Importance to Analyse Business Environment - Coursework Example

STRATEGIC MARKETING d STRATEGIC MARKETING Answer For a firm to operate effectively, it is important that it analyses the environment it operates in (Child, 1972). By having an outlook on the kind of threats and opportunities that exist in an environment, firms are in a better position to be able to identify their key strengths that can enable them to gain sustainable competitive advantage over their competitors. This also enables organization to identify the future prospects that the firm can indulge in order to gain market standing and share. Firm take up several measures to evaluate their own business, the competitors and the market externalities that can affect the business. Acceptance of the existence of factor outside the control of the business helps organizations to keep an open mind regarding the uncertainties that exist. Through roper strategic planning firms are in a better position to make these uncertainties work in their advantage. Contemporary theories of management also emphasize on the unavoidable factor of change and uncertainty that affects organizations in every part of the world. The true strength of a business lies in ensuing that it is well-equipped to face any unforeseen challenge that it could encounter. The environmental domain consists of elements that affect an organization (Covin & Slevin, 1989). It broadly includes five areas of focus namely: Competition, customers, resources, laws and political system and technology. The competition establishes market trends and it is imperative that an organization is aware of the upcoming trends so it can match or surpass its competitors offering. The customers affect the demand side of an organizations offering and plays a significant part in shaping the structure pod demand patterns that the company can expect. By studying the customers’ organizations also get an idea regarding their needs so that they can modify their offering to suit the demands of its target market. Resources refer to organizational assets that are limited and need to be utilized at their optimum level. It is the job of the managers to decide the best approach to utilizing their raw materials and human resources in a way that makes them efficient and not exploited. One of the most important factors for the environmental analysis is the study of the laws and political systems of the country it operates in. Globalization has made it imperative for firms to outsource many of its function, spanning the dynamics of this factor to even the countries it outsources its components or processes from. For example, Nike made use of cheap labor from the south Asian market to manufacture its goods (Knight & Greenberg, 2002). However, researches revealed that it did not evaluate the working conditions of those countries and there was an abundance of child labor involved at their factories. This gave negative publicity to the company; however, they recovered quickly and took corrective actions immediately. This shows that it is essential for firms to evaluate the external environment of even their global partners. Technology is an important and final aspect of the external environment. High tech innovations revolutionize the working of entire industries and it became important for organization to be abreast with the latest trends that could have implications for making their business more efficient. The SWOT and PESTEL analysis are two common means to assess the external environment of an organization (Kearns, 1992). The SWOT analysis consist of strengths, weaknesses, threats and opportunities analysis where the strengths section identifies an organizations core competencies. Associating the strengths with the opportunities help firms identify where they can concentrate their focus on, increasing the chances of capitalizing on them. Similarly, the weaknesses and threats identify areas that the firm should remain conscious about. Deterring threats and addressing weaknesses also involve the development of strategies that are wholesome and concentrate on enhancing the business overall efficiency. For example, SWOT analysis of Toyota would highlight the strengths as the strong reliable and safe brand, significant market share of both consumers and corporate clients and fuel efficiency. Toyota’s weaknesses would include the large amount of car recalls in the recent years and weak existence in the emerging market. Opportunities would reflect the new ‘greening’ trend, changing customer needs and possibility of growth through acquisitions as Toyota can afford capital for such activities. The threats posed to Toyota would include the arrival of new more efficient cars, changing fuel emission laws, rising costs of raw materials and the fluctuating fuel prices. Upon studying this SWOT, Toyota can find better means to enhance their offerings and maintain a strong standing in the car industry for example, introduction of green vehicles or electric vehicles in the future on the same lines as Tesla. However, the SWOT analysis has certain limitations; for example, it does not help in prioritizing the issues according to their urgency. Secondly, it does not help in the generation of ideas which could even be hampered by the existence of too many options. The PESTEL analysis is another tool to study the external environment through the consideration of several factors that impact it. It includes a study of the political, economic, social, technological, environment and legal factors. It gives an overview of all the elements that come into play while an organization operates in a setup. The political factors tell us the extent of government intervention. The economic policies, social structure, technological advancement level, environmental conditions and legalities of every country help the organizations determine the suitability of their businesses and areas of potential threats or opportunities in a nutshell. The PESTEL analysis gives a comprehensive macro level description of the influencing factors in an environment. For example a business planning to expand its functions to African countries needs to analyize the environmental situation there in order to ascertain whether the business decision tomove there would be feasible. Political turbulence cause many problems for operations hampering effective business practices. A PESTEL analyisis is an effective tool to evauate the environment the business is/will be operating in. a pestel analysis of starbucks will reveal the tax policies and political environmentas its political factors.Economic factors will include level of unemployment in the area of operation, stability of the currency of that country etc. social factorswould include emphasis on workplace diversity, ethical