This is solution of BTEC HND Business environment assignment given in HND College, discuss the case study for British Airways and EasyJet.
1.1 Purposes of different types of organisation
Purpose of different types of organisation is as follows:
Private Limited Company (‘Ltd’): This type of organisation is established with a purpose to earn maximum profit by offering certain product or service to the market. Market forces such as demand and supply plays an important role behind the decision making process of this type of company.
Franchises: Business organisation following franchisee model are focused on using the brand value, reputation, expertise and experience of the franchisor. McDonalds and KFC are best example of this business organisation. Franchisor also gets substantial amount of fees in name of licence and its brand value gets widespread footprint (Kaplan & Norton, 2001:32-37).
Public Limited Company (‘Plc’): purpose of public limited companies is to engage with public by offering its shares of the company, and then use of that fund into further development and growth of the company. British Airways is a plc type of business organisation. International Airlines Group (IAG) has acquired British Airways plc.
Sole Trader: there is substantial presence of Sole traders in UK business as well. Sole traders are generally individuals who own their business without any partners or any other funder. Hence the core purpose of sole trader is to have complete control of the business, and to channelize all the resources in such a way that the organisation is able to generate maximum profit with optimum use of resources.
Partnership: partnerships are formed in order to share both risks as well investment in the business. At times a partner might have technical expertise whereas other partner might have funds. Hence it utilises the strength of partners in establishment and functioning of the business (Cherunilam, 2010).
1.2 Extent to which an organisation meets the objectives of different stakeholders
Various types of stakeholders and extent to which British Airways has met the objectives of different stakeholders is as follows:
Suppliers: For BA, Boeing and Airbus are two primary suppliers of aircraft and enables BA to function. For suppliers the core objective is to ensure a transparent transaction between them and the BA. For any supplier having a clarity of its procurer’s business is an important aspect as it helps the supplier to accordingly fine tune its business strategy. In this regard BA through its dedicated supplier channel has been addressing all the issues and concerns of its supplier. It also uses this channel to ensure that its supplier are well informed about its business environment(Wetherly & Otter, 2014).
Customers: Those people who travel with BA are one of the key stakeholders for the company, as customers are responsible for company’s revenue generation. For a customer the main objective is to expect a high quality of service with an efficient and timely service.BA has been successfully providing in time and high quality flying services to its customers. It has also setup various customer loyalty programmes to reward loyalty of its customers.
Employees: These are the internal stakeholders for BA. For an employee objective is to expect a stable and healthy work culture along with various benefits and equal work opportunity. As an employer BA has always ensured that it provides a healthy environment for its employees and has been ranked as one of the top employer in United Kingdom consistently. Although in 2009-2010 it had to reduce its workforce due to recession, but then it had no other option.
Overall it can be said that up till now BA has been successfully fulfilling the objectives of all its stakeholders.
1.3 Responsibilities of an organisation and strategies employed to meet them
British Airways is a leading airline in United Kingdom, leadership position means that it has to lead by example when it comes to fulfilling its responsibilities towards various entities. These responsibilities and how BA has used different strategies to meet them is as follows:
Responsibility towards environment: every company today has been focusing on promoting its business in a way that it remains environmentally sustainable. Similarly BA also has been playing important role in fulfilling its responsibility towards environment. It has set goal for itself to reduce carbon emission to a significant level by 2015. In order to achieve its target it has established dedicated business functions which are focused on this responsibility itself. It has also initiated a programme known as OneDestination which focuses on growth of BA in a responsible way towards environment, local communities, partner organisations and individuals.
Responsibility towards society: through its OneDestination programme, British Airways is committed towards development of strong community level partnership in the communities in which the company functions in both UK as well as overseas. BA has been funding more than 40 charities in order to fulfil its social responsibility (Morrison, 2011).
Colleague engagement: British Airways has several programmes through which it fulfils its responsibility towards its employees. For example it has provided easy means for both current and retired employees to donate to charity through its payroll giving scheme itself. BA has also been involved into supporting Cancer Research UK, through its annual programme known as ‘Race for Life’. Till date BA has successfully raised 8, 00,000 GBP for cancer research UK.
Apart from above mentioned stakeholders towards whom BA has responsibility, it also has responsibility towards its stakeholders and employees. Which is fulfils through dedicated programmes (Halbert & Ingulli, 2011).
