Sep 20, 2019 in Research Paper

Abstract

The research paper delves into the matter of environmental management and business performance. The paper explores the three-step process, which managers use to analyze changes in external environments, the importance of the environmental scanning and its contribution to organizational performance, theory of general and specific environment. Moreover, the paper describes precisely general and specific environment of Philips. The research paper puts forward the thesis that an analysis of the environment of an enterprise shows the main factors which should be taken in consideration within the development of a strategy and performance and confirms it with the example of Philips.

Keywords: environmental management, Philips, business performance

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Environmental Management and Business Performance. Philips Research

Introduction

The development of an organizational strategy begins with an analysis of its environment. At the same time, the success of all activities depends on strategic planning. The implementation of a strategy depends on the quality of an analysis. Environmental analysis should be carried out continuously, as obtaining information on the basis of which the estimation of current situation of the company can be made is its result. So, the thesis of the research paper is the following: An analysis of the environment of an enterprise shows the main factors which should be taken in consideration within the development of a strategy and performance.

The Three-Step Process that Managers Use to Make Sense of Changes In External Environments

Environmental analysis includes the study of its three components: general environment, specific and internal environment of the organization (Garrod & Chadwick, 1996).

When assessing the environment, managers use the three-step process to make sense of changes in an external environment of a company (Orsato, n.d.).

  1. A manager estimates changes that affect various aspects of the current strategy. For example, a rise in rocket fuel has created a variety of problems for the airlines. These airlines should constantly assess the dynamics of fuel prices in the strategic planning process.
  2. A manager identifies factors which pose a threat to the current strategy of the firm. An activity of competitors control allows manager to be prepared to potential threats.
  3. Manager, adjusting a strategy, evaluates factors which can give more opportunities to achieve the general goal of a company.

By analyzing an external environment, managers create for the organization:

  1. Conditions for forecasting capabilities
  2. Time to make a plan and to be prepared to unforeseen complications
  3. Time to develop an early warning system for possible threats and time to develop strategies that can turn any previous threats in profitable opportunities

From the point of view of assessing these threats and opportunities, the role of external environment analysis in the strategic planning process consists of the following three stages:

  1. Determination of current position of the organization
  2. Determination of a desired position of the company in the future, according to the objectives of management
  3. Determination of required actions, which are necessary to change the current position of the organization to the desired position

The Importance of the Environmental Scanning and Its Contribution to Organizational Performance

Analysis of the external environment is the process by which developers of the strategic plan control external factors of the organization to determine opportunities and threats of the company.

Analysis of the external environment helps to obtain important results. It is necessary to assess conditions in which businesses operate, as it allows identifying the factors that positively or negatively affect the company’s performance. According to the analysis, a strategy of features’ use of the environment can be developed.

As Orsato (n.d.) believes that the purpose of the analysis is getting the overall information about threats and opportunities of the environment that need to be taken into account in the process of key decisions making within a strategy development.

Environmental scanning, analysis of the external environment of the company allows identifying the factors that promote or hinder the commercial success of the enterprise. With the increase of dynamism of an environment, this type of evaluation for the enterprise becomes a vital factor that determines its survival. Not all external factors have the same value for the enterprise, so it is important to identify those that are most important to organizational performance.

Environmental scanning allows a manager to understand how resources are generated and distributed. It is vital for the organization as well as access to resources greatly determines the state of the input to the organization (Whitehead, 2000).

The analysis of macro-economic components involves the analysis of the number of indicators: the value of GDP, inflation, unemployment, interest rates, productivity, taxation norms, balance of payments, rules of accumulation. In the process of studying such indicators and factors, their value is less interesting for a manager than business opportunities, which such indicators can give.

Opening the potential threats to the firm is also included in the sphere of interests of strategic management.

Analysis of the political component of the external environment will give a clear idea about the intention of the government, in relation to the development of society and the means by which the government intends to implement its policies. Analysis of the market environment can show numerous factors that can have a direct impact on the success or failure of the organization. Analysis of the technical development of the external environment will allow seeing in time the possibilities to produce new products that science offers. Analysis of international factors will identify threats and opportunities which may arise as a result of easy access to raw materials, the activities of foreign cartels, exchange rate changes and policy decisions in countries that act as properties investment or markets. Study of the laws and regulations allows navigating the legal system and getting benefits from this navigation. All these elements of general environment and many other components of specific environmental scanning allow a company to select and create its own business strategy. The assessment of external environment of the enterprise and the company’s position in the market is in the basis of the strategy formation. Managers are not able to choose the direction of the organization without knowing the state of the environment and market opportunities of organizations, environmental scanning, therefore, makes an important contribution to organizational performance, helping to create and develop business strategy.

