Understanding the internal and external influences on managerial decision making is vital for A-Level Business students studying strategic business behaviour.
Internal and External Influences on Decision Making
In business, decision making is rarely straightforward. Managers are constantly balancing multiple factors—many of which are beyond their control. Some influences arise from within the business (internal), while others stem from the external environment. Effective decision making requires a clear understanding of these influences and their potential impacts on strategic and operational choices. Each factor can push decision making in different directions, and understanding them helps ensure decisions are consistent, informed, and aligned with business goals.
Internal Factors
Mission
A business's mission is its fundamental purpose and long-term vision. It provides a sense of direction and serves as a reference point when making strategic decisions.
A mission statement typically outlines the company’s aims, values, and reason for existence.
Decisions made at all levels should reflect and support the mission, whether it’s innovation, sustainability, or customer satisfaction.
Examples:
A company like Innocent Drinks, whose mission includes sustainability, may decide against using plastic packaging—even if it's cheaper—because this contradicts its environmental values.
A business focused on customer service excellence might choose to invest in employee training over automation, ensuring personal service is maintained.
The mission shapes long-term strategic planning, influencing which projects or opportunities a business pursues or rejects.
Objectives
Objectives are the measurable outcomes a business sets to achieve its mission. These could be financial (e.g. increase profits by 10%), market-based (e.g. gain 5% market share), or operational (e.g. reduce delivery times).
Objectives are categorised into:
Strategic objectives – long-term targets, such as international expansion.
Tactical or operational objectives – short-term goals, like monthly sales targets or customer satisfaction scores.
Managers must ensure that decisions contribute toward achieving these objectives. Decision making becomes more goal-directed when objectives are clear.
Examples:
A business aiming to increase profits may make a decision to cut operational costs by outsourcing manufacturing.
A company with a short-term objective to launch a product within three months may choose a quicker marketing strategy, even if it’s less innovative.
If decisions do not align with objectives, resources may be wasted, and overall performance may suffer.
Ethics
Ethical decision making considers whether a choice is morally right or wrong, not just whether it is profitable or legal.
Managers must often make trade-offs between profit and principle.
Key ethical considerations include:
Environmental impact – e.g. reducing emissions, sustainable sourcing.
Worker treatment – e.g. fair wages, safe working conditions.
Consumer rights – e.g. clear labelling, not misleading advertising.
Examples:
A retailer may choose not to sell fast fashion items made in sweatshops, even if competitors do and profit from lower costs.
A chocolate company may select Fairtrade suppliers, which could increase costs but appeal to ethically conscious consumers.
While ethical decisions may limit short-term gains, they can strengthen the long-term brand image and consumer trust, resulting in sustained profitability.
Resource Constraints
Managers often face resource limitations, which directly affect the feasibility and scale of decisions. The main resources are:
Financial resources – capital available to fund decisions.
Human resources – the availability and skills of employees.
Physical resources – such as equipment, technology, and raw materials.
Time constraints – how quickly the decision must be made or implemented.
When resources are limited, managers must prioritise, assess trade-offs, and make calculated choices based on opportunity cost—the next best alternative foregone.
Examples:
A company with limited cash flow might delay launching a new store until next quarter.
A business lacking skilled digital marketers may outsource that function rather than hire and train in-house.
These constraints create a need for risk assessment and careful planning, often forcing managers to revise or simplify their strategies.
External Factors
The External Environment
Businesses operate within a dynamic external environment, which can present both opportunities and threats. Managers must monitor these factors and incorporate them into their decision making.
Competition
The level of competitive pressure in the market greatly influences decisions. Managers must evaluate:
Pricing strategies – aggressive pricing may be needed in saturated markets.
Product development – innovation may be necessary to stay ahead.
Promotional efforts – increased marketing spend may be justified in crowded sectors.
Examples:
A supermarket like Aldi might decide to lower prices or introduce own-brand products in response to Tesco's pricing strategy.
A mobile phone brand may launch a new model early to beat a rival's release date.
Decision making in competitive markets often demands speed, adaptability, and a strong understanding of consumer expectations.
Customer Trends
Shifts in consumer behaviour and preferences can be powerful decision-making triggers.
Trends may include:
Health consciousness – leading to demand for low-sugar or organic foods.
Technological preferences – such as mobile-first experiences or app-based services.
Social responsibility – with consumers supporting brands aligned with their values.
Examples:
A fast-food chain introducing plant-based menu items in response to increasing veganism.
Retailers adding click-and-collect services to meet demand for convenience and speed.
Managers must anticipate trends, not just react to them, to make decisions that keep the business competitive and relevant.
Regulation
Legal and regulatory requirements are non-negotiable. Managers must ensure decisions comply with:
Employment law – covering minimum wage, working conditions, discrimination.
Health and safety standards – which vary by industry.
Consumer law – including product safety and truthful advertising.
Environmental regulations – such as waste disposal rules or emissions limits.
Examples:
A construction firm may need to change its materials to comply with updated building codes.
A food manufacturer might revise product labelling after new government rules on sugar content.
Regulations may limit certain actions, increase costs, or force strategic shifts—but they also protect consumers and create standards for fair competition.
Economic Conditions
Managers must consider the state of the economy, including:
Inflation – rising costs may reduce purchasing power.
Interest rates – affect the cost of borrowing.
Unemployment – influences labour availability and consumer spending.
Consumer confidence – reflects how willing people are to spend.
Examples:
In a downturn, a business may hold off on expansion plans and focus on cost control.
When interest rates are low, a company may decide to take out a loan to invest in new machinery.
Economic conditions add uncertainty and often lead managers to adopt risk-averse or adaptive strategies.
