Chapter 3: Influences in the business

Question 1

All business decisions take into account the whole business environment, which is divided into:

Answer 1

1. The external environment
2. The internal environment

Question 2

What is the external environment?

Answer 2

Includes factors over which the business has little control, such as government policy, technology, economic conditions and social attitudes.

Question 3

What is the internal environment?

Answer 3

Includes factors over the business have some control, such as products, location, resources, management and business culture

Question 4

Name the external influences on businesses

Answer 4

• Economic
• Financial
• Geographic
• Social
• Legal
• Political
• Institutional
• Technological

Question 5

What are the two external influences that relate to current economic conditions?

Answer 5

Economic influences and financial influences

Question 6

What are the characteristics of upswing/boom periods? (economic influences)

Answer 6

• Consumer spending increases - higher employment, higher wages and greater confidence in the economy and their own personal situation encourages people to spend more.
• Higher levels of employment - due to increasing demand and sales
• Wages increase - employees seek to keep up with inflation, business can afford to pay more and have to outbid each other for increasingly scarce labour
• Inflation may increase - increasing and rising wage costs drive up prices

Question 7

What are the characteristics of economic downturns? (economic influences)

Answer 7

• Consumer spending decreases - many are forced to spend less due to job loss, while others are more inclined to save due to lack of confidence in the economy and their own prospects.
• Unemployment levels rise - due to decreasing demand and sales
• Wages are less likely to rise - businesses strive to keep costs down, have plenty of job applicants to choose from and employees are happy just to have work.
• Inflation will usually remain stable or fall - decreasing demand and lower wage cost pressures put downward pressure on prices.

Question 8

Do all businesses suffer equally during recessionary periods and benefit equally during booms? Explain why or why not.

Answer 8

No,
Businesses that sell luxury items, such as car dealerships, electronics stores or travel agents, are much more susceptible to swings in the business cycle. Discount stores like K-mart, Big W and the Reject Shop usually fare well during recessions.

Question 9

What are some financial influences on businesses?

Answer 9

• interest rates
• lending policies
• deregulation
• exchange rates

Question 10

What are geographic influences?

Answer 10

Include changes in geographic variables - cultural (human) or physical (natural) - that can have an impact on business.

Question 11

Name 4 examples of geographical influences

Answer 11

• Location
• Population growth
• Demographic changes
• weather and climate

Question 12

What opportunities can technology present?

Answer 12

• the ability to produce innovative goods and services and make business processes more efficient
• threats such as competitive disadvantage that may result from a failure to adopt new technologies, high financial costs associated with the purchase of new technologies and the risk of glitches or breakdowns.

Question 13

What are the 4 key business functions?

Answer 13

• Operations
• Finance
• Marketing
• HR

Question 14

How can technological trends impact the management of each of the 4 key business functions?

Answer 14

• Operations - improve the speed and accuracy of production and saving costs over time by reducing the need for labour
  Finance - making financial records and reports quicker to produce and more accessible.
• Marketing - enabling businesses to connect with customers in various ways online - promoting products, selling goods and services, conducting research and receiving feedback.
• HR - allowing many employees to work remotely (e.g. from home) and speeding up processes such as payroll and leave applications

Question 15

What is globalisation?

Answer 15

a process that sees people, goods, money and ideas moving around the world faster and more cheaply than before.

Question 16

What are social influences?

Answer 16

Rapid identification and response to changes in tastes, fashions and culture can lead to sales and profit opportunities, and business growth. Failure to respond to social changes can threaten business stability and viability.

Question 17

What are legal influences

Answer 17

Businesses need to ensure that they are complying with current laws and also make changes to ensure that they are complying with changing laws as laws change often. They also need to comply with the different laws in various states and other countries they are operating in.

Question 18

What are political influences?

Answer 18

An influence on a business as a result of the policy positions of political parties and likely future changes to laws.

The reason that political trends are an influence on business is that businesses make deciisons that:
Involve spending or revenue across several years in the future
Position to take advantage of the opportunity preseted by the policy
Position to avoid the threat presented by the possible future change in law

Question 19

What are institutional influences?

Answer 19

An influence on business as a result of the actions of law making institutions which administer those laws (regulators) and non government organisations (unions)

Question 20

What are market influences?

