In general, a market is a mechanism in which one party sells a good or service that another party is able to pay for (Kelly, 2013). An alternative description of a business is given by Burrow, et al. (2008) which argues that any company that manufactures or distributes a good or service for the purpose of making a profit is a business. However, this concept does not meet the nuances under which certain business organizations work. Other than the customers or consumers, businesses interact with a web of stakeholders including their investors, employees, the community, regulators, competitors, and interest groups as well as the government. A business is thus rarely limited in its interactions with the outside world. Rather, the business environment is big and diverse with a lot of different players and factors that have a direct or indirect impact on the business in question. In this paper, the focus will be on understanding how a business fits in within the larger business environment by examining the various components of the business environment as described by different scholars.
The size and scope of a range of different types of organisations
There are three different types of organizations when considering the size and the scope. A large organization, by definition, is one which has more than 250 employees and a revenue greater than £22.8 million. Large organizations often have an exponential potential for growth as they have larger a capital base at their proposal. Owing to the large revenue, the large organizations, such as McDonald’s, have higher profit shares, higher market shares and a recognizably bigger scope of operations. Also, for a large company, the goals and objectives are no longer limited to growth as the business can already focus on sustainability and globalization among other things. The reality however, is also that the larger the business, the more challenging it becomes since the business attracts a bigger pool of stakeholders.
A medium organization is, on the other hand, one that has between 50 and 249 employees. Such a business may also have a revenue that is more than £5.6 million but also less than £22.8 million. For a medium organization, the goals are mostly driven towards growth within the market and beyond. The medium organization may have a good market share but they also have to compete fiercely against their larger competitors. Their profit share may also be reasonable but there is always the chance that they can be doing better. Thus, for the most part, medium-sized business are seen as transitional in that they either become bigger or they fall back into the small business category after failing to keep up in a competitive environment.
The definition of a small firm, as posited by Worthington and Britton (2006), is often difficult in the sense that there are many small businesses with more employees but a small capital base while others have few employees but a large revenue. For this paper, the small business organizations are those that have a revenue that is less than £5.6 million, as well as 50 or fewer employees. The small business is thus defined by their small scale of operations, which translate to having a small scope, a small market share, and limited profit share. For example, while a company like McDonald’s can afford to dabble in a wide range of products and services in order to meet their organizational objectives. For smaller businesses, the scope is rather limited such that the business may only be able to fulfill a specified portion of the available niche. Small vegetable farmers, for example, may not be able to sell a wide assortment of groceries like Whole Foods Inc or Walmart. The goals and objectives for many small organizations are based on a need to grow within their specific markets and beyond.
Franchising, joint ventures and licensing
Kalnins (2010) found that franchising is an approach taken by a business that has limited capital. Resource scarcity, for a business that needs to expand, creates a need for partnering with investors who are likely to fund the business without the need to own it completely. As a business structure, franchising involves providing a business owner with a stake in the business even if they do not own the brand itself. A franchise however is considerably expensive to set up, and the franchisees must be able to see projected gains based on a strong brand image and an existent customer base (Kalnins, 2010). The franchise in such a case would be a reserve for medium and large companies that can afford the brand awareness and marketing campaigns needed to build a large enough following across the markets (Worthington & Britton, 2014). The choice of business structure, especially within international contexts, is often determined by the extent to which a company would like to be involved (Baena, 2012). As such, some companies that have the capacity for direct investment may still opt to franchise if that’s what they consider suitable for their strategy.
Beamish and Lupton (2009) present joint ventures as one of the most complicated and thus challenging organizational structures that a business can adapt. In a joint venture, two different entities pledge to do business together in a way that is meant benefit both parties. The reality, however, is that there are often some unforeseen differences that drag the partners in different directions (Beamish & Lupton, 2009). These authors also found that, in agreement with Yan and Gray (1994), unless there is some bargaining that can be used to define the ownership structure, the joint venture is likely to fail one partner, at least. Joint ventures are generally unstable in the fact that there are too many variables on either side of the collaboration, although there are some situations where the joint venture is the only option based on regulations and feasibility (Worthington & Britton, 2006). Small businesses are more comfortable with joint ventures although it is the larger organizations that attract more local business partners. Dominant control is considered one of the enabling factors in the success of an international joint venture (Bener & Glaister, 2008). Another study, by Zhang et al., (2008) also found that joint ventures where the management is monopolized have a better chance at success, thus making a joint venture only ideal for the big companies or small and medium companies that are comfortable taking the back seat in their business.
