Change, Risk Management, PESTLE

What are some examples of internal changes in a business

• Change in business ownership

• Change in business size

• Change in management style

• Introduction of new technologies by the business

What are some examples of external changes in a business

• Advances in technology

• Labour market change

• Change in competition

• Change in economic conditions

• New legislation

• Consumer tastes

• Market changes (supply and demand)

What is the difference between planned and unplanned change

Planned change is created internally and is structured and timetabled. Clear objectives for the change are established, timelines created and resources applied to creating change.

Unplanned change occurs in response to a shock to the business and is often unstructured and under-resourced. A shock could be external, such as introduction of new technology by competitors, or internal, such as the death if a manager.

What are the potential negative impacts of change to a business

• Shorter product lifecycles

• Diminished brand loyalty

• New products need to be developed

• Change in production methods

• Need to retrain workforce

• Need a flexible workforce

• Increased costs due to new legislation

Why is change resisted within an organisation (Kotter and Schlessinger)

• Self-interest

• Misinformation or misunderstanding

• Different assesment of situation

• Low tolerance and inertia

What are the ways in which a business can manage risk

• Insurance

• Risk assessment

• Contingency Planning and Funds

• Crisis Management

What are the types of risks a business could face

• Natural disasters

• Employee error

• Equipment failure

• Product failure

• Economic factors

• Legal challenges

• Public relations failure

• Supply problems

What is the difference between an insurable risk and an uninsurable risk

An insurable risk can be planned for and measures can be taken to minimise the effects of such risk on a business. The risk is quantifiable

However, with an uninsurable risk, the probability of the risk occurring is impossible to quantify. Insurance companies are unable to price the risk

Why would governments want businesses to succeed

• Pay corporation tax

• Create jobs and wealth for the population

• Provide goods and service for the population

What are the main objectives of a government

• Low and stable inflation

• Low levels of unemployment

• Economic growth

• Provide stability (legal and economic)

• Protect national security

What is a patent

A patent is the official legal tight to make or sell an invention for a particular number of years

What is the difference between regulation and legislation

Regulation is the passing of rules and laws in an effort to encourage businesses to modify their behaviour and so avoid the imposition of sanctions.  

Government regulation tries to ensure that competition exists within a market and that individual firms do not become so large that they are able to exploit customers through limiting choice and the charging of higher prices. 

Legislation is an umbrella of rules and laws created that affect everyone equally. Legislation is created by Parliament, while regulation is established by government bodies or independent authorities. 

What are the advantages and disadvantages of setting legislations and regulating a market

Advantages of setting regulations and legislation in a market

• Protects consumers
  Regulations ensure products are safe and good quality, reducing the risk of harm. For example, rules enforced by the Health and Safety Executive protect customers and workers.

• Prevents exploitation
  Laws stop businesses from charging unfair prices or misleading customers. This creates trust and encourages consumers to continue buying.

• Promotes fair competition
  Regulators like the Competition and Markets Authority prevent monopolies from abusing their power, allowing smaller firms to compete.

• Protects workers and the environment
  Minimum wage laws and environmental regulations improve working conditions and reduce environmental damage.

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Disadvantages of setting regulations and legislation in a market

• Increases business costs
  Firms may need to spend money on safety equipment, training, or legal compliance, reducing profit.

• Reduces business flexibility
  Strict rules may limit how businesses operate, making it harder to adapt quickly or innovate.

• Creates barriers to entry
  New firms may struggle to afford compliance costs, reducing competition.

• Can reduce competitiveness internationally
  Businesses in highly regulated countries may face higher costs than foreign competitors with fewer regulations, making exports less competitive.

Define deregulation and what are the advantages and disadvantages of the deregulation of a market

Deregulation involves the removal of reuses and regulation that prevent competition  

Advantages:

• It stimulates economic activity by promoting competition and allowing new companies to enter the market which leads to lower prices and more jobs 

• Competition amongst businesses leads to improved quality of products and services  

• It gives consumers more choice in the marketplace 

• It can lead to increased innovation  

• Businesses can operate without the burden of government regulations 

Disadvantages

• It can lead to less competition as small companies are unable to compete against larger companies  

• Consumers may pay higher prices if there is only one company providing a particular product or service 

• It can lead to leads regulation of important industries which can lead to safety concerns 

• Can lead to job losses  

Define indirect and direct tax

An indirect tax is charged on producers of goods and services and is paid by the consumers indirectly. Examples include: VAT, Fuel duties, land fill tax, alcohol duties, tobacco duties, council tax and business rates. 

