Business Environment
Business Environment
Business Environment
TABLE OF CONTENTS:
Introduction
LO1 Explain the different types, size and scope of organisations:
P1: The explanation of different types and purposes of organisations; public, private
and voluntary sectors and their legal structures.
P2: Explanation of size and scope of different types of organisations.
M1: Analysis on the structure, size and scope of different organisations linking to the
business objectives and product and services offered by the organisation.
LO2 Demonstrate the interrelationship of the various functions within an
organisation and how they link to organisational structure
LO1
P1: In the business area, there are known two types of organisations: NGO’s (the
non-profit and non-governmental organisations) and the SME’s (micro, small and
medium-sized organisations). No matter of the type of the organisation, they all have
a common goal, that is to make profit. Still, the NGO’s are using their profit in the
benefit of the society, not being allowed to anyone inside or outside the company to
make use of the profit for their own benefit. On the other side, the SME’s are the
companies that can make use of the profit for the insiders use, like the employees,
shareholders, owners, depending on the type and the purpose of the business. Here
we can also find different types of organisations like:
- The sole traders – the organisation that is owned and maintained by a single
person, which is liable for all the profit and also for all the loss in the business,
according to Shetzer et. al. (2014). It has unlimited liability, has no separate
legal status, needs to pay taxes and national Insurance contribution.
- The partnership - the organisation that has more than 2 owners, but up to
20, where the roles and the procedures are being divided between the
partners, all of them having unlimited liability, the businesses loses are shared
by the owners with bigger privacy and firmer legal formalities than the big
companies.
- The limited company – the organisation that is owned by more directors,
where the ownership can be transferred very easy (Schiffer and Weder,
2010). In this type of organisation, there are 2 divisions:
- The private limited company – the organisation is registered to the
Company House, being requested a memorandum and articles of association,
it is registered for VAT if the turnover is more than £150000/year. This kind of
business has a maximum of 50 members, the shares of the company not
being allowed to be sell on the public exchanges, but the owners have limited
liability, so if the company collapses, they will only pay what they can afford
from the debts.
- The public limited company – in this type of business, the shares are
opened to the public, the minimum number for the shareholders is 2, but with
no upper limit. The company has to declare all the business to the
government through a prospectus, being subject to the greater supervision of
control, and same as the private limited company, it has limited liability. They
can dominate the market and can make easier profit as the financial
institutions are happier to interconnect with the PLCs.
- The Public Sector – the organisations are owned and run by the government
and exist for providing services to the citizens. These organisations don’t have
as a target to generate profit, and if there is profit, it will be invested in the
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P2: Marks & Spencer is a PLC (public limited company), offering it shares to the
public, especially through the Stock Exchange. M&S is a vast multinational retailer,
based in UK, London, with shops and franchises all over the world. With about 980
stores in UK, from which 615 sell only food products, and 454 stores around the
world, Marks & Spencer has 84,939 employees. In 2017 had a turnover of £10,622
bil. and a profit of £115,7 mil. their scope is to serve their national, but international
customers too, offering different business segments, like homeware, luxury food,
clothes, childcare products and restaurants (Marks & Spencer, 2017). It a growing
company helped by its brand, quality of services and product, and because of its
worldwide promotions. Even if it started as a sole trader company in 1926, with only
one owner (Michael Marks) it started to grow affordable after he made a partnership
with Thomas Spencer in 1984 (Marks & Spencer).
M1:
The structure, the extent and the size of a company are bounded to the goal of the
organisation, which can set a high target as an objective if they have a very good
organizational structure. If a company has not too many employees, and these ones
don’t have knowledge on their role, it’s very hard that the goals of the business to be
achieved because of the lack of clarity in the job. However, any company is setting
its own goals, based on the size of the business, for example, if the size of the
business is huge, with a very big amount of money invested, they will set a very big
target as the organisations’ objective (Ward et al.2011). The company will set their
objective by studying their business scope. If the business has as scope serving the
national customers, they should set their goals accordingly, same for the businesses
that are serving the international customers. Rendering to the merchandise and
service, the company sets the structure, size and scope.
