Introduction
The influences of the business environment on organisational behaviour, performances, and outcomes cannot be ignored. This assessment aims to develop strategies that would enable an organisation to meet its purposes in ways that comply with the relevant legal and regulatory frameworks based on its purposes and the nature of the environment in which it operates.
Letter
Dear Colleagues,
This letter identifies, describes, and explains the following: the purposes of different types of organisations; the extent to which an organisation meets the objectives of different stakeholders; and five responsibilities of an organisation and the strategies used to meet them.
The Purposes of Different Types of Organisations
An organisation reflects a formal social arrangement depicting power, associations, and responsibilities among stakeholders working towards some objectives. Commercial organisations, such as Tesla, Inc. and Vodafone, aim to make profits in legally and socially accepted ways to their shareholders. Hence, commercial organisations focus on the return on investments. Not-for-profit types of organisations, such as Oxfam and the UKAID, only strive to provide services to humanity without expecting any profits. The public sector organisations, including local government authorities, national governments, or agencies are controlled by governments and mandated to deliver public services to the people. Finally, cooperatives consisting of clubs and trade unions among others offer their services to members and other affiliated entities.
The Extent to which an Organisation meets the Objectives of Different Stakeholders
Every organisation has multiple stakeholders with diverse objectives. Stakeholders have direct interests in organisations because of their contributions, involvement, or investments. Shareholder or owners are important stakeholders because of their monetary investments in an organisation. For an organisation, it must make profits and guarantee returns to its shareholders. Good returns on investment are among the factors that drive investments in certain firms.
This may not only be made up of increments in stock prices over time, but it may also be a component of occasional dividend payouts depending on profitability. Shareholders are important stakeholders because they invest their financial and time resources into a company to make it successful. Business owners are interested in increasing share of profits and appreciation of the value of the business. The second category of stakeholders is the customer.
Customers purchase goods and services from organisations. They expect quality products and services, and they are concerned about product or service features and safety issues among others. Additionally, customers have diverse needs that organisations must strive to meet through customised approaches. The third category of stakeholder accounts for employees. An employee is a paid worker in an organisation. They offer labour in exchange for salaries or wages.
Organisations strive to meet the needs of their employees by offering job security, training and development, better remuneration, rewards, and benefits, and improved opportunities for personal growth. Suppliers are also considered as stakeholders who offer vital products and services to an organisation. In turn, they expect more orders and prompt payments to create favourable relationships. Trade unions exist to protect the interests of employees, who are their members.
Some organisations do not allow unionisation of employees. Nonetheless, trade unions expect organisations to compensate their employees fairly and offer better working conditions. Governments are also stakeholders. They formulate laws and regulations, for instance, tax laws, environmental laws, and expect corporations to comply with them. Governments also expect organisations to create employment and support economies.
Finally, communities, particularly where organisations run their operations, expect jobs and minimal impacts on the environment, for example. It is imperative to recognise that organisations face pressure due to elevated expectations of stakeholders and consequences associated with ignoring such pressures. Thus, organisations may not always meet such heightened expectations.
Five Responsibilities of an Organisation and the Strategies Used to meet them
From a corporate social responsibility (CSR) perspective, organisations have various responsibilities to maintain (Mihaljević & Tokić n.d). These responsibilities are often arranged in the order of importance. First, an organisation aims to meet its economic responsibilities. In this case, the major goal is to turn in profits. Any firm that does not make profits will not last, leading to job losses and closure. Hence, strategies that maximise profits are adopted to realise economic responsibilities.
An organisation also has legal responsibilities to act according to laws and regulations of areas in which it conducts business. Hence, an organisation must adhere to all applicable laws, including labour laws, security regulations, environment laws, and criminal laws among others. Ensuring compliance is the best strategy to avoid legal challenges.
An organisation must also observe ethical responsibilities. Organisations undertake ethical responsibilities because shareholders believe that such responsibilities are the ‘right things’ their organisations should do. Ethical responsibilities are not obligations. They can realise these responsibilities by ensuring environmental friendly practices, fair remuneration, rejecting child labour, or refusing business from corrupt regimes among other strategies.