Licensing is often an option only for the large companies that would like to venture into new markets with minimal risk (Twarowska & Kakol, 2013). As a globalization strategy, licensing involves giving the company’s patent rights, trademark rights, copyrights and all the procedural support that is needed to replicate the licensor’s business to a willing and able licensee. Small and medium organizations are often eager to get into such business agreements with large companies since they get to take advantage of brand recognition and customer loyalty (Worthington & Britton, 2006).
Transnational, international and global organisations
Contrary to popular assumptions, transnational, international and global are not synonymous terms when referring to business organizations. A transnational organization is one that conducts business across the world in the same way that they conduct business in their domestic country (Mushtaq, 2016). These organizations have a foreign direct investment in most of the nations that they operate in, and they practice International Human Resource Management strategies that seek to protect not just the investment but also the brand. A transnational organization is the exceptionally large and thus complex in its structure as well as scope. McDonald’s is a transnational company that uses a multi-domestic approach to their organizational structure and behavior. McDonald’s has been able to become the fast food giant that they are today by venturing and investing into numerous local markets and conforming to the needs and expectations of the respective markets instead of clinging on to the standards of the parent establishment. A transnational organization has to be versatile and adaptable in order to survive in a competitive market. So far, McDonald’s is among the world’s leading fast food companies with KFC following in their footsteps with their international ventures.
An international company, is then defined as any company that exports their products to a different country. International companies do not have to invest in these other companies. They simply conduct business with international partners (Mushtaq, 2016). Such companies are thus simple in scope and size, although they have the capacity for large profit margins and exponential growth and development, as well as a large market share outside their domestic markets. Wal-Mart is one example of an international company that has been able to penetrate the global market without investing outside the United States. Such companies grow by taking advantage of economies of scale that put them at an advantage over local competitors in the countries where they sell their goods.
Global organizations also have to invest in the foreign nations where they do business (Mushtaq, 2016). For example, Coca-Cola has invested in almost every country in the world in order to provide their products to a large global market. A global organization is not only complex but also expensive. With more than 20 countries on their market, the marketing communications alone can have quite a steep budget. The returns are however also impressive seeing as the business has a global market base to tap into. The large scope and large profit seem to guarantee sustainability in the event that the business organization has a strong management team.
How the structure, size, and scope of different organisations link to the business objectives and product and services offered by the organisations
Industrial structures imply the size of competitors and how they are distributed within the market (Suttle, n.d.). Some industries have intense rivalry owing to having a lot of competitors, while other industries have limited competition or even no competition at all. Industries with intense rivalry tend to shut out the smaller companies. The main players in the market are thus those with established brands and high market visibility among other things. Within such industries, it can also be noted, small firms cannot survive (Brooks, et al., 2004).
The business objectives also determine how a business interacts with their competition such that a company like McDonald’s must always be willing to learn from Subway and KFC among others. Regular competitive analyses help the organization to maintain their position. Factors such as scarcity and choice, supply and demand and income elasticity also benefit the organization depending on their objectives, products, and services. Companies that offer basic necessities, for example, do not have to worry about demand (Campbell & Craig, 2005). Their sole objective is to be able to supply the market. For example, a company like Kleenex never has to worry about demand for their products even when there are many other competitors in the market.
The size and scope of a business also determine the kind of stakeholders that the business will have. Each stakeholder also has needs and expectations that must be met. For example, the employees need good compensation and better working environment. The shareholders need higher profit margins and the communities need environmental sustainability while the customers simply want high-quality products and services.