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According to Willard (2012), the medium sized trades have a better place than small
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size business. They are serving a larger market and can change the strategy often
(once or twice a year). They can also enlarge their business in new market with their
already existing products. Having more capitals to protect themselves of the new
entries on the market. Still, the medium size organizations are facing high risks due
to the competition with the bigger organisations.
Structure, size, and scope of any organization are linking with the goal of the
business. It is known that any organization has a vast goal as their objective only in
the moment they’re having a good organizational structure. If the company has not
too many employees in their organizational structure and no one is having
information concerning their role and subordinate, then it is impossible for them to
reach the target because of less clearness in the role. But, any business
organization set their goals based on their own size. If it is a big organisation and
invests huge money, then they will set a big goal as a business objective (Ward et
al.2011). However, all the organizations have common objectives which are: serving
customers and earning profit, but, once again we will see the difference on the profit,
according to the organisation’s size.
For example, Marks & Spencer are targeting the upmarket food and mid-market
clothing for children, women and men, with a specialisation in knitwear and party
food, they’re also selling luxury, branded food, along with branded clothes, home
wear and gardening with their own produced products as also other branded
products. The number of stores is: 766 in the UK, including its Simply Food groceries
chain, and 431 overseas in 53 territories, accounting 84,939 employees, is becoming
a fast-growing online business too, with a turnover of 10,622 billion pounds/year up
2.2% and a profit of £115.7 mil -14%. The peace of growth on clothing is of + 1.5%
and on food is + 4.2%. To attract more customers and to devote the existing ones,
M&S is offering loyalty card, credit card and greeting cards, available in every store.
On the other hand, Next, even if it is an international retailer, is has a smaller
organisational structure, but has also a high target based on clothes selling. Next UK
is also a PLC company, based in UK, with shops worldwide, which is selling clothes,
footwear, accessories and home products, in more than 540 stores in UK and
overseas, with a range of over 4.5 million customers and around 200 franchised
stores and accounting about 49,033 employees. With a turnover of £4.1 billion and a
profit of £790 mil, and a pace of growth of + 13.6 online and -6.1% in stores, Next Plc
is one of the M&S’s competitors. Their scope is to serve the national and
international clients, to grow on the market and to improve their services in store and
online (Next Plc, 2017). It is a big online business, offering online and of-line new
fashion products, clothes for men, women and children, accessories and home
products. Loyalty card may be found in every store.
Another competitor of Marks & Spencer is Primark, a fast fashion chain offering
cheap clothing to men, women and children, known for untidy stores and up-to-the
minute designs it’s a national and international retailer, based on clothing and
accessories selling, Primark has generated approximately 7.1 billion pounds in
revenue in 2017, with 753 million pounds as net profit (Statista, 2017) and a pace of
growth of +5%. The organisation has over 68,000 employees. They’re market target
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is bigger, as they are selling low cost products, being focused on the price, not on
the product quality, this way, Primark is focused on the number of customers, than
the brand, in over 350 stores. Primark is offering a various choice of products, with
new-born and children's clothing, women's wear, men's wear, home ware,
accessories, footwear, beauty products and confectionery.
LO2
P3: The function of an organisation depends on different other functions, like
marketing, sales, distribution, HRM, R&D, production and operations, finance and
accounts, or customer service.
The Marketing function is measured as the bridge of the company with the market for
satisfying customers’ needs (Onetti et al. 2012, p.339), being a benefit for the
customers and for the suppliers. Marketing department of M&S is considered the
heart of the business, as their role is to understand the market share, and to work
closely with other internal functions of the company, like production, finance, R&D for
serving their customers’ expectations in a very profitable way. That are very strong
connected with customer service as is the best way of knowing customers’
requirements.
