BT - The business organisation,

stakeholders and the external

environment
Contents
Stakeholders in Business Organisations ...................................................................................... 4
DEFINITIONS: ........................................................................................................................... 4
INTERACTION BETWEEN STAKEHOLDERS:............................................................................... 4
CLASSIFICATION OF STAKEHOLDERS: ...................................................................................... 5
MENDELOW’S MATRIX: ........................................................................................................... 6
The Purpose and Types of Business Organisation ...................................................................... 7
TERMINOLOGY USED: .............................................................................................................. 7
BUSINESS ORGANISATION FEATURES: .................................................................................... 7
BUSINESS ORGANISATION DIFFERENCES: ............................................................................... 7
BUSINESS ORGANISATION ACTIVITIES: ................................................................................... 8
TYPES OF BUSINESS ORGANISATION: ...................................................................................... 8
ADVANTAGES AND DISADVANTAGES OF BEING A COMPANY: ............................................... 9
Political and Legal Factors Affecting Business .......................................................................... 10
EFFECT OF LEGAL AND POLITICAL FACTORS:......................................................................... 10
LEGAL AUTHORITY: ................................................................................................................ 11
EMPLOYMENT LAW: .............................................................................................................. 11
DATA PROTECTION AND SECURITY: ...................................................................................... 11
HEALTH AND SAFETY: ............................................................................................................ 12
CUSTOMER PROTECTION: ..................................................................................................... 12
Macroeconomic Factors ............................................................................................................ 14
DEFINITIONS: ......................................................................................................................... 14
MACROECONOMIC DRIVERS: ................................................................................................ 14
 TYPES OF ECONOMIC POLICIES: ............................................................................................ 18
Microeconomic Factors ............................................................................................................. 20
DEFINITION: ........................................................................................................................... 20
DEMAND AND THE DEMAND CURVE: ................................................................................... 20
SUPPLY AND THE SUPPLY CURVE: ......................................................................................... 21
DEMAND AND SUPPLY EQUILIBRIUM: .................................................................................. 21
ELASTICITY OF DEMAND: ....................................................................................................... 22
SUBSTITUTE AND COMPLEMENTARY GOODS: ...................................................................... 23
CROSS ELASTICITY OF DEMAND: ........................................................................................... 23
THE BEHAVIOUR OF COSTS:................................................................................................... 23
COMPETITION: ....................................................................................................................... 25
Social and Demographic Factors ............................................................................................... 26
WHAT ARE SOCIAL AND DEMOGRAPHIC FACTORS? ............................................................. 26
EXAMPLES OF THE IMPACT SOCIAL FACTORS HAVE ON BUSINESS ORGANISATIONS: ......... 26
EXAMPLES OF THE IMPACT OF DEMOGRAPHIC FACTORS ON BUSINESS ORGANISATIONS: 27
Technological Factors ................................................................................................................ 29
ROLE OF TECHNOLOGY: ......................................................................................................... 29
DELAYERING:.......................................................................................................................... 29
TECHNOLOGY AND OUTSOURCING: ...................................................................................... 29
INFORMATION TECHNOLOGY: .............................................................................................. 30
DOWNSIZING: ........................................................................................................................ 30
Environmental Factors .............................................................................................................. 31
IMPACT ON THE ENVIRONMENT: .......................................................................................... 31
CORPORATE AND SOCIAL RESPONSIBILITY POLICY: .............................................................. 32
ECONOMIC SUSTAINABILITY BENEFITS: ................................................................................ 33
Competitive Factors .................................................................................................................. 34
DEFINITION: ........................................................................................................................... 34
SWOT ANALYSIS: .................................................................................................................... 34
QUESTIONS TO BE ASKED:......................................................................................................... 35
THE VALUE CHAIN:................................................................................................................. 36
PORTER’S FIVE FORCES: ......................................................................................................... 39
Stakeholders in Business Organisations
DEFINITIONS:

Stakeholder is an individual, an entity, or a group of individuals or entities who have interest in

the business organisation and its activities (for example: owners, employees, suppliers,
government etc).

Agency relationship is a consensual relationship between two parties, where one person or
entity authorizes the other to act on his, her or its behalf (e.g., directors act as agents on behalf
of stakeholders).

INTERACTION BETWEEN STAKEHOLDERS:

However, this interaction creates lots of potential conflicts between the stakeholders involved:

 Managers may want to grow market share and spend resources on building an
infrastructure. This cash
investment may dilute the cash position and lower the cash distribution available for
owner dividends;
 Employees and managers may wish to enhance the employee environment by
paying higher salaries which may lower the financial performance of the
organisation in conflict with other stakeholder group objectives; -

Financial performance objectives could well be in conflict with environmental objectives.

