The environment of an organisation

The environment of an organisation is a term that describes anything outside an organisation that affects
what it does or how it acts. There are many influences on an organisation that come from pressures and
changes in its environment. These environmental influences differ according to the circumstances of the
organisation
P Political and legal factors E
Economic factors
S Social, cultural and demographic influences T
Technological factors.
This method of analysing environmental factors is called PEST analysis.

The scope of political and legal influence on business

Politics and the law have an extensive influence in business affairs, and political decisions and changes in
the law can affect just about any aspect of business activities. Multinational companies have the
additional problem that because they operate in many different countries, their activities may be affected
by political conditions and legislation in each of the different countries.
Here are just a few examples of political and legal factors that might affect business.
Nationalisation of industry and privatisation. In some countries, industry is nationalised and owned
wholly or partly by the state (the government). Occasionally, after a change of government, an incoming
government decide to nationalise a business and take ownership of existing commercial business into
ownership by the state. In other cases, a government might introduce a policy of de-nationalising an
industry (privatising the industry) and transferring ownership of state-owned businesses to commercial
companies.
Transport and infrastructure. Businesses rely on the transport system to move their goods (and
employees), and the quality of the road transport system depends on the infrastructure of roads. Although
the transport system might be operated by commercial companies, most of the road network and possibly
also the rail network are state-owned. Government policy on transport and building roads or rail networks
can have an important effect on business activity.
Education. In most countries the government is responsible for most of the education system. Education
policy affects the quality and skills of individuals who make up the work force of business organisations.
Environmental policy. Business organisations might be affected by changes in the environmental policy
of a government, such as policy to reduce levels of pollution in the air, water or land.
Taxation and subsidies. Governments use taxation to raise income. They might also use taxation to
influence behaviour, such as increasing tax on fuel in order to encourage a reduction in fuel consumption
and increasing tax on the disposal of waste in order to encourage the recycling of waste. Governments
sometimes encourage particular activities by offering subsidies, such as subsidies towards the cost of
particular skills training.

Employment law

Each country has employment laws. The purpose of employment law is mainly to provide protection to
employees, against unfair treatment or exploitation by employers. Business organisations, as employers,
are directly affected by employment laws. They need to be aware of the employment law in each country
in which they operate, and understand the consequences of breaking the law or failing to comply with
regulations.
Here are some of the aspects of employment law.
Minimum wage. A country might have a minimum wage, which is the minimum hourly rate of pay that
may be paid to any employee.
Working conditions. A variety of laws and regulations might specify minimum acceptable working
conditions, such as maximum hours of work per week or month. There might also be laws relating to a
maximum retirement age and the employment of children. Working conditions are also covered by health
and safety law, which is described in more detail later.
Unfair dismissal. Employment law might give employees certain rights against unfair dismissal by an
employer. In the UK, for example, an employee who is dismissed from work might bring a legal claim for
unfair dismissal. The employer must then demonstrate that although the employee has been dismissed, the
dismissal was not for a reason or under circumstances that the law would consider unfair. When an
employer is found guilty of unfair dismissal, it might be required to re-employ the individual who has
been dismissed or (more likely) pay him or her substantial compensation.
Redundancy. In the UK, dismissal of employees on the grounds of redundancy is not unfair dismissal,
provided that discrimination is not shown in the selection of which individual employees should be made
redundant. However, UK law requires an employer to consider transferring an employee to another job
before deciding that redundancy is unavoidable. (Failure to consider transferring employees to other work
would mean that the dismissals for redundancy are unfair.)
Discrimination. Some countries have extensive laws against discrimination, including discrimination at
work. In the UK, employers can be held legally liable for showing discrimination against various
categories of employee (or customer) and also for discrimination shown by employees against colleagues.
There are laws against discrimination on the grounds of physical disability, gender, race, religion, sexual
orientation and age.
Changes in any aspect of these employment laws could have significant implications for business
organisations, especially those where labour costs are a significant proportion of total costs.