External Factors Affecting Business

6 Key excerpts on "External Factors Affecting Business"

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  eBook - ePub

  Strategic Analytics

  Integrating Management Science and Strategy

  • Martin Kunc(Author)
  • 2018(Publication Date)
  • Wiley

    (Publisher)

  3 External Environment: Political, Economic, Societal, Technological and Environmental Factors

  Objectives

  1. To define exogenous factors
  2. To learn tools for foreseeing changes in exogenous factors
  3. To organize external environment information for decision making

  Learning outcomes and managerial capabilities developed

  1. To develop sensemaking managerial capabilities
  2. To classify the impact of external factors into threats and opportunities

  Strategic choices are a function of conditions of the internal and external factors and the possibility of influencing them. The external environment, or external factors, can affect the organization's choices as well as its performance so it is fundamental to consider them within the strategic management process even though it will be impossible to affect them. The closeness of the external factors to the organization implies the possibility for the organization to influence, within a certain time horizon, conditions of these factors. The external environment can be divided into three parts according to the closeness to the organization: rivalry with existing organizations; industry dynamics defined by the suppliers, potential entrants, substitutes and customers; and the general or remote environment defined by the political, economic, social, technological and environmental factors (Figure 3.1 ).

  Figure 3.1

  External factors affecting the organization.

  External factors can not only be threats to the survival of the organization but also opportunities to achieve the vision defined for the organization or even redefine it. Therefore, organizations may need to design strategies to defend themselves against a threat or follow opportunities arising from favorable changes in the external factors. This chapter addresses the factors residing in the general or remote environment.

  Political

  These factors examine the political situation since government regulations and legal issues play a role in its economy and can ultimately affect the organization. Examples of such factors are tax policies, environmental policy, labor laws, international trade barriers and tariffs. It is essential for organizations to asses and align themselves with these policies in order to devise strategies which will enable them to operate successfully in the market and, thus, avoid government pressures as an interested stakeholder. Government policies can become a huge impediment to the growth of an organization if they affect strategic choices in terms of business models. Government policies may also become highly beneficial if they are supporting the growth of the industry or creating barriers to avoid competition.

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  eBook - ePub

  Financial Services Management

  A Qualitative Approach

  • Stewart Falconer(Author)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  In looking at the contextual environment, the approach I will adopt is to look at the ways in which the various areas such as technology, the economy, the nature of government, social variables and, of course, competitive forces all affect the climate in which business operates. When examining the operational environment, as I have suggested already, I shall use a stakeholder approach and examine the two-way interaction that exists between business and these stakeholders, who I am loosely identifying as shareholders, suppliers, customers, employees and the community. This two-way interaction involves the acknowledgement of the impact business has on these groups as a result of action it takes, while also acknowledging the fact that the stakeholders themselves can, by their activities, impact directly on business. This is very much the ‘real’ situation where the operational environment is concerned and, clearly, it is the case that, for example, a supplier has an impact on the company it supplies, say through quality of materials or punctuality of delivery, just as that company has an influence over the supplier through the awarding of contracts. However, I intend to concentrate, in operational terms, on the impact business can have on the stakeholders and the way in which business can and should manage its responsibilities to and its influence on society and the external environment. These stakeholders who are affected by the efforts of business organizations to meet their strategic goals can be external, such as customers, suppliers, competitors and the community, or internal, such as shareholders and employees. I will look at these groups in more detail later but for the moment we need to be aware only that there are substantial numbers of them and they have expectations of the ways in which business will behave towards them and influence their lives. These expectations have become increasingly sophisticated and demanding in recent times and it has become a vital part of business management to manage the external environment effectively.

  On the other hand, the contextual or wider external environment, so named because it ‘sets the context’ in which business has to exist, creates a climate through technological change, government policy, the economic climate, both nationally and internationally, and social attitudes in which business must exist, develop and, hopefully, flourish. On the economic side, general economic conditions and trends must be taken into account when considering an organization's activities. The political climate, through legislation and general policies, has a significant influence on business. New technological developments result in advanced production processes, and social factors such as lifestyle, education and values also have an impact on business management. The understanding and appreciation of all these areas is a vital part of modern management and managers must monitor the wider environment for signs of changes that will have or are likely to have an impact on their organization's activities. It is vital that managers are aware of the importance and impact of these various influences as they develop and then implement their business strategies and I have already stated my view that it is the wider, contextual environment that has been largely responsible for the manner in which the financial services sector has evolved across the past 30 years. It is out there in the wider environment where the opportunities exist, which, if capitalized upon, will enable organizations to flourish and, of course, where we also find the threats that will make it difficult to capitalize on these opportunities or, unfortunately to succeed at all. Simply put, it is the influences of the external environment that will make it more or less likely that businesses will be able to compete effectively and successfully in what continues to become an ever-increasingly competitive world of business.

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  eBook - ePub

  Simple Tools and Techniques for Enterprise Risk Management

  • Robert J. Chapman(Author)
  • 2011(Publication Date)
  • Wiley

    (Publisher)

  Part IV External Influences – Macro Factors

  Businesses clearly do not operate in a vacuum but in an ever-changing scenario where changes in the operating environment are beyond the control of any individual business. This part of the book examines the way in which external “macro” influences impact businesses. These macro factors are distinct from micro factors inasmuch as they are events that occur at both national and international level. Micro factors influence individual businesses or consumers in the domestic market. An understanding of how these external macro influences impact on a business is important as it provides an appreciation of how a business is subject to constraints and exposed to opportunities. Macro factors include the state of the economy, the environment, the legal framework, political structure, market conditions and social factors. These subjects are discussed in the following chapters and describe the sources of risk included in the risk taxonomy included in Chapter 9 (see Table 9.1 ). The sequence of the chapters follows the sequence in which the subjects appear in the taxonomy, as shown in Figure P4.1 . An extract of the taxonomy is given in Table P4.1 for ease of reference and assimilation.

