Factors of Business Environment
Analysis of Business Environment in An Organization
Business environment involves the factors which are influencing the performance, development and outcomes of internal and external business. These factors impact each other and they work together and affect the business immensely. This report is about British Airways which is the largest international airline in UK. This report covers the factors which affects the organizations external and internal business. In addition to this, it covers the impact of competition policies and other regular mechanisms. Moreover, it explains the significance of international trade to UK business and impact of policies of European Union on UK business organization.
There are many kinds of firms like public, private and charitable. Purpose of these firms is as follows:
The main purpose of public firm is to conduct the activities for welfare of employees and creating employment opportunities for the public.
Private firms maximize their profit by expansion of business and by reduction in their cost through earning profits.
The main purpose of charitable organization is to conduct activities that support poor and needy people at free of cost.
British Airways is the largest airline of UK in terms of fleet size, coverage of international destinations and number of international flights. It is second in terms of number of passengers carried after EasyJet. Through its prestigious image and service quality, British Airways is focusing on increasing its scope of business.
British Airways carries a mission of becoming the favorite airline globally by providing its costumes with high quality service and by increasing their customers in the coming years. Vision of British Airways is to adopt such measures that would help in reducing emission of carbon from its aeroplanes. By following such vision, it will help to create its environment friendly image at global level and would become the most preferred airline in terms of service quality. General objective of British Airways is to become the premium airline in terms of services at global level. In addition to this, it has five strategic goals which are airline of choice, top quality service, extending the leading position in London and meeting the customer needs. Moreover, business plan of British Airways is structured under five primary themes that are Colleagues, Customers, Performance, Excellence and partnership.
There are many stakeholders in British Airways and all of them play a major role in organization. Some important stakeholders are like customers, employees, shareholders and creditors.
According to Li and Hewitt workers are the most important stakeholders of companies and growth of firm depends upon their performance. However, British Airways should treat employees as their most valuable assets of company and should also offer healthy working environment to its employees.
These are those people who make investment in company. So, it is important for British Airways to have a good relationship and to earn good return of capital employed that is provided by the shareholders.
They are the one who should be treated as Kings or Queens. They are the one through which it can be decided whether the organization is gaining any profit or not. Any need, requirement or want should always be fulfilled or satisfied.
Creditors are the business friends or friends who have business interest in British Airways because they provide short and long term loan to the organization. Therefore, British Airways needs to earn sufficient amount of profit in order to pay its debt on time to creditors. They should maintain good contact with the creditors so that they may not force them in getting back their money.
Sakbani in his article stated that there are various responsibilities which Airline industries have to follow. Among these responsibilities, some of the most important responsibilities that BA should focus on are as follows:
For getting good return from shareholders or owners, British Airways is consistently taking many efforts that will help in enhancing the scope of business. British Airways is focusing on enhancing the stakeholder’s service quality. In addition to this, they are also focusing on products as per the choice and needs of its premium customers.
For paying back their debt on time, British Airways is adopting cash management techniques and applying strategies that will help in increasing its revenue. According to at the time of using cash management technique, company need to decide the amount which they are going to spend on each program. However, they will be able to pay back the debt timely.
British Airways is providing their employees with non-financial and financial incentives. In addition to this, it is conducting development and training program on timely basis for career planning for its employees. This would help in knowing the drawbacks of each employee and can help in planning strategies to overcome them.
British Airways is developing new products that would help in meeting the customers’ needs. They have taken a step in creating its strong presence in cargo business by identifying and satisfying the needs of business firms.
According to Spitzeck and Hansen, Economic system is something which a society attempts to meet the customer’s wants and needs by providing those services and goods. On the other hand, Wallace Pollack and Young defines that from country’s point of view, goods and services are influenced by limited supply of land, labor, capital and resources. There are different types of economic systems which a country can follow:
Free market economy
In this economy, government has little or no control over industry. In other words, it can be said that government has no control over the industry affairs. Organizations are very much free in doing business as there is no interference of regulatory authorities of nation. In such economy, most of the big companies dominate other small scale companies. As a result, most of the resources go in hands of big these firms and small scale enterprises get less resources for their production process. In Free market economy, firms are always in win-win situation as there is no control of government in terms of resource allocation. Through this economy, BA will get an advantage of using resources without any restrictions.
