Understanding Business – Business Environment

Higher Business Management

Internal Factors Factors Corporate Culture Decision Making Types of Decisions Models ICT

External Factors PESTEC

Stakeholders Conflicts

Contents

Internal Factors These are the factors within the

business that can affect its performance

Internal Factors Financial

Cash Flow – there may not be enough finance to purchase new materials meaning production stops.

Objectives – A lack of capital can mean that business aims can not be met e.g. growth

Internal Factors Employees

Skills – They may not have the correct skills and therefore the quality of products/services might be low.

Motivation – If staff are not motivated this may lead to low productivity

Employee Relations – if relations are poor this may lead to staff being resistant to change. It may even lead to industrial action.

Internal Factors Management

Decision Making – Management might not have the required skills or experience which could result in poor decisions being made (see Decision Making section).

Internal Factors Technology

Break-down – if this happens then production will stop.

Lack of technology – may mean that they are unable to keep up with competitors

Availability – technology may not be available to carry out the tasks that the business need.

Internal FactorsThink of the consequences each internal factor may lead to for the business?

What could the Business do to prevent these things from happening?

Internal Factors – Corporate Culture

Corporate culture is the beliefs and behaviours which employees adopt to enable the business to achieve its aims.

It usually develops organically over time and becomes the unwritten rules and values of the business.

The culture will be reflected in every aspect of the business e.g. dress codes, décor of premises, logos, employee incentives.

Internal Factors – Corporate Culture

Advantages employees feel part of the business increased staff motivation increased productivity improved employee relationships customers loyalty consistency across the organisation

Task You should research and produce a

report on the corporate culture of different organisations.

Consider uniforms, the environment employees work in, employee incentives and motivation.

Internal Factors – Decision Making

Managers make decisions on behalf of the organisation in order to meet its objectives.

Effective decision making is a key component of any business. Managers need to be skilled in making decisions

Decision Making – Functions of Management (Fayol)

Functions of Management

(Fayol)

Plan

Organise

Command

Co-ordinateControl

Delegate

Motivate

POCCCDM

Make sure you can describe these words

Decision Making – Types of Decisions

Decision Description By whom ExamplesStrategic Long-term, concerned

with overall direction of the company

Senior Management/Board of Directors

• Merge with a new company

• Expand abroad• Diversify the

business

Tactical Medium-term, concerned with how to help achieve strategic decisions

Senior & Middle Management

• Find a cheaper supplier

• Develop a marketing campaign

Operational Short-term, concerned with day to day running of the company

First line/Junior Management e.g. team leaders

• Staff rotas• Covering

absences

Decision Making – Structured Decision Making Models

Stage

Identify the Problem

Identify the Objectives

Gather Information

Analyse the Information gathered

Devise possible solutions

Select the best solution

Communicate the decision

Implement the decision

Evaluate the decision

POGADSCIE

Decision Making – Structured Decision Making Models

Strengths (Int)Build; Enhance

Weaknesses (Int)Resolve; Reduce

Opportunities (Ext)Exploit; Expand

Threats (Ext)Avoid; Thwart

SWOT Analysis

Decision Making – Structured Decision Making Models

Advantages Decisions are well thought out

– time taken to gather info

Wide range of ideas – many solutions

Internal & External factors considered

Decisions are evaluated

Decisions are shared with stakeholders

Disadvantages Time consuming process

Hard to find info and can be expensive

Hard to choose from range of solutions

Instinct and gut decisions are lost

No guarantee that decision will work

Example No. 1 – Computer Games Industry

The problem is a falling market share …

Example No. 2 – Upgrading Technology

Apply the “POGADSCIE”

model to choose a new

laptop for the staff in your

firm.

Decision Making – ICT & Decision Making Spreadsheets

What if scenarios Graphs for comparisons Forecasts can be made

Databases Info can be stored, edited, searched, presented using reports

Word Processing Letters, & reports can communicate decisions

Presentation Software Communicates decisions to a number of people at once

Decision Making – ICT & Decision Making Internet

Wide variety of sources of information Communicate via websites & social media

Intranet Documents shared in the organisation

Email Communicate to a wide number of people 24/7 and cost effectively Attachments can be sent

Videoconferencing Meetings can take place over long distances, saving time and

money.

