The Business Environment

Analysing Business Environment

 Business Environment
 Collection of all internal and external factors such as employees,
customers needs and expectations, supply and demand,
management, clients, suppliers, owners, activities by government,
innovation in technology, social trends, market trends, economic
changes, etc.
 These factors affect the function of the company and how a
company works directly or indirectly.
 Sum of these factors influences the companies or business
organisations environment and situation.
Steps in analysing the Business Environment
 Understand all the environmental factors before
moving to the next step.
 Collect all the relevant information.
 Identify the opportunities for your
organization.
 Recognize the threats your company faces.
 Organisation’s Environment
 Global
The global business environment can be defined as the environment in
different autonomous countries, with factors relevant to the home
environment of the organization, influencing decision making on
resource use and capabilities.
 Local
Local business environment refers to the ease of entry into the political,
taxing, labour market, and any restrictive regulatory compliance for the
local jurisdiction.
 The General/Macro Environment
 A macro environment is the condition that exists in the economy as a
whole, rather than in a particular sector or region. In general, the macro
environment includes trends in the gross domestic product (GDP), inflation,
employment, spending, and monetary and fiscal policy
 Elements of the Macro Environment consists of 6 different forces. These
are:
o Demographic
o Economic
o Political
o Ecological
o Socio-Cultural
o Technological forces.
 The Task/Micro Environment
 The micro environment relates to the immediate border of an
organization and directly influences the organization on a regular
basis.
 It is also known as the task environment.
 It is important for an organization to monitor and analyse all the
elements of its micro environment like customers, competitors, etc.
 Porters five competitive forces
Porter's Five Forces Framework is a method for analysing
competition of a business. Porter refers to these forces as the
microenvironment, to contrast it with the more general term macro
environment.
 They consist of those forces close to a company that affect its ability
to serve its customers and make a profit.
Porters five competitive forces analysis
 PEST
 PEST Analysis is a measurement tool which is used to assess markets
for a particular product or a business at a given time frame.
 Once these factors are analysed organisations can take better
business decisions.
 PEST Analysis helps organizations take better business decisions and
improve efficiency by studying various factors which might influence a
business.
 Pest analysis
PEST Analysis:
o Political
o Economic
o Social
o Technological
 It is a management method whereby an organization can assess
major external factors that influence its operation in order to become
more competitive in the market.
 As described by the acronym, those four areas are central to this
model.
 Degree of uncertainty in a business
 Uncertainty simply means the lack of certainty or sureness of an
event. In accounting, uncertainty refers to the inability to foretell
consequences or outcomes because there is a lack of knowledge or
bases on which to make any predictions.
o Simple and Stable – few environmental influence to worry about
o Complex and stable – low to moderate uncertainty
o Simple and unstable – moderate to high
o Complex and unstable - high
Characteristics of Business Environment
 To understand business environment and drivers of change, it is first
important to study its characteristics. They are as follows.
 Business environments are complex in nature as well as dynamic
because they are dependent upon factors like political, economic,
legal, technological, social, etc. for sustenance.
 Business environment affects companies in different industries in its
own unique way. For example, importers may favour lower exchange
rate while exporters may favour higher exchange rate.
 With change in the business environment, some fundamental effects
are short term in nature while some are felt over a period of time.
 Changes in Business Environment
 Globalization and opening up of markets has not only increased
competition but also has allowed companies to operate in markets
previously considered forbidden.
 Inclusion of information technology as integral part of business
environment has ensured that companies are able to process, store
and retrieve the huge amount of data at ever declining costs.
 Globalization has encouraged free movement of capital, goods and
service across countries.
 Political and Legal environment
 The political environment consists of factors related to management
of public affairs and their impact on the business of an organization.
 The legal environment consists of laws, courts, attorneys and legal
customs and practices.
 The Central Government, State Government and Local bodies affect
business operations.
 Porter impact of government in business
environment
 Porter proposes that the role of government in creating competitive
advantage changes during these stages.
 In the factor driven stage, the possibilities for direct government
interference are the greatest.
 Subsidies and temporary protection are most powerful in this stage
 The European Union
 The European Union is a unique economic and political
union between 27 EU countries that together cover much of
the continent.
 The predecessor of the EU was created in the aftermath of
the Second World War.
 A name change from the European Economic Community
(EEC) to the European Union (EU) in 1993
 National and EU effects on organisations
 The main benefits of EU membership to businesses are:
oIncrease in market size (a greater number of potential
customers) as a result of the freedom of movement of
goods and services.
oA business can employ individuals from any part of the
world.
oBusiness competing worldwide.
Role of European Union (UN) in businesses
 Regulate:
oProduct standards.
oEnvironmental protection
oMonetary policy – interest rates
oResearch and development
oLabour costs
 Influencing government

Businesses lobby in different ways.