CLASSIFICATION OF STAKEHOLDERS:

Narrative Internal stakeholders Connected stakeholders External stakeholders

Those that benefit from

the good running and Those who do not
performance of the benefit financially from
Description Those occupied with the organisation but who have the day-to-day running
actual running of an limited input into the of the organisation but
organisation on a daily running of its day-to-day may have some other
basis. operations. interest.
- Employees - Suppliers - Government
- Managers - Customers - Lobby groups
Examples
- Owners - Shareholders - Auditors
- Banks
- Financial performance - Financial performance - Environment
Core - Job security/benefits - Cash flow/position - Tax paid
objectives - Culture - Quality products - Job creation
- Customer satisfaction - Relationships - Compliance
- Financial performance - Funding - Licensing
- Culture - Costs - Product approval
Areas
- Industrial relations - Product supply - Taxation
impacted
- Job satisfaction - Valuation - Regulation
- Customer satisfaction - Profile - Cyber attacks
MENDELOW’S MATRIX:
The Purpose and Types of Business Organisation
TERMINOLOGY USED:

Business organisation is a term for an arrangement whereby different stakeholders collaborate

to pursue a common set of business objectives or goals.

A business organisation is formed to enable:

1. The sharing of knowledge and skills;

2. The sharing of resources;

3. The building of new technologies;

4. The exploitation of synergies.

BUSINESS ORGANISATION FEATURES:

1. A single set of goals/objectives (financial performance, market share, launch of new

product);
2. A set of methods and measures to manage the delivery of goals (financial accounts &
budgets, market share analysis, performance measures);
3. Inputs which are processed into a product (raw materials, imported products, skill sets);
4. Infrastructure (purchasing structure, HR structure, financial management structure);
5. Contributors/skill sets (marketing, finance, IT programming, etc.).

BUSINESS ORGANISATION DIFFERENCES:

1) By type of goals: Profit or Non-profit;

2) By form of financing: Funded by stakeholder funds or financed by borrowed money;

3) By structure: Owned by shareholders, ar partnership or sole trader;

4) By ownership: Owned by a sole trader or a large number of individuals;

5) By type of activity: Manufacturer, reseller or service provider;

BUSINESS ORGANISATION ACTIVITIES:

 Manufacturing sector;
 Service sector;
 Retail sector;
 Technology sector;
 Mining & Energy sector;
 Agriculture & Food sector.

TYPES OF BUSINESS ORGANISATION:

1) Commercial organisation - generally driven by profit, sales or turnover motives and can
exist as Private or Public organisations. Financial reward is paid as a dividend;

2) Non-for-profit organisation - profit is not the main motive (e.g. social projects). All
organisational activity is focused on fundraising and generating profits to create a funding
pool used to deliver a project;

3) Public sector organisations - generally owned and managed by the government for the
delivery of public objectives (e.g. health or transport). Such organisations may have dual
goals: both to deliver a public requirement and to make a profit;

4) Non governmental organisations (NGOs) - not owned by the government but operate in
social, political and environmental arenas. Such companies often have strong political aims
and use their resources to highlight issues to the public;

5) Cooperative/Mutual organisations - a group of people who might be the staff, suppliers

or customers of a business, who manage the business and share the profit between them
in proportion to various factors. Often run by voting, rather than executive, decisions.

Note: These organisations can be Corporate structures (typically a Limited Liability Company),
or Non-corporate structures where the organisation is not a company (Sole trader or
Partnership).
ADVANTAGES AND DISADVANTAGES OF BEING A COMPANY:

There are key points to consider in deciding whether to operate as a Company, or to stay as a
Sole trader or Partnership.

Advantages of being a Company:

1. Companies operate on a limited liability basis, which means that if something goes wrong,
individual owners have no personal liability beyond their investment in the company;
2. Companies typically have lower tax rates than private individuals;
3. Ability to raise capital through shareholders.

Disadvantages of being a Company:

1. Significant compliance costs;

2. Public disclosure of business information.
Political and Legal Factors Affecting Business
EFFECT OF LEGAL AND POLITICAL FACTORS:

A government may enact certain laws and regulations directly linked to, or impacting on, an
organisation.

Example 1: Law which requires a business to brand its product in a certain way. Impact on
organisation: both cost and commercial;

Example 2: The requirement to manage personal customer data in a certain way. This creates
an opportunity for IT Security organisations.

Example 3: A government may reduce the tax rate for certain sectors if it wishes, to promote
certain types of business. On the other hand, the tax rate may be increased if the government
believes that business might be damaging to the economy.

The political system where local voting power is important can play a part in the development
of Regional Development Policies, creating a benefit from differences in the taxation approach.

Competition Policy is an area where many governments are very active. Governments may not
like the idea of a single company controlling a particular activity in the economy and, therefore,
may prevent certain companies from taking over others. For example, a government would be
unlikely to allow a single phone provider to operate the entire sector without any competition.