Direct taxation is a type of tax which is paid for by an individual directly to the government. Examples include: Income Tax, National Insurance, Corporation Tax, Capital Gains Tax, Inheritance Tax.

Define subsidies and give its advantages and disadvantages

Subsidies are a sum of money granted by the government to help an industry or business keep costs and therefore prices low and so encourage consumption. Offering subsidies to domestic producers or exporters can make UK firms more internationally competitive but this is an unfair advantage and might break free trade agreements. 

Advantages

• Removing inequality  

• Encouraging innovation and growth of industries that benefit society  

• To generate more jobs and therefore give people more disposable income  

Disadvantages

• Producers can become subsidy dependant 

• Subsidies can lead to excess production

• Government failure from political lobbying 

• Could increase taxes  

Define Fiscal Policies and the two types of fiscal policies

Fiscal policy are government measures that involve changes in spending or taxation in order to influence levels of demand and economic activity within an economy. The main aims of fiscal policy are:

• To stimulate economic growth during periods of economic downturn  

• To maintain low and stable rates of inflation 

• To provide economic stability avoiding ‘boom and bust’ economics 

Fiscal policy is split into two categories: contractionary and expansionary

Contractionary

• When using contractionary policy the government will decrease spending and raise taxes in an effort to suppress economic growth  

• Higher taxes decrease consumer spending because they have less disposable income  

• Businesses might also see their taxes rise and this increase in their costs and a loss in demand causes job losses and cut backs on investment  

Expansionary

• When using expansionary policy the government will increase spending and cut taxes in an effort to stimulate economic growth  

• Lower taxes increases consumer spending because they have more disposable income  

• This means additional revenue for business and increased demand encouraging firms to hire more staff and push forward with investment as confidence levels increase 

Define monetary policies

Monetary policy involves the use of interest rates and the manipulation of the money supply to influence levels of consumer spending and aggregate demand in an economy. 

• The main aim of monetary policies in to create a stable economic environment by maintaining low rates of inflation and avoiding recessions 

• Since 1997 a key element of monetary polices has been controlled by the Bank on England  

Explain the two causes of inflation

Demand Pull Inflation

·      Demand-pull inflation occurs when there is too high a level of demand within the economy for goods and services

·      Businesses continually raise their prices in order to ration the supply until eventually they are operating at maximum capacity

·      Eventually a firm cannot supply any more in the short-term without expanding

·      The ever-increasing price of goods and services fuels higher levels of inflation within the economy

Cost Push Inflation

·      Cost push inflation is when the costs involved in the production of goods and services rise and this additional cost is then passed into consumers in the form of higher prices

·      This could include: wage rises, raw material costs, fuel costs and falling value of the pound

Define deflation

Deflation is the tendency for price levels of goods and services in fall over a period of time. Deflationary pressures can be just as damaging to an economy of inflationary pressures as:

·      Customers might choose to save their money instead of spending it as they see prices falling and think it will continue

·      Firms see a fall in demand and this leads to the need for further costs cut and a decline in economic growth

Define interest rates and explain how changes in interest rates impact a business

Interest rates can be expressed as the financial reward for the lending of money or the financial cost for the borrowing of money. The rate of interest reflects the price of money, if interest rates fall, demand for money rises and if interest rates rise, demand for money falls.

When interest rates increase 📈

• Higher borrowing costs

  • Loans, overdrafts, and mortgages become more expensive.

  • Businesses pay more interest → increases costs → reduces profit.

• Reduced investment

  • Firms are less likely to invest in new machinery, expansion, or technology because borrowing is expensive.

• Lower consumer spending

  • Customers with mortgages and loans have less disposable income.

  • Demand for non-essential goods and services falls → reduces business revenue.

• Improved saving incentives

  • Consumers save more due to higher returns → spend less → lowers sales.

• Exchange rate may rise

  • Higher interest rates attract foreign investors.

  • Stronger currency makes exports more expensive → exporters may lose sales.

• Cash flow pressure

  • Businesses with existing variable-rate loans see repayments increase → worsens cash flow.

