With the help of any three points, explain why is it important for a business to understand the environment in which it operates.

Question

Accepted Answer

It is important for a business to understand the environment in which it operates because: (1) Identification of opportunities to get first mover advantage — by keeping in touch with changes in the external environment, an enterprise can capitalise on opportunities at the earliest; for example, Volvo, the Swedish brand, holds 74% share in the luxury bus segment because it entered India early. (2) Formulation of strategies and policies — identifying threats and opportunities in the market serves as the basis for formulating strategies to counter threats and capitalise on opportunities. (3) Tapping useful resources — thorough knowledge of the external environment helps the firm obtain raw materials, technology and financial resources at economical prices and at the right time.