Handout 11: Understanding the organisational environment Level 2 Diploma in Business Administration PowerPoint presentation Understand employer organisations Handout 11: Understanding the organisational environment

Why is it important to understand the environment in which an organisation operates? The way that organisations respond to environmental forces has a direct impact on their success: Helps the management decision-making process. Aids long-term planning of strategy and operation. Gives greater understanding of the influences that generate change. Ability to anticipate threats and opportunities and plan accordingly.

Level 2 Diploma in Business Administration Internal and external factors influence the direction of an organisation Internal factors, eg culture structure management internal control processes – policies and procedures. External factors, eg national culture external controls – laws and regulation technological and economic issues. The controls, systems and procedures that can be effectively used to manage the operations of an organisation are influenced by the culture of the organisation.

External forces that impact on organisations Level 2 Diploma in Business Administration External forces that impact on organisations POLITICAL ECONOMIC SOCIOLOGICAL TECHNOLOGICAL ENVIRONMENTAL LEGISLATIVE External forces impact on organisations and the way they are configured. These forces can be grouped as: Political, eg Government tax policy, labour law, environmental law, trade restrictions, tariffs and political stability. Economic, eg economic growth, interest rates, exchange rates and the rate of inflation. Sociological, eg cultural and health aspects, population growth rate, age distribution, career attitudes and emphasis on safety. Technological, eg research and development activity, automation, technology incentives and the rate of technological change. Environmental, eg weather, climate, and climate change, and the potential impacts of climate change. Legislative, eg discrimination law, consumer law, anti-trust law, employment law, and health and safety law.

Level 2 Diploma in Business Administration PESTEL analysis Used to analyse how these different forces affect the organisation at different times the difficulties involved in their responses to them. It sets out in table or diagram format the factors affecting the organisation under those six headings in order to decide whether they can be considered positive or negative – to the organisation’s advantage or disadvantage. It is a useful strategic tool for understanding market growth/decline, business position and operations potential and is often used by organisations to assist them in building their vision of the future. The way that organisations respond to these forces will have a direct impact on its success. The different forces may have a greater or lesser effect depending on the organisation type, but will require organisations to respond by restructuring, modifying their strategy, activities or focus.

Example PESTEL analysis Political Economic Sociological Technological Environmental Legislative VAT rate Inflation Population growth Emerging new technology Sustainability Consumer protection General elections Exchange rates Changing tastes Energy costs Waste regulations Health & safety Employment law Unemployment levels Attitudes to work Increase in internet use Political stability Interest rates Mobile phone/app use

SWOT A SWOT analysis is a business analysis tool. It is used to look at the strengths and weaknesses of the organisation what the current or future opportunities may be what the possible internal and external threats are that could endanger the effectiveness of the company. A SWOT analysis is one of many business tools providing a basis to assist with decision-making and problem-solving. It is useful to analyse many aspects of the organisation, eg current position, or to decide whether to introduce a change.

SWOT is an acronym standing for: Level 2 Diploma in Business Administration SWOT is an acronym standing for: S Strengths W Weaknesses O Opportunities T Threats

Level 2 Diploma in Business Administration Example SWOT S – Strengths Here you would consider the strengths of the organisation – what gives it a market advantage. W – Weaknesses Weaknesses should not be seen as being negative but as a development opportunity. You should ask key questions like eg what is preventing expansion and detail the items that need to be addressed and developed. Here you should consider the possible opportunities available to the organisation, eg new government legislation or the current position of a major competitor. O – Opportunities You should consider both internal and external threats. Threats are in actual fact usually the opposite of opportunities, eg new government legislation could be a threat rather than an opportunity. T – Threats Once the analysis is completed, you will then need to evaluate the results. If for example you carried out the analysis on the potential for the introduction of a new product you would then use the results to evaluate if that new product had any future or if it was on the introduction of a new staffing structure then consider if that idea was likely to offer any advantages to the organisation. While principally used for business analysis, you can also use this method on ideas you have to allow you to evaluate whether they have possibilities.