Business Organization And Policy - Essay Example

Topic: Lecturer: Presentation: Introduction Globalization and new technological developments have shrinked the world into a global market place and enabled firms to locate in any part of the world. Despite these developments, organizations continue to concentrate on certain locations irrespective of the existence of competitors who act as a threat to the firm’s existence by competing for the available resources which include; land, labour and capital. This is due to the fact that concentration of industries brings various advantages to the firm and enables it to deal with rapid changes in the environment. However, an organization needs to have a well formulated business plan in order to be able to determine the aspects of the business it is getting in, know where it is and where it is heading (Taylor & Weerapana, 2009). The organization thus will be able to formulate policies and strategies that will enable it to accomplish whatever mission it has set for itself. The growth strategy depends on whether a firm wants to market new or existing products in a new or existing market (Tutor2u, 2011).The plan may be strategic in nature or short-term depending on its purpose. Developing a business plan ensures organizational success as a direction is already set. However, the environment keeps changing and the organization needs to respond quickly and effectively if it has to survive. A continuous scanning of the environment is therefore inevitable to establish the opportunities and threats hence take advantage of the opportunities and deal with the threats (Bangs, 2002). The environment can be assessed by use of PEST analysis before establishing the business and SWOT analysis to assess the strengths and weaknesses of the firm as well as new opportunities and threats. This requires continuous planning process. The profitability of the firm can be assessed by use of Porter’s five forces (Best et al. 2005). The paper will discuss the influence of environmental factors on corporate structure and strategy and the reasons for localization of industries as well as the business planning and policy making process. Business Planning and Policy Making According to Ochtel (2009), business planning involves determining how the market is changing and how to respond to changes and ‘sets the stage for the development of company technology, product or service offering dictated by target markets, competitors and projected financial returns’ (15). Raturi & James (2005) note that business planning process involves answering such questions as; where we are now, how we got there, where would like to be and how to get there. It thus involves scanning the environment, establishing the business mission, setting objectives and strategies to achieve the objectives, implementation, monitoring and controlling. This is a strategic planning process which is broken down into policies which guide day-to-day running of the business. The Business plan defines the product or services the firm is engaged or wants to engage in, the business objectives, source of funding and personnel, legal requirements, establishing business location, and cash flow (Ochtel, 2009). Environmental Scan Scanning the environment enables the organization to determine the kind of business to engage in or the opportunities that are available. Analysing the political, economic, social, and technological factors (PEST) is essential in this case. The political environment affects the nature, location of a business as well as its operations. When deciding what product or service to sell, consumer protection is put into consideration. The government bans usage of certain products such as tobacco and cigarettes due to their effects on consumers or puts strict measures on their usage hence the firm should be able to comply with the set standards (Grant, 2005). Environmental regulation and protection may affect the location of a business. For example, most manufacturing firms tend to be located in one place due to heavy pollution and industrial emissions. This minimises pollution in other areas such as residential places. This leads further concentration of industries and external economies of scale associated with it such as labour and raw material availability. The competition regulation by the government also affects location of businesses. Unfair competition is prohibited by the government hence barriers to entry in the market are minimised. The firm can thus enter the market where competitors are and enjoy the economies of scale available. The cost of running the business is minimised as the firm enjoys the pool of labour already in existence and distribution channels (Sugden et al. 2003). This also affects the strategies used by the organization in maintaining competitive advantage. If the business wants to be price leader in the market, it has co consider the effect on competition. Government taxation policies also have great influence on the business. The government may decide to reduce taxes or offer subsidies to attract location of industries at a certain area or may raise taxes in some areas to discourage location of industries (Ochtel, 2009).It can also increase income taxes there reducing disposable income of consumers hence reduced demand. Taxation thus leads to concentration of industries in subsidized areas for example industries in rural areas. This leads to improved transport and communication in such areas especially because the government increases its spending on infrastructure, health and education to attract businesses. The organization can thus decide