Philanthropic responsibilities go beyond the normal expectations and the belief in the right thing to do. It is involves giving back to the community. An organisation can realise these responsibilities by donating services or goods to communities, supporting environment conservation efforts, or supporting other community-based organisations.
Finally, organisations have responsibilities to meet various needs of all stakeholders. It can meet such responsibilities by understanding its business environment and making right decisions.
Presentation
Economic Systems and Effective Allocation of Resources
Economists have identified some basic solutions to the problem of resource allocation. The most common approaches include central planning and free markets, which are seen as the solutions to economic problems of resource allocations (Gregory & Stuart 2013).
Free markets allow commonly beneficial trade between consumers and manufacturers. In this case, the market systems, known as market economies, are applied to solve the noted economic issues. The self-directed market forces and the free association between resources lead to resource allocation in a free market economy. This implies that consumers influence what to produce, the manufacturer influences the production processes, and the purchasing power of a consumer determines who buys a product. Consumers and producers interact freely in market economies as they concentrate on their self-interests (Douma & Schreuder 2013).
The general-equilibrium theory in economics strives to explain the idea of resource allocation in free market economies. It states that in a competitive market environment, prices reflect the marginal value of products and services to consumers and the marginal cost of products and services to producers. Actually, the general-equilibrium theory goes further to present an argument that prices and wages determined in free and competitive markets lead to efficient allocation of resources. That is, no individual can gain without making another person to lose. Hence, in this notional ideal, market economies cannot be too free because firms with market powers can set prices beyond their marginal costs and decide to pay below the normal market wages, leading to inequality. Free market economies strive to allocate resources based on self-interests.
However, the recent financial crisis of 2009 showed that when the model of free market economies is wrong, then the system is bound to fail. For instance, bankers who were acting in their self-interest blew up their own institutions, leading to the current stricter regulations. Free market economies encourage competition, and firms strive to create their own customers and acquire market share. This encourages innovation and new marketing strategies to improve business excellence.
Command economics falls under the resource allocation by governments or its related agencies to manage scarcity. In this case, the system is known as central planning (Economics Online Ltd 2017). It only accounts for economies that wholly use central planning, and they are known as command economies. In this regard, governments directly influence and command how available resources are allocated in specific ways.
For instance, governments may decide to introduce new taxes, decide on specific sectors to apply heavy taxes, or decide on new infrastructures to develop. Command economies tend to offer some advantages relative to free market economies. First, they offer effective coordination of available resources during hard economic periods. Second, free market economies may fail in efficient resource allocation and, therefore, governments must intervene to mitigate adverse outcomes of such failures.
Mixed economies account for an integrated system with both central planning and free market economies (Bogolib 2013). Mixed economies may display a separate private sector driven by market forces, as well as a separate public sector under the command of the government in resource allocation. A mobile service provider in the UK economy is a distinct private sector while fire services or national police services are distinct public institutions. In most sectors, central planning and market forces are used to allocate resources, for instance, in private and public institutions, such as schools and hospitals.
These institutions can be private or public depending on the investors. From a realist perspective, the modern economy is mixed, but notable differences are observed across different sectors. For instance, the government of Cuba influences nearly all aspects of resource allocation while in the west market forces and central planning are left to influence resource allocation. Overall, no economic system is perfect, but each can be assessed based on the efficiency reflected in resource allocation and attaining economic goals.
The Impact of Fiscal and Monetary Policy on Business Organisations and Their Activities
Fiscal policy contains rules and regulations based on the tax regime and expenditure of a given system of government. Notably, there are countries with no or low corporate taxes, such as Qatar while others have relatively high corporate taxes. These taxes and crisis ultimately affect profitability of a business (DeLong & Summers 2012). In any country, the fiscal policy is a vital tool used by governments to influence distributions of available resources through economic activities, income, and resource allocation (Furman 2016).
