business management higher understanding...

Golspie High School

Business Management

Higher

Understanding Business

5 Internal & External Factors

Internal & External Factors 15/09/2015 2

Learners should be aware of the impact that internal factors might have on

organisation’s ability to meet its objectives and the ways the organisation might be able

to overcome any constraints in term of:

staffing

finance

technology

corporate culture

Learners should be aware of the impact that external factors might have on

organisations and be able to offer solutions as to how the organisation might lessen the

effect. Factors include: political, economic, social, technical, environmental, ethical

competitive (PESTEC).

Internal Factors

Internal factors are the things within a business that impact upon its success. A business has a

degree of control over internal factors.

Ability of Staff

This refers to the quality and skills of the

workforce to ensure that the business

succeeds.

All businesses need stability. A high

turnover of managers does not provide

this stability as every new manager, or

management team, joining the business

will come with their own ideas and

initiatives. There may be a more serious

underlying problem if a business loses managers in quick succession. The business may be

offering a level of pay lower than that if their competitors, or may be controlled by a

board who are unwilling to give a manager the autonomy required to complete their role.

Poor decisions made by managers will result in bad actions that could, for example, impact

on public reputation and sales.

Many organisations recognise the value of managers and invest heavily in management

training programmes and team-building events for their senior personnel.

A businesses greatest asset is its employees, who must be nurtured and motivated. Expert

and capable staff will be more productive in their work. Unmotivated staff may produce

poor quality work, take more time off, etc.

A successful business will invest in its workforce to ensure that it gets the best out of them.

Businesses can directly improve skills by providing on-the-job or off-the-job training.

Low morale or motivation can lead to poor customer relations impacting on a business’

sales and profit levels.

The efficiency and effectiveness of employees will determine the profitability of the

business.


Finance Available

The funding necessary for the business to

pursue its objectives.

A lack of finance may mean that a business

has to consider cost cutting measures such

as staff redundancies, downsizing, delaying

equipment replacement or new product

developments. This may reduce the ability

of the organisation to compete with

competitors and may have to close.

The ability to invest new sources of capital

into a business will also impact on that businesses success. A business may wish to expand

into new countries, bring a new product to market or run a new advertising campaign. All

of these things cost money.

Businesses have a degree of control over finance in that they can try to obtain it from

banks, debentures, government funding, share issues or the sale of an unused asset.

If the management of an organisation decides to increase the number of shareholders, for

example, the business must be comfortable with the knowledge that an increase in

shareholders reduces the ownership and control of the current owners.

Technology/ICT Availability Technology is constantly improving, which can result in businesses falling

behind their rivals.

The degree of ICT used within a business can influence the quality and

quantity of products produced.

Failure to embrace new ways of selling, such as through social media (known as s-

commerce), will impact on a business with access to limited markets and thus fewer sales

than those who do.

Businesses have fixed budgets and limited employee skills but they do have the ability to

develop new technology by directly seeking additional funds or outsourcing technology to

IT specialists.


Corporate Culture

The culture of an organisation has been

described as: ‘The way things get done

around here.’ While one culture may work

for one organisation, a different culture may

work for another. It is important that

everyone working for the organisation

understands, and works well within, the

culture of that organisation.

The ability of a business to function lies with

the managers and employees who make

decisions. The ability for employees to function successfully is therefore often determined by

the culture of the business. When managers set an ethos of mutual trust and respect,

employees feel valued and are empowered to always give their best.

There is an increase in workers being given the opportunity to work more flexibly, for

example they may be allowed to set their own hours or work from a place of their own

choosing. This freedom often encourages loyalty and can mean that staff work rates can

increase.


External Factors – PESTEC

Political

Government and EU legislation and policy decisions may have a tremendous impact

on UK firms and place – or remove – constraints on decision-making. Political

decisions, such as the introduction of Equal Opportunities legislation, a common

European Currency or the raising of the weight limit on lorries in the UK to fall in line

with European legislation, have influenced many UK business decisions.

Political influence Positive Impact Negative Impact

A change in, or introduction

of, a new law - will affect an

organisation in that they

need to comply with the laws

of the country they operate

in. New legislation is

published continually, and

businesses must ensure that

they are aware of, and

complying with, all

legislation that affects them.

The new law may reduce

restrictions on trade (eg.

opening hours of a bar) and

allow the business to gain

greater sales and hopefully

profit.