 This can include lobbying to ministers.
 Can use industry trade associations.
 Through consultants.
 Political risk and political change
 Political change can complicates the planning activities of
organisations including the government.
Political risk in international business results from various factors that
can negatively affect a company's income or complicate its business
strategy.
 Other political events may mean a company will be unable to
convert foreign currency, export or import goods and supplies, or
protect in-country assets.
 International trade
 International trade is the exchange of goods and services between
countries.
 Advantages of international trade:
o Trading globally gives consumers and countries the opportunity to be exposed to goods and
services not available in their own countries, or which would be more expensive domestically.
o Increased revenues.
o Decreased competition.
o Longer product lifespan.
o Easier cash-flow management.
o Better risk management.
o Benefiting from currency exchange.
o Access to export financing.
o Disposal of surplus goods.
 The World Trade Organisation (WTO)
 The World Trade Organization (WTO) is an organisation which deals
with the global rules of trade between nations.
 Its main function is to ensure that global trade flows smoothly,
predictably and freely as possible.
 Its key objectives:
o To set and enforce rules for international trade
o To provide a forum for negotiating and monitoring further trade liberalization
o To resolve trade disputes
o To increase the transparency of decision-making processes
o To cooperate with other major international economic
 Employment Protection

 Employment protection laws and

regulations deal with the rights of
employees, including the right to advance
notice of termination, the right to
redundancy payments upon termination,
rights to leave for maternity, disability, and
other medical issues, and many others.
 Employment Protection - Retirement
 It is the action or fact of leaving one's job and ceasing to work.
 Companies often use early retirement incentives to urge their older
and more expensive workers to leave the payroll voluntarily, allowing
those firms to save money by hiring young and less expensive workers
to take their place.
 The cost of providing pensions rises with age.
 Employment Protection - Resignation
 To resign is to quit or retire from a position.
 Reason to resign:
o Employees Feel Underappreciated.
o A Lack of Proper Compensation.
o Insufficient Time Off.
o Change In Management.
o Outdated Machinery and Equipment.
o Unrealistic Goals.
o Lack of Management Support.
o The Need to Be Challenged.
 Exit interview done on employees that are leaving a company or when
employees have completed a significant project. The purpose of this exit
interview is to gain feedback from employees in order to improve aspects
of the organization, better retain employees, and reduce turnover.
 Employment Protection - Dismissal
 Dismissal is the act of ordering or allowing someone to leave his/her
job.
 It is termination of employees employment contract by the
employer.
 Ending a contract without renewal.
 Constructive dismissal is when an employee resigns from his/her job
because employer breach the terms of the contract.
 Employer must write reasons for dismissing an employee and
provide the employee with a copy.
 Employment Protection - Dismissal
 Wrongful dismissal
o This is where the employer break the terms of an employee's contract, for example
dismissing someone without giving them proper notice
 Unfair dismissal
o Unfair dismissal is when an employee is dismissed from their job in a harsh, unjust or
unreasonable manner
 Disciplinary procedure
o A disciplinary procedure is a process for dealing with perceived employee misconduct.
Disciplinary procedures vary between informal and formal processes.
 Redundancy
o The state of being not or no longer needed or useful.
Unfair dismissal
 Data Protection and Security
