Short and Long Term Environmental Factors that Effect Organisations
|✅ Paper Type: Free Essay||✅ Subject: Business|
|✅ Wordcount: 3066 words||✅ Published: 9th Sep 2021|
One of the important environment factor that effect the organization on short term and long term basis. It includes changes in government policies, changes made in law and legislation, war and conflict, government pressure in form of rise in tax, changes in government and new government wants to wave out all old plans.
Another factor that effect the environment is itself economy of the country which could affect on shorter term or longer term but most likely the economical effect most effect on longer period. It includes adverse movement in exchange rates, increase in taxation, lower interest rate, international economy effect, monetary issues, customer buying power, change in trend and life style of people due to poor economic conditions, like possibility of business would not generate as much as they were before this which ultimately result in reduction in human power which directly effect there buying power.
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Technology is normally has short term effect excluding some mighty machinery which take years to build and changes take place. Technological factor includes change in technology as this is one of the major factor as we have seen in now a day communication and computer technology change rapidly as compare to others, once a new model enter in the market will definitely absolute the previous one. Other factors include changes in technological legislation, licensing and patents, intellectual property issue and global communication.
Social is another environment factor that can affect both in short and long term to organization. Social factor include change in trends, fashion, style, organizational brand, people purchasing power, religious and ethical issues. Media play vital role these days as a mean of spreading awareness among people which can be in any sector. Major events has a short term environment affects.
Importance of Environmental Factor Affecting Organization:
It is obvious that any change in the environment factor can directly or in directly affects the organization operations in that particular environment. Politically if the is change in government policy or legislation that has direct effect on all organization and sectors all business have to adopt the changes take place. Technological if there has been change in technology as latest version of machinery launched every business which directly use such machinery to run there business need to update accordingly in order to survive in the competitor market otherwise competitor, take lead in business operations. Social and economy factors also has important influence on organization activities suppose, if organization is doing trade with international business partners in case of war both countries government impose restriction on the trade which affect both businesses on the other hand if economy is on downfall trend, in fact all businesses faces decline in the profit percentage as customers buying power has fall as a result of poor economic conditions.
Expectation of Stake holders
A stakeholder is any person or organization, who can be positively or negatively impacted by, or cause an impact on the actions of a company, government, or organization.
Following are the stake holders of almost every business:
- Trade creditors
- Local community
Every stakeholder has it on expectations from the company or business. Customers demand high quality but cheap price products and services. Employees has there own expectations like secure future, attractive salary plus bonuses. Trade creditors demand long credit period. Bank is interested in it financial performance and business is able pay the interest rates. Government is interested in business paying tax on time. Shareholders are interested in increase in wealth which result in business generates profits. Investors interested on return on there investment. Local community expects employment opportunities from business. Business would run its operations under environment friendly atmosphere.
Changes that affect the strategy
Factors that currently affect the TM Mobile house is technology change like upgraded version of computer mobile model therefore TM should have to buy new software that are currently used in mobiles and computers. Second environment factor that mostly affect TM is economic downfall which dramatically reduce the sale of TM. So under tight conditions TM has to change its strategy in order to survive under such condition.
Due to poor economic condition customers are unable to pay more for the goods they bought infect they demand cheap product but good quality which result in to reduction in profit margin ratio. Government demand regular tax and council tax payment regardless business is earning profit or not. Bank demand there money back, employees feel unsecure future in TM employees are not happy as they would not receive bonus for the one and a half year. Investors consider it risky to invest in such economic condition due to fear of there investment being drowned.
Business Strategies, Policies and Plans
The company strategic objectives are how the company corporate objective is going to be achieved. These objectives usually split between:
- The strategic commercial objective
- The strategic financial objective
- The commercial objectives are in non financial term to achieve company desired targets.
- The strategic financial objectives are to maximize the profit of the organization, in modern terms maximization of shareholder wealth.
Is a measure of the degree to which business achieve its goals.
The strategy is effective if it achieve it objective.