to locate on such an area. The reduced income affects product offering by organizations. For example, a financial institution can locate in low income areas or may be forced to offer few products. Economic factors also have a great impact on the business planning process. These include; government spending, monetary policy, inflation, exchange rates, unemployment policies among others. These factors affect the operations of the business and help the business in determining the growth strategies. On areas where industries are concentrated, there is need for more services hence government spending is more directed to these areas by provision of essential services such as education, health, infrastructure and social amenities. The organization can thus locate in such area to enjoy the available services (Taylor & Weerapana, 2009). The monetary policy affects the interest rates hence impacting on business. If the organization intends to invest in new product or market, it may need capital and if the interest is high, then the firm may not be able to acquire the funds needed especially if it is a small retail business. This may force the firm to consider retaining existing products or remain in an existing market despite the competition. However, small firms have a chance to get cheaper supplier due to growth of other large industries or form trade associations that enable it grow hence enjoying economies of scale (Tribe, 2004). Unemployment policies also impact on business decisions. The government sets minimum wage. The firm cannot pay below this wage even if it is incurring high costs. This determines the number of employees to hire by examining the budget. The firm may require many labourers and does not have available resources to hire a large number of skilled employees. However, a firm in a concentrated area can enjoy the benefit of highly skilled labour at low cost (Lai et al. 2006). This is due to shared training costs and employees can learn from others in similar industries. Many potential employees search for jobs in concentrated areas hence lowering the cost of labour and the firm can take such advantage. For example, the textile firms are source of experienced labour for upcoming firms in the area. Social environmental factors include; demographics, lifestyle changes, education, living conditions, attitude to work among others. These affect the spending patterns of consumers hence can be used by a firm in establishing market segments or target markets. Business planning involves determining who the customers are and why they would choose to buy in your organization (Joseph, 2005).Having information on competitors is therefore crucial in determining their offerings and thus making the organizations offering different so as to attract customers in a very competitive environment. In a concentrated industry, it is easy to get information on competitors. Target markets may also lead to concentration of firms in one location if consumers of that area have similar tastes and preferences or are of a certain religious belief such as Muslims. Lifestyle changes have affected many financial organizations as they are forced to offer different services such as mobile banking and internet banking. Technological factors have shaped most of the business structures and strategies especially the financial institutions. The speed of technology transfer is making most products obsolete as new ones are being developed. The information technology sector transforms at a very high speed especially the mobile phone industry. New complex phones emerge often with new services and modes of operation. The financial institutions have been able to enjoy scope economies by offering a variety of financial services via single service infrastructure. Customers do not have to queue in banking halls but can use mobile banking services, ATM, and internet banking (Raturi & James, 2005). Manufacturing technology also allows firms to produce different product lines thus saving on costs. Information technology enables firm to collect and analyse environmental information with ease by use of management information systems hence firms are able to respond to environment changes quickly. Concentration of industries acts as a market for technology firms such as those offering internet services. The firms also benefit from reduced costs as infrastructure is already in place in such areas. Firms in concentrated areas also benefit from constant technological innovations as firms develop new technologies to compete effectively. The government also focuses research and development activities in concentrated areas that are beneficial to such industries. There is increased efficiency and reduced costs. Mission After analysing the environment, the organization establishes a mission that guides the direction of the business. The mission defines the scope of the business and shows what the nature of the business and what it strives to accomplish. The organization may want to be a price leader in the market or product leader depending on its strengths. The firm will also have established its target market and product offerings. Objectives After establishing the mission, the organization sets objectives which reflect the mission statement. The objectives should be specific, measurable, acceptable, realistic, time bound, extending and rewarding (SMARTER) (Ochtel, 2009). The objectives are then broken down into goals which are aimed at accomplishing the objectives hence the overall mission of the organization. Policies and strategies are formulated that enable achievement of the goals. The