Question

Short Answer Type Questions:
Why is it important for business enterprises to understand their environment?

Explain briefly.

Answer 1

An analysis of business environment helps to identify strength, weakness, opportunities & threats. Analysis is very necessary for the survival and growth of the business enterprise. The importance of business environment is briefly explained in an analysis below.

(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.