Introduction

Every business organisation functions in a specific business environment. Growth of a

business organisation depends on lots of factor existing in a business environment. Theses
factors include market structure, type of economy, globalisation factors, government policies
etc. Hence, how an organisation adapts itself in such conditions defines its success or failure.
Purpose of this task is to understand these aspects related to business environment, and how
these aspects play a crucial role in success or failure of a business.

1. Task 1: Understand the organisational purposes of businesses

1.1. Identify the purposes of different types of organisation

Public sector
o Purpose: Public sector organisation is part of an economy concerned
with providing government services. Public sector includes
organisations like military, police, public transit, health care, public
education etc. In United Kingdom some examples of public sector
organisations are: British Council, NHS Choices, NHS Direct, UK
Police and Local Councils etc. Purpose of the public sector
organisation. Purpose of public sector is to provide various services
such as health and education at subsidised rates, or to provide other
important facilities such as roads and defence which are maintained on
taxpayers money.
o Aim: Aim of public sector organisation is towards creating social
equality and economic justice rather than creating profit.

o Objective: Objective of public sector organisations is to provide

essential services without any profit motive. For example health

services, educational services etc.

Municipality
o Purpose: Municipality is a type of organisation which functions at city
level, and is focused on maintenance of various services of the city.
These services can be cleanliness, sanitation etc. Municipality is an
extension of public sector organisation which works at local level, and
generates its revenue from tax collection and funding which is received
from central government.
o Aim: To maintain the essential services such as sanitation, water
supply, health services, cleanliness of the city.
o Objective: Objective of municipality is to upkeep the essential

services which are provided to any particular city.

Charity
o Purpose: Charitable organisations are type of non-profit organisation.
Purpose of charitable organisation if centred on supporting any specific
cause such as education, health care or any medical issue.
o Aim: Aim of charitable organisation is to support a particular cause by
providing them financial and other types of aid to sustain.
o Objective: Objective of charitable organisation is to provide funding
to a specific cause such as research on AIDS, or support to
malnutrition children in Africa etc. One example of charitable
organisation is Bill and Melinda Gates Foundation founded by owner
of Microsoft Bill Gates. Hence from time to this foundation allocates
specific amount of money to support a cause, and closely monitors its

appropriate use.
Private sector limited

o Purpose: Purpose of a private sector company is to generate profit for

its shareholders and stakeholders, by offering its products and services
to the customer.
o Aim: Aim of a private sector company is to maximise its revenue, and
generate profits for people associated with it.
o Objective: Objective of a private sector company is to efficiently use
resources available with it, and to manufacture a product or service in
such a way, that it can be offered to its customers at a competitive price
and profit can be generated. Virgin Group of companies founded by Sir
Richard Branson is one example of a private sector company. It has

limited share holding restricted to few people only.

Public limited company
o Purpose: Purpose of public limited company is similar to private
limited company only, i.e. earning profit for its shareholders who have
invested in the company.
o Aim: Aim of public limited company (PLC) is to ensure maximum
profitability for its stakeholders, and shareholders, by improving its
efficiency and productivity.

1.2. Describe the extent to which an organisation meets the objectives of

different stakeholders
Stakeholder can be defined as a person or an entity that has an interest in the
performance of any specific business organisation. For an organisation, there are multiple
stakeholders. Following are the ways in which organisations try to meet the objectives of
stakeholders associated with them. For better understanding, example of Tesco PLC has been
taken for this task:

Suppliers: For suppliers, Tesco PLC has applied its core value which states that
"Treat people how we like to be treated." Tesco treats its suppliers fairly and honestly, and
focuses on long term relationship.
Government and regulators: Tesco ensures timely payment of its taxes, legal
compliance, and focuses on engaging with governments and officials on a range of policy
issues that affect its business and the communities in which it operate.
Employees: For employees, Tesco has ensured that it provides them a fair and
progressive work environment. Tesco encourages its staff to give anonymous feedback
through its annual Viewpoint survey.
Customer: Tesco organises from time to time its Customer Question Time (CQT)
meetings, which helps the organisation to identify and respond to changing customer needs.
CQTs are used to drive its Customer and Community Plans.
Communities: Tesco engages with communities through community initiatives,
public consultations, and exhibitions. Tesco works with community groups including
charities.

