1.5 External environment

Disadvantages of technology

- 'information overload' - too much data transferred (hard to identify most important data) - The power which information brings to managers could be abused. - this could lead to a reduction of authority of work teams and managers - could reduce job enrichment and motivation levels

Form of political structure IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- Businesses find it hard to convince stakeholders to operate in or trade with an autocratic dictatorship

Competition laws can restrict unfair competition/restrictive practices/ monopoly exploration of consumers/ mergers and takeovers IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- Collusive agreements with competitors not allowed - internal growth is less likely to lead to reports and action by the competition regulators than external growth - expand to other countries rather than growing in existing countries can lead to monopoly / market share

Recession and economic growth IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- Economic growth: demand for most goods and services will increase. (consumers: higher incomes). Businesses may plan to expand. Inferior goods rejected. - Recession: opposite. - Business flexibility: important for survival + profitability.

Spreadsheet programmes - Common business application

- Financial + management records - Cash flow forecasts can be updated - changes can be made - income statements can be drawn up frequently

Spreadsheet programmes - Impact on business

- Flexibility and speed- changes made quickly - 'What-if' scenarios in budgeting and sales may be forecasted

IT can...

- Focus on new product development- people for around the world can work together - Improve stakeholder communication - Developing new and better processes- use ERPs (Enterprise Resource Planning). - Cost benefits - IT purchase + training employees// long-term costs justify investments// many operational costs are reduced. - Competitive advantage - Outsourcing and offshoring (globalisation)

Unemployment IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- Higher numbers of workers without employment will give businesses more choice in employee recruitment. Many workers are applying so there will be reduced wages (benefit for businesses) - Average consumer incomes may fall with extensive unemployment

Interest rates (monetary policies) IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- Increase in interest rates= reduce consumer demand for many products bought on credit. (e.g. houses) - Increase in loans: reduce profit for a business with high debt. MAY sell assets or shares to reduce debt - Business expansion plans may be cancelled or delayed. - Country's currency= appreciates as more investment finance is attracted to the country.

Internet/ intranet - Common business application

- Marketing: promoting to a large market + taking orders online - Operations management: business- business communication to search the market for cheapest suppliers - Human resources: to communicate within the organisation

Ageing population business strategy

- Patterns of demand- old people demand different things than teens. - Structure of workforce- reduced numbers of young employees available. // need older workers - more loyalty to a business + more experience

infrastructure IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- Poor infrastructure: more difficult business activity + more expensive - multinational businesses often request gov. to improve transport links before investing in the country

Social and cultural influences in many countries

- ageing population - changing role of women - improved education facilities - early retirement - rising divorce rates - job insecurity - Increased levels of immigration

CAD Common business application

- almost all design and architectural firms now use these programmes. - 3D models can be made and turned around to see effects from all angles

Internet/ intranet - Impact on business

- cost saving - access to a much larger potential market - worldwide image of business through web pages - online ordering is cheaper than paper-based systems - B2B communication - supplies at lower costs - Internal communication is quicker

Environmental control on business activity e.g. waste disposal, use of sustainable energy, reducing packaging IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- could increase business costs + make a country less attractive for new investment - basis for good publicity

Exchange rates IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- depreciation: imported goods more expensive (opportunity for domestic firms to charge less for exports- possible increase in demand especially if it is price elastic) - More expensive imports: can raise a business's costs if it has to buy materials from other countries. - businesses may target foreign markets more - foreign businesses may decide to locate in the depreciating country (avoid risk of import goods becoming too expensive) - appreciation= opposite happens

Four macro-economic objectives for governments:

- economic growth and rising living standards - low levels of inflation - low levels of unemployment - balance of payments equilibrium, between the value of imports and exports

Tax changes through use of fiscal policy IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- higher rate of income tax= reduce consumers' disposable income- fall in demand for luxury goods - higher rate of tax on profit (corporation tax)- will reduce the profits after tax of companies. Decision to relocate to a country with lower tax may be made.

Cost-push and demand-pull inflation IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- higher wage demands from workers to maintain real incomes during inflation and higher costs of materials and components = cost-push inflation. If businesses cannot increase prices for fear of demand falling, profit margin will fall. CHEAPER RESOURCES OF SUPPLY SOUGHT or MORE EFFICIENT PRODUCTION METHODS TO LOWER COSTS PER UNIT - demand-pull inflation: encourage firms to raise prices to increase profit margins - increase in inflation: action being taken by gov. or country's central bank to increase interest rates.

