Competitive business environment

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"Strategy is the direction and scope of an organisation over the long term: which achieves advantage for the organisation through its configuration of resources within a challenging business environment to meet the needs of markets and to fulfil stakeholder expectation".

Executive Summary

IN today's competitive business environment we have seen many companies have just not been able to sustain themselves in this recession as they have either not understood the current situation or have failed to respond to the changes in its environment.

The core idea of this summary is to get a deeper understanding of Business environment and their strategies in global world. Business organisation exists in an environment that is increasing difficult and competitive. The organization in a business environment is like any living organism in its natural environment and its ability to survive and prosper. Organizations that are able to adopt and adjust to their ever changing environment are succesful. With the help of analytical tools such as PESTAL, Porters 5 forces and SWOT analysis different types of firms can address to their customers, suppliers and employees needs in different ways. It will help in identifying environmental variables, sources of information and forecasting techniques. This will help in explaining the management processes involved in successful global business management. The challenges, problems, and controlling aspects which are being faced by the organization and it will give better understanding to follow in future. There are numerous sources of information about the business environment which includes government statistics and forecasting regarding economic variables such as inflation and growth rates, research findings, estimating changes in commodity prices, social and technological changes, and so forth. A considerable amount of information is normally picked up by the manager keeping their eyes and ears open and continually scanning their business environment for opportunities and threats resulting from imminent change.

PESTEL, Porters 5 Forces and SWOT analysis is used to access Tesco's external factors that in its environment and it has proven to be hugely successful in today's challenging business environment.

Johnson and Scholes states that strategy is the direction towards a long term plan of the business through tactics and a well defined plan of action to achieve objective and accomplish purpose of an organisation in order to compete with other markets and perform better by using resources efficiently keeping in mind the external factors that affect the business and values and expectation of stake holder who have power around the business.

2. Introduction

The business environment focuses on the external influences on business and the effects that it has on the internal aspects of organizational life. The external environment is very complex and dynamic in nature. If for some reason you lose your track of it for some time and you will notice a significant change in the competitive world because the environment is very dynamic, pragmatic which is ever changing. Environment is ever changing.

The term organization or business has a wide range of legal entitles with diverse objectives. An organization differs fundamentally from one another in their legal status and primary its objectives, even the environment forces which influence them also vary. In some cases the change in the environmental pressure may encourage some organization to actually change their legal status and objectives, and further potentially for economics of scale some have merged while others have been bought by large companies. Organizational objectives influence an organization's activity and strategic direction. The knowledge of these objectives will help to determine the importance of different environmental forces and changes.

The rationalist approach in strategic planning should be undertaken in a logical and largely linear fashion, it has been said that organization monitor, keep a watchful eye on their business environment closely and analyze their internal resources position so it can access what are its strengths and weakness and flaws which might be facilitating the exploitation of environmental opportunities. Strategic planning, therefore is an attempt to match organizational capabilities with environmental opportunities

Studying the business environment

An organisation needs to understand their operating environment and also needs to respond towards the environmental changes, so it can achieve profits and also to be a business which fulfils stake holder's expectations. Companies who are successful and have towards their growth and have understood the business environment by tightening the loose ends which are likely to decline and may be a reason for the loss to the company. Companies which are first in the market with the changing trends can be profitable rather than reacting to the changes on a later stage.

What is the business environment?

An organisation exists to convert inputs that are taken from the environment like labour capital and material and transforming them into output which is goods and services that a customer wants buy.

The business environment can be categorised into micro environment, macro environment and internal environment.

MICROENVIRONMENT

Definition:

"Factors or elements in an organization's immediate area of operation that affect its performance and decision making freedom." The many factors affecting the Microenvironment such as suppliers, distributors, customers, competitors, employees, shareholders, distribution channels and media. Let us study about these factors.

Suppliers:

Suppliers are the providers of raw materials and different goods of necessity to an organisation. These goods or raw materials are converted into value added products which can be then supplied to the end user. It is very essential to maintain good relation with the suppliers as they are vital to the success of an organisation when the demand for the goods is grown, so best relationship with them helps in maintaining a steady growth of business.

