Unit 2: Understand Employer Organisations

Unit 2: Understand Employer Organisations 1.1 The main differences between the Private, Public and Volunteer sectors are that the Public sector is government owned organizations and government funded services. The Private sector is organisations that are not government owned who provide goods and services that are outside of the government realm. And the Voluntary sector is there to fulfil a social purpose without the aim to make a profit. Private Sector: The primary goal of this sector is to make a profit for their shareholders. They do not sell shares for their company to the wider public. Any shares that are to be traded are only done so with the permission from the Board of Directors. The profit comes from within corporations who are of profit and non-profit and their partnerships. These can be in the form of Retail Stores, Credit Unions and Local Businesses. E.G. Sole Proprietors – Designers, Plumbers, Developers. Partnerships – Dentists, Legal, Accounting. Small and Medium Businesses – Retail, Hospitality, Food, Leisure, Legal Services. Large Multinationals – Apple, Disney. Private company’s generally have LTD after its name. Companies that have this after their name have their own legal identity and can sue or own assets in their own right. This means that the business’ owners are not personally liable for the businesses debts. And the shareholders would generally not be involved in the business unless appointed by the BOD [board of directors]. The total GDP [Gross Domestic Product] in the US is 89.46% in the UK 83.65% http://www.privacysense.net/terms/private-sector/ Public Sector: This sector does not seek to make a profit as it is generally funded via taxes, fees and financial transfers from other government levels – Federal, Provincial and state governments. They generally start of trading and selling their shares on the stock exchange as long as all the required paperwork is completed. Here are just a few examples: Schools, Emergency services, Healthcare, Law Enforcement, Postal services, Public transport and Social services. Public company’s generally have PLC after its name and are obliged by law to have Annual General Meetings with their shareholders. The Companies Act sets out the power and responsibilities of the directors. Other obligations are to produce annual reports and statements of accounts. There are many more formalities and paperwork when setting up a Public Sector compared to Private. Volunteer Sector: The aim of this sector is to fulfil a mission. It can prioritise itself different to the other sectors. It generally lead by values and has smaller budgets, although predominantly less flexible and has to do more with less. Any money that they do gain is more often than not put back into the communities. This sector also has very little intervention from the government. The benefits are that it is a more relaxed environment, less formal and you are more than likely able to dress casually. Your relationships with your peers are on a more familiar basis; however you still have to be professional. Within the Private and Public sectors there is more of a need to be professional. E.G. Charities – American Red Cross, Salvation Army, NSPCC. Foundations – Bill and Melinda Gates Foundation. Social Welfare Organisations – Human Rights Watch, EPA. Advocacy Groups – WWF [World Wildlife Fund]. Faith Based – Churches, Mosques, Temples. Community Groups – Neighbourhood Watch. The Total GDP in the US is 5.4% in the UK 0.8%. http://www.privacysense.net/terms/voluntary-sector/ Other sites I used for research: https://reachskills.org.uk, https://en.wikipedia.org. 1.2 There are 4 different types of organisational structures, Tall Hierarchical, Flat Hierarchical, Matrix and Functional. Below is a description of what they are and how they work. Tall Hierarchical: This structure generally is used by large organisations; possibly over various sites. In this structure there are many managers [hierarchy]; each of which have a measure of control and are in charge of a small group of employees. However, due to the supervisory of a smaller group of employees they get to spend more time training them and working a lot more closely with their staff. In this type of structured organisation there are many levels of middle management ranging from the top of the pyramid where the CEO is to the very bottom where the employees are. Within each level of management they will often develop their own set of rules and procedures for their staff to follow. However, this can slow the work down and can make things more complicated; which then lead to added costs and can make more than 1 person share the same function. By having this range of management it sets clear lines of communication, unfortunately this can make decision making difficult. On a positive note; having so many levels of management gives way to a clear line for progression and promotion to the employees. But this can also lead to the satisfaction of the employees to be at a lower rate due to the many rigid rules and also they could have fewer opportunities to take on more responsibility. Another less positive side to having such a large number of managers and supervisors causes the organisation to have a larger amount of costs; this is due to the increase of time taken to make decisions and because of the delay this can cause. An effective way to help cut back on the ever rising costs is to do something known as delayering; which means to remove a layer of hierarchy whilst expecting the existing staff to pick up the slack. This also has an effect of things being more complicated / complex which then leads to the organisation being slower to respond to any changes within the market. Communication within this type of structure can be very difficult due to the large chain of command. This also means that managers find it difficult to access executives without having to go through a long line of management, this then has the counter effect of slower decision making due to the approval sometimes being needed by a variety of different people. However, one positive that can come from the issues of the above decision making is that more basic decision can be made at the lower ranking level of management; whereby the execs on get involved with larger more major decisions. Another positive of being an organisation with this structure is that it is easier to grow and expand the business by just adding another level within the chain of command without disrupting the already existing management and employees. As with every organisation the way it is set up can have advantages and disadvantages. Some of these are: Advantage – a narrow chain of command means employees can be closely supervised, clear management structure, clear lines of responsibility. Disadvantages – freedom and responsibility of employees is restricted, decision making is slower, and costs are elevated as higher management costs more than employees. See chart for example: Flat Hierarchical: This structure is the complete opposite to the ‘Tall Hierarchical’. This generally fits in within smaller organisations class. There is fewer management and more employees; thus giving the employees more exclusive training that can aid them in being more productive as they are more likely to be directly involved within decisions; rather than being overseen by management. Although because of how this structure is set out and the chain of command is so much shorter; there are fewer or no other levels of middle management between the employees and the execs. If, however there is no middle management the CEO may have to perform management decisions / functions in the place of these. The management that there is within this structure, has more responsibility than one that is in a ‘Tall Hierarchical’. They tend to have a larger number of employees beneath them which depend on the direction, help and support from them. However, these managers get less support and guidance from their superiors as there is also less of them to help. Unfortunately this means that the managers can feel a little overstretched. A positive of all of this is that it can promote the employees to get more involved through the fragmentation of the decision making process; this then elevates the level of responsibility of the baseline employees and this can the eliminate the use of middle management so that any comments and feedback, reach all the relevant people involved; which in turn makes the decision making process a lot more quicker. This also supports the change in the market needs which can be picked up on and assessed a lot quicker than with a ‘Tall Hierarchical’ structure. Whilst running an organisation within this structure the promise of a raise or promotion works via being offered due to the productivity of the person rather than because they have worked for the organisation over a number of years. The more the production needs grow the more hierarchical these organisations