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When interest rates decrease 📉

• Lower borrowing costs

  • Loans are cheaper → reduces business costs → increases profit.

• Increased investment

  • Firms are more willing to borrow and expand operations.

• Higher consumer spending

  • Lower loan and mortgage repayments → more disposable income → increased demand.

• Encourages business growth

  • Easier to finance expansion, new products, or new locations.

• Exchange rate may fall

  • Exports become cheaper → export businesses benefit.

• Improved cash flow

  • Lower loan repayments free up money for other business activities.

Define exchange rates and explain how changes in exchange rates impact businesses

Exchange rates are the price of one currency expressed in terms of another.

Weak Pound (£1.00 = $0.90)

• Exports → To make £1 profit exporting goods, we need to make $0.90. Therefore lower prices can be charged and business can be more competitive than domestic firms in that country

• Imports → Only $0.90 worth of stock purchased for £1, more expensive

Strong Pound (£1.00 = $1.60)

• Exports → To make £1 profit exporting goods, we need to make $1.60. Therefore higher prices can be charged and business is less competitive

• Imports → $1.60 worth of stock purchased for £1, cheaper stock

How does unemployment impact businesses

·      Unemployment means consumers have less disposable income to spend in shops and on products

·      This means less demand and firms often seek to either cut cost (job losses and lower quality) or find new markets

·      Job losses cost firms money as a result of redundancy payments and large scale redundancies are likely to attract negative media attention

How does a population increase impact a business

• A growing population in the Uk presents businesses with increases opportunities 

• Higher levels of demand for goods are a result of an increases market size that has shifted the demand curve to the right  

• An ageing population presents firms with the chance to target an increasing number of people with healthcare products, insurance and private pensions 

• A boom in the younger age ranges brought about by net migration, has also meant increasing pressures on schools, social services and healthcare providers. 

How does migration impact UK businesses

• A significant net migration over the past 20 years has brought new skills, cultural experiences and tastes to the Uk 

• This has proven to be particularly beneficial to seasonal industries such as agriculture and also care professions and the NHS 

• The broader tastes of the Uk population have also led to the development of new product lines in supermarkets as manufacturers seek to take advantage of a new group of consumers. 

How does an ageing population impact businesess

• An ageing population presents firms with the chance to target an increasing number of people with healthcare products, insurance and private pensions 

• However, an aging population means there are fewer working age people in the Uk which lead to a supply shortage of qualified workers  

• In some cases, this shortage may increase wages for current employees due to the lack of competitiveness in the labour market  

What are the current main soical changes affecting Uk businesses

• Working Women and Equality  

One major change over the last 40 years has been the increase in the number of women who are economically active  

Supermarkets and other retailers focus on convenience, time-saving meals, home delivery and click and collect for this demographic  

The childcare industry has boomed in recent years as a result  

• Mobile Technology and AI 

For businesses, the problem of how younger people consumer media and purchase goods is a major problem  

Now, marketing and selling to these segments has to be focused on a wide spread of media, not just traditional ATL methods  

• Health conscious  

The Uk population is becoming more conscious of their health as a result of new research and access to information  

Growth in the fitness industry, health clubs, gyms, cosmetic products  

• Environmental concern  

Change in consumers attitudes towards the environment has changed demand patterns  

Electrical goods need to be energy-efficient   

When consumers purchase cars, the focus can be as much as emissions and fuel efficiency, as on performance  

Consumers also look for recycled packaging and avoid single use plastic  

• Convenience (e.g. food delivery) 

What is GDP

UK economic growth is measured using Gross Domestic Product (GDP) which looks at the value of the goods and services produced within the UK economy over one year.  

Real GDP takes into account the rate of growth in size of the UK economy taking into account the effects of inflation.  

What are the main ways of improving economic growth

• Staff Training and Education to improve productivity  

• Lower taxes to encourage consumer spending and business investment  

• Increased government spending to boost demand  

• Improved capital investment to improve efficiency  

• Spending on research and development to develop new products and processes 

Define the business cycle

The business cycle is a measurement of economic growth over time. It has four distinct phases: boom, recession, recovery, slump. 

Define an economic boom

• A boom is characterised by a period of very strong economic growth and high levels of business and consumer confidence  

• Firms are investing heavily to try and satisfy high levels of consumer demand and this creates jobs and increases living standards as unemployment levels are very low  

• Booms risk the overheating of the economy as demand cannot ultimately be satisfied. There is a pressure on firms to raise wages as inflationary pressures build and this adds to a firm’s costs. 

