Business Organizations and Operational Efficiency
Business organizations are faced with massive challenges in their quest to ensure operational efficiency and eliminate all the barriers that are considered to contribute to failure. The management plays a massive role in ensuring that environmental assessment is conducted and the appropriate course of action is taken to improve the economic performance of the entity in the long run (McKenzie & Woodruff, 2013). The causes of business failure can be attributed by issues in the internal and external business environment hence the need to adopt an effective system that addresses both sectors of operations (Mantere et al., 2013). Through the implementation of effective approaches, the management team will be able to eliminate barriers to organizational success by enhancing performance and minimizing the possibility of business failure.
Leading Causes of Business Failure and Their Implications
The primary aim of the study is to highlight some of the leading causes of business failure and their implications on the economy. For most firms, a business plan will guide the management on operations by identifying the goals and targets to be attained over a specific duration. Moreover, such documents also contain the capital expenditure of the company and the expected financial returns in the long run (McKenzie & Woodruff, 2013). It is therefore prudent for the administration to adhere to the stipulations that are indicated in the business plan to avoid derailing the operations of the firm. The planning system is also expected to analyze the market and identify sources of competitiveness as well as the points of weaknesses that might expose the performance of the firm to massive losses (Arasti, 2011). Consequently, mitigation measures should be adopted in such instances to reduce the severity of such risks and implement sustainable operations in the long run.
Internal and External Causes of Business Failure
In the analysis of the causes of business failure, the focus shifts to the internal and external environmental factors (Mantere et al., 2013). Unlike the internal variables that consider unfavorable internal controls as well as employee shortcomings as the main sources of failure in the operations of a business entity, the external environment covers a wide spectrum of issues that should be taken into consideration to ensure that the desired outcomes are attained and the business organization is shielded from potential risks in the long run.
Internal Sources of Business Failure
The internal sources of business failure include incompetent personnel, competition from rivals, unavailability of financial resources, and deficiencies in the organizational structure. Specifically, these factors are caused by shortcomings in the managerial system and can easily be managed to improve the performance of the company while dealing with the challenges attributed to operations in the local and foreign markets (McKenzie & Woodruff, 2013). Additionally, these issues can be dealt with by both the line and staff managers and are usually identified beforehand. Despite the fact that the causes of business failure in the internal business environment can be managed by the company executives, they still pose a significant threat if not timely addressed by the management and relevant individuals tasked with the responsibility of ensuring continuity in the operations of a firm.
The Role of Workforce in Business Failure
The workforce plays an integral role in the success of a business organization. As such, lack of qualification among some employees may diminish the expected levels of productivity and contribute to significant losses for the firm. Members of staff should undergo rigorous training to acquire the necessary knowledge and skills to accomplish their tasks in the business entity (Arasti, 2011). At the same time, the management should enhance the recruitment and selection process to ensure that the employees appointed into the organization match the needs of the entity and are able to utilize their understanding to elevate the performance of the organization (Hamrouni & Akkari, 2012). Incompetent personnel will not be able to perform effectively and will experience numerous forms of shortcomings, thus contributing to the business failure.
Competition as a Source of Business Failure
Competition is another source of business failure. In some sectors of the business environment, stiff competition limits the ability of some firms to compete effectively with their rivals. These issues arise due to discrepancies in the resources, both human and technical, at the disposal of each firm. Additionally, the quality of products can also contribute to the variations in market demands (Arasti, 2011). The pricing mechanisms employed by these firms can also contribute to their competitiveness compared to other firms in the same sectors of the economy. If a company is constantly faced with stiff competition and it fails to respond to the onslaught, then it might have to quit its operations.
The Importance of Organizational Structure
The organization structure is an essential component in each firm since it establishes the means through which a company conduct its operations, communication channels, and the chain of command. By providing a series of frameworks to guide the management in conducting its activities, delays are eliminated and efficiency is enhanced. In such cases, companies have a smooth flow of ideas and are extensively productive (McKenzie & Woodruff, 2013). On the other hand, effective communication facilitates the dissemination of information from one point to another, and in the process promotes clarity in the transfer of details from one employee to another. At the same time, clear communication channels also eliminate confusion among employees and the management and facilitate the ability to communicate the goals of the organization to the concerned stakeholders (Hamrouni & Akkari, 2012). Finally, the chain of command highlights the hierarchy of the employees and assigns responsibilities to all position, thereby assisting the business to deal with delay issues in the decision-making process since all parties in management are aware of the roles that they play.
