Understanding
Business –
Business Environment
Higher Business
Management

Internal Factors







External Factors


Factors
Corporate Culture
Decision Making
Types of Decisions
Models
ICT
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 Factors
Think 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)
Make sure you can
describe these words
Decision Making –
Types of Decisions
Decision
Description
By whom
Examples
Strategic
Long-term, concerned
with overall direction of
the company
Senior
Management/Board
of Directors
•
Medium-term,
concerned with how to
help achieve strategic
decisions
Senior & Middle
Management
•
Short-term, concerned
with day to day running
of the company
First line/Junior
Management e.g.
team leaders
Tactical
Operational
•
•
•
•
•
Merge with a
new company
Expand abroad
Diversify the
business
Find a cheaper
supplier
Develop a
marketing
campaign
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
Decision Making –
Structured Decision Making Models
Strengths (Int)
Weaknesses (Int)
Build; Enhance
Resolve; Reduce
SWOT
Analysis
Opportunities (Ext)
Threats (Ext)
Exploit; Expand
Avoid; Thwart
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




Databases


Info can be stored, edited, searched, presented using reports
Word Processing


What if scenarios
Graphs for comparisons
Forecasts can be made
Letters, & reports can communicate decisions
Presentation Software

Communicates decisions to a number of people at once
Decision Making –
ICT & Decision Making

Internet



Intranet


Documents shared in the organisation
Email



Wide variety of sources of information
Communicate via websites & social media
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 - PESTEC
POLITICAL – arise from the action of governments

New laws or changes to existing laws


Changes in taxation


Income, corporation, VAT
Government Spending


Minimum wage, H&S, Equality, Trading
Infrastructure e.g. roads, rail, airports
Government targets

Environmental targets e.g. recycling, carbon emissions
External Factors - PESTEC
ECONOMIC – factors that encourage spending

Unemployment rate changes


Interest rate changes


Can be affected by the business cycle e.g. recession
Money businesses & consumers borrow from the banks
Economic policies

Changes at the Bank of England e.g. quantitative easing
External Factors - PESTEC
SOCIAL – changes in UK demographics

Changing fashions/tastes/trends


Changing demographics


New products vs. out-dated products e.g. new technologies
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 - PESTEC
TECHNOLOGICAL – 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; Scommerce; 4G etc.
External Factors - PESTEC
ENVIRONMENTAL –

Changes in weather


increasing awareness of environmental factors
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 - PESTEC
COMPETITION – 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 &
Customers
•
Owners need employees to
carry out tasks, and employees
need owners to pay them
wages.
•
Owners want to pay low wages
to make more profit, whereas
employees want high wages for
their work.
•
Owners need employees to be
productive, and Employees
need employees to train them.
•
Owners want employees to work
many hours, whereas employees
want to work as few as possible
•
Owners need customers to buy
products to make profit, and
customers need owners to
provide them with products.
•
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.
•
Owners need customers to be
loyal to maintain sales, and
customers need owners to
reward loyalty e.g. discounts
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 want supplies at a
cheap price whereas suppliers
want the opposite to maximise
profits.
•
Owners need suppliers to
provide quality products at a
cheap price, and suppliers
need owners pay on time
•
Owners want to wait as long as
possible to pay, whereas
suppliers want everything paid
on time if not early.