21 Importance of Study of Business Environment (Explained)

The study of the business environment by an entrepreneur is quite essential. In the changing scenario of the present age, its assessment, forecast, and determination of its effects are necessary for the successful formulation of its policies and plans and taking sound decisions.

importance of study of business environment
importance of study of business environment

“Like a person, the business also owns responsibility towards the total environment, which he accomplishes.

The first responsibility of the entrepreneur is to get familiar with the environment and to fulfill social responsibilities.”

Importance of Study of Business Environment

In brief, the Need or Importance of study of business environment may be explained, on the basis of following points:

1. Safeguard Against Increasing Competition

In the present Era, every businessman has to compete with the products, techniques, costs, markets, distribution chains, production, and sales methods of its competitors.

However, if the businessman has perfect knowledge about the internal and external environment and takes the decisions, in accordance with situations, he may be safe from the competition and may also develop the ability to compete.

Besides, he may also adopt counter-strategies to take out strong measures against the competitors.

Related: 11 Non-Economic Environments Affecting Business Environment.

2. Successful Operation of the Business

The Rise or fall in the efficiency, physiological capacities, and skills of the Businessman or workers or the employees are related with the internal environment.

If the environment of the business institution is good, the efficiency and skills of all will be high.

Otherwise, the workers will, of course, earn their wages by spending time. But, the Businessman will not be able to earn profits.

Hence, it is essential to study the business environment for the successful operation and prosperity of the business.

“Any Businessman or his organization, who is not in contact with the environment will die on his own or perish, in the long run.”

3. Formulation of Action Plans of Business

Action plans of business may be easily formulated perceiving the knowledgeable business environment.

An effective assessment of changing circumstances is done to give practical shape to plans.

While preparing action plans, information related to the factors of the environment are to be kept in consideration.

Besides, knowledge about technical progress, new social values, community problems, investment framework, and different political Outlooks are worthwhile.

4. Sound and Effective Decisions

Sound and effective decisions are those which are in accordance with the Expectations and needs of the environment.

Various types of decisions are required to be taken within the business activities, regarding purchase and Sales, Production and Manufacturing of goods and services, personnel, finance, and distribution, etc.

But, before doing so, knowledge of the environment is essential for the concerned management, so that sound and effective decisions may be taken.

“Suitable study of environmental realities is the sound basis of business decisions.”

5. Facing the Challenges

There are various challenges to the business have been posted for the business in the dynamic environment of the present days.

These are the dignity of human resources, safeguarding their health, controlling the anti-social activities of industrialists, the establishment of the effective balance between industrial production and the limits of nature, etc.

Similarly, challenges like income, level of consumption, purchase preferences, demand and competition emanating from economic policies also exist.

All the challenges may be easily faced by using the knowledge, decision, and evolution of the business environment.

Related: 16 Need and Importance of Business Environment (Explain).

6. Enhancing Opportunities for Profits

The profits opportunities of the business are enhanced by assessing the environment.

Within the business environment, production of goods is carried out, according to the tastes of consumers and fashion, government policies are complied with, efforts are made to minimize the costs and optimum advantage of several opportunities within economic and social changes are availed.

As a result, the profit opportunities of the institution enhance.

“Maximization of opportunities is possible only by consciousness towards the environment.”

7. Effective Management System

Effective planning and control is the essence of the effective management system.

But these functions may be performed by making a suitable evolution of environmental limitations, forces, pressures, effects, and events of work.

Besides, own effectiveness may also be enhanced by making available reliable information and their use, by an information system between management, organization, and environment.

Hence, the new activities of Management social innovations, social marketing, and entrepreneurship to maintain effective contact with the environment is quite essential.

8. Dynamic Behaviour

Consciousness in dynamic behavior is caused by the business environment, the reason being that the Businessman studies internal and external factors, social and political events.

importance of study of business environment
importance of study of business environment


Besides, he also remains conscious to see, whether present circumstances are favorable for the business or not. If not, what should be done, so that there may be no problems in earnings of profits by the Institution?

Related: 13 Characteristics and Objectives of Business Environment (With Examples).

