Impact of Macro Environment on Organizations and Strategies

This report analyzes the impact of macro environment on organizations and their strategies, using ASDA as a case study. It includes a PESTEL analysis, internal environmental analysis, and an analysis of competitive edge and market position.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
LO1..................................................................................................................................................1
P1 Impact of macro environment on organizations and its strategies.........................................1
LO2..................................................................................................................................................3
P2 Internal environmental analysis to identify organizations capabilities and skill set..............3
LO3..................................................................................................................................................5
P3 Analysing competitive edge and market position of ASDA..................................................5
LO4..................................................................................................................................................7
P4 Strategic management plan for achieving organizational objectives.....................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Business strategy is a strategic move and action that business uses to attract customers,
expand business and achieve organizational goals. It is a business plan designed to reach desired
goals. It is a roadmap which helps business in meeting its goals. In this report, ASDA is taken as
an organization. It is the largest British supermarket retailer, founded in 1949, headquartered in
Leeds, UK. It sells general merchandise, food, clothing and financial services as well as
electronics. This supermarket chain is owned by the biggest American retailer Walmart. This
report includes macro and micro environmental analysis to know about organization's
capabilities and weak point, evaluation of competitive and market position of the organization
using Porter's Five Forces and at last development of strategic management plan for
accomplishing objectives.
LO1
P1 Impact of macro environment on organizations and its strategies
A PESTEL analysis is tool used to analyse and monitor the impact of external
environmental factors on an organization. This tool is mostly used when expanding or entering
the new market or starting a new business. PESTEL stands for Political, economic, social,
technological, legal and environmental. A detailed analysis of the same is done on the
organization which are discussed below.
Political factors: It refers to the extent of government intervention in the industry or in
the economy. It includes political stability or instability, tax policy, government policy,
environmental law, trade restrictions etc. European Union regulations will have a direct impact
on an ASDA (Fernie, Fernie and Moore, 2015). The major issue is Brexit, if UK is removed
from EU then it may result in increase in import and export price. The actual impact is not clear
but corrective action plans need to be formulated to face such challenge. So, ASDA needs to
constantly monitor the political environment to reduce its impact. A stable political environment
in UK is relatively more beneficial for the ASDA.
Economic factors: These factors have a direct impact on how an organization does its business
and how much they are profitable. It includes inflation rates, disposable income of consumers,
interest rates, foreign exchange rates, economic growth, unemployment etc. which may have an
adverse impact on the industry as a whole. It will cause a problem such as workforce
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requirement, cost of financing the business plan and implementation process, credit policy of
ASDA.
Social factors: It refers to the area which involves shared beliefs and attitude. It includes
changing lifestyle, culture, income distribution, age, gender, safety, health conscious, changing
trends etc. these factors are majorly important when it comes to marketing the product to the
consumers (Sammut‐Bonnici and Galea, 2015). All these factors will affect the complete market
research of ASDA as the strategy is formulated on the basis of market research.
Technological factors: It refers to the innovation and changing needs of technological
advancements. Technology affects business in three ways, that is, new ways of producing and
distributing products and services and the new ways of communicating with the target market.
These factor have an immense impact on the decision to enter or not enter the certain market
(BURBERRY, 2017). So, if ASDA fails to implement technological changes as and when
required then it will become difficult for ASDA to survive in the market and give tough
competition. This will ruin the strategy of ASDA as everything is now automated.
Environmental factors: This factor has become important in recent times. It includes weather,
climate change and other environmental effects that may affect the industry such as tourism,
agriculture, insurance etc. These factors have become important because of carbon footprint
target set by government, increase in scarcity of resources, global warming etc. All these factors
are important for ASDA as people nowadays are aware and conscious about the negative impact
of these business on the environment (Scanning the Environment: PESTEL Analysis. 2016).
These factors will influence the product needs and it will major impact the ASDA strategies
which involves research and development, production and procurement.
