What is a Business Environment?

Definition: A business environment is a set of elements closely involved with a business’ activities. These factors have an internal or external influence over the company’s results, performance and growth.

What Does Business Environment Mean?

A business environment can be split in both a macro and micro-environment based on the perspective. A macro-environment is frequently associated with elements that affect all businesses regardless of their industry or size, as is the case for political or macroeconomic influences. On the other hand, the micro environment is known as the business competitive atmosphere, which includes competitors, customers and suppliers.

From a strategic perspective, analyzing the business environment is crucial to develop effective strategies to reach the company’s goals. Businesses normally hire consulting firms specialized in strategic analysis to research the current situation of this environment in order to understand the environment’s dynamics. These studies generally identify potential threats and opportunities that the company should incorporate to its strategic planning in order to reach its objectives. Finally, companies should stay flexible enough to adapt to sudden changes in the business environment. This ability to adapt will ensure the company’s survival even during the worst business scenarios.

Example

Richard is a business consultant who works for a firm called Street Consulting Co. This firm specializes in strategic planning and competitive analysis. He recently landed a contract with a big clothing manufacturing firm that is currently going through a restructuring process.

The company needs to have a clearer perspective about its business environment since sales have been dropping and they have been losing several of their most loyal clients. After Richard and his team conducted a thorough analysis they found that the company’s clothing line was out of date and it was considered old-fashioned by most of its clients.

Therefore, new players within their industry have emerged and they need to shift their strategy urgently in order to remain operational. These findings were crucial for the company’s Board of Directors to restructure clothing lines and re-launch the brand with a modern touch. The company progressively recovered some key clients and was able to survive this environment shift.