This is a Business Environment Organization Purposes Assignment in which we discuss organizational types, objectives, national and market environment.
The business environment is ever changing however key aspects never change. The diagram below shows the business environment. Organisations have to be aware of their competitors, the industry as a whole and the wider environment. All of these factors affect the running of organisations and need to be studied as a result.
LO1: Understand The Organisational Purposes of Businesses
Q1.1 Identify at least four different types of organisations that exist in the U.K.
Select two types of organisations from those identified and state their purposes.
A description of an organisation: An organisation can be defined as a social or business unit, which comprises of people working together to achieve a common objective or goal. This goal can be either driven by profit motive or non-profit motive. Organisation is managed through an organizational structure with people having different roles and responsibilities managing the operations of it (Nickels et al, 2011).
Identification of four different types of organisations in the U.K. This could include defining their legal structure;
Four different type of organisation in UK are:
- Sole Traders: This type of business organisation is widespread in UK. It is mainly owned by a single person, decision making is quick in this type of organisation. Entire profit goes to the sole trader or owner of the organisation.
- Legal Structure: this type is easy to setup with minimum paperwork required. The sole trader has the entire liability of the business i.e. he/she is responsible for all the debts and profits of the organisation. Sole trader within the framework of law has to prepare and produce an annual accounting return for the purpose of accounting to the Inland Revenue.
- Purpose: Primary purpose of this type of organisation is to earn and maximize its profit out of the revenue earned. Through whatever services being offered a sole trader’s main motive is to earn maximum profit within the legal framework.
- Partnership: In United Kingdom partnership is also a popular form of organisation. Partnership is forged between two to twenty partners. Thus with each partner in the business contributing to growth of the firm through his unique skill set or money investment. Impact of profit and loss is distributed across all the partners depending on their stake in the business.
- Legal Structure: Partnerships between partners is setup through ‘Deed of Partnership’- a legal document which is made by the partners and witnessed by a solicitor. This deed legalise the entire partnership between all the partnership for example, their responsibility, profit sharing ratio etc.
- Purpose: Purpose of partnership is to setup a business through a collective effort (or investment) where every partner get his share of profit (or loss) based on his stake in the organisation. This type of organisation helps in distributing the risk based on the investment made by each partner.
- Companies: A company can be defined as an association or collection of individual which is owned by shareholders, who have authority to appoint the director of the company to run its operation.
- Legal Structure: A company has to be registered through various documents at Companies House in Cardiff. These documents such as Memorandum and Articles of Association clearly identifies and sets the internal and external relationship within company.
- Purpose: Purpose of the company is to offer a service or product to its customer along with ensuring that interest of all the shareholders remains safe.
- Franchising: This type of organisation is focused on hiring out or licensing of the core business idea, product or service to another party (franchisee) after the franchisee pays a license fee and various other cost to get a permission to use that brand or service. KFC is a typical example of this model.
- Legal Structure: Legality of this type of organisation is setup through formal agreement between Franchisor and Franchisee. Franchisee pays a specific amount of money for use of the brand, expertise and various other aspects related to the Franchisor.
Q1.2. Select an organisation of your choice and describe the extent to which this organisation meets the objectives of its stakeholders.
Selected Organisation: For this task selected organisation is Admiral Group plc. This organisation is a motor insurance company which has its head office located in Cardiff, Wales. Admiral group is also listed on the London Stock Exchange. With operations spread across 8 countries, Admiral group employs over 6600 people (Knight, 2010).
Stakeholder: A stakeholder can be defined as a person or an entity which has certain stake in a business organisation or a project. In case of a business organisations behaviour, stakeholders might not have interest in company’s day to day operations, however they are definitely impacted with company’s performance and growth. It can also be defined as a third party which has made significant investment or provided funds for the expansion of the company (Ramirez, 1999).
Different stakeholders for Admiral group are as follows:
- Admiral’s group board: Admiral’s group board comprises of all the executive positions which are responsible for company’s growth and operations. Various roles which are covered in the board are, Non-executive chairman, COO, CEO, Non-Executive Director, and CFO.