strategies can be analysed using Ansoff’s matrix and porter’s five forces. The Ansoffs matrix involves determining whether the organization should use market penetration strategies, market development, product development or it should diversify (Tutor2u, 2011). The firm can use market penetration strategies to drive out competitors, retain customers, or increase its share in the market. Information technology can help to generate information on existing customers and competitors hence improve and attract new customers. In this case the organization can locate in concentrated area and sell existing products in the already existing market by attracting customers and facing out competitors. Another strategy an organization can use is to sell old products in a new market. The firm can use such strategies as offering prices which are different from the competitors or changing the products by developing new designs and packages or new distribution channels. For example, according to Grant (2005), banks used internet technologies to replace conventional distribution channels hence surpass their competitors. Product development entails selling new product in existing markets while diversification is about new products in new markets. External economies of scale enable a firm to develop its product in the existing market as firms share technology and are involved in continuous innovations and availability of highly skilled labourers. The management should communicate the objectives to the staff and allow their participation in setting goals so that they can own the process hence loyalty and commitment to achieving the objectives. Tactical plans are also developed to enhance achievement of goals. These involve deciding the activities to be undertaken and methods of performing them so that the goals can be reached (Joseph, 2005). Implementation After setting the goals and deciding on the strategies to use, the implementation of the strategies or policies is undertaken. This involves assigning the tasks to individuals and groups and providing them with support such as enough finances and labour. The groups should be given autonomy or authority to formulate own goals and ensure objectives are achieved. The managers should give room for mistakes especially if a new product is to be developed so as to encourage innovation and motivation among the staff. Performance standards are set so that employees can work towards achieving the standards. Necessary organization changes are put into place to ensure smooth operations (Raturi & James, 2005). Monitoring and Control As the implementation is going on, the performance should be measured and evaluated to ensure no deviations from the plan. If there are any deviations, the plans are modified to ensure the right path is taken. Due to continuous changes in the environment SWOT analysis is conducted so as to respond to the changes. This involves analysing the strengths and weaknesses of the organization as well as opportunities available in external environment and potential threats. This leads to the start of the planning process. To determine industry attractiveness and profitability, Porter’s five forces are used which include; new entrants, availability of substitutes, the power of suppliers, the power of buyers and industry rivalry (Best et al. 2005). Concentrated industries can be able to bar new entrants hence reduce competition. Plans can fail due to ineffective communication, cultural problems, poor planning, not supporting implementation or the plan is limited in scope (Joseph, 2005). Conclusion Rapidly changing business environment forces organizations to engage in continuous planning process. Analysing the internal and external environment is essential as it enables the organization to change its structures and strategies to enable quick response to the changes. The business planning process enables the firm to set a roadmap to follow by determining the nature of the business, the product offerings, nature of competition, legal requirements and location of the business. Policies are formulated to enable the business to accomplish its objectives hence the overall business mission but control and evaluation is required to ensure activities are going according to the plan. Locating an organization in a concentrated area allows it to enjoy external economies such as; skilled labour, improved distribution channels, services and amenities, specialization, use of by-products, support from larger companies and shared technology. References Bangs, David (2002). The Business Planning Guide: Creating a Winning Plan for Success. 9th ed. USA: Kaplan Best, N., Dalton, C., Allan, W (2005). Integrated Management. UK: Elsevier. Grant, R (2005). Contemporary Strategy Analysis.5ed. UK: Blackwell. Joseph, R (2005). Business Policy and Environment. New Delhi: Anmol Publications. Lai et al (2006). College Economics. Singapore: Panpac Education Private Ltd. Ochtel, R (2009). Business Planning, Business Plans, & Venture Funding: A Definitive Reference Guide for Start-up Companies. Carlsbad, CA: Carlsbad Technical Group, Inc. Raturi, A & James, E (2005). Principles of Operations Management. Mason, OH: Thomson. Sugden, R., Cheng, R., Meadow, G. eds. (2003).Urban and Regional Prosperity in a Globalized New Economy. UK: Edward Elgar. Taylor, J & Weerapana, A. (2009). Economics, 6ed. Boston, MA: Houghton Miffin Company. Tutor2u (2011). “The Process of Business Planning. 9 April 2011. http://tutor2u.net/business/strategy/business-planning-process.html Tribe, J (2004). The Economies of Recreation, Leisure, and Tourism. UK: Elsevier. Read More