"The five essential skills for success are concentration, discrimination, organisation, innovation and communication." By (Michael Faraday 1971-1867)
* The word, 'organisation' is highlighted because remaining skills are futile without significant contribution from it. Before knowing what is meant by an organisation. One needs to contemplate on true meaning of management.
The Business Environment -
- A business does not work in vacuum. It has to perform actions and give reaction to what happens outside the factory and office.
- The business environment or the organisational environment is an entity that lies outside the boundary of the organisation, providing the organisation with raw materials and other resources (inputs) and absorbing its products and services.
- There are many considerations like identifying current and future factors which could produce impact on the organisation.
The steps and sources of information -
The first step is scanning of the environment that is planning, what is the market scenario and collecting relevant information from a range of sources like government statics, magazines and newspaper, internet sites consulting agencies, demographic analysis, market research and focus group. (Robbins. P. Stephen).
External issues that affect a business -
Almost all organisations exist in a sophisticated and usually dynamic environment. The business' environment comprises a range of forces which both influence an organisation and are framed by the organisation. These forces may be categorised. PESTLE is one of the classifications. ( by Ian Brooks)
Operative environment of any organisation and the opportunities and menace that lie within it, can be understood successfully by the PESTLE analysis.
In fact PESTLE analysis is an analysis of the external macro environment in which business operates. PESTLE stands for Political, Economic, Social, Technological, Legal and Environmental, factors which are used to assess the market for a business or organisational unit strategic plan.
PESTLE Chart -
Explanation Of PESTLE
Political factors -
Laws and policies of any nation see some kind of change with the change in regime. Therefore change in laws of land, policies in health, environment, safety etc have the potential to affect any company and more so to a company. Similar is the case of the opportunities of the steel honcho TATA and its $2500 (£1535) car 'Nano'. TATA stunned the whole automobile sector by announcing the launching of the cheapest car in the world i.e. Nano. It was the great opportunity for Mr. Ratan Tata to prove its epic in the sector. But the tycoon faced some of the political threats. One was of the Singur case, a town in West Bengal in India, where Nano was to be manufactured. But galled by the constant bullying of its workforce by agitating Trinamool Congress workers (a political party in India), Tata Motors had evacuated its manpower from Singur. Almost 800 of the workforce were evacuated from the plant after the order of Mr. Ratan Tata. Ultimately the project was pulled off from the Singur and the threat proved malicious to the production. (The Economic Times,29 Aug 2008)
As soon as the evacuation happened, the farmers from state Gujarat saw the employment opportunities for them and welcomed the Tata Nano project. This decision form Gujarat Government to welcome TATA, geared the production of world's cheapest car. (Reuters, 2006)
Thus, political issue produced many opportunities and threats for both the organisation and the state government.
- http://economictimes.indiatimes.com/news/news-by-industry/auto/automobiles/Tatas- pull-out-executives-workers-for-safety-from-Singur/articleshow/3422227.cms
Economic factors -
It includes issues such as exchange rates, of borrowing cost, and change in level of disposable income, cost of raw materials, trade cycle, labour market and financial market. Economic factors play a major role in construction and destruction of company. The banking sector is always the major victim of the change in the economy. Similar is the case of Lehman Brothers, this case was one of the largest crisis in the history of any financial firm, that was due to subprime mortgage loan. The stock market of the equity firm dropped sharply and on September 15, 2008, Lehman Brothers filed for bankruptcy. The collapse of Lehman brothers led 2500 mortgage lenders and around 5000 employees (in UK) unemployed that had a malicious effect on their social life. The reason for downturn was the inability of the people to pay the mortgage loans provided by the bank. The thinking of people i.e. to spend more may be the cause, thus the social factor indirectly affected the economics of the company and the nation and vice versa as unemployment, ruined the living condition of thousands of people.
The global economic recession was the main result of the sub-prime mortgage loan effecting. The downturn still prevails making the internal as well as external environment tough for the companies to expand and explore new areas and culture.
The economic factors of any company depends on the global concerns i.e. globalisation.
Globalisation has had a dramatic effect on organisations. Large companies generally have no choice but to follow a global perspective. To target only the local market is to compete against larger firms that can draw on global finances and which often have better design competencies & technologies that production advantage. 34
Globalisation refers to the shift toward a more integrated and interdependent world economy.
Socio-cultural factors -
- These are associated with class structure, mobility patterns, and demographic trends such a fall in ageing population and also the shifting attribute towards lifestyle, education, work and training. A company can have many social responsibilities and their social factors can have a great impact in the development of the company.
- The communication among people is changing and becoming fast by using internet, and by other means. The soaring use of internet calls etc, increasing the revenues of the companies like Google, MSN etc. This is adding to economy strength of the company. The use of social sites like Facebook, twitter, orkut etc had changed the social life of people drastically.
- There is change in broader society such change in lifestyle like; there is rise in rate of working women, change in buying patterns etc.
- The large companies also have great social demographic responsibilities for e.g. the oil and gas baron SHELL. Shell is devoted to social opportunities. It is embedded in its day to day work it carries out. Shell has MOUs with local NGOs and local organisation and is aware of their concerns and always ready to give benefits of Shell's resources like education etc. Thus, every company wants its people to be healthy and happy as it will help them in turn.
Technological Factors -
- According to Theodore Levitt "a powerful force derives the world toward a converging commonalty and that force is technology."
- The fast growing competition tends the companies to adapt the latest technology and develop the information system.
- It includes issues for e.g. levels of investment competitors are making R&D and a result of this investment; new material availability, production process, means of distribution and further growth.