- Objectives: Objective of this type of stakeholder is to ensure smoothness in the key decision making process, and efficient management of the company.
- Employees: Admiral Group has approximately more than 6600 employee working across 8 countries. Employees can be categorised as internal stakeholders. In 2013 Admiral Group decided to distribute 1,500 GBP shares to its employees via its Employee Share Scheme, which in turn makes all its employee as shareholder as well.
- Objectives: This type of stakeholder i.e. employees are important for an organisation, as they are the one who drive the growth and expansion of the company. Their main objective is to perform their designated responsibility and add to company’s overall efficiency and productivity.
- Shareholders: Shareholders are one of the most important external stakeholders of the company. For Admiral Group shareholders have been a key component of its growth strategy. Shareholders invest in the company, and through investment received from the shareholders, company charts its growth path.
- Objective: Main objective of shareholders is to gain profit from company’s growth. Thus more the company grows and expands, better is the profitability for the shareholders. Through board of directors shareholder are aware of company’s growth, and based on the situation from time to time, shareholders raise their voice of concern regarding any poor decision made by company’ board.
- Subsidiaries: With more than 23 subsidiaries, Admiral Group has vast line of business spread across globe. These subsidiaries plays and important role in growth of company. Thus making them an important stakeholder in Admiral Group.
- Objective: Subsidiaries are more of an internal stakeholders, however their prime objective is to deliver the services or the product with best operation efficiency as established by the parent group. These subsidiaries also have to ensure that they are profitable for the parent group.
Admiral Group’s effort to meet objectives of its different stakeholders is as follows:
- Through its well-structured board of directors and corporate governance practises, Admiral Group has been actively ensuring that its board group’s objective of smooth decision making process and other important aspect are met without any delay or roadblock. That is why its board has complied with the code of conduct in all respect in 2012. With its comprehensive programmes of meeting and dialogue it has ensured that objective of efficient management is met properly.
- Admiral group has been working relentlessly to ensure that all its subsidiaries are performing in sync with company’s core objective of diversification and maintaining profitability. Through its flexible management approach the core parent group has been handling its subsidiaries. It has also established a second layers of management in these subsidiaries to ensure that there is no inefficiency in decision making process.
- For its shareholders, Admiral Group through its timely annual reports have been informing the shareholders about its growth. In 2013 it pain an interim dividend of 48.9 pence per share to its shareholders. Hence through dividends, profitability and timely communication Admiral Group has been meeting objectives of its shareholders.
Q1.3 Explain the responsibilities of the organisation you selected in Q1.2. In addition, explain the strategies employed to meet these responsibilities.
Various responsibilities organisations have to its stakeholders (Freeman, 2010):
- Ordinary general meetings for shareholders
- Annual reports, business reports
- Briefings on financial result, briefing on investors
- Work life balance for employees
- Work place diversity
- Respect for human rights
- Labour management relations
- Meeting of board of directors
- Company audits
- Environmental contribution to society
- Contributing to education
Admiral Group’s responsibilities to its stakeholders and how it meets these responsibilities:
- Maintaining Profitability from company’s operation
Admiral group being one of the top motor insurance company along with its other subsidiaries has to ensure that it maintains its profitability across the group and its companies. Because without profitability shareholders of the company will not be able to get return on their investments in form of dividends etc.
- How Admiral meets this responsibility: Admiral has always maintained a lean workforce in sync with its operational cost, thus reducing the cost incurred by the company it its operation and further boosting its profitability. Also Admiral Group has always diversified in the areas which have huge future potential such as various online portals catering to different segment. This has ensured that group remains profitable through diversification.
- Proper and timely communication to its stakeholders
With more than 20 subsidiaries, employees and shareholders, it is important for Admiral group to ensure that communication channel among the stakeholder remains in sync and seamless. In a volatile business environment it is important to ensure that there is no confusion or misinterpretation of company’s decision just because of lack of communication.
- How Admiral meets this responsibility: through use of various communication mediums such as Annual general meetings, Minutes of meeting of board’s meeting. Quarterly results communication, interim reports for shareholders and prompt announcement on its website and other communication medium.