Legal factors: These factors may overlap with political factors but it may include some specific
laws such as employment laws, antitrust laws, consumer protection laws, patent laws etc. It
becomes important for the company to know what is legal and illegal in order to trade ethically
and legally (Çitilci and Akbalık, 2020). If the organization trades globally then it becomes
important to abide by the rule and regulations of that country. This will impact the complete
business strategy plan of ASDA as every plan is formulated considering the legal policies of the
country in which to operate majorly it will affect the pricing of the product and distribution
channel.
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LO2
P2 Internal environmental analysis to identify organizations capabilities and skill set
For analysing the organization's internal environment SWOT analysis will be used. It is a
framework used to identify and develop organization's competitive position and strategic plan.
SWOT also helps in identifying the future trends. It can be used as a guide while developing a
business plan. A complete SWOT analysis is carried out with respect to the company in order to
know its competitive position.
Strengths: It refers to the positive attribute that an organization excels at and can take
competitive advantage by making it distinct from its competitors. ASDA is one of the largest
retailer in UK having market share of 14.8%. It has expanded in the UK market very well and
serves more than 19 million customers every week and has over 630 stores. It has a range of
store portfolio such as superstores, supermarkets, supercentres, Asda living, Petrol filling
stations. 98% of UK homes are served by its online platforms, that is, www.asda.com and
www.george.com. ASDA is known for its superior technology such as automation in its
production system which has resulted in optimum utilization of resources and reduction in cost
of production (Sarsby, 2016). Large number of skilled employees and professionals working in
its team. Strategic partnership with suppliers, distributors, retailers and other stakeholders will
allow it to leverage them in the future. ASDA has a strong social media presence with millions of
followers on Facebook, Instagram, Twitter. It has high customer engagement level. ASDA also
has a strong financial position with consecutive profits in last 5 years and accumulated reserves
which can be used for future financing. It has approx. 25 distribution centres in UK. To get
a clear understanding VRIO framework is used to identify internal capabilities of the
organization. VRIO is a set of four questions based on value, rare, imitable, and organization.
Meeting all this requirement helps in bringing sustainable competitive advantage.
Value: Asda's local food products are valuable resource as the products are differentiated and
perceived by the customers over competitors. Also, patent is a valuable resource for the Asda as
it will allow company to sell its products without any competitive interference.
Rare: Employees of ASDA are rare as they are well qualified and trained and better
compensation ensures that employees will not leave for other firms.
Imitable: The distribution system of ASDA is very costly and cannot be imitated easily by the
competitors or else it will require huge amount of investment.
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Organization: The distribution network of ASDA is organized and structured and uses this to
reach to its customers.
Weaknesses: It refers to the negative factors that may stop an organization from achieving its
objectives and work at optimum level. As compared to its competitors, ASDA has few global
market presence which is its major weakness. Most of the employees in ASDA are local workers
and lack of diversification makes it difficult for employees from other background to adjust.
Performance appraisal in not structured and systematic which leads to lower work morale
(Berisha Qehaja, Kutllovci and Shiroka Pula, 2017). High employee turnover rate is also its
weakness as more employees are leaving because of which ASDA is spending huge amount in
training and development of its employees. Low worker morale due to internal politics and
company culture. ASDA has low quality control budget for its quality department which leads to
poor quality product and services. Thus, ASDA needs to work on its weaknesses to overcome the
challenges and attract more customers and increase its market share.
Opportunities: It refers to the external factors that are favourable to the organization in taking
competitive advantage. There has been an increasing trend of online shopping in UK, hence it is
the great opportunity for ASDA to grab more market (Weng and Liu, 2018). ASDA can grow by
opening new stores and expand its market in area such as photo department, pharmacy, paintings
etc. It should acquire small companies like it did before with Focus DIY 2011. ASDA can take
the advantage of the subsidy provided by the government for producing and selling environment
friendly products. This will help portray positive image to the consumers. Nowadays, different
training institutes have come up to provide relevant training and development to workers which
helps organizations to hire skilled workers and reduce cost in training and development.