Bollingtoft (2012) defined the finance function as the most important as its related to
the expenses or practices of the resources on diverse procedures. Related to the
organisation’s’ plan, financial department needs to provide valued reports about
financial performance. Finance needs to sets the budget for each department,
measuring the expenses, the incomes and the profit for the business. Therefore,
there can appear conflicts between finance department and all the other
departments, as each function of the company needs financial resources for
producing, or promoting, or training, while finance is looking more to cut-costs. Marks
& Spencer has a strong and carefully built finance department, where they are
tracking all the transactions daily, all the sales, promotions, and the usage of the
resources internal and external. Investments are frequently seen as a risk for the
business, like internal projects, new production lines, acquisitions of new
technologies, by finance.
Marketing works closely with the production department, for ensuring that all the new
or existing products will be on the market on the exact date that marketing
department announced the customers.
Human resources need to ensure that the right persons for the right place are found,
trained and that the company benefits by their skills. M&S’ human resources function
works closely with all other departments (so they know how much workforce is
needed), especially with finance (they need resources for job analysis, recruitment,
selection and training). They are also concerned about legislation and policies,
ensuring that employees’ and employers’ rights are well protected, and the law is
applied.
Production function first needs to ensure that the Health & Safety requirements are
met. The function deals with manufacturing, processing or assembling products,
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controlling the quality, and needs to ensure that they are delivering good-quality
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services (e.g. An airline ensures that they are taking the passengers from the
departure to destination in a safe and friendly way).
Administration function is designing forms for customers and suppliers, records of
the employees, which needs to be updated according to the company’s rules, also
needs to create lines of communications. That is the function that brought the Help
Desk on the big companies, helping the business to have a good communication
with internal and external factors.
Finance works closely with all other functions. Having a good relationship with
production, will help the business to get a higher profit with small investment,
production needs to take note of finance decisions. If finance don’t have enough
money for production, then there must be a middle way for solving these issues, if
not, the products will be of bad quality and high price and will lead the organisation to
lose its customers.
Sales and Production – the sales department need to know when a product will be
out on the market, so they can give a releasing date to the customers. Production
needs to inform Sales of any problem that occurs and could create inconvenience for
the customer (example: the new line production is not going to be ready on time).
Distribution and Sales: working together, Sales will be able to announce the
customer on the exact time of the delivery, or if any problem occurs, this way the
company keeps customers loyalty and achieve more new customers.
M2:
The structure is the shape of a business and it’s created so the purposes of the
company are met in the best way. The purpose of the organisational structure is that
all people working in the organisation knows exactly their own roles and the roles of
their colleagues. Another purpose of the structure is to create positions of control
and communication in order to avoid any conflict among decision-makers and other
employees that don’t agree with them, that leading to the importance of creating a
chain of command. There are known many types of the Organisation Structure, like:
- Function: accounts, production, marketing
- Geographical area: like Wales, Midlands or North East
- Product groups: like homeware products, grocery, clothing, toys
The functional areas in a business are various, as the departments that carry out the
key functions for an efficient and effective way of achieving the goals. Finance
(capital, cash inflows and outflows), Human Resource (recruitment, selection,
training), Research and Development (new products, new ideas), Production,
Service delivery, Marketing, Sales, It, customer Service, Distribution or Management
Information System are some examples of the Functional Areas in a company.
The Organisation Design is split in two dimensions:
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2. Contextual Dimension – deals with all that is shaping the structure of the
business.
Structural Dimensions:
1. Formalisation – deals with lot of bureaucracy, how many documents needs to
be done for regulations, job descriptions, procedures, etc.
2. Specialisation – the way that the company’s tasks are fragmented into
separated jobs
3. Hierarchy of Authority – shows the way each manager responds to leader,
who responds to whom.
4. Centralisation – a strong business can be seen as very centralised, where
leaders are decision-makers
5. Professionalism – the level of training, education and skills of the employees.
6. Personnel Ratio – distribution of people to numerous functions and
departments.
Functional structure is one of the most common type of organizational structure,
where groups of employees are being organised according to the position they
perform. When a business is organised by function, there are grouped together
individuals, teams and line managers, in a particular function or department, who will
then report to the head of department, like the sales director, chief financial officer,
marketing director or the head of operations.
