External and Internal Business Environments - Case Study Example

Performance Management Name Lecturer Institution Table of Contents Introduction 3 External and Internal Business Environments 3 Key Areas for Improvement in PMS 6 Interventions for improving PMS 7 Conclusion 8 References 9 Introduction The environment of an organization refers to the various surroundings that determine the actions taken by the organization. The environment is understood in terms of the forces that directly have influence on the activities of the organization. Therefore, the environment of the organization has to be taken into account in deciding the operations of the organization. The environment of an organization can exist in two basic forms; the internal and the external environment. The most common components of the environments of an organization include the competitors, the suppliers, the customers, the government, the economy, demographic composition and the cultural organization of the society that relates with the organization. The organization considered in this research is Incitec Pivot Ltd, an Australian corporation that manufactures explosive chemicals, fertilizers and mining services. The company is one of the largest suppliers in the world. External and Internal Business Environments The external environment of an organization is composed of those factors that highly influence the ability and effectiveness of the organization, though from outside and the organization does not exercise direct control over them (Aguinis et. al., 2013). Part of these external factors can be utilized by the sales and marketing departments of the organization, while others are highly rigid, thus requiring the management of the firm to consider making adjustments as an option. It is advised that this company is sensitive to the external factors all trough in order to keep the organization safe from unfavourable conditions of the external environment. The basic components of the external environment of the organization are discussed herein. Organization for Economic Co-operation and Development (1997) and Bacal (1999) say the government is a basic external environment factor. The government is responsible for formulating laws that govern activities of an organization. Such activities monitored by regulation set by the government bodies include the production process, packaging of products and service delivery. The government also is the body that is concerned with the taxation of the organizations, thus a factor that is directly involved in the determination of the cost of operation of Incitec Pivot Ltd, bearing in mind that any factor that correlates with the costs of an organization has a direct impact on the profit margin of the organization. The organization has customers in international markets, making governments of such countries form part of the components of the organization. Customers are the clients whose needs the organization strives to meet. The organization therefore has to make efforts to influence many customers to purchase its goods or services (Audretsch, 2011). This is done through commissioning of the marketing department of the organization, which comes up with strategic plans of boosting and retaining the market share. This is important there is stiff competition facing the firm. Though the marketing departing does its best, the organization generally must maintain a personal touch with its customers, thus getting the views of the customers and working on them. The economy of the country affects the financial placement of the organization. Incitec Pivot Ltd has to keenly monitor the trend of the economy, as opposed to making manipulative efforts on the economy, and take the best of steps in turn. The economy has the ability to influence marketing strategies, investment plans and the markets that the organization should explore in order to maximize its profits (Kaarbøe, 2013). Competition influences the organization’s modes of production and the techniques used to respond to market demands. Due to the competition, the firm can analyze the market end opt to supply goods in the markets with high or low competition. The organization is aware of the fact that the placement of the competitors in the market highly influences the marketing plans that the organization is likely to adopt Rausch (et. al. 2013). For instance, the failure of a strong opponent in the market gives room for restructuring of the marketing techniques so that the firm is opportunistic in a manner that will enable them make maximum sales and step in to fill the gap left by the competitor. Public opinion is the last external force that the organization takes special interest in. In view of Aguinis et. al., (2013) Public opinion is directly connected to the image of the firm. Therefore, any outrages should be highly avoided in order to ensure the image of the organization is not tarnished. A negative image of any organization is likely to reduce the sales of the firm, while a positive image is associated with increased sales. The organization can create a positive public opinion by ensuring that public relations department of the organization does hinder the spread of negative news about the firm, in addition to supplying the public with the relevant positive details about the organization. The internal environment of an organization refers to the actions, factors or conditions that dictate the performance of an organization from within the organization. The organization has direct control over such factors, thus can be able to regulate let them so than they suit the operation plan of the organization. These entities also influence the employee behavoiur and the general decision making of the organization. For any organization to succeed, its management must make the right decisions regarding the objectives of the organization. According to the Organization for Economic Co-operation and Development (1997), the decisions made largely depend on the guidance provided by the financial placement reports of the organizations. For the decisions to realize the desired results, the reports must be accurate. The accounting department of Incitec Pivot Ltd therefore must be made up of workers who have the right skills to compile detailed financial reports characteristic of profit and loss statements, day to day preparation of the firms’ balance sheets, incomes received and paid out and accurate follow ups of debts. The firm can only determine its optimal product prices and manage the costs of production if the accounting department is supplied with relevant and adequate information. Another internal environmental factor that affects the operation of a firm is the personnel. All the policies and objectives of the organization are achieved with the aid of human effort. . Harrington & Harrington (1995) note that the performance and success of the firm is technically dependent on the kind of labourers that the firm has hired. Effective staff can only be found and maintained through creation organizational charts with long-term analysis of employee delivery. This needs the advice of professional human resource managers, who can also advice on the techniques of attracting, hiring and retaining workers. The type of technology embraced by the organization is a key internal environment factor. The degree of success in the firm improves with an improvement in technology (Aguinis, 2009). The firm is supposed to try and keep