Increased globalization has also opened opportunities for organizations to expand its business
globally (Gürel and Tat, 2017). ASDA should grab this opportunity and extend its operation to
other countries and take first mover advantage if possible. Also, consumers in UK are becoming
more health conscious, so there has been an increase in herbal and organic products and also
customers are interested in knowing the method of production.
Threats: It refers to the factors that can be harmful for the organization. Price war with other
retail competitors is a big threat to ASDA. Technological innovation by competitors is a serious
threat to ASDA as consumers will be attracted towards competitors which will impact the market
share of ASDA. Political uncertainty has proved to be a barrier for the company and the major
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barrier is Brexit. Also, small size business operators such as Lidl and Aldi is a tough competition
because of their disruptive innovation (Bhasin Hitesh, 2019). ASDA is no more a cheaper market
as compared to its competitors despite the fact that low prices is its unique selling point. The rise
in price of fuel has also influenced the cost of product to go up. Availability of substitute
products is also a big threat to the organization or to the whole industry. Increased promotion by
competitors is also a threat as customers are bombarded with messages from all the major
retailers which reduces the effectiveness of ASDA's promotional messages. It will have a
negative impact on ASDA strategies and will cause failure.
LO3
P3 Analysing competitive edge and market position of ASDA
Porter's Five Forces is a framework designed to assess and evaluate the competitive
strength and market position of an organization. It was developed in 1979 by Michael E. Porter.
This model helps in identifying competitive intensity and attractiveness of a market. It helps in
identifying organization’s current and future position. A detailed analysis is done to get a clear
understanding.
Threat of new entrants: It refers to determine how easy it is for a new firm to enter the
market. If the market is profitable and few barriers to entry, it will attract new entrants, if the
competition becomes intense it will eventually reduce the profit and low customer loyalty. This
threat will increase if capital required to enter the market is low and have less or no government
regulation. It is very difficult for a new company to enter the market as UK supermarket industry
does not have much space for any new firm as it is mostly occupied by big four firms and other
small business operators giving tough competition (Huang, Dyerson, Wu and Harindranath,
2015). It is huge for new company to challenge the existing giants like Tesco, Sainsbury,
Morrisons, Lidl and Aldi. Also, opening a business like Tesco requires hundreds of millions of
pounds which comes with no guarantee to success. Even it took many years for both Lidl and
Aldi to make a place for itself. So, there is low threat of new entrant to ASDA.
Bargaining power of suppliers: This factor refers to the power of suppliers to drive the
prices. A strong bargaining power will allow suppliers to sell the material at higher prices or in
low quality. This has a direct impact on the profits of buying firms as it has to pay more which
will result in increase in cost of production (Roper and Hodari, 2015). Supplier takes this
position when there are few suppliers in the market, few substitutes, switching cost is high and
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when resources are scarce. There is no such situation in UK supermarket industry because of the
availability of thousands of suppliers to cater to the needs both locally and internationally. Thus,
organizations have the chance to negotiate for better deals with the suppliers and increase its
profitability. So, in UK bargaining power of suppliers is low because of the availability of many
suppliers. This will have a positive impact on ASDA business strategies as it can negotiate for
better lower price as compared to its competitors which will help in reducing its cost of
production and consequently the price of the products.
Bargaining power of buyers: It refers to the power of buyer to drive the prices. Buyers
usually have the power to demand low prices for products and services or high quality products
from the industry, this happens only when bargaining power of customers is strong or high. This
is possible when only few buyers exist, switching cost is low, availability of many substitutes or
when buyers are price sensitive (Ghemawat, 2016). In UK supermarket industry, bargaining
power of buyers is moderate. With increasing use of internet, smartphones and online retailing
has created options for the consumer to identify the best value and offer from different retailers
and then make a deal. Also, customers can switch from one retailer to another as mostly products
are undifferentiated. So, ASDA's current marketing strategy will not be affected. In this way,
ASDA's profitability will increase and can take competitive advantage.
