Analyzing Business Environment: Organizational Functions and Impact

This report provides a comprehensive analysis of the business environment, focusing on different types of organizations (public, private, voluntary), their purposes, and legal structures. It explains the size and scope of various organizations and explores the relationship between different organizational functions and their link to organizational objectives and structure. The report also identifies the positive and negative impacts of the macro environment on business operations, supported by detailed examples. Furthermore, it conducts external and internal analyses of specific organizations to identify their strengths and weaknesses, explaining how these are interconnected with external macro factors, using Virgin Money as a case study with SWOT and TOWS analyses. The document is contributed by a student and available on Desklib, a platform offering study tools and past papers for students.

BUSINESS AND BUSINESS
ENVIRONMENT

TABLE OF CONTENTS
Introduction......................................................................................................................................1
LO1..................................................................................................................................................2
P 1 Explain different types and purposes of organizations; public, private and voluntary
sectors and legal structures..........................................................................................................2
P2 Explain the size and scope of a range of different types of organisations.............................3
LO 2.................................................................................................................................................5
P3 Explain the relationship between different organisational functions and how they link to
organisational objectives and structure........................................................................................5
LO3................................................................................................................................................10
P4. Identifying the negative and positive impacts the macro environment has upon business
operations, supported by detailed examples..............................................................................10
LO4................................................................................................................................................12
P5. Conducting external and internal analysis of particular organisations for the identification
of the strengths and weaknesses of the organizations...............................................................12
P6. Explaining how the strengths and weaknesses are interconnected with the external macro
factors........................................................................................................................................12
Conclusion.....................................................................................................................................17
References......................................................................................................................................18

LIST OF TABLES
Table 1: Report of Magic White Board...........................................................................................4
Table 2: Report of Swing Patrol......................................................................................................4
Table 3: Table showing the PESTLE analysis of Virgin Money..................................................11
Table 4: SWOT analysis of Virgin Money....................................................................................12
Table 5: Table showing the TOWS analysis of Virgin Money.....................................................13

LIST OF FIGURES
Figure 1: Statistics of profit generation of SMEs in UK.................................................................4
Figure 2: Functional organizational structure..................................................................................5
Figure 3: Functional organizational structure..................................................................................6
Figure 4: Matrix organizational structure........................................................................................7
Figure 5: Figure showing the TOWS matrix and its elements......................................................13

Introduction
Any organization, in order to improve the efficiency and productivity, needs to expand not only
in its own economy but globally. Various micro and macro factors affect this expansion process
of the organization and the business environment is concerned with the solutions to such micro
and macro problems. This business environment and the problems associated with it consider
various factors like the size of the business, the scope for its expansion, the innovation in the
product or service provided et al. Such business environment can have only two effects on the
current functioning are of the firm, either positive or negative. These factors and their effects can
be understood by the analysis of Virgin money through SWOT analysis which analyses both
micro and macro factors and brings out the strengths and weaknesses along with opportunities
threats of the organization.
1

