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Business Environment: Concept, characteristics, and Business System

Business Environment: Concept, characteristics, and Business System

Business Environment: Concept, characteristics, and Business System

Concept of the business environment

Business refers to the human activities directed towards satisfying customer needs through the production and distribution of goods and services. The environment is the aggregate of conditions and events around us.

A business environment is the set of all the conditions and events that are directly or indirectly related to the operation and development of the business. It is formed by internal and external factors. The internal factors consist of conditions prevalent inside the organization. They are organizational goals and policies, structure, culture, and resources. The external factors are outside the organization and consist of the political, economic, socio-cultural, technological, legal, and global factors. Hence, the business environment is the aggregate of all conditions, events and influences that surround and affect a business. The business environment is complex, dynamic, multi-faceted, and far-reaching. A business is a dynamic entity as it operates in different environments existing around it.

A business runs in a changing and unique environment. It has to respond to the changing environmental conditions affecting the demand of its products, the behaviors of competitors, and changes in government policy.

"Environment refers to the aggregate of conditions, events, and influences that surround and affect the organization."                             
Keith Davis

"Business environment mainly refers to all external forces that impact a business." 
                                                                                                   K, Aswathappa

"Business environment refers to institutions or forces that affect the business organization's performance."
S.P. Robbins
From the above discussion and definitions, it may be concluded that the business environment is the combination of the conditions and events prevalent inside and outside the business and affects it significantly.

Business system

Business is an open system. A business is involved in the transformation of input into output. It accumulates the inputs required from the environment. Similarly, it transmits its output to the environment. Hence, a business has a very close relationship with its environment. The relationship between the business system and its environment is presented in the following figure.

Business system and the environment

The business system is goal-oriented. There is a constant interaction between the business system and its environment. It prepares the business for change.

Nature /Feature of the business environment

The business environment is the sum total of the environmental factors which provide an atmosphere to the business. It normally refers to factors outside the organization that can lead to opportunities for or threats to the business. The following are some of the notable characteristics of a business environment.

Nature /Feature of business environment

1. Complex: 

The business environment consists of interacting events, conditions and influences arising from varied sources. Hence, it is complex in nature. Due to complexity, it is very difficult to predict the business environment.

2. Dynamic: 

The business environment is dynamic in nature. It continuously changes in shape and character. Globalization and the development of technology have brought dynamism in every aspect of the business. Dynamism in the business environment makes it uncertain.

3. Multi-faceted: 

Different people perceive environmental changes differently. A particular change or development in the environment can be an opportunity for one organization but a threat for another organization. Hence, the business environment is multi-faceted.

4. Far-reaching impact: 

The business environment exerts a far-reaching impact on business organizations. It greatly affects the capacity of an organization over a long period.

5. Aggregate of factors: 

The business environment includes events, conditions, and trends in the environment. Hence, it can be stated as the aggregate of factors.

6. Interrelatedness: 

There are many components in the business environment. They are related to each other. Hence, change in one factor affects other factors. For example, change in government may lead to change in economic policy.

7. Reciprocal: 

The relationship between a business and its environment is reciprocal. Environment influences business. Similarly, business firms may also influence the environment through lobbying.


1. What are the Elements of the Internal & External Environment of the Business Environment?
Internal Environment Consists of the conditions and resources which are internal to an organization as well as External Environment of a business comprises the factors which are external to it. Read More...

2. what are General Environment and its components?
It is composed of the factors that are broad and affect the industries and the firms competing with each other. Read More...

3. What is an Operating or Task Environment and its components?
It is composed of the factors that are directly related to the competitive position of a business. Read More...

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