• For businesses, there is a shortage of staff, higher labour costs and firms operate at full capacity  

Define an economic recession

• A recession is two successive quarters of negative economic growth  

• Booms do not last forever and eventually both consumer and business confidence levels start to decline  

• The Bank of England is likely to raise interest rates to help eases inflationary pressures and this adds to firm’s costs and sees consumer demand fall as PDI decreases 

• Borrowing is now much more limited and investments are likely to be postponed  

• Firms will seek to cut costs by reducing the number of employees 

• For businesses, a recession leads to price sensitive consumers, job security fears and potentially business failures  

Define an economic slump

• A slump is technically a period of prolonged economic decline characterised by high levels of unemployment, negative GDP, low business and consumer confidence and very limited investment  

• It is similar to a recession but it lasts longer and the effects are more profound 

• Businesses can overcome a slump by finding new markets, reducing selling prices and cutting costs  

Define economic recovery

• The recovery phase marks the first signs of economic growth returning  

• Any growth is very uncertain at this stage and both business and consumer confidence levels remain low until they are sure that growth will continue and can be sustained  

• Levels on employment rise 

• Increase in capacity utilisation and capital investment 

Define inflation

Inflation is the general tendency for prices to rise. Inflation means an increase in the cost of living as the price of goods and services rise.  

Employees seek higher wages to offset the increase in prices. This adds to a firm’s costs and forces them to raise prices even higher which then results in additional need for higher wages. This is known as the wage-price spiral

Define automation and give some benefits and drawbacks

Automation is a machine or system that accomplishes (partially or fully) a function that was previously carried out by a human operator (partially or fully). 

Benefits:

• Improved productivity

• Faster production

• Shorter lead times

• Lower labour costs

• Improved quality

Drawbacks:

• Reduced flexibility

• Job losses

• Damage to reputation

• Job insecurity fears

• High cost of investment
  
  

What are the advantages and disadvantages of bringing new technologies into a business

Advantages

• Faster manufacturing  

• Improved decision making  

• Lower medium-long term costs  

Disadvantages

• High initial costs  

• Job insecurity  

• Data security  

What is company law

• When a business is incorporated, it creates a separate legal entity between the newly formed company and its owners (shareholders). The process of setting up a limited company is known as incorporation  

• An incorporated business is responsible for its own debts and liabilities. The debts of the company are no longer the debts of the owner, with the owner’s liability being limited to the amount they invest through shares  

• A sole trader or partnership operates under the legal basis of the owner and the business being one and the same legal entity. This means the debts of the business are therefore also the debts of the owner  

• Failure to comply with company law can lead to company directors being fined, struck off or even compulsory liquidation of the company  

What is employee law

Employee Law 

• Employment Rights 

• This is the key legislation concerned with establishing workers’ rights is regard to the terms and conditions of their employment  

• Employees have to be provided with a written contract of employment within two months of starting employment 

• Paid holiday leave, flexible working requests, disciplinary and grievance procedure 

• Anti-discrimination  

• The Equality Act 2010 legally protects people from discrimination in the workplace and in wider society.  

• Health & Safety Legislation  

• Employers have a legal responsibility to ensure that working environments are safe and that employees are trained to deal with risks involved in their jobs 

• Employees also have responsibilities, such as taking reasonable care and ensuring that they abide by health and safety rules set by the business 

What is consumer protection law

Consumer Protection  

• Consumer protection laws are designed to protect the customers from unscrupulous firms. It covers areas such as: 

• Safety of goods 

• Labelling  

• The right to return goods 

• The right to money back 

• Protection against untruthful claims about products or services 

What is competition law

• Competition law regulates the ways in which firms compete 

• Examples of this include  

• Control of the merger firms because of danger to monopoly power 

• Restrictions on one firm undercutting others] 

• Investigations of firms who are believed to have too much control in the market 

• Making cartels and price fixing illegal 

• The Competitions and Markets Authority (CMA) is the principal competition regulator in the United Kingdom. 

