“Management at all levels of specialized functions is influenced by the critical elements of the business environment”. Explain with suitable examples.

Business environment influences business management. The critical elements of business environment often interact with the critical elements of business management. The critical elements of business management are planning, direction, organization, control or coordination, staffing and supervision and evaluation. Management at all the levels, top, middle as well as supervisory, is concerned with these critical elements to a certain degree. Similarly, these very critical elements are the concerns of the management that specializes in different functions such as production, finance, marketing, purchase, inventory control, personnel, public relations, research and development etc. Management, at all the levels of specialized functions, is influenced by the critical elements of economic environment. For example, when an industry faces business recession, the management may decide to cut down the rate of production or to pile up inventory accumulation. When the market is being invaded by an increasing number of closely substitutable products, the management may decide to go in for aggressive advertisement or cut-throat competition. When the financial institutions start interfering too much with the day-to-day business operations of a firm, the firm's management may decide to depend exclusively on its own internal funds rather than borrowed capital. When the government enforces minimum wage legislations and other social security measures for all permanent workers, the management may decide to recruit only casual laborers through a labor contractor.

Business environment may act either as a stimulant or as a constraint for business management. If the prevailing environment is favorable to business growth and prosperity, then the management feels happy and responds positively. Small business owners are often encouraged to produce more when the government pays them subsidy. On the other hand, when the prevailing environment is unfavorable, it acts as a disincentive.

FOR EXAMPLE: when the government tries to impose a high tax rate on corporate profits, many business concerns try to evade tax by under-reporting their profits. It is interesting to note that the same environment may act both as stimulant and as a constraint – stimulating for some and constraining for others. A high tax rate increases the propensity to evade taxes, it induces the corporate tax-payer to restrict his output, sales or profits. At the same time, this very situation provides an opportunity to the tax consultant for thriving business. A good amount of managerial skill and dexterity is required in adjusting to the environment. The managers must have a thorough knowledge, understanding and comprehension of their immediate business environment. With experience and maturity, the alert managers acquire the skill to deal with the environment. When an environment repeats itself, the experienced managers effectively display their "capability" to take of it. When the changing dimensions of the environment establish a sudden departure from the past trends and tendencies, the managers are called upon to demonstrate their "capability" to deal with the situation or risk and uncertainty. The environment thus poses, challenge for the management. The managerial efficiency and/or effectiveness is a measure of adaptability to the existing business environment.