An Organizations Performance and Macro-environmental Factors - Essay Example

Introduction An organization’s performance is influenced by macro-environmental factors that it interacts with in course of the operations. These include the political aspects which are concerned with the government’s influence on the business such as government taxes and tariffs, government laws regarding the environment as well as employment and political stability among other governmental influences. Economic factors are also influential on the operations of the business, such as inflation and exchange rates among others. Social factors are those that are related to the environment in which an industry operates, which determines the market for products, source of workers, health awareness among others, while the technological factors are significant in determining the organization’s productivity, such as automation, research and development. The macro-environment of a business is understood through assessing the four factors, a process regarded as the PEST (Political, Economical, Social, and Technological) analysis (Thompson, 2002). This paper is a critique of Abercrombie and Fitch, which is a retail organization dealing with textile products such as men and women wear. It presents a PEST analysis as well as a competitive audit of the organization, with GAP Inc. Tommy Hilfiger Corporation and Urban Outfitters as the main competitors. The paper also presents an analysis of the threat of new entrants, power of buyers, substitute products, bargaining power of suppliers and competitive rivalry, as well as an internal analysis of the organization. It highlights primary support services, as well as a SWOT analysis the firm. Macro-environment (PEST analysis) The organization has been faced with political influences although they have not affected its productivity. It operates under the UK employment laws that protect the rights of all people who have attained the age of employment. The organization has been faced with various cases involving individuals who feel that they have been marginalized in employment opportunities. Discrimination of potential employees can have negative impacts on the organization. More over, there are laws that protect consumers from unscrupulous businessmen, which are meant to prevent low quality products from entering the UK market. However, the organization is not affected by government influence since its products are of high quality and it also adheres to the required quality. Employees are hired according to merit and therefore there are no cases. The organization has not fallen victim of terrorist activities or military invasion since UK is a politically stable nation (James, 1998). The organization operates under the protection of the WTO and it has experienced a steady growth. In regard to economic factors, the organization has been successful even in the current economic crisis. The UK presents a favorable market for the industry’s products, and it does not suffer from unfavorable economic conditions. The company has established in the UK market and continues to open new stores in many parts of the UK. The sales have continued increasing and therefore there are no economic challenges that may hinder the organization’s performance. More over, inflation has not been an issue for the organization even during the current financial crisis and therefore there is a possibility that when the nation recovers from the crisis, the business will even do better (Alice, 1998). Social factors are favorable for the organization’s growth strategies. For example, the organization produces textile products for all ages in the population. The changing lifestyles present the organization with a stable market for its products, with people demanding more of the emerging designs, which make it more competitive in the textile market. The organization targets the social events that people regard as the most fashionable, where they offer the products (Stacy, 2000). More people are getting interested in leisure activities and the organization produces garments that suitable for the occasions. The organization’s products have become acceptable in the society, especially for the people who have used them. Technological changes have largely affected the production methods of the organization. It adopted new methods that are more efficient and cost effective, which are suitable for the new consumer preferences. The use of online marketing and communication with the consumer through the internet indicates the organization’s move towards utilization of technological advancement (James, 1998). It has been capable of carrying out effective market research that has been significant in consumer satisfaction. More over, it is capable of reaching more consumers than it used to through the conventional means. The consumers can also request for products through the internet. Competitive Audit The company operates in a competitive market where it competes with other large organizations. Gap Inc. is the major competitor, which is a firm that offers differentiated products according to the customers’ requirements. The company is focused on maximum accomplishment of customer satisfaction, and is highly innovative. It engages in consultations to determine the views of consumers before adopting an innovative brand. It also enjoys a strong brand image. Tommy Hilfiger Corporation is also a strong competitor. It is among the recognized