Threat of substitute products: This force is threatening to every retail organization.
Availability of substitute products with attractive prices or with better quality attract customers
towards it and forcing buyer to switch from one product to another as everyone wants the best
product at low price (Burns, 2017). The threat of substitute in case of food items is low in UK
supermarket industry as customers will not stop eating or adjust with low quality. But this is not
same in case of other segments like clothing, electronics, groceries etc. The substitutes are easily
available at other small shops, corner stores and other outlets, may not be under same roof but
individually yes. This is a major threat for which company hasn't come up any plan to tackle it.
So, ASDA needs to analyse and work on this threat to mitigate it as soon as possible.
Rivalry among existing competitors: It refers to the competitiveness and profitability of
the organization. It is driven by number of competitors in the market. Sometimes competitors
offer undifferentiated products which in turn reduces the market attractiveness. Rivalry is intense
when there are many competitors, barriers to exit are high, products are not differentiated, low
customer loyalty, slow industry growth etc. Competition in UK is very intense as Tesco is the
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market leader and ASDA and Sainsbury fighting for the second position (Rahman, 2020). Apart
from this, competition from Aldi and Lidl are also compressing the profits of other retailers. This
competition has reduced the profits of existing organizations in the industry. So, ASDA needs to
plan strategies to face these competitions and competitors in such a way that it will retain its
current market position and market share and set it apart from other competitors and attract new
customers. It should form a team with other small business in order to increase its market and
make its products available to its customers easily.
LO4
P4 Strategic management plan for achieving organizational objectives
MISSION
ASDA's mission is to become Britain's best retailer exceeding customer's needs always.
VISION
ASDA's vision is to provide products and services to its customers at an affordable
price.
OBJECTIVES
 To reduce the impact of increasing substitute products
 To meet with the negative effect of Brexit
ANALYSIS
PESTEL analysis will be used to identify the external environmental factors that will
have a direct impact on the industry as a whole. This is a widely used tool.
Political factors: It refers to the government intervention in the business. It takes into account
political instability, government policy, trade restrictions etc. the major political threat faced by
ASDA is Brexit. If Brexit happens and UK removed from European Union then it will result in
increase in cost of import from European countries. So, ASDA needs to make a back up plan if
such situation arises.
Economic factors: It refers to economic performance which includes interest rates, foreign
exchange rates, disposable income etc. ASDA needs to analyse these factors to before
expanding the business or introducing new product in the market as this may result in increase
in cost of production and financing.
Social factors: It includes factors such as culture, age, gender, personality, attitude, lifestyle,
changing trends etc. These factors change with time so a constant eye needs to be placed to
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analyse these changes. So, ASDA needs to put more effort in this before launching new product
or services so that it can be more attractive and effective in grabing more customers.
Technological factors: It is related to the technological advancements. Nowadays, everything
is technology driven from production process to customer satisfaction and feedback. So, it
becomes essential for ASDA to implement these changes in its organization to remain in the
market. It includes easy check out system, automated feedback and production system etc.
Apart from this, mobile friendly retail app for making online shopping with ease.
Environmental factors: It refers to the negative impact organization has in the surrounding
environment because of its business operation, for instance, climate change, global warming,
increase pollution etc. It has become important for the organization because nowadays,
consumers are very conscious and demands environmental friendly products. So, ASDA needs
to provide more environmental friendly products to retain its customers base. It should highlight
the CSR activities it has done to the public so that customers get to know about the organization
and creates a positive public image.
Legal Factors: It refers to the laws of the country in which an organization operates its
business. It is the responsibility of the organization to abide with rule and regulations. It
includes consumer protection law, employment law, patent and trademark law. It should
carefully study what is legal and illegal. ASDA needs to comply with laws of all the countries
in which it operates as every country has different laws.