A government can also be critical in providing the necessary capital infrastructure to operate a
business organisation successfully. This might be in the provision of roads, to enable the
delivery of products by trucks, or airports to allow the delivery of international components to
manufacture more complex products.

Finally, how a government manages the economy is critical. If it’s mismanaged by overspending
in the wrong areas, it may then have to raise taxes which could in turn lower demand for the
organisation’s particular product or service.
LEGAL AUTHORITY:

Sources of legal authority:

1) Domestic - originating in the domestic state:

 Company law;
 Tax law;
 Employment law;
 Customer law;
 Data law;
 Health and Safety law;
 Contract management law.
2) International - originating outside the domestic state:
 EU laws (takes precedent over domestic laws); -
World Trade Organisation laws.

EMPLOYMENT LAW:

Employment law is designed to both protect the employee, and as a model of how employees
and employers can work effectively together. It covers how an employee is treated at
retirement, redundancy or termination.

Fair dismissal is where the company must downsize for business reasons, or where the
employee has engaged in misconduct.

Unfair dismissal - circumstance which would suggest that the company wants an individual to
be terminated for non-performance reasons, such as political views and other personal
matters.

DATA PROTECTION AND SECURITY:

Reasons of importance of data security:

 Privacy;
 Misuse by third parties; - Harmful.

Data protection and security principles:

1) Data held is accurate;

2) Data will be kept up to date;
3) Data is only used for the authorised reason intended;
 4) Data is not kept for any longer than is necessary;
5) Data should not be excessive for the purpose intended;
6) Data is not transferred to any country that does not have data security legislation;
7) Prevents unlawful use, accidental loss, destruction, disclosure.

HEALTH AND SAFETY:

Health and safety legislation is designed to protect all of the following groups:

 Employee;
 Employer;
 Customer;
 Supplier;
 General public.
Health and safety requirements:

1) Safe work environment;

2) Safe business premises;

3) Safety procedures;

4) Performing tasks safely;

5) Control environment including:

 Risk registers;
 Accident records and statistics;
 Other sources of data.

Individual responsibilities of employee:

1) Employees should not disclose any sensitive data;

2) Not be personally reckless;

3) Inform employer of instances of data breach or safety policy breach.

CUSTOMER PROTECTION:

Main areas regarding consumer protection:

1) Execution of contracts;
2) Sales of goods and services.

Contract - legally enforceable binding agreement between willing parties in verbal or written
form.

Sale of goods and services - special type of contractual agreement between a consumer and
business organisation selling those goods or services.

This revolves predominantly around contractual terms that a consumer is allowed to imply in
such a sale or service provision agreement, regardless of what a written or verbal agreement
states or asserts.

Implied terms:

 Quality;
 Fit for purpose;
 Timely delivery;
 Samples; - Description; - Title.

Note: In case of breach of any implied term the buyer can request a refund via court.
Macroeconomic Factors
DEFINITIONS:

Macroeconomics is the study of the operating characteristics of national or international

economy when examined as a whole, rather than examining individual markets or components
within that economy. Macroeconomics examines how different parts of the economy interact
together as part of the whole.

Macroeconomic policies are tools and mechanisms used by governments to achieve

macroeconomic objectives in the economy. These objectives are the objectives of the
government for the domestic economy as a whole, or could be the objectives of the
international economy as agreed between the cooperating governments. Examples of such
objectives are:

 Full/high employment;

 Stable economic growth;

 Increasing living standards;

 Low inflation; and

 Sound national finances.

Note: The key challenge for governments is that these objectives will not necessarily at all times
be achievable together and could even be conflicting.

MACROECONOMIC DRIVERS:

Imagine that a government’s objective is to have sound national finances via a balanced budget
which it achieves by raising taxes by a certain level. Here, the overtaxing could result in a
tendency for people not to spend in the economy, thus lowering business activity and the
opportunities for job creation. So the government’s task is to carefully manage and incentivise
what is called the Circular Flow of Income through an economy:
Aggregate demand and aggregate supply are other key macro drivers. The overall level of
demand for business products and services from individuals, businesses, and other consumers
in an economy is known as aggregate demand. The higher the demand, the better domestic
businesses will do. However, imports lower aggregate demand, because the purchase of
imports results in money going to non-domestic businesses.

Aggregate supply is an economy’s total capacity to supply goods and services to that economy.
When aggregate supply is lower than aggregate demand, prices will increase. In response to
this, businesses will increase their output in order to take advantage of these higher prices and,
therefore, aggregate supply will increase:

The following demand drivers may move the situation out of equilibrium:

A. Consumer confidence about the economy: This might push the price that the consumers are
willing to pay upwards, from P1 to P2, then driving the aggregate demand from D1 to D2. This
response would increase the supply to the economy and drive the overall level of activity
upwards:
Remember: The higher the overall level at which the demand and supply are in equilibrium, the
higher the overall level of national income.

