Lecture 1 - Environment: Context & Relevance | Business Environment - Business Basics PDF Download

 Page 1


Environment: Context & Relevance 
1 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Environment: Context & Relevance 
Lesson Developer: Ms. Reena Talwar 
College / Department: Bharati College, University of Delhi 
 
 
 
 
  
Page 2


Environment: Context & Relevance 
1 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Environment: Context & Relevance 
Lesson Developer: Ms. Reena Talwar 
College / Department: Bharati College, University of Delhi 
 
 
 
 
  
Environment: Context & Relevance 
2 
 
Table of Contents 
Chapter: Environment: Context & Relevance 
 
? 1: Learning Outcomes 
? 2: Introduction 
? 3: Concept of Business Environment  
? 3.1: Meaning of Business Environment 
? 3.2: Nature of Business Environment 
? 3.3: Significance of the Study of Business Environment 
? 3.4: Types of Business Environment 
? 4: Changing Scenarios and its Implications 
? 5: Tools of Scanning the Environment  
 
Summary  
Exercises 
Glossary 
References 
 
 
1. Learning Outcomes 
 
After reading this lesson, you should be able to: 
 
? Understand the concept of Business Environment. 
? Know the nature and features of Business Environment. 
? Appreciate the relevance and significance of Business Environment?s study. 
? Identify the various types of Business Environment: 
o Internal Environment 
o External Environment 
? Micro Environment 
? Macro Environment 
? Gain insights on changing scenarios and their implications on Business 
Environment. 
? Learn the tools of scanning the environment. 
 
 
2. Introduction 
A business is influenced, both internally as well as externally, by the various factors 
and forces which affect the functioning of business in several ways. The totality of 
these factors or situations, affecting the business activities and operations, is termed 
as „business environment?. 
It is of utmost significance, for a business firm, to monitor and understand the 
environmental factors and the changes that occur because of them. The elements of 
Page 3


Environment: Context & Relevance 
1 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Environment: Context & Relevance 
Lesson Developer: Ms. Reena Talwar 
College / Department: Bharati College, University of Delhi 
 
 
 
 
  
Environment: Context & Relevance 
2 
 
Table of Contents 
Chapter: Environment: Context & Relevance 
 
? 1: Learning Outcomes 
? 2: Introduction 
? 3: Concept of Business Environment  
? 3.1: Meaning of Business Environment 
? 3.2: Nature of Business Environment 
? 3.3: Significance of the Study of Business Environment 
? 3.4: Types of Business Environment 
? 4: Changing Scenarios and its Implications 
? 5: Tools of Scanning the Environment  
 
Summary  
Exercises 
Glossary 
References 
 
 
1. Learning Outcomes 
 
After reading this lesson, you should be able to: 
 
? Understand the concept of Business Environment. 
? Know the nature and features of Business Environment. 
? Appreciate the relevance and significance of Business Environment?s study. 
? Identify the various types of Business Environment: 
o Internal Environment 
o External Environment 
? Micro Environment 
? Macro Environment 
? Gain insights on changing scenarios and their implications on Business 
Environment. 
? Learn the tools of scanning the environment. 
 
 
2. Introduction 
A business is influenced, both internally as well as externally, by the various factors 
and forces which affect the functioning of business in several ways. The totality of 
these factors or situations, affecting the business activities and operations, is termed 
as „business environment?. 
It is of utmost significance, for a business firm, to monitor and understand the 
environmental factors and the changes that occur because of them. The elements of 
Environment: Context & Relevance 
3 
 
business environment are of different types and have variable degrees of influence 
on the business activities. The firms which monitor the factors constantly, and take 
appropriate and timely steps to face the challenges, are successful in the long run. 
On the other hand, firms which fail to adapt the environment, have to face serious 
consequences. For example, the changes in the policies of government affect the 
business and force the business firms to make required changes in their activities in 
order to comply with the new policies. Similarly, the changes in fashion, customers? 
taste, technology, socio-cultural condition, international business environment, are 
some other external factors which are out of control but influence a business firm 
and its functioning greatly. The business firms, therefore, need to be aware of these 
constant changes in their surrounding so as to adapt them in order to be successful 
in business.  
 
