The Impact of Business Environment on Organizational Structure

TallyDekho
4 min readJan 21, 2020

TallyDekho is here to acknowledge its readers about the impact of the business environment on the business and how its effective analysis can help you get to the right way of business stability.

In a business organization, everything that surrounds the business is the environment. However, there are certain tools like ratio analysis, statements like cash flow & fund flow, business ethics, etc, that affect the business directly or indirectly and its proper analysis can help you attain efficiency as well. But, there are certain external and internal forces in an organization outside the control of business affecting the business directly or indirectly. That forces constitute the business environment.

Well, the environment in general means, all the forces that surround you. Therefore, in the context of business, the business environment refers to the sum total of all the external and forces constituting individuals, and institutions that are totally out of the business control but it does affect its performance.

It implies that the business environment plays a major role in any business and the business does not possess any control over it. The only thing the organization can do is to manage its internal operations and coordinate with the external factors.

Features of Business Environment

From the perspective of a businessman, the business environment is considered one of the most influential forces that can affect business operations anyway. Let us discuss some important characteristics of the business environment:

Totality of the forces

The business environment constitutes all the forces that lie within and outside the business organization. Therefore, it’s concerned with the totality of the forces i.e, inside as well as outside the business concern.

Inter-connected

As every element plays its own role, in the same way, all the business environment components are inter-linked. It implies that one component affects the other and vice versa.

Dynamic in nature

The environment never remains the same. There are always some fluctuations in the policies and the other factors as well. It means that the business environment is always dynamic in nature.

Out of business control

It is pretty clear from the definition of the business environment itself, all the factors affecting business are out of its control. A business concern can manage its operations accordingly, but it cannot control these forces.

Presence of uncertainty

Uncertainty is always chained with business and the business environment is always uncertain. There are frequent changes in economic policies, technologies, and other forces as well. It makes the business environment uncertain.

Complex in nature

As there are numerous forces affecting the business directly or indirectly, it makes the business environment complex in nature.

Classification of Business Environment

Well, there is a vast diversification of business environment, but broadly speaking there are two main categories of the business environment.

  • External Environment
  • Internal Environment

External Environment

The sum of forces that affect the business operations from outside the business organization is known as the external environment. It implies all the external forces that influence the business activities, and the business has no control over it. There are two types of external environment:

Micro Environment

  • Suppliers
  • Customers
  • Intermediaries
  • Competitors
  • Public

Macro Environment

  • Economic
  • Political
  • Legal
  • Technology
  • Global
  • Socio-Cultural
  • Demographic
  • Natural
  • Ecological

Internal Environment

The sum of forces that affect the business operations within the business organization is known as the internal environment. These forces lie within the business organization only and businesses can manage them as well according to their needs. Following are the components of the internal environment:

  • Business Objects
  • Financial Resources
  • Human Resources
  • Internal Resources
  • Technological Factors
  • New Developments
  • Work Culture

Role of Business Environment in the business world

It is pretty clear now that in any business organization, the business environment, both internal as well as external hold a significant place. Let’s discuss its role in the business world:

Helps the business gain the first-mover advantage

With a sharp watch over new opportunities, the business can gain a first-mover advantage over the others. Here, a thorough analysis of the business environment is quite necessary.

Helps in the early identification of threats

When a business analyst thoroughly analyzes the business environment and all the important factors, the threats can be easily identified and can be controlled as well by applying necessary measures.

Guides in fullest utilization of resources

The business environment helps the business analyst in putting society’s resources to its fullest use. It implies that business can yield maximum productivity when business environment analysis is done properly.

Easy adaptation to the changing environment

Also, as the business environment changes, the business needs to apply the same changes to it as well. The companies which are more aware of the changing market are more successful. That’s why a proper analysis of the business environment helps in easy adaptation to the changing environment.

Helpful in increasing performance bar

With the regular analysis of the business environment, all the necessary changes are implemented in the concern and this leads to an increase in the performance bar of the employees.

Summing up all, we can come to the conclusion that the business environment plays a major role in making a business win a competitive edge over others. A thorough analysis of every component will definitely help you in adapting the dynamic market situations. Stay connected for more interesting articles. Feel free to share your feedback.

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