The relationship between the business’ functions may vary, from very good relations
to conflicts. In the following table we can see the advantages and the disadvantages
of the interrelationships amongst the structural functions:
Table 1:
ADVANTAGES DISADVANTAGES
LO3
P4, M3: The Business Environment is about the surrounding circumstances where
the business activates. It is fragmented in two parts:
- Micro Environment – the company has control over the inside of the business,
like employees, managers, the style of the management, policies or culture.
- Macro Environment – it’s about the factors outside the company, where is
very little control from the company, factors like economic condition,
government policy, competitors, technology, or the newest factor, Brexit,
cannot be controlled by the organization.
Macro Environment is including external factors which may affect the decisions taken
in the company, the strategies or the performances of the business, automatically
influencing company’s target. These factors are: legal, social, cultural, demographic,
and economic factors, changes of the interest rates, government policies, and,
maybe the most important, changes in customer’s taste and preferences. Marks &
Spencer interacts with these factors, like other companies too.
PESTLE Analysis:
Political - As Political influence, the elections and the possible results whether
environment be peaceful. Also, the impact of costs, competitiveness, profitability or
behaviour can impact both, positive or negative the business, depending on which
side is the change. The Government’s regulations for Health & Safety, risk
assessment and risk control need to be strictly followed by M&S (and all the other
companies) otherwise they will be fined or forced to close. As the company didn’t
abide with the British Standards, they were fined after a door fell over an employee.
M&S is the first retailer that goes down the Fair-Trade route on food and clothes, too.
The Fair-Trade they’ve launched includes cutting salt and fat in their food, animal
protection and recycled packaging.
Economical: the economic growth, the international trade and the consumer
confidence can have a positive impact on the business, when the exchange rates,
inflation or minimum wage could affect the organisation. As the economic outlook is
very ambiguous (people can’t afford anymore to spend on luxury food or clothes),
M&S felt a huge impact, closing several stores and cutting jobs with 2%. Also,
because of the recession, they decided for only two days of discounts for Christmas,
but, trying to stay on the competition, they reduced with 20% the prices on wine and
Champagne. They also got in conflict with the small sellers about the prices of
products because of the currency changed due to Brexit impact.
Social – the demographic issues is one of the good or bad influences for the
company (if the population increases, it is a positive impact as the demand for
products or services will increase, but if the population’s number decreases, than the
company will feel a negative impact, as the sells will decrease), same impact would
have it the changes in the structure ( for example, the ageing), the education religion,
ethics can also affect the business. M&S begun to support the surrounding
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communities for cutting the internal costs. Because of the on-trend cheap clothing
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stores, M&S had to keep up with the latest trends for increasing the interest of the
existing and potential customers.
Technological - here we can identify the changes in physical science, the internet
(which usually helps the company to have an on-line market, but also, can get bad
reviews from the customers and loose the credibility), energy use and costs – this
factor usually is considered a negative one for the high costs of energy, new
discoveries (a positive factor as the innovation can help in development of the
company). According to Andrejovska and Banociova (2014), the decisions of the
organization are changed because of the technology and the materials that the
production requires. Armstrong and Kotler (2007) stated that the companies need to
spend huge amounts of money to create a strong brand, which needs to be
continuously communicated to the customers. Marks & Spencer invest huge
amounts of money in advertising (TV adverts, celebrities as faces for the company,
models presenting their clothes) and in their website, which is very colourful and
easy to use, updating constantly with the new M&S brands. They also have specific
partnerships for strengthening the security, risks or compliances.
Legal – here are included the changes of government policies and requirements in
the legal strategies and procedures, which mostly affect the marketing department
decisions. A positive impact of it can be considered the lowering rate of the retailer
business. M&S have a continuously financial argument with Frascati landlord. They
are keeping up to date with the new legislations, Health & Safety issues and laws,
ensuring that their legal protection is up-to-date. Re-training, tax changes, product
changes are some of the factors that influence the business, especially when the law
needs to be strictly followed. They are the first company that followed the “Fair
Packaging and Labelling Act” (1996), by introducing recyclable packaging and
detailed labels.