What is intellectual property law

Intellectual Property 

• Trademarks Legislation covers designs and artwork, such as labelling, brand logo design and product design  

• Copyright laws gives the creators of literacy, dramatic, musical and artistic works, sound recordings, broadcasts and films rights to control the ways in which their material may be used  

• Patent laws cover inventions and give rights to the inventor or patent owner for a limited period to stop other from making, using or selling an invention without the permission of the inventor or owner  

What are the main ethical issues facing businesses

• Environmental impact  

Consumers are far more aware of a firm’s impact upon the environment  

Consumers protests and pressure group actions put business activity under intense scrutiny  

Local residents are now likely to object if a firm’s actions will impact negatively upon their lives or local area. 

• Animal rights

Animal welfare is a key element of many firms ethical policies  

Especially any business involved in the manufacturing of food, or the use of animal products/testing  

• Treatment of workers 

Businesses have an ethical responsibility to care for the welfare of their workers as they are ultimately their key asset 

Paying workers a fair wage for the work that they do, ensuring equality, eliminating discrimination, and ensuring good working conditions are now the expected norm 

There is no excuse for exploitation even if this occurs lower down the supply chain in a less developed country where businesses source their goods from 

• Treatment of suppliers 

The exploitation of suppliers by big business has meant suppliers seeing their profits being squeezed, contracts being broken, late payments for goods creating cash flow issues, and pressurised negotiations in which firms demand high quality at unreasonably low prices 

Classic examples of these tactics were seen with the supermarkets and UK dairy farmers but the growth of the Fair Trade movement has helped to limit the problem 

• Treatment of customers 

It is important that businesses deliver good quality product to customers at a fair price and do not seek to exploit or pressurise customers into buying things that they do not want or need  

• Paying fair share of taxes  

Many large businesses use loopholes to avoid taxes (e.g. window dressing) 
 

What would the advantages and disadvantages be to a business and its stakeholders of prioritising ethics over profit

Advantages

• Improved brand image  

• Marketing advantages  

• Reduced labour turnover and absenteeism  

• Improved staff motivation  

• Attract top candidates for jobs

Disadvantages

• Reduced profitability  

• Unhappy shareholders 

What are negative externalities

A negative externality is a cost that is suffered by a third party as a consequence of an economic transaction. In a transaction, the producer and consumer are the first and second parties, and third parties include any individual, organisation, property owner, or resource that is indirectly affected.

How do the government try to prevent businesses damaging the environment via the Climate Change Levy

The Climate Change Levy (CCL) is an environmental tax charged on the energy that businesses use. A means of encouraging businesses to be more energy efficient in how they operate, the CCL aims to reduce the overall emissions that businesses produce.

What is a pressure group and how do they impact businesses

A pressure group is a group that tries to influence public policy in the interest of a particular cause e.g. animal welfare.

Pressure group activity is often instrumental in promoting a local environmental issue, as well as increasing environmental and social awareness amongst the general public.

A pressure group can challenge and even change the behaviour of a business or government by:

• Lobbying MPs

• Protests

• Attract media interest

• Campaigns

What are the advantages and disadvantages of waste management for a business

Advantages

• Waste management can help businesses to reduce their costs. ​

• Businesses may be able to offer products at lower prices to consumers, giving the firm a competitive edge. ​

• By reducing certain types of waste, businesses might be able to reduce the tax they pay. ​

• If a business has a well-developed waste management policy, designed to protect employees and the environment from hazardous waste, its image may be improved. ​

• By spending money on research and development in waste management, businesses may be able to find ways of using their waste productively, such as developing a material from the waste that they can then sell

Disadvantages

• It can be difficult to arrange for waste to be disposed of correctly. ​

• Some aspects of waste management are very expensive and contribute to higher business costs, which can lead to a reduction in profit.​

• Higher business costs may raise prices of products to consumers. ​

• Small businesses may be at a disadvantage as they will not have the resources to spend on waste management that larger companies have. Companies that spend large sums disposing of waste in an ethical manner can be at a competitive disadvantage​

• A firm must decide which is more important, its image with regard to the responsible disposal of waste or the costs incurred by doing it.

What are the advantages and disadvantages of a business being environmentally friendly

Advantages

• Increased demand

• Tax incentives

• Conservation of resources/waste management leading to reduced costs

• Improved employment and job satisfaction

Disadvantages

• Time consuming to implement

• Expensive to implement in the short run

• Paperless = data risks

• Finding new suppliers