What is business environment?

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Understanding business environment is important for any business organisations. Environment can play a very significant role in the ups and downs of a business. However, understanding it may sometimes be difficult due to the interconnections of a number of separate issues within it.

Business environment can be divided into two groups: macro environment and micro environment. The micro environment refers to the forces which are very close to the company, whereas the macro environment includes wider societal forces which can impact on the micro environment.

The micro environment includes forces such as the company itself, suppliers, employees etc. These forces play a vital role in the operations of the business. For example, a company may find it impossible to produce its end products without the raw materials provided by the suppliers. Likewise, motivated and committed employees can contribute to the development and success of a business.

The macro environment consists of broad environmental factors that impact to a greater or lesser extent on almost all organisations (Johnson, Scholes & Whittington, 20O6). These factors include but not limited to economy, natural forces, technology, politics, and culture.

The macro forces can be very unpredictable sometimes. For example, it is not s easy to predict the political future of a country. Political crisis across the globe can attest to this reality. Businesses thrive in a stable political climate. Conversely, unstable internal political climate and war can destroy businesses.

A number of frameworks can be used to understand the business environment. SWOT, PESTEL, and Porter’s five forces are some of the popular frameworks. It may sometimes be required for companies to use more than one framework together to understand both the internal and the external environment.

To sum-up, it is important for organisations to build up a very good understanding of business environment. Without an appropriate understanding of that, it will be difficult (if not impossible) for a company to plan for the future.

The article publication date: 15 October 2016

 Further reading/References:

Johnson, G., Scholes, K. and Whittington, R. (2006) Exploring Corporate Strategy: Text and Cases, 7th Edition, UK: Prentice Hall

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Author: M Rahman

M Rahman writes extensively online with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He is a graduate of Leeds Metropolitan University and London South Bank University.