Policies and procedures in the

business may have to be

changed; this could be costly

in terms of money and time

as staff may need to be

retrained.

Eg. an increase in the

minimum wage will mean the

organisation is paying more

for its labour force/will have

a smaller profit/may have to

increase its prices.

Eg. new laws on sale of

alcohol have to be complied

with or face a fine from the

government.

Funding to upgrade

infrastructure (eg a new

motorway or airport)

This may reduce travelling

time between destinations

allowing products to be

transported more quickly,

which will satisfy customers.

There may be significant

disruption during the

construction phase that may

impact upon the business

being able to transport goods

to customers on time.

Access to locations that were

previously restricted may

enable greater trade to take

place and therefore the

business will gain more

customers.

A business seen to support

the building of a new

motorway or airport may

not be viewed favourably by

stakeholders if it aims to be

socially responsible; this may

damage the image and

reputation of the business.

A change in the amount of

tax to be paid

If income tax was to be

reduced, consumers would

have more disposable

income than they could

spend on products, thereby

increasing the sales revenue

of a business.

If income tax was to be

increased, consumers would

have less disposable income

that they could spend on

products, thereby decreasing

sales revenue of a business.

An increase in taxes may An increase is tax for any


benefit public sector

organisations by providing

them with extra funding they

can invest in improving

facilities for communities.

business will reduce the

amount of profit it earns and

may reduce the dividend

payment to shareholders. Eg.

increasing the tax rate on fuel

will affect businesses as they

will have to pay more to

have their goods supplied to

retailers/customers.

New government targets to

protect the environment (eg

to increase recycling by 10%)

The business will be seen as

being socially responsible and

can use this as part of the

marketing campaign to

enhance image.

Steps may need to be taken

by the business to comply

with government targets, eg

to reduce wastage, and may

cost money to implement.

Changes in government

policy

Eg. Orders for new defence

ships will increase business for

shipbuilders

Eg. Cuts in the defence

budget may mean

shipbuilders have to make

employees redundant.

Other examples of political factors include:

Terrorism

Example: Level of NHS funding may affect the number of or the prices charged by private

hospitals.

Example: Government initiatives in education have meant that private public partnerships

have allowed companies to bid to build new schools.

Increasing European Union membership has created opportunities for businesses to trade in

a wider market without traditional restrictions such as quotas and taxes.


Scotland's lower drink-drive limit could have worse effect on country’s pub trade than smoking ban

20 January 2015 By Chris Clements

BAR owners are blaming a slump in sales in January on tougher new alcohol limits that came into force last month.

SCOTLAND’S lower drink-drive limit could have a worse effect on the country’s pub trade than the smoking ban, it’s been warned. Bar owners are blaming a slump in sales in January on tougher new alcohol limits that came into force last month. It comes as one of the UK’s biggest pub chains also say the law has had an impact on takings north of the border. Greene King said they had saw a 2% rise in drink sales in England and Wales – but not in Scotland. And yesterday Paul Waterson, chief executive of the Scottish Licensed Trade Association, said pubs have been reporting losses since the Christmas period. “We don’t have any figures yet but I have heard anecdotally it will probably be worse for the business than the smoking ban,” he said. “Since the smoking ban in 2006, we’ve seen roughly three pubs close every week in Scotland. “I don’t think there is any doubt that there will be more of an effect this time. “Publicans are very quick to point out their concerns when we speak to them. Many people are just not coming into pubs or are just changing their habits. “This is all about residual alcohol in the bloodstream – it’s not about drinking and driving on a night out. “We have seen a lot of people just not drinking at all, especially if they have engagements the next day. “It is bigger than the smoking ban and a complete game-changer for us.” The tougher rules saw the limit for drivers lowered from 80mg to 50mg in every 100ml of blood, bringing Scotland into line with many other countries in Europe. It means that the average man can have just a pint of normal-strength beer before driving and woman only half a pint. The number of Scots caught driving under the influence of alcohol has dropped since the new lower limit was enforced. Police revealed a 19 per cent reduction over the 2104 festive period compared to 2013. Just 20 people were caught breaching the new limit out of a total 351 drink drivers. But Mr Waterson argues that the limit change is having a negative effect on the pub trade. He continued: “With the smoking ban, people could still come in, go outside and have a smoke. Pubs changed their premises to suit in some cases. “But in this case, we have to change, we have to adapt. But it’s difficult to know where to go because it basically stops people drinking. “Let’s be clear, no one is condoning drink driving. But this is about residual alcohol in the system the next day. “And the penalties for that are as bad as the person whose caught two or three times over the limit. One Glasgow pub manager, who asked not be named, said boozers have suffered heavily since the crackdown. “Everybody I know is saying the exact same thing,” he told the Record. “One or two are