A business plan is an official statement contains business goals, the reasons why they are going to be achievable, and the plan for reaching those goals. It also holds information about the organization or team attempting to reach those goals.
Business Policy defines the scope inside which decisions can be taken by the subordinate in an organization. It permits the lower level management to deal with the harms and issue without consult top level management each time for decision. Business policy in guidelines issued by the organization to achieve there targets.
Effect of Current Business Plan
TM business plan is to maximize the profit, growth in sale at constant rate in future. TM goals are to grow and create monopoly in area which it operates and how to achieve the goals TM together its employee as a force to achieve its targets. Owner of the business make daily progress reports form them, and any changes in plan will properly convey to them through proper mean of communication tool like direct meetings, update the notice board regarding current changes and process of achieving those targets and goals. It targets also includes increasing customer confidence in there services. TM give guarantee for its services if there is any complain in it they can get it repaired with out charge, no one else in the market are offering such guarantees. For the time being TM is moving slowly towards maximizing profit as due the economic recession it been difficult for TM to achieve its targets. Employees are working well as they are working before the economic recession but due to slow progress in work that is why plan are not working and planed.
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TM is now 2nd operating in this area offering the same kind of services, but due to size of the business TM were in lead. Two more business was closed down due to unfeasible economic conditions. Now its time for TM to improve its services likely to make amendments in the plan as customers are switching back towards TM. Which is positive sign for TM as sale will grow as planed in future because of reduction in competition. TM is now increase the volume of finished good stock for resale purposes as he is expecting increase in the sale as well as profit.
TM has following competitive strength and weaknesses, of its current strategies.
- It has large space in shop so more customers can sit at a time.
- Its location is comparatively better than its competitor. However its competitor is in less busy area.
- Workforce, as TM has two staff who can serve the customers. Its competitor is hiring only on staff difficult for him to deal during busy time to handle each clients effectively.
- Range of services like computer, mobile, Money transfers and property. But its competitor has limited services like mobile and computer.
- Strategically TM is retrieving high profit margin form it sales on the other hand its competitor has edge on this. TM is not buying accessories of latest mobile phone, lack of training in employees, participation in saving schemes. Its competitor has edge on above mentioned weakness.
Options for Strategic Planning
Strategic planning is creating a vision of the future and managing toward that expectancy. It’s operating under a mission statement umbrella that focuses the organization’s effort. It’s an effective process for aligning your short-term decisions with your long-term goals.
Strategic planning answers the three big questions:
- Where are we today?
- Where do we want to be in the future?
- What should we be focused on today, in order to make it more likely we will be where we want to be in the future?
- The basic strategic planning model involved four steps explained below.
SWOT analysis can also be used for strategic planning. Strength and weakness can show business internal position where it can stand and opportunity and threats shows external factors that will affect the business directly or indirectly.
- Have you got sufficient financial resources to fund any changes you would like to make?
- Is your product unique or market leading?
- Does business have superior industry knowledge?
- Are you involved with industry associations?
- Your reputation – are you considered a market leader? Or an expert in you is filed?
- Does business have good relationship with your customer?
- Does business have strong relationships with your suppliers?
- Does business have a positive relationship with your employee?
- Is your business Innovative?
- Is your plant and equipment old or outdated?
- Is your product line too narrow?
- Have you got insufficient financial resources to fund any changes you would like to make?
- Does business lack industry knowledge?
- Does business lack innovative skills?
- Does business have a poor or impersonal relationship with your customers?
- Does business have a poor relationship with your suppliers?
- Does business have a poor relationship with your employees?
- Does business have low volume and are restricted in your ability to scale up?
- Changes to legislation
- Changes to import/export constraints
- Good economic outlook
- Expand your product line
- Diversify your business interests
- Expand into your customer’s field
- Expand into your supplier’s field
- Expand your customer base (Geographically or through new products)
- Does business has peaceful competitor?
- Are there any export opportunities?
- Will your market grow?
- Changes in demographics
- Increasing regulation
- Do consumers have a choice to use a substitute product?