The relationship between different organisational functions and how they link to organisational objectives and structure
Finance, as an organizational function, is mostly about determining how the business is performing and working towards making it better. The finance departments work with the company objectives to determine whether or not the applied strategy and structure is working. The strategies, in this regard, could be the ones applied by the HRM, marketing or operations department. The marketing function then works with the objectives of the company to determine the kind of HRM and operations strategy that is needed within the organization. The marketing department also uses the KPIs set by the Finance department in order to meet the set objectives of the organization. Operations are also based on the objectives, structure and HRM strategy of the business. The operations design business processes that are meant to get the business to their performance targets as laid out by the Finance department. For McDonald’s, it can be noted that the management functions work together to consistently improve the company’s business. All the departmental strategies are aligned with the company goals and objectives, while also paying attention to the KPIs set by the Finance department.
Figure 1: MacDonald’s organizational chart
Advantages and disadvantages of interrelationships between organisational functions and the impact that can have upon organisational structure
There five common organizational structures that affect how a business is run, and each structure is determined by the size and scope of the business in question. A bureaucratic structure is often reserved for small organizations where centralisation is not likely to cause problems (Bovee & Thill, 2013). In such a structure, the operations are standardized and measured regularly by the top tier management. All the department heads report to the CEO or President who is responsible for all the important decisions related to the management functions. A business start-up may run on the bureaucratic structure but as they grow in size and scope, they have to let go of the rigidity that comes with centralised decision making.
The post bureaucratic organizational structure is attributed to Charles Heckscher (2012) whose arguments were that organizations could also benefit from democracy as opposed to the bureaucratic system of authoritarian leadership (Heckscher, 2012). In a post bureaucratic organization, there is a board of members who discuss and pass decisions while considering the views and needs of the employees. Such an organization may be costly and slow in a small scale and a large scale context but it is perfect for the medium sized business. Heckscher (2012) further defines the post bureaucratic organization as highly interactive in a way that enables easy and more effective change management among other things. The departments work closely together, reporting to the management and the employees alike. It is these attributes that make it reasonable for large organizations to brave the costs and implement a bureaucratic structure. Employee satisfaction increases significantly when the power distance lowered such that the employees can share their views and opinions and influence management decisions.
In a parent structure, the business units go about their own operations independently without being tied down, although all the major decisions must be run through the parent company. The role of the semi-centralised system is to monitor performance without stifling the units and departments. For example, Facebook is a parent company to Instagram despite the fact that their operations are entirely separated and autonomous. Johnson and Johnson also run using the parent structure with all subsidiaries being on their own except for an association with the popular brand name. The parent structure is thus reserved for large companies that have a really large scope of business and impeccable capital base seeing as most parent structures are born out of acquisitions and mergers.
Strategic business units are considered an ideal structure for a large business, especially within an international market. Nestle, for example, has four strategic business units based on the company’s large size and scope. Each strategic business unit is independent, responsible and accountable to the overall management team. The advantage of this structure is that it is highly efficient as each SBU focuses on a specific line of business. The disadvantage is that there may be conflicts in funding allocations since some SBUs may be more profitable than others while requiring less input, while other SBUs may take more money and give less profit depending on their position in the product lifecycle.
Matrix structures, on the other hand, are complex structures that are based on collaboration and dual reporting between the management functions. The organization uses task-specific work teams and linear management such that everyone has a responsibility to play their role and to enable their task teammates to accomplish theirs as well. Matrices are considered highly effective because every involved employee knows exactly what they need to do and are held accountable by the rest of the team that they are working with on a project (Weatherly & Otter, 2014). However, there is likely to be some confusion since there is no clear authority and everyone is a manager within their scope of work. The matrix structure is best suited for large and medium sized companies where the scope of work is unique and speed is of utmost importance. For a small organization, setting up a matrix system is rather costly and often ineffective.
Functional structures are more common, among medium and large organizations as well as the small ones. In a functional organization, the departments are divided into functional units like HRM, Operations, Marketing, and Finance among others. Each division is responsible for a specified set of processes and they have their own department heads who then report to the company CEO and directors. McDonald is one such organization, with a Chairman, CEO, and COO at the top. The next tier is for the department heads for finance, human resources, corporate affairs, marketing, operations, regional managers, information, and strategic planning.