saying it is affecting them quite badly. People just aren’t coming in the first place anymore.“Many people would come in, have one pint and then head home. There would be 20 or 30 people who would have one pint, stand and have a gab with their pals and then leave at 6.30pm. “We’re just not getting that office trade because they don’t want to take the risk. “And when you add all that up, it is a lot of

http://www.dailyrecord.co.uk/by-date/20-01-2015

http://www.dailyrecord.co.uk/news/business-consumer/pub-chain-blames-sales-drop-5002579




money at the end of a week. “It is a big problem, especially for pubs in the city centre. There are some places where that is most of their business.” Yesterday, pub chain Greene King– which owns a string of bars in the Glasgow area – blamed a drop in sales in Scotland on the new drink driving laws. The group said like-for-like sales were up 2 per cent in the two weeks over Christmas and New Year across Britain. But it was lower north of the border where a new limit for getting behind the wheel has been introduced. The Suffolk-based group’s sales for the six weeks to January 11 were flat compared with the period the year before when they had performed strongly. Excluding Scotland, they were up 0.6 per cent. Chief executive Rooney Anand added: “Sales were encouraging in our retail business over the important two weeks covering Christmas and the New Year, despite a very tough comparative from last year and softer trading in Scotland, following the introduction of tougher drink-driving laws.” Last week, Tesco supermarkets said sales of low-alcohol beer have rocketed by 80 per cent since the introduction of the lower drink drive limit. Tesco beer spokeswoman Natasha Pitman said while demand had also risen in the rest of the UK, the increase was 3 times higher north of the Border. “The new drink-drive limit appears to be having an effect in changing people’s lifestyles in Scotland,” she said


Economic factors

The state of the economy will impact on

the success of any organisation.

Recession – high unemployment and

job insecurity creates a slow down in

the economy/fall in demand (sales)

which may force an organisation to

downsize/pay off staff. However,

businesses that provide ‘cheaper’

products can find that a recession will

result in periods of growth. Consider

the rise in discount supermarkets over

the past few years.

Boom periods – an upturn in the economy/increase in demand

Interest rates set by the Bank of England – influence the cost of taking out a loan, ie an

increase in interest rate will directly affect any business with loans to repay, as the amount

borrowed will increase.

Inflation rates influence the rate that prices increase

Exchange rates – the value of one currency compared to another (will affect organisations

operating in more than one country and also tourism figures). For example, if sterling is

high in comparison to other currencies, UK manufacturers will struggle to sell their

products abroad. Fluctuating exchange rates between countries will affect the price of raw

materials or the profit margin on goods sold.

There is a rise in discounting and interest-free credit when there is a recession to encourage

consumer spending.

Social factors

Changes in the population (demographics)

and changes in society will result in changes

in demand for goods and services.

Socio-cultural factors acknowledge changes

in the needs and wants of the population.

Tastes change quickly and consumers are

rarely loyal to one particular brand or

product. They tend to be influenced to a

much greater extent by special offers or

new features.

Changes in trends and fashion mean that organisations must continually carry out market

research to see what products will sell or which new products are desired – organisations

must adapt to changing demographic trends (size and distribution of the population – ie

ageing population, smaller families, women working) as well as cultural trends.

Changes in patterns of employment.

Demographic change Reaction of business

The UK has a slow-growing population and

an ageing one.

There has been a growth in products for

the elderly.


Some DIY stores now actively recruit older

staff with practical DIY experience to assist

customers.

More demand for care homes.

The average age for a first-time mother is

now 29.

Some businesses are now producing

maternity products for more affluent first-

time mothers.

More nursery care places are now required.

Increase in the number of households where

both adults work

Increase in online supermarket shopping, as

families choose to spend more time together

and less time buying weekly shopping.

Socio-cultural change Reaction of business

More women are now in work. Supermarkets now sell more ready-made

meals, stay open longer and provide internet

shopping.

Increased concern about the environment. Car manufacturers are developing cars that

run on bio-fuel instead of petrol and diesel.

