The Business Environment Flashcards
Johnson & Scholes suggest the following procedure: (5)
- Assess the nature of the environment
- Identify influences which have affected the organisation or which are likely to do so
- Prepare a structural anaylsis identifying the ‘key forces at work in the immediate / competitive environment’
(Important developments identified) - What is the organisation’s position in relation to other organisations?
- What threats and / or opportunities are posed by the environment?
Environment may be examined in a number of ways: (2)
- Global / local:
- General / task (ACCA’s method)
a. General / Macro environment (Indirect factors; PEST)
b. Task / Micro environment (Direct impact)
General / Macro environment factors include: (3)
PEST (initial survey!)
- General economic trends
- Population growth
- New technology
Task / Micro environment factors include: (3)
Porter’s 5 forces
- Ability to acquire raw materials
- Competition
- Customers
The overall degree of uncertainty in an environment may be assessed along 2 axes: (2)
- Simplicity / complexity
2. Stability / Dynamism
Simplicity / Complexity: (3)
- Variety of influences faced by organisation (More open; more markets)
- Amount of knowledge necessary (Tax systems vs. Drug testing procedures)
- Interconnectedness (Importing / exporting -> FOREX -> Interest rates)
Stability / Dynamism: (2)
- Predict demand = stable
2. Fashion goods = unstable
Rule of thumb: A checklist for uncertainty: (4)
- Simple & stable = Low uncertainty
- Complex & stable = Low to moderate
- Simple & unstable = Moderate to high
- Complex & unstable = High
Changes that have happened: (8)
- Globalisation
- Science and Technology
- Mergers, acquisitions and strategic alliances
- Changing customer values & behaviour
- Increased scrutiny
- Liberalisation & deregulation
- Business practices (Downsizing, outsourcing and re-engineering)
- Social & business relationships
A ‘flexible firm’ is defined as:
a core of full-time permanent staff with the key scarce skills and peripheral part-timers and temporary / contract workers which can be flexed in a number of ways
Legal factors affecting all companies include: (9)
- General legal framework (ways of doing business)
- Criminal law (Theft, insider dealing, bribery, deception)
- Company law (Directors’ duties, reporting requirements, takeover proceedings, shareholders’ rights, insolvency)
- Employment law (Trade Union recognition, Social Chapter provisions, minimum wage, unfair dismissal, redundancy, maternity, Equal opportunity)
- Health & Safety (Fire precautions, safety procedures)
- Data Protection
- Marketing & Sales (Consumer protection laws, Advertising laws)
- Environment (Pollution, waste control)
- Tax law (Corporation tax, income tax, NI, sales tax)
The impact of government: Porter notes several ways whereby government can directly affect the economic structure of an industry:
- Capacity expansion (capital allowances)
- Demand
- Divestment and rationalisation (Defence)
- Emerging industries
- Entry barriers (Quotas and tariffs)
- Competition
National & EU institutions also affect the operating activities of some organisations: (5)
- Anti-discrimination legislation
- Health & safety legislation
- Product safety & standardisation
- Workers’ rights
- Training & education policies
Businesses can influence government policies in a number of ways:
- Lobbyists
- Non-executive directorships
- Influence public opinion by advertising
Political risk is:
The risk that political factors will invalidate the strategy and perhaps severely damage the firm
Comparative advantage suggests that:
Free trade is the best way to promote global economic growth and domestic propsperity
Forms of termination of employment: (7)
- Retirement
- Resignation
- Dismissal
Organisations encourage retirement for a variety of reasons: (4)
- Promotion opportunities for younger workers
- An alternative to redundancy
- Avoid the age structure becoming unbalanced
- Cost of pensions rises with age
3 forms of termination that constitute dismissal:
- By the employer
- Non-renewal of fixed-term contracts
- Constructive dismissal (employer breaches contract)
Wrongful dismissal is dismissal that
Breaches the contract of employment
Unfair dismissal would be
arbitrary dismissal; dismissal without good reason
Redundancy is dismissal under 2 circumstances: (2)
- Employer has ceased to carry on business
2. Requirements of the business to carry out work have ceased or diminished or are expected to
Employees are not entitled to compensation in 3 circumstances: (3)
- Offer of suitable alternative employment refused
- Of or over pensionable age or less than 2 years’ continuous service
- Employee’s conduct merits dismissal
Privacy is
- The right of the individual not to suffer unauthorised disclosure of information
- The right of the individual to control the use of information about him or her, including information on financial status, health and lifestyle
Personal data is
Information about a living individual, including expressions of opinion about them
Data users are
Organisations or individuals who control personal data and the use of personal data
A data subject is
an individual who is the subject of personal data
Data Protection Principles: UK Data Protection Act includes 8 Data Protection Principles: (8)
- Processed fairly & lawfully; not processed unless:
a. A Schedule 2 condition is met
b. Sensitive personal data: A Schedule 3 condition is met - Obtained for 1 or more specified and lawful purposes; not further processed in any manner incompatible with those purposes
- Adequate, relevant and not excessive
- Accurate and kept up to date
- Not kept for longer than is necessary
- Processed in accordance with the rights of subjects
- Appropriate technical and organisational measure against unauthorised or unlawful processing; accidental loss or destruction or damage
- Not transferred outside of the EEA unless adequate protection for rights and freedoms are ensured
Ideas to ensure compliance with data protection legislation: (4)
- Obtain consent
- Supply copies if requested
- Consider obtaining consent
- Don’t pass data on to unauthorised parties
The importance of maintaining health and safety at work: (3)
- Legal obligation
- Costs money
- Image
Health & Safety: An employer’s duties: (11)
- Safe work practices
- Safe and healthy work environment
- Maintained plant and equipment
- Information, instruction, training and supervision
- Safety policy clearly communicated
- Risks assessments; continuous; in writing
- Share hazard and risk information with others
- Introduce controls
- Revise safety policies
- Identify employees especially at risk
- Competent health and safety advisers
Health & Safety: An employee’s duties: (5)
- Reasonable care of themselves and others
- Allow employer to carry out duties
- Not interfere intentionally or recklessly with machinery or equipment
- Inform employer of any dangerous situation
- Use equipment properly
Consumer protection: A contract is…
…a legally binding agreement
Common contractual terms include:
Consideration Agreement Offer Acceptance Implied behaviour Breach of contract Void False Description (Criminal offence!)