TANGIBLE AND TACTICAL BUSINESS STRATEGIES
 ASDA should find new distributors within UK who can provide similar
materials or contact dealers from other countries to deals with negative impact
that Brexit implementation can bring.
 It should spend more on its research and development to be more unique and
innovative and separate it from its competitors.
 Also, ASDA needs to advertise its products benefits and new features in a
innovative way that it becomes difficult for the customers to switch back or look
for its substitutes.
 It should expand its market to other locations globally to reduce the overall
negative impact of competition and increase its earnings. As the competition in
UK is immense, it is advisable to cover other untouched potential market which
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will help in setting off the overall cost.
 It should collaborate with other small businesses or stores which will help in
expanding its market reach and make its products available all time.
 ASDA should stick to its objective of providing products at lower prices by
reducing its cost of production or by reducing its profit margin. This will help in
attracting more customers.
MEASURE AND EVALUATE PERFORMANCE
After developing and implementing the plan, it becomes essential to monitor and
measure the performance. Performance needs to measured and compared with the standards set
and if any deviation is found then corrective actions are taken to remove those deviations. It is
very essential because business strategy is roadmap to be followed to achieved business goals
but sometimes changes are required to be implemented to need the changing needs or changing
business environment. So, regular evaluation of the plan needs to be done to achieve success.
CONCLUSION
It can be summarized from the above that environmental analysis of both macro and
micro business environment helps in identifying and assessing capabilities of the organization
and the factors that may impact the business. Porter's Five forces is very useful in identifying and
analysing the current market position and helps in taking decisions which may impact the future
of the organization. All these models and tools are a part of formation of business plan which is
required to be carried out to make a successful plan. It can be said that ASDA needs to be more
focused on its market analysis and identification of customer needs to take right actions at the
right time that will be beneficial for the organization in terms of profitability and
competitiveness. These analysis needs to be carried out on periodic basis in order to track the
changes on time.
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REFERENCES
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BURBERRY, S., 2017. MARKETING SUCCESS.
Burns, P., 2017. New venture creation: a framework for entrepreneurial start-ups. Palgrave.
Çitilci, T. and Akbalık, M., 2020. The Importance of PESTEL Analysis for Environmental
Scanning Process. In Handbook of Research on Decision-Making Techniques in
Financial Marketing (pp. 336-357). IGI Global.
Fernie, J., Fernie, S. and Moore, C., 2015. Principles of retailing. Routledge.
Ghemawat, P., 2016. Evolving ideas about business strategy. Business History Review. 90(4).
pp.727-749.
Gürel, E. and Tat, M., 2017. SWOT analysis: a theoretical review. Journal of International
Social Research. 10(51).
Huang, K. F., Dyerson, R., Wu, L. Y. and Harindranath, G., 2015. From temporary competitive
advantage to sustainable competitive advantage. British Journal of
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Roper, A. and Hodari, D., 2015. Strategy tools: Contextual factors impacting use and
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Sammut‐Bonnici, T. and Galea, D., 2015. PEST analysis. Wiley Encyclopedia of management.
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Sarsby, A., 2016. SWOT analysis. Lulu. com.
Weng, J. and Liu, T., 2018, June. Enterprise Strategy Analysis Based on SWOT Analysis.
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Engineering (SAEME 2018). Atlantis Press.
Online
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Available Through : <https://www.marketing91.com/swot-analysis-of-asda/>.
Rahman, M., 2020. Porter’s five forces analysis of the UK supermarket industry. [Online].
Available Through : <https://www.howandwhat.net/porters-five-forces-analysis-uk-
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Scanning the Environment: PESTEL Analysis. 2016. [Online]. Available Through :
<https://www.business-to-you.com/scanning-the-environment-pestel-analysis/>.
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