Sensitivity to environmental factors is crucial for an entrepreneur. he can spot business opportunities by analyzing the needs and problems the exist in the environment. In fact, from estate of conception of a business idea to converting it into a business opportunity and to launching an enterprise, the influence of environment on the entrepreneur is tremendous.

Environment also play an important role in the success and growth of an existing enterprise. If a company is able to adapt to its environment, it would succeed in the long-run. But if it fails to adapt to its environment, it might fails in the long-run and disappear like dinosaurs. For instance, mobikes producers of UK failed they could not cope with the changes in the environment. But Japanese producers succeeded as they could evolve strategies and techniques to deal with changes in technological, economic, social and other environment.

The benefits of understanding the relevant environment of business are described below:

(i)    Identification of Opportunities to Get First Mover Advantage. By keeping in touch with the changes in the external environment, an enterprise can identify opportunities and find strategies to capitalize on the opportunities at the earliest. For instance. if it is learnt that demand for mobikes is going to increase, a mobike producing company can take steps in increase production and introduce new models of mobikes to lure new customers. This is what was done by Hero Handa to establish its leading position in the Indian mobike market. By doing so, the firm will get first mover advantage. Similarly if there is change in the syllabus of Maths paper for a particular class, a publishing company may bring out the revised edition at the earliest to reap the first mover advantage.

(ii)    Formulation of Strategies and Policies. Environmental analysis helps in identifying threats and opportunities in the market. These can serve as the basis of formulation of strategies to counter threats and capitalize on opportunities in the market.

(iii)    Tapping Useful Resources. A business gets various resources or inputs form the environment and converts into desired goods and services for transfer to the customers. If the management of a firm has a through knowledge of the external environment, it cantap raw materials, technology and even financial resources from the market at economical prices and at the right time.
(iv)    Better Performance. Proper understanding of the various elements of the external environment is necessary to take timely action ot deal with the threats and avail opportunities of the purpose of improvement in performance of the firm.

(v)    Sensitisation of Entrepreneurs to Cope up with Rapid Changes. A keen watch on the trends in environment would help to sensitise the entrepreneur to the changing technology, competition, government policies and changing needs of the customers. For example, Reliance Industries has always kept pace with the external environment and formulated strategies to avil opportunities in emerging hi-tech areas.

(vi)    Image Building. If a firm is sensitive to the external environment, it will come out with new products and services to meet the requirements of the customers. This would build the image or reputation of the firm in the eyes of the customers and the geranial public. Because of sensitivity to India consumers’ requirements, LG has been able to enhance its brand image in the Indian market in a short span of time.

For more help in Importance of Environment click the button below to submit your homework assignment