brands in the global market. The company offers similar products as A&F, which has a variety of products that are targeted for all ages and gender. Apart from clothes, the organization has a competitive advantage for selling other products such as fragrance and other complementary commodities (Jennifer, 1996). Urban Outfitters is also another competitor that has the strength in regard to the fashion that it offers for its customers. The company mainly targets the women mainly in the rural areas where other companies have not focused their interest. However, Tommy Hilfiger and Urban Outfitters have various weaknesses that make them less competitive compared to A&F. For example, the company has always tried to change fashions in the market that fail to pick, thereby lowering its profitability. A&F has strong and recognized fashions that have made it to remain competent in the market. Urban Outfitters is also being faced with a decline of its wholesale turnover since its expansion 20 years ago. It has experienced increasing retail turnover and a declining wholesale turnover (Broadfoot, 2009). Differentiation strategy is mainly adopted by competitors, who try to target all the market segments. The more a company differentiates its products the more it is likely to attract a larger market share (Wilson & Gilligan, 2005). The companies deal with a wide variety of products. Effective branding is a key strategy that is used to attract a larger market share for the competing organizations. Each operates with one major brand and more than 50 other recognized brands. However, even A&F makes use of the differentiation strategy and therefore the other organizations do not operate at an advantage over it. In other words, the company is able to cope with the highly competitive market. Threat of New Entrants A&F is a well established multinational company and operates with a large market share. Although new entrants in the market usually take advantage of new technology and tend to enter the market with the latest products depending on consumer preferences, A&F has a strong brand recognition, which gives it a competitive advantage over the new entrants that have to take time before their brand can be recognized in the market. More over, it has employed targeting strategies on various market segments such as women, children and men’s wear. For a new entrant to be competitive, it might take time before identifying a target segment because virtually all possible segments have been taken care of. A&F has been capable of developing consumer loyalty. Furthermore, there are few large firms competing with the organization in the market. These are highly established and are also highly competitive. It might be difficult for a new entrant to join the market and become competitive (Alice, 1998). In essence, consumers would prefer to purchase the recognized brands for fear of low quality products from the new firms. Power of Buyers The organization has an advantage in regard to the power of buyers. The products are differentiated to fit all the income levels and therefore consumers can not fail to purchase due to financial constraints. In other words, they buy what they can afford to pay. Threat of Substitute Products The threat of substitute products is minimal for a highly established firm such as A&F with its recognized brand. The organization has a strong marketing strategy and it employs a consumer oriented production. It has over the years been capable of identifying the target markets for whom to produce, which has helped it to accomplish consumer loyalty. Cooper, (2000) observes that the organization has depended on loyalty among the various target segments in the market. There are many customers who can not substitute the company’s products for others due to this loyalty even if prices increased. A&F has been capable of maintaining happiness and satisfaction among consumers by providing good quality products at favorable prices. The company also charges prices for its products depending on the sensitivity of consumers to changes in prices. For most of the products, consumers are able to bargain for a reduction; hence they can not go for substitutes whereby they may not have a chance to negotiate the prices. There are groups of consumers that are not price sensitive but rather focus on the quality of the products (Cooper, 2000). Since A&F has been capable of differentiating its products, it serves the price sensitive and the non-price sensitive consumers who have a wide variety of products to choose from. The firm also deals with a variety of its own substitute products to ensure that it is able to retain a substantial number of consumers who might go for substitutes as a result of price sensitivity. This means that consumers who might have purchased substitute products from other organizations purchase from the firm. On the other hand, these substitutes attract customers from other industries. Threat of Competitive Rivalry The highly differentiated products are significant in reducing the competitive rivalry. More over, the organization has different strategies for competitors and therefore competitive rivalry is low, and is maintained at that level because the firm is larger than competitors, and there are no exit barriers. If the organization finds that a particular brand is not profitable, it is easy to stop producing it. Bargaining Power of Suppliers A&F operates at an advantage since there are many similar