An organisation's environment may be examined in a number of ways.

(a) Global / local. Some organisations operate worldwide. However, they still have to be sensitive to the local
requirements of the countries or markets they operate in or export to. Some companies are much more exposed to
global competition than others.
(b) General/task: this is the method we will use.
(i) The general (or macro) environment covers all those factors influencing all organizations indirectly, for
example: general economic trends, population growth, new technology. These factors are abbreviated to PEST
(political-legal, economic, social-cultural, technological) factors.
(ii) The task or (micro) environment includes those areas which have a direct impact on the organisation, such as
its ability to acquire raw materials, its competitors and its customers.
The environment is a source of uncertainty. In other words, decision-makers do not have sufficient information about
environmental factors, and many things are out of their control. The overall degree of uncertainty may be assessed along
two axes: simplicity/complexity and stability/dynamism.
(a) Simplicity/complexity
(i) The variety of influences faced by an organisation. The more open an organisation is, the greater the variety
of influences. The greater the number of markets the organization operates in, the greater the number of
influences to which it is subject.
(ii) The amount of knowledge necessary. Some environments, to be handled successfully, require knowledge. All
businesses need to have knowledge of the tax system, for example, but only pharmaceuticals businesses need
to know about mandatory testing procedures for new drugs.
(iii) The interconnectedness of environmental influences causes complexity. Importing and exporting companies
are sensitive to exchange rates, which themselves are sensitive to interest rates. Interest rates then influence a
company's borrowing costs. Scenario-building and modelling are ways of ealing with complexities to develop
an understanding of environmental conditions.
(b) Stability/dynamism
(i) An area of the environment is stable if it remains the same. (For example, investors get nervous about a change
in government.) Firms which can predict demand face a stable environment.
(ii) An unstable environment changes often. The environment of many fashion goods is unstable.
As a rule of thumb, use the following checklist for uncertainty.
Simple (few environmental influences to worry about) and stable: low uncertainty
Complex and stable: low to moderate uncertainty
Simple and unstable: moderate to high uncertainty
Complex and unstable: high uncertainty
The changing environment
Changes in the business environment have been driven by a number of developments. Here are some of the changes that
have happened.
(a) Globalisation of business – increased competition and global customers as domestic markets become saturated.
Companies are able to compete easily anywhere in the world
(b) Science and technology developments, especially in communications (the Internet) and transport (particularly air
travel)
(c) Mergers, acquisitions and strategic alliances
(d) Changing customer values and behavior
(e) Increased scrutiny of business decisions by government and the public
(f) Increased liberalisation of trade, and deregulation and co-operation between business and government have eased
access to foreign markets
(g) Changes in business practices - downsizing, outsourcing and re-engineering
(h) Changes in the social and business relationships between companies and their employees, customers and other
stakeholders.
As companies have become exposed to more international competition, at the same time as having greater access to
international markets, their preferred choice of organisational structure has been affected. This has been evident, as
discussed earlier, in the shift away from mechanistic and bureaucratic organisations towards flatter structures with more
flexible operating arrangements. Network forms of organisation and ‘virtual’ organisations are another manifestation of
this trend. The need for strategic international alliances has increased with the need to understand and access foreign
markets.
The development of communications technology (email, the Internet) is the key factor that has made
such relationships possible.
Some firms have been changing the structure of their workforces for the sake of greater flexibility in responding to
competitor activity or customer needs. This so-called ‘flexible firm’ comprises a core of full-time permanent staff with
the key scarce skills, and peripheral part-timers and temporary or contract workers. This workforce can be flexed in a
number of ways to meet changes in the market.
The political and legal environment
Government policy influences the economic environment, the framework of laws, industry structure and certain
operational issues. Political instability is a cause of risk. Different approaches to the political environment apply in
different countries. International trade is subject to a further layer of international law and regulation.
The political environment affects the firm in a number of ways.
A basic legal framework generally exist
The government can take a particular stance on an issue of direct relevance to a business or industry
The government's overall conduct of its economic policy is relevant to business
Employment protection
Much legislation (and not enough economic knowledge) has been aimed at the idea of 'employment protection'. As a
result, all forms of termination of employment must be treated with great care.
Retirement
In the UK, many employees are taking early retirement perhaps as a result of corporate downsizing, but many people still
search for work at an older age and there are pressure groups seeking to ban ageism in recruitment. Retirement ages for
men and women are being equalised.
Organisations encourage retirement for a variety of reasons.
Promotion opportunities for younger workers
Early retirement is an alternative to redundancy
The age structure of an organisation may become unbalanced
The cost of providing pensions rises with age
3.5 Resignation
People resign for many reasons, personal and occupational. Employees who are particularly valuable should be
encouraged to stay. Particular problems the employee has been experiencing (eg salary) may be solvable, though not
always in the short term.
In any case, an exit interview, when the leaver explains the decision to go, is a valuable source of information.
The period of notice required for the employee to leave should be set out in the contract of employment, but some leeway
may be negotiated on this.
Dismissal
There are three forms of termination that constitute dismissal under UK law.
(a) The termination of an employee's contract by the employer
(b) The ending of a fixed-term contract without renewal on the same terms: in effect, there is no such thing as a fixed-
term contract of employment
(c) Resignation by the employee where the employer's conduct breaches the contract of employment. This is
constructive dismissal.
