitable changes to be affected in business policies. This helps the business organizations to grow & prosper.
12. Maintaining adaptability to changes: Business environment guides the business organization about socio-economic changes & the organization must accordingly adapt these change. This enables the business organization to survive for a longer period.