Business Organizations in Britain - Essay Example

Topic: Business organisation If economies of scale are so important for business organisation why are there still so many small and medium sized firms (SMES) in Britain? It is the general conception that economies of scale and scope can be achieved only through big private innovation and economic activity. In a way innovation and economic activity are carriers of business organisation in industrialised economies but these traits are better managed by SMEs without impeding innovation and competition at the local level. According to Parto & Saeed (2008) it is wrong to assume that big hierarchies and market structures block innovation and has associated three forms of capitalism with specific countries like the United States is competitive in form, Germany is cooperative and the United Kingdom is personal. As such a firm’s response to market changes is structured by its form of capitalism, which has its own features like particular management structure, systems, culture, and legal governing bodies. Thus, success and failure of an enterprise depends on its investment strategy in different system structures and personnel. Accordingly, the British SMEs follow the personal form of capitalism. It is significant to verify how this personal form of capitalism has helped the British SMEs to flourish. Let’s consider some stats on British SMEs in this regard (Chandler [1990]. According to BT Business special report by Bourne (July 2007), importance of small businesses in British economy can be judged from the number of enterprises in the UK, which is 4.3 million, 99.3% of which have less than 50 employees on their roll. Small businesses generate about 10.3 million jobs in the UK, which is 46.8% of all jobs. Turnover of 36.4% UK businesses is above £800 billion annually. Technology is a big reason according to BT Business report in the expansion in SME’s and it is an add-on to the smaller businesses tradition of collectively working by building further on personal relationships. By getting their business online, SMEs are trying to scale the ladder of progress. Some stats to consider: 60% businesses have online presence, 2% use the online medium for advertisement, 9% are listed on other websites, 8% have a totally dedicated online strategy and 21% have no web presence. About three-quarters of small businesses (74%) view the internet as an important tool in achieving their business targets in the approaching 5 years and 63% businesses assume that they can better compete with bigger players and varied markets through internet. Personal capital being the plus factor of British businesses, they work in the direction of personal relationship and winning the faith of their customers, suppliers and partners in the similar or different business or sector. Bigger businesses are becoming less personal with the technological advancement but smaller firms are still reaping the benefits of personal relationships building. Friendly recommendations top the list in having confidence on a business. Regular contact, information gathering and online presence came afterwards in the order as they appear. Coming back to the concept of larger firms by Parto & Saeed (2008) enjoying economies of scale as supported by Lazonick’s [1991] view that being vertically integrated and strategically elastic are better in innovation process resulting in better economic growth. The concept is supported also by Florida and Kenny [1990] that unlike smaller firms big corporations are better equipped in the innovation and growth process than smaller firms, in their capacity to use technology, investment and set organisational structures. Regardless of arguments in favour of big corporations, things have changed post-World War and post-Fordist industry scenario in the UK. Emerged trends have reduced production cost, business tradition has been reinforced with elastic work arrangements, and added growth in local and area based product expertise. The appearance of clustered small and medium businesses known as “industrial districts” is the result of post-Ford liberal policies of the government of UK like other developed and developing countries. SMEs are in a better position to bigger companies in tackling and innovating against ever changing consumer tastes and behaviours than vertically grown big corporations. Whether smaller firms are more suitable in innovation and in terms of taking benefits of scale, scope and having far-sighted effects on the economy, is not confirmed but long time back in ([1890] 1959; [1919] 1920), Marshall has dwelt on the UK small and medium-sized businesses in textile sector, pointing out the benefits SMEs had from working in groups, known as “network effects” in which total benefits achieved by a cluster of businesses are greater than the total of all benefits reaped by a single business. According to Marshall, some industry categories could be more effective in production as there were two options – vertically integrated production or via industrial districts. The industrial climate was conducive in transfer of knowledge and creating faith, which helped in encouraging innovation in British textile industry (Marshall, ([1919] 1920). Belussi [2004] has also elucidated such an industrial environment in UK small and medium enterprises that helps in reaping the benefits of industrial cluster accruing through copying, knowledge exchange, fast follow-up, introduced with technical updating and innovation along with. SME business environment takes a flexible approach towards equipment usage, skilled man-power and working environment, which creates equilibrium between competition and cooperation and helps in innovation (Parto & Saeed, 2008). It is not just the issue of economies of scale, understood as the most crucial issue in business organisations in the UK small and medium enterprises; there are other key decisions made by SMEs that has contributed in making UK the safe haven of exhibiting entrepreneurial talent. The secret of SMEs success lies, according to Samson & Roser (2007) in a number of Dos and Don’ts. They have analysed some of the successful following businesses: The Body Shop – the ethically responsible business venture that saw the heights under the able management of Anita Roddick. It was into cosmetics retailer. Others include Last FM – the internet radio and one of the biggest social music platforms. It was acquired in 2007 by the American media company CBS in £140 million and Webvan -- an online credit and delivery grocery business that was started at the peak of the Dotcom boom but declared bankruptcy in 2001. Let’s do a case study on The Body Shop to find out the strengths and opportunities that the company utilised to its best interests in attaining cherished business heights. The Body Shop – a case study As it is common knowledge that The Body Shop International plc is a major international branded retailer of personal care products for the complete body, it ranks on 27th number, as the most reputed brand internationally. It has pursued from the very beginning the marketing strategies to reach the level of performance, it has attained. It recognized the opportunity, about 30 years ago, to manufacture body care products from natural ingredients. At that time, high street retailers were selling similar products without any information on raw materials and their benefits. The Body Care provided all the detail of the ingredients and their properties with the added facility of refilling the product in the