- Efficient policies related to group’s manpower
Admiral group through its EDP (Employee Development Programme) spread across 8 countries have ensured that all of its employees are up to date in terms of their skill set. This strategy has ensured that employee can achieve their professional growth without becoming stagnant and inefficient hence contributing to company’s growth.
- How Admiral meets this responsibility: Admiral Group through its equity, reward and recognition, fun and good communication has ensured that employee satisfaction level remains upbeat and positive. Employees of Admiral Group receives shares of up to 3000 GBP every year.
LO2: Understand The Nature of The National Environment in Which Businesses Operate
Q2.1 Using a country or countries of your choice, explain how two economic systems attempt to allocate resources effectively.
Economic System: An economic system can be defined as an organised way in which a country, state or a region allocates its various resources for production and distribution of goods and services to its population. An economic system is driven by consumers and companies which are involved in production (Knight, 2013).
Types of Economic Systems are as follows:
- Market economy
- Command economy
- Traditional Economy
- Mixed Economy
Explanation of scarcity and resources in the context of economic systems
Scarcity is one basic and important challenge which all nations have to confront in terms of their economy system. Thus scarcity and resources for each nation is limited in nature. Some countries are resource rich whereas some are poor, in order to deal with such limitation, countries have been prioritising and allocating its resources in an efficient way to ensure that there is no or least possible scarcity of the resource for its people. Scarcity is a basic economic challenge. For example many countries in middle east are rich in oil-which is precious natural resource, but they are poor in other resources. Through proper coordination and understanding economic system helps such countries to exchange such resources with the other scarce resource.
Q 2.2 Using the UK as an example assesses the impact of fiscal and monetary policy on at least two businesses and their activities.An explanation of fiscal and monetary policy in the UK; Monetary policy can be defined as a policy framework which attempts to control macro-economic variables in an economy system through use of interest rates. Inflation is one major factor which the policy tries to control.
Whereas Fiscal policy can be defined as those policies whose main objective is to influence the level of economic activity through variation in various policies such as taxation system or government spending. In UK objective of government is to achieve inflation CPI to as low as 2%. Apart from lowering inflation rate, ensuring strong organic economic growth is another objective of UK government. UK government though its fiscal and monetary policies has also been trying to avoid falling in large deficit trap. Bank of England is the key agency which is responsible for decision on UK’s Monetary policies. Thus through variation in interest rates, BoE has been impacting on market growth. Thus Monetary policy is focused on a regulated flow of money in the market along with interest rates adjusted as per market condition (McCallum, 2014).
Choose at least two organisations to use as examples to support and reinforce your answer;
Marks & Spencer: M&S which is one of the retail giant in UK, has to incur added operational cost due to UK government’s decision of increasing Value Added Tax (VAT) to 2.5 %. This resulted into price changes across all the categories in which M&S use to operate. Thus it has to increase price of the items, inventory was updated, and retail price of each product was changed. This led to dissatisfaction among customers as they had to face sudden price hike hence impacting the overall business of M&S.
Audi: Audi is a luxury car maker, though it is a German car maker, it does have a significant presence in UK. Due to Bank of England’s decision to increase interest rates, CRR and SLR saving money became a more attractive option especially due to prevailing market condition. Hence with consumer focusing on saving, companies like Audi had to witness slump in their sale.
Identify and explain how the UK’s fiscal and monetary policies could impact on your chosen business organisations and their activities in the UK.
Admiral Group which is the chosen organisation has witnessed significant impact from UK government fiscal and monetary policies. For example due to Bank of England’s decision to increase interest rate in a financial year resulted into surge in saving. Due to which there was drop in purchase of new insurance policies since people were focused towards saving their money and take advantage of increased interest rates. Similarly government decision on taxation system has also impacted Admiral group. With increase in VAT there has been rise in the premium prices which has resulted into customer dissatisfaction especially if they are paying high premium.
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Q 2.3 Evaluate the impact of competition policy and two other regulatory mechanisms on the activities of a selected organization.
For this task British Airways is the chosen organisation.