Any change in the fiscal policy tends to be captured in the macroeconomic factors, including foreign direct investments (FDIs), national budget, and national debts (Dornean & Oanea 2014). According to Furman (2016), the landscape of fiscal policies continues to shift away from the ‘Old View’ due to its ineffectiveness. The extended outcomes of the global crisis, the realisation that equilibrium interest rates have reduced for many years and improved comprehension of economic policies in the last decade have supported the shift towards the ‘New View’ fiscal policy (Furman 2016). The so-called New View of fiscal policies leans towards a more expanded fiscal policy, and economists depict it as more effective in an economy constantly experiencing low interest rates, growth, and sustained global linkages (Furman 2016).
Overall, a good fiscal policy is influenced by the country and prevailing conditions. Nonetheless, the thinking in the economic sphere is now shifting toward a flexible fiscal policy, but policymakers have been reluctant to adopt the same. Hence, effective comprehension of such a policy could assist to remedy some challenges that business organisations face because of irrelevant fiscal policies.
Additionally, monetary policies also influence organisational operations (Arora 2017). The interest rate is an example of a monetary policy that affects business organisations directly. It also determines the circulation of money into an economy. Based on the needs of a given country, for instance, to manage rising inflation, the government may opt for changes in the monetary policy. These modifications ultimately affect the availability of credit and costs of funds to companies. Additionally, the monetary policy adopted also affects the currency market, which ultimately influences profitability of multinational firms.
The Impact of Competition Policy and Other Regulatory Mechanisms on the Activities of a Selected Organisation
In the UK energy industry, some former regulators have claimed that since 2008 regulation has been too aggressive (Littlechild 2015). In this case, the current regulator Ofgem has overregulated the industry leading to adverse effects on EDF Energy, E.ON UK, British Gas, Npower, Scottish Power, and First Utility among others (Lim 2015).
Following the request by Ofgem, the CMA (Competition and markets Authority) embarked on a broad enquiry to understand the working of the energy industry. There were claims that electricity and gas suppliers could sustain their price increment practices in the absence of any actual competitive forces and despite the falling wholesale energy prices.
It is argued that Ofgem’s practices on the energy industry has led to extra costs on its operations and driven some energy firms to abolish some of the cheaper tariffs. Ofgem insisted that some of the challenges have persisted for years and only became obvious when new policies were introduced.
The previous regulatory measures had stifled the competition. Additionally, regulatory practices that focused on enhanced consumer engagement had significantly increased transaction costs, leading to reduced benefits to consumers through weaker competition and high prices. Further, these regulations also influenced the capabilities of suppliers to compete and incentives to promote competition.
Ofgem also introduced only four tariffs, including some special cheap tariffs for vulnerable consumers, including the elderly and low-income earners. Ofgem further prohibited energy companies from offering the new cheap tariffs to existing customers, but only to new ones. This appears to be restricting competition. Consequently, consumers have a simplified market with few deals on offer, leading to a lack of interest among consumers to explore the market. Ofgem may mull the idea of breaking up the big six energy firms in the UK. Overall, it has learned that too low tariff will destroy competition and discourage customer engagement while too high tariff will offer no protection to vulnerable consumers.
Individual Report
How Market Structures Determine the Pricing and Output Decisions of Businesses
Market structure reflects sellers and buyers in a given market. Some notable market structures include monopoly, perfect competition, and oligopoly. The perfect competition depicts various sellers of a similar product. In this case, market forces of supply and demand determine the price and output decisions. A competitive market environment allows consumers to determine the price while organisations focus on outputs to meet the prevailing demands, increase sales, and profitability.
In a monopolistic market structure, the output and pricing decisions are influenced by the organisation. In this case, customers have no choice but to buy at the set price and quantities because no other provider is available. Monopolies strive to maximise profits using full production capacity to meet demands.
In an oligopoly market structure, a small number of sellers are found, and under the economic condition if a single seller limits outputs, then a significant impact on prices and on its competitors is felt. Sellers may all charge a single price, but variations are noted in promotions, advertisement, and customer services among others. In an oligopolistic market structure, the output decision rests with the specific firm based on the demands by their customers.
Notably, a given market structure affects a behaviour of a business organisation and ultimately, the profitability of an organisation. In every market, firms strive to protect their market shares and outdo their competitors. These market structures are defined based on the availability or a lack of competition. A market that lacks competition is concentrated.
