Internal and external environments of companies: an environmental scan analysis

Environments

The real world companies that are being studied are Starbucks, Apple and FedEx. These three companies face different external environmental challenges and have focused on shifting their internal environments in order to better compete in their external environments. The PEST analysis will be used as the analytical framework (QuickMBA, 2012).

Starbucks operates in the quick service restaurant industry, and is one of the top brands in that business (QSR Magazine, 2011). The political environment is generally favorable, with no major impediments to business. The company is focused on international expansion, and to this point has been able to perform well in most foreign markets. The ones where it has failed (Australia, Israel), the failure was not because of the political environment. The economic environment, however, has proven to be a challenge for Starbucks. The company saw its revenues and profits decline heading into the recession (MSN Moneycentral, 2012), as customers began trading down to lower-priced coffee offerings. Starbucks has rebounded in part due to internal responses to this challenge, and in part because the economy has recovered from the depths.

The social environment was against Starbucks during the economic downturn, as people were beginning to feel that the company's products were out of touch with economic reality, but these concerns were short-lived and customers returned fairly quickly. The technological environment has not provided much boost to Starbucks.

The company's response to its environmental challenges was to make internal changes. One such change was cost-cutting, including closing underperforming stores and rationalizing support operations. Starbucks was able to lower prices on some of its products temporarily in order to response to intense new competition and a challenging economic situation (Baertlein, 2009). The company then returned to its normal business practices when the economy began to recover. This has allowed Starbucks to see recovery of its own. The company has cultivated a competitive advantage in its strong brand, enabling it to expand rapidly overseas and to create a lucrative side business in packaged beverages and institutional sales. Its VIA single-serving coffee product has also become a success, again building on the overall strength of the brand. In addition to the brand, Starbucks' internal operations are a strength, one that has allowed it to build a global network of stores that offer a high level of consistency in their experience.

Apple's external environment has been generally favorable, but might be turning. Politically, there have been few impediments to rapid growth, and Apple has enjoyed good relations with China as well, which has been key to its supply chain, enabling very high margins. The company not faced any difficulty with the economic downturn, instead using technological innovation, branding and strong marketing to excel during the downturn (MSN Moneycentral, 2012). Where Apple is having trouble is in the social environment, with the Foxconn scandal being fresh on the minds of consumers (Gupta & Chan, 2012). Apple's quick move to address this problem -- decisively -- is going to hurt the company's margins but may have salvaged what was a very dangerous situation in the social environment.

The technological environment is generally favorable for Apple, and the company is proactive in guiding the technological change from which it benefits. Apple took existing products (tablets, smartphones) are with some changes turned them into consumer electronics with broad-based appeal. These two products (iPad, iPhone) are now the leading source of revenue and profit growth for Apple. Apple's ability to guide the technological environment is a source of sustainable competitive advantage that few firms can match. Other competitive advantages are its cash base (over $80 billion in cash and investments as of the latest annual report), which allows it to undertake any project that it thinks has value; and Apple's technology and marketing teams, which allow it to bring winning products to market and ensure that they are successful.

Apple has responded to its external environment by seeking to transcend it. The company in particular has sought to develop innovative new products that succeed even when the U.S. And other major markets are in recession. This strategy has worked wonderfully in the past four years. The company's approach to innovation has allowed it to create markets where they did not exist before. However, Apple has found itself facing a challenging social environment with the latest scandal about working conditions in its factories. Forced to deal with the situation, the company made a strong move and hopes that the situation is over.

Overall, Apple's innovation and its branding have been its biggest competitive advantages. The ability of the company to take old ideas, refresh them, give them a redesign and turn them into hit products is exceptional, and requires a tremendous amount of both vision and execution. There is question as to whether or not Apple can continue to deliver such innovation in the absence of Steve Jobs, who led much of the innovation effort at Apple. For now, however, the company has continued its strong run of success.

FedEx does not have many problems in the political environment. It has been challenged, however, by the economic environment. FedEx is basically a bellwether firm, in that the company's performance is highly correlated to that of the economy as a whole, since its customers encompass the sun total of businesses (or half, if we assume UPS serves the other half). Thus, when the economy does well, FedEx does well. The company struggled and lost revenue during the recession, forcing it to make cuts to its operations in order to maintain profitability. Interestingly, its relationship with Apple has helped smooth out the negative impact of the recession, as Apple did not suffer like most other firms and continued to ship incredible volumes through FedEx.

The social environment is generally favorable. FedEx enjoys a good reputation both with business customers and with consumers. The company has also been at the forefront of shipping technology innovations. The company has advanced systems for tracking packages, for communicating with couriers on the road and for communicating with customers online. These technological competitive advantages help FedEx to deliver superior service, something that it sees as important to building market share. As the industry innovator, FedEx also has a competitive advantage with its strong brand name.

The company has enjoyed renewed success in the past few years as the U.S. And global economies are beginning to show signs of improvement. FedEx has continued to stay the course with its strategy, not deviating much. The company expects that there will be ups and downs with the business cycles, and has built flexibility into its system that will allow it to control costs in the event of recession. These strategies including the use of casual labor and short-term contracts on aircraft and truck fleets.