The general environment in which a firm operates is extremely complex. The general environment consists of interrelated elements or forces that can have an impact on a firm’s strategic plans of gaining competitive advantage over its competitors. In order to gain strategic position, there must be an in-depth understanding and analysis of the general environment which should be matched with a critical evaluation of a firm’s internal capabilities without which opportunities cannot be utilised and threats adequately managed.
An Industry can be defined as a group of firms on the same side of the market, which produce goods which are close substitutes and compete for the same markets This essay will be looking to compare and contrast the sources of competitive advantage between the software/computer service industry and the banking industry in the United Kingdom.
According to the culture UK government website, the activities of firms in this industrial sector consist of the development of system software; contract/bespoke software and turnkey solutions, systems integration, system analysis and design, software architecture and design, project management and infrastructure designs. An example of firm in this industry is ORACLE CORPORATION which specialises in providing Information Technology solutions and advice on Information Management.
The activities of firms in this industry are defined as provision of retail and commercial banking, credit cards businesses, investment banking, wealth management and investment management services, wholesale and international banking, risk protection services and mortgage services. We will be considering Lloyds TSB as an example of firm under this industry. According to Barney and Hesterly (2006) Competitive advantage is when a firm is able to create more economic value than rival firms.
They defined economic value as the difference between the perceived benefits gained by a customer that purchases a firms products or services and the full economic cost of those products or services (cost of producing and selling the products or services) They argued that a firm has gained competitive advantage over its rival if it is able to create more economic value than that of its rival. It therefore means that the size of a firm competitive advantage is equal to the difference in the economic value of that of its rival.
There is no way we talk about competitive advantage without considering element in the market environment which brings opportunities or portrays threats to the firm – The traditional strategy theory of firms gaining competitive advantage. The theory looks at the firm from OUTSIDE – IN, focusing on the firm’s external competitive environment. Another way of looking at the sources of competitive advantage is to consider the organisation resources which represent the strength of the organisation or brings threat to the organisation quest of gaining competitive positioning.
– The resources based theory. This theory focus on the advantages and capabilities the company have. As with other environment, the firm’s general environment is anything which surrounds the firm and affects the performance of the firm. the firm’s general environment therefore consists of broad trends in the context within which a firm operates that can have an impact on its quest to gain competitive advantage. The success of any firm is rooted in environmental analysis to identify market opportunities.
A firm must therefore ensure that it is adapted to the need of the market place than that of its competitors in other to gain strategic competitive positioning. Competitive positioning is the relative level of dominance (or lack therefore) a firm has in its market compared to its competitors As argued by N. Boltten ; J. McManus (1999), environmental scanning otherwise known as analysis is the first step in finding and analysing external threats and opportunities.
A firm’s political environment refers to the impact of the laws and legal system of the environment in which the firm operates together with the general nature of the relationship between government and business. The activity of every firm is moulded by government regulations. The economical environment refers to the state (that is, the health) of the economy in which a firm operates. This varies over a period of time and form a pattern known as the business cycle.
An economy may face a period of prosperity- a situation where demand for good and services is high and unemployment is low. This is followed by a period of relatively low prosperity- a situation where demand for good and services is low and unemployment high. A recession comes when the economic activity is relatively low. For instance the BBC website reported that the Governor of the Bank of England warned that the UK economy may the heading for a recession. The downturn in the world economy followed by the global financial crisis has not spared the UK economy either.
Since the financial service industries account for the UK largest consumer of the software and computer service industry, the challenges pose by the current financial crisis includes lower patronage because most finance houses especially banks will want to cut down on the spending on IT and consolidate on what they have already. Also the government taking majority interest in most bank trough the bail out measures means decision making process on capital investment might be slower.
A recession not well tackled and allowed to lingered for a longer period of years result in depression. There is no doubt that the current global financial downturn poses a lot of challenges for business organisation, a good analysis and understanding of the environment can reveal some opportunities in the midst of the global challenges. The current take over bid proposition by Lloyds TSB of HBOS is a good example because this has resulted in share price appreciation and improved image for the organisation.