People have more leisure time. Growth in hotels and restaurants as more

people eat out and take more holidays.

Increased car ownership. Increase in out-of-town shopping centres.

Increased awareness of the origins of

products.

There has been a rise in fair trade and organic

products.

Technological

Emerging technology will continue to impact

on the way that businesses carry out

commerce.

Technological factors are relevant today as

most organisations rely heavily on the use

of information technology in their

everyday operations.

Information technology has evolved and the pace of change is very fast, therefore

organisations must keep up-to-date and this will involve a large financial cost. Businesses

that are unable to invest in new technology might find their customer base move to those

who can.

Money which did not require to be spent a decade ago is now dominating the buying

decisions of many businesses. Maintaining a competitive advantage is essential to every

organisation.

Examples: e-commerce, use of e-mail and internet for marketing

Some businesses also use new technology to reduce costs in production lines. There is an

increasing dependence on computer control systems in production, partly through

automation and partly through the need to provide and maintain high standards of

production quality.


Environmental factors

Global changes to the environment have seen businesses respond

differently to these challenges.

The weather/flooding – some businesses have been severely

affected by flooding in recent years. They have to close and refurbish. An environmental

event over which they have little control. Consider the impact that a particularly wet

summer will have on industries in the primary sector (eg. farming).

Another example includes rail delays due to snow can delay or halt the production process

as businesses fail to receive stock.

Organisations also now need to attempt to be socially responsible and environmentally

friendly both to comply with legislation and satisfy consumer groups. Firms who are

socially responsible, (for example through recycling) can find that an added benefit of this

action is an increased interest in their product.

Firms who are not acting in a socially responsible manner could be fined by the

government for not meeting targets or put under pressure by groups such as Greenpeace

and Friends of the Earth. This can damage the organisations reputation badly.

Competitive factors

The existence and/or actions of competitors will

influence the operation of a business – action will

have to be taken to protect sales, market share,

profits, etc.

When a close competitor lowers prices, improves

the product, increases promotion, changes

distribution methods, it is likely the organisation will

have to follow or lose customers. Businesses must continually monitor what their

competitors are doing and any developments in the industry and alter their own practices

accordingly.

Example: Littlewoods Football Pools was affected when the National Lottery was

introduced, so had to alter its selling and promotional techniques.

Sometimes this may mean changes to the way in which their products and services are

marketed. In other cases it may mean completely redesigning their product range or

changing the way in which they market and sell. Apple and Samsung have been embroiled

in a number of lawsuits over the design of their smart phones and computers, with both

sides citing the other as copying their intellectual property. Disagreements such as this are

very costly and time consuming.

Businesses today must be more ethically aware, as consumers view this with increasing

importance when choosing where to purchase. With information available everywhere,

consumers have never been so knowledgeable. The Internet allows consumers a huge

choice of business to purchase from, therefore all businesses must ensure that they are

ethically competitive. This means they must think about where they source raw materials,

how much they pay workers and how much of a carbon footprint they leave behind.

Customers will go elsewhere if they think a competitor is more ethically aware.


Task ? – Logica & Political Factors

Logica is an innovative IT services organisation that

brings people, business and technologies together.

Logica’s services aim to add value for clients through, for example, improving

efficiency and productivity or reducing waste. Logica monitors its external

environment using PEST analysis. This is a structured business tool that looks at the

political, economic, social and technological influences affecting a business. By

auditing and monitoring these influences, Logica can be proactive in ensuring it

remains competitive by adapting its own business and by generating innovative and

unique solutions for its clients.

Business decisions may be influenced by political factors. For example, recent public

sector budget cuts by the UK government and increased university fees are affecting

the education sector. For students this has meant making key decisions about how

they intend to pursue their careers. This in turn has meant that academic providers

need to review how they will meet the challenges of generating income. Logica

identified that these changes in the educational landscape could have an impact on

the number of potential employees with the skills and competencies that it requires.

For example, it had to consider the affordability of higher education for students and

how this could influence long-term development opportunities within the company.