Deciding whether goods are of ‘satisfactory quality’: (5)
In the course of a business:
- Fitness for purpose commonly supplied
- Appearance and finish
- Freedom from minor defects
- Safety
- Durability
Increasing participation of women in the labour force: (4)
- More part time jobs
- Rising male unemployment (Industrial decline)
- Service sector growth
- Increasing average age women have children
‘FLC’ is…
Family Life Cycle
Cultural trends include:
- Health & diet (vegetarianism, ‘green consumerism’ and organic food)
The business response to cultural trends:
- Green products
- Changed practices
- Limits
- Education and confusion
- Environmental impact assessments
Decentralised organisations can be described as…
decision making is passed down to empowered workers or outsourced to external companies
Span of control or ‘span of management’ is…
…the number of subordinates responsible to a superior
Delayering is…
…layers of middle management being removed ; Staff lower down the hierarchy have been empowered to make decisions previously made by middle managers
The appropriate span of control will depend on: (5)
- Ability of the manager
- Ability of the subordinate
- Nature of the task (Routine, repetitive, similar)
- Geographical dispersal & communication system
- Availability of good-quality information
Centralised information systems mean…
…holding and processing data in a central place; data collected at remote locations and sent int to the central location
Decentralised information systems have…
…the data / information processing carried out at several different locations away from the centre (or HQ)
Information markets reflect the view that…
…information is a commodity which can be bought, sold and exchanged
Outsourcing is…
the contracting out of specified operations or services to an external vendor
Types of outsourcing include: (4)
- Ad-hoc (short-term)
- Project management (Development and installation of an accounting system)
- Partial (Website management)
- Total (Equipment, software and staff)
Advantages of outsourcing include: (6)
- Fixed price (Remove uncertainty about cost)
- Planning encourages (long-term contracts)
- Economies of scale
- Retain skills and knowledge
- New skills and knowledge become available
- Flexibility (scaled up or down)
Disadvantages of outsourcing include: (5)
- Inherent part of the business (too important to be contracted out)
- Highly confidential information
- Opportunities to gain competitive advantage may be missed
- Locked in to an unsatisfactory contract
- Awareness of costs is not encouraged (If you don’t know, contractors can charge anything they like!)
Environmental footprint is…
…the impact that a business’s activities have upon the environment including its resource environment and pollution emissions
Examples of impacts on the environment include: (6)
- Depletion of natural resources
- Noise & Aesthetic
- Residual air & water emissions
- Long-term waste disposal
- Uncompensated health effects
- Local quality of life (changes)
Stakeholder expectations: Stakeholders include: (4)
- Communities
- Customers
- Suppliers and supply chain participants
- Competitors
Environmental analysis: SWOT
Internal: Strengths Weaknesses External Opportunities Threats
Questions to ask to establish opportunities:
- What opportunities exit in the business environment?
- What is their inherent profit-making potential?
- Can the organisation exploit the worthwhile opportunities?
- What is the comparative capability profile of competitors?
- What is the company’s comparative performance potential in this field of opportunity?
Questions to ask to establish threats:
- What threats might arise to the company or its business environment?
- How will competitors be affected?
- How will the company be affected?
A SWOT analysis can be used in 1 of 2 ways:
- Resource-based strategies: extend the use of strengths
2. Positioning-based strategies: opportunities and what the firm has to do to exploit them
Value activities are…
…the means by which a firm creates value in its products
Porter’s value chain of activities: (4 + 5)
Support activities
Primary activities
Porter’s value chain of activities: Support Activities (4):
- Firm infrastructure (Planning, finance, quality control)
- HR Management (Recruiting, training, developing, rewarding)
- Technology development (Product design)
- Procurement
Porter’s value chain of activities: Primary Activities (5):
- Inbound logistics (Receiving, handling, storing)
- Operations (conversion)
- Outbound logistics (Storing, distribution)
- Sales & Marketing (Informing, persuading to buy)
- Service (installing, repairing, upgrading)
5 competitive forces influencing competition in an industry:
- Threat of new entrants
- Threat of substitute products or services
- Bargaining power of customers
- Bargaining power of suppliers
- Rivalry among competitors
