Terms of reference:
This report was commissioned by the lecture of Management and Organisation Behaviour as individual assessment on four external forces that can currently affect Organisation for these modules within the Bachelor of Business Degree in Management.
In this assignment I will present a brief literature review of the main four external forces that can currently affect an organization (a business). First I will introduce global economical powers that influence the four external forces after that I will then introduce the four forces in more detail.
As the world is emerging from the waters of deep economical crisis I think the best to start with are global influences that affect the main four forces. Each organization is directly strongly influenced by general laws of economics:
Economic growth – is influenced by various factors such as development on stock markets, which is strongly influenced by political activities around the world, prices of raw materials (metals, oil etc.) but also prices of energy and future of the economical development in general.
Inflation – increases cost of operations and price of products and reduces employment.
Interest rates – as many businesses operate with money borrowed from banks changing interest rates influence directly interest expense, which influences the cost of operations and the cost of product
PEST Macro analysis
Each local business is based in a certain environment that directly influences its performance. The environment a company exists in has a strong impact on every aspect of the company`s life. The following main four macro-economical external influences are interdependent.
Political atmosphere – each country has a specific political atmosphere, political culture. For instance countries of the EU would have very different atmosphere to North Korea. Local political decisions shape the countries economical perspective and enable or disable, speed up or slow down the development of local businesses. Political decisions directly influence law of the country (region) and some of them such as economic reforms make strong and long-lasting impact on local businesses. Even political decisions such as annual budget or introduction of income levy have profound impact on business performance. However this would be more applicable in Adam Smyth`s times.
Currently we can still apply this influence of local politics on small or local businesses but the late seventies and eighties of the 20th century, started especially in the Euro-American civilization process of progressive economic liberalization that resulted in supra-national corporations that we know today. Many of these corporations are wealthier then countries they operate in and often dictate what the local political milieu will be. This route would eventually lead us to the question of monopolization and to the question of economic and political interests and their balance.
Ultimately it is both international and local law that that create balance between these two areas.1 Great example of politics and law (even if enforced by the international public rather than by local corrupted politicians) impacting on businesses is from India, where supra-national companies producing clothing completely ignored health and safety regulations in order to produce more and cheaper. Unfortunately this lack of political ethic and responsibility resulted in tragedies and loss of many lives.
Social environment – main characteristics of social environment are social norms and cultural and even religious preferences. Max Weber sees the protestant idea of hard work as a result of original sin as the inspiration for development of hard-work and profit focused capitalism. 2 This idea of hard-work and profit focused capitalism combined in Europe and in the North of America with culturally well established system of banks borrowing finance for interest resulted in today`s macro economical models. Euro-American banking system is historically based in certain interpretation of oral Torah called Mishna that allows borrowing money for interest in return. It was in historical Europe traditionally “allowed” only to the Jewish nation as a form of discrimination and punishment.
So the development of economy is we know it today would be very unlikely in many parts of the world simply for cultural and religious reasons as in some countries would be money coming from interest prohibited.3 Demographic profile of social environment is crucial for any business existing within that particular society. Gender, age, ethnicity, language, education, public opinion and norms influence every aspect of business. Gender norms define approach of society towards male / female work.4 In many societies is female work traditionally under-rated therefore from the perspective of operations management it is cheaper for companies to employ women in certain positions. Education of population leads us into the next factor that affects business…
Technological development – is a result of the impact of education in the local social environment; technological changes always initiated further development. The invention of wheel accelerated speed of movement of our ancestors, the invention of metals improved their farming instruments as well as weapons but here we are not talking about the long time gone past. Today we live in exciting times of technological changes, which are changing the face of businesses on daily basis. Internet and electronic communication speeded up every aspect of business from operations, logistics to client services. Even the smallest local newsagent or grocery shop must keep up with the development of recent technologies.
20 years ago it would be absolutely unthinkable to top up phone credit while paying for grocery in a local shop. In fact there was no topping up credit at all today. Today we would find it rather odd if our local newsagent (if we still buy newspapers) would not have a top up terminal. Purchasing a flight used to be in general one to one experience; we used to go to travel-agents or flight-companies directly and purchased flights. Today we find normal to use the internet at home even to check in before our flight. A flight company that would not offer internet service to purchase a flight would not survive today. But all this technological progress would not be possible without investments, without wealth.
Economical environment – wealth as a source of investment was based in times of Adam Smyth and his An Inquiry into the Nature and Causes of the Wealth of Nations in productive powers of Labour, in accumulation and employment of stock, in progress of opulence in different nations (which is the distribution of wealth between cities and countryside) and in a system of political economy.
5 Today is material wealth accumulated not so much in nations but more so in supra-national companies. Still effective investment is the fuel of business development. Economical environment and wealth depends as we already mentioned on macro-economic factors of global economic growth, inflation and interest rates that directly influence local currency inflation and interest rates increase or decrease. Global economy fluctuates from booms to slumps. Most businesses gain in booms and loose in slumps.
Swedberg, R. (2003). Principles of Economic Sociology, New Jersey: Princeton University Press, 158-159
Weber, M. (1920). The Protestant Ethic and the Spirit of Capitalism, Berlin: Klaus Lichtblau and Johannes Weiss
Waterman A.M.C. (1999). Religion and Economics: Normative Social Theory; Boston 1999: Unwin Hyman, London & Boston, 1930
Dean, M., Waterman, A. (1999). Religion and Economics: Normative Social Theory. Massachusetts: Kluwer Academic Publishers.
Swedberg, R. (2003). Principles of Economic Sociology, New Jersey: Princeton University Press, 283-284.
Smith A. (1776). An inquiry into the nature and causes of the wealth of nations, London: Adman Black and William Tait