LO1
P1 Explain different types and purposes of organizations; public, private and voluntary sectors
and legal structures
Introduction
In order to identify the problems in any organization, the first step is to analyse the type of the
organization, which can be profit or non-profit, big or small, etc. The classifications of
organizations can be done on the basis of function, structure, type, scope etc. which is described
as follows:
Differences between profit, not for profit and non-governmental organisations (NGOs)
Profit organizations: It can be defined as the organization which is endured with the sole
purpose to earn profit with the help of various stakeholders and owners (Arvidson and Lyon,
2014). The profit organizations focus on the needs of the market and satisfy those needs in
returns of profits for the organization.
Not for profit: It can be defined as the firms established with the purpose of providing services
and products to the public in order to induce development and welfare. Such a purpose of non-
profit organization helps the economy and hence government is mainly the initiator for such
organizations (Aldashev et.al. 2015). Even though the purpose of this organization is not to earn
profit a part of revenue has to be generated for the existence of the firm.
Non-governmental: It can be defined as the organization which is owned by individuals who are
not a part of the government body and are able to finance the organization through various means
without the help of the government officials. They focus on public welfare and practices.
Business purpose and supply of goods and services
The type of the business determines its purpose of existence and the types of goods or services
they provide to the society. For example the enduring purpose of a profit organization is to
generate as much profit as it can. The organization in this type of business is dependent on the
demand and supply of the market. For instance, in Marks and Spencer the production of various
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products like clothes, equipment, food, accessories and other products is established with a sole
purpose to earn profit which is dependent on the consumer satisfaction and brand awareness
(Golini, et.al. 2015).
On the other hand, the sole purpose of a non-profit organization is societal welfare and economic
development. Even though such organizations are established with welfare purpose, each
organization focuses on a particular welfare system the society is in need of, for example,
Environment Agency in UK is solely focused on conserving environment.
The non-government organizations are also established with a purpose of societal welfare,
however in order to overcome the shortcomings of the government and public-sector firms, they
are privatized for example Red Cross. These types of organizations are created by individuals
from the society itself as they realise the need for social welfare in any particular area.
P2 Explain the size and scope of a range of different types of organisations
Difference between micro, small, medium-size and large enterprises
Micro organizations are the firms with nine or lesser employees with a turnover of less than
£50,000
Small and medium business organizations are bigger than micro firms with a regulatory
structure and less than 250 employees with a motive to achieve annual revenue.
3

Figure 1: Statistics of profit generation of SMEs in UK
(Source: statista.com, 2018)
From the above graph it is clear that the small and medium enterprises were able to generate nine
thousand pounds worth profit in 2015-16 because of which the number fell down below specified
limits (statista.com, 2018).
Large business firms are the organizations with more than 250 employees focused solely on
revenue generation and enhancing products and services.
Market share, profit share, growth and sustainability
In the UK’s economy the success rate of Small and medium enterprises is growing at a very
rapid scale and the top ten countries have forecasted to raise their revenue as high as £217 billion
by 2020. The contribution of SME’s in the United Kingdom economy is going to increase by
11% which is from £196 in 2015 (Harangozó and Zilahy, 2015).
4

LO 2
P3 Explain the relationship between different organisational functions and how they link to
organisational objectives and structure
Different kinds of structures relating to size and scope of operations
Organizational structures are the determination of hierarchy in the organization and the
determination of flow of authority from the board level towards the labour levels. For the
purpose of achievement of organization goals, the delegation of authority and supervision and
coordination are directed (Johnson, 2016).
Functional structure of the organization is mainly based on the functions the organization
undertakes and the departments in the fir are based in these functions only. For example the
formation of sales department or marketing departments is done in order to achieve a particular
function of sales or marketing of the product or service in the market.
Figure 2: Functional organizational structure
5

(Source: Cdn2.hubspot.net, 2018)
The organizational structure described in the figure refers to the structures that are mainly
followed by the small enterprises and these enterprises are also dependent on the skills and talent
of the employees in the organization (Harper, 2015).
Divisional structure is important to be established in an organization that is widely spread across
the geographies and is globally present. In a situation like that it becomes important for the
organization to operate through division of responsibilities and decentralisation just like they
followed in Tesco.
Figure 3: Functional organizational structure
(Source: Cdn2.hubspot.net, 2018)
6

Matrix structure is considered a third main type of organizational structure, this structure is a
hybrid of functional and divisional structure.
Figure 4: Matrix organizational structure
(Source: Managementmania.com, 2018)
When a firm is grown to a stage of a multinational company and is present globally for example,
Starbucks, a structure like matrix organizational structure has to be followed. This is because
there are various problems faced if the firm has its presence globally like the control mechanisms
and changes of cultures in different economies and values of the organization cannot be observed
in a same manner everywhere (Bolman and Deal, 2017). Because of this various function of the
matrix structure that are observed are that it is a combination of functional and divisional
structure. This is also known as the dual management of the firm.
The firms which are huge like the British Gas, which require hierarchy and an incorporation of a
tall organization, it is important to develop a number of levels of organization which is possible
only through the matrix structure of organization.
Flat organizational structure refers to a small number of management levels which are easily
managed by the top level and consist of responsibilities and control at every level of
management.
7

