N5 Bus Man – 1.2: Business Influences © BEST Ltd Business Management (National 5) Understanding Business 1.2 – Influences on Business Activity

N5 Bus Man – 1.2: Business Influences © BEST Ltd  Businesses have to make different DECISIONS about the following issues. ◦ HOW BIG THE BUSINESS WILL BE ◦ WHICH BUSINESS TYPE THEY WILL BE ◦ WHICH OBJECTIVES THEY WILL PURSUE ◦ WHICH INDUSTRIAL SECTOR THEY WILL OPERATE IN ◦ HOW TO PRODUCE THEIR GOODS AND SERVICES ◦ HOW TO SATISFY CONSUMERS  The KEY FACTORS which influence these decisions (and any other decision that a business takes) are: ◦ INTERNAL STAKEHOLDERS ◦ EXTERNAL STAKEHOLDERS ◦ INTERNAL ENVIRONMENTAL FACTORS ◦ EXTERNAL ENVIRONMENTAL FACTORS

N5 Bus Man – 1.2: Business Influences © BEST Ltd  STAKEHOLDERS are people who are “interested in, and affected by the actions of a business”  The main stakeholders in most businesses are: ◦ INTERNAL (INSIDE of the business)  Owners  Managers  Staff ◦ EXTERNAL (OUTSIDE of the business)  Lenders (eg suppliers and banks)  Government  Customers  Society

N5 Bus Man – 1.2: Business Influences © BEST Ltd Finance (INTERNAL)  When a business has LOTS of finance (money) then it can make decisions that will help it survive by maximising consumer satisfaction and minimising externalities.  On the other hand, if a business DOES NOT have lots of finance available then it will have to make less helpful decisions about its’ activities.  These decisions can have a very negative affect on the success of the organisation because they can mean that it will have problems trying to maximise consumer satisfaction and continue to create wealth. This situation is negative for a business because these problems can result in FAILURE. This means that the organisation runs out of finance all together and so will have to close down.

N5 Bus Man – 1.2: Business Influences © BEST Ltd  Having LOTS of skilled and committed labour (staff) in a business will bring the following benefits for it. ◦ ENTERPRISING STAFF DEVELOP NEW PRODUCTS ◦ STAFF WILL PRODUCE HIGH QUALITY PRODUCTS ◦ STAFF WILL WORK QUICKLY ◦ STAFF WILL BE FLEXIBLE ◦ HIGH LEVELS OF CONSUMER SATISFACTION  On the other hand, if a business does not have a skilled and committed labour force then the opposite of the above will be true.  In addition, if the labour force becomes unhappy with decisions made about their treatment in the organisation then they may take action which negatively affects it by reducing production. These actions are known as INDUSTRIAL ACTION.

N5 Bus Man – 1.2: Business Influences © BEST Ltd  Having LOTS of efficient capital (equipment) in a business is known as MECHANISATION or CAPITALISATION. This can bring the following benefits for it. ◦ PRODUCTS WILL OF A HIGH STANDARD ◦ PRODUCTS WILL BE MADE QUICKLY ◦ COSTS CAN BE CUT BY REPLACING STAFF  However, a business must be aware that the use of lots of capital may raise the following issues. ◦ MACHINERY CAN BE EXPENSIVE TO BUY AND MAINTAIN ◦ MACHINERY CAN BREAK DOWN AND STOP WORK ◦ MACHINERY CANNOT BE ENTERPRISING ◦ CONSUMERS MAY NOT LIKE USING MACHINES ◦ REPLACED STAFF MAY TAKE INDUSTRIAL ACTION

N5 Bus Man – 1.2: Business Influences © BEST Ltd  The EUROPEAN UNION and national GOVERNMENTS aim to protect: ◦ the CONSUMER ◦ the EMPLOYEE ◦ the ENVIRONMENT  They do this by: ◦ passing LEGISLATION ◦ setting up WATCHDOGS ◦ GOVERNMENT AGENCIES  These things can cause businesses to change in order to ensure that these things are implemented properly.

N5 Bus Man – 1.2: Business Influences © BEST Ltd  The ECONOMY will affect businesses through: ◦ BOOMS ◦ RECESSIONS ◦ INFLATION ◦ INTEREST RATES  These things can result in changes for businesses due to their effects on REVENUES and EXPENSES.

N5 Bus Man – 1.2: Business Influences © BEST Ltd  SOCIETY (ie people) affects the nature of a business through: ◦ DEMOGRAPHIC CHANGES ◦ SOCIO CULTURAL CHANGES  These things cause businesses to change because if they do not account for them then they will find that their REVENUES will FALL due to unpopularity.

N5 Bus Man – 1.2: Business Influences © BEST Ltd  TECHNOLOGY affects businesses through: ◦ OFFERING NEW PRODUCTS ◦ OFFERING NEW MARKETS ◦ OFFERING COST SAVINGS ◦ OFFERING INCREASED EFFICIENCY  These things can cause businesses to change because if a business does NOT keep up with technology then other businesses will gain a COMPETITIVE ADVANTAGE over them.  This would cause REVENUES to FALL and EXPENSES to be too HIGH.

N5 Bus Man – 1.2: Business Influences © BEST Ltd  ENVIRONMENTAL affects businesses through: ◦ OFFERING NEW MARKETS ◦ OFFERING NEW PROCESSES ◦ CREATING SOCIAL PRESSURES ◦ AFFECTING ACTIVITIES (eg bad weather)  These things cause businesses to change because if they do not then they will find that their REVENUES will FALL due to unpopularity. Environmental (EXTERNAL)

N5 Bus Man – 1.2: Business Influences © BEST Ltd  Other businesses in your MARKETS may cause changes because they could otherwise get customers to buy their goods instead of yours.  Competitors will try to attract your customers away from you through developing COMPETITIVE ADVANTAGES such as: ◦ NEW IDEAS AND PRODUCTS ◦ BETTER QUALITY PRODUCTS ◦ LOWER PRICES ◦ BETTER EQUIPMENT/TECHNOLOGY ◦ BRANDING AND MARKETING