HR1004 Organisations, Management

and PeopleWeek 2

Business in Context

Business in Context

An explanation of the key internal and external factors which impact on the operation and functioning of organisations and businesses

LEARNING OUTCOMES

At the end of this lecture you should

• Understand the context within which businesses operate including the main environmental drivers – the economy, the State, technology, labour and culture

• Understand the role and purpose of the main stakeholders in organisations and businesses

The Economy

• The relationship between business and the economy is two way

(Q. What might we consider as a ‘business’?)

• Economic changes affect businesses e.g. changing global economy, increased international competition, globalisation, State intervention

Key Factors – “The Variables”

• Structural changes – shift from manufacturing to service; role of unions; shift from public to private ownership

• Finance – availability of investment capital; level of interest rates

• International competition – globalisation• Cost of commodities, materials and labour

The State

• ‘..that body which has a monopoly over taxation, money supply, and the legitimate use of violence.’ (Scott cited in Needle, 2004 p75)

• World Bank (1997) definition cited in Needle, 2004

p75: 5 core responsibilities of the state:• Legal framework• Economic policies• Basic services and infrastructure• Protecting the vulnerable• Protecting the environment

Forms of state control/intervention

• State control and central planning

• Free market and non-intervention

• Social market• Directive

Types of State Intervention

• Collective provision – goods too expensive/dangerous for private provision

• State as employer• State as consumer• Legal Regulation• Demand management – why and how?• Training • Protection against global competition – inward investment• Marketing• Advisory services eg overseas trade, environment, ACAS

Globalisation

• Focus on UK but principles can be applied to any nation state

• Today’s world broader influences operate – globalisation – meaning?

• European Union. How does it impact on UK economy/society?

Definitions of Globalisation

‘The global circulation of goods, services and capital, but also information, ideas and people. It has shaped all of the 20th century, albeit with large cyclical variations and has become an increasingly visible force in recent decades’ World Bank cited in Needle 2004 p13

Definitions of Globalisation (cont)

‘A social process in which the constraints of geography on social and cultural arrangements recede and in which people become increasingly aware that they are receding.’ Waters cited in Needle 2004 p14

Causes and drivers of Globalisation

• Rational knowledge• Growth of trade• FDI• MNCs/MNEs• Costs• Technological innovations• World politices• Markets• Regulations

Key questions asked by academics /researchers

• Does technology act as an environmental constraint i.e. determining the way businesses must operate – see the work of Joan Woodward (1965), Galbraith (1972) OR

• Is technology only one factor amongst others influencing the way in which businesses organise themselves e.g. does the size of a business play an important role, what of strategic decisions made by management/people in the process? e.g. role of production line in manufacturing industry/organisation of a call centre

Related issues

• Give consideration to the impact of:

• E-commerce, the internet to the organisation of work

• The impact of new technology jobs – does it create or destroy them? How? Where? What type of jobs?

Labour

• Labour interacts with business through the workings of the labour market and the activities of organised employees (trade unions) and unorganised (individual) employees at the place of work.

• Employment law • Consideration of numerous key issues e.g.

employee motivation, and commitment, attitude, values and culture

Key Trends in Labour Market

• Loss of jobs from the primary (mining, agricultural) to secondary and tertiary sectors – general feature of developed economies –although output increase

• Job losses in traditional manufacturing industries – result of global competition, state policy e.g. privatisation

• Job growth in tertiary sector of economy, particularly services – financial sector, catering, tourism, professions and professional services

• Many changes in nature of employment resulting from changes in technology

• Some evidence of companies developing dual labour market – core and peripheral employees; full time, “flexible” employees. Use of part-time and temporary employees

Key trends continued• Dramatic rise in the number of female employees - by late 1990s

women constitute over 50% of labour force

• Women still over-represented in certain types of employment e.g. health, education, and local government – under-represented in management in all sectors

• Some have argued (Dore 1997) that these trends will result in polarisation of job market – raising of educational entry requirements for jobs across the board resulting in those with good education and scarce skills getting challenging jobs, but global competition/technological change ending the concept of a job for life

• At other end of the scale an increasing proportion of population will be faced with either poor jobs, poor skills, few training opportunities and unemployment

Key trends - continued

• Note the key importance of the role of education, training and development in addressing some of these issues

• Note also the declining role and influence of organised labour – trade unions – in the labour market. See later lectures/sessions on these areas

Culture

• Again difficult to define but Needle offers his own, and gives others to consider

• Culture represents all human activity that is socially, as opposed to genetically, transmitted. It includes norms, values, and beliefs that manifest themselves in behaviour, practices and institutions. Culture pervades all areas of business life. A particular interest is the extent to which we can learn from the business experiences of other cultures and transplant ideas developed by one culture and use them in a different cultural setting

Culture a complex matter

• Culture interacts with business in three different ways

• Our socialisation will determine our individual approaches to work

• Organisations tend to be seen as societies in microcosm with their own specific cultures/transmitting this to members eg identifiable “corporate culture”

• Culture is used as an analytical device to distinguish one society from another

Culture – Key variable, environmental factor

• Culture is seen as probably the most pervasive of the the five environmental factors discussed – impacting on, and being influenced by all the other four

• The role of the state, the application of technology, and the orientations of the labour force to their work can all be viewed as culturally determined

Culture free v. Culture specific

• This lies at the heart of the debate about transferring business practices/ideas from one country to another

• Culture free – culture has less influence over business practices than for example technology. Culture free view is that ideas and practices across the world are converging and businesses can easily borrow and implement ideas from their counterparts/competitors in other countries

• Culture specific – suggests that business practices and ideas are rooted in their specific cultures and that transfer is only possible between nations displaying similar cultural characterstics

• In practice debate is not either/or but question of emphasis and balance

Hofstede’s work

• In terms of culture specific hypothesis it is important that you are aware of/understand the work of Hofstede (1980)

• His research carried out in the 70s/80s amongst IBM’s 116,000 employees worldwide

• Identified 4 (subsequently 5) variables explaining differences in cultural approaches across the same global company

Hofstede’s 5 factors

• Power distance – the extent to which members of a society accept that power is distributed unequally in organisations

• Individualism versus collectivism – the balance in the emphasis placed on the individual v the collective or group

• Uncertainty avoidance – the extent to which members of a society feel uncomfortable with uncertainty

• Masculinity v femininity – assertiveness and emphasis on achievement versus quality of life and care for others

• Long versus short term orientation – long term, future planning in contrast to short term perspectives

Five key external variables

• The Economy

• The State

• Technology

• Labour and

• Culture

• Note some factors influence all the others eg culture, but also globalisation

PEST Analysis

• Sometimes this form of analysis is also eg given the term PEST analysis where

• Political = State• Economic = Economy/Labour Market• Social = Culture• Technology = Technology

• Note: sometimes referred to as Pestl where l = labour

Dynamic relationships

• Remember these variables impact on businesses and in turn are impacted on by businesses at a number of levels eh locally,(community, council), local labour market, planning permission

• Nationally (within UK) Government laws, interest rates, inflation And

• Increasingly internationally/globally, foreign exchange rates, Euro, international competition, EU/worldwide regulations

The Internal Factors

• Four internal factors• Operations/production management – how

goods/services are made, provided, delivered• Marketing – the promotion,advertising,

pricing, placement of products services • The finance and accounting function• Personnel/ Human Resource Management

issues – management, motivation, development of staff

Stakeholders

• The employees• The shareholders• The managers• The directors• The customers• The local community • The State• International Bodies