The Role of External Factors in Business Failure
The external environment is composed of numerous variables include political, economic, social, technological, and environmental factors. The management has minimal control over such occurrences due to their magnitude. However, through anticipation, remedies can be developed to protect the company from the severity of risks that exist in the external environment (Mantere et al., 2013). Moreover, the company should also be flexible to such changes to avoid conflicts with the regulatory authorities that are tasked with the responsibility of governing this sector of the business. In most cases, the management adopts various anticipatory techniques to prepare for alterations in the external environment and proceed with the implementation phase of the process whenever the changes materialize.
The Impact of Political Environment on Business Failure
In the political environment, the main causes of business failure include unstable political scenes and the establishment of legislation that are unfavorable for business operations. In the case of the latter, raising the tax rates for the business will be detrimental to the survival of firms since the profit margins will be extensively reduced (Mantere et al., 2013). On the other hand, political hostility creates a volatile business environment, thereby exposing business organizations to massive losses. Expansion policies cannot be accomplished without the political goodwill of the ruling administrations. Consequently, improve political environments have positive implications for the success of business entities.
The Influence of Economic Environment on Business Failure
The economic business environment relates to the economic performance of a country as well as the economic policies that have been developed. The prevailing economic conditions have an extensive effect on the general performance of a business organization. During periods of economic growth, companies are likely to benefit from the favorable conditions and increase their profit margins due to increased demand for their products. On the other hand, during an economic recession, supply exceeds demand, and in the process businesses grapple with potential losses in the long run (Hamrouni & Akkari, 2012). These periods are marked with high instances of bankruptcy since firms cannot repay their loans in addition to reducing profit margins across the board. Poor economic policies can also influence lead to business failure.
Social Factors and Business Failure
The social environment relates to the implications of cultural beliefs and practices on the operations of business entities. Populations across the globe subscribe to specific norms and values. As such, business activities that are deemed to go against the cultural beliefs of the target market are shunned and considered to be provocative (Mantere et al., 2013). Management should, therefore, conduct market analysis and be conversant with the culture of the target market in order to understand them. At the same time, religious practices should also be taken into consideration during the decision-making process to avoid practices that are deemed to be inflammatory towards a specific section of the populace.
Technological Factors and Business Failure
Several business entities are using technology as a source of competitive advantage over their rivals (Hamrouni & Akkari, 2012). The benefits of using advanced methodologies include better quality, efficiency, lower costs of production, and effective management of waste. Business entities that depend on redundant technology are therefore faced with the prospect of stiff competition from techno-savvy entities. The former may have to utilize higher expenditures to be able to compete with other players in the industry, and in the process, the high costs of production minimize their profit margins, thus exposing them to losses.
Conclusion
The analysis of the causes of business failure has been categorized into two; internal and external business environment. The variables discuss the potential risks that arise in the internal environment due to management shortcomings. These factors include organizational structures, availability of resources, and capabilities of employees. On the other hand, the external environmental factors exceed managerial influence and can only be controlled through the established of a flexible system of operations.
References
Arasti, Z. (2011). An empirical study on the causes of business failure in Iranian context. African journal of business management, 5(17), 7488-7498.
Hamrouni, A. D., " Akkari, I. (2012). The entrepreneurial failure: Exploring links between the main causes of failure and the company life cycle. International Journal of Business and Social Science, 3(4).
Mantere, S., Aula, P., Schildt, H., " Vaara, E. (2013). Narrative attributions of entrepreneurial failure. Journal of Business Venturing, 28(4), 459-473.
McKenzie, D., " Woodruff, C. (2013). What are we learning from business training and entrepreneurship evaluations around the developing world?. The World Bank Research Observer, 29(1), 48-82.