Case Studies: Influences on Business Decision Making
Case Study 1: Patagonia – Ethics and Mission
Business Context:
Patagonia, an outdoor clothing brand, is widely known for its commitment to environmental sustainability and ethical business practices.
Influences on Decisions:
Mission-driven: “We’re in business to save our home planet.”
Ethical considerations: Refused to work with suppliers who couldn’t guarantee eco-friendly production.
Resource prioritisation: Redirected profits into environmental activism.
Decision Outcomes:
Strong brand image and customer loyalty.
Despite higher production costs, Patagonia maintained profitability due to its ethical reputation and mission alignment.
Case Study 2: Tesla – Objectives and External Environment
Business Context:
Tesla focuses on producing electric vehicles and renewable energy solutions.
Influences on Decisions:
Objective-led: Tesla’s mission is to accelerate the world’s transition to sustainable energy.
External drivers: Growing demand for green technology, favourable government subsidies, and rising fuel costs.
Regulatory pressures: Met global emissions standards through clean technology.
Decision Outcomes:
Positioned Tesla as a market leader in the EV sector.
Ability to attract investment and dominate in a rapidly evolving industry.
Case Study 3: Greggs – Customer Trends and Resource Constraints
Business Context:
Greggs responded to a growing trend in plant-based eating.
Influences on Decisions:
Consumer demand: Launched a vegan sausage roll to meet trend.
Internal constraints: Had to restructure bakery operations and sourcing strategy.
Mission and ethics: Promoted inclusivity and variety in its menu.
Decision Outcomes:
Record-breaking product launch.
Increased sales and a surge in brand engagement on social media.
Case Study 4: British Airways – Regulation and Economic Conditions
Business Context:
Brexit and changing aviation regulations forced British Airways to adapt.
Influences on Decisions:
Regulatory change: Labour law adjustments due to Brexit affected staffing.
Economic conditions: Rising fuel costs and inflation led to budget constraints.
Resource decisions: Invested in technology to reduce long-term reliance on EU-based labour.
Decision Outcomes:
Mixed public reaction but achieved better operational control.
Highlighted the importance of compliance and economic awareness in decision making.
FAQ
Internal values form the core beliefs that guide a business’s long-term conduct. These values—such as integrity, sustainability, or innovation—become embedded in organisational culture and influence how managers approach decisions. Over time, they act as a filter through which options are assessed. Managers are more likely to choose actions that reflect these shared beliefs, which can maintain consistency, boost stakeholder trust, and support strategic alignment. This can reduce conflict and improve employee commitment, as decisions feel purposeful and values-driven.
While resource constraints may seem limiting, they can often drive innovation. With limited budgets or personnel, managers are forced to think creatively, streamline processes, or find alternative low-cost solutions. This can result in leaner, more efficient operations or breakthrough ideas that wouldn’t arise in resource-rich environments. Constraints encourage a focus on essentials, often leading to smarter prioritisation and adaptive strategies. Many startups innovate precisely because they cannot afford traditional solutions and must find new ways to compete effectively.
Balancing short- and long-term influences is critical to sustaining business success. Short-term pressures—like cash flow, immediate targets, or market reactions—demand quick responses. However, decisions made purely for short-term gain can undermine long-term strategy, brand value, or stakeholder trust. Managers must consider how today’s actions align with future goals, such as reputation, innovation, or market expansion. A balanced approach ensures stability, strategic continuity, and the ability to manage both immediate performance and long-term growth effectively.
Effective response requires agility, information gathering, and contingency planning. Managers must closely monitor external conditions and use data to identify emerging risks or opportunities. Flexibility in operations, such as scalable supply chains or adaptable marketing plans, allows businesses to adjust quickly. Having robust scenario planning and risk management strategies ensures managers are not caught off guard. Rapid response teams, cross-functional collaboration, and transparent communication also help in implementing decisions swiftly without sacrificing strategic integrity.
Stakeholders—such as customers, employees, investors, and communities—can exert significant pressure on managerial choices. Their expectations around ethics, environmental impact, and financial performance can shape priorities. For instance, customer backlash may force a company to revise an advertising campaign, while investor concerns about risk might halt an expansion plan. Managers must balance these often conflicting interests, making decisions that preserve relationships while achieving business goals. A failure to address stakeholder pressure can result in reputational damage or loss of support.
Practice Questions
Analyse how ethical considerations may influence a manager’s decision when launching a new product. (6 marks)
Ethical considerations influence managerial decisions by prioritising stakeholder welfare alongside profit. A manager launching a new product might choose sustainable materials, even if more costly, to align with consumer expectations and the firm’s values. This decision could enhance brand image and customer loyalty, outweighing short-term cost disadvantages. Additionally, avoiding misleading advertising or ensuring fair labour in the supply chain demonstrates social responsibility. Ethical decision making reflects the firm’s mission and builds long-term trust, which may result in a competitive advantage. Thus, ethics shapes the nature, process, and impact of strategic product decisions.
Assess the impact of resource constraints on a business’s strategic decision to expand into a new market. (10 marks)
Resource constraints can significantly hinder a business’s ability to expand. Limited financial resources may restrict investment in marketing or new facilities, weakening the effectiveness of the strategy. A lack of skilled staff could delay operations or affect service quality, impacting brand reputation. Time constraints may also pressure managers to rush planning, increasing the risk of poor execution. However, careful prioritisation and phased implementation can help overcome these issues. If managers effectively allocate limited resources and maintain strategic focus, expansion may still succeed. Overall, resource constraints require managers to balance ambition with realistic planning and risk management.
