Business and Internal Environment Analysis: A Case Study of Magnifico IT Solutions Ltd, UK
In the recent era, business environment plays a crucial role in its execution of business operation. Several factors such as internal and external factors could significantly impact on the overall business performance of contemporary business organisations. Analysing business environment could help organisations controlling factors which can influence the operational activity either positively or negatively. Magnifico IT Solutions Ltd has been chosen in order to conduct the study. This study would analyse business environment and impact on the strategic positioning of the company followed by critical analysis of the competency and resources of Magnifico IT Solutions Ltd, the UK. Furthermore, the outcome on the above mentioned statement would also be evaluated in this study in order to show the competitive advantage of the organisation. Finally, strategic recommendation would also be done in order to create and execute potential opportunities and reducing the threats that might be faced by the organisation.
Strategic positioning of an organisation can be influenced by the operating environment of the business. As stated by Anderson et al. (2007), different area hosts different market types and different types of regulations due to which the strategic position of the organisation alters. The business environment can be described by using “Porter’s 5 forces model” which would help organisations analysing factors that could affect the profitability of the organisations in the global environment.need PSTEL ANALYSIS BEFORE PORTER FIVE
Porter’s five forces model:
Porter’s five forces model could analyse the competitive position of an organisation in the global market (refer to exhibit 1, appendix). As cited by Ashford and Heaton (2003), this model could significantly determine the competitive intensity and the attractiveness of the operating market.
Threat of new entry:
It is a proven fact that profitable market attracts new entry into the industry and it erodes higher level of profitability. As cited by Johnson (2013), higher level of profitability could not be reached without the entrance of competitors. Statistical data shows that almost 44% of the organisations would generate new employment in the overall UK IT sector. Considering the fact, Bessen and Hunt (2007) stated that IT industry is highly volatile and growing due to which many SMEs are coming with their skills and knowledge in order to capture the market share of the global IT industry.
Magnifico IT Solutions Ltd is an UK based company and the firm operates in the software development and service solution segment. Mainly the firm is operating across the regions of the US, UK, Germany and in South Africa. Furthermore, several organisations are operating on the same domain and the main facility is that majority organisations are reaching breakeven point in the business due to higher level of market volatility. Hence, Magnifico IT Solutions Ltd can significantly experience threat of the new entrants in the global It industry.
Threat of substitution:
Threat of substitution creates the tendency of switching one brand to another to the customers. Considering the fact, Blair and Hitchcock (2005) stated that it reduces the power of the attractiveness of the market. Like several other organisations, Magnifico IT Solutions Ltd are serving client in the specialised domain of development, support, business analytics, web presences and several other applications. All these line of business are found more unique than many other organisations. However, De Wit and Meyer (2010) argued that few potential clients are switching to other service providers to get the same benefit in a cost effective way. Magnifico IT Solutions Ltd can also experience same issues while doing business due to the threat of new substitutes into its business operation.
Market competitor holds significant position in the global IT market. Several organisations such as IBM, Dell etc are operating their business in both software and hardware specification which is serving their valued clients in an optimum way (Hendricks et al. 2007). On the other hand, Barbosa and Faria (2011) argued that the capacity of the competitor in terms of manpower and service quality could significantly influence the reputation of the organisation. Similarly, this enhanced reputation can effectively influence the market positioning of another firm and the firm might need to establish its operation in other place. Being middle range organisations, Magnifico IT Solutions Ltd has limited number of workforce to serve the areas of US, the UK, Germany and the South Africa. Hence, the firm might not be able to grab all project opportunities raised by other countries. During this situation, another rival organisation may garb the opportunity and might bid the goodwill of Magnifico IT Solutions Ltd.
When it comes to IT industry, it works with two types of buyer B2B and B2C buyer. According to Barney (2005), buyer power is driven by the number of buyers present in the market to the offered services and the pricing strategy of the organisation. Due to economic fluctuations, most of the IT organisations are experiencing higher level of buyer power as compared to organisations. On the other hand, Birkinshaw et al. (2008) stated that client organisations are also treated as potential buyer as they purchase services from the IT organisations. Due to the existence of several It service providers, the client organisations prefer outsourcing projects to the comparatively small organisations in order to make financial benefit. Similarly, Magnifico IT Solutions Ltd could experience losing market share to some extent due to the higher bargaining power of the buyers in the UK IT market.