become; therefore, it cannot support staying as a ‘Flat Hierarchical’ as this will have a negative impact on production. As with every organisation the way it is set up can have advantages and disadvantages. Some of these are: Advantage – great communication, less bureaucracy, easier decision making and fewer costs. Dis-advantage – hindrance to the growth of the company with management having to do more, less opportunities for high level strategic moves. See chart for example: Functional: The Functional structure is generally used by smaller companies. This type of structure determines how the organisation performs / operates. This generally refers to how people in the organisation are grouped and to whom they report to. There are 4 main common functions within this structure; Accounting, Production, Marketing and HR [human resources]. By having these organised departments this helps the organisation operate efficiently. This helps the employees with a speciality to be able to operate within the realm of their own expertise. Some of the activities include coordination, supervision and task allocation; however, a typical drawback that can occur is that coordination and communication between departments and teams becomes very rigid due to the fact that they struggle to work together and then they become very territorial or unwilling to cooperate with each other. This then can cause delays, reduce commitment and this can be caused through competition of interests leading to time being wasted and therefore projects fall behind schedule. The nock on effect is to cause the organisation to be more slow and inflexible and production levels and commitment drop considerably. Each sector often performs at a very high level of efficiency; however, the cooperation with each other gets compromised, this isn’t helped by how formal things tend to be. Cooperative communication between all the functions and departments of an organization is very important as this can help spread information throughout. Coordination and specialization of tasks is generally centralized which unfortunately limits the amount of produce that is made; or services that are supported. However, it is efficient and predictable. Therefore, these types of organizations share the activities within vertically so that products are sold / distributed quickly and at a good price. A Functional Structure is best suited to being a producer of standard goods / services at a large volume and the previously mentioned lower costs. See chart for example: Matrix Structure: The Matrix structure is a combination of the Tall, Flat and Functional Structures. This combination allows team members to share information a lot more easily across the boundaries of departments. The Matrix structure is more effective than the management of the Functional structure. This structure generally groups its employees by function and production simultaneously. This means that the organization can take advantage of the employee teams strengths to accomplish work in a decentralized form and to make up for the weaknesses that come with the Functional structure side of things. The connection that is formed between the individual team members helps support the needs of the organizations projects and supports the productivity and maximises the strengths and minimises the weaknesses within. This type of structure is generally used by companies that produce more than one product i.e. Product A / Product B. An organization within this structure will organise the functions within the company by making sure that each side of the production A or B will have their own teams within each department. Some of these departments are Sales, Customer Service and Accounting. The advantage of the separate departments for each individual product is the fact that by doing this it improves the “Silo” Effect within the Functional structure side of the Matrix, makes the function of the Tall structure less and supports the growth of the of the Flat structure, which in turn will allow for the spread of information across the workforce boundaries a lot more quickly. Silo Effect is where departments and people become selfish and clicky within their teams and try to not let other people in within their circle, therefore causing the lack of information sharing. The effect of this can cause an organization to fail and crumble. The aim of any organization is to prevent this from happening in the first place but in the event that it does happen then the organization has to challenge and break this cycle to protect itself from failure. Project Managers have only limited authorities so therefore are assigned to look after the cross functional areas of the project and are assigned to oversee a specific project / job. The Functional managers maintain the control over the resources that is available to them and also their project areas. The Project manager and Functional manager share the power of management equally which supports the better aspects of the functional and projectized organizations. However, it can be quite difficult maintaining the sharing of power. A strong project Matrix has a project manager who is primarily responsible for the whole project, whereas the Functional manager will provide the technical knowledge and will assign resources as and where they are needed. As with all the others the Matrix structure has its own dis-advantages. Firstly there will be an increase in the complexity of the chain of command which happens because of the range of differences between the 2 types of managers; Functional and Project. This can then lead to confusion within the employees as they can be unsure of whom to go to, who is next in the chain of command? Secondly there tends to be more management than workforce. This can then lead to conflicting loyalties from the employees. However on a final positive note an organizational structure like the Matrix can allow for employees with a specialization to support the growth of the organization with their knowledge in a specific sector / area. See chart for example: as you will see with Matrix structures all the departments and employees are interconnected with each other. Here is my employer’s Individual Organisational Chart this looks like a Flat Hierarchical structure. 1.3 Private Sector: Within the private sector there are 3 different types of businesses. There is Sole Trader / Sole Practitioners [term preferred by professionals], Partnership and Limited Company. Sole Trader: Also referred to as Independent Contractor. This is the most common of structure for online businesses and is one of the easiest of businesses to set up as there is no complex paperwork. This also gives you the freedom to make decisions for the business without having to confer with other parties. The business and owner of the business is the same person in law. The sole trader does not have LTD liability so therefore, they are responsible for all debts of the business and any legal action taken against you. It is preferred that prior to trading as a Sole Trader, to register with HM Revenue & Customs if not prior then as soon as you begin to conduct your business. If you fail to do this you can be penalized within the second year of trading. However, as a Sole Trader you will receive all of the profits if any. The downside to this is that you could end up having to work long hours unless you can finance the employment of staff. This also falls under the category of Sole Proprietorship. See sections 1.1 for examples. As a Sole Trader you are classed as self-employed, therefore, all your profits are taxed as income, you will pay fixed-rate Class 2 NICs [national insurance contributions], and Class 4 NICs, you also have to produce an annual accounting return [tax return] for the Inland Revenue. Partnerships: This type of business is set up by a Deed of Partnership / The Articles of Partnership – a document drawn up by the partners and witnessed by a solicitor. This document states the legal relationship between the partners of the business. E.G How the profit is to be shared and what the responsibilities of the partners are amongst other things. There are 3 types of partnerships; Traditional /ordinary partnerships, limited partnerships and limited liability partnerships [LLPs]. Traditional [Ordinary] partnerships will generally have unlimited liability, this means that they are jointly responsible for the debts of the business. However, in 2001 this was altered so that some larger partnerships E.G Accountancy firms can have a limited liability. Unfortunately, if a partner leaves the business, dies or even goes bankrupt the partnership has to be dissolved, even though the business can keep trading. Limited Partnerships are made up of a mixture of Traditional [ordinary] partners and limited partners. Limited partnerships have to register with Companies House – UK’s registrar of companies, and an executive agency and trading fund of Her Majesty’s Government. But wouldn’t generally need to do annual