An organization must have full knowledge of its business environment. Only with full acknowledgment of the internal and external influences will an organization be able to find tactics to be more competitive.
This report will cover the internal factors-SWOT, as well as the external-PESTLE of an organization and how managers can analyze these influences to lower the risk it will have on the organization.
The analysis of the internal influences of an organization is known as SWOT. This details the organization's strengths, weaknesses, opportunities, and threats. Although these four main components are a part of the internal influences, the opportunities and threats are debated to be a part of the external forces, as these factors cannot be controlled by the organization.
The strengths of an organization are the resources, assets, financial capital, skills, etc. These strengths can help an organization overcome their threats, and take advantage of their opportunities. For example, Google has many strengths. First and foremost, their name has gained a good reputation. Many people turn to Google because of its brand name. It also is user-friendly and offers extra services for users.
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The weaknesses of an organization are those areas which they tend to lack. Many organizations lack resources, like capital, as well as knowledge and skills amongst employees.
We can take Air China as an example. Since they travel internationally, they face a lot of competition. This lacks clarity on the strategic direction largely dilute its capabilities and seriously confused its brand in markets. This has been reflected on its low profitability and utilization of capacity. (Cite)
This can be trends the organization wishes to follow or opportunities in the market facing the business. This can arise from changes in technology, mergers, joint ventures, developing markets, etc. For example, Apple has the opportunity to take its iTunes and music player and develop it into a phone format.
Threats are those areas that can harm the business or act as a threatening factor. Competition is said to be the main threat to any organization. For example, with the boom of the internet traditional package holiday companies have become threatened as consumers book directly for themselves. (Oxford, 2007)
The analysis of the external influences of an organization is known as PESTLE. This consists of the political, economical, social, technological, legal, and environmental. These are forces that cannot be controlled by the organization. On the contrary, the risk of its effect can be lowered.
The political aspect includes government policies and its effect on the organization. Especially when dealing with international business, organizations can come across many tariffs and trade barriers. Political stability must also be taken into account. For example, the political condition in Pakistan is quite unstable. Since the president is part of a tribe known as Sindhis, he has in turn favored his own tribe rather than giving fair trade to all. Many businesses that are a part of this tribe are excused of paying taxes and rules can be bent for them.
The economical aspect includes taxes, inflation, and economic growth. The economy changes in many ways, thus the organization must be aware of these changes to cope. For example, many stores like IKEA understand the consumer may have a less disposable income to inflation, thus will postpone the sale of unnecessary items.
The social aspect includes social trends as well as norms and culture. For example, in Malaysia, many restaurants must be Halal certified to satisfy the Muslim customers as they will only eat food that is Halal. At the same time, Malaysia has a high number of Hindu population residing, thus must also satisfy their needs. Since many Hindus do not eat beef, many fast food joints and restaurants write if the food contains beef, and serve special vegetarian options. Organizations like McDonalds go a step further by creating new dishes to serve their customers. In India, McDonalds has created new vegetarian burgers like the McAloo Tikki, which is a potato based burger, so they do not lose their customers due to preference. McDonalds learned to adapt to their environment and satisfied their customers' needs.
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Organizations must be able to keep up with the fast pace of technology. There are new technologies arising every day. Thus, organizations must do their research and stay at the top of their game. For example, websites like eBay and Amazon must keep at the top of technology to keep their websites updated. Another example could be of Wal-Mart. Wal-Mart was one of the first supermarkets to introduce RFID tags into their stores. These tags allowed you to detect product through radio frequency waves. By doing this, many other competitors followed as they were using the latest technology.
These are the legal factors the organization must abide to. There are certain rules and regulations which are to be followed. This can include consumer, competition, and employee laws. For example, A U.S. legislation law is the Consumer Product Safety Act of 1972. This law states that standards must be set on selected products, requiring warning labels, and ordering product recall (Robbins, 2009).
It is the duty of all organizations to care for the environment. Thus, many organizations have created programs like Corporate Social Responsibility (CSR) to find ways to take care of the environment. For example, Malaysia Airlines is tied with MERCY Malaysia. Malaysia Airlines created a campaign called 'Change for Charity', which raised an estimate of RM 98,000 in October 2009, which was all donated to MERCY Malaysia (Malaysia Airlines, 2009). An organization must also be careful not to harm the environment by pollution or other means. Many factories create pollution in the air which can cause disturbance to societies nearby.
HOW MANAGERS CAN LOWER RISK
All managers must have the ability to lower risk for their organization. Many can argue that it is solely the job of risk managers, whose job is to calculate and analyze the risk of a situation. On the contrary, every manager should comprise of this skill.
Let us take the example of Coca-Cola and Pepsi. This case explains how Pepsi used their strengths to overcome Coca-Cola in the beverage market. Coca-Cola always won in the war between their rival Pepsi. On the contrary, the CEO of Coca-Cola made the mistake of making them a 'less relevant' (Brooker, 2006) competitor. On the contrary, when customers turned towards more health-conscious drinks, Pepsi was the company who met their needs. "They were the first to recognize that the consumer was moving to noncarbonated products, and they innovated aggressively (Brooker, 2006). Pepsi was faster to come out with Gatorade, their sports drink which 80% of the marker, and Aquafina, their water brand, which was the number one water brand. This shows how the managers of Pepsi used their strength and resources of gaining the customer's knowledge before their competitor put them ahead in the market, and lowered their risks of competitors and threats.
Managers may also consider merging with another company to overcome competition. This will give both organizations the benefits of the other, and lower the competition rate at the same time. Not only will the merger help to decrease competition, it can help create new products, increase capital, etc.
Lowering Social Factors
When managers try to control the social aspect in an environment, it is important that they first do their research of the culture of social society they are about to enter. Organizations must know their customers' tastes and preferences. When the famous company, Proctor & Gamble launched their soap, Palmolive in Japan, they seemed to forget to adapt to the local culture and stuck with the European commercial of a women bathing, and her husband walking into the bathroom. This highly offended the Japanese as they found this to be an invasion of their privacy (Swallow, 2009). Thus, managers should always do their research about a specific society and their culture before entering into a new market.
Lowering Technological Issues
All organizations should be aware of the latest technologies and innovation. Technology usually helps to reduce cost, as they speed up the production process, which adds profits to the business. By doing proper research, managers can lower the risk of being outdated. For example, Apple has updated their laptops each time, introducing new features to each laptop. This keeps them at the top of their game and gives them a competitive edge as they are not outdated in the market.
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Lowering Organization Weaknesses
It is hard for an organization to fix all their weaknesses. However, a manager can help in some areas. For example, if the weakness in an organization is under skilled employees, managers can help to create training programs for the employees to gain the needed skills for the business. Once the employees are more skilled, the organization should be able to increase their productivity levels and should in turn, be stronger within their market. If capital is the issue in an organization, a manager can find ways to cut costs within departments and keep a watch on the spending, to see if any unnecessary spending is taking place.
In conclusion, by managers analyzing the environment through PEST and SWOT, the organization will be able to identify which areas encompass the most risk and how those risks can be overcome by using their strengths and opportunities. Once an organization risks are lowered, it gains a higher competitive edge in the market. Thus, not only should it be the job of risk managers but of all managers to carry out these analysis and make sure that the organization is well protected from the environment and use the benefits to its full advantage.