Nature of Company's Competitive Forces - Essay Example

MANAGEMENT ACCOUNTING College: MANAGEMENT ACCOUNTING Introduction To launch a business in a new market, it is crucial to have raise gather crucial market information and develop a strategy to survive in the market. For an organization such as H company that operates in a competitive, yet seasonal market, it is crucial to use both its financial non-financial information, from internal and external sources, to develop a strategy to diversify in this market. Nature of Competitive Forces to Which H is Subject In the contemporary business environment, competitive forces are inevitable and it is crucial for any organization to identify them and assess their nature. Competitive forces in the business environment are threats that suppress the survival of business in the market. The ability of an organization to identify these competitive forces and understand their nature helps them in developing a differentiation strategy to survive in the market (Fleisher & Bensoussan, 2007) Therefore, it is crucial to identify the competitive forces to which H is subject to. H is experiencing competition in acquiring hauling contracts. Since hauling is the main business that the organization depends on, the organization is under a big threat. One of the reasons why the organization is experiencing competition is due to the existence of many contractors and subcontractors. Resultantly, the organization is experiencing shortage of contracts in the market. In a business environment, when customers reduce, the organization is expected to face profit reduction in the long run. In the recent past, J contractor has lost about a third of its contract since the J Company changed its management. This competition has affected the organization in terms of profit margins. Contracting companies in this market operate at very low profit margins as part of their pricing strategies. The price competition is giving pressure to H Company to reduce its prices to win tenders in the business environment. Usually, when there are many investors in the business environment, the customers gain a higher market bargaining power, and the investors lose their bargaining power. This market pressure forces the organization to lower their prices and consequently reduce their prices. Another problem in this market environment is the seasonal nature of labour. This implies that the organization will have no work to do during the low seasons. This is a big threat to the organization’s survival. Given that the organization has permanent workers that need to be paid during this period of time, it is a big threat to the survival of the organization. In addition, the organization has to pay lease costs during a time of low business, which is likely to affect the organizations profits. Another reason that heightens the competition is the fact that H organization depends on one customer for most its hauling contracts (Fleisher & Bensoussan, 2007). H relies on C Company for over 70% of its turnover. As a result the organization faces the risk of losing business if the business of its customer goes down. Position Appraisal for H The priority of any business organization in the market should be to position itself in the market to survive the harsh market forces that exist. For an organization to thrive in business, it must be conscious of the internal and external forces threatening its survival. The internal and external market environment influence business performance and define the position of the organization in the market (West, Ford & Ibrahim, 2010). In H Company, it is clear that the organization is facing pressure from both the internal market business environment as well external environment. One of the factors that have undermined business performance in the organization is poor business performance (West, Ford & Ibrahim, 2010). The organization has suffered from criticism in the past from the neighbour for being a source of interference of the local community. The reputation of an organization influences its marketability in the business market. An organization should mind its public image. In this light, H Company should pay attention to creating a positive public image. Its decision to relocate to an industrial area is superior and to the advantage of the organization. Another problem that emanates from the internal business environment is poor accounts control. Before hiring the part time accountant, the organization was in verge of collapsing due to increase in debts. Many customers owe the organization resulting to cash flow shortage. Lack of cash flow reduces the business potential to invest and optimize its production. To streamline their accounting strategies and finance spending, the organization should consider hiring Mr J as permanent employee. This will ensure proper coordination of finances and control of resources. Streamlining the internal business environment will allow the organization to survive in the harsh market environment. The competition in the business environment is likely to push H Company out of market if the manager does not take immediate action. The reduction in market prices forces the organization to operate at very little business profit. For the organization to survive there is need to rethink its price-reduction strategies. For instance, the organization should reduce its cost of production, so that it is able to reduce its service prices. One way that the organization can achieve reduction in cost of production is to reduce the number of permanent employees to the minimum number and opt for temporary workers. This will ensure that the organization has less cost overheads especially when the work is off season. Again, the organization needs to reduce its overdependence on C Company for its turnover. This will help to reduce its business risk and avoid chances of collapsing. To achieve this, the organization should consider marketing its services and to reach out for more customers. Organizations that have a diversity of customers have less risk of collapsing (West, Ford & Ibrahim, 2010). Working on customer loyalty will ensure that the organization does not lose its customers. When the organization lost its two thirds of its turnover as a result of change of management in C Company, it was a threat to the organizations survival. In this light, H Company needs to reform both its internal and external business market environment. Internal