tax return or file accounts. Once registration has been completed HMRC will then set up the tax records for this partnership, this is why there is no need to register with them. Traditional partners are jointly liable for any debts, meaning they are equally responsible for paying them off. Limited partners are on liable for the amount that they invested into the business and to any personal guarantees they used to raise funds. The Limited Liability Partnerships [LLPs] has to have a minimum of 2 designated members whom have a large portion of responsibility of the business on their shoulders. If this ever were to change to less than 2, all other members would be classed as the designated members. Limited liability partnerships have to register with Companies House, send in annual tax returns and file all their accounts. Once registered, HMRC are informed via Companies House and then HMRC set up the tax records so as before there is no need to register with them. Liability of a partner again is limited to the funds they put into the business and the same with the personal guarantees. This then gives a little protection to the members if for some reason the company were to run into trouble. There is one other partnership that sometimes exists but not as often as the other 3 and that is Nominal Partners. They are people who benefit from remuneration by allowing their names to be used to the benefit of the partnership. However, they get no share of the profits. Typical examples of partnerships are: Doctors, Dentists and Solicitors. Private Limited Company & Private Unlimited Company: Within these companies there should always be at least one Director and one Member. The Director must be at the minimum age of 16. This person makes the management decisions and can sometimes be a shareholder too. Any changes that are made within the company have to be brought to the attention of Companies House. The Private Limited Company is an incorporated business [type of joint-stock company] where the business has an individual legal identity. These types of companies are generally smaller and family run, but owned by shareholders. When a share is sold it cannot be sold to just anybody; however they can be individuals or other business owners. The person that purchases a share must be part of the business. By holding a share of the business you are entitled to a vote in the company’s Annual General Meeting [A.G.M] and to get a share in the yearly profits [dividend]. If there were to be any debts then the shareholders are only liable for the percentage of the shares they own. As mentioned earlier, Private Limited Companies are run by a Board of Directors and is headed by a Chairman. Documents that have to be filed before any trading can begin are: Memorandum of Association [contains fundamental conditions of operation], Articles of Association [AOA] / Articles of Incorporation [defines responsibilities of directors + other]. Both of these documents cover the objects of the business, where its headquarters are and the registered office, the amount of capital that has to be raised from sale of shares, meeting details that concern the business and auditing arrangements for the business accounts. The forms must be sent to Registrar of Companies, they then issue the business with a Certificate of Incorporation, thus allowing the business to trade as a Private Limited Company. Private Limited Company’s name / title must also end in LTD. A Private Unlimited Company has no limits to how much its members are liable for. However, these kinds of companies are very rare and are only usually only created for special circumstances. Before you think about setting up this type of company it is advised that you seek legal support so you know what to expect from this compared to Private Limited Company’s. As a Director you have to pay Income Tax and Class 1 NICs. Public Limited Company: These types of companies are generally well known. Maybe a manufacturer or a large chain of retail businesses! E.G. McDonalds and Next. Shares for these types of businesses are traded in the stock exchange, and the general public could purchase these shares. The liability that they would hold for the company would be just on the unpaid share that they own. A Public Limited Company must have PLC at the end of its name just like a Private Limited Company has LTD. Public Sector: This title refers to any business or organisations that have to justify their actions and decisions to the central or local government. This sector is funded by the government which in turn supply services to the public instead of aiming to gain a profit from what they do. There are 3 different types on offer within this sector. They are: A Public Good – which is something that is not provided by the Private Sector businesses, as it is not there for profit. E.G. Emergency Services or The Armed Forces. A Merit Good – which is something that the government feels everyone should have, even if in the Private Sector they could afford it or not. E.G. Education and Healthcare. Essential Services: These are things that as the title states are essential to the public. E.G. Refuse Collection, Street Lighting and Cleaning, Local Parks, Libraries and Leisure Centres. This can also be described as a ‘Public Corporation’; this terminology is used to describe an industry which is spread throughout the country. An Industry that is providing goods or services to the general public. Until changes came within the government in 1979 – 1997 there were a lot more public corporations that provided a vast range of services. However, once the conservatives took over they sold a lot of these to the private sector [known as privatisation]. The central government pays for the public services that we have access to via taxation E.G. Income tax. Local governments pay for the services that we access through Council Tax [formerly known as Community Charge / Rates]. Voluntary Sector: Within the Voluntary Sector there are 4 different types. They are Unincorporated Association, Charitable Trust, A Charitable Incorporated Organisation and A Charitable Company. Unincorporated Association – This type of voluntary sector is a great choice for smaller groups that have memberships, short term goals, with a low income and which they do not plan on employing staff or even to acquire properties. These types of sectors are quick and cheap to set up and run on a very small budget. They have no separate legal existence. Any property or contracts would have to be held by individuals on behalf of the group. If any legal proceedings were to be undertaken against the association it would actually be taken against the individual and not the association. This means they are personally liable for everything as all liabilities are held by the committee members. The majority of organisations start off as unincorporated associations and could potentially stay that way if they are a very small organisation. However, it is always worth setting some basic rules and drafting them up for reference. This will help make all volunteers in this organisation aware of what the aims are and how the organisation is to be managed. If changes were to arise within the size of the organization, therefore, encouraging the need to rent further premises or to employ staff or even perhaps larger contracts, they would have to rethink the structure of the association and decide on what are the appropriate steps to take. These unincorporated associations can be found in Charitable Trusts, Friendly Societies and Registered Charities. These are not registered as companies but are also not registered as voluntary or community. The documents that is required for this type of charity is the Rules of Association and the Simple Constitution. Charitable Trusts – this is an unincorporated association but with a special difference. The difference is that it is set up to manage money and / or property. This type of association would also be registered with the Charity Commission. Many Charitable Trusts will give out charitable donations and some also choose to allow trusts to hold property for them. A Charitable Trust is set up by a legal document [Trust Deed]. This type of trust consists of a small group of trustees who between them look after the money and / or property following the guidelines of the Trust Deed. There is no membership to behold. However, problems tend to arise when a trustee dies or resigns or even if a new trustee wants to replace the old. They could potentially want to run the trust in a different way to the original trustees. Because of the unincorporated status all the trustees are personally responsible for the actions and debts of the trust. The documents that are required for this charity are Trust Deed from Charity Commission and Charity Law Association. Charitable Incorporated Organisation [CIO] – Most small – medium sized organisations will work well under this type of structure. This is a newer legal form of a charity and was created in 2012. The legal arrangements of this organisation are set out in the Charities Act in 2011 but only came into force in 2012. This can provide limited liabilities but only needs to be registered with the Charity Commission. The governing document is a constitution. All information or documents required must be sent electronically. Within a majority of circumstances the trustees will be protected against liabilities. This organisation also has to register with the Charity Commission. However, with the charity being set out as it is this gives it a legal personality all of its own, meaning that it gets to conduct business in its own name rather than the name of the trustees. Also it is a little more complicated to run than an unincorporated charity. The document required for this charity is just the Model Constitution from the Charity Commission website. A Charitable Company: This is a Limited company that limits it because of a guarantee. The documents that govern the charity are a Memorandum and Articles of Association for company’s formed prior to September 2009, plus Articles of Association for a company formed after then. The Trustees or Directors as sometimes known are protected in a majority of circumstances against liabilities. However, this charity still has to register with Companies House and the Charity Commission. 