Answer 20

Changes in the structure and regulation of markets which influence the business in its decisions and strategies.

Question 21

major changes in the markets in recent deacdes which have had the largest impact on the managers in each of the four key business functions?

Answer 21

• Changes in the market for funds for the business (changes in the financial markets
• Changes in the market for labour (where the business sources its people)
• Changes in protection against foreign producers (tariffs, quotas and subsidies in Australia and overseas)

Question 22

What are the internal influences on a business?

Answer 22

• products
• location
• resources
• management
• business culture

Question 23

Explain the internal influence “products” for internal influences on a business.

Answer 23

The particular product which the business creates and sells its customers, which may be a good, or may be a service, will significantly influence many areas for the business.

Question 24

What are the range of factors about the product, referred to as the Four Vs?

Answer 24

1. Volume
2. Variety
3. Variation in demand
4. Visibility

Question 25

Explain the internal influence “location” for internal influences on a business.

Answer 25

the locations from which the business conducts its business activities.

Question 26

What are the various implications for a business to determine the locations used by a business?

Answer 26

Proximity to suppliers
Location costs
Visibility to customers
Availability and cost of staff

Question 27

What are the four main resources available to a business?

Answer 27

1. Human resources - the employees
2. Information resources - the knowledge and data required such as market research, sale reposts, legal advice etc.
3. Physical resources - equipment, machinery, buildings and raw materials
4. Financial resources - funds used to meet its obligations to creditors

Question 28

How does management influence business?

Answer 28

Management, through their decisions on strategy, their focus on strategy, their decisions on strategy, their focus on execution and implementation of the strategy, their response to changes in the internal and external business environment and the way they motivate and lead the people within the business have an extremely large impact or influence on the business.

Question 29

How does the environment influence a business?

Answer 29

There is growing pressure for businesses to adopt ecologically sustainable operating practices.

Question 30

Why is developing a positive business culture extremely important?

Answer 30

It delivers a variety of benefits such as:
- Higher productivity
- Greater willingness to embrace change
- Lower absenteeism and staff turnover
- Projecting a more positive image to customers and the community

Question 31

What is business culture?

Answer 31

a set of values, expectations and beliefs shared by management and employees. Each business develops its own unique way of doing things, with the personality or character or the business reflected in the culture,

Question 32

Business culture usually develops and evolves over a long period of time, and can be difficult to change. For this reason, it is crucial that managers:

Answer 32

• Provide staff with sufficient training which reflects key business values (e.g. customer service, teamwork)
• Act as role models and display those values in their own actions.
• Continually reinforces business values by communicating with staff and rewarding employees who demonstrate those values
• Recruiting staff who fit in with the values of the business
• Do not become complacent and work to maintain a positive culture once established

Question 33

What is a stakeholder?

Answer 33

A stakeholder refers to a person with an interest, or concern in something. In the context of a business, stakeholders therefore refer to persons with an interest or concern about the activities of the business in some way.

Question 34

What are the stakeholders in a business?

Answer 34

Shareholders
Managers
Employees
Customers
Society/general public
Environment

Question 35

How do shareholders have an influence on a business?

Answer 35

Shareholders purchase a share in a company and therefore are partial owners. They have a direct influence on a business because they have voting rights on major business decisions. Shareholders want the business to succeed because they will receive a portion of the profits called dividends. They also make capital gain if the value of the organisation’s shares increases.

Question 36

How do managers have an influence on businesses?

Answer 36

Managers have a major influence on the business. A manager’s approach or leadership style can have a major influence on employees and their productivity → affecting the culture of the business and employee morale.

Question 37

How do employees have an influence on the business?

Answer 37

Employees are vital because they produce the product the organisation sells. They influence businesses since the quality of the product depends on their skill and commitment to the process.

Question 38

How do customers have a influence on a business?

Answer 38

Consumers are a powerful stakeholder in the external operating environment. To ensure its future profitability, a business needs to recognise and assess changes in consumer tastes so it can constantly satisfy the consumers’ needs and wants.

Question 39

How does society influence a business?

Answer 39

Members of the community expect businesses to show concern for the environment. They are concerned about pollution and waste disposal.