The word ‘business environment’ indicates the aggregate total of all people, organisations and other forces that are outside the power of industry but that may affect its production.
Business environment is an aggregate of all conditions, events and influences that surround and affect it. It is broad and ever changing as its separate elements interact. A single firm’s environment is narrow in scope than the total environment of business. It is complicated and continuously changing.” —Professor Keith Davis.
No business can exist in a vacuum. The rapidly changing business environment might shorten the life of a given strategy. The external changes might influence the activities and quality of decisions of both the firm and its competitors. George Salk says, “If you’re not faster than your competitor, you’re in a tenuous position, and if you’re only half as fast, you’re terminal.”
Hence, as Kenich Ohmae says that “environmental analysis is the critical starting point of strategic thinking.” Charles Darwin has said, “It is not the strongest of the species that survive nor the most intelligent, but the one most responsive to change.”
We live in a dynamic environment that changes all the time. Businesses must understand the changes in the environment and how these changes affect their performance. The process of thinking strategically requires that managers understand how the structure and competitive dynamics of their industry affect the performance and profitability of their companies. Armed with an appreciation of the forces in their industry that give rise to opportunities and threats, managers should be able to make better strategic decisions.
Successful managers must recognize opportunities and threats in their firm’s external environment. Regardless of the industry, the external environment is critical to a firm’s survival and success. A host of external factors influence a firm’s choice of direction and action.