1.4 How economic systems attempt to allocate resources effectively
Every region and country has different types of economic system in which various business organisations function. An economic system establishes a system in which consumers and suppliers transact with each other based on various market forces. Resource allocation is the most critical aspect of any economic system. The way a particular economic system allocates resources defines the characteristics of that particular economic system. For example in a Free Enterprise Economic system allocation of resources is done purely on the basis of market forces of demand and supply. That is why allocation of resources is directly proportional to the demand of particular product services in the market (George, 2012).
In a country which is driven by Command economic system, entire resource allocation exercise is done by the planning authority of the government. Earning profit is not the main motive behind the resource allocation in such system.
Another form of economic system known as Traditional Economic System is driven by price factor when it comes to resource allocation. Considering case of British Airways it can be said that the company operates in a mixed economy system. That is why both UK government as well as private players are responsible for resource allocation.
Hence it can be said, that in order to ensure smooth functioning of an economy it is important that the resource allocation takes place considering the availability and importance of resources. At times illogical resource allocation might also lead to scarcity of the resource in the system.
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1.5 Impact of fiscal and monetary policies on business organisations and their activities
Fiscal policies are formulated in order to have impact on the economic activities whereas monetary policies are used to control the macro-economic variables which have impact on the economy. British Airways, has it’s headquarter in United Kingdom, hence it is affected by various fiscal and monetary policies which exist in the country.
For example fuel surcharge imposed by government of UK on aviation fuel is one fiscal policy which has significant impact on carriers like BA. Due to imposition of fuel surcharge airfare rises significantly. End customer which is more concerned about the overall fare does not observes the fuel surcharge imposed by the government, and hence creates a negative image about the airline. Government imposes such surcharges in order to collect additional funds for further rebuilding and development of the aviation sector and infrastructure associated with it. Landing fee, airport charge, etc. are various such surcharges which constitutes for more than 20% of the total fare in United Kingdom. Due to this reason over a period of time BA has been witnessing decline in its customer base. Hence government and central banks should focus on collecting revenue from any other alternative sectors such as by imposing taxes on tobacco products or alcohols etc. Rise in price of essential requirements such as airfare has significant impact on both the company as well as an end customer.
1.6 Impact of competition policy and other regulatory mechanisms on the activities of a selected organisation
For ensuring a competitive business environment government makes various kind of policies in order to regulate and keep a control on the competitive environment in the region. In United Kingdom also there are several competition related policies which are used by the agencies from time to time in order to ensure a level ground for the companies. In this regard British Airways along with Virgin Atlantic were found responsible for price fixing of long haul flights. Hence OFT also known as Office of Fair Trading imposed a fine of 120 million GBP on British Airways. British Airways was penalised through Competition Act of 1998. Similarly under Civil Competition Law also BA was found indulging in fixing of surcharge level. Thus it can be understood that through imposition of these kind of laws and policies UK government has ensured that there is no disparity among the business organisations working there.
However impact of these kind of competition policy at times is not positive for the organisation. For example when British Airways was exposed in surcharge fixing then it faced wide spread criticism from all the quarters of society. Such incidents results into negative brand publicity and hurts public faith on the company. That is why it has become important for the companies to ensure that their operations and all other activities should adhere to various rules and regulation which is laid down by the authorities. In this way they will not only help government but these companies will also help themselves by working in a legitimate business environment.
In order to strengthen position in the business environment companies have to make strategies which not only focus on the market structure but also keeps an account of challenges which a business might face. Another factor which has impacted business organisations these days is international trade. In order to expand importance of international trade has grown significantly. Thus this particular report will focus on decoding all such aspects and their role in growth of a company like British Airways.
2.1 How market structures determine the pricing and output decisions of businesses
In a market there are various characteristics which shape the overall behaviour of the market. Intensity of competition, spending power of consumers, number of business organisations functioning in the market place etc. are attributes which collectively creates a structure of the market. These attributes play an important role in deciding the way in which a market functions. Hence if a market is full of consumers who does not have enough spending power then launching a luxury sedan will serve no purpose for the company. Hence these days it has become critical that companies should focus on understanding the overall market structure before deciding their sales and marketing strategy.
