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The external environment, Study notes of Introduction to Business Management

University of Warwick (Warw)Introduction to Business Management

These comprehensive lecture notes provide an in-depth analysis of the External Environment affecting businesses, using frameworks like PEST/STEEPLE to examine Political, Economic, Social, and Technological factors. Key topics include: - Economic cycles, fiscal/monetary policies, and GDP/GNP distinctions. - Social trends, demographics, and cultural impacts on business strategies. - Technological advancements, R&D, and e-business benefits. - Ethical debates (Free Market vs. Social Responsibility) and regulatory approaches. Ideal for students studying business management, engineering, economics, or strategy, the notes offer clear explanations, real-world examples, and tools for assessing external business environments.

Typology: Study notes

2023/2024

Available from 04/11/2025

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Sam$Adams$ES187&'&Introduction&to&Engineering&Business&Management$

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1!

External)Environment)

1. PEST)or)STEEPLE)

!

PEST!or!STEEPLE!analysis!identifies!external!opportunities!and!threats!

!

Political!

Economic!

Social!

Technical!

!

Social!

Technological!

Economical!

Environmental!

Political!

Legal!

Ethical!

!

FACTORS+TO+CONSIDER+

Size!–!link!back!to!economies!of!scale!

Country,of,operation!–!tend!to!find!more!regulation!and!legislation!in!developed!economies,!

increases!costs!of!operation!

Generic,strategy!–!low!cost,!good!for!a!recession!

Reaction,speed!<!respond!quickest!can!be!an!opportunity!

!

POLITICAL+&+LEGAL+FACTORS+

• Stability!of!political!environment!&!impact!on!business!confidence!

• Influence!of!current/future!ruling!political!party!!

• Labour!(Socialist,!left!wing)!tend!to!do!more!government!borrowing!and!

spending,!increasing!taxation!and!minimum!wage!

• Conservative!(Republican,!right!wing)!tend!to!borrow!and!spend!less!and!

lower!taxes!and!minimum!wage!

• Potential!for!the!Government!as!a!customer/partner!

• (Public!Private!Partnerships)!PPP!is!a!term!used!to!cover!a!wide!range!of!

activities!in!which!the!public!and!private!sectors!work!together!<!e.g.!Private!

Finance!Initiative!(PFI)!

• Government!seeks!to!move!risk!to!the!private!sector!

• Questions!raised!about!whether!PPP!schemes!always!save!money!long!term!

• Influence!of!different!levels!of!Government!!

Define Alternatives

Implement

Analyse Current

Situation & Gaps

Choose Strategy

Assumptions PLANNING GAP

Strategic Fit & Strategic Choice

Vision Mission

Values Objectives

External Analysis

Internal Analysis

SWOT

Strength/ Weakness

Internal to Firm

Opportunity/ Threat

External to Firm

Objectives

Strategy and Programme Formulation

Implementation

Feedback and Control

Partial preview of the text

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External Environment

1. PEST or STEEPLE

PEST or STEEPLE analysis identifies external opportunities and threats P olitical E conomic S ocial T echnical S ocial T echnological E conomical E nvironmental P olitical L egal E thical FACTORS TO CONSIDER Size – link back to economies of scale Country of operation – tend to find more regulation and legislation in developed economies, increases costs of operation Generic strategy – low cost, good for a recession Reaction speed -‐ respond quickest can be an opportunity POLITICAL & LEGAL FACTORS

Stability of political environment & impact on business confidence
Influence of current/future ruling political party
- Labour (Socialist, left wing) tend to do more government borrowing and spending, increasing taxation and minimum wage
- Conservative (Republican, right wing) tend to borrow and spend less and lower taxes and minimum wage
Potential for the Government as a customer/partner
- (Public Private Partnerships) PPP is a term used to cover a wide range of activities in which the public and private sectors work together -‐ e.g. Private Finance Initiative (PFI)
- Government seeks to move risk to the private sector
- Questions raised about whether PPP schemes always save money long term
Influence of different levels of Government Define Alternatives Implement Analyse Current Situation & Gaps Choose Strategy Assumptions PLANNING GAP Strategic Fit & Strategic Choice Vision Mission Values Objectives Internal Analysis External Analysis SWOT Strength/ Weakness Internal to Firm Opportunity/ Threat External to Firm Objectives Strategy and Programme Formulation Implementation Feedback and Control