organizations operating in the industry, thereby lowering the suppliers’ bargaining power. This has helped the firm to maintain customers through flexibility that allows them to bargain, which makes them happy and satisfied. With the reduction in the bargaining power of competitors, the organization has also been capable of lowering the prices of its commodities, which helps in attracting consumers. Internal Analysis of Abercrombie & Fitch A&F is one of the leading organizations in terms of assets. The organization operates more than 10 Hollister stores in the UK, which are subsidiaries of the parent company in the United States. The company mainly maintains short term assets and rather than investing in the long term machinery and equipment. However, the firm deals with fast moving materials and therefore it can maintain competence with cash other than investing in plants. It has invested in information technology, while most of its expenditures go to marketing activities and brand promotion. These are important for the organization especially as it expands to new areas. The organization has developed strategies for effective operations in the newly established market such as the UK (Alice, 1998). For example, it has adopted the innovative localized business model and is using the Oracle system to enhance its operations. The system has improved its efficiency in marketing. It has improved the organization’s competitive advantage in the retail market. The company has improved its contact with consumers who are capable to make their purchases and present their views using the software provided by Oracle. This has translated in to a higher profitability in the organization. The innovations in information technology have also facilitated the effective targeting of market segments, for example the “abercrombie kids” that is targeted at school going children, which they can access through the website. The variations in this product have been made possible by the application of technology from the Oracle solutions (Gene, 1996). The company’s marketing strategies are significant for its success. The daily interactions with the consumers are important for the organizations retail strategies. The organization’s innovativeness has made it possible for it to consolidate the information acquired from the interactions with customers in to the supply chain to enhance customer satisfaction. There are major groups in the organizations marketing teams whose work is to develop intelligence reports regarding the consumer preferences regarding the organization’s brands (James, 1998). Consumers are always ready to provide information on what would satisfy them. The highly integrated marketing efforts have enabled the organization to maintain competence in its operations. This is enhanced by the engagement of highly qualified marketing representatives for the brands (Cooper, 2000). They come up with marketing strategies that are used to maintain a strong brand image and loyalty among the consumers. The consumers are engaged in constant communication with the organization, thereby maintaining a close monitoring of the market. More over, the firm focuses on maintenance of a strong image of its brand. This is accomplished through ensuring that the quality is of a high level and satisfactory to the customers. Primary and Support Activities A&F uses primary support activities to maintain a large profit margin. The firm has an organizational culture that promotes the inbound logistics involving the allocation of resources to the various departments for effective operations (Alice, 1998). It has a well established framework that allows harmonious working. The company has modern working spaces that facilitate production, with each of the employees understanding his or her role in the process. The recruitment of employees is usually a crucial activity for the organization. Only competent employees are assigned particular tasks in the organization. This ensures that the end product is not of a lower value than is expected, which may lead to extra costs being incurred or lack of consumer satisfaction. More over, they are engaged in regular skills upgrading, which enables them to remain informed regarding the emerging technologies and new methods of production to satisfy consumer demands. The organization ensures that employees are satisfied in the workplace. They are a major component of primary support for effective production and therefore the human resources manager ensures that they are facilitated to utilize their full potential. Satisfaction among employees is the basis of the survival of the organization. They are important for an organization to accomplish the desired innovativeness that is essential for competitiveness. Technology is also a major factor that needs to be considered in the firm’s operations. It is useful in various stages of production and marketing. A&F maintains the most appropriate technology for maximum productivity (James, 1998). It engages technical experts in its processes to enhance conversion of the raw materials in to quality products. In the recent past, the organization has adopted technological methods in marketing, whereby it communicates with consumers through the internet. This enhances the integration of the views of consumers in the production process to maintain satisfaction. The marketing representatives are focused on consumer satisfaction. They establish the needs of consumers in regard to