Businesses operate in an external environment in which as well as competition from rivals businesses have to take account of legal, political, social and economic influences.

The environment consists of several micro and macro factors that influence business enterprises. Some of these factors may directly impact business, while others may have insignificant or far-fetched influence.

In spite of best of resources and capabilities it may not be possible for managers to make sense of all these influences due to limitations of human mind at one end and diversity, uncertainly and complexity of the environment on the other hand. These can be explained as follows:

Diversity:

On account of diversity listing of all conceivable environmental influences may not be possible.

Uncertainty:

It is difficult to predict and understand future external influences on an organization.

Complexity:

Managers, like other individuals, may tend to simplify complexity by focusing on aspects of the environment that may confirm their prior views or are historically important.