The Way in which Market Forces Shape Organisational Responses
Factor, such as demand, supply, workforce, competition, labour, and suppliers, among others are considered as forces that can influence organisational behaviours and responses. The product demand may increase or decline. An increase in demands will lead to an increase in the investment of factors of productions, such as labour, to ensure optimal production. Conversely, a decline in demands often leads to lesser revenues and profit. Most organisations respond by restructuring, which mainly targets job cuts.
Factors that can influence demands may also affect supply. Organisations strive to avoid over supply or supply shortages by forecasting the likely demands and maintaining the right inventories.
Factors in the labour markets are most likely to influence behaviours of firms. During the Labour Day celebration, employees expect governments to increase the minimum wage and compel employers to effect the pay rise. Additionally, competition for highly qualified workforce continues to shape behaviours of organisations with regard to hiring and retention of qualified staff.
All firms strive to meet diverse needs of their customers through service or product offering. It is imperative for organisations to understand changes in consumer preferences and tastes to meet their emerging needs. Otherwise, organisations that fail to respond to customer needs eventually lose market shares to aggressive competitors.
Suppliers are extremely important to operations of any organisations. For instance, Apple Inc. must ensure that its suppliers deliver all the necessary components of the next iPhone before they can announce a date of completion and launch. Supply power may influence the cost of raw materials, which eventually affects production costs. Some organisations, such as Starbucks, sign contracts with their suppliers to ensure constant supplies of coffee beans and mitigate adverse effects that normally impact costs during shortages. Organisations may also respond by switching to a different supplier if changes in prices affect their bottom line.
Competition in a given market also influences behaviours and decisions of an organisation. As competition in the smartphone market increases, Apple Inc. and Samsung, for example, have responded by product diversification and service offerings.
An organisation is seen as an open system that must develop a relationship with various market forces to respond appropriately.
How the Business and Cultural Environments Shape the Behaviour of a Selected Organisation (Vodafone)
The business environment that a company operates in is better understood by applying some analytical tools, such as PESTEL. Political factors reflect government involvement in the economy, its influences on prices, taxes, subsidies, and production among others. It also shows political stability and corruption. It would be impossible for Vodafone to expand to Somalia because the country is a failed state with no proper regulations where warlords and terrorists attack and destroy communication installations and impose their own systems of governance.
Economic factors accounts for interest rates, inflation, exchange rates, GDP, unemployment and others. Vodafone suffered a setback during the recession, but eventually recovered when the economy improved. Hence, it is imperative for Vodafone to understand how economic factors influence its operations.
Social factors account for transformations in society, including change in consumer taste, earnings, lifestyle, and living standards among others. Vodafone understands that social factors, such as increased income levels may drive consumption of its services while low revenues are expected from emerging countries where it operates.
Technological factors show change and development in technologies used, production processes, and service or product quality among others. For Vodafone, the adoption of 4G technologies demonstrates an improvement on the previous 3G technologies while its mobile money transfer services (first launched in Kenya as M-pesa) has revolutionised the use of mobile phones globally.
Legal factors account for laws, regulations, and the independence of the judiciary. Vodafone recognises that various jurisdictions have different laws and regulations. For instance, in some countries, regulators expect dominant firms not to abuse their leadership position in the market, and they constantly monitor any breaches. A stable legal environment protects property rights, intellectual property rights, and court decisions are always made according to the law without any external interferences.
Environmental factors show changes in climate and weather patterns. Although Vodafone activities have low impacts on the environment, the company strives to support conservation efforts and ensure environmental protection, according to the laws and regulations in its areas of operations.
Cultural environment refers to behaviours, practices, and attitudes observed in society. For Vodafone, it must observe both internal and external cultures. Internal culture depicts long-standing practices of the company, including excellent work practices, innovation, management practices, teamwork, and performance (Ahiabor 2014). External culture may reflect the national culture of a country for Vodafone. National cultures, for instance, influence human resource management and employee performances (Humphries & Whelan 2017).
The Significance of International Trade to UK Business Organisations
International trade involves conducting business across borders. The exchange may involve goods, capital, or services. The UK business organisations benefit from enhanced used of resources, importing products not available locally, exporting products, and making a wide range of products available to customers.