The increasing cost of becoming a student may restrict the social mobility of talented

individuals and they may then need to consider alternative routes to gaining

qualifications and experience. Logica has therefore reviewed its workforce planning. It

has now engaged in strategies to ensure it has enough workers with the right skills

both now and in the future. To address the changes in the educational landscape,

Logica has introduced apprenticeships and enhanced its graduate scheme. Logica has

embraced the strategy of direct training as it provides the company with a new pool

of talent, with the focus on individuals who have decided to specialise in IT or

Computer Science. This is why Logica has embarked on creating Level 3

Apprenticeships in 2012. This widens the range of talented young people that Logica

needs and supports the organisation’s long-term commitment to career development

of its employees. Also, in 2007 Logica launched a three-year sponsored degree

programme with the University of Winchester. The degree programmes BA (Hons)

Business Management and BA (Hons) Business Management with IT attract

applications from students throughout the UK. These degrees allow students to

combine academic study with on-the-job learning. Students spend one day a week

studying on campus and four days a week working at Logica. Logica pays the course

fees as well as offering students an attractive salary from day one. Upon graduation

they can further develop their professional career within Logica.

As part of its sustainable focus, Logica has also responded quickly to government

initiatives on climate change and reducing emissions. For example, it has been

involved in the government’s new Cycle Hire Scheme in London. It secured the

contract for the major IT components with Serco, the contractor responsible for


designing, building and operating the system. Logica’s role is central and focuses on

the design and build of the simple-to-use payment system.

1. What does PESTEC stand for?

2. Explain why PEST analysis is used by firms.

3. Evaluate whether government policy changes are always bad for firms like Logica.

4. Look at the last budget – what changes occurred that have either positively or

negatively affected firms

5. Research any policy changes that have recently happened or are about to happen.

Which types of businesses are likely to be pleased by the changes and which are

likely to be challenged by them.

Task ? – Logica & Economic Factors

Logica is an innovative IT services organisation that brings

people, business and technologies together. Logica employs

more than 41,000 people and has clients around the world in a variety of industries

including automotive, oil and gas and manufacturing. Logica’s services aim to add

value for clients through, for example, improving efficiency and productivity or

reducing waste.

Economic factors change rapidly and are sometimes difficult to predict. The global

economic recession has affected how most firms conduct business, perhaps by looking

for cost-savings or reducing waste. As businesses focus on areas where efficiencies can

be made, some might choose to outsource functions to reduce costs, rather than

employing people with specialist skills. This has created increased demand for

outsourced services such as those Logica offers. Logica’s employees have the specialist

IT skills required to offer businesses of all types efficient and effective ways to manage

systems and processes. Logica was selected by BAE Systems, the global defence and

security company, to provide a Human Resources outsourcing service for its

employees within the UK. Logica works with BAE to increase the effectiveness of its

systems and to enhance the efficiency of its operations. This improves how BAE

engages with its employees to maximise their potential. This also helps BAE to reduce

its costs and focus on growth.

The recession in the UK has also heightened the need for the government to cut

spending. One example of this is the government’s commitment to achieving savings

through the better use of its technologies. As a result Logica has been awarded a 10-

year outsourcing contract with the Serious Organised Crime Agency. During this

contract Logica will manage the Agency’s information and communication


technologies and related services. This creates efficiencies by bringing together data

centres and networks, whilst helping the Agency to exploit intelligence and case

management more effectively through an integrated system. Similarly, Logica’s

services have helped Transport Scotland to put together the largest ticketing scheme in

the world. This has involved the installation of new electronic ticket machines on

7,000 buses and 200 bus operator sites. The system processes over 12 million journeys

every month and delivers cost-savings in terms of employee time.

1. Analyse how a recession may lead to more firms outsourcing services to

organisations like Logica.

2. Some businesses suffer during a recession, whereas other firms are able to benefit

from a poor economic climate. Carry out some research then write a brief report

which outlines the types of businesses that are likely to suffer during a recession

and the types of businesses that may be able to exploit one. For example...shoe

shops might suffer but shoe repairers may do better. In each case, explain why.


Task ? – Logica & Social Factors

Social factors reflect the constant change in society’s

interests, beliefs and actions. There are now different

working patterns available which allow men and

women to balance work and life commitments better.

New technology is driving faster and more integrated

forms of communication - 25 years ago the mobile phone was just an evolving

concept; the personal computer and internet were just starting to make an impact.

The make-up of society is also changing. The UK has an older and more diverse

society with people from many different backgrounds and cultures. A diverse

workforce brings together people with different skills and competencies. Diversity is

therefore a focus of Logica’s HR strategy. Logica competes with many other firms for

a limited pool of highly talented individuals with good IT and numerical skills.