Complexities of transnational, international and global organisation structures
Transitional organization structure is referred as the structure which is useful for the
organization to operate outside the international borders of the economy and helps in the
development of a multi-dimensional business structure of the organization. This type of a
structure is generally useful for the demarcation of functions and business areas (Scott and
Davis, 2015). It is also famous for the organizational allocation of authorities and responsibilities
and creates various sub-divisions wherein the independence of the decision makers is taken are
of. The activities of the organization can be expanded at a geographic, productive and functional
level as well.
International organization structure is generally seen in the companies that have a multi-
presence in the world in different economies and are generally smaller in size as compared to the
other enterprises. However, because they are smaller in size the entry in the market is easier but
the business has to face various problems in the economies as well. They have to accomplish
their activities and create different divisions of organizations and function in the most efficient
manner and adopt the appropriate structures of the organization.
Global organizational structure is a structure where the company is present in almost all the
economies of the world and is hence a global giant. Such organizations have to mainly follow a
hybrid structure that is a mix of various different organizational structures and see whatever
works for them as they have to compete with local as well as global markets. Here the decision-
making process helps the organizational growth (Butler and Wilson, 2015).
How functions relate to overall organisation mission and objectives
Marketing department is the responsible department for the brand awareness and product or
service awareness in the market and various market researchers are conducted in order to
understand the demands and patterns of the market the firm is currently operating in. This
improves the company’s ideas and leads the business to creating products demanded in the
market (Scott and Davis, 2015).
Human Resource department is the one controlling the human element which is the only living
source of the enterprise. Various processes right from the recruitment of prospective employees
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to their training, promotion and raising productivity by motivation and promoting them are taken
care of by HR department.
Finance department of an organization looks after the finances and fund raising of the
organization and also makes the decisions regarding the allocation of funds to various
departments. The main focus of the finance department is to increase the profits of the
organization and expand the wealth of the firm.
R&D department of the company undertakes various researches which show the development of
new technological advancements and innovations in the current existing product in the market. In
order to keep competing in the market where all the sellers have the same motive of earning
profit with the same products, innovation becomes a crucial aspect (Stock and Reiferscheid,
2014).
Even though the departments of the organization have to make decisions on the basis of their
own requirements, no one department can exist without the other one and they are all
interrelated. Because of such strong interrelation of the organization, it is important to work in
sync with the others and work towards one single goal that is the goal of growth and
development of the organization.
Conclusion
The report clearly shows the importance of different organizational structures and which type of
organizational structure is suitable in which market. Such a demarcation should be considered for
improving the profitability of the firm by expansion and growth. Also, the importance of various
departments in an organization can also be seen.
9

