Outcome 2 Understanding Business Outcome 2 Understanding Business
Outcome 2 Understanding Business
Outcome 2 – Understanding Business By the end of this unit I will be able to: Outcome 2 –Apply knowledge and understanding of factors that impact on the activities of small and medium sized business organisations by: 2. 1 Outlining how internal factors impact on business activity. 2. 2 Outlining how external factors impact on business activity. 2. 3 Examining the impact stakeholders have on business activity.
Understanding Business By the end of this section I will be able to: Outcome 2 –Apply knowledge and understanding of factors that impact on the activities of small and medium sized business organisations by: 2. 2 Outlining how external factors impact on business activity.
Survival • In order to survive a business must adapt to change which takes place in their environment. • REMEMBER a businesses main aim is survival.
Some of the main reasons why markets change rapidly: • Customers develop new needs and wants • New competitors enter a market. • New technologies mean that new products can be made. • A world or countrywide event happens e. g. Gulf War or foot and mouth disease. • Government introduces new legislation e. g. increases minimum wage.
Business Environment The Internal Environment is within the business, whereas the External Environment is outside the business
External Factors A PESTEC analysis looks at what is happening in the market around a product or service. Political Economic Social Technological PESTEC Environmental Competitive
External Factors which cause change • A PESTEC analysis looks at what is happening in the market around a product or service. • To examine the changes in a market. • To help understand if the market is growing or declining. • To help the direction of the business in the future. • Avoid making bad decisions beyond your control.
Political External Influences P - Political Influences Political decisions can influence a business eg laws relating to Health and Safety; Minimum Pay. Governments can offer incentives such as grants to businesses willing to locate in a particular area of the country. EXAMPLE The Government could change the amount of tax individuals and business have to pay, VAT currently at 20% but this could be lowered to encourage people to spend money.
Political factors Environment laws Government attitudes Consumer protection Tax policies Competition laws Employment law International trade rules Type of government
Economic • E - Economic Influences • Changes to the economy can have major consequences for even the most successful of businesses. • eg during a recession fewer people work and demand normally falls. • Increasing tax allowances, however, helps employees to have more ‘take home’ pay which they can spend (increasing demand). What is a recession ? A period of temporary economic decline during which trade and industrial activity are reduced.
Economic Factors International trade and exchange rates Interest rates Inflation Disposable Income Taxation Employment/une mployment rates
S - Social Influences Social The changing opinions, values and peoples beliefs • Consumer preferences and tastes change constantly and this influences demand. • What was ‘in’ last year can quickly become ‘out of fashion’ this year. • eg the demand for laptops has fallen sharply as sales of tablet computers and smart phones have soared. • Market Research can help a business to predict when changes in taste and fashion will happen and how this will affect demand.
Social Population trends – age and sex profiles Attitudes to the environment Roles of men and women Leisure habits Impact of religion Attitudes to health Lifestyle trends Ethical issues Consumer buying trends and fashion
Technological • New ways of working can have a major impact on businesses. • eg the internet has allowed companies to sell their products across the world (e. commerce) – – Web 2. 0 technology that allows people to interact with people. Cloud computing = cheaper IT and staffing costs to the business • Using robotics has increased productivity (reducing costs) and helps to ensure consistency in quality.
Technological Impact of new technologies Impact of the Internet Research and development Speed of technology transfer Government attitude towards and spending on technology research Impact of communication technologies
Environment Be seen to be Green • Looking after the environment is important • Businesses demonstrate a commitment to ‘green issues’. eg recycling and the sustainable use of natural resource. • Being ‘seen’ to be green can help a business to attract new customers. Weather / seasons The weather is another good example of environmental influence • Some businesses do better when the weather is hot and others when the weather is cold. – – – Garden Furniture Ice Cream seller Suppliers of heating
Competition The actions of an organisation’s competitors can have an effect on it. – eg sales of i. Phones have fallen because of increased competition from other smart phones. Business don’t like competition, However competition has benefits for customers – – More choice More special offers Good might be cheaper Higher quality service if offered
Understanding Business By the end of this section I will be able to: Outcome 2 –Apply knowledge and understanding of factors that impact on the activities of small and medium sized business organisations by: 2. 1 Outlining how internal factors impact on business activity.
