Business Environment Appraisal: Commercial Integrity

Introduction

Environment appraisal plays an essential role in modern organisations. Corporate planners use this to monitor competition, economic factors, government legislation, suppliers, technology, and the market setting of business. Environmental analysis or appraisal helps in evaluating the present strategy to ascertain its usability and enables the planners to set strategic objectives (Wheelen et al. 2018). The fortunes of any business have always been known to be determined by the shifts in the social, technological, economic and political conditions (Du Toit, 2016). Therefore, it is pertinent that a careful and thorough analysis of the environment is carried out to understand the factors that affect a business’s success and failure in its current setup.

Business Environment Appraisal Is Essential

Many researchers have conducted studies regarding environmental appraisal and its effects on business performance. Environmental analysis or assessment plays a pivotal role in making a distinction between successful and unsuccessful businesses in any industry (Hamilton & Webstar 2018). In a study, researchers compared companies that did not undertake environmental appraisal with the ones that did, and results indicate that environmental assessment plays a crucial role in business planning. Planning, in this case, plays a fundamental role in that it prepares the business for uncertainties that might occur in the industry (Brinckmann et al. 2018).

The Walmart Case Study

Walmart has exhibited growth in different environments. The company has been growing steadily and this can be attributed to its business environment appraisal. A SWOT analysis of the company reveals the following (Table 1);

Table 1: SWOT Analysis of Walmart’s Internal and External Environment

It is without a doubt that this phenomenon does not depend on a specific industry. Walmart is an excellent example of the importance of analysing the business environment. The SWOT analysis reveals that the company faces competition from major companies like Amazon. Consequently, managers of successful businesses have been known to intensify their external knowledge amidst uncertainties. The existence of changes means that a company may not be in a position to predict the future, which places it at a higher risk as opposed to a situation where management knows.

The Argument Against

However, despite the excellence associated with understanding the environment, businesses might encounter difficulties. For instance, Walmart may not be in a position to eliminate external threats such as competition by Carrefour or Amazon. Figure 1 above indicates Porter’s five forces model of Walmart’s external threats (Ghazzawi, Palladini & Martinelli-Lee 2014). Even though Walmart got into the retail market earlier and has managed to remain profitable, it cannot control the ever-present threat of new entrants such as Carrefour and Tesco. The retail chain can only develop strategies to deal with the competition. Performing a business environment appraisal therefore can only assist a business to identify risks without the option of eliminating the risk.

The current changes in the macroeconomic climate mean that companies must prepare to sell up their operations. When businesses carry out an environmental appraisal, they might end up experiencing challenges in hiring the skills necessary for survival. For instance, the SWOT analysis which analyses the opportunities, threats, weaknesses and strengths of an organisation, bears some of these challenges. When undertaking this on another business, one might discover that the former is a threat to them and they cannot change the situation. Such a case places the entire business in jeopardy because finding a solution to the problem introduces an entirely new set of challenges. A business thereby ends up large sums of money as it attempts to penetrate a new market which in some instances turns into tragedy and does not reflect preparedness.

Regarding social threats, communities have always disliked the idea of big store invasion. Therefore, the company should take this information as an opportunity to invest in social responsibility (Robinson & Simmons 2018). However, in areas where a company has met opposition such as India, Walmart can formulate a strategy which the government can check and allow their operations. In such cases, they must be willing to submit to significant restrictions.

Financial Investment Appraisal

The use of financial investment appraisal as a measure of success ascertains a project’s achievement. Business owners use the financial investment appraisal tool to find out the extent to which they will go before getting returns on their money. A financial investment appraisal consists of many factors including;

1. Business – this is one of the most sought out factors in this case. It is the ultimate goal of a project to make profits after investing a certain amount of money.
2. Environmental – when considering an investment, the impact on the environment remains a high priority.
3. Legal – the value of a project may draw significance in its ability to ensure the organisation meets its legislative obligations.
4. Social- organisations involved in charity work to some extent measure their return on investment by assessing the quality of life given to individuals that the company endeavours to help.
5. Risk – Investment operations are prone to operational and business risks. In some instances, an investment’s ability to reduce risk can help evaluate its viability.
6. Operational – Project benefits such as customer satisfaction, higher morale for staff and competitive advantage help assess the financial success of a project.

Financial Techniques

A financial appraisal is also the most considered factor since most investments have the money factor in them. Investing involves having plans to get economic benefits at the end (Häcker & Ernst 2017). There are various financial techniques associated with this appraisal such as the payback period. In this case, the payback period incorporates the time it takes for the net cash to equate to the money on an investment. In other words, this is the time it takes the total amount spent on investment to compare the net cash from the project. This aspect represents the initial stage of understanding the profitability of an investment. The accounting rate of return (ARR) is the better way of expressing the profit as a percentage of the total costs. The NPV is another option used in the analysis of a business’s capital investment.

Net Present Value

The technique calculates the present value of cash flows which is associated with the investment and the higher it is, the better the investment in question. If a business is to invest in a project, NPV needs to be positive.

