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Business environment is the aggregate of all those factors which influence a business internally or externally. It includes analysis of mainly two factors i.e. internal and external factors. This report is going to depict the purpose of different types of organizations and their responsibilities and strategies. The report represents the way in which resources are allocated effectively by taking British Airways into consideration. This organization provides airline services internationally and has its presence at the global level. It was established by United Kingdom government in 1972 to manage the two nationalised airlines: British overseas airways corporation and British European airways.
There are various types of organizations exist like partnership, sole proprietorship and non-profit organizations. Different organizations have distinct purposes of working like some organizations work for profit motive whereas others for non-profit motive. Product can be developed or improved by taking feedback from consumers to increase the productivity (Dettwiler, Lindelöf, and et.al, 2006). There are different forms of organizations as detailed below:
Partnership: Partnership is a relationship between two or more than two individuals to carry out a business. Its purpose is to benefit all the partners by its invested assets and to strengthen the coordination and trust among partners.
Non-Profit Organizations: NPO’s are those firms whose motive is to benefit the society. They may be in the form of trust, sport clubs, mutual societies and cooperative societies. Their purpose is to help and benefit the people. They do not aim at earning high profits but they provide help to people and reinvest the profits to attain goals.
Private Organization: These are those organizations which are not owned and operated by government. It works for the profit motive. British Airways falls under the category of private organization. BA is the second largest airline in UK and has the largest fleet size. By keeping in mind the mission and vision, company has accomplished their objectives like improving and innovating their way of working (Yu and Ramanathan, 2012).
Stakeholders may leave a huge impact on business. It includes employees, government, creditors and shareholders. The detailed analysis for stakeholders of British Airways is presented underneath:
Employees: Employees are the most important assets of an organization. British Airways offers free uniforms, cafeteria and discount facilities to its employees. Even they provide incentives and promotions to motivate them. At the time of recruitment, more stress is laid on E.Q. rather than I.Q. It is assumed that a person with better EQ can adjust properly with other employees. It can be therefore said that British Airways is effectively meeting the needs of its employees.
Shareholders: Shareholders are the real owners of organization. They invest in order to earn attractive dividends. British Airways remains successful in providing proper dividends to its shareholders. Even shareholders may apply for discount on airline flights. Shareholders may get discount of 10%. This in turn indicates that British Airways attempts to meet all kinds of requirements of shareholders.
Customers: Customers simply want to get the best for what they have paid. British Airways take care of the customers’ needs and wants by providing quality services. They focus on attracting the customers by providing various discounts and schemes. Moreover, the organization adopts policy to refund money when flights get delayed (Murthy, 2014).
Government: In every economy, government has adequate level of control in all the business operations. As British Airways is a private company so, government does not have much involvement. However, organization needs to properly follow the rules and regulations framed by government. They do not perform illegal practices.
British Airways has many responsibilities to be fulfilled so as to meet the objectives of organization. They have to make everyone satisfied either it is shareholders or employees or customers. The responsibilities of British Airways towards its stakeholders are stated underneath:
Employees: Responsibility of British Airways towards its employees is to provide proper and regular training. This in turn results in increasing the efficiency and effectiveness of employees. British Airways should ensure that no discrimination is created among its employees on the basis of caste, gender and creed (Kourteli, 2000). The organization should take utmost care to satisfy the rights of its employees.
Shareholders: As British Airways is a private concern so, shareholders play a major role. The organization should provide sufficient amount of dividend to its shareholders. British Airways should focus on increasing the profit so as to create value for shareholders. Their strategy is to attract the investors by providing free bonus shares to the new shareholders.
Customers: The organization should offer quality services at reasonable prices so as to satisfy the needs of customers. British Airways should understand the tastes and preferences of customers in order to satisfy their needs. Their strategy is to provide great customer service so that all the customers on different route would enjoy the service.
Environment: British Airways is also responsible towards keeping the environment safe in which it is conducting operations. The organization should not affect the environment by its high carbon fuel. They should focus on reducing the carbon emission. Their strategy is to use low carbon fuel that will not affect the environment. Even they should focus on eliminating the waste and scrap and should try to recycle the waste (Jain and et.al,2007).
Economic system defines the structure of a country and manner in which resources are allocated to different sectors of societies. Mainly there are three economies which are:
Market economy: Market economy is the economy where central and state government do not have much control over the prices. In the absence of central plan, the market is denominated by the supply and demand of product. Government only makes sure that the economy is stable in nature.
Planned economy: Planned economy is one in which the government makes major decisions like production, distribution and allocation of resources. British Airways does not fall under the planned economy (Nandi, 2010).
Mixed economy: Mixed economy is a combination of planned and market economies in which some areas are controlled by the government and others are flexible in nature. British Airways fall under mixed economy.
