Hello Future Business Leader! Understanding Influences

Welcome to one of the most practical and important chapters in Business Studies: Influences on Business Decisions.

Why do some companies succeed while others fail? Why does McDonald’s launch a vegan burger, or why does a tech company move its headquarters? The answer is simple: decisions. Every strategic move a business makes is based on a complex web of internal and external influences.

In this chapter, we will learn how to categorize and analyze these influences. Mastering this analysis is crucial because it allows businesses (and you!) to make smarter, more informed choices, moving you firmly into the "strategy" element of your studies. Let’s dive in!

Section 1: Internal Influences (The Controllable Factors)

Internal influences are factors that originate from inside the organization. Management has direct control or a high degree of influence over these factors. Think of this as the ingredients you already have in your kitchen.

1. Business Objectives

The core goals of the business heavily dictate decisions.

  • Profit Maximization: Decisions will focus on cutting costs and increasing revenue. Example: Choosing the cheapest supplier, even if they are overseas.
  • Sales Maximization or Market Share Growth: Decisions will focus on increasing volume, potentially through aggressive pricing or high investment in marketing. Example: Offering large discounts to attract competitors’ customers.
  • Survival: In difficult times, decisions focus purely on staying afloat, often requiring cost freezes or layoffs.
  • Social/Ethical Objectives: Decisions prioritize people and planet over immediate profit. Example: Investing in sustainable packaging, even though it costs more.

Quick Tip: Objectives can conflict! A business cannot maximize profit and prioritize deep social objectives simultaneously without some trade-offs.

2. Resources Available

The quantity and quality of resources severely limit decision-making.

  • Financial Resources: How much cash is available? Limited finance means the business might delay expansion plans or R&D.
  • Human Resources (HR): The skills, motivation, and numbers of the workforce. If a business lacks skilled engineers, it cannot launch a high-tech product, no matter how good the idea is.
  • Physical Resources: Machinery, technology, and factory capacity. Example: A factory running at full capacity cannot accept large new orders without significant investment.
3. Leadership and Organisational Culture

The management style and the general atmosphere of the organization (culture) influence how decisions are made.

  • Autocratic Leadership: Decisions are quick but often made without employee input.
  • Democratic/Laissez-faire Leadership: Decisions might take longer but incorporate wider views, leading to better staff morale.
  • Culture: If the culture is risk-averse, the business will stick to safe, known markets. If it is entrepreneurial, the business will be more likely to take a chance on new innovations.

Key Takeaway: Internal influences are generally manageable and reflect the business's current capability and strategy.

Section 2: External Influences (The Uncontrollable Environment)

These influences come from the world outside the business. Management cannot control them, but they must monitor and react to them successfully.

To analyze the external environment, we use the famous PESTLE framework. Don't worry if this seems like a lot—just remember the acronym!

The PESTLE Framework
P is for Political

These are the influences stemming from government decisions and political stability.

  • Government Policy: Changes in trade agreements (like Brexit) affect import/export costs.
  • Taxation: Changes in Corporation Tax (tax on profits) or VAT (sales tax) directly affect profitability and consumer spending power.
  • Political Stability: Unstable governments create uncertainty, discouraging large, long-term investments.
Example: A government decision to ban single-use plastics forces retailers to change their packaging immediately.
E is for Economic

These factors relate to the overall health and performance of the economy.

  • Interest Rates: If rates rise, it costs more to borrow money (affecting business investment) and encourages consumers to save rather than spend.
  • Exchange Rates: The value of one currency compared to another. If the Pound (£) weakens, imports become more expensive, but exports become cheaper (benefiting UK exporters).
  • Inflation: The general increase in prices. High inflation increases a firm's costs (raw materials, wages).
  • Unemployment Levels: High unemployment means labor is cheaper and readily available; low unemployment means firms must pay more to attract staff.
S is for Social and Demographic

These reflect changes in society, lifestyle, culture, and population structure.

  • Changing Tastes and Fashion: Businesses must constantly adapt their product range. Example: The shift towards hybrid working requires companies selling office furniture to rethink their designs.
  • Demographics: An aging population requires different products and services (e.g., healthcare, retirement services) than a young population.
  • Attitudes to Work and Leisure: Demand for flexible working or longer holidays affects HR policy.
T is for Technological

Innovations and advancements that transform how business is conducted.

  • Automation and Robotics: Decisions may focus on replacing human labour with machines to increase efficiency (cost cutting).
  • E-commerce: The shift to online sales requires investment in digital platforms, often forcing high-street stores to close branches.
  • Security: As technology advances, the need for cybersecurity increases, requiring defensive investment.
L is for Legal

The laws and regulations that businesses must obey. Ignoring these results in fines or closure.

  • Consumer Protection Law: Requires firms to ensure products are safe and fit for purpose.
  • Employment Law: Regulations concerning minimum wage, working hours, and dismissal procedures affect HR costs and policy.
  • Health and Safety: Mandates safe working environments.
E is for Environmental and Ethical

Concerns about sustainability, pollution, climate change, and fair trade. (Note: Ethical aspects often overlap with Social/CSR, but the Environmental focus is distinct).

