Environmental Analysis is an Appreciation of an Organisations Activities - Research Paper Example

Executive Summary Today’s business environment has increasingly become more turbulent, chaotic and challenging than ever before. To survive, it is vital that a firm understands the strategies underpinning the success of rival firms and try to emulate, or do something better than the rivals. This study is initiated to investigate the impact of environmental features on Cheshire Neighbours credit union success when compared to it competitors. Using Porters Five forces framework, the PESTLE framework, the SWOT matrix and the core competences Cheshire Neighbours Credit Union was analysed in order to identify those invisible taken for granted assumptions, capabilities and resources that competitors have found difficult to emulate. The study made three important findings. Firstly, Cheshire credit union unlike other financial institutions has but members and not customers. This has become part of the company’s culture. To the company the institutions exist to cater for the needs of all the members. Secondly, we find out that the activities of the credit union are affected by all the environmental factors listed on the framework. Through the credit union principles of savings and loans, the company has been able to break through local market saturation, gain market potentials, and make financial gains. In addition, its continuous emphasis of savings and loans has created awareness for consumer’s existing problem. Through this, new line of products is developed and with it effective marketing strategy the products are pushed to the customers through integrated marketing. Thus, through new products customers are pushed into recognising an existing problem. 1.0Introduction Today’s business environment has increasingly become more turbulent, chaotic and challenging. To survive in this environment, it is vital that a firm can do something better than its competitors ( Wonglimpiyarat 2004:1). Globalisation has not only altered the natu and the intensity of competition but has had to dictate and shape organisations in terms of what consumers wants, how and when they want it and what they are prepared to pay for it (Hagan 1996:1). Kanter (1995:71) on his work of “Mastering Change” argues that success in the present day business is not for those companies that re-engineer the way they do things, or for those fixing the past. According to Kanter (1995) such an action will not constitute an adequate response. This is so because success is based on an organisation’s ability to create, rather than predict the future by developing those products that will literally transform the way the world thinks and view it self and the needs (Kanter 1995:71). In business, environmental analysis is an appreciation of an organisations activities vis-à-vis its environment (Lin& Lee 2006). Such analysis has become imperatively necessary in the light of increase competition as present, subsequent operations and strategies direction will be dependent on the result (Lin& Lee 2006). According to wikipedia, it is a process by which a business gathers information from the environment to achieve a sustainable competitive advantage. In analysing the environment, the tool kits frequently used include The PESTLE Framework SWOT Analysis Porters five forces Competitors analysis Core competence This paper uses some of the above framework to gather information about Cheshire Neighbours Credit Union. The first part of the paper provides an overview about Cheshire credit union, while part two of the paper uses the PESTLE framework and Porters five forces framework to see how Cheshire credit union as part of the mega environment is being affected by environmental forces. Part three of the paper then presents the conclusion and the way forward for management to make the best of these factors. 1.1 Overview of Cheshire Neighbours Credit Union Credit Unions are financial co-operatives owned and controlled by their members (Black 2002). In Cheshire Neighbours Credit Union, members pool their savings together; these savings then provide a fund from which loans are made (Report 2007). According to report from the company website, the Cheshire Neighbours Credit Union is a financial Co-operatives owned and controlled by the members. They offer savings and great value loans. The credit union is a local, ethical with members driven focus and attention. According to the credit union webpage, the members of credit union pool their savings together; these savings then provide a fund from which loans can be made to members in need of this service (Report 2007). Through interest charged on facilities and loans granted expenses incurred in the day to day running of the business are catered for. For example through this, interests on savings are paid and dividends paid to members depending on their savings. 1.1.1 Mission and Vision Statement of the Cheshire Neighbours Credit Union Mission and vision statements are two strategic management concepts (SMCs) (Soyer & Asan 2007). These are important concepts that define organisations’ values, competencies and are quite useful in the strategic planning and management of the organisation (Soyer & Asan 2007). In their work “Identifying strategic management concepts: An analytic network process approach” Soyer & Asan (2007:1) echo that, “SMCs together provide a common language and help stakeholders and other interested parties understand the business and its position in a competitive environment. This same view was earlier aired by Raynor (1988) where the researcher refers to mission and vision statement as an organisation cornerstone that guide and provide actions, directions and aspirations for the future. Vision statement refers to the desirable (O’Brien & Meadows 2001). In other words, a vision is the