Internal Factors Businesses must be aware of internal factors that can influence their success and survival. WHY ? Unlike external ones, internal factors can be controlled rather than just reacted to. The role of management • • Obtain the resources necessary to achieve the business’s objectives Use these as efficiently as possible. Internal Influences must be considered.
Internal Factors of the Internal Environment Finance available Labour available ICT and Technology available Information available Management and Leadership
Internal Factors Finance The level of finance available to support a decision will impact upon the decision that can be made. The finance being invested in a decision should be justifiable in terms of the benefits it brings. Organisations must be aware of money matters and respond to potential problems quickly Finance is crucial, a lack of money = cost cutting measures such as staff redundancies or closing branches
Internal Factors Human Resources People who work for a business are called Workforce or Human Resources Expert and capable staff will be more productive = improved achievement Managers are promoted employees who are given more money to carry out extra responsibilities. Management and Leadership Good decisions made by management can have a positive influence on a business Employees can affect how a business works by – making decisions, carrying out their work to a poor standard and by taking industrial action
Human Resources Issues, – High turnover of workers (Possible causes: low wages, poor conditions or relationships with managers) – Poor quality of work or low productivity (Possible causes: lack of training; lack of quality standards or supervision; inefficient machinery or breakdowns) – Poor decision-making (Possible causes: lack of or poor communications; poor management) – Low staff morale (Possible causes: poor industrial relations; unfair treatment; effort and good work not being rewarded/recognised)
Internal Factors Technological The degree of ICT used within a business can influence the quality and quantity of products produced. Technology influences how a business operates Poor tech = • Orders cannot be processed as quickly • Poorer communication • Poor quality • Less efficient staff • Disadvantages for selling goods A business that has new technology can often have a competitive edge
Understanding Business By the end of this section I will be able to: Outcome 2 –Apply knowledge and understanding of factors that impact on the activities of small and medium sized business organisations by: 2. 3 Examining the impact stakeholders have on business activity.
What is a Stakeholder?
What is a Stakeholder? Stakeholders are groups of individuals with an interest in or an influence on an organisation.
Activity Who are the Stakeholders?
Who are the Stakeholders? Local Community Parents Local Council Suppliers Teachers Pupils Employees Scottish Government Any Others?
Internal stakeholders Stakeholders • Examples of Internal Stakeholders include: – Owners – Managers – Employees
Owners/Shareholders INTERESTS • To receive a share of the profits made • To see the business succeed and survive • To see an increase in the value of shares • For the company to operate in an ethical and socially responsible manner INFLUENCES Decide to buy/sell shares Opportunity to vote at AGM (Ltd/plc) Direct influence on decision-making (ST/PT)
Management INTERESTS • Job Security • Profit Maximisation • Improved Salaries and Bonuses • Career Opportunities • Working Conditions • Growth of the Business INFLUENCES Key Decisions Made
Employees INTERESTS • Job Security INFLUENCES Level of Productivity • Improved Salaries Industrial Action • Career • Opportunities • Working Conditions
External Stakeholders • Examples of External Stakeholders include: – Customers – Banks – Suppliers – Local Community Groups – Government
Customers INTERESTS • Best Prices (Value for Money) • High Quality • Range of Products • Customer Service • Guarantees INFLUENCES Whether to Buy the product/service Repeat Purchasing
Banks INTERESTS • Ability to Pay Back Loans • Profits/Growth – Additional Business for Bank INFLUENCES Grant/Refuse Loan Application Setting Interest Rates Terms & Conditions of Loan
Suppliers INTERESTS • Continuing Custom INFLUENCES Quality of Raw Materials Set Raw Material Price • Ability to Pay Invoices Set Credit Terms
Local Community INTERESTS • Environment • Jobs • Effect on other Businesses • Infrastructure INFLUENCES Ability to Persuade Businesses to carry out their wishes Positive/Negative Publicity
