Analysis of Business and Business Environment

The business environment is regarded as the cumulative forces that consist of elements that are outside of the control of the organisation but exercise influence on the growth of the business. The business environment includes internal and external factors like clients, suppliers, customer needs and expectations, social trends, employees, owners, management, market trends, legislation, and others. The various types of organisations and their purpose, the various sizes, and scopes of business organisations, and a complete analysis of organisations shall be discussed in this report.

Different types and purposes of organisations

An organisation is a group of people who work collectively towards a common objective. Therefore, people have duties that are heterogeneous to achieve the goals of the company.

There are two broad categories of organisations and they are informal and formal organisations. 

• Informal organisation: An informal organisation does not have a flow of authority. In other words, there is no chain of command. Common interests and pre-conceptions are the elements that drive the relationship between employees.
   
• Formal organisation: Formal organisation refers to those that have clearly defined hierarchy and authority. They have predetermined policies, rules, regulations, and schemes, and the decisions of these organisations are based on predefined policies.

There are many kinds of formal organisations and we will explain some of them in brief.

• Line organisation: The simplest and oldest form of organisation is line organisation. In this structure, authority flows from the top to the lower levels and extends to the employees at the end. Clear divisions of hierarchy and flow of command are present in this kind of organisation. They are simple and they allow you to make decisions rapidly. Responsibilities are fixed and rigid.
   
• Line and Staff organisation: This type of organisation includes specialists and the staff assists them in achieving the goals of the firm. It provided easier decision-making owing to the division of work. There exists better coordination among employees and opportunities for growth. But there is scope for conflicts as the distribution of authority is relatively improper.
   
• Functional organisation: Functional structure is the organisation in which the roles of management and directors of the organisation are arranged according to the specialisations of the employees. Line members, functional members, and staff members are the three kinds of members of a functional organisation. The manager has a reduced number of tasks which can improve accuracy and the quality of work is better due to the specialists. However, coordination is difficult as the workers are not managed directly and conflicts arise due to equal positions of members.
   
• Project organisation: A project organisation is an organisation formed temporarily for the completion of a project. This structure involves specialists that have gathered for the development of projects. The involvement of the specialists increases efficiency and coordination among members and every person is assigned responsibilities differently. This establishes better control over the project. Delays and assessments are the disadvantages related to project organisational structure.
   
• Matrix organisation: The newest type of organisational structure is the matrix structure and which is a merger of the project and functional structures. Two separate chains of command are there owing to the project and functional parts of the organisation. Authority flows horizontally for the project management and vertically for the functional part of the organisation. As there exists both vertical and horizontal authority there is improved coordination between the team members. Employees are more motivated as everyone works towards a common objective. On the contrary, costs included in horizontal and vertical communication are higher and it involves more paperwork. There are multiple managers and this may lead to confusion and conflicts.

Size and Scope of Business organisation

There are various methods for determining the size of a business. Revenue, profits, no of employees, market share, market utilisation, and capital employed are the most common methods of determining the size of an organisation. The term size refers to the scale of these operations in a firm, while the term scope refers to the specific job or deliverables that are associated with the business’s responsibilities.

Businesses can be divided again into three broad categories according to size and scope. They are small, medium, and large enterprises. 

• Small Business Enterprise: Businesses that have less than 1500 employees and have annual revenue of not more than 31.87 million GBP are considered small-scale businesses. They can be grouped differently owing to different standards for different industries. Most small businesses have only one IT staff who is responsible for all IT-related deliverables. Small-scale enterprises are geographically limited to an area or a region. Even so, outsourcing results in some workers working remotely. They are usually headed by one person or group except in the case of corporations. Specialists are relatively fewer in small businesses mostly due to lesser capital employed.
   
• Medium-scale Enterprise: Organisations that employ between 1500 and 2000 people and have revenue between 31.87 million and 82.78 million GBP are known as medium enterprises. The number of specialists is greater in a mid-size business due to the complexity and actions of the business. Medium-scale businesses have more delegated persons as compared to small scale which implies that decisions are made by the delegates. These businesses, similar to small businesses are privately owned and managed by founders. Organisations of medium size have offices in more than one area due to expansion activities and may have many employees who are working remotely.
   
• Large-scale enterprise: An organisation that has more than 2000 employees and has annual revenue of over 82.78 million GBP is known as a large-scale company. They are few but their capacity to capture the market indicates that they generate the majority of total revenue. These companies are usually international, operating in many countries. Large-scale organisations have distinct and highly specialised departments like human resources, sales, marketing, and finance. These companies are mostly organised as corporations and their owners do not run them directly. A board of directors is appointed by voting and is responsible for decision-making. Mostly, they have a wider market, serving a large base of customers and looking for ways to sell more products or services.

Size, the  most common way to categorise businesses, is an important piece of information. You need to be familiar with the features of the various sizes of businesses regardless of your job.

Internal and External Analysis of the organisation

Analysis of a company is referred to the process of evaluating its profitability, profile, product, and services. It provides us with a comprehensive image of the company’s position in the market.

There are two elements of analysis of a company and they are external and internal analysis. We will discuss their benefits and methods briefly.

1. External Analysis: External analysis is the study of the business environment of an organisation which consists of factors like competitiveness, dynamics, and history. It includes the political, social, economic, technological, and legal environments that can influence a business. There are various methods for the analysis of external factors affecting businesses.

• PESTLE Analysis: A pestle analysis is an easy and comprehensive study of the key external factors that may influence a business. The factors are politics, economy, social, technological, legal, and environmental and they help in better decision-making for an organisation.
   
• Porter’s Five Forces: Porter’s five model helps an organisation to analyse its competitive position in an industry. It considers five key factors and they are threats of substitutes, bargaining power of suppliers, bargaining power of buyers, threats of new entrants, and rivalry among existing businesses.
   
• Four Corner analysis: A four-corner analysis is used to evaluate the intent and capabilities of the competitors of a business. The model encompasses four elements which are future goals, current strategy, assumptions of management, and capabilities.
   

2. Internal Analysis: The thorough study of a company’s internal components like assets, resources, and processes is known as the internal analysis of a company. The internal analysis of a company allows the management and owners of a business to identify the areas that need improvement and helps them to formulate strategies for growth. Some tools for internal analysis have been discussed.

• GAP analysis: A gap analysis is a method of analysing the functions of a business to determine whether the organisation's goals are being met and if not, what solutions there are to meet them.
   
• VRIO framework: VRIO is a method of assessing the resources of a company that are giving them a sustainable competitive edge. It measures the value, rarity, imitability, and organisational structure of a company.
   
• McKinsey 7S Model: The McKinsey 7S model is an organisational tool allowing the user to assess the position and future endeavours of a company. The 7S refers to strategy, structure, systems, shared values, styles, staff, and skills.

In the context of businesses, there are various categories of organisational structures, and comprehensive knowledge is required for any person regardless of their job. Organisations can be categorised according to their structures, sizes, and other methods. The internal and external analysis of an organisation helps the managers or owners to make strategic decisions regarding the functions of the business and this report gives us a comprehensive analysis of internal and external factors affecting the business.