Explain the components of the business environment and why they are vital for business

success.

The major components of a good business environment are listed below:

Dimensions of business environment mean all the factors, forces and institutions which have
direct or indirect influence over the business transactions.

General Environment is the most important dimension of business environment as

businessman cannot influence or change the components of general environment rather he
has to change his plans and policies according to the changes taking place in general
environment.

Economical Environment:

Economic Environment consists of Gross Domestic Product, Income level at national level
and per capita level, Profit earning rate, Productivity and Employment rate, Industrial,
monetary and fiscal policy of the government etc.

The economic environment factors have immediate and direct impact on the businessman so
businessmen must scan the economic environment and take timely actions to deal with these
environments. Economic environment may put constraints and may offer opportunities to the
businessman. After the new economic policy of 1991, lots of opportunities are offered to
businessmen.

Social Environment:

Social Environment consists of the customs and traditions of the society in which business is
existing. It includes the standard of living, taste, preferences and education level of the people
living in the society where business exists.

For example, when the Pepsi Cola Company used the slogan of “Come Alive” in their
advertisement then the people of a particular region misinterpreted the word “Come Alive” as
they assumed it means Coming out of Graves. So, they condemned the use of the product and
there was no demand of Pepsi Cola in that region. So, the company had to change its
advertisement slogan as it cannot survive in market by ignoring the sentiments of the people.
Political Environment:

Political environment constitutes all the factors related to government affairs such as type of
government in power, attitude of government towards different groups of societies, policy
changes implemented by different governments etc. The political environment has immediate
and great impact on the business transactions so businessman must scan this environment
very carefully.

Legal Environment:

Legal environment constitutes the laws and various legislations passed in the parliament. The
businessman cannot overlook the legislations because he has to perform his business
transactions within the framework of legal environment.

Technological Environment:

Technological environment refers to changes taking place in the method of production, use of
new equipment and machineries to improve, the quality of product. The businessman must
closely monitor the technological changes taking place in his industry because he will have to
implement these changes to remain in the competitive market.

Importance of components of the business environment

Internal Environment

It is defined as all the controllable forces, factors and conditions within an organization that
influence the organizational behavior in Organizations.

The internal environment is one of the important components of Business environment which
directly influence the day to day activities of an organization. Such as Employee
performance, the decision of the Board of directors and shareholders, the structure of the
organization, etc.  Directly affect the growth of an organization.

An organization’s internal environment has the following sub-components:

Employees:
They are the major components and important assets of organizations. They are responsible
to work as per the organizational’ direction, goals, rules and regulation of the company. For
their better performance, organizations have to motivate and satisfied them with fair and
some unique and equitable rewards policies. Such as Bonuses, securities, flexible working
hours, etc.  The organizations’ productivity and growth can be enhanced only by the
dedication, loyalty, satisfaction, and cooperation of employees.

Shareholder and Board of Directors:

Shareholders are the actual owner of the Business organization. Shareholders being the
owners of the business, have a direct interest in the performance of the organization. The
board of directors is elected by them (shareholders) who represent shareholders’ interest in
the board. The board is responsible to manage the company and formulate appropriate plans.
They evaluate overall organizational performance and provide direction to the top-level
management for the growth and development of an organization.

Organizational culture:

Culture is a set of values, beliefs, norms. Every organization has its own culture.
Organizational Culture refers to set of values, beliefs, norms of an organization under which
it operates. It helps to bind all the employees and comply with organizational rules and
regulations. Culture has a powerful influence on the process of organizational change and
decision making.

Labour Union:

Labour union represents the group of employees or labor working in an organization for
saving the right of employees and labour. It takes problems and feeling of the labors to the
management for constructive solutions. The good relation between labor unions and
management avoids unnecessary disturbances in organizations.

Organizational Structure:

Structure is a framework of an organization. It clarifies the authority and responsibility roles

and relations, hierarchy of management and coordination activities for the business. So
Organizational structure is one of the major components of the internal environment.