A critical analysis of the interrelationships of the different organisational functions
In a transnational organization, the most optimal structure is one that balances a global strategy with a multi-domestic strategy (Management, 2009). The organizational structure that works is thus one that allows for a compromise between centralised decision making and some level of autonomy within national operations. Within such an organization, the scope of each organizational function is determined by the applied hybrid structure. For example, at McDonald’s, the marketing is conducted in a multi-domestic structure so as to capture the varying concerns for each specific market (Meyer, 2017). The HRM is then conducted in a similar hybrid function. The restaurant workers are all locally employed within the outlets, while the corporate staff operates from company headquarters and regional offices. The HRM is thus divided into two, with the corporate staff being managed through international HRM practices while the restaurant workers remain as a domestic function that is only guided by company policies but also adapted to national labour regulations (Burrow, et al., 2008). The Finance function at McDonald’s is also hybridized in the sense that there is an overall finance department committed to the performance of the organization and smaller units at the local level that manage the performance of each outlet. As a franchising organization, McDonald’s gives its franchise owners some room to manage the performance of their outlets, with some guidance from the finance department. As for operations, a national and international approach is necessary for a market response within the different contexts that the business has to operate. Thus while there may be an overall company-wide strategy, each unit still pays attention to the specific market that they serve.
An international organization is slightly simpler seeing as they only have business operations locally and they export overseas without having to invest there. Such an organization thus thrives on localized management functions with minimal business partnerships overseas. For example, Wal-Mart, as an international company, has a national Finance department, HRM department, marketing department as well as operations department. The company then partners with shipping agents and courier companies across the world to deliver their merchandise to clients abroad.
For a global organization, the choice for the scope of a given managerial function is determined by company objectives and the kind of operations that they run. A good example of a global company is Coca-Cola, with their localized operations in over 150 countries. The HR function is carried out globally as well as regionally and locally depending on the job positions involved. Each regional office is also responsible for their finance function, which is reported to the global office. The Operations functions are also mainly managed at the global and regional levels (Thompson & McHugh, 2002)
The management functions of an organization are determined by the organizational structure such that if an organization is built around centralized decision making then all the functions will be based in the head office. Such a structure however limits the business from appreciating and responding to local market contexts and concerns.
Positive and negative impacts of the macro environment on business operations
Macro environmental factors tend to have a significant impact on business operations since they inform business strategy while shaping overall performance. It follows that these factors can have both positive and negative impacts as will be illustrated with McDonald’s as an example.
Political factors – Increasing international trade agreements and BRIC markets have a positive effect on McDonald’s business as they will open up more markets while making it easy for the company to source for materials from cheaper parts of the world. When countries are open to doing business with one another, transnational organizations benefit as they can fully use economies of scale to further reduce their operational costs (Kelly, 2013). Evolving public health policies will, however, have a negative impact on McDonald’s business since running a food chain will become more expensive. Regulations on health checks and licensing will become expensive and too tasking for the business.
Economic factors – A stable economic growth is a good thing for any business, even if the growth is slow as it is in the US (Baron, 2012). McDonald’s is thus assured of continued business even as other companies start slowing down in their sales to accommodate the slow pace of economic growth. A slowdown in the Chinese economy, however, has a negative impact on McDonald’s business as it stifles the company’s growth opportunities in the Asian continent.
Social and cultural factors – There is a widening wealth gap which means that McDonald’s target market is growing (Guy, 2009). The company targets middle income and low-income families as well as individuals. However, there is a growing trend of adapting a healthy lifestyle possibly owing to the public awareness initiatives for chronic illnesses. As a result, many people are opting to eat at home where they control the ingredients and calories in their diets. Such a trend significantly hurts McDonald’s business as a fast food restaurant. Also, there is a global shift in economic and social power on business operations based on the existing social technologies. The customer is now a content creator with too much information at the click of a button. Businesses like McDonald’s are now forced to constantly be on their best behaviour as they can be taken down by one Facebook post.