LO3
P4. Identifying the negative and positive impacts the macro environment has upon business
operations, supported by detailed examples
For the current task, the case study organisation considered is Virgin Money. The Virgin money
operations are impacted by numerous positive and negative factors present in the micro and
macro environment which can be derived by the Michal Porter’s five force model analysis. The
study of these impacts can be described as follows:
 Threats or risk of new entrants in the market – The virgin money is threatened by the
latest entries in the UK’s market, because of which the pressure on virgin markets has
increased and they have resulted in reduced costs, lower price and introducing new value
plans for the market which has a negative impact (E. Dobbs, 2014). The best example for
the same can be the Metro Bank as a new entrant to the UK banking markets.
 Bargaining power of suppliers – Banking industry like other industries purchases from
the suppliers. If the greater power lies in the hands of suppliers, it results in the decreased
margins on the virgin money. They exploit this power to get higher prices from the banks
in this field and this decreases the overall productivity of virgin money.
 Bargaining power of purchasers – There are generally a lot of demands on the buyer’s
side and they expect to get best schemes at lowest prices which also in turn create
pressure on the Virgin money’s profitability. This increased bargaining power makes
them demand more offers and discounts (Dälken, 2014).
 Threat from substitute services or products – Whenever a product or service is modified
and offered in the market in a different way, it becomes a threat to the existing market
and gives a new value proposition to the customers with a unique utility and impacts the
Virgin money negatively.
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Rivalry among the existing players / competitors – The existing organizations are in intense
competition (James, 2017), which is decreasing the price and profitability of Virgin money.
HSBC and Barclays are the major competitors.
PESTLE model for comprehensive analysis of the macro environment
Table 1: Table showing the PESTLE analysis of Virgin Money
(Source: www.virgin.com, 2017)
Political The stability in the government and transparency in decision making
amongst the political parties and other legislative bodies affect the
political stability of the economy. It is mandatory for Virgin money to
take in account the labour laws like minimum payment, non-
discrimination, allowing employees to join trade unions etc.
Economic Liberalization and globalization of consumer markets along with
inadequate supply of raw materials reduce the disposable income for a
consumer which in turn reduces the organizational sales volume
(Rothaermel, 2015).
Social Values, attitudes and beliefs of the people in any society determine the
operations of Virgin money and it is also dependent on the
demographics, skill set, and literacy rate.
Technological The continuous changes in technology have brought changes in
functions of the Virgin money as well and some recent developments
like ICT help the Virgin money to reduce communication costs and
operational expenses.
Legal The legal framework consisting of the anti-trust law in banking industry
and various other laws in UK like the discrimination law, employment
law, data confidentiality law and health and safety law are to be collie
with (Erskineet.al. 2015).
Environmental These factors for not affect the operations of Virgin Money that much
and the money should focus on laws for environmental protection along
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with a positive attitude towards ecological products and services.
12

LO4
P5. Conducting external and internal analysis of particular organisations for the identification of
the strengths and weaknesses of the organizations
The analysis of internal and external strengths and weaknesses of an organization is done using
the SWOT (Strengths, Weakness, opportunities, threats) analysis.
Here is the SWOT analysis of Virgin money:
Table 2: SWOT analysis of Virgin Money
(Source: www.virgin.com, 2017)
Strengths –
 Highly capable and efficient
 Can explore other banking segments
like priority banking
 The variety of financial products
attracts more customers every year
 Is under the name of a famous
corporation
 “Prudential Regulation Authority”
supervises it (Grant, 2016)
 Other services like mortgage finances
also available
Weaknesses –
 Limited presence globally
 Un-listed company
 Raising capital is difficult
Opportunities –
 Forming and acquiring strategic
alliances for increasing business
 Raising capital through IPO which can
be further utilised for expansion
Threats –
 Cannibalization of revenues due to
competitors like HSBC and Barclays
 The operations internationally specially
in Australia may not be successful
13