sourcing of raw materials. Environmental factors may overlap here as the growing importance of environment in a society plays a great role in shaping the operations. Environmental factors include recycling activities, energy and water conservation and greening practices. Lastly,legal factor would include employee rights and laws, consumer protection laws, health and safety laws and the level of their applicability. Answer 2: An inspection or examination of the organization by hiring an independent auditors to evaluate the operational efficiency of the organization its processes, governance, risk management etc. is known as Internal Audit. Unlike external auditors who focus on the financial integrity of a firm, the internal auditors focus on not only ensuring the organizations compliance with established standards but also examine ways through which the business can fare better and enhance its efficiency to produce optimum results. The aim of the audit is to give helpful and useful feedback and there is significantly less stress of having to answer questions right and fear having an unknown mishap highlighted. An internal audit is a more genuine activity initiated by the organization itself for its betterment (Kachelmeier & Shehata, 1997). Some advantages of internal auditing include having the internal auditors act as coaches to not only guide the organizational decision makers to play upon their strengths and tackle weaknesses, but also in preparing them for what they might expect during an external audit. In this way they get an organization on a road to recovery from potential risks and threats. Most importantly they help the firm improve its processes and highlighting and rectifying any non-conformances that may exist. Internal auditing hosts a number of weaknesses as well. Since it is initiated by an organization itself for its benefit, there may be a chance of biasness from the auditor’s side who are more inclined to highlight the strengths. The results of the internal audit may hinder the priorities of pre-determined strategic plan, delaying important decisions that are to be implemented. There is also less comparison criteria since the internal auditors have lesser outlook on the industry as compared to the external auditors. Thus, it will not be wrong to say that internal audits are effective means to ensure that if the federal auditors approach the firm, it is well equipped to answer to them, avoid charges of non-compliance and have prior experience of what to expect. Internal audit may identify strengths and weaknesses but only with a narrow approach due to the lack of knowledge about the other market players. Thus, it is important to pair internal auditing with other strategies like the ANSOFF matrix or porter’s five forces model to complement the findings of the audit with realistic measures that can help gain competitive advantage. Michael porter’s value chain model highlights some of the key areas that organizational audits can focus on and contribute to. This model includes inbound logistics, operations, outbound logistics, sales and marketing and service. These are the primary factors that, according to Michael Porter, contribute to the competitive position of a company with the help of support functions. The support functions include infrastructure, human resource, technology and procurement. An audit generally covers these primary and support functions to ascertain the areas of strengths and weaknesses. A focused approach towards key functions enable a more comprehensive outlook into the business practice and in identification of possible loopholes. For example, the brand Julie Vos could have benefitted from auditing in product compliance and quality control department and avoided the situation where their product was found to be non-complinat to the flammable fabrics act and were recalled. Pizza Hut’s value chain model can be divided into support activities and primary activities. Here support activities will include factors like infrastructure, workforce, Technology and procurement activities with subcategories like product and operational innovation, employee training, use of IT etc. The primary activities would include factors like inbound logistics for raw materials, opertaions, outbound logistics for delivery, marketing and sales activities and support facilities like home delivery or online order placement. Needless to say, by highlighting the important improvement in each area, the audit helps in making the firm stronger in its positioning by modifying the links of the value chain for their advantage. With the increasing focus on risk management, organizations have increased the scope of internal audits to include suggestions regarding different measures through which a firm can safeguard their interests in the face of a crisis or uncertainty. According to a study on the evolving role of internal auditors, it is highlighted that in the wake of the recent times of turbulence it is important that internal audit is continuously in practice. It also suggests that audits can be used to analyze whether each department’s activities are aligned with the strategic intentions of the top management. The corporate culture can be made stronger by internal audits scrutiny of uniform communication at all levels, employee surveys and follow up on issues that are brought up. Most importantly, internal audits study the key competencies to ascertain whether key business opportunities identified can be pursued by a company. By analyzing the organizational capabilities it can help prioritize the ones that are feasible at that point and time and help develop the skill sets to pursue more in the future. There is no doubt about the role of internal audit in highlighting the strengths and weaknesses of a firm. However, with the changing times it’s important that organizations equip their internal auditors with the appropriate skill set to help them make the process one that contributes to organizational improvement in performance. REFERENCES: Child, J. (1972). Organizational structure, environment and performance: the role of strategic choice. Sociology, 6(1), 1--22. Covin, J., & Slevin, D. (1989). Strategic management of small firms in hostile and benign environments. Strategic Management Journal, 10(1), 75--87. Kachelmeier, S., & Shehata, M. (1997). Internal auditing and voluntary cooperation in firms: A cross-cultural experiment. Accounting Review, 407--431. Kearns, K. (1992). From comparative advantage to damage control: Clarifying strategic issues using SWOT analysis. Nonprofit Management And Leadership, 3(1), 3--22. Knight, G., & Greenberg, J. (2002). Promotionalism and Subpolitics Nike and Its Labor Critics. Management Communication Quarterly, 15(4), 541--570. Read More