2. Task 2: Understand the nature of the national environment in which

businesses operate
2.1. Explain how economic systems attempt to allocate resources effectively
an economy system can be defined as a system through which a nation makes it
economic choices about the way country utilises its resources to produce and
distribute goods and services.

Economy System
Command Economic
System

Market Economic
System

Mixed Economic
System

Resource allocation
Resource allocation
done through
centralised
government agency.
Land, natural
resources etc. are
allocated by
government for
products of goods
and services.
No role of
government in
resource allocation.
Private and public
organisation decide
on resource
allocation based on
demand and supply
Also known as dual
economy is a
combination of
market and command
economy. Resource
allocation of
resources such as
minerals, oil, lands
etc. is done by
government.
Whereas private
organisation allocates
resource based on
their requirements.

Factor for resource

allocation
Market forces are not
considered before
allocation of
resources. Focus is
more on subsidizing
the product or
service, and creating
equality. Hence,
mass production is a
common
phenomenon
Demand and supply
present in the market,
and profit motive is
the main factor
which decides the
resource allocation.

Balance between
availability and the
profitability decide
the way resource is
allocated. Essential
items such as oil etc.
Private companies
decide resource
allocation as per
demand and supply
factor.

Example
China as a country
follows command
economy system.

United States and

United Kingdom.

India, Japan.

2.2. Assess the impact of fiscal and monetary policy on business organisations

and their activities

Fiscal and monetary policies have tremendous impact on the business organisations
and their activities. Fiscal policies are the policies through which government adjusts its
spending levels and tax rates, so that it can monitor and influence the economy of country.
For business organisation any change in fiscal policies means impact on the cost of
borrowing, rate of taxation, and amount of money an average consumer can afford to spend.
For example, and change in Value Added Tax (VAT) on a product category means impact on
the retail pricing of the product, which can impact its demand.
Monetary policies: are the policies through which government attempts to control the
economy, and overall supply of money in the market. For example, high rate of money supply
can result into high inflation and vice-versa. Central banks of countries often cut or increase
the lending rate to control the flow of money in the economy. For example if a bank decides
to cut its interest rate, for business organisation it will become easy to lend money and
expand its business.
2.3. Evaluate the impact of competition policy and other regulatory

mechanisms on the activities of a selected organisation.

Competition policy and regulatory mechanism has tremendous impact on business
organisation. For example, an organisation like British Airways was fined for 58.5m as it
was found guilty of colluding with its rival Virgin Atlantic for fuel price fixing. This fine was
imposed by Office of Fair Trading (OFT), which is now part of Competitions and Market
Authority in UK. In a country like UK, CMA maintains the competition policy. Purpose of
these competition policies and regulatory mechanism is to ensure that there is no unfair
advantage or monopoly of any specific company in the market, and every organisation gets a
fair opportunity in the market.

3. Task 3: Understand the behaviour of organisations in their market

environment

3.1. Explain how market structures determine the pricing and output
decisions of businesses
Market structure plays a major role in pricing and output decisions of business.
Following are the market structure:

Perfect Competition: many firms are present in such market structure,

freedom of entry, homogeneous product, and normal profit.

Monopoly: In this market structure there is only one firm which dominates the
market; barriers to entry are high in such structure, possibly supernormal

profit.
Oligopoly: In such market structure the market is dominated by few firms, e.g.

5 firm concentration ratio of > 50%

Monopolistic competition: Freedom of entry and exit, but firms has product
differentiation. Likelihood of normal profits in the long term.