  • Climate Change: Businesses may face pressure to reduce their carbon footprint (e.g., using electric vehicles for delivery).
  • Pressure Groups: Groups like Greenpeace can exert significant influence, causing boycotts if a firm acts irresponsibly.

Quick Review Box: PESTLE

Political (Taxes, Stability)
Economic (Rates, Inflation)
Social (Trends, Demographics)
Technological (Automation, Digital)
Legal (Employment Law, Safety)
Environmental (Climate, CSR)

Key Takeaway: External factors create both threats (T) and opportunities (O). Strategic decisions involve using internal strengths (S) to exploit opportunities (O) while protecting against threats (T) and overcoming weaknesses (W) – often summarized in a SWOT Analysis.

Section 3: Stakeholder Influences

A stakeholder is any individual or group that has an interest in the operation and success of the business. Decisions must often balance the conflicting needs of these different groups.

Identifying Key Stakeholders
  • Internal Stakeholders:
    • Employees: Want high wages, job security, good working conditions.
    • Managers: Want high bonuses, career advancement, and control over resources.
    • Owners/Shareholders: Want high profits, dividends, and rising share prices.
  • External Stakeholders:
    • Customers: Want high quality, low prices, and good customer service.
    • Suppliers: Want regular orders and prompt payment.
    • Local Community: Want local employment, minimal pollution/noise, and community support.
    • Government: Wants timely tax payments, compliance with law, and economic growth.
Stakeholder Conflict and Power

Decisions often involve compromise because stakeholder interests clash.

Example of Conflict:

A decision to cut costs by closing a factory might satisfy shareholders (higher profit/dividend) but will severely upset employees (job loss) and the local community (reduced employment).

The level of influence a stakeholder has on a decision depends on their power and interest:

  • High Power / High Interest (e.g., Major Shareholders): These stakeholders must be kept happy and heavily involved in key decisions.
  • High Power / Low Interest (e.g., Government): Must be kept satisfied and compliant, as they have the power to stop the business (e.g., via legislation).
  • Low Power / High Interest (e.g., Local Residents): Must be kept informed to avoid potential issues (e.g., protests).

Did you know? Firms must manage the needs of shareholders (those who own the business) versus stakeholders (those who have an interest in the business). This is a central tension in business strategy!

Key Takeaway: Effective decision-making requires analyzing stakeholder power and managing conflicting demands through negotiation and compromise.

Section 4: Ethical, Social, and Environmental Responsibility

The demand for businesses to operate ethically and responsibly has grown massively due to social media, pressure groups, and consumer awareness.

Ethics vs. Legality

It is vital to distinguish between what is legal (must be done) and what is ethical (should be done).

  • Legal Requirement: Paying the National Minimum Wage.
  • Ethical Decision: Paying a "Living Wage" voluntarily, which is higher than the minimum wage.

A decision can be perfectly legal (e.g., polluting minimally within regulatory limits) but highly unethical.

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) is the commitment by businesses to behave ethically and contribute to economic development while improving the quality of life for the workforce, their families, and the local community and society at large.

CSR heavily influences strategic decisions, such as where to source materials, how to treat staff, and how to dispose of waste.

Why Do Businesses Adopt CSR?

While CSR often increases short-term costs (e.g., expensive fair-trade ingredients), it provides significant long-term benefits that influence future decisions:

  • Improved Reputation and Brand Image: Consumers are more likely to buy from companies they trust.
  • Attracting and Retaining Quality Staff: Employees prefer working for ethical organizations.
  • Long-term Sustainability: Being environmentally responsible reduces the risk of future legal penalties or negative publicity.
  • Investor Confidence: Socially responsible investing (SRI) is becoming more popular, making it easier to raise funds.

Analogy: Think of CSR like insurance. It costs money now (premiums), but it protects your reputation (assets) from disaster later.

Common Mistake to Avoid: Don't confuse *ethics* with *philanthropy*. Ethics are about how you operate every day; philanthropy is simply donating money to good causes (though it is part of CSR).

Key Takeaway: Modern business decisions increasingly require balancing the need for profit (financial performance) with the need for ethical conduct (social and environmental performance).

Chapter Summary: Analyzing Influences

When analyzing any business decision or proposed strategy, ask yourself these three critical questions:

1. Internal Check: Does the business have the resources and objectives to achieve this? (e.g., Do we have the cash/skills?)

2. External Check (PESTLE): Is the environment favourable? (e.g., Are interest rates low? Is the technology available? Is it legal?)

3. Stakeholder Check: Who wins and who loses from this decision? Do the powerful stakeholders support the choice, and is it ethical?


Understanding the interplay between these forces is the foundation of strategic business management. Keep practicing your PESTLE analysis, and you’ll soon be thinking like a CEO! Good luck!