Theoretical Frameworks for Business Environments

The world is dynamic for both the business and physical worlds surrounding modern society. Managers use a continuous environmental scanning practice to prevent being issued by unanticipated occurrences that might harm their companies (Common frameworks, 2022). Organizations scan while deciding whether to enter a specific industry (Hultzman, 2022). Thus, conducting an analytical reflection on the concept mentioned above and discussing its usage in BSG is the primary goal of this paper.

Macro-Environment (External Environment)

Consideration must be given to the environments to which the frameworks apply. Scanning the environment is an elevated, broad-based process of acquiring, evaluating, and disseminating data to formulate plans or tactics (Prasad, 2022). The first type, external environments, is related to environmental protection, public image, and legal or political issues such as taxation (Phan, 2021). PESTEL is a regularly used management tool in the case of business environmental frameworks. It is an organizational framework that enables decision-makers to comprehend and link a large amount of data (Environmental Scanning, 2022). Its study is part of external strategy analysis while researching new markets and alerting senior management to potential environmental concerns. In the case of the BSG, I have chosen, footwear production as an example, and PESTEL analysis should be conducted based on the gathered financial data.

As follows from the BSG, it is the cost of the warehouse that determines the overall cost of a pair of sneakers, so the political aspect of renting turns out to be economical as well. The political aspect requires special attention to the rental of warehouses and equipment and the establishment of a sound accountancy system to keep track of the presence or absence of unpaid taxes. It is noticeable from the BSG that the company regularly spends money on economical and efficient energy processing, which speaks positively for the environmental aspect of the PESTEL analysis. Company C spends from $1200 to $1800 on environmental measures, which, however, is an insignificant fraction of the hundreds of thousands of dollars spent on equipment upgrades. Environmental issues such as producing waste may be addressed by redistribution, in the case of the BSG described the creation of modular shoes which use scraps of residual materials.

A practical solution to improve the external economic environment is to increase the cost of production, as well as the selling price, to increase capital flow. However, such a decision should be taken when the volume and budget have increased sufficiently. Its main limitation is the inability to incorporate a competitive business environment, which is a serious flaw for any business which would tend to solely use it. Consequently, it would be essential to additionally use another framework that would compensate for the disadvantage of PESTEL.

Meso-Environment (Competitive Environment)

A competitive environment, in turn, is a spectrum of interests concerning competitors, practices such as price dumping, or the poaching of specialists and wholesalers (Marmol, Feys, and Probert, 2017). Hence, the following frameworks will touch upon the categories described above. An example of an efficient, competitive business framework would be SWOT. It is a tool for taking a comprehensive, data-driven look at an organization’s, initiative’s, or industry’s strengths and weaknesses (Bhuyan, Raju, and Phung, 2019). The company must maintain the accuracy of the study by avoiding preconceived notions or grey zones and instead focusing on real-world scenarios. Consequently, its limitations are coherent with the fact that it focuses on the competition factor rather than on internal values and issues.

Based on the BSG database, in North America, which is the dominant supply center, Company C only loses to Company E. Their Service/Quality rating is 0.3 points higher than ours, even though they have fewer actual sales. At the same time, Company E has fewer losses associated with stockouts – minus 58 positions compared to minus 134 for our company. The high price of shoes is an ergonomic solution for company E, allowing it to compensate for the costs of less production, which can be ensured by a higher quality of service. Company E, as follows from the economic competitive analysis, is the main competitor with higher production efficiency. It is the main threat to the economic well-being of company C and marks its main weakness – the presence of lost unrealized positions in the market.

A system developed by Harvard professor Michael Porter, known as Porter’s Five Forces, can be used as a decision-making strategy for managers. This theoretical framework evaluates the external environment around the industry and its attractiveness. This evaluation strategy is useful when applied to the footwear industry – the risk of competitive rivalry and the emergence of substitute products are certainly among the real threats to the external and competitive environment. The Service Quality rating, compared to the previous year, shows an increase of 0.2-0.3 points, which proves the positive dynamics of the company’s development and its high level of competence. In addition, it should be noted that this rating is 2.7 points ahead of the industry average (5.3 stars), which again demonstrates the high competitiveness of the company.

Porter’s model demonstrates a relationship between the demand for footwear and its value in different continents where the company operates. The countries of Latin America and Asia are less willing to buy the company’s products (the average demand is 6.03 in comparison to 8.24 in North America), and therefore the price for it is lower by as much as $2.20. Probably a greater financial contribution to the industry in Latin America could increase the level of production quality and, accordingly, demand and price. The limitation of this framework is the inability to assess the internal situation within the company. While embracing trade relations with sufficient completeness, Porter’s Five Forces do not capture the internal structure of the enterprise and do not offer a language for describing it.

Micro-Environment (Internal Environment)

The final type is internal environments – issues of social and economic processes. Examples of these are employee conditions, rental costs, and quarterly profit reports (Jiang et al., 2020). PESTEL seems to be a model applicable to the description of internal structure. Describing social, economic, and political factors, a picture of the vision and tasks of the company is built. The internal environment can be thought of as relative, interacting with external forces. For example, the ethics of the company and the relationship among employees may directly depend on external factors that have determined the policy of the company. Applying the social factor of the PESTEL framework, it is essential to pay special attention to both the materials and their sources and the conditions of workers.

According to BSG, no funds ($0.00) have been invested to date in improving working conditions in any of the countries where the company operates. At the same time, equipment is being updated in each of the company’s branches, and measures are being taken to improve productivity. Almost 100% replacement of equipment from 15 to 16 years of the company’s operation is noticeable, and its total cost exceeds half a million dollars. If necessary, it may be possible to establish a working union to deal with issues. R&D is currently the focus of business development, as opting for handmade products will put the company into a handmade market, which has positive and negative sides (External Environments, 2022). Therefore, PESTEL seems to be a rather appropriate model for describing the internal structure of an enterprise.

Reference List

Bhuyan, M., Raju, V. and Phung, S. (2019) ‘Role of social Business in developing countries: A conceptual framework’, International Journal of Psychosocial Rehabilitation, 23(4), pp.689-700.

Common frameworks for evaluating the business environment | Principles of management. (2021) Web.

Environmental scanning – internal & external analysis of environment (2022) Web.

Hultzman, R. (2022) Internal and external environments of business. Study. Web.

Jiang, M. et al. (2020) ‘Sustainable development of the business environment in smart cities: a hierarchical framework’, Kybernetes, 50(5), pp.1426-1448.

Marmol, T., Feys, B. and Probert, C. (2017) PESTLE analysis. Sage: 50Minutes.

Phan, S. (2021) ‘The effect of PESTLE factors on development of e-commerce’, International Journal of Data and Network Science, 13(2), pp.37-42.

Prasad, K. (2022) Business environment notes: Theoretical framework of business environment. Dynamic Tutorials and Services. Web.

The Internal Organization and External Environments (2022) Web.

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