Earlier, British Airways fall under public organization but after February, 1987, it was privatised. Now, it comes under mixed economy where government has less involvement and can only set the prices of air tickets. UK comes under the category of mixed economy where resources are allocated by private and public sector. Henceforth, maximum resources in case of British Airways are privately acquired. However, sometimes government allocates certain resources in the form of grants.
Fiscal and monetary policies are two important tools to affect the supply of money in an economy. Fiscal policy involves changes in taxation and borrowing prices. It greatly influences decision of management of BA. For example: If public authority increases tax rates on air travelling, the administration of BA has to take restructure business policies related to pricing of different services. However, in case of monetary policy, supply of money is managed by the concerned authorities through change in interest rates (Role of fiscal and monetary policies in stabilisation of the economic cycle, 2005). In this context, monetary policy of government is having significant impact on the costing finance because it controls monetary supply within country by altering interest rates. For example: If BA is going to purchase new aircraft by assessing funds in the from bank borrowings then change in interest rates leads significant impact of management decision when government increases rate of interest. With change in policy, British Airways get relaxation from government. These policies can impact purchasing power of customers of British Airways. This in turn results in affecting the productivity of British Airways. Henceforth, it can be said that fiscal and monetary policy affects the business of British Airways. The organization should therefore decide its prices and formulate the policies in accordance with the government norms (Green, 2005).
Competition policy is formed by the government to make control on misuse of monopoly power. Misuse of power can affect the market and can be against to the interest of public. Competition policy leaves a big impact on British Airways. According to this policy, many other airline firms get chance to enter into the market. British Airways faces high level of competition. It is seen that competitors do provide point to point services at low cost. However, no free meal was offered to customers that negatively impact their brand image. As an effect, British Airways has improved its cost per revenue passenger mile which confirms that company is operating cost effectively. UK competition policy is very tight and BA has to follow these rules and regulations (Pettinger, 2007). If they do not follow that then strict actions can be taken by the regulatory authorities.
In addition to that different element of regulatory mechanisms such as labor laws, cyber regulation, environmental safety standards, taxation and monetary along with fiscal policy are greatly influencing management policies and business operations. It encourages BA for developing appropriate policies related to safety of passengers, pricing of different services and application of eco-friendly technology (Svensson and Wagner, 2015). For example, if public authority implements any changes in labor laws then management of BA has to implement in human resources practices of the firm.
Market structures influences the price and output decisions which are made by the organizations. Here, the main goal is to increase profits and minimise the losses. Mainly, there are four types of markets which are like:
Perfect Competition: In this market, there are large numbers of buyers and sellers who sell a variety of products. In this market, identical products are exchanged and there is no specific brand so, consumers can get substitutes of the product. Under perfect competition, an individual firm selects the output and maximise profits (Svensson and Wagner, 2015).
Monopolistic Competition: In this market, there are many sellers who sell different products. So, a buyer can’t get a perfect substitute of the product. Firms may enter into the market easily without much competition. As here, the products are slightly different from each other, so the producer needs to divert customers’ interest towards their product.
Oligopoly: It is a market where some sellers have power to dominate others. In this market structure, the entry is difficult and profit is purely dependent on the output.
Monopoly: It is a single selling market in which there are large numbers of buyers but a single seller. There is no product differentiation as the producer is only one who produces specific products which no other seller is offering.
Airline industry falls under oligopoly market which is a form of imperfect competition in which only few firms operate in the market. They are price makers when they make any decision; it is noticed by its competitors. Therefore, its rivals try to lower the prices which ultimately increase the output (McLeary, 2000).
Market forces are mainly of two types i.e. demand and supply which shapes the organizational structure. When the demand is high, British Airways can charge high prices to the customers. Especially at the time of festivals and summer holidays, it can charge high prices to increase its revenue. Generating high revenue may help in providing quality services to customers. When the supply is low, British Airways can offer discount to its existing customers as well as to potential one. It can be possible through research and development process only that the organization can identify level of demand and supply during the period. Consumers are priced heavily during high demand and vice versa. It can be therefore said that the market forces shape the organizational structure. With the help of this report from assignment desk, it is depicted that British Airways also focuses on market forces (Hannon, 2004)
Company spends a lot on research and development process just to eliminate the loops and for providing quality of services to its customers. It has provided variety of products by keeping in mind the needs of customers. They make their customers happy by supplying right product in the right amount and without any delay. It is necessary to keep a watch on the market forces to stay in touch with the new inventions. This in turn helps in making changes according to wants and demand of customers. So, it is important to match the demand according to their supply.
Apart from that the management of BA has to evaluate quality and specification of competitor’s services and product. This assessment plays important role for developing of new product along with the up gradation of existing services (Avlonitis and Indounas, 2004). In addition to that by assessing views of consumers, airline company is able to improve changes in business system along with service rendering process. Furthermore, different government norms and policies have played important role for shaping organizational policies and management operations.