Decision Making – Constraints Availability of finance

Number and skill of employees

Employees resistant to change

Ability and skill of the manager

Policies and procedures of the organisation e.g. environment

Quality of the information available

Technology available

External Factors

External Factors - PESTEC External factors are those outwith the

organisations control.

However it is important companies are aware of these factors and know how to respond to them.

These factors can affect the business in both a positive and negative way.

External Factors - PESTECPOLITICAL – arise from the action of governments

New laws or changes to existing laws Minimum wage, H&S, Equality, Trading

Changes in taxation Income, corporation, VAT

Government Spending Infrastructure e.g. roads, rail, airports

Government targets Environmental targets e.g. recycling, carbon emissions

External Factors - PESTECECONOMIC – factors that encourage spending

Unemployment rate changes Can be affected by the business cycle e.g. recession

Interest rate changes Money businesses & consumers borrow from the banks

Economic policies Changes at the Bank of England e.g. quantitative easing

External Factors - PESTECSOCIAL – changes in UK demographics

Changing fashions/tastes/trends New products vs. out-dated products e.g. new technologies

Changing demographics Where people live, how long people live for, amount of

leisure time

Changing working arrangements Working hours, part-time, flexi-time, tele-working

External Factors - PESTECTECHNOLOGICAL – rapid changes in new technology

New technology becomes available e.g. tablet computers

Growth of new tech industries E-commerce and now S-commerce

Be able to talk about new types of technology that exists: Tablet computers; Wireless technology; Cloud storage; S-

commerce; 4G etc.

External Factors - PESTECENVIRONMENTAL – increasing awareness of environmental factors

Changes in weather Seasonal demand for products e.g. ice-cream. Extremes

of weather e.g. flooding

Environmental pressures Pressures to increase recycling, reduce carbon emissions,

reduce packaging e.g. plastic bags

External Factors - PESTECCOMPETITION – someone providing a similar product

New competitors Growth in an industry will bring about increased

competition e.g. app gaming

New competitor products New technology and inventions being used by

competitors e.g. updates to smart phones

External Factors – Exam help With all of these factors you must be able to identify

examples of how these factors affect businesses

E.g. One political factor is changing laws for example the national minimum wage…

You must also be able to explain how they affect the business in either a positive or negative way.

E.g. The national minimum wage can have a negative impact as the company will now have to spend more money on employees wages which may mean they have to reduce spending on other areas of the business…

Stakeholders

Stakeholders Stakeholders are groups of people who have

an interest and an influence in a business.

We also need to the interdependence and conflict of these stakeholders

Interdependence – why a stakeholder needs another stakeholder

Conflict – disagreements between stakeholders

Stakeholder

Interdependence Conflict

Owners & Employees

• Owners need employees to carry out tasks, and employees need owners to pay them wages.

• Owners need employees to be productive, and Employees need employees to train them.

• Owners want to pay low wages to make more profit, whereas employees want high wages for their work.

• Owners want employees to work many hours, whereas employees want to work as few as possible

Owners & Customers

• Owners need customers to buy products to make profit, and customers need owners to provide them with products.

• Owners need customers to be loyal to maintain sales, and customers need owners to reward loyalty e.g. discounts

• Owners want high prices to get high profits whereas customers want as low prices as possible.

• Owners want to provide a cheap service to keep costs low, whereas customers want a high quality service.

Stakeholders Write down the interdependence and

conflict relationships between the following stakeholders:

Owners & Banks Owners & Governments Owners & the Local Community

Stakeholder

Interdependence Conflict

Employees & Customers

• Employees need customers to buy so they get paid, and customers need employees to give a good service

• Employees want customers to spend as much as possible to get commission, whereas customers want as much discount as possible.

Owners & Suppliers

• Owners need suppliers to provide goods on time, and suppliers need owners to repeat orders.

• Owners need suppliers to provide quality products at a cheap price, and suppliers need owners pay on time

• Owners want supplies at a cheap price whereas suppliers want the opposite to maximise profits.

• Owners want to wait as long as possible to pay, whereas suppliers want everything paid on time if not early.