2.1 There are 2 types of Influences that can affect an organization; they are Internal Influences and External Influences. With these there comes a range of different areas that have to be taken into consideration when looking after or taking charge of the business /organization. By learning more about these influences you can change how they could affect your organization / business and it will make you readily equipped with knowledge that can help you overcome the challenges that they may bring. Internal Influences: These influences are the ones that are within the organization’s control but can impact the approach and success of the businesses operations. There is a large span of areas that take part in the Internal Influences, here you will find out what some of these are and how they can affect the business / organization. Some of these are Communication, Structure, Organisational or Operational, Financial, Employees, Economics and Management. They can affect the organizations successes and the way the business approaches things. The way you manage the internal influences can be the difference between great success and imminent failure, managing the strengths will be the key to success. It is essential that you can recognize any opportunities or threats that are outside of the organizations operations. Company leadership is an essential factor when it comes down to looking at the internal influences; this is because the way leadership and management is arranged and used can affect the way the organisation runs. The way the departments are set up, can affect how the rest of the internal structure works and supports the business. If the structure is set up with the best approach in mind then you can get a positive outcome with regards to how many staff you employee to how the levels of hierarchy work with each other. This can be decided by the decision of the type of structure you want your business to be based on; Tall, Flat, Functional or Matrix. The one to choose will be the one that would benefits the organization the most in the long run, financially and organisationally. Some approaches that have to be considered within this area of leadership and management are how the employees – Essential internal factor are valued, are they treated with a positive or negative nature or do they come with a positive / negative nature? Are their achievements and work commitments recognised? If you also support and help your employees understand the organizations missions and goals they generally will choose to stay and support the company. Communication is paramount and with strong relationships between the departments and employees the level of efficiency can support and influence the company in a most positive way. To support the wellbeing of the company you need to ensure that your employees are motivated, hardworking and talented. Employees with said credentials will generally work well together. Therefore, with these 3 key strengths your organization will produce far better results internally than if these were not a given with your staff. And they would also work well with outside contractors. This then supports the collaboration on ideas and resolutions. Thus following business objectives; the inner strengths / weaknesses will interpret how a company / organization will meet the set guidelines and objectives. If the inner strengths are strong, as a company, you will be impacted with excellence. However, if the inner strengths are weak, this could have a detrimental effect. However, if your organization is running with a stronger manpower and departments, the organization will be benefitting from a high performing business / workplace. Part of this process with the employees is the department of HR [Human Resources] they are there to support the employees, target audiences and even potential volunteers. Without the support of this department your internal function and influences again could be lacking in strength, knowledge and guidance that comes with having HR. This influence supports communication surrounding the internal functions of any organization. Unfortunately, like with most things there is a risk with a large team of employees, this risk is the chance of strike action this can lead to a wide range of problems which most companies would try to avoid at all costs. The organizational side of things forms part of the administrative procedures, included in this is the risk of the employees in this department not keeping accurate records and being very un-organized. They are also responsible for producing newsletters and advertising to support the business. This can affect all the employees who rely on the accurate information, so they can fulfil their role in the most proficient way possible. This can lead to the impression of unreliability to customers and other businesses. On the B side of this if your IT systems are not looked after and maintained on a regular basis this can also lead to the loss of data / information which can cause the administrative department to be targeted for the grievances of the lost / missing information. The Administration side of the business would generally support the HR team and this in-accurate record keeping could also impact on this department too. It could possibly lead to the lack of employee training and support programs that may be required to get the best from your staff. The financial risks that have an influence on the internal functions of an organization can depend on how the business has structured their financial teams and departments and how they deal with their transactions incoming and outgoing. This is generally known as the economics of the company. Is there funding for extra support for training to the employees, is there opportunities for investments. For example if you are not making payments on time to your contacts, you could be seen as an unreliable business that doesn’t like to pay their bills and also this can then affect the production side of things and therefore could impact on the motivation of the teams. Bills unpaid can lead to loss of resources for production which can then lead to no work for staff; which in turn could show that you are not a secure company to work for, therefore staff could potentially choose to leave and then when things change you could potentially have lack of staff support and a smaller workforce. Other financials that can affect an organization is if they are not prepared for interest rates changing and not using their knowledge to search for best deals. This is where the Procurement team come into play. As an organisation is always to endeavour to be one step ahead of your competition, innovation can be a great friend. Use it in your marketing, use it when marketing your company or setting up promotions. Innovation can support staff training too. And within this you can make the most of new and updated technology. If your company does not sport Innovation your company can become boring and predictable and then fall into the irrelevant area, which is the last thing any organization wants for their business. Has the organization got a prime location to support the business? Although this is very important so is making sure that the company keeps its internal look up with the standards and image that it wants to be perceived as. Have they got the relevant equipment and tools to support the job specifications to the best of their ability? If not then other organizations that are keeping up with modern advances and knowledge will over rule this organization that’s failing to follow suit. Do they have sufficient facilities to support the employees and the business? All