Customers:

Customer plays an important part in any business, without customers there are no profits. Customers are essential for any types of business. Organisation should try to gather as much information from customers as possible in order to understand their needs with changing requirements. This information gathered makes it easy for a company to forecast about the future as to what the customer's next requirement is and what they want it. Business is mainly two things; Push factor and pull factor. Pull the customer and push our product to them.

Competitors:

Another term for business is competition every company wants to expand their business and maintain its stronghold in the market. Implementing some business tricks like giving freebees, improving the quality, discounted price, advertisement, and developing the business position. To know about how they are changing towards the need of the customers. For example, competition in soft drinks and mobile phones.

Shareholders:

Major reasons for rising implementation of a shareholder concept in setting business are affected by the environment in which they operate. Business comes into regular contact with customers, suppliers, families of employees.

Distributors:

Getting your product to the end user can be big issue and the most difficult task a company faces. For example when launching a new product it is very important for any company to get into the market with a very good penetration. For any business to get a good response for its product is to get a good self place one which is very visible and eye catching. Getting the best shelve space for your product means to displace some other product from another company to be displaced. So the challenge is to get stores to stock your products, this might be achieved by great communication skill and giving proper incentives. When the distributors will decide the last price of the products and how it is presented to the market and to the end customers when it is selling by retailers. The retailer has power to control on the products, where the products are displayed, what are the prices and how much they are promoted for selling in every store. The companies can get more a competitive benefits via changing distribution channel.

Intermediaries

People who provide a link between the organisation and its customers, large companies find it tough to deal with customers directly and hence use intermediaries.

Financial communities

Institutions which may be supporting currently or support the organisation in the future such as bank. Share holders both private and institutional play a very important role to the business as they reassure that the business will achieve its objectives. Expansions of many markets have failed because the companies did not consider the needs and expectations of potential investors.

Local community

Organisations needs to give back to the community in which it is thriving and also enhance their image towards the society, through charitable contribution, sponsorship of local events and also been seen as a support to the local environment.

(Fifth edition by Adrian Palmer and Bob Harley)

MACROENVIRONMENT

Trade barriers, demographic change, new laws, taxation and changes in government policies, these factors will effect on the decision making of the managers in any organisation, PESTEL analysis enables managers to make a comprehensive and logical picture of the environment considering the (PESTEL) factors which can and have positive and negative impacts on the business. In order to analyse these factors managers categorise these factors using the PESTEL model.

Following factors are including in macro environment.

  • Political factors
  • Economic factors
  • Demographic factors
  • Cultural factors
  • Technological factors
  • Social factors
  • Environmental factors
  • Legal factors

Political factors

This are the factors which relate to the government polices which influences the day to day functioning of the business such as what kind of services and goods should the firm provide? It is a way of protecting the public by bringing certain policies for e.g. Government protecting the public, controls on pollution etc. Implementing new rules and regulations on firms to influence the growth rate and infrastructure of the economy such as road and rail system, and also giving rights to consumers against firms that sell low grade goods.

Economic factors

Economic factors which is influenced on the level of marketing liberty, it refers to trading economy that a market needs to consider on a short and long term of the business, like inflation, tax, interest rate, exchange rates, investment employment, monetary policy and income, whether the economy is developed or under developing stage.

Social and cultural factors

Are changes in trends that impacts the demand of the firms products, willingness and availability of individuals for example the population in India is growing at a tremendous pace with a huge population of middle class and young entrepreneurs demand for new and modern cars and electronics have surged. Other factors that the business needs to relate are customs, culture, norms and values, social responsibility. That will affect products in the business hence the factors mentioned will affect how you obtain resources and goods sold within the society.

Technological factors

Refers to creation of new products and process by bringing in new technology which can improve quality, reduce costs and also lead to innovation. It is very important for any business to understand how important is technology and how it can affect their business

  • How existing products can be made cheaper, safer and better in quality using new technology
  • Distribution system has changed for e.g. music, gifts, books all of these can be bought through internet even without stepping out of your house.
  • Innovation in the field of medicines, banking such as internet banking, telecommunication as in emails and communication via mobile phones.

