Organisational Purpose Of Businesses

Published Date: 02 Nov 2017

Unit: 4.1 Business Environment

Name: Momtaz Akter

Student ID: 1001

Contents

Introduction

In this modern business world, the environment is highly competitive. The businesses are very much willing to take a peak place in the world market. The nature of the competition and the business is very dynamic. Every business is now trying hard to keep pace with the dynamic nature of the business environment. The business environment is depended on several things like- culture, politics, society, different policies including monetary policy, fiscal policy, government intervention etc. The companies have to obey the rules, regulations and policies of a certain region where they want to conduct business. In UK, the government is very much helpful for businesses. Government always tries to keep the normal activities to the businesses like a guardian. There are many things the business persons need to be concerned like- the laws of the country for business, the central bank policies, the main purposes and strategies of different businesses. Mainly, the business development department of any company is responsible for doing such things (Accenture, 2003). Business organisations do not obviously exist in vacuum they have surrounding environment and the environment affects them noticeably. These business organisations continue to exit within the environment with various purposes. Business organisations operate with a motive to make profit but there are also other forms of organisations which operate without the motive of making profit and their primary purpose is to serve the society and social welfare. Whatever the motive is they are affected by the environment. These environmental factors consist of political, economic, socio-cultural and technological. In the next sections and sub-sections this issues has been discussed which will help the Small and medium sized organisations to obtain an understanding about business environment.

1 Organisational Purpose of Businesses

1.1 Purposes of different types of organisation

The purposes of organisations explain the fundamental reason for, why they exist? The purpose of an organisation is expressed in the form a mission statement. A mission statement sets out the purpose and general direction for the organisation to follow (Mullins, 1999, p. 122).

Some examples of mission statement:

Stockport NHS foundation trust is a not for profit making organisation in UK is and it explains its mission statement as follows:

"Our mission is to provide a high quality, accessible and responsive service by putting our patients at the heart of everything we do. Our philosophy is to treat people how we would want to be treated and ensure that no-one tries harder for patients (Stockport NHS, 2013)."

Sainsbury’s is a retail giant in UK and it states its mission statement as follows:

"Our mission is to be the consumer's first choice for food, delivering products of outstanding quality and great service at a competitive cost through working faster, simpler, and together (J Sainsbury's plc, 2013)."

It is very obvious that every organisation have some purpose which gives them a sense of existence regardless of the size and type and which are very different from each other to meet the various expectations of the society.

1.2 Meeting the Objectives of different stakeholders

Stakeholders are the person(s) or organisation(s) those influence or are influenced by the actions, decisions of an organisation (Mullins, 1999). Organisations have many different types of stakeholders who have many different types of expectations and objectives which are critical to the success of organisations in today’s business environment. Organisations in various ways try to meet the objectives of their stakeholders. Here a description has been made of the extent to which an organisation meets the objectives of their stakeholders with examples in the context of Sainsbury’s;

Figure : Various Stakeholders of Business Organisations (Source: http://www.bbc.co.uk/schools/gcsebitesize/business/environment/stakeholders1.shtml)

Shareholders: Shareholders are interested about dividend and capital growth of their investment to response to these needs organisations design and implement risk management systems to safeguard their investments, establish highly competent management in place. Sainsbury’s is committed to meet the objectives of their shareholders and it considers various issues to protect the interest of their shareholders. Risks and uncertainties are one of the company’s strategies to protect the interest of the shareholders of the company. The company continuously assess the material risks and uncertainties which might affect Sainsbury’s performance which in turn might affect the investment of the shareholders badly. One example of the company’s risk management as it has published in its annual report is the risk and mitigation of the colleague engagement, retention and capability. The perceived risk here is that; The Group employs around 150,000colleagues who are critical to the success of their business. Attracting and maintaining good relations with talented colleagues and investing in their training and development is essential to the efficiency and sustainability of the Group’s operations. The company’s mitigation measures include; The Group’s employment policies and remuneration and benefits packages are regularly reviewed and are designed to be competitive with other companies, as well as providing colleagues with fulfilling career opportunities. Colleague surveys, performance reviews, communications with trade unions and regular communication of business activities are some of the methods the Group uses to understand and respond to colleagues’ needs. Processes are also in place to identify talent and actively manage succession planning throughout the business (J Sainsbury's Plc, 2012).