organizations have to change things within the premises they are in to accommodate the new inward changes, by not keeping up with change internally then you are likely to lose quality staff to more efficient companies that have made sure they have the relative facilities that they need for growth. Has the organization got the copyrights, patents and trademarks to what they have planned for production? All organizations need these to progress and change; by not getting these things you will eventually find the organization at a brick wall. All of these will help the inner strengths of any organization and without these you could run into a lot of challenges along the way. External Influences: These are the influences that are beyond the organizations control. Some of the External Influences are: Economy & Socio-Economic, Finance, Weather, Ethical, Political, Technological, Infrastructure, Laws, Trends and Customer Based. Your competition as an organization can be critical to you as a business; it is always worth doing your research and knowing who they are so that if a challenge ever arises you will be better equipped to get through whatever the opponent throws at you. Many companies will generally do an analysis to compare their competitors over what they offer and for what price. In addition to research and analysis an organization will use the strengths within Quality Production, Exceptional Customer Service and efficiency within their operational teams to develop good business rapport, philosophies and products. All of the previously mentioned will help to build many competitive advantages that will in time benefit your customers. The way your company sets its values and how it makes them known via advertising and newsletters can help support the way the external environment see your organization and can help support the client based or target based customers on their decision as to whether to make you one of their supported and relied upon contacts. With this, as an organization, you will also need to assess when doing your competitors analysis will you be able to market your company and its products that is affordable to the consumer, by not assessing the other leading organizations, that market the same thing, could potentially poach any sales / clients that you could gain from this knowledge and research. You must abide by all the legal binding rules that are set by the law as a business. There are a wide range of rules that as an organization you must adhere to, the main areas of legislation is: Employment Law, Consumer Protection and Competition Law. Employment Law: Health and Safety at Work Act 1974 – Employers to provide safe working conditions within the premises and machinery. Sex Discrimination Act 1975 – Protects employees against sexually discrimination. Race Relations Act 1976 – Protects against racial discrimination. Employment Protection Act 1978 – Contracts to be given to all employees to protect against unfair dismissal and redundancy pay. Consumer Protection – To make sure business acts fairly to consumers. Sale and Supply of Goods Act – Goods to be of a satisfactory standard. Trade Description Act – Goods / Services perform as advertised. Consumer Credit Act – Consumer protection against money borrowing. Competition Law – Fair competition takes place. Competition Commission (CC) / Office of Fair Trading (OFT) – Investigates businesses that has more than 25% of market share. All of these laws given can have a detrimental impact on the organization if they are not adhered to. Other regulations that affect the environment or communication can have an uncontrollable impact on your business as these types of influences are External and are not within your organizations control. Economy is a major external factor, which at some point will have an effect on your business due to market changes caused by politics, terrorism, wars and currency changes. The external influence of finance, although generally appears to not affect your business immediately, if changes within Wall street, Solvency of big banks and other financial institutions happen the counter effect will slowly make its way towards other businesses and could affect your ability to continue trading. Other financial external influences that you cannot control are; Interest rates, credit availability and consumer loans. Weather can have a vast impact on organizations, especially with those that rely on imported goods. This is because weather like Storms, tornadoes and hurricanes are something that none of us can control and this can impact travel for despatch of goods inbound and outbound. Also this can affect, if and when you open the business on one particular day due to unexpected weather circumstances that prevent employees to travel to work or even because the weather / storm may have caused damage to your property. Even if at first you appear to have avoided the complications caused by this, it is always worth being prepared for there to be a knock on affect from this at some point in the near future. Trying to do your best at influencing trends with marketing and advertising of your business and trying to influence your target audience with your business moto’s, can be expensive and sometimes not something that you can control. Although you may have planned and prepared your business for the technological changes that do come around, you may have not prepared for how much adapting and constant research this would entail. Especially since the use of social media. This can cause a vast issue to you if you are not supporting your target audiences and consumers in the correct way and then this could lead to your business being targeted negatively through these social media routes. As an organization you must always be prepared to change the way you work with your customers, within the changes of the area that your organization is based, you must ensure that you always monitor what changes are happening and how you can keep up with these changes. If you find that you are not able to follow the different circumstances in your surroundings and networks then you will find yourself as a business in jeopardy. By meeting the needs of your ever changing environment you can have a positive impact rather than negative over your business. In the end as an organization your aim is to work well with your external and internal influences to ensure the success of your business / organization. 2.2 There are 6 different types of analysis models that are there for you to use to support changes and ideas within an organization. They are: SWOT, PEST, PESTLE, STEEP, STEEPLE and Porters 5 Forces. These tools are used by organizations to support the planning of business and decisions that they need to make. SWOT Analysis: S Strengths Internal Factor Refers to internal characteristics which could be seen as a good factor for the business/organization W Weaknesses Internal Factor Refers to internal characteristics that may be seen as not a good factor for the business/organization O Opportunities External Factor Refers to external characteristics that organizations may use to their advantage T Threats External Factor Refers to external characteristics that could be a potential source of failure to the organization/business The SWOT analysis is used as a business / organizations business and management process, which takes into consideration all in the above table. In other words it’s a strategic business planning tool. When being used for business they will generally use it for: Market Analysis, Business Development, Strategic Planning, Research Report, Business Planning and Competitor Evaluation. This is not just used just for business management; it can also be used for situations, a person’s individual career, a project or new venture, a country or even a nation. The key into using the Swot analysis is to distinguish where organizations are today and where they want to be in the future. This tool is also used for identification or categorization of internal and external factors; and it also supports the collection of information with regards to the internal and external factors, which in turn could impact the organizations positive changes. SWOT tends to be more product and service specific. The use of this can support a company, to make a decision of its future course of action, by helping them to combine the strengths with the imminent opportunities whilst they are trying to overcome their weaknesses and combating threats. This then helps match the capabilities of the business resources with the competition environment. Organizations may use SWOT to decide whether a new venture / project if worth investing in; but for this they will have to make sure that the strengths and opportunities outweigh the weaknesses and threats. The other thing that SWOT can be used for is a solution to a problem or challenge that may arise. It will help identify the opportunities and will weight them against the imminent threats. And then it would help support