Economic Factors on Business Function

Inflation, IR, Skilled labour availability, Unemployment Rates

Inflation

Sustained increase in the general price of goods and services

How is inflation measured

As a % per annum using the consumer price index (CPI)

Current inflation rate

3.7%

Ideal level of inflation

• 2-3% ideal

• less = economy weak

• more = economy overheated

Impacts of inflation on consumer spending

Revenue will decrease as consumers lose purchasing power

Interest rates

The cost of borrowing money. usually as a % of the amount borrowed per year

Current cash rate vs target

4.1% — target 3.85%

Cash rate

The interest rate that banks charge each other for short-term loans (usually overnight).

How do high interest rates impact businesses

High Interest rates → Loans more expensive → less disposable income → incentive to save → less consumer spending → less profits

Aim of increasing interest rates

to slow down the economy (inflation) by making it more expensive to borrow money, therefore people spend less

Supply of labour

The amount of people availiable to complete jobs required by a business

How does a shortage of skilled labour effect businesses?

• Decrease in Productivity

• Increased Operating Costs

• Pressure on Existing Staff

• Challenges in Innovation

• Have to increase wages to attract workers

How can businesses combat labour shortages?

• Increase pay

• Offer additional benefits

• Reward existing employees

• Limit business hours

Unemployment

People who are not in a paid job but are actively looking for work

Structural unemployment

when the structure of the economy changes, and workers can’t easily move into new jobs.

Why does structural unemployment happen?

• Industries decline (e.g. manufacturing jobs disappearing)

• Technology replaces jobs (automation)

• Globalisation shifts jobs overseas

• Workers don’t have the right skills or training

What causes rising unemployment?

• Economic contraction

• high interest rates

• new technology

• seasonal changes

High unemployment effects

• Low consumer spending → fewer sales

• Lower profits → businesses struggle

• Less investment → expansion slows

• Cheaper labour → easier to hire, lower wages

Current unemployment rate (as of Feb 2026) vs target range

4.3% vs 4.25%–4.5%

Public Image

The way the business is perceived and its reputation in the community.

Strategies to build public image

Corporate sponsorship, Donations

Corporate sponsorship

an economic exchange and/or involvement in the community.

can be either a payment, providing support such as a free office space, equipment, food, clothing or staff.

In exchange for this support the sponsor will receive visibility and positioning

Donations

A philanthropic decision. Being associated with a good cause builds an image of a business that cares about the community. 

Positive and negative impacts on business image of environmental issues

• Climate change

• pollution

• energy use

• animal testing

Pollution (±)

Positive

Negative

Reducing waste, recycling materials, and using environmentally friendly packaging can strengthen a business’s reputation. Implementing cleaner production methods and reducing emissions demonstrate social responsibility. Promoting eco-friendly products can attract environmentally aware customers and differentiate a brand from competitors. Transparent environmental policies can build consumer trust.

Businesses associated with environmental damage or excessive waste may face public criticism and loss of customers. Environmental accidents, such as oil spills or chemical leaks, can severely damage brand image and result in legal consequences. Greenwashing (making false sustainability claims) can lead to a loss of credibility and public trust. Poor waste management practices can create negative community relations.

Energy use (±)

Positive

Negative

Installing energy-efficient lighting, machinery, and appliances can demonstrate a commitment to sustainability. Using renewable energy sources such as solar or wind power can improve public perception and reduce operating costs over time. Reducing overall energy consumption shows environmental awareness and responsible management. Highlighting energy-saving initiatives in marketing can attract customers who value sustainable practices.

High energy consumption or reliance on non-renewable resources may be viewed as environmentally harmful. Failure to adopt modern, energy-efficient technologies may create a perception that the business is outdated or unconcerned about sustainability. Excessive energy waste can attract negative media attention or regulatory scrutiny. Rising energy costs without sustainable strategies may also signal poor management practices.

Climate change (±)

Positive

Negative

Businesses that acknowledge climate change and take action to reduce emissions are often viewed as responsible and forward-thinking. Initiatives such as reducing carbon footprints, investing in renewable energy, and using sustainable supply chains can enhance trust and brand loyalty. Publicly supporting environmental goals or sustainability targets can attract environmentally conscious consumers and investors. Transparent reporting on environmental performance can strengthen stakeholder confidence.

Ignoring climate change concerns or denying its impact can damage reputation and lead to consumer backlash. Businesses seen as major contributors to greenhouse gas emissions may face protests, negative media coverage, or boycotts. Failure to adapt to environmental regulations or sustainability expectations can make a business appear outdated or irresponsible. Lack of action may reduce appeal to younger consumers who value sustainability.

Animal testing (±)

Positive

Negative

Using cruelty-free testing methods and alternative materials can improve brand reputation and attract ethically conscious consumers. Promoting animal welfare policies or gaining cruelty-free certifications can strengthen trust and loyalty. Developing synthetic or plant-based alternatives to animal products demonstrates innovation and ethical responsibility. Ethical sourcing and transparent supply chains can enhance stakeholder confidence.

Businesses that use animal testing may face criticism from consumers and animal welfare organisations. Products made from animal materials may be rejected by customers who prefer ethical or vegan options. Negative publicity or campaigns against animal testing can harm brand image and sales. Lack of transparency regarding testing or sourcing practices may lead to consumer distrust.

TOP LEVEL MANAGEMENT

• Responsible for overall strategic direction of the business

• make decisions about growth, goals and investment

• Eg CEO

MIDDLE LEVEL MANAGEMENT

• Implement strategies set by top management

• Eg department managers

FRONT LINE MANAGEMENT

• Responsible for day to day supervision of employees

• ensure tasks are completed efficiently and correctily

• Act as link between employees and higher management

• Provide training, guidance and performance feedback to staff

• Eg supervisors

Features of Organisational Structures

1. Chain of Command

2. Span of Control

3. Delegation

Chain of Command

• Hierarchy (shows who answers to who)

• Pros: better communication, clarity, promotions, not one person doing everything

Span of Control

• Number of employees the manager is responsible for

• More managers → easier for boss to manage different groups of employees

Delegation

When a job is passed from a manager to a subordinate

4 types of business structures

• Functional

• Product

• Divisional

• Team

Functional Structure

• Organised by specialist functions

• Pros: specialisation, efficiency

• Cons: Can lead to poor communication between departments

• Eg Apple

Product Structure

• Organised around different product lines

• Each division manages itself

• Pros: Allows focus on specific product performance

• Cons: Can result in duplication of resources across divisions

• Eg Sony

Divisional Structure

• divided into separate divisions based on products, regions or markets. Each division operated semi-individually

• Pros: Focus, accountability

• Cons: Increase costs due to duplicated functions

Team Structure

• Employees organised into cross-functional teams to complete projects or solve problems

• Pros: Encourages collaboration and communication

• Cons: Unclear authority if roles are undefined