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Understanding the environment of business organization.

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Introduction

INTRODUCTION: It is important for managers of any organization to understand the environment their organization is surrounded with, because there are various external factors that affect an organisation's acquisition of inputs and generation of outputs, directly or indirectly. These factors form a part of the macro and micro environmental factors. The macro forces affect all the businesses operating in that particular market and the micro forces are company specific and include factors such as information, suppliers, competitors, buyer's etc. STEPS IN ENVIRONMENTAL ANALYSIS: Source: Johnson & Scholes (pp 99). UNDERSTANDING THE NATURE OF THE ENVIRONMENT: It is important to understand the uncertainty in the environment. A Company generally operates in a simple/static environment or a dynamic & complex environment. The Airline Industry and the Car Industry operates in a Dynamic environment and a complex environment to some extent. Source: Johnson & Scholes (pp 101). AUDITING ENVIRONMENATL INFLUENCE According to Richard Lynch, there are two techniques that can be used to explore the general environment that surrounds an organization they are the PEST analysis and the scenarios. A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors: Political, Economic, Social, & Technological. ...read more.

Middle

The model was developed by Michael Porter, it describes the various forces that act on organization so that Managers can design a strategy to develop opportunities and protect itself from competition and other threats. Source: Exploring Corporate Strategy 5th Ed. Johnson & Scholes. THREAT OF NEW ENTRANTS: It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. Barriers to entry are unique industry characteristics that define the industry. Barriers reduce the rate of entry of new firms, thus maintaining a level of profits for those already in the industry. New firms feel reluctant to enter markets that are extremely uncertain especially if entering involves expensive start-up costs, (which does exist in the Airline and Car Industry). From a strategic perspective, barriers can be created or exploited to enhance a firm's competitive advantage. Barriers to entry arise from several sources, such as the Government, although the principal role of the government in a market is to preserve competition through anti-trust actions, government also restricts competition through the granting of monopolies and through regulation. ...read more.

Conclusion

This competitive interdependence is dangerous for the entire industry as companies push the profit down in the process. In the case of the car industry, there has not been a price war to this limit yet. Companies compete with each other on other on factors such as new technology, design, functionality, product quality, brand positioning, advertising, promotions etc. Each company is coming up with new range of cars in very short period to keep the product moving. "This type of competition constitutes an attempt to differentiate the company's product from those of competitors, thereby building brand loyalty and minimising the likelihood of a price war. The effectiveness of this strategy, however, depends on how easy it is to differentiate the industries product." (Hill & Jones 1998). According to them it is easy to differentiate in the car industry but more difficult to differentiate in the airline industry. CONCLUSION: It is important for managers to collect the relevant data and analyse it and a lot of data should not be collected, as it becomes more difficult to analyse the same. It is important that there is competition in the market as competition brings challenges, which in turn bring in innovation. ...read more.

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