 Data security is the process of securing data so that only authorised
people can access or modify it.
 Typically, you are protecting your data against physical theft, attacks
over the network and theft by employees/trusted people. Data
protection is defined as “legal control over access to and use of data
Importance
o Key pieces of information that are commonly stored by businesses, be that employee
records, customer details, loyalty schemes, transactions, or data collection, needs to be
protected. This is to prevent that data being misused by third parties for fraud, such as
phishing scams, and identity theft.
 The UK Data Protection Act 1998
 The Data Protection Act 1998 was a United Kingdom Act of
Parliament designed to protect personal data stored on computers or
in an organised paper filing system.
 Anyone holding personal data for other purposes was legally obliged
to comply with this Act, subject to some exemptions.
 It was superseded by the Data Protection Act 2018 (DPA 2018) on 23
May 2018. The DPA 2018 supplements the EU General Data
Protection Regulation (GDPR), which came into effect on 25 May
2018. The GDPR regulates the collection, storage, and use of personal
data significantly more strictly.
 The data protection principles
 Personal data shall be processed lawfulness, fairness and
transparency.
 Obtained for lawful purpose and be limited for that.
 Data shall be adequate, relevant and not excessive for the purpose
needed for.
 Accuracy and kept up to date.
 Storage limitation.
 Integrity and confidentiality (security)
 Accountability.
 The UK Data Protection Act 1998 Main Aims
 The 1998 Data Protection Act was passed by Parliament to control
the way information is handled and to give legal rights to people who
have information stored about them.
 Other European Union countries have passed similar laws as often
information is held in more than one country.
 The Rights of Data Subjects
 The right to be informed.
 The right of access.
 The right to modification.
 The right to be deleted/be forgotten.
 The right to restrict processing.
 The right to data transferability.
 The right to object.
 Rights relating to automated decision making and summarising.
 Health and Safety
 Refers to the right of every employee, regardless of industry, to carry
out his daily work in a safe environment.
 Importance of maintaining Health and Safety at work
o Keeping People Safe
o Injuries Cost Time and Money
o Fewer Injuries Increase Productivity
o Increase Public Perception A company that operates in an unsafe manner can turn away
customers
o Minimizing Legal Liabilities
 Employers and Employees Duties
 An employer's main responsibility is:
o To make sure that the workplace is safe
o And that anyone working in or visiting the workplace is not exposed to hazards or
harmed by the work.
o Employer must make sure that work areas, machinery and equipment are kept in a safe
condition
 Employee’s main responsibility is:
o Take reasonable care for their own health and safety.
o Take reasonable care for the health and safety of others who may be affected by their
acts or omissions.
o Cooperate with anything the employer does to comply with requirements.
 Accidents and safety policies
 Develop safety consciousness among staff.
 Keep Workspaces Clean.
 Report Dangers and Accidents as soon as possible.
 Provide Proper Training.
 Provide Proper Equipment.
 Avoid Shortcuts.
 Maintain machinery regularly.
 Safety inspection must be done regularly.
 Accidents Reporting System
 Reporting an injury helps to ensure safety issues in the workplace
can be addressed to reduce the occurrence of injuries to other
employees.
 In the long-term, lack of incident notification and reporting does not
help promote a safe workplace or prevent future workplace incidents
from occurring.
 Accidents must be:
o Reported in accident report form
o Record statistics and trends
o Make follow-up
o Risk audit should be carried out regularly.
o Procedure for reporting near-missed incidents
 Consumer Protection

