Unit 4.2 What Influences The Decisions?

HOW DO THE KEY STAKEHOLDERS INFLUENCE BUSINESS DECISIONS? owners Customers competitors

Owners An owner is someone who has contributed his or her own money, time and effort into developing a business and, because of this, has a right to participate in the decision making process. A manager normally controls the day-to-day running of a business on behalf of the owners. A manager, can however, also own or part-own the business. A sole trader is both owner and manager and is usually involved in running a small-scale business. A partner is one of a few owners and jointly manages the business; the main difference from the sole trader is that the responsibility is shared. A private limited company can be owned by a very small number of shareholders, often family; there will be a mix of owner and manager involved in running the business. The success of the business depends on how well these shareholders understand each other. A public limited company is clearly owned by the public through publicly issued shares and run by employed directors, executives or managers. In theory the shareholders run the business and the running of the business is at their command.

Customers businesses exist purely to satisfy customer needs - ie as a service. More common though are the businesses which use the market to satisfy the needs (or demand) of customers. In order to find out what their customers want businesses (small, medium or large) need to identify their target market. The target groups are often banded by their occupation or income. Businesses need to find out about what potential customers will buy Customer satisfaction is a high priority for many businesses.

Competitors Two influences in this area, affecting business decision-making are: the number, quality and variety of competitors and the range and quality of goods and services available to the consumer or customer. You will already know about the ways in which price decides the likely number of items bought and sold and how variations in the price can bring about different amounts of sales. Small numbers of businesses, which produce and sell similar products, can gather together into a kind of club in which certain rules are observed. This kind of arrangement can be called a ‘cartel’ or a price ring. In situations where a large number of businesses produce and sell similar products - eg, bakeries, travel agents or plumbers - the high level of competition can ensure that low prices and high quality service are the norm.

HOW DOES THE LEGAL ENVIRONMENT INFLUENCE BUSINESS DECISIONS? Common Law is where previous experience determines the way something should be done. Civil Law exists where disputes can be settled without lawyers in the civil courts. Consumers Associations protect the interests of the consumer by testing goods and services and reporting openly on the results. Statute Law covers some of the most important laws in this country. They can be concerned with freedom and competition and are passed by Parliament. The Sale of Goods Act 1979 requires businesses to sell goods which are of merchantable quality (not defective or damaged) and fit for the purpose for which they are sold. The Fair Trading Act the Director of Fair Trading can ask the Monopolies and Mergers Commission to investigate any type of ‘unfair’ competition

The Trade Descriptions Act 1968 prevents businesses describing their products falsely. The Weights and Measures Act 1951 makes sure standards are observed in these areas. The Consumer Credit Act 1974 protects the consumer in the way they make their purchases, particularly with reference to APR (annual percentage rate of interest). Other very important acts have made sure that consumers are protected in matters such as pricing, business activities and the environment. These include the Restrictive Practices Act 1976 and the Competition Act British Standards (the kite mark) ensure a constant standard over a huge range of products. The importance of the European Union can be seen in many ways and there are Competition Laws, which apply in all member countries. There are also Environmental Laws - for example, integrated pollution control.

HOW DOES THE SOCIAL ENVIRONMENT INFLUENCE BUSINESS DECISIONS? The costs and benefits to the business itself are called private costs and private benefits and can usually be expressed in financial terms. The costs and benefits to society are called social costs and social benefits and are difficult to express in financial terms. The sorts of feelings or opinions about social costs voiced by a local community might be noise, dirt, traffic, danger of contamination, pollution of other kinds and even the long-term breaking-up of a community. The government has to pay attention to national costs and benefits. Laws are made to make sure that people’s lives are not badly affected by any business developments - for instance, green belt and air pollution are two areas where no one business could be relied upon to think of everyone in the community.

Discrimination There are major laws governing discrimination, which any business must consider when making decisions. Equal pay, sex, race, health and safety, unfair dismissal - these are all areas where employees have protection. A minimum wage paid in some countries in the European Union. Adhering to legal requirements can be expensive for any business but especially a small one.