To understand how UK business organisations benefit from international commerce, one should explore the concept of comparative advantage. Based on this concept, the UK based business organisations and firms in other countries can benefit if they both have products that can be traded. The benefit is derived from the opportunity cost of production. However, some countries may lack any advantage in product.
Nonetheless, such a country can still export goods, but it does not derive much opportunity costs. For instance, the UK companies may export refined petroleum products from Qatar. As the UK reduces barriers to international trade and protectionism, its businesses can benefit by improving domestic competitiveness or exploiting international trade technologies, for instance, Cuadrilla Resources may borrow fracking technologies from the US (Gosden 2016).
The UK based businesses also have opportunities to increase their sales and profits from international operations, for instance, Vodafone significantly benefits from its overseas subsidiaries while extending sales potential across many global markets and maintaining cost competitiveness in the domestic market. These businesses have been able to grow and now claim major global market shares, as they strive to minimise dependency on existing domestic markets and ensure stable markets across various seasons.
The Impact of Global Factors on UK Business Organisations
UK business organisations now face increased scale of global commerce, multiculturalism, and inter-dependency. PESTEL analysis can help to explore these global factors. Political factors account for different levels of political stability, bureaucracy, media freedom, threats from international terrorism, variations in taxation and the UK tariffs and copyright, property, and intellectual protection. Differences in these factors ultimately influence UK business organisations positively or negatively depending on a country of operations.
Economic factors related to influences of intensification of economic integration and globalisation, the global economic crisis and slow downs, market fluctuations, and low cost advantage noted in emerging economies, such as India and China, and other global factors now impact UK firms. Additionally, international organisations, such as the World Trade Organisation and World Bank continue to influence geopolitics and trade issues. Offshoring and outsourcing also affect UK firms.
Social factors, including transformation in family values globally, new family patterns, such as same-sex marriage, migration to cities, changes in social classes, and enhanced concerns for marginalised persons in society now place greater responsibilities on UK firms to understand these social changes and adjust their practices.
Technological factors show increased rates of global technological infrastructure developments, more innovative solutions, and increased use of technologies for creating competitive advantage. UK firms have strived to keep pace with these new technologies.
Environmental factors depict aspects of global warming, growing awareness about green solution, growing air pollution, and initiatives to protect the environment, and major UK firms aim to limit their carbon footprints globally.
Legal issues reflect laws and regulation that affect business practices, data protection, application of international laws, and cross-country labour laws.
The Impact of Policies of the European Union on UK Business Organisations
Prior to Brexit, the UK membership of the European Union implied that local business organisations were directly affected by the decisions of the Union’s laws and policies. For instance, the Union introduced a policy of liberatisation to ensure a fair competition among all businesses in its member countries. That is, any countries that are not a member of the Union are subjected to customs tariffs to protect domestic industries. It also allowed a free movement of people across member states.
However, following Brexit, both large and small businesses in the UK are affected in different ways. There are currently no clear policies to guide businesses. For instance, enhancing movement of labour was among the major achievement of the Union among its member states. However, Brexit has created doubts regarding the status of EU nationals living in the UK and, therefore, hindering free movement of human capital (Gardiner 2016).
This implies that UK business organisations cannot plan their human resources (HR) into the future due to a lack of policy to guide them. Hence, they cannot make investments in human capital involving labour from the Union member states, at least at the moment.
The lack of regulations and policies after the Brexit has only led to uncertainties among UK business organisations. At present, it would be difficult to predict what the future holds for UK firms. Hence, Brexit could present both new opportunities and improved collaboration or absolutely new challenges for UK business organisations.
Conclusion
The application of business environment concepts has shown how both internal and external factors work together to influence business organisations in areas in which they conduct business. It captures an operating situation of a firm. Hence, using the case of UK business organisations, one can explore how factors, such as labour, customers, suppliers, competition, shareholders, laws, technologies, political factors, economic factors, and social factors among others influence business organisations within the domestic and international context. Any business organisations that fail to understand its business environment will ultimately fail in a competitive business environment.
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