Factors that impact on and influence the organisation
The business environment is often an uncertain one, where managers are faced with many factors that impact on and influence the organisation. The micro-environment includes suppliers, customers and stakeholders, all of which influence the organisation directly. The macro-environment, however, includes factors that influence the organisation but are out of its direct control.
The micro-environment is often determined by the industry the organisation operates within. Competition becomes a critical influencing factor. Johnson et al (2002) states that managers should understand the competitive forces that exist between organisations in the same industry because this will determine its attractiveness. De Swaan Arons, et al (1999) refer to Porter’s Five Forces framework as a tool to assess profit potential within an organisation. These forces include; supplier and buyer power; threat of substitutes; and barriers to entry. At the centre of the five forces is competitive rivalry between organisations in the same industry/sector. The level of competitive aggressiveness will be determined by factors such as the number of competitors, industry growth, high fixed costs, and amount of differentiation (De Swaan Arons, et al, 1999, pp 3). According to Harrison (2003), success in the hotel industry is often provided by being located near existing hotel properties. This may be as a result of a tested market-place and assurance that if hotels can profit in that area, then it becomes an attractive market to enter. Supplier and buyer power are closely linked due to the resulting relationship they have in influencing the organisation. Porter’s Five Forces Framework states that supplier power is high when there is a concentration of suppliers within the same industry. However; following the comments of Harrison (2003), several hotel properties within the same geographic area will be competing for customers, often basing their strategy on price; hence the customer has the power to influence the supplier, otherwise known as buyer power. A high concentration of suppliers in one geographic area often results in a saturated market. The Life-Cycle Model highlights the importance between growth and maturity stages. Johnson et al (2002) illustrate that in market growth situations, an organisation is likely to achieve growth through the resulting growth of the marketplace. However, when markets are mature, organisational growth can only be achieved by taking market share from competitors. Research conducted within the Swiss Hotel Industry, (Sund, 2004), showed that it had been experiencing a period of stagnation and even decline. Sund (2004) suggests this is due to the concentration of hotel properties in the area as a result of increased international travel post-World War II and the increase in hotel chains and franchises. In research carried out by Audretsch et al (1996), where the innovative activity takes place is a key contributor to the phase of the industry life cycle.
Substitution reduces demand for a particular type of product or service. For example, the presence of all-inclusive hotel resorts is a threat to small independent Bed & Bedfast establishments. Barriers to entry consist of a number of factors, for example; economies of scale, capital requirement, access to distribution channels, experience expected, retaliation, legislation/government action, and differentiation (Johnson et al, 2002, pp 115). For the hotel industry, the threat of entry is likely to be high in places where there is a high concentration of hotel accommodation. However; some may argue that high concentration may be a reason not to enter the market because competition is fierce. According to Harrison (2003), Porter’s Five Forces model has limitations in terms of its practical application. Although the five forces aims to provide organisations with a definition of competitive factors, it does not...
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