Question

How does understanding of business environment help the management in the following:- Identification of threats and warnings. Formulation of strategies and policies

Answer 1

Answer:

In the present day of competitive market, it is essential for a business to remain alert and aware of its

environment, because of the following points:

(i) Identify opportunities and getting the first mover advantage Awareness of environment helps an enterprise to identify the opportunities prevailing in the market and they can make strategies to capitalise such opportunities at the earliest, e.g. Maruti Udyog became the leader in the small car market because it was the first, who recognised the need for small cars in the environment.

(ii) Identify threats and early warning signals Environmental awareness helps an enterprise in identifying possible threats in future, so that the enterpirse can take timely measures to minimise the threats and its adverse effects, if any, e.g. when the new firms entered in the mid segment cars (threat), Maruti Udyog increased the production of its Esteem car. Increase in production enabled the company to make faster delivery. As a result, the company captured a substantial share of the market and became a leader in this segment.

(iii) Assist in planning and policy formulation Environment awareness helps a business unit to identify opportunities and threats in the market. These serve as a basis for planning future course of action and making policies for the same.

(iv) Tapping useful resources A business environment is an open system which gets resources such as capital, labour, machines, materials, etc from the environment, converts them into goods and services desired by the customers and then supplies its output to the environment. Thus, a business firm depends on its external environment for tapping various resources and for the sale of its output.

(v) Optimal utilisation of resources will lead to earn more with great efficiency which will lead to cutting in the cost of goods manufactured or service rendered.