- Taking the case of the huge railway network of Britain that has changed in the last 30 years. The 'Transport for London' has been fully automated by the use technology.
This technology has been the cause of major social change, the availability of the fast transportation opens the door for the opportunities for the government as it increases its revenue and also of public, increasing economy either directly or indirectly. But the rising living standard of the people is creating threat to the rail companies as new technologies like high speed cars are used as transportation. Now technology had made a major social change by providing high speed internet, from which people can do work by sitting in their home without travelling to office, this indeed affecting the revenue and economy of the rail department though in London people more likely to go to office to work.
Legal sector -
Legal sector includes the laws, rules and regulation related to health, alteration of laws, and change in political values can create opportunity for one company and on the other hand can become threat to another company depending upon the policies and external organisational strategies the companies are following.
Environment factor -
Any organisation is attached with the environment because it only creates environment along with other organisations with which it is involved.
Some of the factors of the environmental concerns are -
- Considerations regarding the recycling of material used and intention for reducing carbon footprint.
- The degree of pollution produced by the service or product.
- Changes in the current and future environmental law.[h]
Having discussed the PESTLE and its importance to the company, let us take 'Toyota' the leader in automobile sector.
Company name - Toyota Motor Corporation President/Director- Akio Toyoda Capital - 397.05 billion yen ( as on march 31,2009) Main Business Activities - Motor Vehicle Production and Sales Number of employees - 320,808
is concerned with the amount of written documentation, profile and rules in an organisation. The more job descriptions, procedures, policy manuals and so forth there are greater in the extent of the organisation's formalisation.
In Toyota, the team work represents the formalization of the informal, elementary group. To motivate active team-member participation in the interests of product quality and cost and waste reduction, Toyota has harnessed the power of primary relationships and at the same time, to monitor and control team-member activities on the job, it has created superior mechanisms, to encourage unity in workforce. 3
Toyota production system wants all employees to be specialist in their work, which encourages specialisation; hence it makes it as a functional organization. Each employee reports to functional manager and understand the importance of final product which leads to the formation of matrix organisation
Toyota is having a Flat Organizational Structural, i.e. less levels, more and faster interaction between the employees. Many of the Toyota leaders worked in the front lines and in production house too. This makes Toyota a family and which adds to its dignity, consistency and quality of work which is essential getting Professionalism.
Through this structure, Toyota strikes a balance between being highly traditional and bureaucratic while at the same time agile and innovative.
Technology and Culture
The secret success of Toyota, even in the era of recession comes from the hard work, excellent engineers, cultural teamwork, i.e. it is a truly 'Lean System', which is a commitment to a process and learning experience. It is also refers to as Toyota Production System (TPS).
Sociotechnical System Theory (STS), driven by American academics with engineering and social science background. According to STS, that to be successful an organization must find the appropriate fit between the social and technical system that fits in organizational purpose and external environment.
Mission and Vision of Toyota
The market strategy of a company depends upon the goals it wants to achieve. Toyota's mission is to create a more prosperous society through automotive manufacturing. Toyota's vision is to achieve long-term, stable growth in harmony with the environment, the global economy, the local communities it serves, and stakeholders.
Along with the financial growth and expansion, the company may have social as well as environmental goal proved by introduction of the 'Hybrid Cars' and launch of Environmental Action Plan (EAP).
Toyota's organisational mindset is more organic and less mechanistic as it is best compatible with dynamic environmental forces such as global competition, knowledge management, increased demand, fast deliveries etc.
Thus, external environment plays an important role in the progress of the company because, when a new company keeps its first step in the global world, its main target is to get renowned, to generate money, and to gain public interest. For this it has to fit in the fast changing organisational behaviour and global scenario.
Thus the strength and weakness of a company should be continuously monitored and try to follow the positive path and right decision.
In addition to the external analysis the business environment the company should also do internal analysis that is look after the strength and weakness in the interal matters and behaviour.
And for this Porter five Forces of Competition should be taken into consideration, which is used for development of organisation and analysis of industry.
- Rivalry Among the Existing Competitors - The intensity of the rivalry takes many familiar forms, including price discounting, advertisement campaigns new product introductions and service improvements. Toyota due their assets and strong management's devotion in its business, focus on goals and strong above mentioned familiar forms is earning more wealth and fame than its rivals
- Threat of New Entrants - A profit boom from removing present competitors often attracts new competitors and recoil from customers and suppliers. The new entrants whenever comes, they enter with new strategies and special offers forcing existing firm to do the same, leading down of the turnover, but strong companies like Toyota is far above from this due their strong organisational structure.
- Threats of substitutes - A substitute from competitor is always malicious to a firm as it may perform similar function by different means. For e.g. videoconferencing is a substitute of travel etc., substitutes not only limit profits in normal times, they reduce the bonanza an industry can reap in good times.
- Bargaining power of Suppliers - As the entrance of new companies occur, the bargaining power of existing company with their suppliers see an speed breaker as suppliers now have new customers to sell their goods.
- Bargaining power of Customers - Customer power is the mirror image of the supplier image. Due to competition in the market, choice for the customer increases, and this lead to downfall of the sales of the companies. But the firms that are providing quality products like Toyota, does not have great impact.
Thus, at the end of the story, it is clear that organisational strategy is essential for the company to survive in external as well as in internal environment, and all the youths should have good knowledge about service sector.
Service Sector Management - Service Sector Management helps students to set up career in management, sales, consulting and sales management. Its stress on the core subjects of marketing and management provides a clear perception into what students, as managers, require for developing and cultivating relationships with employees and customers. Specialized information in areas like human resources, leadership, entrepreneurship, and marketing can be provided by elective courses.[i]
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