Environmental factors

Are the factors which cannot be controlled by the organisation, it's how organisation conduct their business in relation to its natural environment such as weather and climate change, for e.g. with the destruction of rain forests and releasing of more co2 gases there is a really big crisis of the depleting of the ozone layer which in turn has led to global warming. Industries including farming, tourism and insurance are affected due to changes in temperature. global leaders from all over the world are gathering to discuss this issue as its not only harmful for all living organisms but also could have a catastrophically implication.

Legal factors

Legal factors are often political factors which are put in place to have a control over the way an organisation conducts business, for instance laws such as discrimination laws, disability laws, ethnicity, minimum wages etc. Legal factors are a way to keep an eye on the organisations to see that they conduct their business in a free and fair manner. Legal changes affect cost as well as demand the way organisation conduct business, e.g. development of new systems and procedures, and also how the law might affect consumers buying goods and services.

(Fifth edition by Adrian Palmer and Bob Harley)

CRITICAL EVALUATION

TESCOS PESTEL STRATEGY TO OVERCOME CHALLENGES AND GAIN ADVANTAGE OVER ITS RIVALS

The credit crunch which has seen many organisation go out of business, and people losing their jobs on a regular basis, Tesco is one major business house which even in this tough economic times has maintained its market position and not only that infact has shown a good growth and also created lots of new jobs by opening new stores. PESTEL analysis for Tesco is useful in keeping them up to date about their environment surroundings for example telling the media in advance about the recession ahead and what would help them plan the success of their business in the future

Competition from other retailers is the main issues that Tesco is facing at present, where policies as well as laws and regulation governing competition which can be identified through political analysis. Hence protecting customers and ensuring other business have opportunity to compete in the market bare importance in political law, due to the recession which have seen many business fail and many other un-able to enter the market. Since Tesco having a high market share, hence there are concerns of Tesco charging higher prices for its commodities by reducing the quality and product of services, but to date Tesco has not been posing a risk in exploitation of its products which can be found out through PESTEL analysis which leads to continuous scanning that insures that Tesco's high dominance in market share is not in a way of exploitation. http://www.tesco.com/talkingtesco/p/inc/TalkingTesco.pdf

With the present economic senerio Tesco is one of the fortunate markets that has not been affected by the recession, and have appealed to selling products and services in all segments of the market with products having quality value to the finest products available, and have branded their markets as selling products to all types of consumers. Also Tesco markets in city areas has kept free parking in cities thus attracting many consumers towards their market which has helped them move 1step ahead of competition.

http://www.tesco.com/talkingtesco/response/?page=article9

The social aspects of Tesco's PESTEL is consider increase in young professionals or dealing with the ageing population in the UK. Since many goods are being produce to cater needs of single parents also and also for business professionals who are single, hence Tesco has seen the need for increase in quick microwaveable meals to make cooking easier and quicker for those people who are always on the go. Also stocking products and goods to the requirement of the older generation. http://www.tesco.com/talkingtesco/p/inc/TalkingTesco.pdf

Growth in the use of the internet is some of the technological factors that have had most impacts on Tesco. With the increase in technology in 'internet shopping' we have seen how people can shop on-line at www.tesco.com, thus Tesco has made it easy for consumers to purchase goods and products online but also delivers these products to the door step of every customer.

Tesco have also invested in funds in a support for carbon reduction, and also encourages consumers to make low carbon choices by providing information on carbon cost of the product they buy and sell to consumers, Tesco have already started in an environmental act last year by encouraging people to use carrier bags again and again and also reward customer with Tesco points for doing so, hence Tesco has seen the urge for environmental friendliness in dealing with issues hence making a better reputation in the minds of the public.

  • http://www.tesco.com/climatechange/speech.asp
  • http://www.modelanswer.co.uk/business/help/pestle/tescos.php

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