9. Long-Term Planning

A business institution may plan for the long-term by study and analysis of business environment, because:

  1. May prepare Long-Term Policies, development plans, and strategies by narrating components of the environment.
  2. Exiting Environment of the business is studied and future environment assessed.
  3. Complete assessment of positive effects and ill effects of future conditions of the environment is done and own plans are formulated, accordingly.

This way, a business organization may plan for the long-term, properly studying the environment. 14 Elements of Good and Effective Planning (Explain).

10. Knowledge of Good and Bad Effects of Organisation

A business organization which carries out its activities has good and bad effects both.

Good effects include rice in the standard of living of the consumers, consumer satisfaction, employment growth, development of the economy, Industrial Development enhanced national income and improvement in the quality of human life, etc.

On the contrary, the rise in pollution, misutilization of economic resources, rise and needs, deterioration in cultural values, corruption and red tapism are the ill effects of the growth of Business.

A businessman may try to enhance the good effects and reduce the ill by perceiving knowledge about the environment.

11. Evolution of Exiting Objectives and Plans

It is a common phenomenon visible in the business scenario that planning starts when any enterprise gets the failure in setting with all the factors of the changeable environment, after studying the circumstances in various forms.

However, good business Institutions formulate the plans, since the very Inception by keeping the environment in view, and continuously evaluating them, so that plans may be revised and adjusted according to needs.

Thus, the business environment is of specific importance for the evolution of the new objectives and plans.

12. Alterness Towards Threats, Crisis, and Problems

The business environment works openly and independently.

As a result, new threats, crisis, problems, and challenges always crop in for the new business.

Apprehension for challenges persists due to economic policies and other facts, like income, utilization level, purchase priority, demand and competition, environmental balance, the balance between economics and ethics, worldwide pressures and control on anti-social activities.

Evolution and implementation of the business environment are necessary to all such challenges.

13. Knowledge of Uncertainties, Risk, Changes in Profits and Fluctuations

Following knowledge is gained from the business environment

  1. Business is a game of risks. Business cannot be imagined without risks. In the business environment, knowledge is gathered about uncertainties and risks and hence, one maybe cautions towards them and it may be measured also.
  2. Business is carried out in the dynamic environment. Knowledge about changes in production techniques, size of the product, its appearance, habits, and tastes of the consumers, qualities of the product and consumption, etc. are easily known by the business environment. “It is essential for the business to live with the environment, so as to flourish with changes.”
  3. An institution may be successful in controlling the fluctuations timely. The boom and depression and their causes can be analyzed through the study of the business environment.
  4. The opportunities of profit in the business may be metalized, by remaining alert towards the environment. The various policies like monetary policy, Export-Import policy, commercial policy, economic changes, social events, organizational combinations, and coincidences, etc. are studies in a business environment.

14. Survival Capacity of Business Institution

The business institution should have knowledge about various components of the environment and should also establish coordination among them, so as to maintain survival capacity.

importance of study of business environment
importance of study of business environment


For that, it is necessary to be in regular contact with its internal and external factors.

It also requires to keep knowledge about changes occurring in and will have to take and revise decisions, accordingly.

“The survival capacity of every organization is closely associated with the knowledge about its environment.”

Related: 12 Challenges Created by Business Environment (With Examples).

15. Knowledge of Interdependence of Factors

There are various factors in the business environment.

The economic, social, cultural, political, technical, statutory and moral factors mutually affect each other.

However, the knowledge about the extent and form of effects of changes in one factor to the other factors may be gained only through business environment.

16. Utilization of Resources

The entrepreneurial environment Makes the best utilization of natural and human resources and also motivate the people for it.

17. Industrial Development

The Industrial development of a particular place and area depends upon the business environment.

If the business environment is favorable, it will promote Industrial Development.

Otherwise, Industrial Development will get stuck.

18. Development of means of Transportation and Communication

Means of Transportation and Communication also get developed with a favorable business environment.

19. Innovations

The knowledge of the environment, Makes easy to adopt new products, new designs and new techniques of production and the business organization may maintain its leadership in the market by such innovations.

20. Expansion and Growth

The business environment also creates opportunities for development, changes, diversities and economic progress.

21. Education System

The education system and training facilities also play an important role in the economic development of a Nation.

So, the business environment learn how its going and what to do for improvements.

Thus, now you know the importance of study of business environment.

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