the organization in deciding whether the factors will work in their favour or against them. Majority of Swot analysis that are done are supported with PEST analysis and Porter’s Five Forces analysis. One of the biggest limitations when using a SWOT analysis and the reason why it is preferred to be done with a team and a brainstorming session is that by doing this it allows for multiple opinions and ideas that would generally lead to more biased decisions and views if done just by a manager. Another way of preventing this from being so biased is to get an external consultant to analyse the business and develop the SWOT report on the company’s current position. Below is a SWOT Analysis template from http://pestleanalysis.com   Internal External F a v o r a b l e Strengths: Identify capabilities Evaluate resources including assets and people Analyse competitive advantage Assess intangibles like data, knowledge and experience advantages Evaluate financial reserves Check processes or IT systems driving value Assess market research abilities Opportunities: Development in technology and innovation New or better target markets New partnership and contracts, and surprises Business or new product development Industry, market and lifestyle trends Global influences and import/export Seasonal business trends Economies of scale and production volumes U n f a v o r a b l e Weaknesses: Lack of capabilities Unfocused competitive strengths or lack of a core competency Deadline, pressure and time limits Cash drain or cash limitations Supply chain continuity and delivery Inefficient management structure or lack of succession planning Business reputation, reach or awareness level Threats: New legislative regulations Political, environmental and economical effect Development in the IT and communications industry Loss of resources or partners Changes in market demands Shift in competitive atmosphere Unavoidable circumstances like natural calamities PEST Analysis: The aim of this is to help a business understand the outside factors that can’t be influenced; but can be managed; however, only if they are understood. See what a Pest report is made up off is in the table below. Executive Summary The Foundation Placed at the beginning of the report, to give details of the company and why you are doing the report. Including: The Purpose of the Business Mission / Vison Statements Problems the Company Faces Results of the Report Recommendations Findings and Conclusions P Political Factors Rules and Regulations These factors are enforced by the governing laws. Depending on the reason of your business can depend on which laws will affect you. Things to consider when making a list of factors in this section: Data Protection Law Regulation and Deregulation Health and Safety Law Environmental Law Tax Policies [tax rates & incentives] Competition Regulation E Economic Factors Taxes and Buying Patterns Taxes are not a choice they are part of all businesses. Taxes affect profit, revenue and pricing. Employment, unemployment in the area that your business requires the support from can affect how the business profits. A few things to consider: Interest Rates Exchange Rates Inflation Taxes Demand/Supply S Social Factors Attitude and Locations This relates to your consumers who directly influence your businesses sales. In this section you have to research buying habits, emotional needs and even consumer behaviours. Social class, Economic background, Saving habits and methods of communication are factors to think about. Other Factors you could look into are: Population growth rate Religion and beliefs Average disposable income level Family size and structure Investing habits Immigration/emigration rates T Technological Factors Every Little Thing This factor can be directly involved with your business from the products you produce and the technologies used to make them. What technology is available for your consumers and have they got tech knowledge. Things to examine: Internet connectivity Wireless charging Automation Security in cryptography [the practice and study of techniques for secure communication] The 4 items in the table are the external factors that can affect the status of your business. This can be used for any industry, idea or business. This analysis is the shorter but condensed version of the PESTLE analysis [detailed later in this paper]. This requires a lot of time, research and data. Fortunately it can be helpful to assess competitors and prepare risk assessments with this. PEST is generally used within businesses and organisations. This is treated the same as the SWOT analysis where the companies will have brainstorming sessions to understand the changes that are happening with the external factors. Once the report and analysis is complete it serves as a data-driven, researched analysis that will be used by team leaders, managers, marketing departments and then presented to the stakeholders. It is also used whenever a change is happening even if it is within the internal organisation, products, business expansions or any other organizational shift. This allows for the ability to lessen and assess the risks before they escalate into something disastrous to the business. However, any change or shift can open up the business to risks; that could be of minimal or maximum damage. The good side to this is that it will help identify risk impact and then will allow for the damage limitation preparations before they actually happen. When all the work has been done the document will be kept for a length of time; between a week, months or even years; this will then be compared with any new PEST analysis that gets done. PESTLE analysis: This analysis uses PEST and adds LE to that. The L and E stand for legal and environmental. L = the factors that are both internal and external. There are many laws and company policies that impact your business directly, especially with how it runs and how it makes its decisions. The legal side of the analysis takes into consideration both the law and company policies when producing the charts of analysis. E.G. Consumer Laws, Safety Standards and Labour Laws. The environment side of the analysis effects the environment that the business operates in. You have to thoroughly consider the way that the decisions that you make for the business, impact the environment. However, the environment can also have an influence on your business either directly or in-directly; especially through tourism, farming and even agriculture. The way these types of factors affect the business will depend on your geographical location, the weather and even the climate. The factors are one of the reasons that you have to seriously consider them when strategic planning and developing. They can also define how the environment affects the business that is striving to survive. PESTLE analysis is a detailed analysis of the macro-environment [the condition that exists in the economy as a whole]; these are a Birds Eye View of the PESTLE analysis business conduct. This means that you get to view the business from many different angles, over the whole environment. By doing one of these analysis’ the managers and the team of strategic planners can discover where the market is currently at and where it is heading in the future. Some organizations when completing one of these analyses may also want to assess the market from a macroeconomic perspective; this is a branch of economics that deal with the performance, structure, behaviour and also decision making of the economy as a whole. When completing a PESTLE analysis there is certain questions that have to be asked / answered. They are: What is the political situation of the country & how can it affect the industry? What are the prevalent economic factors? How much importance does culture has in the market and what are its determinants? What technological innovations are likely to pop up and affect the market structure? Are there any current legislations that regulate the industry or can there be any change in the legislations for the industry? What are the environmental concerns for the industry? Website used for these questions http://pestleanalysis.com When in the process of completing the analysis there is a large list of things that you have to consider. The list is vast and detailed below. POLITICAL FACTORS Trading Policies Government Changes Shareholder and Their Demands Funding Governmental Leadership Lobbying Foreign Pressures Conflicts in the Political Arena ECONOMIC FACTORS Disposable Income Unemployment Level Foreign Exchange Rates General Taxation Issues Taxation Changes Specific to Product/Services Local Economic Situation and Trends SOCIAL FACTORS Ethnic/Religious Factors Advertising Scenarios Ethical Issues Consumer Buying Patterns Major World Events Buying Access Shifts in Population Demographics [statistical relating to the population] Health Consumer Opinions and Attitudes Views of the Media Law Changes Affecting Social Factors Change in Lifestyle Brand Preferences