Analysing the External Environment - Term Paper Example

Analysing the External Environment Introduction A business’ environment is a factor that can adversely affect or improve the operations of a firm. A business’ external environment includes parts of the establishment that cannot be controlled from within. These are issues like legal, political, social, economic, and technological concerns, as well as business rivals. The external environment may also be used to define individuals who affect the business in some way even though they are not a part of it. The contractors who supply a business’s raw materials, for instance, or a country’s government, can be viewed as external factors (Daft, 2010:63). The external environment is able to determine a business’s success or failure; that is why it is extremely important for businesses to carefully analyse it. Monitoring the External Environment of a Business The function of monitoring external environments serves to track any type of progress in commercial trends of known import. A number of external elements can be affected by company advertising, while others call for the business to implement changes (Daft, 2010:111). It is vital to monitor the fundamental components of a businesss external environment. Tactical business planning is essential in discovering new opportunities, as well as in reducing the potential impact of potential threats. In the past, companies that have neglected to keep an eye on the market have suffered heavy setbacks. A good example is Eastman Kodak which nearly became obsolete because it was unable to foresee the popularity of digital cameras (Harris, 2003:106). External tactical management assessments supply the management with premeditated plans that seek for opportunities and reduce the effects of threats. An external strategic proposal should include the following points: 1. Study external forces: It is important for a business to collect information concerning the political, economic, cultural, social, technological, and legal factors of its community. It should also take into account any changes in consumer demographics and seek to make sure that it gets its information from trustworthy sources. Companies should mainly use primary data, with other sources of secondary information being made use of sparingly. 2. Assess the competition: A company should gather competitive intelligence on its business rivals. The statistics gathered should include the distribution channels, plans for gaining more customers, and their value chain arrangement (Dibben, Wood and Roper, 2004:92). In this, a company will be able to determine how its competitors benefit from advantages that it might not have. Competitors among business rivals could be the most significant issue where the Eastman Kodak Corporation is concerned. Most of the time, change is swift in the electronics marketplace. The introduction of computers with printers, price discounts, as well as rebates has forced Kodak to reassess itself in order to stay relevant (Symonds, 2006). The HP Corporation spends approximately $1 billion on an annual basis for research on its printer (Hamm, Lee & Ante, 2007). Kodak has to spend as much, or even outspend the HP Corporation if it hopes to be considered as a serious rival to this firm. 3. Review the current market: Consumer tastes and markets can shift quite rapidly. What may have been popular among consumers yesterday can be rendered as irrelevant today. It is important for a business to be able to change with its customers (Haslam, Neale and Johal, 2000). For this to become a reality, a business has to be able to discern the tastes and inclinations of its consumer population. This is a function that requires a lot of surveillance and investigations. In many circumstances, it is a function that is best subcontracted to another company so that the business can concentrate on its operations while benefitting from the best research available on market trends. 4. Scrutinise the external forces and compare with current market: When researching on the business’s external forces, it is important to compare the information compiled with the present market’s survey. This will give the business an impression of how the alterations effected by the external forces can transform the future of the present market. In the recent past, this has brought considerable problems for Eastman Kodak. In the last decade, the fascination with digital cameras among consumers has resulted in the entrance of numerous new comers in what was originally Kodak’s stronghold. Where new technology is concerned, there will always be new firms trying to make a statement, and overthrow the recognized producers. Usually, new technological gadgets are created by people searching for more improved ways of doing something. Kodak has to ensure that its level of brand power, technical expertise, and scale of operations are up-to-date if it is to preserve its clientele. With Hewlett-Packard, Xerox, Lexmark, Cannon, and Sony having already taken a big share of consumers, any more infringement by new and technologically savvy entrants might force Kodak into irrelevance. 5. Examine the competition in the present market: A business can assess all the operations and products of its competitors so that it can discover how to improve itself to gain a bigger market share. It will also be able to discover the products that may be essential and needed by the consumers, but are absent in the market. Whereas competitors of Kodak such as Lexmark and Cannon and Lexmark are stressing on the profit margin that will be realized in substituting cartridges, Eastman Kodak is championing inexpensive cartridges, quality printers, and quality paper combination to generate the best quality prints (Hamm, Lee & Ante, 2007).Kodak should seek to do as its rivals are doing. The major manufacturers of consumer printers should take into consideration the fact that the ink refill as well as replacement cartridges market is quite strong, even though the cartridges do not give the same quality as the brand name. The quality disparity is not enough to compel clients to opt away from the brand name (Hamm, Lee & Ante, 2007). 