02 Nov 2017
This paper will explore and analyze organizational environment in detail. Firstly, combing with the PEST analysis, the macro environment factors affecting the organization operation and management will be stated. Secondly, through Porter's five forces model the industry environment factors around the organization will be listed and discussed. Finally, the case study, McDonald in India, will help the readers to understand the topic of this paper easily.
There are a large number of environmental factors affecting the organization operation and management. Those factors can be divided into two categories mainly: the macro environment and industry environment. The following sections will give a simple analysis on the two categories.
It is very important for any organization to consider the environment before its operation and management. â€˜The macro-environment audit examines the broad range of environment issues that may affect organizationsâ€™ (Graeme et al 2001, 22). PEST analysis is always used to analyzing the macro-environment, which refers to the impact of industries and enterprises of all kinds of macroeconomic forces. Generally, it covers the political factors, economic factors, technological factors and social factors in the external environment. The relationships between organization operation and the Macro-environment can be well shown in the following figure (figure 1).
Figure 1: the relationship between organization operation and the Macro-environment
Level of education
Population growth rate
The stability of the policy
Rate of technological change
Ability to innovate
During the different periods, the Government's policy of the characteristics and the policies tend to the activities of the organization's attitude have an important impact to the behavior of businesses. Various issues will influence the political environment, which also affect the environment of the hotel directly or indirectly. The stability of the policy is the first important factor in the four ones (shown in figure 1). If the country always in the station of the war, it will be impossible for the organization to operate and carry out competitive smoothly and effectively.
Managers need to consider the state of a trading economy in the short and long-terms, which is especially true when planning for international marketing. Economic factors affect the purchasing power of potential customers and the firmâ€™s cost of capital. In the five factors (shown in figure 1), GDP has the most direct impact to one organization. If the level of GDP is high, the operation of a organization will become relative simple and easy.
The social and cultural influences on business vary from country to country. Social Factors include the demographic and cultural aspects of the external macro-environment and those factors affect customer needs and the size of potential markets. The development of a firm, especial a multinational enterprise, will be affected by the culture factors. Different people with different culture background have different lifestyles, which will have a serious impact on the peopleâ€™s consumption activities.
Technology is vital for competitive advantage, and is a major driver of globalization. Technological factors can lower barriers to entry, reduce minimum efficient, production levels and influence outsourcing decision. The technological factors will serious affect the operation and management in the industry depending on the technologies mostly.
Porter's five forces model is used to as a main tool to analyze the industry environment. Porter (1980) argues that the nature and extent of competition are embodied in five forces: the threat from potential invaders, the bargaining power of consumers, the bargaining power of suppliers, substitute goods and services, as well as the threat of competitors in current. The following figure (figure 2) will show the five forces simply.
Figure 2: Porter Five Forces Model
The bargaining power of suppliers
The bargaining power of consumers
goods and services.
The threat of competitors in current
Every factor in the two environment analysis, the macro environment and industry environment, will take the great influence for the organization management. Especially when the factors change suddenly, the impact for the organization will be serious. In todayâ€™s world, it is common for the people to see the change from the political situation, the government, the culture, the value and attitude of the people and so on. So it is critical for the organization to make changes so that it could operate the business well in the complex business world.
The discussion and analysis on environment factors above may be abstract and The case study will make it become clear. The example from the Business Week (1995) will be chosen.
It is well known that the worship to cow in India, which makes McDonald Corporation have to adjust its services. When McDonald Corporation announced that it would open subsidiaries in India, it did not list the Big Mac hamburger on its operate scope, which in order to express the respect for the tradition that prohibition of consumption of beef. The company replaced the beef hamburger with chicken hamburgers, fish hamburgers and vegetable Hamburgers in India. It is the first time that McDonald Corporation deletes beef from its menu.
When McDonald Corporation in the period that prepare for the strategy to build up a new chain in India, it must take the rational approach to organization management, because the environment has changed. Thompson (1993) argued that in the other country, the corporations from the enterprises must consider the new environment including macro environment and industry environment firstly. The four factors from the PEST analysis and the five powers from the module of Porter must be assessed again. It is not too better for the McDonald Corporation to learn the knowledge and information on the situation of India before the implement of the strategy.
In India, all aspects are different from the America, the GDP, the income level, the style of consumer, the laws, the religion, the education, the culture background and so on. Almost all factors from the macro environment have been changed. To the company, whose succeed depended on the beef hamburger mainly, the biggest challenge to operate in India must be the worship for the cow from the Indians. If McDonald Corporation can not notice this key point and do not consider rationally, the activities selling the beef hamburger largely must be fail quickly. As No.1 in the fast food industry, McDonald Corporation makes the changes nimbly and deletes the beef hamburgers in their menu. As a result, it gets the huge success at last.
Organizational environment analysis is very critical for any company in todayâ€™s business. How to operate and manage the organization to suit for the environment effectively is a question needing to answered. This paper discuss and analyze the environmental environment simply. Combing with the PEST analysis and Porter Five Forces Model, macro environment and industry environment are stated in detail. In addition, the case study helps the readers to understand the topic easily.
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