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External Environment, Lecture notes of Engineering

These comprehensive lecture notes explore the External Environment of businesses through frameworks like PEST/STEEPLE analysis, covering Political, Economic, Social, and Technological factors. Key topics include: - Economic cycles, fiscal/monetary policies, and GDP/GNP distinctions. - Social trends, demographics, and cultural impacts on business strategies. - Technological advancements, R&D, and e-business benefits. - Ethical debates (Free Market vs. Social Responsibility) and regulatory approaches. Ideal for students studying business management, economics, or strategy, the notes provide clear explanations, real-world examples, and critical analysis tools for assessing external business environments.

Typology: Lecture notes

2023/2024

Available from 04/04/2025

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Sam$Adams$ES187&'&Introduction&to&Engineering&Business&Management$
!
1!
External)Environment)
1. PEST)or)STEEPLE)
!
PEST!or!STEEPLE!analysis!identifies!external!opportunities!and!threats!
!
Political!
Economic!
Social!
Technical!
!
Social!
Technological!
Economical!
Environmental!
Political!
Legal!
Ethical!
!
FACTORS+TO+CONSIDER+
Size!–!link!back!to!economies!of!scale!
Country,of,operation!–!tend!to!find!more!regulation!and!legislation!in!developed!economies,!
increases!costs!of!operation!
Generic,strategy!–!low!cost,!good!for!a!recession!
Reaction,speed!<!respond!quickest!can!be!an!opportunity!
!
POLITICAL+&+LEGAL+FACTORS+
Stability!of!political!environment!&!impact!on!business!confidence!
Influence!of!current/future!ruling!political!party!!
Labour!(Socialist,!left!wing)!tend!to!do!more!government!borrowing!and!
spending,!increasing!taxation!and!minimum!wage!
Conservative!(Republican,!right!wing)!tend!to!borrow!and!spend!less!and!
lower!taxes!and!minimum!wage!
Potential!for!the!Government!as!a!customer/partner!
(Public!Private!Partnerships)!PPP!is!a!term!used!to!cover!a!wide!range!of!
activities!in!which!the!public!and!private!sectors!work!together!<!e.g.!Private!
Finance!Initiative!(PFI)!
Government!seeks!to!move!risk!to!the!private!sector!
Questions!raised!about!whether!PPP!schemes!always!save!money!long!term!
Influence!of!different!levels!of!Government!!
Define Alternatives
Implement
Analyse Current
Situation & Gaps
Choose Strategy
Assumptions PLANNING GAP
Strategic Fit & Strategic Choice
Vision Mission
Values Objectives
External Analysis
Internal Analysis
SWOT
Strength/ Weakness
Internal to Firm
Opportunity/ Threat
External to Firm
Objectives
Strategy and Programme Formulation
Implementation
Feedback and Control
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External Environment

1. PEST or STEEPLE

PEST or STEEPLE analysis identifies external opportunities and threats P olitical E conomic S ocial T echnical S ocial T echnological E conomical E nvironmental P olitical L egal E thical FACTORS TO CONSIDER Size – link back to economies of scale Country of operation – tend to find more regulation and legislation in developed economies, increases costs of operation Generic strategy – low cost, good for a recession Reaction speed -­‐ respond quickest can be an opportunity POLITICAL & LEGAL FACTORS

