Management And Business Context: An Analysis

Internal Functions that Drive Businesses

Discuss about the Management and Business Context.

Globalization has brought about a revolution in the world of business, entrusting them to form various complex business structures and adopting diversified strategies (Wheelen & Hunger, 2011). Traditionally business formed strategies on basis of intuitions but contemporary tools and techniques in management have increased scope and information available to businesses such that they are able to make more informed decisions. For making any business strategy or decision, organization makes internal and external evaluation of situations and thereafter assesses potential risks prior to applying a strategy. Internal analysis of businesses includes internal and external functions to form a Business Model Canvas to recognize the key business functions. Businesses combine external and internal analysis to arrive at a SWOT and TOWS analysis for itself which helps it to take significant business decisions (Phadtare, 2010). The scope of this essay is to be able to explain major domestic and international contextual factors that impact business structures and strategy, utilizing key terms, theories and concepts from management.

Businesses of various types depend solely on their internal functions to capitalize on opportunity from external environment. Key internal functions that drive businesses are operations, finance, marketing and human resources. Operations consist of the key production, servicing functions of business. Finance is concerned with securing and allocating of resources of businesses. Finance helps account for all the monetary and financial transactions of the firm such that it is able to meet its financial goals or revenue generation targets. Marketing is involved with promoting, selling of products and services to targeted customer segment and thereafter servicing the same (Cantwell, 2010). Marketing is the key revenue earning function for the business. Human resource consists of managing the people within the organization, who perform the several key functions. Businesses in order to increase productivity and effectiveness implement High Performance Work Practices (HPWP). The concepts increase employee engagement by combining knowledge, information, power and reward systems for employees to increase productivity.  All the four business functions are interconnected to each and other. Business Model Canvas includes the fundamental blocks that drives business functions and hence performance. They consist of Value Propositions, Customer Segment, Channels, Customer Relationships, Revenue Streams, Key Resources, Key Activities, Cost Structures and Key Partners (Stacey, 2007). While the internal business functions are supplied primarily by organizations, external business functions are often outsourced to increased productivity. External business functions as tax filling, recruitment and selection, advertising and public relations. These external functions come under the purview of internal functions itself and hence are managed by them.       

Types of Businesses

Business can be of various types depending upon their ownership structures, all world over and across various economies. In Australia, businesses are sole trader, partnership, company or trusts types. In Sole proprietorship requires the least type of legal and tax requirements and is operated generally by a single owner. A sole trader can easily conduct business with the help of a Tax File Number. In partnership, more than two people come together to form a company. They generally receive income jointly from the business and a partnership is required to file its Tax File Number (TFN) for filling of business returns. Partners in a partnership firm pays tax on the basis of their appropriated incomes. A company is a business structure that requires continuous administrative costs and it needs to have its separate bank accounts (Katsikeas, 2006). A company needs to file for annual tax returns and has owners, who are responsible for running of the company. Every business registered as a company needs to adhere to strict standards provided by the Corporation Act,2001 for reporting of its memebers and ASIC. A company has limited liability, but in case of directors they can personally responsible by the Corporation Act (2001). An incorporated association on the other hand is a registered legal entity having a minimum of five members. Profits of its activities are generally reinvested into the organization. Cooperatives require a minimum of five shareholders who have equal voting rights. All members have equal vested interest in functioning of the business. All these businesses need to design and adopt appropriate strategy for its functioning and maintaining their competitive advantage. Strategies for these companies are generally formed by assessing and combining of internal functions, internal and external analysis of all prevailing situations (Cravens, 2006).

While internal functions help a business to perform an analysis or understanding of external business environment is crucial for a business’ operations. External analysis for a business included analyzing industry and country’s perspective for strategy formation. In order to analyze broader macro environmental conditions a PESTEL analysis of the firm is undertake. PESTEL is an abbreviated form for political, economic, social, technological, environmental and legal factor analysis prevailing within the country (Zalengera, 2014). PESTEL analysis is useful for domestic as well as internal business scenarios as it helps formulate appropriate strategies for the company with the legislative framework accounting for other policies as well. A business also undertakes environmental analysis for the industry within which it is operational. Porter’s five forces analysis provides a comprehensive understanding of the industry factors that function within the industry to help companies take a decisive strategy. The five forces can be analyzed as industry rivalry, threat from new entrant, threat from substitute products, bargaining power of suppliers and bargaining power of buyer’s all exert powerful influences on a business’ strategic decisions (Grundy, 2006). While these forces influential forces on the company’s products, their analysis helps arriving at appropriate product strategies for the overall business.