Trade policies + membership of free-trade areas or customs unions IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- if a gov wants to restrict a free trade with tariffs + quota = discourage business investment - global business operations tend to expand + locate in those countries which encourage free trade + members of important free-trade groupings

Gov's attitude to private ownership IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- if gov = committed to nationalisation of private businesses + high taxes on private wealth DISCOURAGE PRIVATELY OWNED BUSINESSES FROM SETTING UP OR EXPANDING IN THIS COUNTRY

Government stability IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- if it is constantly changing: frequent shift in laws related to business activity (difficult to plan future business strategies) - Stable gov. is preferable

Impact of technology on management

- if many jobs are lost during the process of change ---> the remaining workers may suffer from reduced job security. (lower motivation levels) - trade unions may oppose technological change (if it puts workers at risk) - introducing the technology in a positive way may help improve industrial relations

Changing patterns of employment

- increase in number of employed women - increase in part-time student employment - increase in temporary, part-time / flexible employment contracts. // introduced by employees due to an increase in globalisation - more women with maternity leave

Improved employee legal protection IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- increased cost of employing staff - encourages business to increase labour productivity to pay for cost of those legal improvements - if employers accept these changes fully- appear to be a caring business that will encourage well motivated employees to work for them (some businesses offer benefits above legal min for this reason)

CAM - Impact on business

- labour costs are reduced (machines replace workers) - efficiency is increased - improved accuracy - increased flexibility of production - these benefits contribute to a firm's competitive advantage

Ageing population effects

- larger portion of population over the age of retirement - smaller portion of the population is young - smaller number of workers in the economy but a large number of dependants (below working age or retired)

Natural resources IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- likely to attract inward investment from mining + oil businesses - political factors may also be important

Consumer protection laws that constrain businesses from advertising inaccurately/ inappropriately IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- sales staff will need training in the legal rights of consumers - design + production of new products ---> customers' safety + quality as priorities - full disclosure of any safety problems - ALL THESE WILL ADD TO COSTS BUT GOOD PUBLICITY

Threats from natural events e.g. floods IMPACT ON BUSINESS OBJECTIVES +STRATEGIES

- unwise to operate in areas most widely affected by these - especially if business activity is potentially dangerous as with chemical products

Benefits of technology

- use of database programmes to control stock ordering - managers can obtain data frequently from all the departments of the business - computers can be used to analyse and process the data rapidly so that managers can interpret data + take decisions quickly - accelerates process of communicating decisions to other managers and staff

CAM - Common business application

- used to operate robotic equipment - used in operations management in manufacturing businesses

CAD - Impact on business

- work done more quickly - saves on expensive designers salaries - more flexibility on the design- can be personalised for each customer - may be linked to other programmes to obtain product and to prepare for ordering of required supplies

The most successful firms will...

... adapt to changes the most quickly and attempt to turn them to their own competitive advantage

Legal Factors

Any law influencing business activity (e.g. competition, health, consumer + employee protection)

Demand-pull inflation

Caused by excess demand in an economy e.g. an economic boom, allowing businesses to raise price.

Cost-push inflation

Caused by rising costs forcing businesses to increase prices

Fiscal policy

Changes in government spending levels and tax rates

Economic Factors

GDP growth rate, inflation rate, interest rates, exchange rates.

Economic growth

Increases in the level of a country's GDP

Social Factors

Population size + structure, lifestyle, age groups and education levels.

Recession

Six months of falling GDP (negative growth)

Ethics

The general code of ethics followed by most people in the country, and the tendency of people to be ethical

Unemployment

The number of people in an economy willing and able to work who cannot find employment

Inflation

The rate of change in the average level of prices

Technological Factors

The state of technological advancement and introduction of new technologies.

Computer-aided manufacturing (CAM)

The use of computers and computer-controlled machinery to speed up the production process and make it more flexible.

Information technology

The use of electronic technology to gather, store, process and communicate information

Exchange rate

The value of one currency in terms of another currency.

Internet

The worldwide web of communication links between computers

STEEPLE analysis usage

To assess the importance of the major external influences and future changes in them on their organisation's future activities. Useful when business is planning new strategies. May be conducted regularly or only before taking important decisions. often joint with SWOT analysis

Political Factors

Type of gov. Attitude to free market imposition of tariffs business incentives offered stability of gov.

STEEPLE analysis Acronym

an acronym standing for social, technological, economic, environmental, political, legal and ethical external factors that impact on a business. It refers to a framework for analysing the external environmental factors affecting business objectives and strategies.

Monetary policy

changes in the level of interest rates which make loan capital more or less expensive

Collusive

secret or illegal cooperation or conspiracy in order to deceive others

Computer- aided design (CAD)

using computers and IT when designing products

Environmental Factors

weather and climate of the region, the flora and the fauna, environmental pressure group activity.