delivery, quantity and get the feed back for future improvements. Consumers usually feel contented when they can interact in person with the producer. More over, A&B builds a strong relationship with the consumers through offering certain services that make the organization look unique to them in comparison to other companies. For example, consumers are provided with essential information regarding the organization. This is presented in form of frequently asked questions (FAQ) (Cooper, 2000). This makes it possible for the organization to prove its credibility to the consumers. With the target market being mainly the youth, the organization provides opportunities for consumers to login to the website and download music and also communicate through e-post, which keeps the customers connected to the organization (Alice, 1998). Online shopping is also an important strategy that allows the customers to view the products that they would like to purchase from the firm without influence. When consumers use online shopping, it is usually an indication of the level of trust that they have for the organization. The more the consumers shop online the more confidence they have for the firm. SWOT Analysis Strengths A&F enjoys a strong brand in the market that is significant in maintaining competitiveness. It helps in coping with the emerging competition from new industries in the market. This means that even when an industry claims superiority of its brand, it must ensure that it meets the standards that have been set by the firm. The organization has also been performing well since its inception, which is a strength that allows it to expand (Alice, 1998). Its short term assets and finances are more than the liabilities and therefore there is a possibility of maintaining competitiveness. Weaknesses The organization has weaknesses in regard to the acquisition of the products. These are manufactured by other firms and brought to the organization for preparation and sale. There would be much benefit if all the products were manufactured within the firm (Gene, 1996). The firm is not sufficiently distributed in many parts and therefore can not utilize the unexploited markets. Opportunities There are many opportunities for expansion whereby the firm can establish to increase production and hence profitability. Even with the existing infrastructure, the firm can make more investment to increase its production base. Information technology has not been fully utilized and therefore there are still opportunities for enhancing customer satisfaction and efficiency for maximum productivity. Innovativeness might generate new concepts that can be useful in the organization’s competitiveness. More over, consumers are attracted to organizations that consistently introduce new products in the market. They remain optimistic that their needs will be met. This may generate loyalty among the consumers especially when the organization identifies an opportunity that helps in satisfying a particular need before the consumers demand it. There are still a lot of unexploited opportunities for sales in the internet. The organization can promote more online sales (Cooper, 2000). Threats Once an organization has established a strong brand, there is a possibility of firms that are unable to meet the quality standards tending to develop counterfeit products (Thompson, 2002). This is a major threat facing A&F. On the other hand, there is the risk of the economic crisis that has led to the collapse of many strong organizations. Conclusion The organization’s macro-environment is favorable for the organization. it can compete effectively in the market. New entrants, substitute products are not a threat to the organization’s performance. The power of buyers, bargaining power of suppliers and competitive rivalry are favorable to the firm. The internal environment is also favorable, and the primary support services are significant in the enhancement of performance. The company’s strengths and opportunities are many and therefore it should focus on capitalizing on them. The strengths can be useful for improving the organization’s competitiveness. There is need to exploit opportunities before other competing organizations realize them. The organization needs to ensure that a solution is found for the weaknesses to prevent competitors from capitalizing on them. The organization also needs to be ready to counter the possible impacts of the threats. It can also plan ahead to avoid the impacts. References Alice, Z. C. (1998). “Abercrombie Helps Revive Moribund Brand via Frat Chic,” Advertising Age, 14 September 1998. Broadfoot, H. (2009). The trend-setting US fashion chain opens its second UK store right here in Edinburgh, The Edinburgh Journal.Vol. 6, 28 p 51. Cooper, L. (2000) Strategic marketing planning for radically new products. Journal of Marketing, Vol. 64, 1 pp.1-15. Gene G. M. (1996). “Shoppers Bonanza at the Limited,” Business Week, September 23, p. 142. Jennifer L. B. (1996). “Hilfiger Head Sees Huge Growth for Women's Line,” Women's Wear Daily (WWD), October 3, p. 5. James, B. (1998). “Abercrombie & Fitch Forgets Its Days of Hem &Wolfie”. Advertising Age, 31 August 1998. Stacy, P. (2000). “Fashion Forward: Abercrombie's Beefcake Brigade,” Time, February 14, p 21 Thompson, J. (2002). Strategic Management, 4th Edition, London: Thomson. Wilson R. M. & Gilligan, C. (2005). Strategic Marketing Management 3rd edition, Butterworth-Heinemann Read More