3.2. Illustrate the way in which market forces shape organisational responses
using a range of examples
Market forces have major impact on the way organisational responses are shaped. For
example recession in Europe resulted into severe impact on the purchasing power of the
consumers, hence in such situation, purchase related decisions for items such as expensive
vehicles etc. was postponed, which impacted the organisations which were involved in its
products.

Change in demographics is also one major market force which changes the
organisational response. For example there are several countries in Europe where major part
of population is old which means companies active in production of products which are
relevant to youth have to find an alternative market to sell their product or service.
Organisations have to accordingly change their behaviour to adapt to such market
forces. For example, from time to time retail chains such as Sainsburys, Tesco, Marks and
Spencer come up with discounts on their products to spike the sale of their products.

3.3. Judge how the business and cultural environments shape the behaviour of
a selected organisation
PEST analysis of Tesco PLC will help in understanding the way business and cultural
environment shape the behaviour of selected organisation.
Political: Tescos performance is impacted by political and legislative conditions in
UK. For example, employment related legislation by the government encourages the retailer
like Tesco to provide mix of job opportunities with range of low paid to high paid jobs,
including varying skill sets. Hence Tesco has to accordingly hire people so that it can fulfil
government legislation as well.
Economic: economic factors have major impact on Tescos business. For example,
high unemployment rate results in decrease of demand for goods, which adversely impacts
the demand required to produce such goods. Such economic factors are outside the control of
the organisation.
Social/Cultural factors: trends in UK retail sector indicate that British customers
have gradually moved towards bulk or one stop shopping, which means, that apart from its
core food items, Tesco has to stock various other items which customers might be looking for.

Similarly, gradual increase in the demand for organic food products has resulted into Tesco
focusing on stocking such organic food products.

4. Task 4: Understand the behaviour of organisations in their market

environment.
4.1. Discuss the significance of international trade to UK business

organisations
International trade has played a major role in growth of business organisations in UK.
For example, import liberalisation has allowed UK organisation to get access to raw material
at economical rates. British Petroleum which is UKs one of the largest petroleum producers,
imports crude oil from oil producing countries in Middle East. Similarly, export of goods and
services has allowed British organisation to expand further and negate any impact of slow
down in economy. For example, Vodafone which is a UK based organisation has operations
across world. Similarly Barclays which is a financial organisation has its operations in
various countries outside UK as well. International trade has allowed UK business
organisation to expand their business further, even when UK and other parts of Europe was
going thorough economic recession.
4.2. Analyse the impact of global factors on UK business organisations
Global factors always had a major impact on UK business organisations. For example,
when Eurozone crisis started in 2007-2008, major part of European continent went through
recession, due to which there was negative growth of economy resulting into poor demand
for various products and services. Similarly, at times shortage of raw materials such as crude

oil might result into increase of petroleum products, which means, political instability in
other country has impact on the business organisation in UK. However, Asian countries like
China, Japan and India etc. also helps in maintaining positive growth of many business
organisations such as Vodafone, Barclays, etc. who have their operations in countries like
India. In nutshell it can be said that global factors have major impact on the business
organisation in UK. They at times create issues such as shortage of raw materials, whereas at
the same time they also provide opportunity in form of globalisation to expand in other
countries.
4.3. Evaluate the impact of policies of the European Union on UK business

organisations
Membership to European Union has mixed impact on the business in United
Kingdom. For example, EU Member States are part of a customs union, with no tariffs on
goods moving between member States, and a common tariff applied to goods entering from
outside the EU. This free trade policy has helped business organisations in United Kingdom
to pursue their business interest in other member states of EU, as there is no tariff imposed on
the movement of goods between member states, because of which there is no additional
burden on the organisation to increase the price due to any additional tax or tariff.
On other hand, there are policies such as Common Commercial Policy (CCP), which
enables the member state of EU to establish any trade relationship with non-EU member
state, which means that UK business organisations cannot operate independent trade policies
with any other non-member EU country. Such policies might act as hindrance at times
because every time a business organisation has to deal with a non-member country based
organisation it has to follow CCP which might cumbersome and impact the process of
decision making.