Working Attitude of People Education Trends History TECHNOLOGICAL FACTORS Technological Development Research and Development Trends in Global Technological Advancements Associated Technologies Legislations in Technological Fields Patents & Licensing Access into the Technological Field Consumer Preferences Consumer Buying Trends Intellectual Property and its Laws How Mature a Certain Technology is Information Technology Communications  LEGAL FACTORS Employment Law Consumer Protection Industry-specific Regulations Competitive Regulations Current Legislation Home Market Future Legislation Regulatory Bodies and Their Processes Environmental Regulations ENVIRONMENTAL FACTORS Ecological Environmental Issues International National Stakeholder / Investor Values Staff Attitudes Management Style Environmental Regulations Customer Values Market Value Comprehensive list from http://pestleanalysis.com There is an alternative analysis that you can you use compared to PESTLE and it is called PESTLEWEB [an analysis made up of pictures]. This works the same as the PESTLE analysis. It is a graphical tool that allows you to map out your analysis as a picture. The reason that this could be a good choice over the PESTLE analysis is that; A. Humans are quite good at taking on and absorbing information that is given to them via visual methods. B. To make sure you have done a good analysis you need to have shown connections between things in the environment and the impacts it has on our business. C. Pictures are a great way to build collaboration and also the teams are more likely to look at and comment over a picture report rather than studying a long written report. STEEP / STEEPLE Analysis: These two types of analysis are an essential tool for market planning and strategizing within your company. They provide more detailed information that will cover the areas of Social, Technological, Economic, Ecological, Political and even Legal and Ethical. These can give you an overview of situations that your business is or might be in, because of a decision that has been made. By completing one of these analyses you will gain insight into what is happening at any one time and will help you to visualize the needs, roles and relationships between your future consumers and suppliers. All of the factors can affect the market in different ways and can change the way strategies are made. An companies common goal by using STEEP / STEEPLE is to either determine the strategies they will need for the future or to decipher the market they are in prior to launching a new brand. Large and small organizations know the benefits of using these types of analysis. And because they are almost identical as each other, they can use either or. Depending on the company will determine which version they use, this is because not all companies need the L / E part of STEEPLE whilst other organizations do. However, producing one of these does help prompt some helpful discussions within the organization and can help find out where your business stands in its current external environment. These are generally conducted by the company’s corporate level of staff. The table on the next page explains what each letter stands for and how you would use these in producing the analysis.  S Social Factors In this section you have to take a detailed look into the social side of things. You will have to judge the cultural changes that take place within business environments. Concentrating on Population Growth, Consumer Attitudes, Age Structure and Lifestyle Changes. This analysis can point out faults in your strategies and also invite new ideas. You will need to look at these elements: Income Distribution Demographic Changes Labour / Social Mobility Lifestyle Changes Fashion Changes T Technological Factors Behavioural changes in business are due to technological changes. Technology has advanced all over the globe. The importance of these changes can vary from market to market. Changes within method can pose new opportunities and can help improve the business’s profit margin. However they would need huge investments initially. Advancement in this area can make new opportunities. Things you will need to look at: New Inventions & Development Rate of Technology Transfer Life Cycle & Speed of Technological Obsolescence [the process of becoming obsolete or outdated and no longer used] Changes in Information Technology [IT] Changes in Mobile Technology E Economic Factors Economic change happens a lot during the years of an organizations trading. Compare the present levels of inflation, economic growth, unemployment & international trade. This will help with your strategic planning. You will also have to make changes in the Product Launch Strategies. Things to use for you assessment of this factor: Economic Growth Unemployment Policy Inflation, Interest Rates & Other Monetary Policies Consumer Confidence E Environmental Factors All businesses impact their environment, these impacts can vary from business to business; either negative or positive. Negative => Pollution / Waste. Positive=> When the environment gets benefits of processing and cleaning the waste. Things to consider: Environmental Regulations & Protection P Political Factors This is section is made up from the government policies. Changes can come from economic, social and legal. Examples are increase or decrease in tax. Some businesses could have an increase from the government whilst others might have a decrease. These changes can have a direct impact on the business. You need to stay up-to-date with all of the political factors. Business demand patterns are impacted by government interventions of interest rate policy changes. Things you need to look at: Government Organization / Attitude Political Stability / Instability  L Legal Factors It isn’t always easy to shape a business due to the legal limits and regulations. However these can turn away negative behaviours; but increase the cost in some industries. To be a legally ran business you must follow the laws. Especially focusing on health, safety, employment and competition. There are many more factors to be mindful of. You must check on any new legal requirements that may come out. Some things to check are: Tax Policies Employment Laws Safety Regulations Competition Regulations E Ethical Factors This refers to the social values that can shape your business and its behaviour. The businesses values provide the basis of what is right and wrong. Keep a check on the companies’ ethical factors. Major ethical ideas do not change overnight; however, small changes can take place over time. During the production of a STEEP analysis there are a few questions that you may need to ask. They are: How much importance does culture have in the market? What are its determinants? [A factor which decisively affects the nature or outcome of something]. What technological advances are likely to emerge and affect the market? What are the widespread economic factors? What are industry’s environmental concerns? What is the political situation of the country? How can if affect the industry? And during a STEEPLE analysis there may be some questions you need to answer. They are: Is there any legislation which regulates the industry? Can there be any change in the legislations for the industry? What are the related ethical factors? There are 5 steps that are worth considering when executing a STEEP analysis. These steps are: Step 1: Understand the Elements Being Analysed This step asks the person who is completing the analysis to understand the environment which is being evaluated. Questions in this section that need to be answered are: What are the key trends and events within the element and what evidences support these trends? How have these trends evolved historically? What is the nature of change in the trends you noticed? What kind of effects do the trends have on the firm? Step 2: Assess the Interrelationships between Different Trends This step requires that you properly assess the interrelationship [the way in which each of two or more things is related to the other or others] that trends have with the external environment elements. You are expected to find out what the conflicts between the trends are and what the interrelationships between the trends are like. Step 3: Relate the Trends to Issues You should identify the trends the play a significant part in boosting or hindering the company’s process to reach its objectives. The best approach to execute this step is to create a list of possible trends and then gradually shrink it down to what the main issues are. Step 4: Forecast the Upcoming Direction of Issues At this step you should use your expertise and data that you have collected through the previous steps and determine what the forces are behind any issues that you may have. You need to try and identify the causes and symptoms of the trends to find the driving forces. However, this task can be quite time consuming and at times frustrating, but once this stage is complete you will get a wealth of insights to guide the company’s decision making. Step 5: Derive the Implications This step is the final and crucial step. It will give you the chance to make conclusions or decisions about your external environment. It can also help you find out how any present or future strategic initiatives can affect your business. The final tool that can be used is: Porter’s Five Forces Analysis: There are 5 identifiable factors that Porter noticed acted together to determine competition in the industries. They are: Threat of New Entrants to a Market Bargaining Power pf Suppliers Bargaining Power of Customers Threat of Substitute Products Degree of Competitive Rivalry This analysis is used to analyse the level of competition that an organization has to face. These five forces come from the industrial organization (IO) economics; which determine the competitive intensity and attractiveness of an industry. These forces are also referred to as the ‘micro environment’. This analysis was made in reaction to SWOT analysis, as Porter believed that SWOT was unrigorous and ad-hoc. It has been used to help businesses become more profitable and to help governments stabilize industries. Threats New Entrants Pose The existence of barriers to entry [patents, rights, etc.]