Sample essay on analyzing external business environment in the UK
Analyse the external environment to identify and explain factors that make an impact on the organization’s operations
Sainsbury is a public limited company incorporated in United Kingdom whose shares are publicly traded on the London Stock Exchange. It is one of the leading Retailers in UK dealing with foodstuffs, clothing and many other retail products (Augustin, 2011). Sainsbury aims at making all its customers’ lives easier every day by offering great quality and service at a fair price. The vision of Sainsbury is to be the most trusted retailer where people love to work and shop. As the third supermarket in UK, Sainsbury offers variety of products such as groceries, clothes, electronics, foods and beverages (Augustin, 2011). It mainly deals with the sale of foods stuffs in UK. Various external factors have impacted on the operations of Sainsbury. These factors have an influence its operations as well as determining its opportunities and risks. Some of these factors that include: competitive, political-legislative, technological and socio-economic factors.
Competition from other organizations
Sainsbury has identified healthy ways to curb external competition from the organizations in the same line of operations. Through its operations, it has been able to reap competition advantages by identifying and intensifying their competition forces from its rivals (ASDA, TESCO, and Morrison). The competitive environment of Sainsbury has been influenced by its market structure in its struggle to outdo its competitors. It has adopted competitive marketing systems to enhance its degree of concentration and its marketing operations. Sainsbury was among the first supermarkets in United Kingdom that embraced online marketing of its products (Augustin, 2011). This competitive system adopted and offer of Sainsbury an excellent opportunity to form royal clients since it delivers the products bought online to the customers’ areas of residence using their van. It has therefore been able to cope with tough marketing challenges posed by its rivals as some of them offer their clients discounts to attract them and rule them to become their clients. The marketing challenges have positively influenced Sainsbury as it has been able to come up with new products with a new design to improve on its customers’ satisfaction (Augustin, 2011). Furthermore, it has enhanced its innovations in its means of getting solutions to the competitive challenges posed by its competitors. In February 2011, Sainsbury’s Energy launched a new energy market. The aim was to simplify on energy tariffs and to provide energy efficient advice to its customers.
These are the policies and legal frameworks that consist of the company’s exits. These legal factors are comprised of all legal regulations and laws examples are: labor laws, commercial laws, regime of taxes and environmental law. Sainsbury complies with politicians and regulators on issues that relate to their customers and business at local, national and European level. Sainsbury PLC is also involved in industrial organization such as Confederation of British Industry, British Retail Consortium and the Institute of Grocery Distribution. The involvement of Sainsbury with these organizations has created confidence to its customers that the good Sainsbury provides to them are of high quality.
New technology ensures that the company is able to produce new products, achieve the required rate of productivity and ensures uniformity in quality production. With new technology, Sainsbury will be able to keep ahead of its competitors. Sainsbury has developed online marketing mechanism to expand the reach of its customers (Augustin, 2011). This service known as ‘Sainsbury online’ helps its customers to choose the items they need online, and they also place their orders online. The orders are taken to the customer’s place by company’s vehicles. This service has attracted many customers to the company since it is available to 75% of the UK population. Sainsbury PLC also sends their customers information on new products through emails and mobile phone applications. Thus the customers can decide what they want even before they reach the supermarket.
Social, economic factor relates to the values, attitudes and the concerns of the target customers and their abilities economically. They factor determine the ability of the customers to afford products that they intend to purchase. The current trend in the UK market shows that consumers are interested in doing their entire shopping under one roof (Augustin, 2011). This has provided Sainsbury with an opportunity of expanding the varieties of products to include non-food products. Sainsbury has increased its sales, as a result. An increase in female workforce has also reduced homemade food and many customers are going for ready food in Retailer’s shops. With their goal of making their customers lives easier every day, Sainsbury has been offering quality food to its customers. On 14th March 2014, Sainsbury gave away up to seven tonnes of lesser known fish (lemon sole, mussels, sea bass, coley fillets and rainbow trout) to encourage customers to expand their food and increase their food varieties. This has lead to Sainsbury increasing its sales up to 23million customers per week.