B. The overall level of employment in an economy;

C. The overall level of domestic and international investment into the economy;

D. The overall propensity of the economy to save;

E. The level of interest rates, where lower rates encourage borrowing and, hence,
spending and demand.

Note: Remember, that this is not all based on a 1 for 1 ratio, which is known as the multiplier
effect. The multiplier effect of different economic policies is an important component in making
decisions about which to select in order to maximise the benefit to an economy.

When there is an expansion of the aggregate demand and supply and, therefore, the national
income, this is known as economic growth. When there is a retraction, this is known as
recession . These variations form part of what is known as the business cycle. Governments
attempt to design macroeconomic policies in order to avoid boom and bust, whereby an
economy experiences a boom followed by a decline. Governments instead wish to see steady
growth over time:
If there are large economic variations, businesses find it difficult to plan demand, which may
result in problems with investing in equipment. However, when growth is steady, confidence is
higher and participants in the economy can make spending and investment decisions with more
confidence about the future.

When the business cycle is volatile and not operating smoothly, problems can arise in the
economy, which can have serious consequences for all participants in that economy:

 Individuals;
 Families; and
 Businesses.
Lets now look at the most important issues which can arise from a volatile business cycle:

1. Unemployment: It arises in recessionary times when companies have to lay people off as a
result of shrinking demand for their products or services. Unemployment can also result as
a result of less direct reasons, such as growing imports, or because those who lose jobs in
one industry are unable to find jobs in another industry. This is known as frictional
unemployment. Unemployment not only lowers the standards of living of families, but also
affects the demand for businesses who supply these families, and state finances as well.

2. Inflation: Inflation can arise from many sources, such as increased demand from buyers or
when firms charge more as a result of higher costs. Inflation creates uncertainty about
prices in the future, lowering confidence in investment decisions made. Higher domestic
prices may make imports look relatively cheaper, resulting in more imports into an
economy, which could damage domestic business, employment, and government finances.
Rising prices can also damage domestic purchasing power.

3. Stagnation: This is a period of very low growth in an economy over an extended period of
time, ordinarily accompanied by high unemployment. A key problem here is that growth is
not sufficient to build employment levels back in order to lower the unemployment rate.
Stagnation also suppresses investment, because firms do not invest expansion capital
without the level of appropriate growth in the economy and return on these investments
being available. It also impacts consumer confidence as expectations are low about the
future prospects of the economy.

4. International Payments Disequilibrium: This occurs when the total payments into an
economy differ from the total payments out of that economy. Total payments comprise of:
 a. The current account, being the flow of goods and services, income payments, etc. A large
component of the current account relates to goods and services, also known as the balance
of trade. A surplus or deficit on the current account can be problematic.

b. The capital account, being the flow of investment capital.

TYPES OF ECONOMIC POLICIES:

The main types of economic policies that governments or groups of governments are able to
execute in the management of the business cycle and achieving its macroeconomic objectives
are:

1) Fiscal Policy: It relates to the spending, taxation, or borrowing activities of the

government. Each of these three main categories of activity is ordinarily managed via the
government’s annual budget process:

Expenditure Taxation Borrowing

- Infrastructure; - Corporate; - Deficit vs Surplus;
- Public services; - Incomes; - Targets;
- Civil service; - Wealth; - Funding gaps.
- Police; - VAT/Sales Tax;
- Defence; Public - Incentives;
- policy; Social - Redistribution;
- good. - Public policy.

2) Monetary Policy: This policy relates to the management of the cost, availability, or
supply of money in the economy by the government. The core principle here is that
money plays a critical role in the management of macroeconomic objectives.
a. The cost of money can be determined by the management of interest rates in an
economy. The higher the interest rates, the more expensive money is. Lower
interest rates cheapen the cost of money, meaning that there is more borrowing
which boosts aggregate demand.

a. The availability of money can be influenced by the imposition of a credit

framework, setting particular guidelines for lending institutions. The tighter these
controls, the less money will be available.

b. The supply of money can be influenced by the government by printing money or

taking it out of circulation. The bigger the money supply, the bigger the aggregate
demand. A tighter money supply will lower it.
Governments can also take other direct policy actions in pursuit of macroeconomic objectives:

 They can implement trade barriers;

 They can implement trade embargos; and

 They can implement foreign exchange management.

Note: Flexibility with these policies depends on the level of cooperation with other countries.

Fiscal and monetary policies have significant impacts on participants in the economy. For
example, higher interest rates will ordinarily mean higher loan repayments for those families
with mortgages or companies with debt.