The strategic positioning of Magnifico IT Solutions Ltd would depend on the driving force of the suppliers. As Magnifico IT Solutions Ltd is located at the UK, the major issue would be providing higher compensation to the skilled labour. As stated by Gupta and Govindarajan (2004), IT organisations might face higher bargaining power of supplier due to the availability of skilled labour, the technical specifications and other parameters. Furthermore, being an IT firm Magnifico IT Solutions Ltd also grabs the opportunity for conducting several inbound and out bound projects in order to increase its market growth. In this context, Loha and Mianc (2006) mentioned that while conducting inbound project the organisation would require higher infrastructure, hardware providers along with the skilled workforce. Hence, it could significantly affect the market potential and the strategic position of the Magnifico IT Solutions Ltd in the global IT market.
Analysing all the aspects, it is clear that business environment could significantly impact on the profitability generation and the strategic position of the firm. As Magnifico IT Solutions Ltd is considered as mid scale organisation, the firm might experience higher level of competition among the market players. It could significantly affect the positioning strategy of Magnifico IT Solutions Ltd. On the other hand, being UK based company the firm might enjoy the benefit of absorbing good quality of projects from their client organisations. Hence, Magnifico IT Solutions Ltd could experience problems in the strategic positioning in the global volatile market due to the existence of higher level of market competition.
Internal environment of an organisation can be measured by using “Resource Based View” model (RBV) which could explain the core competence of the organisation with respect to its resources. As cited by Lim (2007), RBV model could help Magnifico IT Solutions Ltd to identify how to achieve sustainable competitive advantage by using internal competencies of the firm.
According to the RBV model, organisational resources can be divided into two segments such as tangible resources and intangible resources (refer to exhibit 2, appendix). Considering the fact, Makadok and Barney (2008) stated that RBV model provides the idea of giving major role to the resources that could provide competitive advantage to the organisation. The tangible and intangible assets of Magnifico IT Solutions Ltd can also be identified by using RBV model and it is described below:
Tangible resources are the physical things which are required to serve little advantage to the organisations. As cited by Milliken (2011), physical resources can be easily brought from the market. Considering the case of Magnifico IT Solutions Ltd, the company has optimum level of capital which is considered as the main tangible resources of the firm. Furthermore, the firm has own machinery, equipment which is providing little advantage to the Magnifico IT Solutions Ltd in its long run business operation as compared to its rivals.
The brand reputation of the Magnifico IT Solutions Ltd is found higher as compared to other organisations and it is termed as one of the vital intangible resources of the firm. Additionally, “Valued client” and “Expertise workforce” holds significant value as intangible resource to the Magnifico IT Solutions Ltd. As stated by Nelly (2003), trademark and the intellectual property such as the workforce of the organisation are also treated as intangible resources. Similarly, Magnifico IT Solutions Ltd has also made trademark of its business venture in the global market.
Magnifico IT Solutions Ltd is globally focused software services Company and it draws its high level of expertise from 18 different countries. It has helped the firm combining different types of expertise in the service and delivery performance. Furthermore, Porter and Charles (2005) cited that it provides 24/365 support to its clients by utilising its valuable resources. Additionally, Magnifico IT Solutions Ltd has made well database of valuable clients by building a comprehensive portfolio services in the IT development and business process outsourcing.
The two critical assumption of the RBV are that resources need to be heterogeneous and immobile and it can act as a combined effort to the improvement in the internal environment. It could increase basic competence of the organisation leading to higher level of success by creating VRIO resources into the organisational system.
Heterogeneous resources of Magnifico IT Solutions Ltd:
RBV model describes that skill, knowledge and capacities are the factors which differ from one organisation to another. As cited by Prahalad and Hamel (2007), varied level of mixture in the skill set is required to serve the client organisation in a dynamic work condition. Furthermore, it has created higher level of innovation, creativity and flexibility in the organisational culture due to which it has created higher potential of “Serving its valuable client”. The same can be treated as one of the most important competency of the firm. Same fact has been observed in the Magnifico IT Solutions Ltd, which is serving its clients by involving highly skilled employee base within the organisation from different countries. It has acted as the higher competence for the Magnifico IT Solutions Ltd which could make the firm efficient competing in the global market (Scheuing and Christopher, 2005). All kind of external forces can be managed by utilising higher level of internal competency and competitive advantage of the firm.