6. Set goals to uncover opportunities and evade potential threats: The business can evaluate different factors so that it determines, first, which of the many opportunities it has will be practical for it to pursue (Jones, 2011:97). Conversely, it can evaluate the existing threats to determine if the effects of existing problems can be lessened, or if they are simply not avoidable. The following factors are particularly important to monitor in any business: Customers A business’s consumer demographic makes up one external factor that can be affected through marketing initiatives as well as the planned release of business information. A business can come up with diverse ways to influence its customers to purchase the company’s products (Gallos, 2006:59). Businesses can also use market research to agree on the usefulness of their promotional messages and to settle on the alterations to be made in order to boost sales in future marketing plans. In the camera industry, the negotiating power of consumer is somewhat limited. Eastman Kodak has come into a consumer printer industry that is filled with competitors who create goods products that permit the customer to have considerable buying power. This is because the corporations generate quality printers at quite reasonable values and usually give considerable discounts. Eastman Kodak may have shown some wisdom in launching operations in the commercial printing industry where the procurer’s bargaining power is not tremendous. Government Government rules that preside over the manufacture of products as well as their transportation usually have an important role in determining the business costs to a company (Kew and Stredwick, 2005:112). If a government passes new rules concerning the transportation of products, this can adversely affect profit margins. In addition, for multinational corporations, there are the international regulations to contend with which make procedures that businesses are compelled to observe in order to access the foreign markets. The political atmosphere of the place of operations has a considerable effect on the success or failure of the business. The political concerns that Kodak must constantly refer to, particularly as it expands to other nations, are regulations that concern the environment, antitrust regulations, political stability, tax regulations, and foreign trade laws. The political circumstances brought about by globalization are something else that Kodak should consider. Economy A business must also be efficient in observing its nation’s economy, and understanding how to react in tune with it so that it does not suffer from unexpected losses. Economic aspects determine how a business invests in its potential growth, how it promotes its products or services, and the kind of consumer group that the business will pursue. Economic concerns that Kodak has to consider include the current inflation rate, capital markets, and tax rates. Eastman Kodak is currently behind the influence curve of its business rivals (Symonds, 2006). It has a responsibility to itself to ensure that unnecessary costs are avoided. While it has already launched operations in other nations, it is important to consider the purchasing power of their populations, and GDP trends prior to effecting any further moves (Ramaswamy & Namakumari, 2005). An additional financial concern is cost and availability of labor. Kodak has transported much of its workforce to Mexico. This move could result in the decline of sales as the purchasing power of the Mexican populace cannot be compared to that of America (Hamm, Lee & Ante, 2007). Competition If a business is relatively new, it would be advisable to enter a market that does not have acute competition. The failure or success of different competitors also affects a business’s marketing planning. For instance, if a long-time business rival abruptly decides to quit the business as a result of financial losses, then a business will have to alter its planning in order to make the most of the situation. The technological environment is one area where Kodak should concentrate on improving. The firm should focus on new advancements in technology shifts from the lab to the consumer market. It should also focus on telecommunication infrastructure, and the availability of the internet (Hunger & Wheelen, 2001). For this to take place, its research should be well conducted, according to the stipulated objectives and visions of the company. Kodak might consider creating a reputation for itself as the producer of various parts, contrary to its competitors. Public Opinion Any type of public row can be destructive to a businesss image (Kanungo and Jaeger, 1990:48). The negative public opinion of a business can mar sales, or result in an increase in sales if it is a positive company report. A business can also affect public opinion by using human resource specialists to release company information to the public. It is vital to constantly keep an eye on external forces in order to steer clear of potentially objectionable surprises. A business can acquire a plan that will seek to constantly monitor external forces and analyse the target market. This can assist the business in discovering opportunities the moment they are available. A business will also be able to become aware of potential threats before they can influence the business’s profit margin. Also, it is important to ensure that the business workforce, as a whole, is aware of the importance of watching external forces. Workers can be encouraged to inform the management, when they notice any new trends in the market, or detect new competition coming into the industry. How a Business can adapt to External Environmental Factors Organisational responsiveness defines the propensity of a business to react to its external environment in a suitable manner. A clearer description asserts that a business’s reaction is determined by the aggressiveness of its marketplace policy. In the case of knowledge-intensive business establishments, their reactions to the external environment show their ability to react favourably to opportunities. Business has to acclimatise to its environment to make certain its survival. The function of business is fundamental in that it is a vital establishment that greatly benefits society in the production of products as well as services, the generation of job opportunities, and the overall development of the nation’s economy (Martin, 1990:95). Therefore, the survival of companies should be ensured, as their flourishing results in a more developed economy, and the improvement of the lives of the general society. There is figurative association between business establishments and their external environmental factors. Usually, businesses