The ability of an organisation
Long-term success is the main objective of any business. In order to fulfil this objective a business must focus on its market (the ‘external environment’), and the needs of its customers. This usually means adapting to change, especially if the business wishes to expand and open new stores and/or production facilities. The needs of customers are constantly changing. Before the internet became widely accessible, cassette tapes and CD’s used to dominate the portable music market.
Companies such as Sony, Ativa and numerous Chinese companies used to distribute cassettes to a mass market, until the more efficient storage method of the compact disk (CD) came along, which rendered cassettes obsolete. The introduction of the internet saw a decline in sales of traditional cassettes and tapes, because customers favoured the easier method of download straight from the internet. HMV didn’t anticipate the move towards e-music and downloads, and has suffered an 11.4% decline in like-for-like sales since 20061. This is a prime example of when a business hasn’t adapted to change and has suffered as a result.
However, a major factor that influences success in the long-run is the quality of management and workers. An organisation must be flexible when managing its labour force. If a firm wishes to maximise its profit, then consistent management techniques will not achieve long-term success. Consumer’s tastes vary over time, as previously mentioned, and the business must respond by changing employees’ skills and abilities in line with this to meet consumers’ needs throughout training and external recruitment. If a business can manage its human capital then it is prone to survive in its long-term environment.
For example, John Lewis provides regular training (both on and off the job) and social events for all its employees, which has been proved to be an effective non-financial method of motivation. Motivating employee’s gains passive benefits, including less sick time and a higher level of productivity, both of these factors allow more efficient production which helps get the product onto shelves at a cheap price – exactly what customers want.
Moving away from internal issues, the opinion above (i.e. the question) does have some merit. Technology, and advancements in technology, enables cheaper and more efficient production, which feeds through to the consumer via lower prices. Keeping prices low by using more efficient machinery and ICT systems will increase sales, which translates to higher revenue, assuming a constant mark-up. In the market for expensive ‘high-tech’ video recorders, new technology has enabled cheaper production which, over time, allows the firm to charge a lower price or widen their profit margin.
Such benefits cannot be utilised by not changing operations, even if risky ‘big-ticket’ capital equipment purchases are to be made. One could argue some markets are less volatile, such as the dairy industry. Milk is always going to be a price inelastic product (a product where the % change in price is greater than the % change in demand) with hundreds of suppliers. Households look for milk to provide a tasty source of calcium, and with milk sales rising greatly every year2 farmers are reluctant to increase price in fear of losing out to another producer. Therefore, farmers need not worry about change in the external environment, there is always going to be demand for their products whether the economy is in a recession or a new competitor sets up.
On the contrary, some markets may be extremely volatile. Some products may carry an income elasticity of demand (YED) co-efficient of greater than 1 (income elastic) which means a recession could put them out of business completely. During a recession, unemployment rates soar, and thus reducing the income of society. In such a case, paying close attention to the external environment is vital for the businesses short-term success, never mind the long-term.
To overcome this situation arising, a firm must develop a brand to help increase its market share. Market share is the percentage of total revenue (or sales) in a market, so gaining a higher share could develop a monopoly in the industry. Monopolies are generally regarded as being against the public interest, because they have the power to charge whatever price they wish. Regardless, developing a monopoly will secure success for a firm in the long-term. However, a number of external issues must be taken into consideration.