In some cases, it could put companies out of business. It could also mean a family may no
longer be able to repay a home loan. However, a state might take the view that it is the
economy as a whole that matters and that high inflation for the economy as a whole is too
damaging to leave it unchecked.

Fiscal policies have a real impact at the participant level. A government’s decision to boost
aggregate demand by spending more money on infrastructure could boost jobs and lower
unemployment raising the standards of living for those families. Those families will have more
income to spend boosting businesses and incentivising new ones to open.
Microeconomic Factors
DEFINITION:

Whereas macroeconomics is the study of the wider economy and how all the participants
interact, microeconomics is concerned just with the immediate world surrounding a participant,
including how it deals with:

1. Customers;

2. Pricing;

3. Manufacturing;

4. Supply;

5. Cost management; and

6. Competition.

Note: The environment that macroeconomics is concerned with can include any entity or
matter that the organisation itself does, or may have to, deal with in the course of its activities.

A key element in the study of microeconomics is concerned with the economics underpinning
the demand for an organisation’s product and services from its customers, and the supply by an
organisation of those goods and services to the customers.

DEMAND AND THE DEMAND CURVE:

The demand curve is a graph which shows how many of an organisation’s goods or services its
customers are willing to buy - Q, for a given price - P.

Note: Each company will have a different demand curve for different products. They may be
curved, steeper or flatter in parts, and will be determined by deep technical analysis.

Imagine that at we know that at €1.50 the entire stock of 100 units is sold out. So, from
demand curve analysis we would be able how many we would actually sell at €1.50 before
customers lost interests at that price. Let’s say its 500 units.

If we lower the price to €1.25, we would get all those 500 customers plus another 200
customers who are ready to pay that price, but who would deem €1.50 too expensive:
SUPPLY AND THE SUPPLY CURVE:

The supply curve examines what an organisation is prepared to supply at different prices.

An analysis tells us that at price of €1.00 the company will supply at least 100 units and at a
price of €2.50 it will supply 1000 units. This information forms the basis of the supply curve:

Note: There will be a price below which the company will not supply any goods if it is losing
money on the supply. Similarly, there may be a maximum possible supply that the company can
deliver regardless of the price.

DEMAND AND SUPPLY EQUILIBRIUM:

Demand and supply equilibrium is where the demand and supply curves cross. This is the point
where the customers are prepared to demand a certain volume - Qx, at a certain price - Px, and
where the company is prepared to supply that same quantity - Qx, at that same price - Px. This
is the volume that the company should produce and the price it should set.
Note: There may be reasons why a company might not produce Qx or sell at Px, for example:

 It might charge a much lower price and accept lower profits, or even no profits, if it
is trying to gain market share in the short term; or

 It may have decided that by retaining a higher price at the expense of volume it
might enable perception of its goods as a luxury item and shift the demand curve
out.

ELASTICITY OF DEMAND:

Elasticity of demand refers to the change in demand in response to changes in other economic
variables, particularly the price.

The price elasticity of demand informs us about what would be the unit or percentage change
in sales given the price per unit, or percentage change.

PED Percentage change in Q (the quantity demanded)

= Percentage change in P (the price offered)
Example:

From our analysis, we know that for our product the higher the price, the fewer we sell and the
lower the price, the more we sell.

(700 - 500) / 500 40%

=
PED= (€1.5-€1.25) / €1.5 16.70% =2.4

Note: This means that for every 1% increase in price quantity decreases by 2.4% and vice versa.
SUBSTITUTE AND COMPLEMENTARY GOODS:

Substitute goods are alternative goods which consumers can switch to as substitutes for the
goods the organisation is producing.

Complementary goods “go with” other goods, often sold together. A change in demand for one
changes the demand for the other.

Note: Even if we do nothing on price, quantity sold could fall if the price of substitute goods in
the marketplace is reduced.

CROSS ELASTICITY OF DEMAND:

Cross elasticity of demand is an economic concept that measures the responsiveness in the
quantity demand of one type of goods when a change in price takes place in another type of
goods.

CED = Percentage change in Product A quantity/ Percentage change in Product B price

THE BEHAVIOUR OF COSTS:

A fixed cost is a cost that does not vary in the short term, irrespective of changes in production
or sales levels, or other measures of activity. A fixed cost is a basic operating expense of a
business that cannot be avoided, such as a rent payment.

Variable costs are those costs that vary depending on a company's production volume. They
rise as production increases and fall as production decreases.

Total cost = Fixed cost + Variable cost

The marginal cost of production is the change in total cost that comes from making or
producing one additional item.

Costs behaviour in the short run:

Example:

Let’s say that the cost of the factory is fixed at €1000 per annum and we have 10 members of
staff who can produce 1000 of widgets at the variable cost of €1.50 each. In this case our costs
are €2,500. This represents an average cost of €2.50 per unit produced.

