Business Organisation and Policy - Essay Example

Business Organisation & Policy Table of Contents Business Organisation & Policy Table of Contents 2 Big is back: Situational Overview 3 PESTEL factors affecting companies to be big or small 3 Big is Back: An Insight 5 Reference 11 Big is back: Situational Overview The big names were always there. From the year of 1990 those, i.e. the big companies, got into a bit trouble. Reasons were many. The emotions were in favour of companies who were entrepreneurial start-ups. Then, again, situation changed; size started to matter a lot. This time also, there were reasons. Factors as political, economical, social, technological, environmental and legal were there to change the emotions around size. Transformation is still on. PESTEL factors affecting companies to be big or small Political factors Political environment can change the emotions towards sizes. In a country, where the government has introduced a number of policies to encourage the entrepreneurs; emotions towards the small sized ones are quite obvious to evolve. Where as, if the country has a government, which prefers large companies and even sometimes the government invests a lot to pull the sick companies, definitely the sentiments would be in favour of size. Economical In a condition of economical boom, most of the people seek their entrepreneurial dreams to come true. The venture capitalists are there to help them out in this. Situations become gloomy in economic downturn. Venture capital firms would be in no position to help them out. In such a situation, big companies can sustain for long than the small ones. The situation can be seen from other point of view also. For an example, an industry, whose demand has decreased drastically; a large company, being in that industry, would get hit badly than the smaller ones. The smaller ones would incur less cost than the bigger ones. Even the economic downturn can be encouraging for the entrepreneurial business. In such a scenario employment opportunities would get squeezed. Many people would be inspired to have their own business this time. Even in recession time, companies prefer to squeeze themselves; by cutting on their employee size or selling off some of the non profitable divisions of a conglomerate. Social Sometimes some social reasons can encourage a company to be whether small entrepreneurial or of larger size. Social pressure can play an important role to create emotions in favour of the entrepreneurship. Technological Technology has encouraged having smaller entrepreneurial companies; but taking the help from the bigger ones. The small companies grow using the servers of the big companies; taking the help from their research and development. Sometimes large companies can have problems in communicating between themselves; the centred management information system might not be efficient enough to carry on the co-ordination within the business systems; that time the company may wish to divide their whole business into different business units. Sometimes the need of technology can make it big. Companies, in need of enhanced technology, can develop an in house research centre to innovate the required technology; that can make it bigger in size. Environmental People are now more aware of the environment around them. Some of the issues are mainly regarding carbon, sulphur- di-oxide and other green house gas emissions in air. Global warming and acid rain are two other issues, which need to be taken care of while building or enlarging one’s own business. Large companies can have a division to look after their environmental aspects; smaller ones can not have such division but still they need to meet the environmental aspects. Legal During 1990s, deregulation has encouraged more entrepreneurial start ups to pop up. Even companies started to cut on their organization size. During financial downturn, stringent financial regulations have diminished some of the entrepreneurial start ups. Evolvement of regulation is a vital factor to encourage companies to be big or small. Big is Back: An Insight The recent economic downturn has fetched attention to the fact that whether size matter s or not. This turmoil has seen many large companies to be diminished like Lehman Brothers. The small companies did not make such big news, but it would not be wrong to say that a number of small start ups has bankrupted in this recession. Back in 1990s, airline industry not only suffered from the recession, also through the deregulation of the industry. The deregulation has been followed by new entrants with lower fares; some new routes opened up and services got introduced to a number of cities. The bigger airways like Pan Am were diminished in this period. Other industries were getting the heat, as well. Between years 1990 till 1995, IBM cut on one fourth of their work force. The number was 122,000 who got fired that time. For large organizations, situations became gloomy. Sentiments and proofs were in favour of small sized enterprises. One of the biggest examples was Yahoo. It has the same market capitalisation as that of Boeing. The interesting part is, that time Boeing had around 230,000 employees while Yahoo had only 637 employees. So it seems, at least till now, small