Why it is important for business enterprises to understand their environment? Explain briefly.

The importance of business environment is highlighted by the following facts:

(i) First Mover Advantage: The study of business environment enables us to know about the opportunities available. A company which is more conscious about the changes taking place in the business environment is the first mover. It takes advantage of it by becoming the first supplier.

(ii) Warning Signal: Along with the availability of opportunities provided by the study of business environment, we also come to know about the threats accompanying them. If the knowledge about the threats is available in time, efforts can easily be made to face or surmount them. This is possible only by regularly studying the changes taking place in the business environment.

(iii) Tapping Useful Resources: An organisation needs a member of resources to carry on its business (e.g. material machine, man, money etc.). With the help of these resources goods and services are produced. A business gets resources from the environment and provides goods and services to the same environment. A study of business environment tells a business the requirements of the environment and what can it make available to get its needs fulfilled. Therefore, it is possible to get useful resources from the business environment.

(iv) Coping with Rapid Changes: These days business is being run in a rapidly changing environment. Various factors connected with business, e.g. competition, fashion, number of customers, technology, etc. are changing quickly. Changes do not affect business as much as the rapidity of the changes. It means that if the speed of the change is a little less it can be faced with comparative ease but to face the rapidity of change is a very difficult task. This can be possible only by constant vigil over the business environment and studying it simultaneously.

(v) Assisting in Planning and Policy: The knowledge of the business environment presents the basis for planning and policy. For example, the ITC Hotels decided to establish many new hotels abroad and in India only after a careful study of the business environment. They felt that tourism industry was the biggest industry in the world. Its future was particularly bright in India. The Government also has a special interest in the development of this industry because of many reasons (for example, the receipt of foreign exchange, increase of employment, etc.). The ITC Hotels formulated their future strategy on the basis of this information. In this way, anyone can defeat their competitors by formulating their plans.