Employees and managers: are interested about the level of salaries and remuneration and the entity’s ability to continue in operation, benefits, pensions, training and career development facilities etc. Companies establish pension funds and provide training facilities to fulfil their needs. At Sainsbury’s the company is highly committed to meet the expectations and objectives of their employees and managers since it believes they are critical to the success of the company’s business (J Sainsbury's Plc, 2012). Sainsbury’s is committed to good rate of pay to its employees and the company’s basic rate of pay is now ahead of the National Minimum Wage, and they provide a wide range of additional benefits such as bonus and colleague discount (J Sainsbury's plc, 2013).

Community: The community is the social construct in which the organisation exists such as the general people of the locality, the natural and economic environment etc. creation of jobs, environmental friendly operations is the issues that the community is concerned about. Organisations in various ways meet these expectations and objectives of the community. Sainsbury’s is committed to meet the objectives of the community in which it operates. The company’s 2020 Sustainability plan is the remarkable one to meet the expectations of the community where the company has plans in several areas such as the reduction of carbon emission and the company’s promise here is to reduce operational carbon emissions by 30 per cent absolute and 65 per cent relative, compared with 2005 (J Sainsbury's plc, 2013).

Customers: customers are the most important stakeholders of organisations which are critical to competitive success of organisations. Customers have the expectations such as; good quality food and service, good behaviour and assistance form the employees of the company, reliable information about products and services etc. Sainsbury’s are very meticulous to the needs of their customers. Sainsbury’s believes; fresh food remains central to the business and its success. It is a key battleground for UK supermarkets, with today’s savvy shoppers having high expectations about the quality, value and integrity of their food, particularly fresh produce and to meet these objectives Sainsbury’s take several actions such as; during 2012/13 it will recruit and train more than 500 new counter and café colleagues to meet increased demand at the counters and to support the growth in their cafés (J Sainsbury's plc, 2013).

1.3 Responsibilities of organisations and supporting strategies to meet them

The responsibilities of a company are numerous. A company may find it difficult to meet the responsibilities if their strategies are not appropriate to face them. It is expected that the company will meet majority of the responsibilities smoothly (Htt & Hoskisson, 2011). Organisation has different types of responsibilities and this can be discussed within the framework of corporate social responsibilities. CSR provides basic principles based on which organisations can consider its responsibilities as follows;

Respect for Human Rights: The idea of human rights is as simple as it is powerful: that people have a right to be treated with dignity. Human rights are inherent in all human beings, whatever their nationality, place of residence, sex, national or ethnic origin, colour, religion, language, or any other status. Every individual is entitled to enjoy human rights without discrimination. These rights are all interrelated, interdependent and indivisible. Organisations assume responsibilities both morally and legally to show respect for human rights in many ways such as buy ensuring safe working environment for its employees, by establishing equal rights polices for its employees to ensure the equal rights regardless of age, sex, race, religion etc. Sainsbury’s employ various strategies to ensure respect for human rights such as; developing and implementing equal opportunities for its employees (J Sainsbury's plc, 2013).

Contribution to Sustainability: Sustainability is based on a simple principle that everything that we need for our survival and well-being depends either directly or indirectly on our natural environment. Sustainability creates and maintains the conditions under which humans and nature can exist in productive harmony, that permit fulfilling the social, economic and other requirements of present and future generations (EPA, 2013). Organisations must ensure that it is not causing any short and long term deteriorating the environment. Sainsbury’s is very meticulous in protecting business environment and it has many strategies to meet the responsibilities. The company’s 2020 sustainability plan comprises a set of various strategies to meet the responsibilities to the environment such as (J Sainsbury's Plc, 2012);

The positive use of waste,

The company’s own packaging has been reduced significantly,

Carbon emission reduction,

The sustainable use of water resources etc.