Competition policy: For any free market, competition is an important aspect which seeks to promote and improve overall competitiveness of the market. Competition results into benefits to customers in terms of fair price and good quality of services. In order to achieve these aims in practise, competition policy is enforced. UK’s competition policy is an effective and flexible instrument to maintain competiveness in the market. However there is an important exception in UK’s Competition Policy, i.e. each case has to be judged on the basis of its impact on the public interest.
UK’s Competition law has four core components:
- Fair Trading Act 1973
- Competition Act 1998
- Restrictive Trade Practices Act 1976
- Resale Prices Act 1976
British Airways is a strong player in the aviation sector of United Kingdom. However there has been allegations against BA that it has been using its strong market position unfairly to competitor’s detriment. For example BA admitted its role in collusion over the surcharge which it used to charge from long-haul passenger. Because of which BA had to pay a hefty fine of 121.5 million GBP which was imposed on it by Office of Fair Trading (OFT) under the Competition Act 1998. Although with imposition of fine BA was able to get its case resolved, however major disadvantage it faced was that its image as a national carrier of UK got a negative publicity. People who were loyal customer felt cheated. Another major disadvantage which BA has to face is the distorted competition. Although it is a major player but due to state aid, and government’s policy to progressively liberalise the market has resulted into fare-war where other player operating on profitable routes are taking advantage of competition policy and increasing their market share through lower cost structure. Positive impact of the competition policy has been in terms of advantage to the end customer. Due to stiff competition quality of service offered to customer has increased significantly. Also companies such as BA has been accordingly improving their services and collaborating with other airlines. For example BA maintains a commercial arrangement with other airlines covering scheduled passenger and cargo services on various small routes (Jones & Sufrin, 2014)
OFT’s leniency policy under which company which comes forward to inform about its involvement in cartel conduct is given full immunity. Thus in case of price fixing over surcharge between Virgin Atlantic and BA. Virgin was given immunity. Although BA cooperated the OFT but it ended up paying fine imposed on it. Thus policy like this has negative impact on business. Despite of Virgin Atlantic’s involvement in the cartel conduct, it got immunity which was unfair for BA.
Also BA corporate conduct was scrutinised against the Civil Competition Law, for its fixing of surcharge level in collaboration with Virgin Atlantic. Although Virgin Atlantic was exempted from this investigation as well. Thus such policies has resulted into brand damage for BA along with heavy financial burden in form of fines. However positive of this is that BA has now enforced strong corporate governance practises and it conducts frequent financial audits to ensure there is no ambiguity in its processes.
LO3: Understand the Behaviour of Organisations in Their Market Environment
Q 3.1 Illustrate how market forces shape organisational responses using at least two organisations as examples and at least 5 market forces.
Two organisations used for this task are British Airways and P&G.
Market Force: market forces can be defined as those forces of demand and supply which represents the cumulative influence of self-interested buyers and sellers on price and quantity of variety of goods and services offered in a particular market. In simple words, excess demand results into price increase and quantity of supply to rise whereas excess of supply results into price crash.
5 market forces identified in UK are as follows ( Porter, 2011):
- Threat of new entrants
- Bargaining power of customers
- Bargaining power of suppliers
- Intensity of competition rivalry
- Threat of substitute products and services
One example of a market force in demand is ‘Threat of new entrants’ this force especially in UK’s retail sector has created huge impact, companies like TESCO, Sainsbury’s, M&S are ramping up their operation because of the new retail players in the market. New entrants in retail segment has resulted in price-war in the retail segment. With customer seeking more economical prices for the products, bigger retail players are trying to adjust their competition strategy.
Threat of new entrants: Due to threat of Low Cost Carriers (LCC) British Airways was forced to improve its operational efficiency and ultimately it got privatized.
Bargaining power of customer: Aviation sector is a price sensitive sector, thus when various LCC came into market, there was stress on the pricing strategy of BA. Unlike when it used to charge hefty margin on each ticket, customer now started looking for cheaper flying options, which eventually created demand for LCC.
Bargaining power of suppliers: P&G-FMCG major in United Kingdom has been negotiating hard with their suppliers on the wholesale price of the items. However with some major suppliers not supporting P&G’s pricing strategy they decided to move out of P&G product stable. This resulted into change in the P&G procures product from its supplier now and it offers them price at par with its competitor i.e. Unilever.