Let's say our staff can produce more units per person than they currently are. Say, from 100
widgets per person to a 150 widgets per person. We have now produced 1,500 widgets and in
this case our labour costs have not increased but we have had to still spend on raw materials.
So our variable average cost per unit has dropped to, say, €1.25. Therefore, our total variable
costs are now €1,875 (1,500 units x €1.25). Total costs are thus €2,875 meaning average total
cost per unit has dropped to €1.92 (€2,875 / 1,500 units).

If we were to start to plot the cost numbers from the table above, we would begin to see an
interesting charts:

From the chart above we can see that the marginal cost (MC) falls as the variable resources in
the business become used more and more to fill the capacity at MC1, where the marginal cost
is the lowest. However, as more resources are added, marginal costs start to go up.

For example, additional resources added that are not fully used, and marginal returns from the
resources begin to diminish as the factory fills up. We can see that the average fixed costs (AFC)
decline continually as the single fixed cost is spread across more and more units. The average
variable cost (AVC) and the average total cost (ATC) will drop as the marginal costs fall, but will
begin to go up again as the marginal costs begin to increase beyond MC1.

Costs behaviour in the long run (all costs are variable):

We can see that the long run average cost curve (LRAC1) is made from a series of short run
curves. When output grows beyond a certain level, costs become inefficient, so the short run
costs flip from SR1 to SR2 and so on. LRAC1 falls at an earlier level of outputs due to economies
of scale and then rises beyond LRAC1 due to diseconomies of scale. There comes a point where
further efficiencies cannot be reached, and further output cannot be done more cheaply on
average than the previous output (LRAC1).

COMPETITION:

There are four main types of competitive environments:

1. Perfect competition: There are many competitors operating in a marketplace with equal
power, selling a homogenous product. None of the participants is big enough to control the
market;

2. Oligopoly: There are just a small number of large players in the market;

3. Monopolistic competition: There are a lot of participants, but each participant produces a
slightly different product differentiated in areas other than price; and

4. Monopoly: There is only a single participant, or single supplier, of a particular product and
there is no real competitive market.
Social and Demographic Factors
WHAT ARE SOCIAL AND DEMOGRAPHIC FACTORS?

Social factors include: Demographic factors include:

 Cultural attitudes and values;

 Population size;
 Trends;
 Age profile;
 Fashion and taste;
 Gender mix;
 Economic and social class
 Ethnic mix. structures;

Changes in social and demographic factors may affect business organisation in a long or short
term perspective:

 Short term impact: For example, the use of new technology by a celebrity might drive a
sudden change in taste which could damage an organisation’s existing product or
services as they go suddenly out of fashion. But it may not be long lasting if the
organisation has a flexible infrastructure to allow it to produce something similar. This
might apply, for example, to smartphone design.
 Long-term impact: Demographic changes might have long-term implications for an
economy. For example, many European countries have an ageing population which
continues to age. A company operating in the youth market, therefore, over the long run
will see its market decline. In such circumstances, an organisation would have to look at its
long-term strategy around either changing its product focus or widening its possible
market for its youth products beyond its existing domestic economy.

EXAMPLES OF THE IMPACT SOCIAL FACTORS HAVE ON BUSINESS

ORGANISATIONS:

1) Cultural attitudes and values:

a) Shift to healthier food:

 Supermarkets change their products;

 McDonald's offering healthier choices;
 b) Increased environmental concern:

 Consumers are less tolerant of damaging products; - Switch to unleaded fuel;

2) Trends:

a. Shift from personal organisers to smart phones:

 Decline of sales of personal organisers;
 Consumers seeking out more individuality change back to personal organisers;

3) Fashion and taste:

a. Decline in popularity of men’s hats;

b. Rise in popularity of making fresh coffee at home;

4) Economic and social class structures:

a. Change in education level:

 Increase in educated workforce;

 Promotion of entrepreneurship;
 Building of new products;

b. Low income economy:

 Less opportunity for expensive brands;

c. Deterioration of quality computer education:

 Limited technical workforce.

EXAMPLES OF THE IMPACT OF DEMOGRAPHIC FACTORS ON BUSINESS

ORGANISATIONS:

1) Age profile:

a) Ageing population:

 Larger pension costs;

 Limit for further expansion;
2) Population size:

a. Shrinking population:

 Limits market opportunity;

b. Growing population:

 Widens market opportunity;

3) Gender mix:

a. Large population of women:

 Possibility that some women may want part-time roles in response to having
children;

4) Ethnic mix:

a. Requires understanding of social and cultural needs of different ethnic groups when
recruiting people;

b. Impacts on the decision on whether to offer certain products or not;

5) Government:

a. Ageing population:

 Change of retirement age policy;

 Change of pensions saving strategy ;
 Change in migration policy for skilled labour;
 Increase of workforce participation;
b. Ethnic and gender mix:
 Social protection;
 Discrimination against certain sectors of economy;
 New legislation to protect certain sectors of society;
 Educational role for new sectors of society.
Technological Factors
ROLE OF TECHNOLOGY:

1) Replacing human labour;

2) Faster communication;

3) Delayering;

4) Increased productivity.