has more power than the bigger ones. In the year of 1974, the contribution of big companies in GDP was around 36%; while after 24 years in 1998, that came down to 17%; less than half of the previous value. Situation is still depressing for the big companies. The big companies have mainly fallen because of their inefficient contractors. Boeing was outsourcing most of their materials and processes; but then also, it had been forced to acquire its suppliers. During the recession time, these entrepreneurial start-ups fell into great trouble; the reason was trembling venture capital firms. The small start ups started losing their source of finance. Many small companies broke down in this financial turmoil. It would be wrong to say that all big companies survived the turmoil; few of them felt apart. Some were rescued by the Government. Companies like GM and City Bank are on that list; Government found them too big to fall down. For an example, this gigantic company, GM, has been seemed as an essential part for US economy. It represented a recent strain of all colossal multinational companies those used to play a significant role in the global map. By the end of 2008, despite of massive cost cutting, the company found itself caught in dismal need of capital to maintain the position. The US government had allotted a package of $15.4 billion for GM to pull it up from the dark situation (Green, 2009); that happened in December, 2008. GM, someway, survive its bankruptcy. Same thing happened with the big fish, City Bank. Back in 1991, Citi group including its subsidiary, Citi Bank, was survived by a Saudi Prince, who made a substantial investment of $590 million (Turk, 2008). There was a feeling that small companies are more innovative than the bigger ones; but there were many exceptions to pull on. Still there were big companies who were rising high; for an example, Unilever and Toyota. Their dive was always for innovation and excellence, no matter, how big they get in; creativity was of utmost importance. In the same tone, it can not be said that all of the start ups were the models of innovation and excellence. Some revolutions came to only to crash down. Examples are there, Enron and Netscape. The deregulation in telecom market was followed by some swift footed new entrants. Large national companies like AT&T, broke down apart. Other big enterprises found their business to be eaten by some technology oriented, innovative new entrants. Technology has inspired many of them to be successful start ups. The innovation of computer came back in 1970s and after 20 years, in 1990s, the internet came into existence. Between these 20 years, history has seen many major companies to grow up. Apple computer was institutionalised in the year of 1976; that too in a family garage. Microsoft and Dell, both were emerged from the hands of youthful teenagers; these happened in the year of 1975 and 1984 respectively. The birth place of Google was the dorm rooms in Stanford. Today all these companies, budding enterprises of those days, are ruling world market in computer. After a certain period the deregulation went on toss; regulations get fastened enough to tighten the economy. Following the beak down of Enron, situation got a bit tricky; financial regulators found a number of drawbacks in the regulation systems. They started looking of regulatory reforms to remove those fissures. The result was the Sarbanes-Oxley act on auditing responsibility and accountability. These kinds of regulatory reforms put burdens on companies; be it small or big. A number of smaller companies were not ready to take up such burdens and felt apart under such strict accounting policies. No doubt, small companies can be more innovative and youthful than the bigger ones; but it of utmost importance to look around to see how they grow big. Technology, resources are two important inputs to a make a company grow. A small start-up can grow with the help of technology, the resources around. Many companies at their earlier stage use the server of the big companies. Many companies now take the help of the research done by the large companies. So, small companies seem to grow with helping hands from big companies. The say is, big is not always so ugly. Any companies need to be big to survive competition. Examples are always there. Some companies need to be resource intensifiers. In search of resources, they make themselves huge. For an example, mining industry frequently go through consolidation procedures to gather national resources; and in doing so, they make themselves big. That does not matter. What matters is that they are making themselves self sufficient within themselves. Some big companies got into trouble because of their troubled inefficient suppliers. Specifically toy firms and food firms found that they can lose on their brand names if their suppliers supply some inferior goods. Even some companies found their operating cycle to get into jeopardy for their suppliers. Some companies went for vertical integration to survive in competition. Boeing used to be outsource a lot for some of the products and services; mentioned to be the champion of outsourcing. Such a company was forced to take over its trembling suppliers. So it can be seen