Theory of General and Specific Environment. General and Specific Environment of Philips

Environmental factors have a different power to influence the organization. Therefore, an external environment and its factors may be general and specific. Specific environment includes factors that directly affect the performance of an organization, experiencing the direct impact of performance of an organization. They are suppliers, labor, laws and institutions of government regulation, consumers and competitors, etc. General environment includes factors that may not have a direct immediate impact on performance, but nevertheless affect them. Such factors include the state of the economy, scientific and technological progress, socio-cultural and political changes, the effect of group interests and are essential for the organization events in other countries. General and specific environment should be investigated with the example of Philips.

Philips story begins in 1891 when Gerard Philips and his father Frederic Philips founded the company Philips & Co in Eindhoven, Netherlands. A few years later, in 1895, the brother of Gerard, Anton Phillips, proved his talent of the great merchant, strengthening the position of the young company in the global market. Two years later, Philips has become one of the world’s largest producers of bulbs. Industrial revolution which had begun in Europe triggered the establishment of the first research laboratory of Philips, which was opened in 1914. The company began to present its first innovative projects in the field of radio and X-ray technology. In subsequent years, the company made a lot of scientific discoveries.

Achievements of Philips are a result of the developed and well thought-out business strategy. Therefore, the study of general and specific environment as a basis for the strategy development of the company is important and urgent.

Table 1

Possibilities of environment of Philips

Influence / Probability

Strong

Moderate

Small

High

Growth of the market of household appliances (20-25% / year). Quick increase of people’s income / specific environment

The trend of downward in prices for component materials. The emergence of new suppliers for Philips / specific environment

Changing the law in favor of the foreign missions / specific environment

Average

Market demand for modern comfortable home appliances / specific environment

Improving of advertisement technology of competitors / specific environment

Reduction of taxes and duties / general environment

Low

Improvement of management of rival companies / specific environment

Quick development of production technology / general environment

Reduction of unemployment / general environment

As it is obviously from the table 1, growth of the market of household appliances is a factor of the specific environment for Philips, because it can make direct immediate impact, as changing the law in favor of the foreign missions, the trend of downward in prices for component materials and market demand for modern comfortable home appliances (increase of demand and sale changes). Improvement of rival companies’ management and improving of competitors’ advertisement technology are also the factors of specific environment, they can be direct threats, especially for Philips. Reduction of taxes and duties, development of production technology and reduction of unemployment rate are the factors of the general environment of Philips, as they cannot change immediate benefit of treat.

Table 2

The threats of external environment

Influence / Probability

Devastating

Heavy

The “light injuries”

High

Instability of exchange rates / general environment

Proposal of new models of household appliances of rival companies / specific environment

Reduced consumer confidence in advertising

Average

Strengthening the position of potential competitors by dumping / general environment

Change of consumer needs and preferences / specific environment

The company’s lack of trained personnel / specific environment

Low

Changing the rules of import products / specific environment

Change of component suppliers / specific environment

Continual adjustments of legislative framework in politic sphere / general environment

The general environment factors usually do not affect the performance of Philips. They are not as noticeable as specific environment factors. However, management of Philips should also take instability of exchange rates, continual adjustments of legislative framework in politic sphere into consideration. General environment impact was usually less complicated for Philips than the impact of specific environment. However, leadership has often forced to rely on the assumption about general environment, based on incomplete information, in an attempt to predict the possible consequences for the organization. The hardest impact of specific environment led to the main loses, which were forced by the following factors (Marinelli, 2013):

  1. Increase of raw material prices
  2. The high concentration orders of subcontractors
  3. The deterioration of a major customer
  4. Improving of the performance of competitors’ products
  5. Replacing the number of business partners
  6. The emergence of new competitors
  7. Decrease of the number of large orders from customers

As it can be seen, the company should pay more attention to these factors. As it is obvious from the tables, Appendix A and Appendix B, Philips does not have very weak effectiveness of the components of the environment, and all of the company’s factors are characterized with high importance. However, it should be emphasized, that the company knows all factors of its environment, takes them into consideration, and builds its performance strategy on the basis of environmental scanning.

 

Conclusion

The development of organizational strategy begins with an analysis of its environment; business performance of any company has strong connections with its environmental scanning, that is why managers use different approaches for direct assessment of the environment.

As it was investigated, Phillips has a distinguish feature: the company takes into consideration the analysis of its environment. General environment impact was usually less complicated for Philips than the impact of specific environment, but the managers of the company pay attention to both spheres of influence. So, an analysis of the environment of Philips showed the main factors which should be taken in consideration within company’s performance, which confirms the thesis of the research paper.

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