DELAYERING:

Delayering - removing some layers of middle management from the organisation and replacing
them with technology.

Impact on business organisations:

1) Enabling senior management to monitor business more directly;

2) Flatter organisations;

3) Wider span of control;

4) Better decision making with lower costs.

TECHNOLOGY AND OUTSOURCING:

Outsourcing - process by which an organisation decides to source a particular operational

activity to an external party rather than carry it out inside the organisation.

Reasons for outsourcing:

1) Lower costs;

2) Own lack of required skills;

3) Short term activities.

Advantages: Disadvantages:
- Fast and effective connectivity; - Reduced control;
- Removing the borders. - Data loss risk;
- Contract obligation - Difficult to exit.
Key features of activities to outsource:

 Non-core activities;
 Not involving customer data;
 Strategic importance.

INFORMATION TECHNOLOGY:

Impact of information technology on business:

1) Communication: instant and recorded emails, less involvement for secretarial staff;

2) Collaboration: increased use of shared computer resources instead of using office space
and travelling abroad;

3) Performance: use of spreadsheets and presentation tools;

4) Management: use of automatic records and reports;

5) Production: more efficient control over inventory, automation of tasks, accurate product
costing, quality control;

6) Communication with customers: e-commerce, extending market opportunities,

relationship building with customers;

DOWNSIZING:

Downsizing - the process by which an organisation shrinks the number of people it employs.
Reasons for onboarding the technologies:

1) Costs (implementation of technologies for reduction of costs);

2) Replacement (replacement of employees with machines);

3) Change (existence of outdated technologies or businesses).

Environmental Factors
IMPACT ON THE ENVIRONMENT:

Business impact on the environment includes:

1) Depletion of natural resources (fuels and metals);

2) Destruction of the natural beauty of the environment;

3) Smog and pollution;

4) Health impact on local populations;

5) Industrial waste;

6) Non-recyclable products.

Evolution of the awareness of environmental factors:

Impact of increased environmental awareness of society on business organisations:

 Governmental regulations: Society factors:

a) Carbon footprint limits; a) Environmentally friendly products;

b) Pollution limits; b) Recycling;
c) Waste disposal regulations; c) Business reputation.
d) Environmental impact inspections;
e) Environmental licensing frameworks;
f) Recyclability targets.

Additional costs

Business dividend

Substantial benefit Boost in sales

CORPORATE AND SOCIAL RESPONSIBILITY POLICY:

Corporate and social responsibility policy - policy in which the business sets out its position in
respect of environmental protection.

CSR policy often includes:

1) Internal standards and targets;

2) Domestic requirements;

3) International requirements.

Adopting CSR policy requires an organisation:

1) To establish controls and monitor the infrastructure;

2) To have external review;

3) To report annually.
Real internal commitment is crucial and may be realised through:

1) Green production technologies;

2) Producing and selling less damaging products.

ECONOMIC SUSTAINABILITY BENEFITS:

For owners: For employees:

- Extended life of the business; - Job security extended along with the business life;
- Better overall business
- Healthier working environment;
performance;
- Healthier living environment in the local
- Higher customer loyalty;
community;

For customers: For government:

- International environmental
- Green products;
commitments;
- Green products often have lower
- More sustainable tax revenue stream;
costs;
- Lower costs of recycling; - Retained natural resources wealth.
Competitive Factors
DEFINITION:

Being competitive means that you have to do something, or a number of things, that make it an
attractive business for customers to come to and buy your products and services.

Competitive factors:

1) Attractive price;

2) High quality product;

3) Unparalleled customer service;

4) Brand;

5) Location;

6) Reputation;

7) Origin.

SWOT ANALYSIS:

SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) helps to assess what a business
is doing right, and doing wrong, in being a competitor.

Note: An organisation should develop a course of key actions under each main area, which will
drive its competitiveness forward.
QUESTIONS TO BE ASKED:
Strengths: Weaknesses:
- How strong is customer loyalty? - How large is the cost base?
- How strong is the brand? - Is there a limited product range?
- What about business locations? - Could the management be better?
- What about quality of products and services? - Is there poor customer feedback?

Opportunities: Threats:
- Are there new competitors on the
- Is there demand in other unexploited markets?
horizon?
- Is there a new trend we can take advantage of? - Is the government going to raise taxes?
- Is there a new technology? - Could there be a union strike?