Influence of political lobby groups (e.g. Pressure groups and the Media)
Impact of legislation
- Codes of conduct preferred by industry (Self Moderating), although this does require some external supervision - Cheaper and quicker
- Common law-‐ develops on the basis of judgements in the courts. (Previous cases set as president)
- Statute law-‐ set by parliament
- Civil law-‐ One party can bring action for loss against another part
- Criminal law-‐ Government brings action against a party who causing harm to society more generally How the legal environment affects businesses:
Contractual relationships with customers / suppliers
Duty of care to members of the public
Employment legislation
Protection of intellectual property rights
Production processes
Anti-‐competitive behaviour SALE OF GOODS Main Legislation:
Trade Descriptions Act 1968
Sale of Goods Act 1979
Misrepresentation Act 1967
The Consumer Protection Act 1987
Consumer Credit Act 1974 Trade descriptions False description – one careful owner cannot be used to describe a car being sold by a car leasing firm False statement of price – with sales prices must show goods have been on sale at higher price in preceding 6 months for 28 consecutive days. False description of services – even if no intention to deceive if advert misleading can be found guilty. But interestingly can argue a mistake if you can show reasonable precautions taken. EMPLOYMENT
Based on principles of contract law and negligence
Employer vicariously liable for actions of employees
Increasing amount of statutory legislation
Need to distinguish between an employee and a self-‐employed contractor

Exclusive dealing , where a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier. Price fixing , where companies collude to set prices, effectively dismantling the free market. Refusal to deal , e.g., two companies agree not to use a certain vendor Dividing territories , an agreement by two companies to stay out of each other's way and reduce competition in the agreed-‐upon territories. Limit Pricing , where the price is set by a monopolist at a level intended to discourage entry into a market. Tying , where products that aren't naturally related must be purchased together. Resale price maintenance , where resellers are not allowed to set prices independently.

2. Economic factors

ECONOMIC STRUCTURE

• THREE SECTORS

§ PRIMARY (Farming, mining etc) § SECONDARY (Manufacturing) § SERVICES – growing

SIZE OF SECTORS MEASURED BY § share of Gross Domestic Product (GDP) § proportion of labour force employed GDP measures the value of output produced within the domestic boundaries of the UK. Includes output of foreign owned firms that are located in the UK. The Difference between GDP and GNP Gross National Product (GNP) measures the final value of output or expenditure by UK owned factors of production whether they are located in the UK or overseas. Negative balance of payments or trade deficit; import more than we export. INCOME
Firms and households are inter-‐dependent
Basic model based on a closed system
Withdrawals slow down the flow
Injections speed up the flow Multiplier Effect -‐ benefits of one action create many expanding benefits of reducing magnitude Accelerator Effect -‐ A small change in consumer demand can lead to a big change in demand for industrial goods and services

Fiscal policy-‐ Concentrates on stimulating the economy through changes in government income and expenditure Monetary policy-‐ Influences circular flow of income by changes in the supply of money & interest rates CENTRAL BANK

Central bank plays an important role in the management of the national economy
Regulates the volume of currency in circulation within the economy
Intervenes to influence the exchange rate for sterling.
Bank of England has a supervisory role over private banks
European Central Bank is the central bank for EU KEY INDICATORS TO MEASURE ECONOMIC ACTIVITY
Gross Domestic Product
Inflation, Exchange & Interest rates
Unemployment rates
Output levels
Average earnings, Disposable income & Consumer spending
Savings ratio INFLATION
The general level of prices in the economy is rising
Common measures of inflation – RPI (Retail Prices Index) and CPI (Consumer Prices Index)
Demand pull inflation
Too much money chasing an inadequate supply of goods and services
Cost-‐push inflation
Caused by increases in production costs EXCHANGE RATES
A high, or strong, £ makes exports more difficult and imports of competitor products cheaper but typically linked to a stronger economy and high sales demand
A low, or weak, £ makes exports easier but imports of materials more expensive and can be linked to a recession with low sales SOURCES OF LONG TERM ECONOMIC GROWTH § Natural resources § Labour resources § Capital resources § Productive potential