For evaluation of various external factors related to business and cultural environment, PEST analysis is termed as most effective appraoch:
Political: It includes various government polices related to employee management and other international trade regulation that influences policies of BA. It also influences management decision related to busiess expansion and merger.
Social and cultural element: Culture defines principles or values which guides people to behave in the desired manner in organization. It is a wider concept that defines the values or principles of organization to perform business activities. The culture of business unit is designed in such a way that it helps in the attainment of organizational goals. The business unit operates in two types of environment i.e. economic environment and non-economic environment. For example, British Airways has operations in various parts of the world. Organization needs to maintain a balance by which needs of customers with different cultures will be satisfied. Moreover, the business unit creates a platform whereby employees of different cultures work together (Gibbons, 2005). The per capita income of UK is comparatively higher to other countries. People living in UK can afford airline services but those who cannot afford should have an option. So, BA has provided the facility of low price seats i.e. economy class. People who belong to different countries have distinct background. Henceforth, employees are trained in a manner that needs of all customers are satisfied. The organization faces issues in relation to distinct set of consumers’ preferences. In order to overcome the issue, British Airways emphasize on offering customized products to its clients (Avlonitis and Indounas, 2004).
Economic: This factor is greatly influenced management decisions related to pricing, business expansion and others. In this factor, management considers taxation, interest rate and supply and demand of airline services.
Technology: By considering latest technology, the management of BA is able increase safety and security of passengers. In addition to that it also supports managers for reduction in consumption of fuel that would reduce service cost.
International Trade is the exchange of goods and services between nations. It helps in expanding our business as well as in improving the relations with other countries. Import of goods helps in meeting the needs of those products which are not produced in the domestic country. Even consumers may get variety of choices for the demanded products. It is through cross-country exchange of products that the quality of goods can be compared across borders. It is little hard to be self dependent all the time so it is necessary to interact with the other economies in world (Ghannadian, 2006).
If they produce goods within their country then they are limiting their potential. For example, if British airways will provide their services within nation then they will not be able to explore themselves. They won’t be able to earn that much profit which they can earn by expanding their business in different countries. If they want to accomplish their mission of being the best in aviation industry then they have to connect with other countries. This in turn will increase the productivity and profitability of British Airways. The increasing profitability will enhance the interest of customers towards brand and it will also attract the investors to invest in their company. It can be said that international trade proves to be highly beneficial for British airways. The organization can expand its operations throughout the globe and can achieve efficiency to a great extent.
Impact of global factors on British Airways can be found by analysing the legal, economical, social and technical factors. Legal factors are related to laws and regulations made by the government. It also includes different rules and regulation which have been developed by international trade control authorities like WTO, EU and etc. These regulations determine the process of international mergers and acquisition that assists managers of BA while expanding business in oversea market. It helps international authorities to develop a healthy and competitive environment in order to avoid monopoly situation in aviation sector . For example: competition policy of EU controls different activities like mergers, liberalization and ant-trust activities as well as price fixing (Leary, 2000).
Technological: In the present business world, there is rapid growth in technology and equipment. It greatly influences technological advancement decisions of company such as purchase of new aircraft and advancement of existing air fleet with new equipment.. In global business every organization makes efforts for development and acquisition of new technical equipment that helps BA in reduction of cost of services and increasing safety of passenger. The use of Eco-friendly technology reduces the consumption fuel.
Policies of European Union have a significant impact on businesses that operate in United Kingdom. It is seen that European Union frames different set of policies and provide significant subsidies to the business units. There are some policies through which government can impact the businesses as mentioned below.
Employment Policy: European Union performs a very important role towards country's employment. It is providing funds to train the people for performing jobs. Now-a –days, UK government is trying to encourage people for doing business. The policy helps in generating sufficient level of employment within country (Didonet and et.al., 2012).
Education and Training policy: The UK government is trying to enhance the business life. They are making efforts to change the education and training pattern by adding vocational subjects.
The liberalization policy of EU, 1997: It plays important role for growth and development of aviation business EU. The deregulation of the EU’s airline sector has allowed new low-cost airlines to emerge, driving down prices across the sector and it also plays important role in expansion of travel and tourism business. As a result of this policy, In EU, more than 150 registered airline are operating business with the help of over 4,000 civilian aircraft (The Added Value Of EU Policy For Airline Services And Air PassengerRights.2014). In addition to that these companies are also offering scheduled passenger air services from 400 airports to more than 800 million passengers each year.
The report emphasizes on evaluating external and internal environment conditions for British Airways. The organization needs to focus on strategic management for enhancing their profitability and productivity. To remain competitive, British Airways needs to keep observing their plans on daily basis and to keep in touch with the changes regarding different factors. Their concern should be on diversifying its products in different countries to perform in the best and possible way for favourable outcomes and the most important thing is to benefit the passengers in all aspects.
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