Gurtoo and Antony stated that, government has the entire control over business and they keep this control over business through regulations and rules. However, a balanced regional development and equal opportunity of growth is gained through all the firms even if the organization is small or large. In this, the resource allocation is done according to the needs and requirements of firm. British Airways will use its resources very carefully as government has to allocate these resources to other firms as well.
This is an economy in which government has partial control over the firms. This is a mixed type of economy where regulatory authorities and firms have an equal control over the resources. British Airways will have some exemptions where they will be free of using resources on which government has no controlled.
Federal government pursues the fiscal policies in tax programs and spending, which is formulated by President and Congress. According to Swanson, Fiscal and monitory policy directly affects the availability of finance to the firm. These policies are made by government bodies to function smoothly the business operations and to control economy. It is a universal fact that when demand of a service or product increases then it leads to enhance the level of production. However, British Airways has to hire more skilled employees who will help in increasing their profits and revenues. Another aspect of fiscal policy involves tax rates. As tax rates decreases, the economic growth of country is affected. In other words, when the tax rates go down, then the organization will be able to sell their air tickets at low price which will help in fulfilling the consumer desires and needs and vice versa.
According to Malmi and Brown, Monetary policy is formulated by country’s central bank and controls outflow and inflow of cash of economy. However, excess outflow and inflow is dangerous. With the increase in cash flow, the demand and inflation will also get enhanced. With the increase in outflow, firms get less capital for their business. They focus on decision making regarding SLR and CSR which is effectively controlled by central bank. These policies are quick, reliable and flexible, quick and reliable as compared to fiscal policies. If money flows within country increases then central bank enhances the rate as a result of which British Airways will get fewer loans from banks. In case of outflow, BA will get easy loan from banks and other financial corporate.
According to Temponi and Cui, there are many rules and policies which governs the competition and it aims at making the market to work better and improving the effectiveness of individual markets. However, the main aim of these competition policies is to ensure innovation in technological aspect which will promote the dynamic efficiency in all markets. Further, it promotes and safeguards the customer’s interest through reducing the price level and by increasing choices. In addition to this, it helps the suppliers to have an effective price competition. Among these policies, competition commission promotes rivalry through specific market investigations. They focus on competitions where the market possesses high risk. Further, they focus on blocking mergers or provide access to these mergers where competition may be compromised. In addition to it, Office of Fair Trading is a policy which focuses on competition laws and aims to protect customer’s right. Their aim is to have strong competition with avoiding unethical practices. In short, this policy aims at having an effective competition i.e. British Airline have an effective competition between Deutsche Lufthansa AG, Japan Airline Co. ltd, United Airlines, Inc.
Along with these policies, there are few regulatory mechanisms like Ofgem, Ofwat they aim in having a consistent regulation economically for the interest of market, customers, investors, etc. These mechanisms help BA in performing effectively and in accordance with the law.
According to Zhu and et.al. (2012), Market structure refers to a structure where numerous firms are operating and offers uniform products and services. At a large extent, the type of structure and the pricing method adopted by organization highly affects the marketing structure. However, following are the different types of market structures that affect the output decisions and pricing.
It is a market place where sellers and buyers have complete information regarding product. Further, there are large number of buyers and sellers that are available in this market structure. British Airways has few competitors as a result of which it does not come under perfect competition. In this market structure, there is high competition among organizations. Companies compete with each other on the basis of quality and price. Main aim of companies in this market is that they provide high quality of products at low price.
According to Wallace, Pollack and Young, It is a market competition where there is only one seller on a product. They do not have any substitutes and therefore, they sell their products at high price. In other words, it can be said that there is no other firm which produces the same type of product. However, BA does not come under this market as there are substitutes for this industry.
This is a market competition where there are few firms who sell the same products. British Airways comes under this type of competition as it has competitors like Japan Airline Co. ltd, United Airlines, Inc., etc. who provide same services as BA. In this market, if any one of companies reduces their price then it inversely affects the other.
This is a market situation where there are many firms that are selling different products. There are many substitutes of same kind of products as well.
According to Schwartz to earn more profit in favorable and adverse situations, market forces affect the organization’s response as it has to make changes in its business policy and strategies. On the other hand, Green Jr stated that organizational responses is affected by market forces in many ways. Evaluating both it can be said that both the anthers focus firm should analyses the environment and should be prepared always as market forces affects the organization in many ways. Few factors which influence are demand, customers preferences and supply.
