Analysing the Business Environment

Management must look into the characteristics of the environment it operates.

Environment Analysis – strategy-making process, Johnson and Scholes

Step 1 – Assess the nature of the environment (Is it changing?)
Step 2 - Identify those influences which have affected the organization in
the
past or which are likely to do so in future.
Step 3 - Prepare a structural analysis identifying the ‘key forces’ at work in
the
immediate or competitive environment.
Step 4 - What is the organization's position in relation to other
organization?
Step 5 – What threats and/or opportunities are posed by the environment?

Organization's environment- may be examined:-

a.Global/Local – operate worldwide, need to be sensitive to local
environment
and markets they operate or export to.

b.General/Task
(i) Macro environment (general) influence indirectly, economic trends,
population growth, new technology, social cultural factors
(ii) Micro environment (task) direct impact, raw material, competitor and
customers.Porter’s 5 competitive forces.

Examine the Business Environment

Reviewing these factors is often referred to as PEST analysis.
In addition, we will need to examine the organisation’s competitors &
further Ecological/Environmental

1.Political/legal factors
2.Economic factors ( illustrate in future: 3 & 4)
3.Social/demographic factors
4.Technological factors
5.Competitive
6.Ecological/Environmental

Note:- depend on the nature of business, different industry will examine

different factors relating to PEST.

1.The Political and Legal Environment

Organisational decisions are strongly affected by developments in the
political environment.

The political environment has its own system or framework. It regulates

society therefore it regulates the system.

Political system
• a set of institutions, political organisations and interest groups/pressure
groups (such as lobby groups**); and
• the relationship between them; and
• the rules and norms that govern their functions (such as constitutions and
election law).

There are three levels of political systems that organisations have to take
account of
ØGlobal – such as the World Trade Organisation (WTO), European Union
(EU) legislation.
ØNational – national government policy
ØLocal – local government departments, councils.

Government Policy influences the economic environment, the framework

of laws, industry structure and certain operational issues.

Political instability is a risk. Different approaches to the political

environment apply in different countries.
International trade is subject to a further layer of international law and
regulation. such as the World Trade Organisation (WTO), European
Union(EU)
legislation.

Political environment affects firm in a number of ways:-

1.A basic legal framework
2.The government can take a particular stance that relates to business or
industry
3.Government conduct its economic policy relevant to business

Porter notes on government directly affect the economic structure of an

industry

ØCapacity expansion – government policy can encourage

increase/decrease
of capacity. Capital allowance encourage investment, tax incentive to
relocate
capacity in location

ØDemand – government is a major customer, influenced demand by

legislation
and tax reliefs or subsidies

ØDivestment and rationalization –government decide to close or sell

defense
business.

ØEmerging industries - promoted or damaged by government eg. Bank

merging.

ØEntry barriers – government policy discourage entering, quotas and tariff

for foreigners

ØCompetition- regulations and controls, infrastructure etc.

Legal Environment
Laws come from a number of sources. Common law, parliamentary and
government regulations are derived from it.

factors examples
general legal framework basic ways of doing business, negligence
criminal law theft, insider dealing, bribery, deception
company law directors & their duties, reporting requirements
employment law dismissal, minimum wage, equal opportunities
health & safety law fire precautions, safety procedures
data protection use of information about employees/customers
marketing & sales laws to protect consumers
environment pollution control, waste disposal
tax law corporation tax, income tax, sales tax

Employment Protection
Legislation – idea of employment protection. Termination of employment
must be treated with great care.
1.Retirement – early retirement due to corporate downsizing

2.Resignation – exit interview and period of notice stated in

contract.Particular problems the employee has been experiencing (example
salary) may be solvable, though not always in the short term.In any case, an
exit interview, when the leaver explains the decision to go, is a valuable
source of information.

3.Dismissal – statutory minimum period given, employee can write reason

of dismissal.
·0 Wrongful dismissal- breach of contract of employment, failure to give
contractual period of notice.

·1 Unfair dismissal- dismissal without good reason. Employment

protection legislation employee prove dismissal and employer to
prove dismissal was fair.

6.Disciplinary procedures- evidence that employee not been dismissed

unfairly

7.Redundancy-employee cease business, compensation to employee,

outplacement counseling.

8.Equal Opportunities - group discriminated without justification.

Data Protection and Security

Why is privacy an important issue?
There has been a growing concern that the ever-increasing amount of
information about individuals held by organisations could be misused.

The fear was that by the existence of computerised data about an

individual, whether correct or incorrect, could be transferred to
unauthorised third parties at high speed and little cost.

UK Data Protection Act 1998 – protects individuals about whom data is

held.
Both manual and computerized information must comply with the Act.
Applies to personal data only.

Data Protection Principles:-

1.Personal data processed fairly and lawfully
2.Personal data obtained for lawful purposes and shall not be processed in
manner
incompatible to purpose
3.Personal data should be adequate, relevant
4.Personal data should be accurate and keep up to date
5.Personal data will not be kept if not necessary
6.Personal data processed in accordance to right of the data
7.Appropriate measures taken against unauthorized or unlawful processing
of
personal data
8.Personal data not transfer to a country without proper security.
Main aims:
1.To protect individual privacy
2.To harmonize data protection legislation

7 rights of individuals:-
1.Right of subject access – indiv. to be told: description of the personal data,
purpose for being process, to whom to be disclosed.
2.Right to prevent processing à cause damage, distress
3.Right to prevent processing à direct marketing
4.Right - automated decision making à no purely automated means, indiv.
has 21 days to require the data controller to reconsider/ diff decision.
5.Right to take action à compensation
6.Right to take action à rectify, block, erase or destroy personal data
(application to court)
7.Right to request the Commissioner assess à contravention of the Act.

Health and Safety

People not exposed to excessive risk when they are at work. Risk and
danger
managed.

Employers’ duties
1.All work practices must be safe
2.The work environment must be safe and healthy
3.All plant and machinery maintained at certain standard
4.Encourage safe working practice and provide training
5.Communicate safety policy to all staff
6.Employers carried out risk assessments on work activities
7.Share hazard and risk information with other employers
8.Introduce controls to reduce risks
9.Revise safety policies
10.Identify employees who are especially at risk
11.Employ competent safety and health advisers.

Employee duties
a.Take reasonable care of themselves and others
b.Allow employer to carry out his/her duties
c.No interfere intentionally or recklessly with any machinery or equipment.
Use properly
d.report any injuries suffered as a result of performing their job
e.Inform employer of any situation which may be danger.

Consumer Protection
Contract law and the sale of goods. A contract is a legally binding
agreement.
Contract law – agreement, offer and acceptance; consideration; intention
and capacity.

Breach of contract – party to contract fail to carry out part of the

agreement
One party makes misrepresentation, the contract will be void.

Sales of Goods and Services

1.Implied terms – description and quality of goods
2.Time of performance - timescale for receive of goods
3.Seller’s title – seller must have the right to sell the goods
4.Goods to correspond with contract description – agreed to certain goods
and
description.
5.Sale by description- Trade Description Act 1968, seller uses false
description is criminal
offence.
6.Satisfactory quality- all goods supplied must have satisfactory
quality(fitness for purpose,
appearance and finish, freedom from minor defects, safety and durability)
7.Fitness of goods for a disclosed purpose- goods supplied must fit purpose