used bottles with a 15 percent discount. The product pricing was reasonable in the sense that it was priced in between the common and exclusive brands. While keeping away from traditional marketing, the company advertised with offbeat brochures, exotic ingredients, not offering the products in sales to enhance the brand image along with being extremely reachable to press. The company’s founder – Roddick – made social and environmental concerns a major cause to fight against, as the marketing basis of the body shop. The company gained long-term competitive advantage over its competitors by practising community trade programs, running campaigns against domestic violence in Canada and creating social awareness against experimenting the products on animals. It took great concern in reducing waste by practising ‘recycling’ of bottles and containers, used for packaging its products. The body shop has endeavored to provide value for money to its existing and new customers – the strategy with an objective, called ‘masstige’, providing new products prepared with natural herbs, outsourced by community trade program for its intelligent customers. The company believes in developing a rapport with its customer – basically working women and runs campaigns to impress the adult, independent, self-conscious women. The company’s stores are always within easy reach of its customer, whether it is a store, The Body Shop at Home, or an e-commerce option. To serve its customer in the best possible way, it is conducting global customer surveys. A new change in leadership and outsourcing of manufacturing process has enabled the corporate leadership to focus on improving marketing as well as logistics and products. Another feather in the cap of the body shop has been introduction of SAP technology, which has facilitated stock forecasting, enabling the company to react smoothly to changes in demand for its products . Strengths: • Launching of new products • Strong ethics based on value (CAS) • Acquisitions • Sound marketing and logistics • New refurbished stores • Customer oriented • Well known brand worldwide • Quality processes (SAP) Opportunities: • Launching of e-commerce site in USA • Introduction of new products • New design concepts • Trial of new Make-up Merchandising system • Increased advertising to capitalize on concern over fitness and health Considering the strengths and opportunities, the Body Shop had and utilised in its favour, it managed the negative impact of dollar’s exchange rate and threat of image loss due to takeover by LOréal is a temporary matter as the Body Shop’s Proprietor Anita Roddick is still there as director of the company board. The case study of the Body Shop indicates that SMEs need to be different from their competitors to be identified. The Body Shop opened its centres throughout the continents and created a niche in social responsibility by producing holistic beauty products. SME’s can work wonders by collaborating with dependable partners like Last FM partnered with Audioscrobbler (a system that creates personal online music profiles by overlooking what users play on their computers) to create awareness and audience attention to their offering. The X factor also adds value to a product but for that it must be unique and distinct to grab people’s attention. The Body Shop created that X factor by showing its allegiance to the environment and health cause for beauty purpose. It is also essential Samson & Roger (2007) for SMEs to IT-enable their business processes so that they dedicate their resources on quality improvement and pay full attention to business success. The Body Shop has all its quality processes SAP-enabled. According to Samson & Roger (2007) Britain’s SMEs should not make such promises which cannot be fulfilled as in the case of Webvan. It couldn’t deliver products to customers place in the stipulated time period, thus loosening their confidence and business as well. SMEs should also not ignore partnering with supermarket chains, wholesalers and a network of grocery stores to boost their products’ sale. Depending all alone on their own resources can limit their growth. As per the BT Business report (2008), new entrants in SME business can change the rules in their favour with revolutionary new ideas. UK is rich in talent that can create entrepreneurial economies and societies as “entrepreneurial engines” help in achieving sustainable progress and uniform society. SMEs have been named as super growth or high growth small and medium-sized enterprises (HGSMEs) due to their ever-increasing growth potential. They are better in creating job opportunities as well as introducing new products, processes, and business model innovations and find new markets. Some of them like Tesco and The Body Shop have been successful in creating seamless growth effects. Their growth has set examples for others to follow and change for better. According to Business Wire (2008) some of the major factors of their success have been innovation, higher education, networking, higher management skills, and speedy growth of small firms. SMEs are better placed in bringing new innovations to consumers. These new innovations help in propelling the growth engines of economy and generating more employment opportunities. They can change popular assumptions and rules of the business game. British SMEs are on the path of high growth, which they have been treading through network contacts. They can do better by developing relationships with bigger companies. Exchange of knowledge and division of innovative labour can increase the positive impact when shared between SMEs and larger firms internationally for seamless high growth. Super growth SMEs are in a way medium of innovation and “social transformers”. They have been crucial assets in bringing about revolutionary changes and instrumental in facing global challenges as well as enjoying their benefits. It is the new economy that is supporting the small businesses, where disadvantages of scale appear but they appear in other areas as well. Entrepreneurs need to grow their portfolio completely, not just concentrating on their current businesses but making new business strides. The example of Richard Branson is there to follow who took Virgin to new heights by going in for new ventures and not by managing his established organisation alone. It was his interest and the brand Virgin that fueled the growth engine. This growth of business of Richard Branson can not be viewed from business angle as it has been achieved not from the existing business but by cashing in on new business opportunities. Thus, Britain’s small and middle enterprises are reaping the benefits of their entrepreneurial skills by strategically investing in personal business structures. References: Bourne, V July 2007, ‘Small Business and the Internet’, BT Business Special Report, viewed 10 May 2009, < btplc.com/News/NewsListings/Searchnews.cfm?Timeframe=2007&criteria=podcasts - 42k ->. Bridge S, 2003, Understanding enterprise, entrepreneurship, and small business, Palgrave Macmillan, viewed 10 May 2009, . International think tank message: high-growth small and medium-sized firms and innovation fuel entrepreneurial engine, Business Wire, 12 May 2008, viewed 10 May 2009, . Parto & Saeed December 2008, ‘Innovation and economic activity: an institutional analysis of the role of clusters in industrializing economies’, Journal of Economic Issues, viewed 10 May 2009, . Samson & Roger 2007, ‘The secrets of SME success’, viewed 10 May 2009, . Read More