Sainsbury Case Study

In a case study carried out in the United Kingdom, an analysis of Sainsbury’s capital investment was conducted. The use of the formulas discussed above indicates the value that the organisation is likely to get in terms of profits. For instance, on one occasion, the company used Net Present Value (NPV) as a way of performing a financial analysis of the capital investment. The NPV is tabulated by estimating a project’s profitability before its commencement. The simple approach to calculate NPV follows this method:

NPV = (Cash inflows from investment) – (Cash outflows or costs of investment)

In Sainsbury’s case, the company proposed an expansion project to take full ownership of Sainsbury bank. Following the £248 million acquisition in 2014, a 2018 report of the unaudited results reveals that the bank’s profits increased by 11 per cent to £69 million down from £60 million in 2017 (Sainsbury, 2018). From the report, it is clear that the 2014 acquisition has over the years increased profits thereby raising the bank’s NPV.

The Contrast

Since the financial appraisal is an appropriate technique to determine the viability of a project, there are shortcomings accrued to it. As outlined above, other factors are responsible for the feasibility of a project such as legal, social and others which prove difficult to avoid (Guo & Wang, 2019). The ultimate goal of a project is to make a financial achievement, but this does not mean that other aspects do not play a role. For example, where the project is contributing to environmental degradation, this does not say that money will be the only factor considered (Kliem & Ludin 2019). The impact that a project has on the environment will be a fundamental issue as it determines the overall success of a project.

The Salisbury case study is a clear indicator that financial analysis does not guarantee a return on investment. Indeed, the plans are filled with flaws. In most cases, people use the payback method for more straightforward businesses but do not apply to more prominent firms. The use of these techniques is not an accurate indicator of business success.

Consequently, some organisations are not involved in projects that have money benefits in the end. A non-governmental organisation that hopes to change lives in a particular city do not calculate money benefits at the end of the entire process. Such projects take a different route in that the organisation will spend a lot of money, but the goal will be to transform lives (Grimm & Blazovich, 2016). Therefore, using financial appraisal as the only factor in determining the viability of a project is not accurate.

Project Supply Chain

The current business environment is characterised by high competition. The competition, in this case, has been spurred by globalisation, increasingly demanding customers, technological change and high uncertainty levels in management (Swink & Melnyk, 2017). To survive, organisations have been innovating strategies that reduce costs and end up improving their performance in the competitive markets. Supply chains are continuously observed to have a better glimpse of business growth (Tziner & Rabenu, 2018).

Within the Supply Chain

Customers and suppliers have developed a relationship, which most people like to call partnerships. However, the success of the so-called partnerships faces challenges. Key suppliers and customers demand a high-trust, mutually beneficial, high communication relationship that helps in streamlining the businesses (Tziner & Rabenu, 2018). Within the supply chain, some can determine the pathway of activity in a particular industry which means that they can either make or break transactions. With such in mind, one has to ensure that he or she maintains a certain level of relationship which helps their business in times of trouble.

The relationship between the suppliers and other business people enables them to work together thus reducing costs and improving the quality of goods through comprehending capabilities and capacities. In the 21st century, it is unavoidable to have a mutually beneficial relationship with suppliers (Ulhaq et al. 2017). It is essential particularly when sourcing products. The supplier, on the other hand, has a responsibility to educate his or her customers on the business’s supply capacity. For instance, a supply organisation may possess the financial capacity to supply goods not exceeding $1 million. This is another way of increasing a business’s trust in the industry.

Example of a Case Study: Amazon and E-commerce Platforms

After eliminating Walmart as the global largest retailer, Amazon adopted a strategy that enables them to remain competitive in the commodity industry. Since it is an e-commerce shop, the organisation has to maintain a positive relationship with its suppliers (Yu et al. 2016). The company first procures items and then takes the specific product directly to the customers who purchase it online. The company’s innovation and success lies in both the supplier side and the delivery point. Therefore, any individual can sell items on Amazon because it is an online platform that offers merchandisers the opportunity to make money. Amazon’s innovations such as drone delivery allow it to sell more products than any other retailer (Yu et al. 2016). The automated warehouses simplify the storage and distribution process thereby allowing the company to avoid logistical issues. Items are delivered within one or two days thus ditching third-party logistics. This shows the importance of having positive relationships and mutual associations with suppliers and manufacturers.

The Argument Against This position

However, having a relationship with suppliers may prove difficult. For instance, the customer might delay or default in the payment for goods supplied and the supplier has to bear the costs associated with such impediments. As a result, manufacturers, distributors and consumers end up breaking boundaries thereby inhibiting the efficiency of the supply chain (Yu et al. 2016). Most thriving businesses have been built with the exemption of association or any form that compromises business. Also, having a relationship in the supply chain does not guarantee success because one can have the capacity to purchase products without the need for friendship. In the case where a business person can make purchases without the need for further knowledge of the supplier, then a relationship is never significant (Carter, Kosmol & Kaufmann, 2017). Consequently, relationships in the supply chain can in some instances lead to losses.

Consequently, the customer does not need to understand the strategies being used by the supplier. The flexibility and resilience developed when the approaches are known can be achieved by working directly with the manufacturers (Monczka et al. 2015). Collaboration in the supply chain sometimes compromises the situation. Maintaining a business stance works better because customers get value out of their spending. The case of Amazon is a clear depiction of the need to eliminate retailers and deal directly with the supplier.