Pressure Groups INTERESTS INFLUENCES • Environment Lobby Businesses – Positive/Negative Publicity • Jobs
Local/National Government INTERESTS • Attracting Jobs • Collection of Taxes • Improvement of Economy INFLUENCES New Legislation Levels of Taxation
Competing Aims of Stakeholders • Different stakeholders can have competing aims eg: • Senior Management may wish to maximise profit whereas customers want low prices. • The Managing Director may wish to have an innovative atmosphere whereas employees are looking for job security (innovation might include the introduction of automation leading to job losses)
Situation Stakeholder Wants training on how to do a task Employee Wants testing on animals banned Pressure Groups Wants extra jobs in the country so that less money is paid out in benefits Government Wants longer time to return items to the shop if they are unsuitable Customer Wants to receive payment for fabrics delivered to an upholstery shop Suppliers Wants to encourage another account to be opened for saving Banks Wants nearby airport to stop planes taking off at night and disturbing sleep Local Community Stakeholder Pressure Group/Local Community Influence exerted Complained to local council about pollution from a nearby factory Bought more shares in a company Shareholder Customer Used a different hotel on next trip because they received poor service Local Government Business not given permission to build an extension on to their property Talked to MP with complaint about amount of traffic on the road outside their house Local Community Bank Suppliers Decided to increase the amount of money to be repaid on a loan Request immediate payment of a recent bill for raw materials
Revision Questions • Outline the impact stakeholders could have on Prezzo. – Owners – impact as makes the decisions – Employees – impact can work efficiently to improve quality – Banks – impact can grant a loan which means expansion is possible
Assessment Revision Command Word Definition Compare Identify similarities and differences between 2 or more factors Define Give a clear meaning Describe Provide a thorough description Distinguish Identify the differences between 2 or more factors. Remember to use whereas/but/however Explain Give details about how and why something is as it is Give Pick some key factors and name them Identify Give the name or identifying characteristics of something Name Identify or make a list Outline State the main features. This needs more detail than just a list Suggest State a possible reason or course of action (no development required)
Internal Stakeholders – Interests and Influences INTEREST INFLUENCE OWNERS To survive To maximise profits Personal satisfaction Responsible for all the decisions taken (or shared) if not a Sole Trader SHAREHOLDERS Achieving maximum income from their investment Hoping that the selling price of the organisation's shares will rise Voting at the Annual General Meeting (AGM) Selling and buying shares in the organisation depending on the amount of profit achieved MANAGERS Job security Personal pride/Satisfaction Making day-to-day decisions Creating good working relationships between workers and the management team EMPLOYEES Job security Safety and welfare of workers Improving worker wages and working conditions Helping to increase productivity (profits) Threatening to withdraw labour (eg strike)
External Stakeholders – Interests and Influences INTEREST INFLUENCE CUSTOMERS Getting quality products/services Getting value for money Receiving good customer care Deciding whether to buy or not to buy products Encouraging/discouraging others to buy BANKS Selling it financial services eg lending money Ensuring loans are repaid Willingness to provide new loans/overdrafts SUPPLIERS Selling their products/services to the organisation Increasing the number of orders from the organisation Deciding on the prices the organisation should pay and if it is to get credit The quality of the goods and services they provide The reliability of deliveries LOCAL COMMUNITY GROUPS Protecting jobs Protecting the environment Obtaining sponsorship/donations Damaging the reputation of the organisation Refusing to buy its products Protests/Petitions GOVERNMENT Collecting taxes the organisation should pay Ensuring regulations are properly implemented (eg H&S; pollution) Keeping local people in work Introducing laws and regulations Offering incentives (eg location grants) Providing advice and financial support
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