Diversity: Everyone is a unique person. Even though people have things in common with each other they are also different in all sorts of ways. Differences include visible and non-visible factors, for example, personal characteristics such as background, culture, personality, and work-style, size, accent, language and so on. Organisations are responsible to provide equal opportunities to its employees as part of their diversity management and employs various polices. Sainsbury’s assumes responsibility for diversity management and employs various strategies for example; as part of the diversity management policy, Sainsbury’s is continuing its commitment to diversity and in early 2011 launched a new Diversity Champion programme involving 140 of our managers. Their role is to gather feedback on key aspects of diversity, helping to shape our diversity programmes and driving forward improvements in diversity related issues (J Sainsbury's Plc, 2012).

Doing business with integrity: Business integrity is quality characterized by honesty, reliability, and fairness, developed in a relationship over time. Customers and clients have much more confidence when dealing with a business when they can rely on the representations made (Butscher, 2002). It is the organisation’s responsibility to do business with integrity for example providing goods to customers as committed, paying fair price to the company’s suppliers. Sainsbury’s is committed to integrity and have various strategies to meet those such as; fair trade policy, no deforestation, animal welfare etc. (J Sainsbury's plc, 2013)

2 National Environments of Businesses

2.1 Resource allocation by economic systems

Resource allocation involves the decision of a country or region regarding the use of total resources available for differing needs of people. This decision can be made by the people or by the government or a mixed of both through different economic systems.

Economic systems: An economic system is one that a society attempts to meet people’s material needs and wants through the production of goods and services (Sloman & Sutcliffe, 2008). There are three economic systems namely (Sloman & Sutcliffe, 2008);

Command economy

Free market economy

Mixed economy

Command economy: The command economy is usually associated with a socialist or communist economic system. Resource allocation is made through a central planning by the government. In a command economy land and capital is owned collectively.

Free market economy: In a free market economy resource allocation decision is made by the free market. Individuals are free to make their own economic decisions. Consumers are free to decide what to buy with their incomes: free to make demand decisions. Firms are free to make supply decisions.

Mixed economy: In a mixed economy decision about resource allocation is made both by the government and the market. In fact most of the economies are mixed economy.

2.2 Impact of fiscal and monetary policy on business activities

Impact of fiscal policy: Fiscal policy involves the use of the government spending and tax programs to influence the level of aggregate demand in the economy (Griffiths & Ison, 2001). To stimulate the aggregate demand government increase its spending level and decrease tax rate this done in time of economic recession. The government cuts its spending and increase tax rate to control business activities in response to inflationary pressure. Increased government spending directly adds to the total expenditure on goods and services in the economy (which is referred to as ‘aggregate demand’). Furthermore, the government’s policy on taxation and transfer payments will directly affect the disposable income available to consumers. Policies that increase disposable income will tend to increase consumption, thus adding to aggregate demand. Analogously, fiscal policy can increase the after-tax profits of firms, which may in turn increase investment and aggregate demand.

Impact of monetary policy: Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy. These goals usually include relatively stable prices and low unemployment. Bank of England in UK develops and implements monetary policies. Monetary policies have lot of impact on business organisations such as; The Bank of England sets the interest rate at which banks borrow money from them. When Bank of England lowers interest rates, they make it cheaper for banks to access money, which in turn makes banks more likely to lend to businesses and consumers. Business's ability to borrow or establish a line of credit can be largely affected by how expensive or cheap it is for banks to get money, The primary thing Bank of England controls is the interest rate for banks to borrow money. Not surprisingly, banks turnaround and pass the savings or cost on to their borrowers. When the real interest rate is set low for banks, commercial and consumer interest rates also tend to run lower, making loans more affordable.

2.3 Competition policy and regulatory mechanisms

Competition policy:

Abuse of monopoly power can lead to market failure and be against the public interest. Therefore Governments are concerned to intervene and protect the interests of the consumers. 1998 Competition Act sought to bring the UK into line with EU competition policy.

The Office of Fair Trade (OFT) in the UK is responsible for investigating suspected abuses of monopoly power and engaging in prohibited practices. There are 2 main types of behaviour they investigate;

Collusive Behaviour

Abuse of Market Power

Regulatory mechanism:

There are different types of regulatory mechanisms that affect different types of business organisations as an example I have discussed the regulatory mechanism of alcohol retailing in UK.

Licensing requirement for alcohol retailing: Licensing laws of the United Kingdom regulate the sale and consumption of alcohol, with separate legislation for England and Wales,

Throughout the United Kingdom, the sale of alcohol is restricted—pubs, restaurants, shops and other premises must be licensed by the local authority. The individual responsible for the premises must also hold a personal licence.

