Business Management Unit 3

Business External Environment

Factors external to an organization that cannot be managed or controlled by it, but have a significant impact on its activity or results.

Three Characteristics of the Current Environment

Complex (many interrelated factors), Dynamic (factors change quickly), and Uncertain (difficult to predict the future).

General Environment (Macro)

Factors that are not specific to a certain industry but affect organizations in many or all industries (e.g., inflation, laws).

Competitive Environment (Micro/Specific)

Factors intrinsic to a certain industry that directly affect the activity and results of companies within that specific sector.

Value System (Definition)

The set of companies that collaborate, each in its specialty, to transform resources and add value progressively until the product reaches the consumer.

The "Triple Role" of Organizations in a Value System

Organizations act simultaneously as customers (of suppliers), suppliers (to clients), and competitors (to those with the same function).

PESTEL Analysis

A framework to analyze the General Environment: Political, Economic, Socio-cultural, Technological, Environmental, and Legal.

PESTEL: Political Factors

Government actions like taxation policy, privatization, deregulation, and health & safety regulations.

PESTEL: Economic Factors

Interest rates, inflation, unemployment rates, business cycles, and disposable income.

PESTEL: Socio-cultural Factors

Demographics, changing lifestyles, attitudes toward work/leisure, and levels of education.

PESTEL: Technological Factors

Scientific discoveries, new production technologies, communications tech, and infrastructure.

PESTEL: Environmental (Natural) Factors

Climate change, water resources, energy supplies, and pollution concerns.

PESTEL: Legal Factors

The framework of laws such as employment law, company law, and business regulation.

Porter's Five Forces (List)

1. Threat of New Entrants, 2. Rivalry among Competitors, 3. Bargaining Power of Buyers, 4. Bargaining Power of Suppliers, 5. Threat of Substitutes.

Entry Barriers (Threat of New Entrants)

Obstacles that make it hard to enter a market, such as high capital costs, economies of scale, or brand loyalty.

Impact of Entry Barriers

High barriers lead to fewer new entrants, which generally results in higher profits for existing firms.

Factors increasing Rivalry

Many competitors of equal size, slow market growth, high fixed costs, and high exit barriers.

Exit Barriers

Factors like family legacy, specialized assets, or government support that keep companies in a market even when not profitable.

Bargaining Power of Buyers (Customers)

Increases if buyers purchase large volumes, products are undifferentiated, or switching costs are low.

Bargaining Power of Suppliers

Increases if there are few suppliers (concentration), the product is unique, or switching costs to change suppliers are high.

Threat of Substitutes

Increases if the substitute offers a better price/performance ratio or if the cost of switching to the substitute is low.

Types of Environment: Stable

Simple, static, and certain; changes are slow and predictable, making decision-making easier.

Types of Environment: Turbulent

Complex, dynamic, and uncertain; changes are fast and difficult to control or predict.

Friedman's View on CSR (1962)

"The social responsibility of business is to increase its profits" as long as it stays within the rules (no fraud).

Current View on CSR

Business and society have mutual obligations; companies must integrate social/environmental concerns into operations voluntarily.

Triple Bottom Line

A framework for CSR that balances Economic, Environmental, and Social imperatives.

ESG: Environmental Criteria

Practices regarding efficient use of resources, biodiversity, pollution reduction, and climate change action.

ESG: Social Criteria

Practices regarding human rights, labor standards, diversity, training, and community participation.

ESG: Governance Criteria

Practices regarding ethics, transparency, fraud prevention, and fighting corruption.

GRI (Global Reporting Initiative)

A prominent standard and organization for sustainability reporting (www.globalreporting.org).

UN Global Compact (UNGC)

A United Nations initiative to encourage businesses to adopt sustainable and socially responsible policies.

FTSE4Good Index

An ethical stock market index series designed to measure the performance of companies demonstrating strong ESG practices.

Philanthropy vs. CSR

Philanthropy is charitable giving; CSR is a strategic management concept integrated into the core business operations.