pace with the technology in order to compete favourably in the market. The firm needs to seek the views of its employers on the choice of technological equipment they would prefer in their operations. The firm can train its employees on the usage, maintenance and safety measures that they need to observe. The firm has to choose the appropriate machinery to use in the production process. The equipment should have readily available spare parts, be fast in the production process, enhance the quality of the products and reduce the costs of production. Key Areas for Improvement in PMS Capital has a direct impact on the operation of the business. A business with very little resources is prone to failure. According to Pickett (2001) and Costello (1994), an organization might have very prospective ideas and opportunities but their implementation is purely dependent on the capital that the organization can raise. For instance, Incitec Pivot Ltd, no matter how many sales it makes, if the payment modes allow for credit purchases by customers and the receivables of the business go below the capital needed to meet the production costs before the customers honour their debts, the firm may cease operation. Leadership strategy also does affect the operation of the organization. Leadership refers to the art of or the ability to direct or give focus to the employees of the organization. Leadership is characteristic of establishment of the organization’s vision and mission statements, working towards fulfilling the vision and mission statements by acting as a role model, provision of necessary strategies, skills and information needed for the realization of the objectives and coordination and resolution of disagreements among employees and departments in the firm (Chartered Institute of Management Accountants, 2011). The organization needs leaders who are innovative and able to solve problems in the firm. Though leadership is an inborn ability, individuals can lead effectively if they receive appropriate guidance from mentors. The organizational culture refers to the values and practices that uniquely identify an organization. These values and practices are significant in building the image of the organization. Taoka & Beeman (1991) views that the culture of the organization dictates the kind of products and markets the organization reaches. The delivery and productivity of the organization is thus affected by the culture of the organization. In order to improve to improve the general Performance Management System (PMS), there are key areas that need to be improved. These areas are key factors within the Performance Management System. Customer relations need to be improved in order to enhance the PMS via creating a good image of the organization. There is need to retain existing customers and attracting new ones to the services or goods of the organization. This can be achieved by developing positive customer relations. The firm should also be a good listener in order to understand the complaints or needs in order to make adjustments that will suit the expectations of the customer. It therefore is significant that the organization implements a policy that responds to the needs of customers and strategizes for attracting new ones. The policy should be designed to allow for the customer feedback. Bacal (2004) considers customers a key PMS factor because organizations largely depend on customers for operation. A good image is likely to motivate workers in an organization. Another key factor that can be improved to realize a general improvement on PMS is the threat posed by internal risks. Internal risks refer to risks that a business can have control over. The impact of such risks can be lessened by utilization of the internal environment factors. The main reason of improving PMS via reduction of internal threats is the need to safeguard the company’s resources, promote appropriate utilization of resources and promote positive interaction among workers. Management of internal risks enables the organization realize its objectives (Aguinis, 2009). The risks can be contained by safeguarding assets, outlining of duties and managing information systems and ensuring security of employees. These measures are a continuous process for firms that practice control of internal risks. The third key factor in PMS improvement is price management. Harrington & Harrington (1995) and Worthington & Britton (2006) propose that for the simple reason of making profits in order to increase motivation of workers, the organization has to ensure that its prices are well regulated. Therefore, it is necessary that an organization adapts a pricing policy that is updated on regular basis. Before setting the organization’s prices, it is advisable that the management is aware of the pricing trends in the market. Other factors that must be considered include the estimation of market prices and the pieces set by the organization’s competitors. Although such strategies as giving discounts may boost the number sales made, the profit gained from such sales is compromised. Organizations should critically analyze the effects of discounts on the profit margins of sales. Knowledge on profit margin and mark-up helps organizations stick to the objective of realizing maximum profits through prici Interventions for improving PMS After identification of the key areas which need to be improved in order to improve the PMS, the organization should then find the specific techniques to be employed in improving PMS. This section covers the ways of improving each of the three areas that need to be improved. Incitec Pivot Ltd needs formulate means of listening to customers, understanding their expectations and analyzing the information obtained from customers to improve the services or goods offered. Aguinis (2009) and Kaarbøe (2013) agree that the organization can improve customer relations by means of making sales through individual members of the staff or responding to customer feedbacks. The organization can also assess the levels of customer loyalty by keeping track of customer details and rewarding loyal customers accordingly. Internal risks can be managed through documentation of internal controls or the activities that lessen these risks. A good documentation identifies the time of use of the controls, the steps followed in using the controls as well as the individual managing the control. Lastly, Pickett (2001) says the organization can improve on its pricing through practicing transparency in transactions by keeping records of sales made and identifying credit sales. The organization should completely be conversant with the effects of discount son profits, as customers might also react negatively towards discounts on claims of poor quality of goods or services. The organization should use other forms of improving sales other that giving discounts Conclusion In conclusion, Incitec Pivot Ltd has forces that influence the course its decisions and actions in production and provision of goods. The forces can either positively or negatively affect the company. There is need to analyze them critically. The organization can also improve its Performance Management System through the suggested ways and maximize its productivity. References AGUINIS, H. (2009). Performance management. Upper Saddle River, N.J., Pearson Prentice Hall. AGUINIS, H., GOTTFREDSON, R., & JOO, H. (2013). 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