Data protection Act 1998: The purpose of the Act is to protect the rights and privacy of individuals, and to ensure that data about them are not processed without their knowledge and are processed with their consent wherever possible (Information Commissioner's Office, 2013). The Act covers personal data relating to living individuals, and defines a category of sensitive personal data which are subject to more stringent conditions on their processing than other personal data. The Data Protection Act covers data held in electronic formats, and also applies to manual data which are held in what the Act calls a relevant filing system. Organisations deal with various types of data of employees, customers, suppliers etc. Organisations must have strict policies in place to meet the legal requirements.

The Equality Act 2010: The Equality Act 2010 legally protects people from discrimination in the workplace and in wider society (Gov.UK, 2013). The Act shapes the working environment and culture of organisations. This Act affects organisations such as to develop and implement policies to comply with law and avoidance of such law will result in fines to organisations.

3 Behaviour of Organisation in the Market Place

3.1 Market structure to determine the pricing and output decisions of businesses

Perfect competition: is a market structure where there are many firms; where there is freedom of entry into the industry; where all firms produce an identical product; and where all firms are price takers (Sloman & Sutcliffe, 2008). A perfectly competitive industry sets price and quantity of production at the level where the price of the good is equal to the marginal cost to the producing firms of producing the good. It gets the most efficient or desirable levels of output for the economy.

Monopoly: is a market structure where there is only one firm in the industry. For a firm to maintain its monopoly position there must be barriers to entry of new firms. A monopolistic industry has the power to raise its prices and lower its output to levels below that which would be most efficient or desirable (Sloman & Sutcliffe, 2008). It sets its prices where the firms Marginal Revenue equal its marginal costs (all firms do this according to the microeconomic theory of the firm). But for a monopoly, the marginal revenue schedule lies below the price schedule given by the demand schedule.

Monopolistic competition: is a market structure where, like perfect competition, there are many firms and freedom of entry into the industry, but where each firm produces a differentiated product and thus has some control over its price (Griffiths & Ison, 2001). As with other market structures, profits are maximised at the output where marginal cost equal to marginal revenue.

Oligopoly: is a market structure where a few firms between them share a large proportion of the industry. There are, however, significant differences in the structure of industries under oligopoly and similarly significant differences in the behaviour of firms. The firms may produce a virtually identical product. Most oligopolistic, however, produce differentiated products (Sloman & Sutcliffe, 2008). An oligopoly maximises profits by producing where marginal revenue equals marginal costs. Oligopolies are price setters rather than price takers.

3.2 Organisational responses to market forces

Market forces describe the interaction between supply and demand within a market. Organisational response is the reaction given by a company or business to an economical or business circumstance. An organisation’s response to market forces is key in any circumstance as it will have a direct impact on the company’s profits and reputation. In terms of supply and demand the most successful companies will have appropriate market research and analysis in place to ensure that they are able to supply a product or service to meet the demands of its customers. If a company has judged the market demand for their product correctly then they will keep their customers happy by ensuring they supply the product or service requested by their customers in the appropriate quantities. It will also increase profits as the company will have judged their margins correctly to be able to supply and sell as much of their product as possible, without over stocking, bringing added finances to the business. Poor judgement could lead to a misinterpretation of market forces, either leaving customers empty handed as not enough product has been supplied, or leave their business overstocked as customers do not want the quantities supplied. In both scenarios a company’s profits would be greatly affected, and the organisation’s reputation may be tarnished.

The pricing and the output decisions of a firm is determined on various types of market structures. Different pricing decisions are made in the different market structures. Usually, the decision of pricing and output are independent. But, when the market is perfectly competitive, the price of a single firm cannot affect individually because the influence is very tiny as a single company in a vast industry. In these circumstances, the company is expected to take the market price and decide how much amount they want to produce (Kotler et al., 2005)

In a less competitive market, the companies can get the opportunity to influence the market by changing the prices only when the company has a great influence over the industry. This type of situation arises when the company can get most of the customers’ attention and consideration. If the company can create high positioning in the customers’ mind, the market will be getting less competitive.