and External Sources of Information for H Company business Strategy Information is crucial for managers in designing a business development strategy. Before making any business decision, there is need for the management to gather information from inside and outside the business to base their decision. Browne (2001) points out that concrete management strategy are dependent on the internal and external market factor and thus this information is necessary for shaping the business strategies. The H company manager needs to identify various internal and external sources of information that can be used while making management decisions. To begin with, H Company should focus on the financial history of the organization. For an organization that has differentiated like H, it is crucial to assess all the financial information for each type of business. For instance, it is crucial to evaluate the performance of the hauling business and compare it with that of other business types. This will help to identify the best business and one that should be given an extra effort. The workers in business form an internal source of information. Consulting with the employees helps them to share their experiences and provide new ideas into the business. Engaging the employees in the business planning stage also wins their loyalty as they feel as part of the organization (Browne, 2001). The ability of the management to tap internal sources, and pay attention to the details of sources will determine the effectiveness of the management strategy in H Company. External information sources refer to all the information that emanates from the external business environment. Therefore, H Company should conduct external market scanning to identify all the factors that influence business efficiency with the market. Therefore, launching a market research would form a superior approach to information gathering. One crucial source of information is the customers in the immediate environment where the company intends to operate. One priority of a business should be to satisfy its customers with services and goods that best fit their tastes. Customers provided opinions on the prices, the quality and quantity of services that they desire. This information helps the organization to strategize on how to satisfy their tastes. Another source of information is business advisors, who are willing to provide data that can be used for market trend predictions in the environment. Information on changes in market trends helps organization to design a long term strategy that can be used to sustain the organizations sustainability. Thirdly, it is crucial for the organization to collect information from government sources and legal bodies. The external market is subject to government regulations and hence these source will help H company to learn the various government rules that it must comply with while designing its strategy (Browne, 2001). If H company utilizes these sources, it is possible a business strategy that will work for the organization both in the short term and long term. Strategic Management Accounting Information of Financial and Non-Financial Nature. In an organization, accounting information is important in decision and designing business path. As Clarke (2002) states, managers should use both financial and non-financial accounting information to make management decisions and to model the future of the business. For H Company, it is crucial for the management to plan for the future of business using accounting information. Crucial non-financial information that is essential for business decisions is the time cycle of business operations. It is crucial for the manager to evaluate how long specific tasks take to complete so as to evaluate the time management techniques. Time is one of the scarce crucial resources of an organization that is directly related to work output. For instance, if it takes a trailer 6 hours to work on a land, it would be possible to minimize the time of the work by using two trailers. This kind of information will assist injecting business efficiency into the organization. On the other hand, it is crucial to monitor the business performance during specific periods of the year to evaluate the time of maximum profits and periods of minimum profits (Clarke, 2002). With this information, H Company can be able to increase its efficiency during the low profit periods of the year. Financial information is crucial for business decision making. One financial data that H Company should consider is the expenditure during the accounting periods. Organizations use their expenditure figure to evaluate ways in which they can reduce them in future as one strategy of optimizing profits. As H Company evaluates its expenditure its main goal should be minimize it and increase their profits. Secondly, the Company should look at its profit worth over the year and check this on the basis of specific time of the year. The profitability of an organization determines its performance in any given year. Finally, the organization should check information on credit and debit (Clarke, 2002). If the organization owes other organizations too much, it implies that the organization is in the verge of collapsing. Financial accounting information will help the H Company to plan for its future development. Conclusion In summary, H Company is operating in as sensitive market and proper planning is crucial for its survival. The organization should depend on its accounting information and research to create its image, target more customers and differentiate in the market. A pricing strategy would help the organization to win customer loyalty for long term relationships with its customers. Proper planning will help the organization to survive in the constrained market. Bibliography Browne, D. J. (2001). Heinemann business studies for AS level. Oxford: Heinemann. Clarke, P. J. (2002). Accounting information for managers. Dublin: Oak Tree. Fleisher, C. S., & Bensoussan, B. E. (2007). Business and competitive analysis: Effective application of new and classic methods. Upper Saddle River, NJ: FT Press. West, D. C., Ford, J. B., & Ibrahim, E. (2010). Strategic marketing: Creating competitive advantage. Oxford: Oxford University Press. Appendix 1 Strengths Weaknesses Differentiation Flexibility Poor Accounting Over-dependence on one customer Opportunities Threats Expansion Market acquisition Competition Bad Image Read More