3. Social Factors

MAJOR FACTORS

§ Changing trends in values, life styles, leisure, health § Demographic & population trends § Lobby groups – e.g. Environmental § Education levels § Cultural Differences o Understanding processes of buyer behaviour o Distribution channel decisions are partly a reflection of cultural attitudes o Advertising messages do not always translate easily between different cultures o Methods of procuring resources can vary between cultures Important considerations are: § The elderly are a ‘growth area’ (population is generally living longer). § Environmental issues, ‘green’ lobbies. § Globalised businesses need to be aware of the effect of cultural differences. § Health and Safety issues – society is becoming more litigious and legislative. § Skills and education in the workforce need to increase to keep abreast of technological advances.

4. Technical Factors

§ University/Government R&D § Industry-‐Wide R&D § Transport Infrastructure § ICT Infrastructure § Possible substitutes Key drivers identified as § Investment § Innovation § Skills § Enterprise, no of new start ups § Competition

5. View of the Business World

Free Market view

Business world is independent of society and its moral views
Its only aim is to make money
Moral requirements are society’s business Social Responsibility View
Business world is part of society
So it has restrictions on making money (as other members of society do)
It therefore has moral requirements
Companies have relationships with
Society in general,
Their local community
Other companies
Employees
Which involve trust and some shared interests/values
These occur at two levels
Within a company
Between companies and external entities THE FREE MARKET VIEW
Business is independent of the moral environment
Only one concern -‐ to make money
Variety of positions
morality is not the concern of business,
business' only moral requirement is to obey the law
the Coincidence Theory -‐ be moral because it will be good business practice.
Primary aim making profit for the shareholders
In this view the interests of the stakeholders, be they worker, consumer, supplier, manager, are all subordinate to the company's interests Free market view of company
Company is property of the shareholders
Run for their benefit.
Company executives work for them
Owners can do what they like with the company
Workers are free to choose work and a contract which suits them
The same is true for suppliers and all other stakeholders

SOCIAL RESPONSIBILITY VIEW

Sees companies and business world as part of the complex web of social relationships
Companies themselves are part of the social world
Moral concerns are their concerns
Cannot have money as their only value or interestt
Money-‐making is one among a variety of concerns, interests or values that a company will have
Concerns may have different weights, but are valued in their own right
Not just because they contribute towards one over-‐riding aim. SELF REGULATION
A sign of the success of the Free Market?
Or a sign of the failure of society or government to control the free market?
Three levels
Within companies -‐ Corporate Social Responsibility
Within an industry -‐ Industry Self Regulation
Throughout the commercial world -‐ Business Self Regulation GOVERNMENT REGULATION
A social responsibility
Presupposes relations between the market and society which make the market subject to social mores BUT
Are social values appropriate for the marketplace?
The same problem as arose with industry regulating bodies
Is government regulation much concerned with the benefit of consumers. UTILITARIANISM
Right and wrong depend on consequences
Consequentialism aims to maximise the good consequences and minimise the bad ones
You ought to do what produces good results
Rather like cost/benefit analysis
But not just the consequences to one party
Utilitarianism is about the good life and living well
Important results are happiness or pleasure
So only one thing counts -‐ happiness
Later versions value preferences or welfare
Act Utilitarianism
Rule Utilitarianism

People do things with bad consequences for good reasons
One reason is too many
Much more complex system
No guidance on how you know which duties are the right ones – Code of Conduct?
But how do we know that is right? VIRTUES OR EXCELLENCES VIEW
Greek ethics is thinking about virtues
Virtues are more like ‘excellences’
What makes for an excellent engineer or company
Not just moral considerations
About being the right kind of person, not about doing the right thing
Aristotle
Excellences are habits
But feelings as well as reason are important
The Golden Mean
Depends on how you see company
For Free Market view excellent company is one that maximises profit
Virtues might be
Loyalty to company’s interests
Not wasting money on unnecessary considerations
For Social Responsibility view excellent company is one that plays its part in society
Virtues might be
Being aware of company’s and product’s effects on society
Taking all stakeholders interests into account