Intensity of competition Rivalry: Unilever and FMCG has been fighting hard to gain leadership position of UK’s FMCG market. In this rivalry if one company launches a product then the competitor launches the similar product in the market at relatively lesser price point. This has given consumer an option to explore multiple products at different price points.
Threat of substitute products and services: With threat in form of similar products and services FMCG major Unilever and P&G has been rapid in innovation of new products. They always try to beat each other in terms of introducing a new product in the market.
Q 3.2 In the last 100 years, the UK has drastically changed. Consequently, businesses operating in the UK have had to adapt their marketing mix offerings to capitalise on these demographic and cultural changes.
Assuming you work as a Business Executive for a supermarket chain operating in the UK, write a report to the Directors, explaining how the business and cultural environment in the UK can shape the behaviour of this organisation.
Organisation chosen for this task is hypothetical in nature and has been named as HYPO food retail.
Food retail has been an important aspect of entire retail segment. With evolution of time there has been significant changes in the way food retail has shaped up. Being a Business Executive of HYPO food retail, I will be sharing my insights on how business and cultural environment in UK has resulted in change of behaviour of HYPO food retail.
Hypo Food Retail’s growth
Over a period of time since last one decade, UK has been witnessing retail revolution food segment. Because of this revolution HYPO has also seen a significant growth as a company. HYPO’s focus has always been on offering food products which are economic in nature and have the best quality in the market. With this mantra HYPO has been able to capture a significant share of the market within a short span of time. Today HYPO has X% of market share of UK total food retail market.
Surge in fortune of HYPO can also be attributed to cultural and behavioural shift of people towards food segment. With a hectic life, people today have no time to search variety of foods in different shops. They seek a one stop shop where they can fulfil their food related shopping at an economic price point. HYPO has tapped this cultural change and has established its chain of stores in various part of UK. Quality of food be it processed or raw has been maintained to the top most level ensuring consumer gets the best quality product. This focus on quality has resulted into creation of loyal base of customer for HYPO food retail.
Political Factor: This factor has played an important role. With people stressing for liberalisation in food retail government has been forced to open up this sector. HYPO was created when government started opening up the food retail sector. Hence positive government policy towards food retail has been helpful for HYPO
Economic Factor: Due to economic recession since 2008, there has been huge impact on HYPO’s overall sale. People reduced their bulk purchase and now focus on small purchases. Thus accordingly HYPO has also changed its packaging strategy to accommodate more ‘Economy Pack’ or ‘Super Saver’ pack in its retail chain.
Social Factor: Change in food habits of UK citizens have also helped HYPO to expand its base. People today seek quick food purchase option. They want all the food related item under one roof, be it non-vegetarian items or vegetables etc.
Legal Factor: This factor as such does not have impacted HYPO yet, but food being a sensitive item, it is important to maintain its quality, since in numerous cases of McD and KFC people have sued the company due to poor quality of the food or some other issue. That is why HYPO has been focussing on quality aspect of its food product rigorously.
Thus based on above mentioned factors and discussion it can be assessed that HYPO has still a long way to go in order to consolidate its market position. In order to be a leader in food retail, HYPO should adapt its business activities in response to cultural factors. For example with people seeking one stop for all their food related requirement, HYPO can come with in-store mini restaurants. This will help HYPO to capture those customers as well who might be feeling hungry after shopping products in the store. Also HYPO should start its online portal for e-commerce. With increasing internet usage HYPO can book orders of customer through its mobile apps, or websites and before the customer arrives it can ready his order for delivery. Hence with such strategies HYPO can offer more convenience to its customer.
LO4: Be Able to Assess the Significance of the Global Factors that Shape National Business Activities
Q 4.1 You have been selected by the trustees of your local youth group to make a presentation to young entrepreneurs in the area on the importance of international trade to the local economy. Key to this is a discussion on the significance of international trade to UK business organizations.
Prepare this presentation using a format of your choice (if you use power point slides, take a screen shot of them and paste into your answer)
International Trade: International trade can be defined as a process of exchange of capital, goods, and variety of services across international borders and territories. International trade in several countries represents a significant portion of its Gross Domestic Product (GDP). International trade has been present since hundreds of years, but its political, social and economic significance got highlighted only after globalisation started (Johnson, 2013).