3. Concept of Business Environment 
 
3.1 Meaning of Business Environment 
The term „Business Environment? comprises of two words – Business and 
Environment. Business refers to all the activities which involve production, buying 
and selling of goods, rendering of services, and so on, with the primary objective 
of earning profit. Though profit earning is the primary motive of every business 
but to fulfill the customer?s needs, wants and satisfaction is also important and is 
considered as one of the main objectives of the business.   
The word „Environment? refers to the sum total of the living things and natural 
forces that surround us. When we combine these two words, Business and 
Environment, it refers to the conditions in the surrounding that affect the 
functioning and activities of a business firm.  
According to Keith Davis, business environment refers to “aggregate of all 
conditions, events and influences that surround and affect business.” 
According to Bayord O. Wheeler, business environment is defined as “the total of 
all things external to firms and industries which affect their organization and 
operation.” 
According to William F. Glueck and Lawrence R Sauch, “Environment includes 
factors outside the firm which can lead to opportunities or threats to the firm. 
Although there are many factors yet the most important are, socio-economic, 
technological, suppliers, competitors and government.” 
 
Business environment is a thorough analysis of both internal and external factors 
that influence the functioning of a business firm. These factors include- the 
Page 4


Environment: Context & Relevance 
1 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Environment: Context & Relevance 
Lesson Developer: Ms. Reena Talwar 
College / Department: Bharati College, University of Delhi 
 
 
 
 
  
Environment: Context & Relevance 
2 
 
Table of Contents 
Chapter: Environment: Context & Relevance 
 
? 1: Learning Outcomes 
? 2: Introduction 
? 3: Concept of Business Environment  
? 3.1: Meaning of Business Environment 
? 3.2: Nature of Business Environment 
? 3.3: Significance of the Study of Business Environment 
? 3.4: Types of Business Environment 
? 4: Changing Scenarios and its Implications 
? 5: Tools of Scanning the Environment  
 
Summary  
Exercises 
Glossary 
References 
 
 
1. Learning Outcomes 
 
After reading this lesson, you should be able to: 
 
? Understand the concept of Business Environment. 
? Know the nature and features of Business Environment. 
? Appreciate the relevance and significance of Business Environment?s study. 
? Identify the various types of Business Environment: 
o Internal Environment 
o External Environment 
? Micro Environment 
? Macro Environment 
? Gain insights on changing scenarios and their implications on Business 
Environment. 
? Learn the tools of scanning the environment. 
 
 
2. Introduction 
A business is influenced, both internally as well as externally, by the various factors 
and forces which affect the functioning of business in several ways. The totality of 
these factors or situations, affecting the business activities and operations, is termed 
as „business environment?. 
It is of utmost significance, for a business firm, to monitor and understand the 
environmental factors and the changes that occur because of them. The elements of 
Environment: Context & Relevance 
3 
 
business environment are of different types and have variable degrees of influence 
on the business activities. The firms which monitor the factors constantly, and take 
appropriate and timely steps to face the challenges, are successful in the long run. 
On the other hand, firms which fail to adapt the environment, have to face serious 
consequences. For example, the changes in the policies of government affect the 
business and force the business firms to make required changes in their activities in 
order to comply with the new policies. Similarly, the changes in fashion, customers? 
taste, technology, socio-cultural condition, international business environment, are 
some other external factors which are out of control but influence a business firm 
and its functioning greatly. The business firms, therefore, need to be aware of these 
constant changes in their surrounding so as to adapt them in order to be successful 
in business.  
 
3. Concept of Business Environment 
 
3.1 Meaning of Business Environment 
The term „Business Environment? comprises of two words – Business and 
Environment. Business refers to all the activities which involve production, buying 
and selling of goods, rendering of services, and so on, with the primary objective 
of earning profit. Though profit earning is the primary motive of every business 
but to fulfill the customer?s needs, wants and satisfaction is also important and is 
considered as one of the main objectives of the business.   
The word „Environment? refers to the sum total of the living things and natural 
forces that surround us. When we combine these two words, Business and 
Environment, it refers to the conditions in the surrounding that affect the 
functioning and activities of a business firm.  
According to Keith Davis, business environment refers to “aggregate of all 
conditions, events and influences that surround and affect business.” 
According to Bayord O. Wheeler, business environment is defined as “the total of 
all things external to firms and industries which affect their organization and 
operation.” 
According to William F. Glueck and Lawrence R Sauch, “Environment includes 
factors outside the firm which can lead to opportunities or threats to the firm. 
Although there are many factors yet the most important are, socio-economic, 
technological, suppliers, competitors and government.” 
 