Environmental factors – M&S is creating environmental friendly and sustainable
products; the milk is brought from RSPCA dairy farms. Plan A is their Green Policy,
where they plan to re-engineer itself, becoming a carbon neutral, no waste to landfill
and a health promoting business.
Marks & Spencer is facing all these macro environmental factors, as they are a huge
company, which depends of the legislation regulations, the demographic
environment, the internet and all the technical issues. As the organisation has lots of
stores opened in Europe, and many European employees, Brexit is one of the main
threats recently, as they need to be prepared for major exchange rates, maybe the
need to close several stores in European Union, and the labour market can
decrease, so a huge impact will be for Marks & Spencer.
When it comes for Macro Environment, there needs to be implemented the PESTLE
analysis, where can be provided answers about the external procedures that can
influence the well-being of the company. With PESTLE, the organization is
analysing external factors like: Political, Economic, Social, Technological, Legal and
Environmental factors.
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LO4
P5: All the organisations are affected by both, external and internal factors.
Therefore, an internal and external analysis must be made before making any
business decision, for identifying company’s strengths and weaknesses. The internal
analysis helps the company to identify its essential competences, aptitudes or the
accessibility of resources (physical, financial, cultural, or human resources). External
analysis is for identifying market inclinations and events that may influence the
strategic decisions made by the organization (Schirone, 2012). The SWOT analysis
includes the economic analysis (changes in inflation or interest rates), analysis of
technological factors (updating and replacing existing technologies), legal
environment analysis (changes on laws, duties or taxation policies) and social and
cultural analysis (identify current fashions, trends, lifestyles and other mechanisms of
culture).
Marks & Spencer’s Strengths and Weaknesses:
- Strengths – M&S already got a strong position on the food market and keeps
the leader position on clothing department. Wide range of products, assured
quality and in-store services took M&S on the edge of the retailers. Also, the
brand and the reputation, the market position, or the on-line shopping are the
forte points of Marks & Spencer.
- Weaknesses – the high prices do not allow all categories of customers to buy
from M&S. They are also slow to change, the lack of newness is noticeable,
and the women clothing needs to be improved regarding the small variety of
models for the younger market.
Weaknesses – the lack of resources that holds the business from becoming a strong
competitor
Opportunities – the chances to improve the weaknesses, helping the company to
create economic value
Threat – the forces that are reducing the business’s performance and its economic
value too.
M4: M&S SWOT Analysis
Strengths - M&S is well known for its quality products, being associated with great
brands like “St Michael” and “Per Una”. The company has a great relation with the
employees, which are treated and paid considerably better that the competitive
companies. It has a huge financial strength as it covers a large market share, and it’s
still the leader of the market on clothing department.
Weaknesses – the old and classical fashion approach is not changed. The absence
of strong marketing strategy is also one of the weaknesses, along with the poor
customer service, few sales assistants and few fitting rooms.
Opportunities – M&S needs to keep up with the competitors, entering the e-business
effectively. They also have to take advantage of the fast changes in technology and
to make sure that they are diversifying the products, especially the food.
Threats – fearful competitors like Gap, Zara, Primark, Tesco. Customer’s need for
new fashionable clothes, and the internet technology which allows customers to
shop from the comfort of their house.
Marks & Spencer has been very effective in its strategic decision making. Chief
Executive and Executive Board have some essential responsibilities for strategic
decision making in the company. Marks and Spencer have been looking at the
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developing markets of India and China for enhancing its global presence. These
markets are very attractive for the products of Marks and Spencer. To achieve
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sustainable success in these emerging markets, Marks and Spencer needs to make
strategic fitting between its strengths and external prospects. Marks and Spencer
has managed to stay on top of its game and increase competitive advantage in the
market place because of its effective use of strategic tools and models in executing
its strategies. This makes its tactics effective and fit for the organization as its
stakeholders, culture and structure are taken into consideration, as part of the
business environment.
Conclusion
This assignment shows the types of organisations, the SWOT and PESTLE Analysis
and the internal and external factors which are affecting the organisations, like
employees, customers, departments of management, business regulations, demand
or supply.
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