The statutory minimum period of notice to be given is determined by the employee's length of continuous service in the
employer's service. Longer periods may be written into the contract, at the employer's discretion, and by agreement. Either
party may waive his right to notice, or accept payment in lieu of notice. An employee is entitled to a written statement of
the reasons for dismissal.
3.4 Wrongful dismissal
Wrongful dismissal is dismissal that breaches the contract of employment. An example would be failure to give the
contractual period of notice (assuming the circumstances did not justify summary dismissal). Wrongful dismissal relates to
the method of dismissal.
3.5 Unfair dismissal
The legal concept of unfair dismissal gives protection to the employee against arbitrary dismissal; that is dismissal
without good reason. A dismissal need not be wrongful to be unfair. The basic principle is that any dismissal is potentially
unfair. Under employment protection legislation, the employee has to prove that he has been dismissed. The onus is then
on the employer to prove that the dismissal was fair.
3.6 Disciplinary procedures
The use of a disciplinary system can be evidence in certain situations that an employee has not been dismissed unfairly.
3.7 Redundancy
Redundancy is dismissal under two circumstances.
(a) The employer has ceased to carry on the business at all or in the place where the employee was employed.
(b) The requirements of the business for employees to carry out work of a particular kind have ceased or diminished or
are expected to.
Compensation is a legal entitlement, and encourages employees to accept redundancy without damage to industrial
relations.
The employee is not entitled to compensation in three circumstances.
(a) The employer has made an offer of suitable alternative employment and the employee has unreasonably rejected it.
(b) The employee is of pensionable age or over, or has less than two years' continuous employment.
(c) The employee's conduct merits dismissal without notice.
There are certain legal minima for compensation offered, based on age and length of service.
3.7.1 Procedure for handling redundancies
From a purely humane point of view, it is obviously desirable to consult with employees or their representatives. Notice of
impending redundancies is a legal duty for redundancies over a certain number.
The impact of a redundancy programme can be reduced in several ways.
Retirement of staff over the normal retirement age
Early retirement to staff approaching normal retirement age
Restrictions on recruitment to reduce the workforce over time by natural wastage
Dismissal of part-time or short-term contract staff
Offering retraining and/or redeployment within the organization
Seeking voluntary redundancies
Where management have to choose between individuals doing the same work, they may dismiss the less competent or
require people to re-apply for the job. The LIFO principle may be applied, so that newcomers are dismissed before long-
serving employees.
Many large organisations provide benefits in excess of the statutory minimum, with regard to consultation periods, terms,
notice periods, counselling and aid with job search, training in job-search kills and so on.
Many firms provide advice and outplacement counselling, to help redundant employees find work elsewhere.
3.8 Equal opportunities
Some groups are discriminated against with little or no justification. This applies particularly I employment matters. The
law and an extensive bureaucracy exist to redress the balance. Equal opportunities is covered more fully in Chapter 13.
Data protection and security
Privacy is the right of the individual not to suffer unauthorised disclosure of information.
Why is privacy an important issue?
In recent years, there has been a growing fear that the ever-increasing amount of information about individuals held by
organisations could be misused.
In particular, it was felt that an individual could easily be harmed by the existence of computerised data about him or her
which was inaccurate or misleading and which could be transferred to unauthorized third parties at high speed and
little cost.
Health and safety
Importance of maintaining health and safety at work
An employer has legal obligations under UK and EU law.
Accidents and illness cost the employer money.
The company's image in the marketplace and society may suffer.
Employee duties
(a) Take reasonable care of themselves and others
(b) Allow the employer to carry out his or her duties (including enforcing safety rules)
(c) Not interfere intentionally or recklessly with any machinery or equipment
(d) Inform the employer of any situation which may be a danger (this does not reduce the employer's responsibilities in
any way)
(e) Use all equipment properly
Health and safety policy
In order to enhance safety awareness, promote good practice and comply with legal obligations, many
employers have a health and safety policy for their staff. Such a policy will have a number of features.
(a) Statement of principles (d) Detailed instructions on how to use equipment
(b) Detail of safety procedure (e) Training requirements
(c) Compliance with the law
Consumer protection
We will now look at those aspects of law and regulation which apply to consumer protection, including contract law and
the sale of goods. All countries have their own legislation dealing with these topics. These are the general principles.
What is a contract?
A contract is a legally binding agreement. In all areas of life we make contracts. If you buy or sell a house, a contract is
made and 'exchanged'. When you start a job, you will probably have a contract of employment. When you go into a shop
and buy something, you have entered into an agreement with the shopkeeper – you agree that the shopkeeper will give you
the goods and you will give him or her the money.
Under contract law, the money that you give in exchange for the goods is referred to as the 'consideration'. For a contract
to take place, there must be agreement between the parties. This requires an offer made by one party, acceptance by the
other party and, in England and Wales (but not Scotland), some consideration passing between them.
An important point about contracts is that they do not have to be written. They do not even have to be spoken. A customer
picking up something in a supermarket and walking to the checkout is making an offer to the shop, and that offer is
implied by his behaviour.
Any business buying and selling goods is continually making and discharging (completing) contracts. Probably none of
the parties involved give much thought to the legal aspect of what they are doing until something goes wrong.
Social and demographic trends