To increase this pool of talent, Logica aims to increase the number of females in its

workforce. Within the IT industry, females only account for an average of 16% of the

graduates in Computer Science/IT. Logica understands that increasing the number of

females in its workforce will bring different strengths. Logica has been heavily

involved in driving equality within the workplace. It has supported the Women’s

Empowerment Principles (WEPs). This is a partnership initiative of the United Nations.

It has joined 267 nations across the world in order to improve gender equality. This

has helped to empower women within the workplace and the community. To do this

they have created a Women’s Mentoring Programme aimed at supporting women in

their career development. This will ensure that more women rise through the ranks

into positions of senior management. Another way that Logica is addressing this issue

is by supporting IT clubs in local schools near Logica’s offices across the UK. These

clubs promote the importance of IT and demonstrate the variety of exciting career

opportunities available within the industry, particularly for young women. By offering

a range of different routes into the business and making education more affordable,

Logica is able to provide an exciting and desirable option for career development.

1. Explain what is meant by a diverse workforce.

2. Analyse how Logica is working to encourage more women into its workforce.

3. Choose a business that you know, preferably one that is quite different from

Logica. In small groups, discuss how it might have been affected by social factors

over the past decade.

4. In exactly thirteen words, explain something you have learned from this session

about external social factors.


Task – Logical & Technological Factors

The speed of technological advances means that existing electronic equipment, IT

processes and systems will quickly become dated. To remain competitive a business

must ensure that its processes and systems support innovation and creativity for itself

and its customers. Logica has embraced recent advances in technology to offer its

clients the most advanced and sustainable services possible. An example of this is the

use of „cloud‟ technology. Cloud technology allows companies to access and buy

into data storage or software „on demand‟ through the internet. It enables

companies to access a shared infrastructure. This eliminates the need for firms to buy

software for every staff member or support a server to store company data and pay

for staff to maintain it. This in turn reduces waste in terms of both time and money

and can help a business to become more competitive by unlocking capital. This capital

can then be invested in other areas. Logica has also worked with the UK police force

to develop the Police National Database. This is the most secure national police

system developed to date and only authorised and vetted users will have access to the

system. It will make a big difference to policing in the UK as all police forces will now

have easy access to key information from forces around the country. The system will

make a real difference in protecting people in society.

Technology can also help businesses to meet the issues of sustainability. Sustainability

is now a high priority and businesses are keen to reduce waste and be more energy-

efficient. Using more efficient IT systems can help reduce waste, recycle more or cut

carbon emissions. For example Logica has created innovative software for Ford which

monitors vehicle emissions. If drivers behave in an environmentally efficient way, they

may benefit from fuel discounts. Systems like this help businesses save money through

reduced fuel consumption whilst also reducing emissions. Logica‟ s technology

supports its clients in many ways but to do this it needs to be able to offer a dynamic

and innovative working environment for its highly skilled employees from diverse

backgrounds. Logica‟ s people are key to the technologies that it provides, as

employees need to have both the IT skills and an innovative mindset. As an example,

graduates within the business may be involved in any part of the organisation, from

business consultancy, systems design and development and implementation, to testing

the support of new technologies, training or applications management.

1. Explain why Logica needs “a dynamic and innovative working environment for

its highly skilled employees”.

2. Analyse how technological advancements can improve sustainability.

3. Ready, steady, GO...write as many things as you can about technological external

factors in 60 seconds.


Task 1 - Ellygance (Source: Old Higher Activity 6)

Read the case study below and then answer the questions that follow.

Ellygance

The little town of Dollar nestling in the Ochil Hills was an ideal location for Elly Parks. Over

the years she had built up a steady flow of income from going round people’s houses giving

them facials, pedicures and manicures. When a small decorator’s shop on the main s treet

became available for rental, Ellen jumped at the chance to establish her presence right in the

town centre. Dollar’s population of 4,000 was quite affluent and there was no other beauty

salon in the area. Glasgow and Edinburgh, important centres fo r picking up new products and

ideas, were within an hour’s drive, and Stirling and Dunfermline could be reached within

twenty minutes. Elly’s customers all encouraged her and promised to support her in her new

premises. Dave, her husband, was a signwriter and enthusiastically embarked on creating a

colourful design, displaying the name ‘Ellygance’ surrounded by dais ies for the shop front.