  • Stability of political environment & impact on business confidence
  • Influence of current/future ruling political party
    • Labour (Socialist, left wing) tend to do more government borrowing and spending, increasing taxation and minimum wage
    • Conservative (Republican, right wing) tend to borrow and spend less and lower taxes and minimum wage
  • Potential for the Government as a customer/partner
    • (Public Private Partnerships) PPP is a term used to cover a wide range of activities in which the public and private sectors work together -­‐ e.g. Private Finance Initiative (PFI)
    • Government seeks to move risk to the private sector
    • Questions raised about whether PPP schemes always save money long term
  • Influence of different levels of Government Define Alternatives Implement Analyse Current Situation & Gaps Choose Strategy Assumptions PLANNING GAP Strategic Fit & Strategic Choice Vision Mission Values Objectives Internal Analysis External Analysis SWOT Strength/ Weakness Internal to Firm Opportunity/ Threat External to Firm Objectives Strategy and Programme Formulation Implementation Feedback and Control
  • Influence of political lobby groups (e.g. Pressure groups and the Media)
  • Impact of legislation
    • Codes of conduct preferred by industry (Self Moderating), although this does require some external supervision - Cheaper and quicker
    • Common law-­‐ develops on the basis of judgements in the courts. (Previous cases set as president)
    • Statute law-­‐ set by parliament
    • Civil law-­‐ One party can bring action for loss against another part
    • Criminal law-­‐ Government brings action against a party who causing harm to society more generally How the legal environment affects businesses:
  • Contractual relationships with customers / suppliers
  • Duty of care to members of the public
  • Employment legislation
  • Protection of intellectual property rights
  • Production processes
  • Anti-­‐competitive behaviour SALE OF GOODS Main Legislation:
  • Trade Descriptions Act 1968
  • Sale of Goods Act 1979
  • Misrepresentation Act 1967
  • The Consumer Protection Act 1987
  • Consumer Credit Act 1974 Trade descriptions False description – one careful owner cannot be used to describe a car being sold by a car leasing firm False statement of price – with sales prices must show goods have been on sale at higher price in preceding 6 months for 28 consecutive days. False description of services – even if no intention to deceive if advert misleading can be found guilty. But interestingly can argue a mistake if you can show reasonable precautions taken. EMPLOYMENT
  • Based on principles of contract law and negligence
  • Employer vicariously liable for actions of employees
  • Increasing amount of statutory legislation
  • Need to distinguish between an employee and a self-­‐employed contractor

Exclusive dealing , where a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier. Price fixing , where companies collude to set prices, effectively dismantling the free market. Refusal to deal , e.g., two companies agree not to use a certain vendor Dividing territories , an agreement by two companies to stay out of each other's way and reduce competition in the agreed-­‐upon territories. Limit Pricing , where the price is set by a monopolist at a level intended to discourage entry into a market. Tying , where products that aren't naturally related must be purchased together. Resale price maintenance , where resellers are not allowed to set prices independently.

2. Economic factors

ECONOMIC STRUCTURE

• THREE SECTORS

§ PRIMARY (Farming, mining etc) § SECONDARY (Manufacturing) § SERVICES – growing

  • SIZE OF SECTORS MEASURED BY § share of Gross Domestic Product (GDP) § proportion of labour force employed GDP measures the value of output produced within the domestic boundaries of the UK. Includes output of foreign owned firms that are located in the UK. The Difference between GDP and GNP Gross National Product (GNP) measures the final value of output or expenditure by UK owned factors of production whether they are located in the UK or overseas. Negative balance of payments or trade deficit; import more than we export. INCOME
  • Firms and households are inter-­‐dependent
  • Basic model based on a closed system
  • Withdrawals slow down the flow
  • Injections speed up the flow Multiplier Effect -­‐ benefits of one action create many expanding benefits of reducing magnitude Accelerator Effect -­‐ A small change in consumer demand can lead to a big change in demand for industrial goods and services

Fiscal policy-­‐ Concentrates on stimulating the economy through changes in government income and expenditure Monetary policy-­‐ Influences circular flow of income by changes in the supply of money & interest rates CENTRAL BANK

  • Central bank plays an important role in the management of the national economy
  • Regulates the volume of currency in circulation within the economy
  • Intervenes to influence the exchange rate for sterling.
  • Bank of England has a supervisory role over private banks
  • European Central Bank is the central bank for EU KEY INDICATORS TO MEASURE ECONOMIC ACTIVITY
  • Gross Domestic Product
  • Inflation, Exchange & Interest rates
  • Unemployment rates
  • Output levels
  • Average earnings, Disposable income & Consumer spending
  • Savings ratio INFLATION
  • The general level of prices in the economy is rising
  • Common measures of inflation – RPI (Retail Prices Index) and CPI (Consumer Prices Index)
  • Demand pull inflation
  • Too much money chasing an inadequate supply of goods and services
  • Cost-­‐push inflation
  • Caused by increases in production costs EXCHANGE RATES
  • A high, or strong, £ makes exports more difficult and imports of competitor products cheaper but typically linked to a stronger economy and high sales demand
  • A low, or weak, £ makes exports easier but imports of materials more expensive and can be linked to a recession with low sales SOURCES OF LONG TERM ECONOMIC GROWTH § Natural resources § Labour resources § Capital resources § Productive potential

3. Social Factors

MAJOR FACTORS

§ Changing trends in values, life styles, leisure, health § Demographic & population trends § Lobby groups – e.g. Environmental § Education levels § Cultural Differences o Understanding processes of buyer behaviour o Distribution channel decisions are partly a reflection of cultural attitudes o Advertising messages do not always translate easily between different cultures o Methods of procuring resources can vary between cultures Important considerations are: § The elderly are a ‘growth area’ (population is generally living longer). § Environmental issues, ‘green’ lobbies. § Globalised businesses need to be aware of the effect of cultural differences. § Health and Safety issues – society is becoming more litigious and legislative. § Skills and education in the workforce need to increase to keep abreast of technological advances.