Technological factors – There is a digital revolution of production and consumption across the globe (Guy, 2009). On the positive side, this makes work a lot easier McDonald’s as they get to connect with their suppliers and consumers on the various available platforms. On the negative side, other businesses can now adapt the supply chain system and compete with McDonald’s just as effectively. The seamless operations boost business for McDonald’s while opening them up to stiffer competition, from both local and international players. Cyberspace security is a factor that any business must consider within their business operations (Palmer & Hartley, 2011). The positive impact is that it enhances security and improves business operations through knowledge management, decision support systems, customer relations management and many other cloud-based operations that are important to the business. On the down side, cyberspace security is often a gamble as hackers can still succeed in accessing company servers and paralyzing the business or accessing information to be used against the business.
Legal factors – More governments are recognizing animal welfare as an important factor thus limiting McDonald’s in terms of acquiring animals that are not well taken care of in accordance with stipulated policies. The positive side of this factor is that it gives the company an opportunity to agree on terms and conditions with their meat suppliers. The agreements will ensure that McDonald’s only gets meat from healthy animals that have been reared well and up to the standards desired by the consumers and interest groups. Minimum wage is another factor that is both a positive and a negative for McDonald’s. The negative side is that operation costs will have to go up as the workers get paid more, while the positive side is that these workers will be happier and hopefully more motivated to work at McDonald’s.
Environmental factors – Climate change is a reality that the corporate world is slowly accepting (Bovee & Thill, 2013) and McDonald’s is especially culpable unless they revise their supply chain to limit their carbon footprint. The need to participate in corporate citizenship as one of the noblest approaches to environmental sustainability is also expensive and indulging for the business but mandatory if McDonald’s is to maintain a good brand name and position, locally and internationally.
How strengths and weaknesses interrelate with external macro factors
Effective management is about aligning the business with the macro and micro environment for maximized performance. The strengths and weaknesses of a business must thus be approached in a way that either takes advantage of the political, economic, social, cultural, technological or environmental factors, or a way that uses these factors to convert a weakness into a strength. McDonald’s is one of the most impressive business in terms of capitalising on their strengths while converting their weaknesses using the macro factors.
According to Jurevicius (2017), McDonald’s is the second largest restaurant network with operations in 120 countries across the world. The largest restaurant network is Subway, with over 40000 outlets globally. By sales however, McDonald’s is the largest restaurant chain in the world. Like any other business, McDonald’s has its strengths and weaknesses. First, this company uses the economies of scale to their advantage by sharing fixed costs across their locations. Considering that McDonald’s has such a vast network of outlets, it would make sense that they are cheapest place that one can eat (Jurevicius, 2017). The management at McDonald’s capitalises on this strength to leverage any economic factors that may cause their competition to increase their prices, thus being consistent with the low pricing of their products.
McDonald’s is also the most recognizable brand in the world. The strong brand identity enables the business to thrive in any market. This strength interacts with the social and cultural factors that require a business to have the ability to meet the expectations of the consumers. McDonald’s has built a reputation for adapting to the social and cultural environment even in their foreign locations. The business not only learns the culture but also incorporates local spices and dishes into their otherwise standard menu. The competitiveness of the business increases as they start competing fiercely against local restaurants as well.
As a weakness, McDonald’s is rather rigid with their internal processes (Greenspan, 2017). Also, the company has a rather low scope seeing as they focus on food and beverages. When comparing against macro factors, the rigid internal processes interrelate with the legal limitations of almost every other nation. Companies in the food and beverage sector have to meet certain procedural standards so as to ensure the safety of their products and services. Standardizing these procedures across the board actually enables the brand to build consistency, which is a strength as they serve global customers. This consistency is one of McDonald’s strongest attributes as the competitors struggle to be original in their foreign markets.
The modern organization has to deal with a lot of pressure within their business environment. The stakeholders need the business’ attention since they have an interdependent relationship. The organizational structure is in itself too complex but necessary in order for the organization to be successful within a market that demands flexibility and adaptability. The business environment generally demands that organizations be aware of their own needs as well as the contexts within which they must operate. Any discordance can lead to major failures in the organization.
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