Meanwhile Elly’s mum and dad painted all the walls and put up a curtain dividing the front of

the shop from the ‘treatment room’ at the back. Her bank manager agreed to lend her £1,000

and she borrowed a further £5,000 from her parents. Elly was pleased about this as she did

not want to share the ownership of the firm. Three days after opening with a glass of

sparkling wine for anyone who came into the shop for a look, Elly was visited by the

Environmental Health Officer. He explained that special regulations regarding hygiene

applied to premises where treatments such as electrolysis were offered. This would involve

Elly spending a further £5,000 to upgrade the premises which were only rented anyway.

Reluctantly Elly decided to abandon her plans for more sophisticated services and to revert to

offering the basic treatments she had formerly done in people’s homes. Na turally she had to

increase her prices quite a bit to cover the extra costs of rent, rates and insurance on the

premises.

Six months after the grand opening Elly and Dave drank the final glass of ‘bubbly’ as they

closed the door on the salon for the last time and put the key through the letterbox. ‘I can’t

understand what went wrong,’ Elly said sadly. ‘Where did all the customers go?’

1. Identify at least three objectives which Elly is likely to have had in setting up her

business.

2. What type of business did Elly set up? Explain three reasons for her choosing this

form of business organisation.

3. In which sector of industry was Elly operating? How has that sector of industry

changed in terms of importance in the past decade?

4. Describe three stakeholders in Elly’s business, explaining their influence.

5. Describe three internal and three external constraints facing Elly’s business.


6. Identify three reasons for the failure of Elly’s business.

7. Outline two alternative strategies that might enable Elly to start up her business again

and run it more successfully.

Task 2 (Source: Old Higher Activity 9)

Many organisations offer homeworking, teleworking and flexible work patterns. This may

be due to socio-cultural or technological changes. Discuss the possible benefits of these

changes to the employee and the employer.

Benefits to employee:

Can work at a time most suitable to themselves

Greater feeling of empowerment, responsibility

Can avoid rush hour traffic, commuting, less expense, time saved

Can fit in personal appointments around working hours

Benefits to employer:

More motivated workforce

Greater output/productivity

More likely to retain staff if they can have this flexibility

Less staff turnover, therefore less costs training, recruiting

Less overheads


Task 3 – Sea-ing is Believing (Source: Old Higher Activity 10)

Read this newspaper clipping, ‘Sea-ing is Believing’, then answer the questions below.

1. Name the factors of production which Crane has used in his business venture.

Explain the importance of each of these to the organisation.

2. Analyse the role of the entrepreneur in this business. You should refer to the starting

up of the organisation and the influence of the entrepreneur as the organisation has

progressed.

3. Do you think this organisation is a successful one? Explain your answer.

4. Using examples from the case study explain the external factors which influenced

Crane to set up the business.

5. What external factors might affect the success or failure of the organisation in the

future? Explain clearly how they might affect the organisation and make suggestions

as to how the organisation might tackle these problems.


Task 4 – W H Smith plc (Source: Old Higher Activity 11)

Read the following case study, and answer the questions below.

W H SMITH PLC

W H Smith originated as a news vendor business and

was established in London in 1792 by Henry Walton

Smith and his wife Anna. After their deaths, the

business was taken over by their son William Henry

Smith and in 1846 became W H Smith & Son when his

son, also William Henry also joined the firm. The firm

took advantage of the railway boom by opening

newsstands on railway stations, starting with Euston in

1848. They also made use of the railways to become

the leading national distributor of newspapers. It is best known for its chain of high street

and railway station shops selling books, stationery, magazines, newspapers and

entertainment products. W H Smith, is now quoted on the stock exchange, with its

headquarters in Swindon, England. It was a major distributor of newspapers and

magazines but demerged this division of the business in September 2006.

For many years, the main rival to both W H Smith’s small railway-station outlets and their

news distribution business was John Menzies; however, in 1998, W H Smith bought all

retail outlets of Menzies.

W H Smith Retail is divided into W H Smith High Street, W H Smith Travel Retail and W H

Smith Direct. The High Street division is responsible for the operation of the company’s

542 high street stores across the UK. The Travel Retail division is responsible for the

operation of the company’s 200 stores at railway stations and airports throughout the UK.

The W H Smith Direct division is responsible for the company’s e -commerce website

whsmithplc.co.uk, which sells goods similar to those for sale in W H Smith high street

shops.