Use the analysis to identify and explain key forces acting upon the organization
Threat of new entry
Sainsbury has been experiencing tough competition from its direct rivals ASDA and TESCO. It has been the third largest food retailer in UK but in 2013, Sainsbury was ranked the second largest in UK. However, entries of new Companies such as Morrison have forced Sainsbury to move an extra mile in developing its marketing strategies so as to maintain its position in the UK food market. To curb the situation, Sainsbury introduced an online home delivery shopping service that covers more than 90% of UK population (Augustin, 2011). It also entered into a joint venture with Lloyds Banking Group in the establishment of Sainsbury bank. This strategy is helping Sainsbury to cope with the competition and also to distribute the risk.
Degree of rivalry
Sainsbury has been experiencing stiff competition from its rivals ASDA, TESCO and Morrison Company. In 2014, the competition was tough such that it slipped its sales during the second quarter’s fiscal year. Although Sainsbury struggled to maintain its share in the fiercely competitive market, it’s excluding fuel, and like-for-like sales dropped by 2.8% (Augustin, 2011).
Threats of substitutes
Availability of products that serve the same purpose as those sold by Sainsbury has been a significant factor that contributed to the drop in sales made by Sainsbury in 2014. It was reported that, although the customers frequently visited Sainsbury stores and supermarkets, they were spending very little each trip (Augustin, 2011). This forced Sainsbury to take another move whereby it’s cut its 2014 sales forecast so that during the second half of the fiscal year the price could be similar to that of the first half.
Sainsbury had previously made a small rise in the price of its products during the second half of 2014 fiscal year. The impacts were tremendous since it negatively affected customers’ purchasing power. The customers could get into the supermarket and on realizing the changes in the price of the products, there would just leave without making purchases or by making little purchases as compared to the previous years. After a 2.8 % loss had dug the second half 0f 2014 fiscal year, the management of Sainsbury opted to adjust the prices to match those of the first half as a way of encouraging customers to come back (Augustin, 2011).
Explain how the organization can work towards enhancing competitive advantage based on the analysis of the external factors and key forces.
Sainsbury can enhance its competitive advantage by establishing a stable organization culture that will help all its workers and stakeholders to cope with the challenges posed by external environment forces. Organization culture is a particular way of doing things in a given institution that determines the success and the development of the organization. Organization culture comprises of behaviors, beliefs, and values of the workers in the organization that provides guidelines on how to perform given tasks and how to make decisions (Augustin, 2011). If Sainsbury establishes a powerful culture, it will assist in holding all the workers within the organization together under the same values and norms.
A strong culture within Sainsbury Company will help the management to set targets by involving all the stakeholders who should implement the plans set so that every person knows what is expected of them. It will therefore provide an avenue where the workers can work as a team and it will also create a sense of unity and belonging. Through its established culture, Sainsbury will be able to establish vision and mission around which all its goals of the can be run. Strong culture within Sainsbury will help the workers to embrace the changes that might be appropriate for taking the company to the next level of development. In fact, a strong culture established within a company integrates all the stakeholders including the grass root workers to help in making organization’s decisions and also to provide suggestions that can help in problem-solving.
Identify the potential challenges that the organization may come across as a result of these factors and forces.
Resistance to change
One of the main challenges that Sainsbury is likely to experience from social, economic factors is the resistance to change. Changes are due to come, and for Sainsbury to remain competitive in the market it has to keep pace with the current changes that are taking place both technologically and industrially. Unfortunately, Sainsbury may experience difficulties during these changes as it has been reported that most employees always resist change in their working environment (Augustin, 2011). The uncertainty of employees concerning the future of Sainsbury and their future too could be the main reason for such resistance. The workers usually feel that their security has been threatened by change in the organization thus their performance may start deteriorating causing Sainsbury to perform poorly and also to lose its share in the market. To avoid such instances, Sainsbury has to come up with proper and clear mechanisms and strategies to convince their workers about the trustworthy of their changes and to help them comprehend the reason for the changes in the organization.
Political, social-economic, technological and competitive environmental factors play a critical role in the success of any business. The ability of Sainsbury to overcome challenges posed by these factors has lead to its success in UK food market thus it has become among the top three largest supermarkets in UK.
Augustin, J. (2011). Management Accounting at J Sainsbury plc. München: GRIN Verlag GmbH.
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