articulated goal for the organisation. Unlike mission statement, vision statement is a core goal. Once this is achieved, a direction will be set for the next vision (Soyer & Asan 2007, O’Brien & Meadows 2001, Thomas et.al., 1993). Forman & Camponovo (2004:1) referred to mission statement “as the most basic embodiment of business strategy….. for mission statement is often at the heart of strategy formulation for successful organisation. Raynor (1998) further outlined the role of vision and mission statement which include Mission and vision statements are pivotal in defining and communicating an organisation’s “enduring core purpose” (Raynor 1998:2). From the company webpage and previous report, the mission and vision statements of Cheshire Neighbours Credit Union are defined within three business principles Accepting Savings for all the members Granting of micro loans and facilities In the case of Cheshire Credit union it is for anyone living or working within Crewe & Nantwich and Vale Royal Boroughs. That is working for the benefit and well being of all the members Forman & Componova (2004) argued that misuse of this statement is so common and over time hard work is necessary for revival. They caution that, “Unless mission and vision reflect the core values, capabilities, and goals of individual organisations, they cannot shape current and future operations and therefore soon become clichés” (Forman & Componova 2004:7) 1.2 Cheshire Neighbours Credit Union and the PESTLE Framework LAYOUT OF THE PESTEL FRAMEWORK The PESTEL framework is used to analyse how the activities of an organisation are affected by its environment. It can also be used to look at the future impact of environmental factors and how this impact might be different from the past is a starting point1.There is a need for an understanding of the key change drivers. From the PESTLE framework outline above, the Cheshire Neighbours credit union like any other organisation in the UK is affected by all the factors outlined in the framework. These factors are examined below. All the economic factors can be regarded to have an impact on Cheshire Neighbours credit union. For example, high unemployment rate, high inflation rates, low GNP trends and slumps in the business cycle will imply low disposable income, more dependence by the citizens on credit facilities, borrowed funds and thus alternative sources of finance. The US dollars is currently increasing at an increasing rate when compared to the British pounds, this will mean an increase in the currency exposure. Transaction and translation cost will be high in the UK, value of credit facilities if granted in UK pounds will fall. The value of Cheshire Neighbours credit union balance in foreign accounts in the US will increase when doing reporting in the parent company currency, the British pounds. What is the income distribution? What are the shopping habits, what is it that other financial operators offer that, others don’t? The future budget situation of the UK government? Is the government striving at a surplus, deficit, or balance? All these are combined economic factors with huge impact on the activities of Cheshire Neighbours credit union. Under socio political factors the Cheshire Neighbours credit union is affected by both taxation and social welfare policies. Given the fact that consumer’s income is dependent on government taxation policies, it is evident that take home income might either increase or reduce depending on the taxation policies adopted by the government at anyone time. In addition, government spending is greatly affected by its taxation policy. Though, the political situation of the UK is a stable and unique one, it over dependence through support of the US egoistic policies under the pretext of democracy, the war on terror, the teeth for tat with Iran makes the country looks unstable; with the present republican government in the US handing over to the democrats in few days, current faith of world politics depends on the US and the United Kingdom (UK) with the two countries likely to be targets of terrorism attack. This institute a great fear especially in the minds of investors who are risk averse. Consequently, the activities of Cheshire Neighbours credit union ill be affected negatively. Today with increasing call and consumer’s preference for green marketing, companies must become more responsible in their respective supply chain. The credit union must develop environmental responsible services, or institute friendly support for environmental activities. In the absence of these options, the institution will be considered socially irresponsible. Under environmental factors I consider waste disposal, energy consumption and environmental protection laws in the UK to have a great impact on the UK Cheshire Neighbours credit Union. In a situation where a company failed to abide to government protection laws, the company will face sanctions, and penalties from the state. In the UK, Credit Unions are regulated and authorised by the Financial Services Authority (FSA). This is the same regulator as banks and building societies and all other providers of financial services in Britain. Members of credit unions with savings are protected by the Financial Services Compensation Scheme (FSCS) a safety net for all customers of financial firms which provide protection of savings in the event of the credit union going out of business (Report 2008). 