The main aim of the organisation is to supply high quality products th at are produced by

people working in decent conditions with minimal possible impact on the environment. In

recent years the organisation has introduced a widespread range of measures to improve

its corporate responsibility e.g.

50 per cent of the electricity purchased comes from renewable sources

delivery vehicles which are less than 80% full wait until the next day; they have

introduced double deck trailers and larger capacity store delivery vehicles to deliver

further efficiencies

the W H Smith Group achieved a 6% reduction in volumes of waste sent to landfill,

through reductions in the amount of packaging being used on products; the majority of

the waste generated in high street stores is cardboard.


Source: http://www.whsmith.co.uk, © W H Smith PLC

1. What sector of business does W H Smith operate in?

2. What type of business organisation is W H Smith now?

3. Justify changing from a partnership to this type of business.

4. In 1998 W H Smith bought all the retail outlets of John Menz ies. What type of

integration is this? Justify your answer.

5. Explain the possible advantages of this type of growth.

6. Why did it demerge its distribution of newspapers and magazines?

7. Explain why the organisation has decided to sell goods through a website.

8. Describe the external factors that may have pressured W H Smith to make the

changes described in the case history.

9. Explain why W H Smith has corporate responsibility as one of its business objectives.

10. Identify two other business objectives which the organisation might choose and

explain how these might be achieved.

11. Multinationals, such as Ford and Sony, operate in many countr ies. Discuss the

benefits of operating as a multinational.


Past Paper Questions

Question 1

(Source: 2015 SQA Section 1 Question 1c)

CORPORATE CULTURE

Google has a very relaxed corporate culture and this has been taken into account in the

planning of the building. Although employees can work from outwith the office, the new

HQ has been designed to encourage employees to want to be there so that they benefit from

regular communication and idea sharing. Most Google employees have flexible working

hours, adding to the general feeling of wellbeing.

The design will also allow employees to meet up easily and chat. Employees can wear their

own casual clothes and pedal on free bicycles or walk to informal meetings in the roof

gardens or coffee shops. The Googleplex will continue to use the preferred Google colour

scheme of primary colours currently used in the existing HQ and will house impressive

facilities. Google’s offices are well-known for their perks such as gourmet cafes, sleep pods,

laptops attached to gym equipment and even pool tables and bowling alleys!

Explain the benefits of Google’s corporate culture to the organisation and its employees. 4

Question 2


Other than legislation explain the effect that external factors can have on an

organisation. 6

Question 3

(Source: 2011 SQA Section 2 Question 1e)

(i) Explain the effects that 3 political factors could have on an organisation. (A different

effect should be explained each time.) 3

(ii) Describe 4 external factors (other than political) that could have an impact on an

organisation. 4

Question 4


Explain how external factors may affect an organisation. 6

Question 5


(i) Identify and explain 3 economic factors that can affect the profitability of a business. 6

(ii) Describe 4 other external influences that can affect the success or failure of a business. 4


Question 6

(Source: 2007 SQA Section 1 Question 4b)

The local council are trying to attract tourists to Oban with worldwide marketing of the area.

They will need to consider many external factors that could influence the industry.

Describe external factors that could influence the effectiveness of a marketing campaign. 6

Question 7

(Source: 2007 SQA Section 1 Question 6a)

Describe the changing patterns of employment that have occurred in the UK during the past

20 years. 4

Question 8

(Source: 2006 SQA Section 2 Question 5aii)

Legislation is one example of a political external influence. Describe 3 other examples of

external influence on an organisation. 3


Task ? – First Group PESTEC Analysis

6pm partners – 2 periods

Memorandum

To: Business Management students

From: The boss

Date: Today’s

Subject: PESTEC Analysis

Your task today is to research and present back on how First Bus plc is affected by the

external environment. Decide how you are going to display your findings. Use the

headings:

§ Political

§ Economic

§ Social

§ Technological

§ Environmental

§ Competitive

Use your class notes, http://www.firstgroup.com/corporate/our_company/ and

http://businesscasestudies.co.uk/first-group/managing-external-

influences/conclusion.html#axzz3jqqQ23Lt to gather suitable information.

http://www.firstgroup.com/corporate/our_company/

http://businesscasestudies.co.uk/first-group/managing-external-influences/conclusion.html#axzz3jqqQ23Lt

http://businesscasestudies.co.uk/first-group/managing-external-influences/conclusion.html#axzz3jqqQ23Lt

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