External environment theory

External environment illustration


Big businesses command a lot of power and are able to choose between working in a way that benefits only the owners, and in ways that can benefit local and global communities. While many firms operate to meet the needs of owners, there are others that function in a far more ethical way, often as abusiness strategy to gain an edge over competitors. Firms acting ethically carefully consider the implications of their actions in a wider context, both on the community and the environment.

Ethics, put simply, is about doing the right thing. Ethical behaviour, in terms of business, is when firms act in ways thatstakeholders would describe as fair and honest. Impact (is anybody affected/harmed by a decision) and fairness (will decision be considered fair by those affected) are both taken into consideration by managers when making ethical decisions.

For many owners, acting ethically reduces profits by increasing costs, be it labour or materials. The profits from acting ethically are often higher than firms that act out of self-interest. Other businesses have made ethics an important part of their companies, by targeting markets who don’t mind paying extra for ethically sourced/made food and goods.