P6. Explaining how the strengths and weaknesses are interconnected with the external macro
factors
The internal factors, strengths and weaknesses are connected with the external factors,
opportunities and threats which are linked to the macro environment. In order to understand the
strengths and weaknesses and their connection with macro factors of the organization the TOWS
matrix is the most effective way. Even though TOWS is an acronym of SWOT, its application is
broader.
Figure 5: Figure showing the TOWS matrix and its elements
The diagram shows the relationship between the strengths and weaknesses and the macro
environment of the organization and its understanding and the same for Virgin Money can be
described as follows:
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Table 3: Table showing the TOWS analysis of Virgin Money
External Opportunities (O)
1. In order to increase the
banking business, the Virgin
Money can form alliances as well
as acquire alliances with different
banking companies in the market.
2. It is possible to raise its capital
through Initial Public offering
(IPO) and this can be used for
achieving the expansion plans of
the business.
External Threats (T)
1. The cannibalization of the
organization’s revenues is
possible because of the
immensely tough competition by
HSBC and Barclays.
2. The operations of the Virgin
Money that are initiated in the
international markets and
specially in Australia may not
result into success (Liefbroer
et.al. 2015).
Internal Strengths (S)
1. One of the internal strengths is
higher efficiency and capability.
2. Virgin money is a part of a
famous corporation which can be
its other advantage.
3. As it is the latest introduction,
it has the ability to explore other
sectors in the banking industry.
4. A large variety of financial
products can be introduced
5. It is supervised and regulated
under the “Prudential Rights
Authority”
6. Also, various other services
for financing like mortgages can
be introduced in the Banking
markets.
SO = The various strategies used
by Virgin Money in order to
maximize its opportunities (Bull
et.al. 2016)
(‘SO’ is a combination of the
internal strengths of the
organization and the various
opportunities available in the
banking markets.)
ST = The various strategies used
by the virgin Money in order to
minimize its threats from the
markets.
(‘ST’ is the combination for
various internal strengths and
various threats due to markets to
the Virgin Money.)
Internal weaknesses (W)
1. The Virgin Money has
WO = Various strategies of the
Virgin Money planned and
WT = Various strategies of the
Virgin Money planned and
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minimum presence in the
markets of any other countries.
2. The company is not listed on
any of the exchanges in the world
3. Because of the not listed
company it becomes difficult to
raise capital.
focused on minimizing the
weaknesses of the organization
by using the available
opportunities (Liefbroer et.al.
2017).
(‘WO’ refers to the combination
of internal weaknesses of the
organization and external
opportunities available for the
Virgin money in the Banking
organization)
focused on minimizing the
weaknesses in order to avoid the
threats due to global giants.
(‘WT’ refers to the combination
of the internal weaknesses of the
organization and external threats
that affect the presence of the
Virgin Money globally.)
The table above clarifies the interrelationship between the internal and the external factors of any
organization and how they are interlinked in case of Virgin Money. The external or macro
factors are clearly interlinked with the internal strengths and weaknesses of the organization
which is made clear through the strategies used which were SO, ST, WO and WT. Hence, it can
be proved that the internal strengths and weaknesses are interlinked with the external macro
environment factors of opportunities and threats.
SWOT analysis and its influence on the process of decision-making
The external and internal factors affecting any business can be analysed through the SWOT
analysis of that business. The strategic planning along with decision making becomes easier with
the process of SWOT analysis and the possible areas where the organization needs to work can
be further analysed. Through the SWOT analysis of Virgin Money, it becomes clear that there
are huge opportunities available for growth and the strengths are also very beneficial (Wheelen
et.al. 2017). However, in spite of the strengths there are some weaknesses that the organization
needs to overcome and threats from macro environment to be taken care of. Various decisions of
the organization should be based on its SWOT analysis.
With reference to the organization’s SWOT analysis, various strategies are formulated and
decisions are to be made in the organization. The strengths that come as an outcome of SWOT
analysis can be used by the organization in order to grow and become successful and achieving
16

the objectives whereas there is a need of effective decision making and control in the
organization in order to overcome the weaknesses of the organization. There are various steps to
be taken in regards of guarding the firm against the external threats due to the changing macro
environment and hiding the internal vulnerabilities of the organization. The opportunities of the
firm are also used to spread, enhance and improve the business and take a step ahead in the path
of success (Betsch, 2014). It can be rightly said by the observations that the SWOT analysis acts
as an aid in the process of making decisions and grabbing the new available opportunities in the
market before the competitor.
Hence, it can be concluded from the SWOT analysis of the Virgin Money and the management
in order to decide the following things:
 It helps in making a decision regarding whether or not Virgin Money should take up any
of the available opportunities
 It makes the decision regarding to respond towards the new market and industry trends or
not easier for the organization by providing the risk in the opportunity
 The decisions regarding the implementation of new technology can be made through the
analysis (Snyder and Diesing, 2015)
 The ways of dealing with the changing nature and strategies of the competitors can be
analysed as well
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Conclusion
With reference to above study it can be concluded that decisions are required to be taken by the
business in order to sustain its growth and achieve productivity of the business. It is also
necessary for understanding the factors that are associated with analysing the factors that impact
greatly on the business. Moreover, report has used different tools and techniques that will help in
analysing the productive capacity and also taking desirable actions in the business. It is also
necessary to have sustained position of business with overcoming all the weakness of the
business and maximising its threats.
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