that many companies need to be self sufficient enough to operate in such a competitive market; and to be so, they make themselves gigantic. There is a risk involved in being big; advantages are as well there. A big company can have a complex management system and a more complicated hierarchy to follow on. To maintain such complexities, the cost incurred would be huge. For an example in recession time the demand for many companies have decreased drastically. This year also, the demand for some companies is forecasted to have demand, a bit more than that of the previous years but quite less than of those of the other previous years. Gigantic companies like MaerskLine is all set on huge capacity. As the demand was less in the past year, they had incurred a good amount of cost in maintenance and other cost for their unused capacity as well as this year also situation is quite gloomy. There can be a number of advantages of being massive and substantial. It can be present in a number of market segments; at the same time they have access to a large talent pool as well as a resource pool. Innovation can come out, being this talent together. The twist comes when a second type of giants who are in. These giants have come out with ways how to be innovative as well as big. They have managed to minimize the cost of being massive as well as strived for innovation to excellence. Cisco Systems has introduced its own video technology to enhance the communication among the employees. IBM has recently put into strong emphasis in innovation and carried out a brain storming session, involving around 150,000 people. It has encouraged them to put into more concern about a sustainable way of computing, in line with the environment which is known as green computing. Furthering the strategy to deliver exceptionally innovative contents, Disney acquired Pixar, which is the leader in computer animation. This attainment combined Pixar’s unsurpassed innovative and technological resources with the unparallel resources of Disney in world class entertainment. The outcome was a sharp growth across the business of Disney. Some are afraid of the fact that the return of the grand with innovative hands can crush down the small competitors, which will be awful for competition; but that does not happen necessarily. The big and the small; a perpetual connection exists between them. All the big companies, who are massive now, were small start-ups in the past. They have grown from that preliminary stage. Almost every entrepreneur wants to make its entrepreneurial leap to be big one day. Many want it big as they would like to see their company to be substantial. Some other people wish it big to sell it off to other big giants. An economy must carry a generous mix of big enterprises as well as the small ones. Silicon Valley has carried out many big names on its list as well as it has encouraged budding start-ups to establish themselves. Letting the small enterprises grow is as much as important as giving origin to those. US economy is known as more dynamic than that of the UK. US economy has not only given birth to a number of entrepreneurial activities but has also let them grow. Since 1980, only 5% of the companies in European Union have made them on the list of 1000 biggest in that region by market capitalization; comparatively in America, the figure is 22%, more than four times than the figure in European Union. The big companies can be a windfall for world economy; the underlying is that the business and policy makers have to cautious enough to avoid few pitfalls. It is better for the large companies to mainly concentrate on their core business areas rather than increasing its business by expanding it into a number of unrelated segments; exceptions are surely there. EBay acquired Skype for around $2.6 billion. In the very beginning, it was not clear that how an auction business can have any relation with voice call service. EBay, though, had promised to introduce Skype in their auction procedures, to have a communication between the buyers and the sellers. The plan is yet to get materialized. In this process, the fees of eBay started raising high; they have passed on the cost of acquisition to their customers. Another example, that is quite an opposite example, is of the company Gillette; the name is synonymous to the shaving stuffs. The company owns Duracell, which is one of the most famous batteries world wide and it seems that the company is handling the segment quite well. The fight and friendship between small and big will go on. The more important facts are to create an economic and political environment where small enterprises to start up and take breath to grow further to become tomorrow’s big organizations. It is better to provide an open financial environment to let the small firms grow rather than pull up the weak gigantic ones to fall down again in future. Reference Turk, J. March 22, 2008. Will Citibank Survive. [Online]. Available at: http://www.marketoracle.co.uk/Article4088.html [Accessed on January 21, 2010]. Green, J. April 28, 2009. GM Bailout May Mean Government Becomes Biggest Holder. [Online]. Available at:http://www.bloomberg.com/apps/news?pid=20601087&sid=aRgY68o56to8 [Accessed on January 21, 2010]. Read More