External Influences on
Corporate Objectives and
Decisions
For any kind of business, having a good understanding of the environment in which it evolves
is as much important as knowing its own internal influences. In fact, a business could not rely only on
its business plan or its favourable location to succeed in its future ventures; it has to turn to external
influences and adapt accordingly. This way, a business could better predict which objectives can be
attainable and how much resources it will require to do so – e.g. skills, time, and so on. In the process,
owners and managers need to identify the issues that have implications on the conduct of the
business and disregard those irrelevant – could be done only if internal factors have been clearly
identified. This course will help you understand how entrepreneurs can identify external influences on
corporate objectives and take decisions in accordance with their specificities; questions at the end will
help you validate these principles.
I.
External influences on corporate objectives and decisions –
systemic factors
External influences on corporate objectives could be diverse and inter-related. However, for
the purpose of this course, we look at external influences under four main categories of systemic
factors which are relevant to almost any kind of business: the economic environment, competitor
efficiency, technological changes and legal & environmental constraints. The next chapter will be
discussing four other important internal influences: the weather, infrastructure, customer base and
trends.
1. Economic Environment
The economic environment relates to the way the economic system is organised and how it
allocates scarce resources on the markets. For most organisations, it is probably the most important
factor considering that it can impact every aspects of business conduct. Since every economic system
goes through phases of growth and decline, a business needs to be aware of the cycle on which it is
currently operating (upward or downward) and the velocity of changes – i.e. faster or slower
growth/decline. Periods of rapid economic growth bring prosperity to many businesses while periods
of rapid decline provoke the foreclosure of the weakest and less performant ones.
From an economic point of view, periods of economic downturns permit to purge economic
systems by putting out of business the less performant and resilient ones– just like the natural
selection process functions according to evolutionary theories. While it is difficult to predict future
economic conditions, most businesses study researches done and monitor closely the state of the
economy through conferences, intelligence networks, and research – both internal and external
economists. A business needs to have contingency plans in case of a major change in the economic
environment. Those that adapt to rapid changes are not necessary the larger one but rather most
flexible ones.
2. Competitor efficiency & technological advances
While monopolies still exist on most markets worldwide (even though illegal in many), a major
preoccupation for most businesses is related to what the competition is up to and how it is
performing. In fact, competition could seriously affect the ability of a business to generate revenues
since they will try to gain the most advantageous position through diversification, differentiation or
some other kind of corporate strategy.
Changes in competition’s efficiency, quality, value and rapidity could force a business to
improve its own processes to remain relevant in its industry by providing at least an equivalent
performance. It has therefore a tremendous impact on the company’s financial results, human
resources and resources allocation – i.e. important corporate objectives and strategies.
A closely related influence to corporate objectives and decisions is linked to technological
advances – both external and internal to the company. In fact, innovation is major market shaper and
production enterprises are costly. A business could take the lead in its industry thanks to innovative
ideas resulting in an increase of the company’s efficiency and/or ability to better satisfy customers’
needs and wants.
3. Legal & environmental considerations
An increasingly regulated marketplace can be constraining for the conduct of operations, in
particular regarding legal and environmental considerations. The impact on the organisation
can be tremendous if the product or service becomes highly controlled - or even forbidden. The
most common example is the tobacco industry and in particular cigarette manufacturers when
public smoking was regulated by governmental policies in most western countries. While these
constraints are often out of the business’ control, it can directly affect it.
II.
External influences on corporate objectives and decisions –
important factors
1. Weather
The weather could have a direct influence on businesses sensitive to it such as in the
agricultural and leisure industries. Periods of harsh climate could have direct devastating
effects on harvests impacting directly the producers and indirectly all those who require the
commodity to run their businesses – e.g. coffee, rice, grains and so on. It could reduce a
company’s margin by increasing its costs of production if prices for the final product are kept at
the same levels –companies usually raise their prices to cope with the change, thus reducing the
level of demand for price elastic products. Major natural disasters due to weather conditions
could have an impact on an entire economy both directly and indirectly – e.g. in the past decade,
several occurrences of severe heat waves, droughts and wildfire brought commodity prices to
new highs, causing widespread poverty and deaths in many countries worldwide. Local and
regional catastrophes could also have an important impact on a business, and for this reason,
they should prepare contingency plans to limit losses due to cyclical and well-known dangers for
the region(s)concerned –e.g. hurricanes, storms, inundations and so on.