Analysis of the External Business Environment

On the other hand McKinsey’s 7S framework which is a model for organizational analysis tool that is used to strategically monitor internal situations prevalent within an organization and changes them accordingly (de Kluyver, 2010). The theory states that all 7S within an organization namely Strategy, Structure, Systems, staff, Style and Skills needs to be realigned to achieve high level of performance for the organization. The physical aspects of the framework are referred to as the hard aspect whereas non-physical aspect is often called the soft aspect. It is by matching of these hard aspects into the soft aspects that a business’ effectiveness is established. McKinsey is helps analyze internal framework of an organization so as to able to combine internal and external factors to arrive at an appropriate strategy for the business (Slater, 2006).        

Business strategies cannot be solely based on either internal or external analysis for businesses and a combination of both can help design appropriate strategy. On the basis of analysis of external and internal environment a Strength and Weakness analysis of the business is arrived at, which helps in evaluating possible Opportunities and Threats for the business. Thus, a firm in SWOT analysis capitalizes on its strengths forms strategies on its opportunities overcomes weaknesses and tries to convert possible threats into opportunities as well. Another contemporary approach to forming strategies of the firm is by TOWS analysis, where external factors as opportunities and threats are matched with internal capabilities (Watkins, 2007). Matching of internal capabilities as strengths and weaknesses are then done to provide high opportunities for the business also analyze the critical threats in capabilities. TOWS is a revised and contemporary approach compared to SWOT analysis, as it helps combine internal, external analysis with internal functions to render effectiveness to the overall strategic implementation.     

When a business of any structure operates within the domestic market an internal and external analysis and matching the same to internal functions helps in designing and application of suitable strategy. But in case of a global organization a firm needs to have a comprehensive risk assessment of the global scenario is required, prior to arriving at a strategic decision. Risks in international scenario can arise from a number of factors as political, economic, social, technological, environmental and legal. Risk analysis using a matrix will help understand which risks to avoid, mitigate or adopt (Xu, 2006). Strategies for the company in internal businesses needs a comprehensive analysis of risk management as well in additional to above internal external analysis and matching them to internal functions.   

Conclusion

Businesses in order to develop and design strategies for them utilize a diversified range of complex theories and functions. Strategy suitability for a business is matched or optimized when a business is able to undertake proper internal and external analysis along with its exiting internal functions. One of the best methods to develop and adopt business strategies for a firm is to undertake with the help of TOWS analysis. It not only helps highlight existing capabilities and opportunities but gaps in capabilities from strengths and weaknesses. Combing McKinsey’s framework along with external analysis tools helps built foundation for concrete strategies for any type of business. But when a business is operational in international scenario, it must also have a comprehensive risks assessment plan. Risk assessment will curve a way for a successful strategy whereas avoiding it might lead to overall failure for the business. All strategies are intended to make the business more competitive and efficient in its processes, such that it is able to become an industry leader.   

References

Cantwell, J. D. (2010). An evolutionary approach to understanding international business activity: The co-evolution of MNEs and the institutional environment. . Journal of International Business Studies, 567-586.

Cravens, D. a. (2006). Strategic marketing (Vol. 7). New York: McGraw-Hill.

de Kluyver, C. (2010). Fundamentals of global strategy: a business model approach. Business Expert Press.

Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model. . Strategic Change, 213-229.

Katsikeas, C. S. (2006). Strategy fit and performance consequences of international marketing standardization. . Strategic management journal, 867-890.

Phadtare, M. (2010). Strategic management: concepts and cases. . PHI Learning Pvt. Ltd.

Slater, S. F. (2006). The moderating influence of strategic orientation on the strategy formation capability–performance relationship. . Strategic Management Journal, 1221-1231.

Stacey, R. (2007). Strategic management and organisational dynamics: The challenge of complexity to ways of thinking about organisations. . Pearson education.

Watkins, M. (2007). From SWOT to TOWS: Answering a Reader’s Strategy Question. Harvard business review.

Wheelen, T., & Hunger, J. (2011). Concepts in strategic management and business policy. Pearson Education India.

Xu, S. C. (2006). The impact of strategic fit among strategy, structure, and processes on multinational corporation performance: A multimethod assessment. Journal of international marketing, 1-31.

Zalengera, C. B. (2014). Overview of the Malawi energy situation and A PESTLE analysis for sustainable development of renewable energy. Renewable and Sustainable Energy Reviews, 335-347.