Analysis of External Environments of Business

Analysis of the External Environment of Business

-Technological-

A 'business' is commonly defined as an organisation which provides goods or services in addition to transforming input into output. Its objectives can either be profitable or non-profitable. One of the main requirements that must be fulfilled for a business to exist is that it must act and react to activities and occurrences beyond that of the organisation. These factors that happen outside of the business are known as external influences or factors. They have a major influence on a business with respect to the main internal functions and occasionally their objectives and strategies. However, the overriding factor that affects most business is the degree of competition between themselves and another business that provides the same product or service. Other significant influences are social, legal, economic, political and technological factors.

Technology is defined as 'the sum of knowledge of the means and methods of producing goods and services' (Penguin Dictionary of Economics- The Business Environment, Worthington and Britton). It is also 'increasingly science based, encompassing things like chemistry, physics and electronics, and refers to the organisation of production as well as the actual techniques of production itself.' (The Business Environment-Worthington and Britton)

The major technological factor that affects business is technological change, in particular, the rapid pace of change in production processes and product innovation. As a result of this, new products are introduced, adjustments to the organisation and method of production are implemented, alterations to the quality of resources and products are made, and new ways of distributing the product and storing and disseminating information are set up. The substantial changes in technology have had varying impact upon business and the economy and the effects are many and varied.

A major technological change is the developments that have been made in information technology and the use of computers. These are mainly to improve the efficiency and competitiveness of business, and as the changes in technology are so rapid, there are important implications for businesses. Such developments prompt businesses to transform existing activities within the business in addition to generating new ones. New activities mainly involve the handling, analysis, collection and transmission of data. These advancements have varying impacts on business, such as improvements of goods and services within technological change in production. This is mainly due to computer-aided manufacturing (CAM), computer-aided design (CAD) and computer-integrated manufacturing (CIM). CAM means the computer controls the machinery, CIM is where the computer controls the whole production line, and CAD enables the computer to help design products using computer generated models and 3D drawings. The effects these implementations are having on the different functions carried out by businesses are easily identifiable.

For example, the administration of business has been revolutionalised by the introduction of information technology; all records are now computerised putting an end to filing. Other essential functions of a business have also been transformed; Communication is now conducted with ease due to the introduction of email, video conferencing and fax machines; Production time has been shortened thanks to the use of CAD speeding up the design and planning stages of a product; Storage and distribution is now computerised which enables hassle-free stock control etc. Electronic Funds Transfer at Point of sale is a sophisticated package that has revolutionlised retail businesses by enabling them to monitor their stock levels and sales to customers with 100% accuracy. The Internet also has unlimited potential, vastly improving communication with customers and suppliers through email and website. Similarly, the intranet is an internal system of communication that can be implemented.

An example of a business, which has embraced technology and the changes it brings, is the Ford Motor Company. It has started to introduce 'virtual assembly lines' using advanced computer technology to test production layouts on screen. The new technology enables Ford to test a new proposed assembly line for practicality and efficiency. The system is a breakthrough for the industry and will allow Ford to cut Ј120 million a year off development costs for new models of vehicle.

Technology feeds off itself and generates even more ideas and innovations. This rapid rate of change creates both threats and opportunities for businesses. The threats are clear; businesses that choose not to embrace competitive technology will struggle to keep their unit costs down and be unable to provide satisfactory goods or services compared to their competitors. For example, it would be similar to attempting to sell typewriters when the latest Personal Computer is available. If one company avoids the latest technology whilst its rivals adopt it, it is likely to suffer problems with competitiveness, i.e. its rivals may be able to offer lower prices or faster, better service standards. The benefits of implementing technological advancements to a business are easy to identify. They include reduced running costs, improved productivity, improved competitiveness, lower costs per unit of product, improved quality of service, (e.g. speed) and reduced wastage.

However, there are certain implications that arise with the introduction of new technology. Initially, there is huge capital outlay as technological change can be very expensive and costs can easily escalate. The technology must be purchased and installed, staff must be trained to use it, there is maintenance costs in addition to upgrading and replacing it as equipment and software may become obsolete in a few years. It may not always be possible for a business to adopt the most appropriate technology, as they don't have the necessary finance.

The social aspects of introducing technology must also be acknowledged. In some cases new technology may mean workers lose their jobs as the skills they provide can be replaced. In other cases people will still keep their jobs but may have to re-train