3.3 Impact of business and cultural environment on organisation

Business Environment:

The term Business Environment is composed of two words ‘Business’ and ‘Environment’. In simple terms, the state in which a person remains busy is known as Business. The word Business in its economic sense means human activities like production, extraction or purchase or sales of goods that are performed for earning profits. On the other hand, the word ‘Environment’ refers to the aspects of surroundings. Therefore, Business Environment may be defined as a set of conditions – Social, Legal, Economical, Political or Institutional that are uncontrollable in nature and affects the functioning of organization (Morrisons, 2011). Here is a judgement about the business environment for MacDonald’s;

Political: Its international operation is highly affected due to individual countries policies enforced by its government. United States and Europe are highly concentrated on health implications on eating fast food, licencing for its restaurants.

Economic: Recession, fluctuation in the rate of raw materials, taxes levied by the government.

Social or cultural factors: Established a good system in determining the need market. Concepts used; consumer behaviour product personality, purchasing decision.

Technological factors: Television advertising, better inventory system, use of modern technology, use of better distribution chain, research and development department.

Legal factors: Muslim countries require their meat to conform to the Halal requirement of the law. European Union banned the use of genetically modified meat products in their food (European Union, 2012).

4. Influence of Global Factors on National Business Activities

4.1 The significance of international trade to UK business organisations

UK is a small country. The domestic market is small. UK can improve its economy only through increasing its market, through international trade. The flourishing economy of UK during colonial rule was due to its large market; UK procured raw materials at cheap rates from colonies and sold finished products in colonies. Now the share of UK in international trade is at rock bottom. It has lost its markets. Once popular brands like Phillips, BSA etc. are not wanted in market and they have been replaced by cheap goods from Japan, China etc. UK has no future unless it re-establishes its brands; recapture its markets through international trade. International trade means selling and buying products across the boundary of a nation. International trade is the main base of international economy because the whole world is now more interdependent than before. So, the importance of international trade is merely described. In UK, international trade has a great impact because UK is considered the center of the world (Lenza et al., 2010). Accordingly, in doing business in UK one must know about the international trade very well. In case of BAT, knowing about the international trade is must because the business of BAT is spread throughout the world.

4.2 Impact of global factors on UK business organisations

The global factors must be concerned as a serious issue because the world is becoming smaller and smaller. The effect of one corner of the world is now affecting the other side. The businesses are now growing as international businesses more than before. The main cause is the development of the transportation. So, the global factors which can affect the business must be studied seriously. The main global factors are: political, economic, social and technological. If there is political unrest in an economy, the economy will be severely hampered. If the economic condition is not in favour, the business may find difficult to survive (Williamson and Zeng, 2009). If the social factors are not friendly, the business will be in trouble. Finally, if the technological support is not up to the mark, the business cannot compete with the others. Other impact in the context of UK can be as follows;

Competition: The investment of multinational companies in UK has made the market highly competitive for UK organisations such as ASDA is one of the retail company in UK which is a subsidiary company of Walmart which is a USA based retail company and it has more competitive advantage than Sainsbury’s which is a UK based retail company because of the opportunity to economise of scale.

International economy: Because of globalisation the business activities has become interrelated and this has resulted a downturn in business in one country to another country. UK has high global presence as a result the companies suffers accordingly.

4.3 Impact of the policies of European Union on UK business organisations

The EU has developed a single market through a standardised system of laws which apply in all member states. EU policies aim to ensure the free movement of people, goods, services and capital and maintain common trade policies such as agriculture, fisheries and regional development. UK is a member state of EU and it has complied with many laws of EU and also rejected to comply with some of the laws and policies. The EU policies affect the business organisations of UK in different ways such as under the common agricultural policy of EU in 2007 the European Commission was reported to be considering a proposal to limit subsidies to individual landowners and factory farms to around £300000. Some factory farms and large estates would be affected in the UK, as there are over 20 farms/states which receive £500000 or more from the EU. The EU policies in fact create opportunities as well pose threats for the UK businesses.

Conclusion

For business to operate successfully it is very important to identify the need of stakeholders and to respond to them appropriately. As well businesses to be successful a thorough analysis of the environment need to be carried out and equally the corporate social responsibilities need also important to be fulfilled.