 Consumer protection is the practice of

safeguarding buyers of goods and services,
and the public, against unfair practices in
the marketplace.
 Consumer protection measures are often
established by law.
Consumer Protection - Contract
 What is a contract
o It is a legally binding document that recognizes and governs
the rights and duties of the parties to the agreement.
oIt is legally enforceable because it meets the requirements and
approval of the law.
oIt typically involves the exchange of goods, service, money, or
promise of any of those.
Consumer Protection – Sale of goods and
services
 A contract of sale is a legal contract an exchange of goods, services or property to be exchanged
from seller to buyer for an agreed upon value in money paid or the promise to pay same.
 It is a specific type of legal contract.
 Implied terms
o They are not expressly set out in the contract but are taken to be as effective as if they were and as if they had been included
from day one of the contract.
 Time of performance
o Goods must be delivered on time or else they might be useless if delivery is delayed.
 Sellers title
o The seller must have the right to sell.
 Goods to correspond with contract description
 Sale by description
 Satisfactory quality
 Fitness of goods for a disclosed purpose
 Social and Demographic trends
 Demographic is a term for any measurable change in the
characteristics of a population over time increased or decreased
concentration of a particular cultural group, sex ratio.
 Social is the study of human behaviour impacting business. lifestyle
 Socio-demographic variables include, for example, age, sex,
education, migration background and culture, religious affiliation,
marital status, household, employment, education level and income.
 Social and Demographic trends
 Population and the labour market
 Implications for employers
 Family life cycle
 Social structures and class
 Socio-economic position, income and wealth
 Socio-economic status
 Buying patterns
 Cultural Trends
 Social and cultural factors affecting business include:
o Belief systems and practices
o Customs
o Traditions and behaviours of all people in given country
o Fashion trends
o Market activities influencing actions and decisions.
 Health and diet issues
 Women in work
 The business response
The impact of technology on organisations
Technology force changes in basic managerial
functions.
 There will be increased responsibility on
management for organization outcomes leading
to added emphasis on planning, decision
making, control, and coordination.
 The impact of technology on organisations –
Span of control
 Span of control is the number of employees managed by one
manager.
 If the Human resource manager have four employees reporting to
him the span of control is four.
 Span of control depends on:
o The ability of a manager – A good organiser and communicator can manage a large
number of employees.
o Skilled, experienced trustworthy and well-trained employees.
o Nature of the work. If the work is routine or repetitive.
o If employees are located closely.
o Availability of good quality information.
 The impact of technology on organisations –
Tall and flat organisations
 A tall organization, or vertical organization, is one in which the CEO
sits at the top of the chain of command, with various levels of
management underneath.
 A flat organization, or horizontal organization, involves fewer levels
of management and more employee autonomy in the decision-
making process.
Tall and flat organisations
 Organisation structure and information
technology
 An organization and its technology need structure.
 Much like your information technology networks and systems have
an architecture, so does an organization itself.
 Businesses organize themselves to best achieve their goals and
accomplish all their necessary tasks.
 An organisation can be:
o Centralised – Holding and processing data in a central place
o Decentralised – Data/information processing carried out at several different locations
Other effects of IT on organisation
 Business technology helps small businesses improve their
communication processes.
 Emails, texting, websites and apps, for example, facilitate improved
communication with consumers.
 Using several types of information technology communication
methods enable companies to saturate the economic market with
their message.
IT and the employer/employee relationship
 The employer-employee relationship is usually
created by a contract, either oral or written. For
many employees, the relationship is affected by
a collective bargaining agreement, a contract
between a labour union and management
covering the terms of employment for
employees who are union members.
 Homeworking and supervision

Employee is assigned work and

performs the work at home.
 Employer manage the employee.
 Remote supervision.
 Outsourcing
 Outsourcing is the business practice of hiring a party outside a
company to perform services and create goods that traditionally were
performed in-house by the company's own employees and staff.
 It is a practice usually undertaken by companies as a cost-cutting
measure.
 Types of outsourcing:
o Business Process Outsourcing.
o Professional Outsourcing.
o IT Outsourcing.
o Multi sourcing.
o Manufacturer Outsourcing.
 Advantages of Outsourcing
 Cost advantages.
 Increased efficiency.
 Focus on core areas.
 Save on infrastructure and technology.
 Access to skilled resources.
 Time zone advantage.
 Faster and better services.
Dis-Advantages of Outsourcing
 Organisation lose some control.
 There are Hidden Costs.
 There are Security Risks.
 Organisation Reduce Quality Control.
 Organisation Risk Public Backlash.
 Organisation Shift Time Frames.
 Organisation Can Lose Your Focus.
 Environmental Factors
 Environmental factors can be both internal and
external to an organization.
 Some internal factors of a business include its value
system, mission and objectives, and internal
relationships.
 External factors of a business include competitors,
economic factors and technological factors.
 Significance of environmental effects
 An environmental impact is defined as any
change to the environment, whether adverse or
beneficial, resulting from a facility's activities,
products, or services.
 It can go the other way, as a person picking up
litter can have a beneficial impact on the local
environment.
Impact on environment of economic activities
 The environmental impact of economic growth
includes the increased consumption of non-renewable
resources, higher levels of pollution, global warming
and the potential loss of environmental habitats.
 Also, economic growth caused by improved
technology can enable higher output with less
pollution.
Direct and Indirect Environmental Costs
 Direct impacts are a direct result of project
activities or decisions.
 Indirect impacts result from interactions of the
project with social, economic, political and
environmental factors and also with actors such
as local communities, migrants, government and
project personnel.
 Direct and Indirect Environmental Costs

Social impact of activities

 Stakeholders expectations
 Reputation Risk
 Corporate social responsibility and risk
management
 Corporate Social Responsibility is a management concept whereby
companies integrate social and environmental concerns in their
business operations and interactions with their stakeholders.
 It is a company's commitment to manage the social, environmental
and economic effects of its operations responsibly and in line with
public expectations.
 Activities may include: Company policies that insist on working with
partners who follow ethical business practices.
SWOT Analysis
 Converting Resources- The value chain
 Value activities
o Activities done by an organisation to increase the value of its product.
 The value chain
 Value network
Thank you
End of Chapter