Business environment is a thorough analysis of both internal and external factors 
that influence the functioning of a business firm. These factors include- the 
Environment: Context & Relevance 
4 
 
customers, suppliers, competitors, social and global conditions, changes in the 
technology, political and legal changes in the environment, and so on.  While 
some of these factors affect the business operations directly, the others have an 
indirect impact on the firm. 
The relationship of business with the environment can be understood from the 
following diagram, shown in figure 1. 
Figure 1: Relationship of Business with Environment  
 
 
 
 
 
 
1. A business organization is a system that interacts with external environment on a 
continuous basis and operates within the overall system. 
 
2. A business firm transforms the inputs into output (goods and services) to meet 
the needs of the customers. These inputs come from the environment and the 
output is also sent to the environment. In this process of transformation of inputs 
into output, a business firm must understand the surrounding conditions at both 
the ends- input and output.  
 
3.2 Nature of Business Environment 
The salient features of business environment are: 
1. Dynamic  
The business environment keeps on changing from time to time, especially the 
technological environment, and is, therefore, considered as dynamic. Hence, all 
the companies, in which technology plays a major role, have to adapt and 
upgrade to the new technology constantly, else the firms may lose out the 
business to their competitors. 
 
2. Aggregative and Inter-related  
The business environment is the totality of all the forces and factors (both 
external and internal) which have an influence on the working and decision-
making of an enterprise. Moreover, different factors or elements of business 
environment are inter-related. A change in one factor affects the other elements 
Inputs 
Production 
Outputs 
Procurement of 
Inputs 
Transformation of 
Inputs into Output 
Supply of Output to 
Customers 
Page 5


Environment: Context & Relevance 
1 
 
 
 
 
 
 
 
 
 
 
 
Lesson: Environment: Context & Relevance 
Lesson Developer: Ms. Reena Talwar 
College / Department: Bharati College, University of Delhi 
 
 
 
 
  
Environment: Context & Relevance 
2 
 
Table of Contents 
Chapter: Environment: Context & Relevance 
 
? 1: Learning Outcomes 
? 2: Introduction 
? 3: Concept of Business Environment  
? 3.1: Meaning of Business Environment 
? 3.2: Nature of Business Environment 
? 3.3: Significance of the Study of Business Environment 
? 3.4: Types of Business Environment 
? 4: Changing Scenarios and its Implications 
? 5: Tools of Scanning the Environment  
 
Summary  
Exercises 
Glossary 
References 
 
 
1. Learning Outcomes 
 
After reading this lesson, you should be able to: 
 
? Understand the concept of Business Environment. 
? Know the nature and features of Business Environment. 
? Appreciate the relevance and significance of Business Environment?s study. 
? Identify the various types of Business Environment: 
o Internal Environment 
o External Environment 
? Micro Environment 
? Macro Environment 
? Gain insights on changing scenarios and their implications on Business 
Environment. 
? Learn the tools of scanning the environment. 
 
 
2. Introduction 
A business is influenced, both internally as well as externally, by the various factors 
and forces which affect the functioning of business in several ways. The totality of 
these factors or situations, affecting the business activities and operations, is termed 
as „business environment?. 
It is of utmost significance, for a business firm, to monitor and understand the 
environmental factors and the changes that occur because of them. The elements of 
Environment: Context & Relevance 
3 
 
business environment are of different types and have variable degrees of influence 
on the business activities. The firms which monitor the factors constantly, and take 
appropriate and timely steps to face the challenges, are successful in the long run. 
On the other hand, firms which fail to adapt the environment, have to face serious 
consequences. For example, the changes in the policies of government affect the 
business and force the business firms to make required changes in their activities in 
order to comply with the new policies. Similarly, the changes in fashion, customers? 
taste, technology, socio-cultural condition, international business environment, are 
some other external factors which are out of control but influence a business firm 
and its functioning greatly. The business firms, therefore, need to be aware of these 
constant changes in their surrounding so as to adapt them in order to be successful 
in business.  
 
