External and Internal Influences on Operational Objectives (AQA A-Level Business): Revision Notes
External and Internal Influences on Operational Objectives
Understanding the context
The operations function doesn't work alone. Every decision made in operations affects other parts of the business, and changes in the external environment constantly influence how operations work. This means operations managers must consider a wide range of factors when setting and achieving their objectives.
Operations is deeply interconnected with all other business functions. Think of it as part of an integrated system where changes in one area ripple through the entire organization. Understanding these connections is crucial for effective operations management.
External influences
External factors are forces outside the business that impact operational decision-making. There are four main categories to consider:
Memory aid: PETC
- Political/Legal
- Economic
- Technological
- Competitive
These four categories cover the main external forces that shape operational objectives.
Political or legal influences
Businesses must stay aware of changes in legislation from government bodies. In the UK, this includes laws from both the UK Parliament and the European Union.
Key areas of legislation include:
- Health and safety regulations that affect workplace practices
- Environmental laws that control pollution and waste
- These laws have become stricter in recent years, leading to increased legal requirements for businesses
Compliance is non-negotiable
Operations teams need to ensure all processes comply with current legislation, which may require changes to production methods or additional safety equipment. Failure to comply can result in fines, legal action, and damage to the business reputation.
Economic influences
The economic cycle is the natural fluctuation of the economy between periods of expansion (growth) and contraction (recession).
How the economy affects operations:
- Demand changes: As the economy moves through different stages, customer demand rises and falls
- Operations must be ready to respond to these fluctuations
- Globalisation: The interconnected global economy means resources can now be sourced from anywhere in the world
- Production can also take place internationally
- This gives operations more flexibility but also more complexity
Worked Example: Economic Cycle Impact
During recession (contraction):
- Consumer spending decreases
- Demand for products falls
- Operations must reduce capacity and output
- May need to cut costs or reduce workforce
During growth (expansion):
- Consumer spending increases
- Demand for products rises
- Operations must increase capacity
- May need to invest in new equipment or hire more staff
Operations managers must plan capacity flexibly to adapt to these cyclical changes.
Exam tip: Remember that during a recession, demand typically falls, whilst during growth periods, demand increases. Operations must plan capacity accordingly.
Technological influences
Technology has dramatically changed how businesses operate and how consumers behave.
Production technology:
- CAD (Computer Aided Design): Software that allows designers to create products digitally
- CAM (Computer Aided Manufacture): Technology that automates manufacturing processes
- These innovations have led to faster production, better quality products, and more innovation
Consumer technology:
- The internet has increased consumer awareness about prices, quality, and customer service
- Consumers can now research products extensively before purchasing
- Digital content: Newspapers, books, films, and music can be downloaded instantly
- Apps exist for almost every service imaginable
- Social media has created new ways for consumers to interact with businesses and share experiences
Staying technologically competitive
Operations must keep up with technological changes to remain competitive and meet customer expectations. Falling behind in technology adoption can result in higher costs, lower quality, and loss of market share to more innovative competitors.
Competitive influences
Markets have become increasingly competitive, with businesses facing rivals both domestically and internationally.
Pressure areas:
- Costs: Businesses must keep production costs low to remain competitive
- Quality: Products must meet high standards
- Price: Consumers expect value for money
- Customer service: Service standards have risen significantly
Consumer loyalty: Greater consumer awareness (partly due to the internet and social media) means customers are more demanding. Operations must maintain high standards to keep customers loyal to the brand.
Internal influences
Internal factors are forces within the business that shape operational decisions. The operations function must work closely with other departments.
Memory aid: FMH
- Finance
- Marketing
- Human resources
These three internal functional areas have the most direct impact on operational objectives and decisions.
Finance
The availability of finance determines what operational decisions are possible.
Worked Example: Investment Decision
A business wants to invest in new production technology costing $500,000.
Step 1: Operations identifies the need for new equipment Step 2: Operations prepares a business case showing expected benefits:
- 20% increase in production capacity
- 15% reduction in defect rates
- Payback period of 3 years
Step 3: Finance department reviews the proposal Step 4: Finance decides whether funds are available Step 5: Without sufficient funds or approval, operations cannot proceed
Key point: Operations managers must justify investments by showing the expected return and benefits.
Marketing
The marketing function plays a crucial role in determining operational activity.
How marketing influences operations:
- Marketing identifies what products customers want
- Marketing forecasts how much demand there will be
- Operations must produce what marketing says is needed
- Close collaboration between operations and marketing is essential
Worked Example: Promotional Campaign Coordination
Scenario: Marketing plans to launch a major promotional campaign for a product
Step 1: Marketing forecasts 40% increase in demand during campaign period
Step 2: Marketing communicates forecast to operations 2 months in advance
Step 3: Operations assesses current capacity:
- Current production: 10,000 units/month
- Required production: 14,000 units/month
Step 4: Operations takes action:
- Increases raw material orders
- Schedules overtime shifts
- Brings forward maintenance to avoid breakdowns during peak demand
Result: Sufficient stock available when campaign launches, preventing lost sales and customer disappointment.
Human resources
The skills and capabilities of the workforce directly determine operational performance.
Impact on operations:
- Employee skills determine what can be produced
- Training levels affect product quality
- Workforce motivation influences productivity
- Staff availability affects production capacity
People are the key to operations success
Operations cannot achieve objectives without the right people with the right skills. Human resources must ensure adequate staffing and training. Even the most advanced technology and equipment cannot compensate for an unskilled or unmotivated workforce.
The integrated nature of business
All functional areas are connected. When operations makes a decision, it affects finance, marketing, and human resources. Similarly, decisions in these other areas impact operations.
The interconnected business
For operations managers: You need to analyse how decisions in each functional area will affect operations. Understanding the corporate objectives (overall business goals) is crucial, as these drive decision-making across all departments.
Think of the business as a system where each functional area is a component. Changes to one component inevitably affect the others. Effective operations management requires understanding and managing these interdependencies.
Exam tip: When analysing and evaluating influences on decision-making, identify which factors are most important and explain why they matter most to the specific business in the question. Don't just list influences – evaluate their relative importance and justify your reasoning.
Key Points to Remember:
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Operations doesn't work in isolation – internal and external factors constantly influence operational objectives and decisions
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External factors (PETC): Political/legal, Economic, Technological, and Competitive influences all shape what operations can achieve
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Internal factors (FMH): Finance availability, Marketing demands, and Human resources capabilities all constrain and guide operational decisions
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The economic cycle causes demand to fluctuate, requiring operations to adapt capacity and output levels
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Integration is key – operations managers must consider how their decisions affect other functional areas and align with overall corporate objectives
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When evaluating influences, always consider which factors are most significant for the specific business context