4. Technical Factors

§ University/Government R&D § Industry-­‐Wide R&D § Transport Infrastructure § ICT Infrastructure § Possible substitutes Key drivers identified as § Investment § Innovation § Skills § Enterprise, no of new start ups § Competition

5. View of the Business World

Free Market view

  • Business world is independent of society and its moral views
  • Its only aim is to make money
  • Moral requirements are society’s business Social Responsibility View
  • Business world is part of society
  • So it has restrictions on making money (as other members of society do)
  • It therefore has moral requirements
  • Companies have relationships with
  • Society in general,
  • Their local community
  • Other companies
  • Employees
  • Which involve trust and some shared interests/values
  • These occur at two levels
  • Within a company
  • Between companies and external entities THE FREE MARKET VIEW
  • Business is independent of the moral environment
  • Only one concern -­‐ to make money
  • Variety of positions
  • morality is not the concern of business,
  • business' only moral requirement is to obey the law
  • the Coincidence Theory -­‐ be moral because it will be good business practice.
  • Primary aim making profit for the shareholders
  • In this view the interests of the stakeholders, be they worker, consumer, supplier, manager, are all subordinate to the company's interests Free market view of company
  • Company is property of the shareholders
  • Run for their benefit.
  • Company executives work for them
  • Owners can do what they like with the company
  • Workers are free to choose work and a contract which suits them
  • The same is true for suppliers and all other stakeholders

SOCIAL RESPONSIBILITY VIEW

  • Sees companies and business world as part of the complex web of social relationships
  • Companies themselves are part of the social world
  • Moral concerns are their concerns
  • Cannot have money as their only value or interestt
  • Money-­‐making is one among a variety of concerns, interests or values that a company will have
  • Concerns may have different weights, but are valued in their own right
  • Not just because they contribute towards one over-­‐riding aim. SELF REGULATION
  • A sign of the success of the Free Market?
  • Or a sign of the failure of society or government to control the free market?
  • Three levels
  • Within companies -­‐ Corporate Social Responsibility
  • Within an industry -­‐ Industry Self Regulation
  • Throughout the commercial world -­‐ Business Self Regulation GOVERNMENT REGULATION
  • A social responsibility
  • Presupposes relations between the market and society which make the market subject to social mores BUT
  • Are social values appropriate for the marketplace?
  • The same problem as arose with industry regulating bodies
  • Is government regulation much concerned with the benefit of consumers. UTILITARIANISM
  • Right and wrong depend on consequences
  • Consequentialism aims to maximise the good consequences and minimise the bad ones
  • You ought to do what produces good results
  • Rather like cost/benefit analysis
  • But not just the consequences to one party
  • Utilitarianism is about the good life and living well
  • Important results are happiness or pleasure
  • So only one thing counts -­‐ happiness
  • Later versions value preferences or welfare
  • Act Utilitarianism
  • Rule Utilitarianism
  • People do things with bad consequences for good reasons
  • One reason is too many
  • Much more complex system
  • No guidance on how you know which duties are the right ones – Code of Conduct?
  • But how do we know that is right? VIRTUES OR EXCELLENCES VIEW
  • Greek ethics is thinking about virtues
  • Virtues are more like ‘excellences’
  • What makes for an excellent engineer or company
  • Not just moral considerations
  • About being the right kind of person, not about doing the right thing
  • Aristotle
  • Excellences are habits
  • But feelings as well as reason are important
  • The Golden Mean
  • Depends on how you see company
  • For Free Market view excellent company is one that maximises profit
  • Virtues might be
  • Loyalty to company’s interests
  • Not wasting money on unnecessary considerations
  • For Social Responsibility view excellent company is one that plays its part in society
  • Virtues might be
  • Being aware of company’s and product’s effects on society
  • Taking all stakeholders interests into account