Market force which affects the firm’s response is as follows:
Demand and supply
According to Madura, in the changing environment of business where there is uncertainty in global economic condition, supply and demand are changing rapidly specially in commodities like agricultural products, energy and base metals. Koller defines that in order to overcome and protect the business from such situations, firms are making changes and formulating in raw material purchase strategies and derivatives strategies. According to these two statements BA should be able to maintain their services even after change in business environment. They should be able to supply according to the change in demand.
Improvement in Technology
According to Swanson in today's changing world, every organization tends to have something new in order to attract more customers towards them. According to Sakbani technology has a great impact on everything, starting from production of products to ways in which customers use product. Through this it can be stated that improvement in technology plays a vital role in providing quality services to customers. In such case, BA should improve their technologies for providing better services to their customers and this will help them in giving high level of competition.
Perception of Customers
Firm is highly affected by the customer perception. British Airways should always keep in mind the taste and preference of customers and should make changes in their services according to the customer's requirement. If the perception of customer changes, then this will lead to its competitors to grow.
According to Temponin and Cui, cultural and environmental factors affect directly when the organization takes decision regarding the expansion of their business. On the other hand Robbie stats that “Culture is how organization do things”. Thus it can be said that, culture of the organization plays an important role which binds the staff together to achieve the goals and objectives.
Understanding this change will be easy with the help of PEST analysis:
Political environment refers to the policies of ruling government for creating business friendly environment in the country. UK government adopts friendly policies for corporate which are favourable for the aviation industry. According to the culture of a particular country, required policies, laws or acts have been developed.
It involves all the factors which contribute to GDP (Gross domestic product), interest rate, inflation rate, employment rate, etc. BA has to scan the environment in such a way that they do not affect this factor as these are the factors which have their impact on environment majorly.
According to Li and Hewitt factors like customer perception, behaviour and their expectations are determined by the social norms. Gurtoo and Antony organization should develop new products that can satisfy the needs and demand of customers. When firms come up with new products which has many qualities which satisfies customers, then it will be preferred by the customers at large scale. Further, the employment rate is very low as a result of which people may avoid visiting to other places. Thus, this will inversely affect British Airways.
Use of new and improved technology is very important as this will result in attracting more customers. Cited organization has to make some adjustment in their operational activities. BA should focus on improving its quality of services. Moreover, technology aids in delivering higher quality service at lower price.
These were the practices which British Airways should follow in maintaining a friendly culture among people.
Global factors help British Airways to operate its business in their own country as well as globally. With the raise in price or increase in competition, it highly influences BA. Following are the factors which impact British Airways:
Increase in unemployment
As a result of unemployment in different countries, people are not able to spend more. For this, corporate have to pay heavy bill of jet fuels on annual basis or quarterly.
Taxes and exchange rate
Different countries have different exchange rates. This is a major global factor which affects the corporate profits and revenues. If tariffs and tax rates are high then cited company finds difficulty in starting its business in other countries which will be a major drawback for the organization. If UK changes its exchange rate significantly then it will cause a major threat to British Airways.
Performance of company gets hamper if there exist heavy competition from other business. In accordance with British Airways, it has many businesses that are operating in major countries of the world and is facing tough competition from Deutsche Lufthansa AG, Japan Airline Co. ltd, Easy jet, etc.
Business environment includes PESTLE which has direct impact on the performance of companies. Proper scanning has to be done by British Airways while expanding its business internationally.
According to Schwartz, European Union plays an important role in influencing the UK business. However, following are the factors which are affected by EU:
For stimulating employees, government plays the major role. In UK, government promotes effective business which results in creating jobs and is competitive in the international market.
With the use of MPC (Monitory Policy Committee) which sets interest rates, government makes sure that there is no rise in the prices. As people spends or borrow money at large amount, this certainly leads to rise in the interest rates. This has caused difficulty for the people to borrow money. As a result, they spend less which helps in reducing the prices.
Business can contribute to the community through paying their taxes. With this, government can help the industries in various projects like roads, aid to developing countries, airports, etc.
Promoting sales of goods and importing goods from other countries by the government come under this.
Training and Education policies
It has done a valuable contribution in developing business. UK government plays a major role by providing training and education. With education, the knowledge regarding various areas increases and this leads in the innovation of new ideas.
From the above report, this can be articulated that British Airways is a public limited company and it has to keep in mind all the external as well as internal factors as these factors have indirect or direct impact on the business. Moreover, it is found that BA has oligopoly market structure where they have few competitors and any of them can make changes in their prices that inversely affects the other firm.
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