1.2 Cheshire Neighbours Credit Union and Porters Five Forces Framework Porter (1985:4) contends that the Five Forces define the rules of competition in any industry and at the same time marks the bases for understanding a company’s success. Porter (1985) went further and argues that, competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness. The researcher further claims that, “The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm’s behaviour.” (1985: 4) and through their own strategy a firm can take hold of these five forces. With a relatively high profit margin, in the sector to attract potential competitors or new entrants, the situation is however difficult for new entrants to enter the line of business, because huge focus is on a particular market segment and area in Cheshire. Thus competition is limited. In addition, because of the credit union principles, all customers are members and all members are customers, customers become more committed in serving themselves. At the most fundamental level, Porter (1985) contends that firms create competitive advantage by perceiving and discovering new and better ways to compete in an industry which is ultimately an act of innovation. In this regard Porter assumes that innovations shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. This is the situation of the credit union, were through bonding requirements all customers are members and are more responsible in their activities vis a vis the credit union. Porters Five Forces Approach Application to the credit union in Cheshire Relationship with suppliers The suppliers constitute independent artist, cotton farmers, designers, customers who are all members Bargaining power of buyers Low switching cost due to numerous options available to buyers. How ever the membership bonding aspect has reduce this Threats of new entrants Low threats of new entrants because of the human, time, material and financial resources necessary to set up clothing retail store. However, and entry of a new entrant from other continent like Asia remain a big threat. With individual designers and niche players increasing everyday. Threats of substitutes products or services The industry is characterized with many niche players. Rivalry amongst established firms Fierce competition with flat cost. No major player able to dominate the market. How ever with continuous innovation and design of new products, other financial houses are setting the pace Such a position is primary for the clothing industry where customers and suppliers switching cost is low, with little profit margin. According to Porter (1985), once a company takes control of the five forces framework, the company becomes the pace setter. The researcher further and identify typical causes that shift competition to a company’s advantage: shifting input cost or availability, new technologies and shifting buyer’s needs. Within the context of today’s global competition, businesses and firms no-longer compete as individual companies but try to corporate with other businesses in their activities (Wu & Chien 2007:2). These researchers went further to argue that, this strategy has become quite common in many businesses including the retail clothing chain stores. The conventional vertical integrated company based business model is gradually being replaced by collaborative relationship between many fragmented, but complementary and specialized value stars and constellation (Wu & Chien:1). 1.3 Cheshire Credit Union Core competences and Capabilities Core competences are unique combination of technologies, knowledge and skills that are possessed by one company in a market. Its invisible nature renders it invisible to external observers and difficult to analyse (Hagan 1996:2). A firm’s core competence was originally developed and analysed by Prahalad & Hamel (1990). A firm core competence refers to a set of problem-defining and problem-solving insights that fosters the development of idiosyncratic strategic growth alternatives (Prahalad & Hamel 1990). According to Prahalad &Hamel (1990:2) and Stalk et al (1992:6) firms compete primarily on the basis of capabilities which develop through their idiosyncratic experiences and become the source of competitive advantage or disadvantage. Prahalad & Hamel (1990) and Hamel & Prahalad (1994) argue that to successfully exploit company resources and factors underpinning its success, companies need to understand fully their core competences and capabilities. To the researchers, a detailed analysis of a firm’s resources, capabilities and consequences will result to a better understanding of the success underpinning its competitive advantage (Prahalad & Hamel 1990:2). Figure below is adapted from Javidan (1998:3-4). Competences, Capabilities and Strategic Hierarchy According to Jarvidan (1998:7), “a competitive advantage is any aspect of the company’sresources, capabilities and competencies that provides an attractive relative competitive position. While the attractive relative position could be caused by something that the company does better”. At the credit union, the core competences and competitive advantages include: co-branding, celebrity endorsement with famous artist and musicians it cost leadership and generic focus strategy that continue to be a puzzle to close, its intellectual capital, goodwill and continuous improvement, Continuous improvement and new product developments strategy to ensure that, the company stays at the forefront of relevant competences and capabilities. Cheshire neighbour credit understands the industry well. The industry is characterised with flat prices as such, success and competitive advantage can only be achieved through this method. The company unique resources which include its patents, trademark, resources rights (Cotton), strategic locations in major cities, the soft side of the organisation (its valuable employees and culture) are just some of the many resources the company is entitle to which are hard or difficult to copy. 2.0 Recommendations and Conclusion An organisation does not exist in isolation. Under the resource based view, it is thanks to the environment that new resources are sourced out; stakeholders interactions are facilitated, new partnership develop and created. Through