The case of Amazon shows that having a relationship is important, but this aspect does not necessarily apply to the whole supply chain. Amazon eliminated most of the suppliers because it deals directly with the manufacturers. The longer the supply chain, the more money distribution companies spend before the goods get to the consumer. Since Amazon understands the value that they deliver to the customer, they have adapted to the situation by incorporating fewer suppliers (Talavera 2015). The company understands that having more suppliers increases the price of items on sale. Amazon on the other hand wants to have as many customers as possible, and with that, they chose to deal directly with the manufacturers. The truth is that buying from a manufacturer is cheaper and does not compromise the supply process. Therefore, having a relationship does not have to include every individual in the chain. A company has the option of choosing the manufacturer.

Contract Management Procurement and Legal

In every business relationship, there are issues of optimism and promises of commercial rewards, but future conflicts are inevitable. Even the best-drafted contracts cannot prevent conflicts from occurring. In business, unforeseen circumstances lead to situations where the involved parties may fail to understand each other. Besides, internal dispute resolutions may prove to be inadequate and therefore raise the need to have an outsider to assist in solving the current dispute (Van Weele 2014). The parties, thus, result in a formal dispute resolution which ultimately settles their differences. Solving disputes enables businesses to resume and more transactions to take place. However, in cases where the parties do not pay for a solution, there is always a possibility of the two separate sides.

Methods of Resolution

Various methods can be used in solving disputes amicably. To maximise commercial opportunities, businesses strive to use the following dispute resolution methods.

Litigation

Litigation is the formal dispute resolution method that occurs in legal courts. Although this method is the most accepted and available, it is considered to be slow, disruptive, drains resources, expensive as well as time-consuming. The costs underlying this method of solving disputes can even increase the amount that might be involved in the case; thus, it may not be the best to use. Since faster addressing of the disagreement is an advantage, some processes might complicate it and make it even more expensive (Dzyuba, Fedorenko & Fedorenko 2017). Besides, there are enormous uncertainties regarding the outcome of the case. These uncertainties can jeopardise business operations and investment plans.

Moreover, the method puts the parties in a position where they cannot control the outcome of the case. The court retains the overall authority over the case and therefore the process involved, and the result thereof heavily rely on the judge. Also, the court sets the procedures followed in the case, and the established court determines the decision-maker through an arbitrary process. In a situation where one party wants to dissuade the rest from engaging in business transactions with the main party, this method is most appropriate (Singer 2018). However, the slow process makes this method only suitable for an issue that is not urgent.

Walgreens Verses Theranos Case Study

In this case, Walgreens complained that Theranos had failed to honour the contract which both companies had earlier signed. In the lawsuit, Walgreens wanted to claw back $140 million claiming a breach of contract (Weinstein et al. 2016). However, it turned out that Walgreens lost in the case and would never want to comment on it. The court gave the drug store the right to keep the confidential documents claiming that they contained information that would not be exposed to the public. Their relationship began in 2010 with the announcement that Theranos would set up shops at Walgreens from September 2013. The case is an excellent example of a litigation process.

Dispute Resolution Does Not Maximise Opportunities

Another aspect, in this case, can be that having to find solutions do not increase opportunities. For example, when one business person is in dispute with another, solving it might mean that the offender does not want to carry out business with the other individual. In this case, therefore, the affected person refrains from conducting business which kills their relationship. Also, one discipline even when solved can lead to another which ultimately does not contribute to more business opportunities. In a business setup, there exist communities which in most cases work together (Van Weele, 2014). When some of them are involved in legal battles, they might stop transacting and cause the other to follow suit. Such a move makes it difficult to engage in meaningful business transactions. The existing contracts might be terminated thus ending long term business relationships. Therefore, having to solve legal issues does not necessarily guarantee a continuous business transaction.

Litigation is a method which most businesses use as a way of solving their contractual disputes. The case presented here shows that Walgreens had allegations that Theranos had violated their contract with the drugstore. However, taking the case to court only made the situation worse. For once, the company lost its image as a first drugstore. In other words, the case demeaned the organisation. If they resolved to use other means, they might have incurred fewer losses as opposed to what they got in the end. In other words, using litigation as their legit method of solving disputes did not assist them.

Excellent management of contracts is crucial for the thriving of any business but involving disputes makes the situations difficult. Carrying out business on a contractual basis expects both parties to come to an understanding before signing any agreement. Also, contracts bind people to the terms of payment, and this is where they violate in most cases. Individuals undertaking contracts must be aware of the consequences that they might face in case they violate its terms. However, the time taken to solve disputes depends on the method applied. Litigation might take longer, which is a disadvantage to the business. Moreover, it strains the management as it involves frequent court sessions. When the outcome is against a company, they have to pay damages (Weinstein et al. 2016). This is a disadvantage because these payments might be huge and contribute to losses. Therefore, the company ends up losing money and reputation. The time lost can never be recovered and building a reputation takes time which may never be possible to improve.

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