3. Concept of Business Environment 
 
3.1 Meaning of Business Environment 
The term „Business Environment? comprises of two words – Business and 
Environment. Business refers to all the activities which involve production, buying 
and selling of goods, rendering of services, and so on, with the primary objective 
of earning profit. Though profit earning is the primary motive of every business 
but to fulfill the customer?s needs, wants and satisfaction is also important and is 
considered as one of the main objectives of the business.   
The word „Environment? refers to the sum total of the living things and natural 
forces that surround us. When we combine these two words, Business and 
Environment, it refers to the conditions in the surrounding that affect the 
functioning and activities of a business firm.  
According to Keith Davis, business environment refers to “aggregate of all 
conditions, events and influences that surround and affect business.” 
According to Bayord O. Wheeler, business environment is defined as “the total of 
all things external to firms and industries which affect their organization and 
operation.” 
According to William F. Glueck and Lawrence R Sauch, “Environment includes 
factors outside the firm which can lead to opportunities or threats to the firm. 
Although there are many factors yet the most important are, socio-economic, 
technological, suppliers, competitors and government.” 
 
Business environment is a thorough analysis of both internal and external factors 
that influence the functioning of a business firm. These factors include- the 
Environment: Context & Relevance 
4 
 
customers, suppliers, competitors, social and global conditions, changes in the 
technology, political and legal changes in the environment, and so on.  While 
some of these factors affect the business operations directly, the others have an 
indirect impact on the firm. 
The relationship of business with the environment can be understood from the 
following diagram, shown in figure 1. 
Figure 1: Relationship of Business with Environment  
 
 
 
 
 
 
1. A business organization is a system that interacts with external environment on a 
continuous basis and operates within the overall system. 
 
2. A business firm transforms the inputs into output (goods and services) to meet 
the needs of the customers. These inputs come from the environment and the 
output is also sent to the environment. In this process of transformation of inputs 
into output, a business firm must understand the surrounding conditions at both 
the ends- input and output.  
 
3.2 Nature of Business Environment 
The salient features of business environment are: 
1. Dynamic  
The business environment keeps on changing from time to time, especially the 
technological environment, and is, therefore, considered as dynamic. Hence, all 
the companies, in which technology plays a major role, have to adapt and 
upgrade to the new technology constantly, else the firms may lose out the 
business to their competitors. 
 
2. Aggregative and Inter-related  
The business environment is the totality of all the forces and factors (both 
external and internal) which have an influence on the working and decision-
making of an enterprise. Moreover, different factors or elements of business 
environment are inter-related. A change in one factor affects the other elements 
Inputs 
Production 
Outputs 
Procurement of 
Inputs 
Transformation of 
Inputs into Output 
Supply of Output to 
Customers 
Environment: Context & Relevance 
5 
 
as well. For example, a change in economic condition can influence or affect the 
non-economic environment. 
 
3. Unpredictable  
Business environment is unpredictable. It is difficult, for the business firms, to 
predict and forecast the future events or happenings. Today?s environment is 
highly volatile and changes very fast. Hence, for the business firms, the level of 
uncertainty and risk has gone up in a great extent.  
 
4. Relative Concept  
Another important feature of business environment is that it is relative in nature. 
It varies from place to place, region to region, and country to country. For 
example, the political system in India is quite different from China, USA, or UK.  
 
5. Composite and Total Approach  
Business environment consists of all the factors – external and internal- to a firm 
and provides a broad framework within which a business firm operates.  
 
3.3 Significance of the Study of Business Environment 
 
Business and environment are closely related to each other. This interaction helps 
a business firm to leverage on its strengths and use its resources more effectively 
and efficiently. The very survival of a business organization depends upon how 
effectively it utilizes its scarce resources and adapts the changing environmental 
forces which can offer tremendous new opportunities to the firm. 
 
It is extremely important, for a business firm, to have an in-depth knowledge and 
awareness of the environmental changes, in the surrounding, which can help the 
firm in the formulation of strategies and implementation of business plans. 
 
Every enterprise can obtain this knowledge through constant environmental 
scanning. This scanning can help a business firm to identify the new opportunities 
and possible threats. The firm can take care of the impact of social, political, legal 
and economic environmental changes, on its business operations.  
 
A proper understanding of external and internal factors helps a business firm in 
the following ways: 
 
1. Determination of New Opportunities to Gain First Mover Advantage 
Proper monitoring of environmental changes helps a business firm to identify the 
new opportunities and take advantage of them, before their competitors. For 
example, Tata was the first company to realize the customers? need of a low-cost 
car which could replace the two-wheelers. It gained the first mover advantage 
and became leader in the cheapest car manufacturing, by introducing Nano.