  Figure P4.1 Structure of Part IV

  Table P4.1 Business operating environment

  Passage contains an image 21 Economic Risk Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted. (Albert Einstein)

  This chapter examines economic risk , the first of the six macro influences within the section of the risk taxonomy called “business operating environment” described in Chapter 11. Businesses do not operate in a vacuum. Hence, it would be difficult to comprehend an enterprise risk management process that did not address economic risk. The subject of economics relates to the allocation of resources. Economic business risk emanates from the performance of the national economy within which a business operates and the way its government elects to influence the economy and solve the basic economic problem of scarce resources and competing needs. Economics has such a large influence on business performance that managers must take steps to understand and predict economic phenomena and respond accordingly. While the subject is vast and it is only possible to examine some of the rudimentary elements of the body of economic theory here, any review of enterprise risk management that did not address those aspects of economics regularly encountered by businesses would clearly be incomplete. The structure of this chapter is illustrated in Figure 21.1

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  Technological Capability and Learning in Firms

  Vietnamese Industries in Transition

  • Tran Ngoc Ca(Author)
  • 2019(Publication Date)
  • Routledge

    (Publisher)

  8 External factors and learning activities External factors are divided into four main groups: macro-economic policies of the government: financial and taxation policies; monetary, banking and investment policies; policy of labour and management; and trade policy. market factors : both domestic and international. supporting infrastructure : R&D, education and training; activities of other organisations which have a bearing on factors such as information, documentation, consultancy, standardisation, quality control, industrial property rights, etc. other social and cultural factors. These four groups of factors will be the main influential categories to exercise impact on the business and learning efforts of firms. At the same time, the transition from a planning to a market economy system is the most significant feature of Vietnam, which in turn, has decisive influences on all four groups of factors. Therefore, these influences will be examined more closely, in terms of both positive and to a larger extent, negative aspect. 8.1 Influences of external factors on firms' business activities The ranking of influences of external factors on firms' business activities is given in Table 8.1 : most of the firms indicated that macroeconomic policies and the supporting system were the most influential factors. In the interviews, firms’ managers tended to argue more about the problems they faced rather than overall influences, whether positive or negative

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  Strategic Management

  Theory and Practice

  • John A. Parnell(Author)
  • 2013(Publication Date)
  • SAGE Publications, Inc

    (Publisher)

  entire industry. Specifics concerning how these factors affect a particular organization should be elaborated in the section on opportunities and threats, which is later in the analysis.

  Researching political-legal forces, as well as other environmental forces, requires some digging and intuition and a lot of reading. Rarely will one find a website that provides a comprehensive “macroenvironmental report” for a given firm or industry. When one is conducting research, it is often helpful to create four charts—one for each element in the macroenvironment—and add to it throughout the research process. One may locate direct and indirect references at the company home page and in various articles, but trade journals are often the best single source of information for reports on relevant issues in the external environment. As many as two dozen (or more) different sources may be required to complete the analysis of the four macroenvironmental forces. It is rare that complete and thorough information can be found in only one or two sources.

  If a company competes in multiple industries (with multiple business units), one needs to analyze the major business units and industries. What constitutes “major” depends on the firm. For example, Ford Motor Company receives the majority of its revenues from automobile sales, but it also has a business unit that provides customer financing. With Ford, it would make the most sense to analyze its automobile business unit and not spend considerable time on the financial business unit. With other companies, however, determining which business unit or units are “major” may be more difficult. The key is to consider the relative contribution of each business unit to corporate revenues and profits. If questions remain, it is a good idea to present the professor with a list of the company’s business units and each one’s proportion of company revenues and profits, along with a proposal on how to proceed, and ask for guidance.

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  Unlocking the Business Environment

  • John Brinkman, Ilve Navarro, Donna Harper(Authors)
  • 2014(Publication Date)
  • Routledge

    (Publisher)

  After the key factors have been identified, the next step is to analyse how each one of them impacts on that organisation and decide whether it represents a threat that needs to be minimised, or an opportunity that can be taken advantage of. When analysing economic influences you will find that they have varying degrees of importance for different organisations. For some organisations it might be the level of lending of the banks that is most important, while for other organisations it might be the impact of oil prices, or the state of the national economy. The impact of potential economic developments may also need to be considered.

  It is important not only to describe factors, but also to think through what they mean and how they affect the organisation in the present and how their impact on the organisation might change in the future. Considering how and why the present is different from the past can be useful for your analysis.

  Activity   

  Choose an organisation and, using the template below, analyse how the economic environment impacts on your chosen organisation. Top tips:

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    Make sure you systematically consider each of the elements.

  •

    Then, carefully analyse how each in turn might affect the organisation now and in the future.

  •

    Assess the likely impact as high, medium or low.

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    In the light of your assessment, consider what action might be appropriate, for example, for any future impacts that seem likely, you might wish to monitor events and/or prepare action plans for the organisation so it is ready to be able to exploit opportunities or minimise any threats.

   

  Table 10.5  Template for analysing the effect of current and future key economic influences on organisations

  10.6   Summary

  The chapter began by outlining the importance of the economy to individual nations and the effect of the economy on individuals, organisations and governments. The term economy was explained and the three main types of economy were outlined. The focus of the chapter on the macroeconomic environmental factors was made clear. Key economic influences were introduced including international influences, national trade cycles and local economic effects. In addition to these, economic influences, key economic factors such as inflation, interest rates, exchange rates and levels of unemployment were examined in some detail. The chapter concluded by pointing out some emerging ethical and international issues around the macroeconomic environment.

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