FEATURE: Understanding the business environment

It is most essential for anyone desiring to operate a business to fully appreciate the business environment in which to operate. This has been the bane of new entrants as they struggle to float above the competitive business waters for their failure to understand their business environment.
Like natural environment that consists of air, water, trees, sunshine, mountains, etc, business environment comprises suppliers, customers, technology, competition, political actors, workforce, institutions, social conditions, etc.

Every business operates within external and internal environment. External business environment represents the conditions that are beyond the control of the business but are relevant to the operations of the business and affect its activities. Technology and competitors are examples of the external environment.

What then is internal business environment? Factors and conditions such as labour, management and corporate culture, which are within, and affecting and shaping the organization’s activities make up the internal environment.
It is of necessity to know the individual factors, both external and internal. However, it is very much sufficient to fully understand the business environment.

Understanding the dynamic nature of the business environment makes firms to constantly scan the environment. The business environment is not static. It keeps on changing every time. Today, there is a novelty in technology, tomorrow we might hear a scientific breakthrough changing the world of work. Another time, it might be a government who might introduce certain taxes to execute its policies.

We should also not lose sight of the fact that business environmental factors are inter-related. There are reciprocal effects among them. When the government introduced the free health policy by way of the National Health Insurance Scheme (NHIS), it mostly increased the out-patient numbers, created a healthy workforce, increased productivity, etc. Thus, we see a political environmental factor (government policy) relating to economic environmental factor (increased productivity).

Again, the business environment is uncertain such that it will be very difficult for entrepreneurs to assume that high level of certainty. We all cannot predict the shape of competition in the mobile phone industry in the coming years. And how will technology change the way patients are treated in our medical facilities in the next one or two years? We really can’t be certain.

Even worse, the business environment can be very turbulent some times. You will appreciate this when we consider the recent global financial crisis where many big businesses collapsed in USA and other European countries. We saw the Lehman Brothers, General Motors, etc filing for bankruptcy. And Greece had to plead for bailout of her multilateral and bilateral loans. We know how Zimbabwean economy almost collapsed in 2009 such that many businesses could not thrive there. They faced a liquidity crunch where entrepreneurs could only take just US$20 a day even if they had US$10,000 in their bank accounts. Ghana was not spared such turbulence. In 1983, most state owned enterprises and private businesses collapsed due to the economic and political turmoil.

The writer is a chartered accountant at TrustForm Business Africa
Reach us on: info@trustformafrica.com