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In general, the factors which affect the activity of business organisation can be considered as the business environment. According to Bayard O. Wheeler "Business environment is total of all things external to business firms and the industries which affect their organisations and operations."
The business environment has two types.
1. Internal environment and
2. External environment.
1. Internal environment of business includes the internal factors which may or may not affect the business or organisation. Internal environment includes objective of business, different departments of organisation, management, managerial policies, labour management relationship, employers, infrastructure, research and development, brand image and corporate image, vision and thinking of management. These factors are controlled by business.
(T Jain et.al, 2009-10)
2. External environment consists the external factors which affects the business of organisation. In the modern world selling goods and productions are the mainly two factors. Two types of external environments are:
A. Micro environment and
B. Macro environment.
A. Micro environment:
Factors which directly affect the performance of the company can be considered in Micro environment. According to Phillip kotler "The Micro environment consists of factors in the company's immediate environment which affects the performance of business unit." It includes players like suppliers, customers, competitors, intermediaries and public. The factors which have direct effect on the activity of the business can be considered in the microenvironment. Micro environmental factors are more attached with the organisation then the macro environmental factors.
(V Prakash, 2005)
Factor influencing the microenvironment:
Suppliers are who supplies the raw materials and components to the companies. If suppliers are reliable, our business will work smoothly. If not then it can create problems for business. So it is risky to depend on only one supplier. Multiple suppliers will reduce the risk.
Customers are the centre point for any business. Because of increasing competition, satisfying the customer is become challenging. Now a days peoples become more global because they can choose from many local and international products. To attract the new customers companies design the products as per the customer's need and spend lots of money on advertisement. To attract the different types of customers companies design the different type of products. The peoples with more income buy the expensive things and peoples with low income buy the cheaper things.
Every business assisted by market intermediaries which includes agents and brokers who help the company to find the customers. It is a link between company and consumers. It helps the company to increase the sell and distribute the goods to customers.
Business has to adjust its various activities as per the action and reactions of the competitors. At present no business enjoys the monopoly in the market because of intense competition. To take the edge over the competitors one has to understand the strategies formed by their competitors.
It includes the local public as well as media public. Media public includes all newspaper, articles and journals which publish in favour of the company. Local public is the people who live in the area of the business set up.
(A palmer and B Hartley, 2009)
B. Macro environment:
Macro environment is the general environment of the business. According to Phillip kotler "Macro environment includes forces that create opportunities and pose threat to the business units." Macro environment considers external factors like technological factors, economical factors, political factors, socio-cultural factors.
COMPANY BACKGROUND :
IBM (International business machines corporation)is one of the biggest multinational computer technologies and IT consulting company spread over 170 countries and 330,000 employees with headquarter in Armonk, New York, United States. IBM has started its business on June 16, 1911. IBM is the manufacturer of computer parts for hardware and software and, consulting services and hosting services. And also offers services in infrastructure. A global technology services (GTS) part, a software part, a global business services (GBS) part, a global financing part and systems and technology part are the larger activities of the company. GTS includes delivering the business through the global scale, business process services, business outsourcing, IT infra structure services and automation and is back by the integrated technology services and maintenance. GBS includes the professional services, application outsourcing which drives the industry and business expertise. Middleware and operating system basically included in software. IBM gives the big range of devices for data storage and server for protected database and storage. IBM also contributes in space research like IBM ThinkPad 750. In 2009 IBM has take over the companies like SPSS Inc and Gardium. In 2010 the companies like Lombardi, Intelliden Inc and National interest security company, LLC. Today IBM compete with many IT companies like infosys, Microsoft, HCL, Dell, Tata consultancy services, Fujitsu, Accenture, Sun Microsystems, Oracle and Computer science corporation.
IBM supply chain management:
Change is necessary in today's competitive world of business. Understandings of the different strategies can save the supply chain management from risks. IBM has really good and reliable supply chain management that can give the solution to create the good set of analytic tools so that the business can grow easily.
To expand and exploit supply chain management of global market is necessary as a manufacturer and retailers. To reduce assets, lower the costs and market share can be achieved by complex services chain management. Asset utilisation, customer services, cycle time, operational flexibility to finance, product quality and promotion management are the main focus for the IBM. Demand management, operations improvement and transformation, custom analytic and optimisation, e-production, lean manufacturing asset management, asset management, service life cycle management, distributed or consolidated order management are the main focus areas of the IBM supply chain management.
It is essential for any organisation to consider the environment of the business before starting their business. PEST stands for political, economical, socio-cultural and technological factors of the macro environment. Every factor has different effect on the business so it is important to analyse each of them separately. It is useful tool to analyse any business or organisation. Its importance differs from industry to industry. PEST analysis provides the summary of macro environment forces. Pest derives the forces that has big effect on the past, to show how much it can differ in the future and hoe it is affecting the business or organisation.
Political factors provide the information about the political system and the stability of the industry. It also includes the trade policies and tax laws regarding the industry or business.
These factors include the economic condition of the business or industry which can affect the business. It includes the industry structure, unemployment, economic indicators like GDP, inflation rates and availability of resources.
