What is business environment? The business environment is a term that is used to refer to the overall collection of internal and external factors that impact business staffing, operations, and sales. Keeping a clear understanding of the overall state of the business environment is an important responsibility for organizational leaders.
The business environment is the total range of different, dynamic internal and external factors that an organization operates within. The business environment creates the opportunities that allow a successful business to operate in the first place, but it also offers constraints on business actions.
The business environment is a powerful thing that every organizational leader has to address. The environmental conditions within the organization are those that the leader is expected to set and maintain. But many conditions that impact organizations will be outside your immediate control.
In both cases, understanding the business environment is key to creating a strong, resilient organization to accomplish your goals.
What Goes Into the Business Environment Definition Your Organization Operates Within?
The honest answer is that there is no one single business environment. Every organization ultimately has to deal with a lot of different environmental factors that influence their operations and success.
A better question is “what are the business environments?” Because no matter what kind of organization you work with, you will find that you are operating in a number of different kinds of business environment:
The External Business Environment
Many leaders focus, understandably, on the environment and culture within their own organizations. That’s the kind of environment they have the most control over, and what they engage with most often from day-to-day.
Smart organizational leaders understand that outside factors play a big role in internal dynamics.
The external business environment is all of the surrounding factors that impact the business and its operations. These are typically separated into the macro and micro factors:
- Macro-environment - The larger economic, environment, social, legal, and technical trends that impact business operations. This can be everything from interest rates to global warming. They are all factors that the business itself has no direct control over, but still affect the business process and the overall market for its products or services.
- Micro-environment - These are external issues with a more direct, immediate impact on business. An organization may have more control or influence with micro-environment issues, such as marketing perceptions, financial relationships, or distributor impacts.
At the end of the day, all of the other business environment factors listed here are just parts of the external business environment.
The Legal Environment of Business
Laws and regulations are what makes business possible. The sanctity of contracts, the stability of the financial system… these are proven, historic elements that are critical for markets to exist and thrive.
So having a general understanding of the law and the legal system is important for leaders. This can be made of up local, state, and national laws, as well as international treaty and regulatory agreements. It also consists of both statute code, written directly by legislators, and administrative regulations, laid down by various regulatory agencies.
The legal and regulatory environment of business is also shaped by case law, which is the way that judges over the years have interpreted various other laws and regulations. And on top of the actual laws and regulations that govern business, leaders have to understand the enforcement mechanisms and the process of rule development.
Different businesses may have different aspects of the legal environment that concern them. For starters, it will be shaped by their location since different states and localities can have different laws and regulations. But the nature of the business also applies. In some cases, consumer safety laws will shape the business environment in important ways, as with agribusiness or product manufacturers. For finance businesses, security laws will be more important. And all businesses with employees have to deal with employment and health and safety obligations.
The Global Business Environment
A globalized business environment is the reality that most organizations operate in today. It brings both distant threats and new opportunities. For organizational leaders, with an education that has stressed multicultural awareness and the power of diversity, global business is a home field advantage no matter where you are in the world.
The global business environment represents all the different international aspects that can impact your business no matter where it is located. These can include:
- Geopolitical stability
- Resource constraints
- International shipping concerns
- Global brand reputation and cultural perception
Different businesses have different levels of exposure to the global business environment, but all of them operate within it.
The Social Environment of Business
Businesses also operate within the cultural, moral, and psychological environment created by their society. The social environment of a small-town five-and-dime in a deeply conservative rural setting is going to be considerably different than a hip clothing retailer running in a liberal urban center. And a major multinational corporation has yet another set of social factors to consider.
The social environment has a great impact on the external environment of business such as marketing, product development, and pricing. But it also influences internal factors, such as employee opinions and work habits, general education in the workforce, and other cultural considerations.
The social environment of business today can involve both local, internal, and global contexts delivered through social media.
The Technological Environment of Business
The importance of technology to businesses today has made it critical to understand and adapt to the technological environment they operate in. With new technologies offering competitive and strategic advantages, leaders have to be in tune with the latest and greatest tech… everything from 3D printing to cloud storage services could be a critical differentiator, depending on your industry.
But the technology environment also presents risks. New technologies represent new points of failure, sometimes not yet well understood. The impact of tech can be negative as well as positive.
The business world is littered with examples of corporations that made poor investments in new technologies and ended up at the back of the pack.
A good organizational leader has to keep all of these and more in mind at all times. But organizational leadership degrees teach you all about looking in-depth at your environment and the individuals in it. One of the distinguishing characteristics of the organizational leadership model is observation and assessment. Effective leaders absorb information about their organization and industry to develop broad, strategic thinking. They account for every element that can impact their staff or organization.
How Organizational Leadership Training Prepares You To Deal with The Business Environment
Organizational leaders are trained right from the start to be attuned to the environment within their organization, and to have the strategic and assessment skills to evaluate the external business environment as well.
Empathy and understanding are important parts of organizational leadership theory. They are also critical in developing a clear understanding of the social and cultural environments operating within and outside of your business.
OL education also places a heavy premium on strategic planning that looks at the big picture. The big picture, of course, is the business environment. In order to develop the kind of planning and vision that leadership requires, keeping tabs on that larger environment is critical.
Although organizational leadership degree studies may not come out and say it directly, much of their curriculum will effectively be about helping you to understand your business environment better.
Some concentrations within organizational leadership studies may offer more explicit training in business environment assessment, or even in particular aspects of the business environment. An MBA in Organizational Leadership, for example, will almost certainly include coursework on the technological and the legal environment of business, not to mention studies in global business and other external environmental factors.
Understanding what the business environment is and how to respond and position your organization is not the only element of organizational leadership. But it is a key part of the puzzle, and one you’ll master through a degree in the field.