Significance of international trade is huge for an organisation such as Admiral Group. This particular organisation has its operation in 8 countries. For example Admiral Group’s company Rastreator.com is company’s Spanish comparison site for car insurance products, this particular site has helped Admiral group to capture significant share of car insurance market in Spain. Thus international trade today has become important for companies to expand their business in new geographies and ultimately increase their revenue and profit. Also international trade has helped Admiral Group to reduce its dependency from UK market. With products such as Balumba.es and ConTe.it, Admiral group has been expanding rapidly in European continent. Thus international trade helps a company to reduce its risk factor by diversifying its business in different geographies. International trader has also been significant in terms of increasing brand value for companies. With known across globe, its value increases which company can capitalise on.
International trade has several negative and positive impact on local business. For example with launch of car insurance price comparison web portal in Spain, Admiral group has affected the local websites which did not have scale which Admiral had. Thus at times due to availability of resources and finances, international brands cannibalise the market for local players with their scale of economies and pricing strategy. However it does have positive impact as well. Once a local market witnesses an international company’s entry the level of services and its quality increases significantly. With a proper regulatory framework international trade can be used strategically for growth of local economy.
Q 4.2 Analyse the impact of global factors on UK business organisations.
Globalisation: It can be defined as a process through which entire world is increasingly getting interconnected due to massive increase in trade and cultural exchange. Globalisation has resulted into increased production of goods and services. Today biggest company in a nation has changed into multinationals, with their subsidiaries in several countries (Hopkins, 2011).
Two driver of globalisation are :
- Low transportation cost: Cost of shipping has come down significantly due to various advancement in logistics. Due this overall cost of the product is reduced, hence companies importing the product can import at relatively lower cost.
- Digital communication: Internet has dramatically reduced cost of transmitting and information communication. Digital products has stimulated the global trade in knowledge products and services creating an entirely new sector of services.
Two global factors which effect UK businesses are:
Competitive Drivers: Due to globalisation new companies are entering UK market. For example setup of low cost carriers (LCC) in UK’s aviation sector has resulted into stiff competition. Due to which customer is getting benefitted as competition has resulted in drop of airfare and increase in quality of services.
Government Drivers: UK’s government has been promoting liberalization of UK’s market since many years. Because of which every sector such as retail, insurance, automobile and aviation etc. has witnessed entry of new players. This has proved boon for customers, but companies having operation only in UK are facing the heat as they are not able to adapt themselves in such competitive structure. In such situation many local business might extinct over a period of time if government does not protects them from the international competition.
Q 4.3 For an organisation or organisations of your choice, evaluate at least two European Union policies and explain the impact of these polices on your chosen organisation(s).
Organisation selected for this task is Admiral Group.
The main purpose of European Union can be defined as to promote social and economic progress among its member countries. It also focuses on the area of freedom, security and justice which is maintained and built on the law established under European Union (Jura, 2012).
Two European Union Policies are:
- EU has a common external trade policy. Which means that trade policy has been declared as an exclusive competence of European Union and no member state can initiate and negotiate its own international trade agreement with a different country.
- Free trade and open border policy of EU allows transportation of goods and services within Europe quickly without any restrictions from the member states.
These policies have significant impact on Admiral Group’s business. For example because of Free trade and open border policy Admiral group was able to expand its business significantly in other part of EU such as Spain where it launched car insurance comparison website. That is why Admiral group after establishing itself within UK first, is now aggressively expanding among other member states of EU. Since there is no restriction and free trade policy is applicable for EU members, Admiral Group does not have to go through any legalities to establish its business in any other part of EU.
However external trade policy has resulted into the fact, that Admiral Group cannot form a joint venture or partnership with an entity out of EU member states. Thus if it had to form an alliance with a non- EU member entity then the process is very complex and resource consuming. This has resulted into loss of opportunity in growth economies of many Asian countries. With no alliance Admiral Group has to establish its own operation in non-European countries which results into huge operational cost.