This includes the factors of population and demographic customer behaviour like income, mobility, education level and preference of brand name.
It includes the technological factors like Research and Development, technological development, technology level of economy, industry and customers.
PEST ANALYSIS of IBM:
IBM is a multinational company who is operating in many countries, usually there are different laws as per country. What is legal in one country doesn't mean it is legal in other country. Like taxation. The high taxes make the IBM products costly in UK which makes it weak on rate issue, mostly on premium value IBM products. As an major importer, IBM must be aware of different import laws for different countries to regulate its international trade.
Economic factors such as inflation rates and GDP rate plays important role in purchasing power of customers. Economic recessions can result in low purchasing power of customer. The healthy economy with strong GDP can provide good market for IBM.
Population and users of the internet. As there are large number of peoples uses the internet so there is good market for IBM. IBM is the innovation company which change the approach as the people live. Peoples have changed their life style and they become dependent more on technology.
Technology is the main factor for Innovation Company like IBM. Technology is beneficial but at the same time it also can be destructive. So in their strategy they must consider the advantage and drawbacks of the technology. Market position of the organisation can be improved by product with new technology that can decrease the competition.
General situational analysis of any company or business is done with the swot analysis. SWOT stands for strength, weakness, opportunities and threats. This is a situational analysis of the company or business. The internal situation analysis of the business or company is Strengths and weaknesses. The external situation analysis of business or company is Opportunities and threats. When there is very short time available for the situation analysis at that time the SWOT analysis can be very useful.
SWOT ANALYSIS OF IBM:
One of the main strength of the IBM is their brand name and global presence. IBM is having almost 95% business of Wall Street companies. It has good advanced performance management with really good organisation culture. It has good creative services and flexible marketing management. The company has good strategies in outsourcing, mergers and acquisitions. Business of global services and software add in their hardware values.
One of there weakness is cross positioning of their server products. Their performance is limited in some segments like lower end segment. They are not good at competitive offering in emerging computer market and almost sane position in SMB segment.
IBM has a chance to enhance its marketing techniques and sales in his portfolio. It has still chance to improve their market in SMB segment as well as in emerging markets. They can still improve in telecommunication and finance industries. And chance of improvement in emerging technology areas and fabric computing areas.
IBM is oldest company in this industry and customers have experience on their products so they can go for new company's products. Today computer is essential for everybody so there is big market so there is threat that other companies can enter in the market. People can go other low cost products as well. IBM is having competition with other companies in his industry such as HP and Dell.
PORTER'S FIVE FORCES MODEL:
This provides the competitive structure of the business or organisation. It includes five major forces.
1. The threat of new entrants
2. The power of suppliers
3. The power of buyers
4. The threat of substitutes
5. The competitive rivalry
Each of these factors is determined from the number of different factors. This determines that weather this industry is good for companies who is already in and those who wants to enter in it.
(J Kew and J Stredwick, 2005)
1. The threat of new entrants:
It consider the factors like economies scale, capital investment, absolute cost advantage, government policies, access to distribution channel, differentiation, expected retaliation, and switching cost of buyers.
2. The power of suppliers:
It takes in account the number of suppliers, switching costs, brand power, possibility of forward integration and dependence on customer.
3. The power of buyers:
It includes concentration of buyers, alternative sources of supply, component cost as percentage of total cost and possibility of backward integration.
4. The threat of substitutes:
It includes the relative price and performance of substitutes, switching cost and buyer's willingness to substitutes.
5. The competitive rivalry:
It includes the industry growth, high fixed costs, volatile demand, product differentiation, extra capacity in large investment, balance in company and high exit barriers.
(J Kew and J Stredwick, 2005)
PORTER'S FIVE FORCES FOR IBM:
The threat of new entrants:
In IT industry threat of new entrant is less because of larger investment for set up, distribution and R&D. Also the customers are tends to be the loyal to brand reputation.
Bargaining Power of suppliers:
Two biggest suppliers for the chip in the world is Intel and AMD and bargaining power for them is very less as tough competition between them and switching cost can be very high. And bargaining power is even less because they tends to have contracts with business to business. Bargaining power for other technical and accessories suppliers is even less than other main suppliers.
Bargaining Power of buyers:
Because of intense competition in the IT market the bargaining power of buyers is more. As they can switch to other company's product as well as other low cost products. So as the competition is high the bargaining power of buyer is high.
The Competitive rivalry:
The competitive rivalry is high as there are many IT companies competing with IBM. And other technologies are different from IBM.
The threat of substitutes:
The biggest threat for the IBM web server products is web hosting because of its low cost, technological support and easy to manage.
This gives us the general overview of the IBM Corporation. This paper gives the idea about the internal and external analysis of the IBM with the use of PEST, SWOT and Porter's five forces model. The IBM has a really great advantage over its competitor in many ways. It is pioneer in many ways. The reason for increasing in gross profit for IBM is they have decrease the overall costs in every business. They don't keep going on with business which did not give them profit. IBM has really good research and development team which gives them really great advantage over their competitors to expand their business. They always try to innovate new technologies that give them edge over their rivals. IBM has really good strategies which gives them really good positive and profitable effect on the business.