Example:

Abacus Ltd produces baked goods for supermarket chains under supermarket own brands but
also sells under the Abacus brand in a number of its own local shops in the region. A SWOT
analysis has been carried out and from it and we want to identify possible sources of
competitive advantage the company has:

Strengths: Weaknesses:
- Large cost base (expensive rent,
- A well-recognised brand;
expensive
- Good locations. - A good reputation for quality; staff).

Opportunities: Threats:
- The youth market is a growing - Major International provider, who
consumer of baked products; can offer the same products at a lower
margin, Is about to enter the market to
supply supermarkets.
- There Is a growing trend of luxury
brands appearing in luxury department
stores.

Solution:
 Having looked at these outputs, what should Abacus consider doing?

1) It should reinforce and capitalise on its brand and the perception of quality;
2) It should minimise weaknesses by relocating its shops outside of cities or employing cheaper
staff, but this is not necessarily. It should get its costs as low as possible but must be careful
not to damage accessibility to customers or the quality of the product being made;
3) It should consider entering youth market and luxury department stores. However, more
understanding might be required;
4) It should consider lowering its prices further in order to take this possible competitor on in the
market. However, price doesn’t appear to be a competitive strength and, therefore, Abacus
might consider not trying to compete on it and focus on improving its brand and quality.

THE VALUE CHAIN:

The customer is ready to pay extra cost, because it believes that the company is adding value to
the product and is prepared to pay for it.

The process by which the value is being added at Manufacturing, Finishing, and Sales stages is
called a value chain, as each stage adds more value to the end product and, therefore, adds
value to the customer.
Porter’s value chain:

Each of these activity types suggests an area in value chain where value can be added to boost
the organisation’s margin.

Key activities from a Porter’s value chain that can have a material impact on the organisation’s
competitiveness:

1) Purchasing:

 Wide net of suppliers allows businesses to buy raw materials cheaper;

 Purchasing negotiations allow businesses to obtain access to high quality raw
materials;
 Ability to understand the value network and existing supplier’s value chain allows
businesses to influence supplier to produce cheaper or better inputs.

2) Production:

 If a product line can operate with lower waste output, its total costs will be lower;
 If the products have fewer flaws and failure rates than other manufacturers, the
organisation will be competitive on the basis of its quality;
 If the organisation employs the best designers, this is also a source of
competitiveness.

3) Marketing:

 Ability to appeal to the emotions of a customers will encourage them to buy;

 Ability to produce more effective marketing than others is a source of
competitiveness.
 4) Customer service:

 If customers know about great after-sales service, they are more likely to buy;
 Ability to measure client’s satisfaction and understand what actions the company
must take would be a competitive advantage;
 High speed in getting spare parts for a customer would be a competitive advantage.

Porter identified that value can also be added across a value network as the organisation is
linked to other external elements in a value chain manner.

For example, there might be a company (Company A) which is the end producer of a product
that has inputs from suppliers who provide assemblies. Within Company A it executes
strategies to maximise value within its own value chain. However, working back from the end
manufacturer to these assembly suppliers and back to the component suppliers, each of them
will create the value along the way from the initial sourcing of the core material right through
to the end product which Company A supplies.

This may be a very useful for a producer to understand where the value is being created, with a
view to seeing if it can influence the creation of further value.

Example:

A Bell Ltd is a computer manufacturer which sells its computers to customers. It has two
suppliers of assemblies: Tron Ltd and Trek Ltd. Tron Ltd is supplied by two component
suppliers: Marvel and DC. It may be that Bell understands that Marvel can do a better job with
its capacities and should be able to produce far more durable products than it is currently
doing. It might talk to Tron about demanding more from Marvel or about changing its supplier
thus adding value to the end product deliverable to the customer.
 PORTER’S FIVE FORCES:

Porter identified various forces in an industry external to the organisation itself that could
impact the organisation’s competitiveness:

Example:

Let's examine the bakery products of Abacus Ltd on the supermarket shelf:

1) Supplier bargaining power. This is probably weak as many suppliers want to supply
supermarkets given the huge volumes that supermarkets can sell. This is good for the
industry, as it can keep supplier prices down;

2) Buyer bargaining power. This is probably strong as there are many supermarkets to go to. So
buyers can easily move, which is bad because participants cannot easily raise prices without
losing customers;

3) There is always the threat of new entrants. However, it is a significant hurdle to set up a new
supermarket. This is good as the barriers to entry are high preventing others coming in and
forcing prices lower again;

4) Competitive rivalry is probably quite high as well which is typical for supermarkets driving
prices and margins lower;
5) It is not easy to substitute bread, which is good for the industry.

It is the combination of these forces and their relative strength that will determine the overall
position of the company.