There are various types of market structure which exist in contemporary business environment, these market structures are:
- Monopolistic Competition
- Perfect Competition
Considering case of British Airways, then BA can be slotted to be working in an Oligopolistic market structure. In this kind of market structure market is dominated by small number of firms who have complete control of the market. Similarly UK’s civil aviation industry is also dominated by only few major business organisations. In this kind of situation pricing and output decision is in complete control of the companies. British Airways has enjoyed a leadership position in British aviation sector along with other competitors such as Virgin, EasyJet etc. With limited set of options in front of customers they are bound to use the product or services offered in an Oligopolistic market structure giving a free hand at times to companies to decide their pricing structure. This is one major reason due to which even in case of poor demand the airfares remain on higher side only. Also in this kind of market structure entry barriers are high. Which ensures that number of firms remain less in the market.
2.2 Way in which market forces shape organisational responses using a range of examples
Companies such as British Airways are highly impacted by various market forces. In fact many times these market forces are responsible for shaping the entire business strategy of a business organisation. Industry considers Porter’s five force model when it comes to understanding of what all market forces exist today. These are:
- Threat of substitute from competitors
- Intensity or level of competition
- Threat of new entrant
- Bargaining power of supplier
- Bargaining power of customers (Porter, 2011).
In case of British Airways market force which might have impact on its business is the threat of substitute from competitors. It is a well-known fact that British Airways have been catering to relatively high end segment of market. Which has created a void in terms of services to budget travellers. Due to this reasons several rival companies have been aggressively offering budget airfares or launching special airfare sale from time to time in order to capture this segment of customers. Due to this reason since last 4-5 years British Airways has also started focusing extensively on its pricing strategy and has been offering airfares on several routes at relatively lower prices. This strategy clearly indicates that how a particular market force shapes the organisational response of an organisation.
2.3 How the business and cultural environments shape the behaviour of a selected organisation
Both business as well as cultural environment play significant role in shaping the behaviour of a business organisation. British Airways has always reacted to these changes by developing a new strategy. For example over a period of time there has been specific stress on reducing carbon foot print and helping in creation of healthy environment. In order to tackle this change in environment, BA came up with a specific plan to reduce its carbon footprint by 2015. Another example which can be considered is of low cost flyers. With increasing inflation and economic crisis traveller these days prefer low cost airlines. This has resulted into rise of many LCC in British Aviation sector. BA also launched its own services which was focused on catering to budget travellers. Thus through these examples one can clearly understand that how BA has been responding to change in business as well as cultural environment (Gregory, 2010).
2.4 Significance of international trade to UK business organisations
As a country United Kingdom is relatively small when compared to countries like China or United States. This means that amount of business opportunity also stagnates quickly for any business organisation. That is why international trade today is highly significant for the companies who are based in United Kingdom. For example British Airways after conquering British Aviation sector expanded rapidly in other countries like US, Middle-East etc.
Operating beyond UK market has helped BA to grow significantly and offset any economic recession related issue. Although initially it did suffered setback in terms of laying off of employees but eventually it recovered (Airways, 2011). International trade helps organisations to look into new segment of customers. Similarly BA has focused on offering high quality services in regions such as Middle-East which has resulted into benefit for the company. Overall it can be said that international trade is not only helping company to expand rapidly but it has also helped the country in getting crucial foreign exchange.
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2.5 Impact of global factors on UK business organisations
Global factors have played significant role for a company like British Airways. For example political condition of particular country such as China does not permit liberalisation of the economy, which prevents companies like BA to expand in such markets. Similarly technology is another global factors which has helped BA to sustain in this highly volatile market. Today with presence so many online travel portals and ticketing portals, reach of British Airways has increased significantly among the customers. Also there are various countries where policies also play an important role as a global factor. For example there are few countries which are not open in terms of foreign investment. Which creates issue when a company like BA want to expand in the market (Grundy & Moxon, 2013:55-61).
2.6 Impact of policies of the European Union on UK business organisations
Policies such as restriction on trade with any external trade party has impacted various organisation in UK. As per the policy EU member states are restricted to indulge in individual trade with non-EU member state. That is why at times due to this kind of policies roadblocks are created in path of company’s expansion. However there are other policies as well which has proved beneficial for companies like British Airways. For example free trade zone in EU has helped company to expand rapidly within EU. Overall it can be said that at times too many policies lead to policy paralysis for many businesses. Hence it is important that policies should be made in accordance with current business environment.
Importance of international trade, trade policies and global factors are crucial for growth of companies today. That is why it has become important that business strategies are made in such a way that it is not hinders in progress of the company. Also global factors should be considered extensively when a company plans to expand globally. With a well-balanced strategy companies can grow rapidly even in a highly volatile business environment.