ACCA F1 – Accountant in Business Lecture 4&5 Dr. Randolph Metz-Johnson

Lecture 4 Environmental Influences

Learning Outcomes Upon completion of this chapter you will be able to: Define what factors of the external environment influence an organisation; Explain how political systems and government policy affect the organisation; Define macro-economic policy; Explain the impact of economic issues on the individual, the household and the business; Explain the effect social and demographic trends have on the economy; Explain the ways in which information technology and information systems development is influencing the business processes.

Environmental analysis In trying to understand the environment, managers face difficult problems. First the environment encapsulates many different influences, the difficulty in making sense of this diversity in a way which can contribute to strategic decision- making. The second difficulty is that of uncertainty. The present and future environment in which an organisation operates presents both opportunities and threats. To identify these management use information from various sources such as forecasts of general economic conditions, market research, industry projections, technical reviews, competitor activities etc. The information gained will determine the strategy that the organisation follows.

Environmental uncertainty Complexity- this is the number of variables which impact on the firm and how difficult they are to predict or understand. Also if the relationship between the variables is complex, this will also increase uncertainty e.g. the financial markets and the car industry.

Environmental uncertainty Dynamism - this is the rate of change of the business environment. Increased dynamism means that management’s models of ‘how things work’ will become out of date much quicker. It also suggests that competitors will be able to respond much quicker to a firm’s initiatives e.g. market for computers.

Auditing Influences STEEPLE analysis – Socio-cultural – Technological – Economic – Ecological or Environmental – Political – Legal – Ethical

Political Level – Local – National – Supra national Government policies Laws

Group / Individual Task 1 Put yourself in the role of the managing director of a car factory business in your own country and in the UK. What political factors would you need to be especially aware of?

Economic Scarce resources Factors – Growth – Inflation – Unemployment – Balance of payments – Confidence – Capital – Exchange rates

Major Economic Factors – Inflation – Unemployment

Socio-Cultural factors Demographics Wealth Education Health Social structure Values Attitudes Taste

Group / Individual Task 2 Assume you own a supermarket chain within the UK. What socio-cultural factors would you need to be especially aware of?

Technological factors Information technology – Delayering, outsourcing, off-shoring Invention Obsolescence

Group / Individual Task 3 Consider the internet and its impact on business. What businesses do you see as being helped by the internet. What businesses do you see as under threat because of the internet?

Global Influence Deregulation & privatisation Liberalisation of world trade & Economic cost of labour Differentiated income levels / potential underclass Mega Corporations Increased migration Ageing population Change in Family Life / individualisation Medical discoveries Telecommunications The internet

Group / Individual Task 4 Think of a business in your own country and produce a STEEPLE analysis for it. Draw conclusions from your analysis for the future of the business.

Group Exercise 1 a. Describe the relationship between the economic, technical and natural environments within a business context (9 marks) b. Use the example of a vehicle manufacturer to develop the possible implications of the natural environment for marketers of manufactured products (11 marks) (Total 20 marks )

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The macro-economic environment

Slide 22 Government policies and obligations Manage national economy Spending Taxation Borrowing

Slide 23 Policies Fiscal policy – spending and borrowing Monetary policy – money supply

Slide 24 Objectives National income Economic growth Business cycle Inflation Unemployment Balance of payments

The business environment

Slide 26 Environment Outside the organisation Outside management’s control Influences organisation

Slide 27 PEST Political and legal environment Economic environment Social environment Technological environment

Slide 28 Competitive forces Porter’s 5 forces model Helps organisations to understand the competitive forces in the environment Competitive advantage

Slide 29 Porter’s value chain

Group Exercise 2

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