. The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily. Government policy. Capital requirements. Absolute cost. Cost disadvantages independent of size. Economies of scale Economies of product differences. Product differentiation. Brand equity. Switching costs or sunk costs. Expected retaliation. Access to distribution. Customer loyalty to established brands. Industry profitability [the profitable the industry the more attractive it will be to new competitors]. Network effect.  Threat of Substitutes Potential Factors Buyer propensity to substitute. Relative price performance of substitute. Buyer switching costs. Perceived level of product differentiation. Number of substitute products available in the market. Ease of substitution. Substandard product. Quality depreciation. Availability of close substitute. Bargaining Power of Customers Potential Factors Buyer concentration to firm concentration ratio. Degree of dependency upon existing channels of distribution. Bargaining leverage, particularly in industries with high fixed costs. Buyer information availability. Force down prices. Availability of existing substitute products. Buyer price sensitivity. Differential advantage [uniqueness] of industry products. RFM [customer value] analysis. The total amount of trading. Bargaining Power of Suppliers Potential Factors: Supplier switching costs relative to firm switching costs. Degree of differentiation of inputs. Impact of inputs on cost and differentiation. Presence of substitute inputs. Strength of distribution channel. Supplier concentration to firm concentration ratio. Employee solidarity [e.g. labour costs] Supplier competition: the ability to forward vertically integrate and cut out the buyer. Industry Rivalry Potential Factors: Sustainable competitive advantage through innovation. Competition between online and offline companies. Level of advertising expense. Powerful competitive strategy. Firm concentration ratio. Degree of transparency. This list was used from https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis This type of analysis is just a starting point; it is required to be supported with another form of analysis for example SWOT, PEST or STEEP. 2.3 Change within a business environment is important to support the organization with continuous success. By making changes you support the business to keep it current and in line with the industry trends; this then helps make you more attractive to potential customers and will help support and maintain your current clients. By keeping up to date with changing environments will help to make sure that less chance of reproducing something that has already made it into the market place. If you can be innovative at the same time you will always find that you stay ahead of the competition as the market and trends continue to change. If the organization does not keep up with evolution they fall behind the leading businesses and this can be detrimental to them. By making changes you are showing willingness to seize and function in a newly invested progression of change; with commitment to indulge and implement new things, without fear! By supporting change in your business you are allowing it to adapt and mould itself to its new environment changes and this can help support and improve its market position. It can also help to support and enable the changing needs of your customers. Change can also create growth opportunities and supports the business with keeping up with the advancement of technology. An advantage from keeping up with technology is that you will have an advantage over other businesses. This can provide you with the means necessary for the staff to learn new software and methods. By embracing the technological advancements you will have the ability to cope with the new changes; this will also make it easier to push out your competitors. By supporting the transformation; you can help reposition your company in the current market which will help knock out the competitors. Good decisions can make a difference with the organizations stakeholders, the employees, suppliers and customers. By indulging new changes you can also get the opportunity to offer your employees additional or new training to equip them with the skills and expertise that will support the company in the ever changing market. By offering your employees the advantage of taking on this additional training and new opportunities they could potentially support the business with new ideas and offer the organization with additional support and employee commitment. Making a change in your organization will offer you the chance to identify new opportunities for the growth of the business and this can be helped by hiring new staff that have a slightly different outlook that could challenge the current companies’ procedures and who could then offer new ideas of inventiveness to promote better production and management of the work, whilst using the new technological advancements. When making the most of the increased workforce you would ultimately make progress with expansion of facilities to support production too; this can really make your business so much stronger in the current economic growth. However, you must endeavour to be mindful of changes that could need to be made in an economic downfall. Embracing the changes of improvement to organizational culture you will support basic beliefs, values, feelings and the internal and external relationships which in time will improve the efficiency and productivity of your staff and the business as a whole. This can lead to new customers and the increase of customer satisfaction, whilst reducing the costs of operations and increasing your worker retention. Whilst making these changes you will start to see which employees are the most committed. By supporting all of these changes you therefore are supporting the company with a more efficient way of working and producing products, this could also protect the business from additional expenses of running and keeping the ineffective processes. This means that change is very important to the company as it will help with the fight against challenges that can arise. Other changes that come in the form of external factors can make it possible for the company to produce goods and services for a better price; therefore leading to an increase or decrease with the market opportunities, legislation and competition. Also if the organization takes the time to understand the differences in the cultural and regional markets, they will find that they are equipped with the knowledge to develop good working strategies. Almost any change that you make within an organization will force individuals to think in new ways, therefore benefitting the workplace. Also this will stop the job from being monotonous, gives the chance for the employees to refocus their energy and to spark new interests.  Opportunities: Cross training employees, more job description flexibility, development of specialized work teams; to increase productivity for greater profits. IF you never keep up with modern day advances and change your organization you will eventually find that you are left behind in a way that you would struggle to come back from it. Here are some of the websites I used for research: http://smallbusiness.chron.com, http://yourbusiness.azcentral.com, https://en.wikipedia.org http://www.bbc.co.uk, http://www.learnmanagement2.com, https://www.edrawsoft.com, http://www.orgcharting.com, http://textbook.stpauls.br, http://pestleanalysis.com/, https://www.tutor2u.net, http://articles.bplans.com, https://www.glintinc.com, https://www.bgateway.com, http://www.s-cool.co.uk, Claire Towlson – Business Administration Level 2 21 | Page