2. Infrastructure
The infrastructure of a business’s environment – i.e. the physical organisation of structures
and facilities necessary for the functioning of a society – could have decisive implications for it.
In fact, zoning laws, road constructions and real estate developments can influence the way
business is done. This is particularly true for retail stores, hotels, restaurants and any other kind
of business dependent on its geographical location. Modifications in a business’ surrounding
infrastructure could leave it unchanged or it can affect it positively or negatively - in a strong
way that could threaten its survival or bring prosperity to it. Either way, businesses should be
aware of their surroundings and should try to perceive – if possible – changes there might be in
the near future in their immediate environment.
3. Customer base
The composition of a business’s customer base can change over time in a rapid or slow manner.
Changes in the demographics of an enterprise’s surrounding area can profit a business capable
of meeting the needs of different customers. It can also lead to the foreclosure of those that
can’t cope with a customer base loss due to demographic changes and an inability to satisfy a
new business environment. When planning and targeting specific consumers, a business needs
to assess itsreliability and loyalty. While large changes are easy to notice, subtle trends can be
decisive for local and regional businesses. On the other hand, large corporations are usually
more inclined to be under the influences of significantly important changes as their businesses’
extent permits to spread the risks of changing local demographics and customer base.
4. Trends
Consumers’ tastes, needs, wants and expectations can rapidly change over-time; a business
investing in marketing might use the current trends at its advantage instead of trying to
influence them. Surely, a business can influence trends and sometimes create ones; but it is less
common and more risky – as companies cannot be completely sure it is going to go as planned,
and they might lose the resources invested in the project if it fails. Most enterprises try to follow
the trends and use them to increase their sales through emphasis on sales and marketing.
Plato and other Greek philosophers use to advise their fellows with a « Know thyself! »
which basically means that before you can know others, you need to know yourself. Also, Tales
was convinced that to know oneself is the most difficult challenge for any individual who really
tries to. In the same manner, a company needs to have clear objectives which define its
reason(s) of being before it can understand the environment in which it operates. Having a good
understanding of both external and internal influences allows the organisation to be more
efficient, to have a better ability to forecast the future and to adapt to changes having an impact
on its operations more easily.
Multiple Choice Questions
1. What are the four systemic factors relevant to corporate objectives and decisions?
a. Economic environment, technological changes, Competition, Production;
b. Economic environment, technological changes, competition, legal & environmental;
c. Finance, HR, Industry, Authority;
d. a. & b.
2. Which statement is false?
a. Declining economies are detrimental for corporations;
b. Stagnating economies are detrimental for corporations;
c. Rapidly growing economies are detrimental for corporations;
d. a. & b.
3. Which one is not a corporate strategy?
a. Diversification;
b. Growth;
c. Differentiation;
d. These are all corporate strategies.
4. What was (is) the most challenging external influence for the tobacco industry?
a. The economic environment;
b. Law & environmental influences;
c. Technological advances;
d. Competition.
5. What are the four other important influences on corporate objectives and decisions (in addition to
systemic external influences)?
a. Training & development, Turnover, Employee Relations, Benefits;
b. Weather, Infrastructure, Customer Base, Trends;
c. Weather, Infrastructure, Customer Base, Benefits;
d. All false.
6. Which statement is false?
a. The weather cannot impact industries except agricultural and touristic businesses;
b. The weather can indirectly impact any kind of business;
c. Hurricanes and storms could affect a large regions’ economic system;
d. b.& c.
7.How can be defined the term “infrastructure” in the context of this course?
a. The construction of highways;
b.The physical organisation of structures and facilities necessary for the functioning of a society;
c.Changes in competition’s efficiency, quality, value and rapidity;
d. b. & c.
8.Which statement is true?
a. Retail stores are more influenced by infrastructure than most businesses;
b. Restaurants are more influenced by infrastructure than most businesses;
c.Zoning laws, road constructions and real estate developments can influence businesses;
d. All true.
9. How do most successful businesses deal with trends?
a. They try to go against them;
b. They start new trends;
c. The follow them;
d. b.& c.
10. Which statement is false?
a. Infrastructure changes could benefit a business;
b. Infrastructure changes could sink a business;
c. Infrastructure changes are always predictable;
d. a.& b.
Answers
1: b; 2: c; 3: d; 4: b; 5: b; 6: a; 7: b; 8: d; 9: d; 10: c;