It is important for managers to understand this aspect of the business environment because it can affect their firm and how it should be run. No business is insulated from the outside environment. Things like political decisions, for example, can have a huge impact on a firm by changing tax laws or regulatory regimes. As another example, the managers must be aware of things like new competitors entering their market. A proper understanding of the environment is very essential for the business executive to achieve success in his business.
Failure to understand the environmental factors for business will create number of problems, which in fact are difficult to solve. It will reduce the profit margin and will make the opportunities for expansion to slip. But a proper appreciation of the environmental factors will bring many benefits. They are as follows:
1. Successful Conduct of Business: The business executive can successfully conduct the business operation. Since chances for losses are minimized, the firm can withstand in the long run, widen its financial base and face competition more effectively. All these finally lead the business venture to a grand success.
2. Opening of New Avenues: Environment opens fresh avenues for the expansion of new entrepreneurial operations. When the business climate is favourable, new ideas, schemes and ventures may be put into action. The firm can utilize its resources advantageously and derive the maximum benefits.
3. Dynamism in Approach: Business enterprise is essentially a dynamic endeavour. Hence the business executive should be a dynamic personality. Acquisition of knowledge about the changing environment will keep the businessmen always alert and dynamic in his approach. His dynamic approach in turn will help the firm to avoid ecological stresses and to maintain harmony with the environment.
4. Chances for Growth: By identifying itself with the changing situations and environment, the firm can gain the popular support and win the confidence of the consumers and others. This popular support will produce many chances for growth and development of the firm.
5. Control over Environment: We all know that environment exercises vital control over the scope and performance of a business firm. A proper understanding of the nature, character and influence of the environment over the activities of the firm and its continued efforts to identify with the changing economic conditions will at one stage enable the business firm to exercise control over the environment itself. This will result in a smooth and successful running of the venture in the short run as well as in the long run.
Thus, a clear understanding of the environment shall bring many benefits, while a minimum disregard of these factors will entail a heavy penalty to the firm.