- Are substitute product sales increasing?
- Is your market in slow growth or in decline?
- Growing power of customers or suppliers to set price
- Changing needs of buyers
Porter’s five forces Model
Michael Porter developed a framework, which identified 5 forces that act to either increase or reduce the competitive forces within an industry. These five forces are
- The Bargaining Power of Your Customers
- The Threat of New Entrants into your Industry
- The Bargaining Power of Suppliers
- Threat of Substitute Products or Services
- Rivalry amongst Existing Firms
Rivalry amongst Existing Firms
- Industry growth rates
- High fixed costs
- Intermittent over capacity
- Product differences
- Brand identity
- Switching costs
- Informational complexity
- Concentration & balance
- Diversity of competitors
- Corporate stakes
- Exit barriers
The Bargaining Power of Your Customers
- Differentiation of outputs
- Switching costs
- Presence of substitutes
- Industry concentration relative to buyer concentration
- Importance of volume to buyers
- Cost relative to total buyer purchases
- Impact of outputs on the cost of differentiation
- Buyer information about supplier products
- Buyer profitability
- Decision makers incentives
- Threat of backward integration
The Bargaining Power of Suppliers
- Differentiation of inputs
- Switching costs
- Presence of substitute products
- Supplier concentration relative to industry concentration
- Importance of volume to suppliers
- Cost relative to total purchases in the industry
- Impact of inputs on cost or differentiation
- Information about suppliers products
- Supplier profitability
- Decision makers incentives
- Threat of forward integration
The Threat of New Entrants into your Industry
- Economies of scale
- Proprietary product differences
- Brand identity
- Switching costs
- Capital requirements
- Access to distribution
- Absolute cost advantage
- Government policy
- Expected retaliation
Threat of Substitute Products or Services
- Relative price performance of substitutes
- Switching costs
- Buyer propensity to substitute
Comparative understanding of activity from organization
If we take in to account the competitor of TM mobile house in some area that business is in good position, as no business is perfect in every aspect. If we take few things into consideration like JD has lower profit margin. JD offer limited services if we compare it with TM, but with extreme quality. Employ turn over in JD is too low as compare to TM. JD business is too innovative its owner keep the displayed products in the shop with latest models including there accessories. JD has good financial condition JD have sufficient working capital to support day to day activities. JD had obtained large credit from the supplier. It keeps his employee up to date regarding any changes in the technology. JD makes good relations with its existing customer and new one. How ever in some areas TM as a competitive advantage over JD.
Feasible options for the future strategic planning
It is better for TM to incorporate following option before making strategic plans, it includes product threat that is take in to consideration that if there are some new product entering the market there cost and also opportunity cost of not take it now in to consideration. What is the capital requirement to meet its day to day expenses as well as if want to introduce need products like latest models of mobile and if to upgrade the existing computers using as internet café, do TM has sufficient fund available if it has how efficiently use it. What ever services TM going to provide should be meet economies of scale criteria. Must take in to consideration the bargain power of the customers, what’s there buying power what there expectation from TM and which product they normally demand for there normal consumptions. Most importantly take in to account the competitor position need to adopt those method in order to gain competitive edge, carefully identify those areas that need special attention. Identify those brands which has same quality but cheaper that meet the customers buying power. Changes in the legislation must take in to account how they affect our business. Need to improve the accessories in the shop but focus must be to identify if they were saleable or which has extensive demand. Focus on existing product present in stock that is out dated should be sold out on discount to retrieve money from it otherwise bear total loss from it. TM must keep there and its employee knowledge up to date, towards industry in which they are operating suppose TM is doing money transfers it should be aware of any changes took place in money transferring roles that need to be adopted. Improve the interpersonal skill with staff and with the customers always build working relations with the customers in order to retain business from them. All above mentioned issued need to take under careful consideration in order to make future strategy plan and setting targets to be achieved.
We discuss short and long term environmental factors affecting the organization, together with what are strategies, policies and plan and at the end take in to consideration strategy development models and which important areas are vital in making future strategies.
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