Business Environment Issues Affecting Organization - Essay Example

Topic What are the key issues in the external and competitive environment affecting your organization? Discuss the opportunities and threats foryour organization? Executive Summary Strategic management theory normally uses a model to explain business realities. Such models include Porter’s five forces model, and SWOT which we attempted to explain the external and competitive environments of Morrison Supermarkets. Analysis revealed the prevalence of industry opportunities over the number of threats in supermarket industry. This simply means that decision makers like manager, have more reason to cause investors to put their money for firms in the industry. The opportunities taken advantage and threats overcome will form part of the strategy to be formulated and implemented to attainment of corporate objectives and goals. Introduction: This seeks to prepare a management report to be submitted to the CEO of the organization by applying relevant, correct strategic management theory to determine the key issues in the external and competitive environment affecting Morrison Supermarket1 as an organization. By so doing, the paper aims also to discuss the industry opportunities and threats. 2. Analysis and Discussion 2.1 Strategic management theory and models Strategic management aims for attainment of corporate objectives. Strategic management theory could use the models called Porter’s five forces and SWOT to determine the external and competitive environment affecting Morrison Supermarket. Before proceeding further, therefore, we have to understand the meaning of the models. SWOT stands for strength, weaknesses, opportunities and threats. As to how the models relate to each other, Porter’s five forces will dissect the facts classifying the effects of the industry forces to the profitability2 of the industry. For example, the ease or difficulty of entry, which is part of the model, assumes that the presence of entry barriers is an opportunity since less competition will allow present players to have wider area for influencing prices. SWOT includes the company’s strengths and weaknesses as opportunities and threats but we are only interested on the latter. The opportunities and threats that will be derived will be used to attain corporate objectives. As to how to attain objectives, industry opportunities must be taken advantage while industry threats must be avoided or overcome. The taking of advantage will be in the nature of the strategies that need to be formulated and implemented to attain the desired objectives of Morrison Supermarket. Strategies must be prepared in relation to industry opportunity and threats as well as company’s strengths and weaknesses. However, since strengths and weaknesses are not made part of this analysis, it must made clear that any strategy that may be may not fully consider the complete model. 2.2 Industry Opportunities Using available sources from company’s websites and other sources Morrison faces the following industry opportunities using Porter’s five forces competing model: 2.2.1. Difficulty of entry by competitors New entrants will find few big players, which make them concentrated, making it difficult for entry. The unlikelihood of new companies in entering the market lies in the difficulties of accessing distribution channels. At any possibility, one could make entry through merger3 with existing companies or and by acquiring or purchasing the said of some existing business entity but this could be difficult in the absence of more resources. 2.2.2. There is great competence and capability of industry players to expand into convenience stores and financial services Porter’s five forces model considers also threat of substitutes that influence the industry. The presence of major competitors in the nature of other supermarkets4, inclusive of convenience stores, takeaways and restaurants, the supermarket chains5, particularly the leaders, have caused industry players to discover and formulate ways to ward off competitions. The convenience sector expansion as adopted by Tesco Metro and Sainsbury’s permitted supermarkets’ presence in High Street retailing. The big reality of the concept of substitutes in economics6 has manifested itself to be a threat and it is by this reason that Morrison too resorted to expansion to convenience stores.7 Reports especially during 2002 had it that about 60% of the major supermarket chains in the West moved into financial services. Tesco and Sainsbury’ obvious diversification8 moves into this sector in recent years have produced remarkable gains as complemented by home ware and clothing which actually helped the company to branch out its product range into goods that could produce higher margins. Evidence of such events appears to have been proven by Tesco and Sainsbury’s entry to the market through the introduction of Tesco Metro/Express and Sainsbury’s local formats.9 2.2.3. Bargaining power of customers is low. The effect of customers possessed or situated to have low bargaining powers will cause or allow the firms in the industry virtually make a supermarket patron to buy what or she wants. This is descriptive of the situation that manner supermarket shopping as practiced may me termed “one-trip” shopping. The unabated unrelenting expansion of supermarket outlets placed consumers to choose from a number of different supermarket chains in their immediate locality causing the low bargain phenomenon. This is the reason why supermarkets do actually compete by broadening customer services via various modes including the use of banking and Internet shopping. Sainsbury’s Nectar card was actually pursued as an example where principal supermarkets tried to increase loyalty schemes. 2.2.4. Supermarkets strengthened their position with high bargaining power over suppliers The advantage of market leaders in the supermarkets like Morrison was felt as they made their supply chains into large vertical integrated networks. This opportunity then enabled them to have economies of scales10 hence lower cost to do business and as a result, low prices from suppliers are expected. This is an opportunity since it believed that the supermarket industry will enjoy a growth in short to medium terms but described to be non-stop with major contributions claimed to be diversifications into a range of non-food products and services, and the expansion into the convenience sector. 2.3 Threats to the business Proceeding now to other side of the coin, we found at least one industry threat, which is presence of high risk for due to lack of diversification. Price war11 could only be the result of strong rivalry among a few, large and highly efficient supermarket chains as could be observed in UK supermarket. With customers’ major concern on price, price competition12 as part of war game among key players is tremendously serious, as pushed by high and shared economies of scales13. UK, through its rule making process,. however makes it unlawful to sell below cost. However, focus of competition14 is found not only on price, because differentiation is also practice under certain cases. Differentiation could take the form of expanded convenience store sector, non-food sales, financial services’ and the broader launch of customer loyalty schemes. 3. Conclusion The Porter’s five forces model, which we have applied to Morrison offered a cross section analysis of the supermarket industry and with model we were able to derive the opportunities and threats or OT from SWOT. Analysis showed a greater number of industry opportunities than threats. From the point of view of decision makers like manager, the industries have more reason to cause investors15 to put their money for firms in the industry. Translated into more specific terms, it is believed that there is a great probability16 that the positive events will happen thereby supporting the viability of the cash flow projections or estimates17 as prepared financial management experts for the firms in the industry. When computed under given financial models, this could actually be yielding positive net present of cash flows and, total assets18 and total value to the firm. When translated from the point of view of investors, stock prices19 of the firms in the industry could rise in the coming years. The opportunities made their showing very clear that knowledge of opportunities and threats would help companies in the attainment of corporate objectives and goals based on a wiser analysis on different subject areas to formulate and implement strategies.. Morrison Supermarket, therefore as a wise player in the industry company, needs to take advantage of the opportunities of the industry presently offered while being wise enough to minimize risks20 from industry threats. One practical advice would be for Morrison would to adopt a competitive advantage over its competitors other than the reality of price war. Another way of looking at the opportunity and threat is just like cost-benefit analysis21, where opportunities stands for benefits while threats for costs, where the company must resolve in favour of net advantage. 5. Appendix Figure I: Porter’s Five forces model, Reference: Wikipedia, (2007b), http://en.wikipedia.org/wiki/Five_forces 6. 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