HR of Magnifico IT Solutions Ltd:
This assumption of RBV model describes that resources are immobile and generally do not move from one firm to another in the short run. When it comes to long run, intangible assets such as human capital and other processes act as the immobile resources that could bring higher sustainability and stability into the business (Venkatraman and Prescott, 2009). Similarly, the overall management process of Magnifico IT Solutions Ltd has been made compatible to engage resources maximum in the overall organisational growth process. It is improving overall value chain process of the organisation and creating a healthy working atmosphere.
VRIO framework could be initiated by combining both of the above mentioned factors into the organisational system of Magnifico IT Solutions Ltd (refer to exhibit 3, appendix). It helps organisations to know whether the resources are valuable, rare, costly to imitate and it can be organised or not (Worthington and Britton, 2006). Considering the case of Magnifico IT Solutions Ltd, majority of the members of the firm is highly valuable and skilled resources. It could be the prime factor for Magnifico IT Solutions Ltd of reaching higher degree of sustainability and competitive advantage in the global market.
3.0 Competitive advantage:
Analysing above discussion, it is clear that Magnifico IT Solutions Ltd is presently experiencing higher degree of competitive advantage in the global IT market.
Competency 1: Line of business:
From discussion 1, it is clear that Magnifico IT Solutions are operating in few specific domains which could act as higher competency for the firm as compared to others.
Competency 2: Operating area:
As per the discussion 1, the client base area of Magnifico IT Solutions is developed region such as US, Germany and other regions. Due to which the firm might increase its capital value by serving more and more to the client.
Competency 3: Expertise workforce and innovation:
From discussion 2, it can be stated that intangible resources such as “Expertise workforce” of Magnifico IT Solutions are the basic factors of creating competitive advantage in the global IT services. It has been described that the mix of highly skilled workforce has created a dynamic and innovative work environment. It could further help Magnifico IT Solutions to create higher organisational value to their potential clients.
Competency 4: Higher Serving Quality:
Discussion 2 describes that “Serving quality” to valued clients could be termed as one of the core internal competency of the Magnifico IT Solutions Ltd. It is helping the organisation to build own sustainable parameters as well as it could lead to reach higher sustainable competitive advantage in the global IT market.
Although Magnifico IT Solutions Ltd has created potential brand image in the global IT sector, further improvement on few segments could significantly enhance its competence and brand value. According to Zeithaml et al. (2008), few alterations would be needed as the rapid expansion is occurring in the market and new entrants are creating potential market dominance in the global IT sector.
Prioritising more on recruiting skilled resources from developing country:
Magnifico IT Solutions Ltd has hired expertise resources from 18 different countries at higher package offerings in order to make product uniqueness and offering client organisations quality services. Rather, the firm could hire skilled workforce from developing economy as it would serve financially both the firm and the resource. In this context, Prahalad and Hamel (2007) stated that it could help organisations to create higher quality products and services at a lower financial deal. It would help Magnifico IT Solutions Ltd experiencing increased profit percentage.
Focusing more on participative organisational culture:
Although, Magnifico IT Solutions Ltd is recruiting members from different countries having different skill sets, the organisational culture is mostly found UK oriented. A minimal amount of participative cultural impact has been observed in the Magnifico IT Solutions Ltd. Hence, adopting mixed and participative cultural governance, Magnifico IT Solutions Ltd could create higher motivation and flexibility within the workforce. Furthermore, it might increase the overall workforce performance. Furthermore, it would lead to sustainable advantage to the firm.
Internal business environment holds significant positions to create and maintain sustainable competitive environment in the global market. Magnifico IT Solutions Ltd has created significant amount of competitiveness in the global IT environment. Skill set of the workforce, employment of the innovation and valued clients has made the business able to achieve higher growth in the market. However, employing British work culture and doing business mostly in developed economy along with employee hiring policy might create hindrance in the future. Extreme entrance of the market players in the industry could hamper the profit earnings ratio of Magnifico IT Solutions Ltd. Hence, employing skilled workers from emerging economy and implementing participative work culture could significantly create potential to overcome any future challenges.
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