affect and are affected by external environmental factors. These forces are not static, and so keep changing in much the same way as the business itself (Brooks, 2004:69). A specific company may be unable to transform its environment by itself. However, when in league with other companies, it might be able to change its environment to be in its favour. The advantages to studying the external environmental factors include the formation of far reaching strategies, as well as the enduring strategies of the business (Brooks, Weatherston and Wilkinson, 2004:98). The environmental investigation procedure is comprised of four chronological processes. These are monitoring, scanning, assessment and forecasting. Scanning involves the common observation of all environmental aspects and their relations with each other (Morrison, 2006:96). Monitoring, on the other hand, is concerned with observing the environmental trends, events, and activities. Forecasting has to do with forming credible predictions of the scope, direction, and force of environmental change. The function of assessment endeavours to respond to questions concerning the key problems caused by the environmental factors, and the implications of such concerns for the business. Importance of Business to Adapt to Its Environment (a)   To meet Business Goals If a company is able to adapt to the external environment factors, it will be able to realize its business objectives such as development, employee satisfaction, realising high proceeds, producing ever more cutting edge products, and serving the community at large (Martin, 2002:76). If the company appreciates the community culture, it will be easy for it to realise profit since after changing to the external environmental factors; it will be easy for the company to strategise on how to carry out business operations in profitable ways. In addition, the firm will now be able to afford the separation of profit centred activities from other functions. The business will now be in a position to compete for a market share for its services as well as goods. For the attainment of each of its objectives, any company has to familiarise itself with the business environment in which it operates. (b)   Improves Decision Making Comprehending the works of the nation’s financial system is actually a way of ensuring the improvement of decision making functions. The decision makers of a business should, thus, examine the financial environment, and seek to understand how it can be a barrier to the decision making procedure. This includes perceiving both the macro as well as micro environments and adapting to them. Adapting to a nation’s political environment is also another fact that will contribute towards decision making. A business is compelled to make decisions that are in sync with a nation’s political environment (Needle, 2004:58). Due to the influence of politics, any business that does not comply with governing regulations is likely to be penalised for its actions by being deprived of its operating license. Operating licenses are crucial, particularly to the firms that specialise in mining, banking, or the export sector. It is also important for the business to function in a society without violating the acceptable cultural values in its societies. If it antagonises its consumer demographic, even if unintentionally, it is likely to lose support, which will, in turn, result in losses (Rugman and Collinson, 2006:88). (c)    Product Development Businesses should seek to develop their products to be in line with the preferences of the cultures in which they are based. For instance, a clothing company or fashion label that makes the decision to base itself in the Middle East has to be prepared to find innovative ways of making the ‘Burka’ as well as the ‘Thobe’ (d)   Staff Motivation Sometimes, particularly if the business is operating in a foreign land, its directors may find that they have different working principles from their workers. It is important for a business’s managers to understand that the workers are affected by their community’s culture. Instead of accusing the workers of not embracing good working behaviours, the managers can endeavour to change or shape their workers’ attitudes. Training can be carried out, if necessary, so that the workers are well informed of the expectations of their employers. In conservative cultures, seeking to encourage workers to tap into their creative minds by asking them to demand for their rights in every aspect may go against the cultural norm. Even when motivating their employees, managers should not seek to flout government rules. (e)    Investment and Business Growth Considerable business advancement as well as investments is a significant factor that makes businesses familiarise themselves with their operating environments. A business’s economic environment is quite important. This is especially true where foreign investors are concerned. In late 2003, Kodak announced that it would launch a policy that was digitally oriented in order to increase its output. To date, it has realized some revenue growth in some digital markets such as the production of digital radiography operations, digital cameras and computed radiography. It also stated its aim to become a recognized leader in variable-data high-speed inkjet printing. This would improve Kodaks standing in the digital marketplace and balance its current operations. If it is successful in realizing these achievements, they will reinforce the companys confidence in its business strategy. Kodak will be able to work on its competence in digital markets, which are marked by constant swift technological changes, aggressive pricing, and tighter profit margins. References Brooks, I. (2004) The international business environment, Financial Times -Prentice Hall, Harlow. Brooks, I., Weatherston, J. & Wilkinson, G. (2004) The international business environment, Prentice hall, London. Daft, R.L. (2010) Understanding the theory and design of organizations, South-Western Cengage Learning, London. Dibben, P., Wood, G., & Roper, I. (2004) Contesting public sector reforms: critical perspectives, international debates, Palgrave, London. Gallos, J.V. (2006) Organization development, Jossey-Bass, London Harris, H. (2003) International human resource management, Chartered Institute of Personnel and Development, London. Hamm, S., Lee, L., & Ante, S., E. 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