an understanding of the external environment, firms take advantage of the resources available in its environment; define the nature and structure of its activities. In order to maintain service, quality and logistic standards, companies periodically audit their environment and compared to overall corporate performance through benchmarking. Companies that, fail to take advantage of its environment will lag behind. Today, the requirements of an organisation’s stakeholders including, customers, employees, suppliers, shareholders, government, etc are on a continuous rise. It is only through an environmental assessment that companies understand and take advantage of this. In addition, , to providing an annual report to the company’s shareholders organisations are expected to provide alongside a corporate social responsibility report that details how they interact with society and the environment in which they operate. Failure would be interpreted as irresponsibility. Environment analysis has become an important way and method in analyzing a firm position. Through an environmental analysis we understand how a firm’s competitive position is affected by different forces. More and more companies are engaging in corporate social responsibility reporting, which helps major stakeholders to better understand how the company interacts with its society. (Sacconi, 2004). It is only through environmental scanning and analysis that we can portray this better. From the foregoing caption, the Cheshire Neighbours credit Union is affected by all the factors outlined in the framework. One can conclude that major stakeholders of an organisation have increased their concern on how the activities of the organisation affect the social and environmental setting in which they operate. As a result there has been an increase in the requirements from companies. Unlike the manufacturing industry where product advantage has been found to be the most important factor in determining the competitive position of a firm in the industry, the case of a supermarket is different. The competitors in the former industry can easily replicate the important elements of a firm’s new service (Storey and Easingwood (1998: pp. 335-336). It is against this backdrop that the manager of Cheshire Credit Union inorder to find the key to new service success must look to factors other than sustainable product advantage. Storey and Easingwood assert that the totality of the service offering must be understood from the perspective of the customer. Thus, I will recommend Cheshire neighbour credit union to pay greater attention on this. The ASO model is made up of three elements which include: the service product; the service augmentation; and marketing support (Storey and Easingwood 1998). The management of Cheshire credit union should incorporate and carry this three models out together in order for its services to meet the overall expectations of the customer. The impact of the service product on competitive advantage is determined by five factors which include: product quality which is measured by the reliability, accuracy and consistency of the product, product distinctiveness, perceived risk, physical evidence and product adaptability. The impact of service augmentation is determined by distribution strength, effective communication, staff/customer interaction and customer experience while the impact of marketing support is determined by marketing knowledge, staff training and skills, investment in systems and the launch strategy (Storey & Easingwood 1998). The more unique and distinct the product is the more attractive it will be to customers and thus the higher will be the competitive advantage of the firm in the industry. Perceived risk measures customers’ expectations on how the product will meet their needs, that is, whether the product will perform above or below expectations. The higher the perceived risk, the lower will be the customer’s purchase intentions and thus the competitiveness of the product. If customers perceive a lower risk, the higher will be their purchase intentions and thus the competitive advantage of the firm. Perceive risk is highly dependent on the reputation of the firm. A firm with a high reputation is likely to witness a low perceived risk than a firm with a low reputation. The firm must therefore try to maintain a high reputation so that its products will not be perceived as high risk products by consumers. The management of the credit union must be able to maintain this within it strategic fit in the US market. The higher the accessibility the higher will be the customer base and thus the competitive advantage of the firm. Effective communication plays an important role in that it explains the product as well as positions the company and the product (Storey and Easingwood 1998). Staff/customer interaction is a measure of service quality as opposed to product quality (Storey and Easingwood 1998). As well as assessing the quality of the service product, customers also tend to evaluate how the service was delivered by the staff. The customers look in particular at the welcoming nature of the staff, their physical appearance or outlook, consciousness, promptness and efficiency. As far as experience is concerned, customers tend to purchase from a firm were they have had a positive experience with. It is therefore important for a firm to try to provide the customer with the best service product and service quality during its first interaction with the customer. By so doing, the firm can be sure that it will retain such a customer and can always be sure that the customer will return in future. References Black J. (2002). Default"  A Dictionary of Economics. Oxford University Press, 2002. Oxford Reference Online Forman, P.H., & Componovo, J. E. (2004). 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