Factors affecting business

From CEOpedia | Management online

There are many factors affecting business described in literature and examined during strategic management process. These are phenomena, processes, and institutions shaping interchangeable relations. Main factors could be divided to main groups:

Managers use internal analysis or external analysis to determine those factors and its influence on organization.

External factors

External factor is everything that outside the organization can influence it. The boundary dividing the organization from its external environment is not always clear and clearly defined. For example, shareholders are in a sense part of the enterprise, but in a different perspective they are rather an element of its environment.

We can distinguish following factors:

Internal factors

Internals factors consists of conditions and forces inside the organization. \

We can distinguish following factors:

Method of analysis of the external factors

A tool used to analysis (evaluate) external factors:

  • Analysis PEST
  • Delphi method

Analysis PEST

Is a method used to study macro-environment - the macroeconomic environment of an enterprise. In other words, it is called general segmentation of the environment. Defines the basic spheres of the environment, i.e. areas that have a key impact on the functioning of the organization. It also sets out the future strategy of the organization through in-depth analysis.

The starting point is the combination of the basic external factors of the organization (hence its name):

  • Political
  • Economic
  • Social-cultural,
  • Technological -

In some types of analysis, there is also an independent environmental factor - Environment (we call PEEST then). Sometimes we meet with the legal environment distinction (the name of the analysis - PESTEL).

Delphi method

Belongs to the group of heuristic methods in which the knowledge, experience and opinions of experts in a given field are used to make decisions. It is used to determine the probability or timing of future events. The forecast is obtained by conducting a series of surveys among experts.

The name of the Delphi method comes from the name of the ancient Greek city of Delphi, where in the temple of Apollo, with the help of a priestess called Pytia, the future was foretold.

Method of analysis of the internal factors

Examples of Factors affecting business

  1. Economic Factors:
  • Interest rates: Interest rates are one of the most important factors to consider when running a business. High interest rates can make it difficult to borrow money or raise capital, while low interest rates can make it easier to access capital and invest in operations.
  • Exchange rates: Changes in exchange rates can have a massive impact on businesses. Currency fluctuations can affect the cost of exports and imports, and, depending on the business model, can even impact the company's profits.
  • Inflation rate: Inflation is another important economic factor to consider. When inflation is high, the cost of goods and services also goes up. This means that businesses must adjust their pricing in order to remain competitive and profitable.
  1. Political Factors:
  • Tax policy: Tax policy is an important factor for businesses to consider. Governments can impose taxes on businesses to raise revenue, and the amount of taxes and the type of taxes imposed can have a big impact on businesses.
  • Regulations: Governments can also regulate businesses by imposing certain regulations. These regulations can affect businesses in a variety of ways, from the products they can sell to how they must operate.
  • Trade policies: Trade policies can also have a major impact on businesses. Tariffs, quotas, and other trade policies can affect the cost of imports, which can have an impact on the profitability of businesses that rely on imported goods.
  1. Social Factors:
  • Consumer behavior: Consumer behavior is an important factor to consider when running a business. Understanding consumer behavior can help businesses better target their products and services and make sure they are meeting the needs of their customers.
  • Demographics: Changes in demographics can also have an impact on businesses. For example, businesses may need to adjust their products and services to meet the needs of an aging population.
  • Cultural shifts: Cultural shifts can also affect businesses. For example, changes in attitudes towards sustainability can lead to businesses having to adjust their operations to meet new standards.

Advantages of Factors affecting business

The main advantages of factors affecting business are:

  • Strategic Position - This includes the company's location, resources, and market share. It is important to consider these when making decisions, as they can give an advantage to the company over competitors.
  • Financial Position - This refers to the company's financial health, including its liquidity, profitability, and debt. This can provide insight into the company's ability to survive in the current market.
  • Industry Trends - This includes the trends in the industry and the environment in which the business operates. This can provide insight into the potential opportunities and risks that may arise.
  • Competitor Analysis - This looks at the competitors in the market and their strategies. This can provide insight into the strategies that the company should be using to stay ahead of the competition.
  • Innovation - This includes the ability of the company to innovate and come up with new products or services. This can help the company stay ahead of the competition and increase its market share.
  • Customer Insight - This includes understanding the needs and wants of the customers. This can help the company to create products or services that meet the needs of the customer.

Limitations of Factors affecting business

  • Economic Factors: These include the rate of economic growth, inflation, taxation, cost of borrowing, foreign exchange rates, and the cost of labor.
  • Political Factors: These include government regulations, political stability, and the policies of international organizations such as the World Trade Organization.
  • Technological Factors: These include the development of new technology, the adoption of new processes, and the rate of technological change.
  • Social Factors: These include consumer behavior, public opinion, and demographic changes.
  • Legal Factors: These include the laws and regulations governing the industry and the enforcement of those laws and regulations.
  • Environmental Factors: These include natural disasters, air pollution, water pollution, and climate change.
  • Competitive Factors: These include the competitive landscape of the industry and the strategies of competitors.
  • Financial Factors: These include the availability of capital, the level of debt, and the cost of capital.

Other approaches related to Factors affecting business

Introduction: Apart from the main factors affecting business, there are several other approaches that should be taken into account when examining the business environment.

  • Economic Factors: These include gross domestic product (GDP), inflation rate, interest rate, exchange rate, unemployment rate, cost of raw materials, consumer confidence index and other economic indicators.
  • Political Factors: This includes government policies, regulations, and laws that can impact how businesses operate and how they compete in the marketplace.
  • Social Factors: These include consumer behavior, population growth, age and gender distribution, lifestyle changes, education level, and cultural values.
  • Technological Factors: This includes technological advances in the industry, access to the internet, research and development, and automation.
  • Environmental Factors: This includes environmental regulations, climate change, and sustainability initiatives.

Summary: In addition to the main factors affecting business, there are several other approaches that must be taken into account when examining the business environment. These include economic, political, social, technological, and environmental factors. Understanding and analyzing these different approaches can help organizations make informed decisions and create effective strategies.

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Author: Natalia Borowiec