Pearson Education Corporate Strategy - Case Study Example

PEARSON EDUCATION Introduction Pearson Education proper has been evolving through a checkered process of development with a series of more ups than downs from the 18th century when it was a construction company in Yorkshire and then in London. Pearson Group's education related business proper began in the 1920's when it went on to acquire a number of publishing companies. The process continued through to 1988 when it bout up Addison Wesley. In 1995 it merged with Penguin Company, another successful publisher of a variety of books and a year later acquired Harper Collins educational Group. With a further series of acquisitions and mergers (M&A) Pearson Education today has become synonymous with such big names as Microsoft and IBM (http://www.pearson.com). When the SWOT related perspectives of the company are posited against the STEEPLE - social, technological, economic, environmental, political, legal and ethical - framework of analysis at a macro-environmental level the picture that emerges of the company is essentially a multifaceted business proposition of the current decade (Kallis, Alier & Norgaard, 2009). Pearson Education's SWOT - strengths, weaknesses, opportunities and threats - environment is characterized by a highly competitive external environment of fewer opportunities and more threats as against a highly volatile internal environment of more strengths and equally more weaknesses, the latter arising from competition related phenomena (Clark & Phillips, 2008). Its cultural diversity, organizational culture, supply chain management, employee motivation strategies, modern Human Resource Management (HRM) practices, management structure and style, have contributed in large measure towards this success though as many critics have pointed out the company needs a well defined directional thrust in the current economic and financial turbulence. Articulate business strategy of the company has been responsible for its present achievements in organizational cum corporate objectives though the very direction of the strategy needs a still greater focus on the long term goals rather than the immediate goals (Finlay, 2000). Analysis Pearson Education, proper, as distinct from the Pearson Group is involved in education related activities. These activities can be divided into three broader segments - publishing academic books, publishing non-academic books and education technology related work. Its current operations involving an expansive global network are focused on the North American and European markets (Piercy, 2002). The very strategic perspectives on which the company has evolved have been responsible for its current business strategy. There is a very strong premise on which the company top management has sought to define its growth trajectory. The learning outcomes of this paper would delineate the related aspects of this strategic approach of the company with added emphasis on corporate goals (Mullins, 2005). Changing business strategy of Pearson Education in particular and Pearson Group in general has been responsible for the present revolutionary shift in focus at the company. The underlying principle of this change in business strategy is the successive creation of M&A related synergies through a series of high profile acquisitions and mergers in the recent past (Clarke & Hermens, 2001). This aspect of Pearson Education's organizational behavior requires greater attention because the company has been able to posit itself against competitors with remarkable success due to the positive outcomes related to M&A. The causative elements of this strategic orientation of the company need to be looked at from two different angles. In the first place, Pearson Education is aware of the growing threat of the fast changing technological environment that favors those rivals with technology-based resources. Secondly its own resource base has been expanding at a much faster rate both in diversity and complexity (Davenport, 1994). The latter element includes even the human resources. SWOT or strengths, weaknesses, opportunities and threats analysis is a technique used by business analysts to identify and analyze environmental factors that influence a business organization's performance in a variety of ways, including its decision making process and corporate behavior (Panagiotou, 2003). Pearson Education's strengths in this market environment are an internal organizational quality that enables the business to survive and compete against other similar businesses e.g. good positive cash flow. Right now its strengths include strong brand, strong technology-based environment, strong market segmentation strategy and corporate social responsibility (CSR) related achievements. SWOT environment enables the organization to plan and execute its programs of action with a degree of certainty about the external environmental factors that influence its own existence. Strong brand names are an asset to the company. Pearson Education has been propped up by its strong brand name associated with quality and value (Barney, 1995). A series of qualitative shifts in the company with regard to processes and procedures both within than without have helped the company to overcome much of the competition coming from rivals like McGraw-Hill, Houghton Mifflin Riverdeep Group and Thomson. Its strength of having a strong e-presence doesn't necessarily translate into meaningful market share in the absence of diversification. Continent-based geographical diversification is essential for an education and publishing company to succeed against the evolving competitive pressures (Alexander & Lyons, 1994). Pearson has been more focused on strengthening its e-presence through a series of changes introduced its internet portal. This type of strategic initiatives helps the company to overcome competitive pressures though it must be accompanied by a corresponding market share growth process in different market segments. Its market segmentation strategy is basically determined by psychographic segmentation. As a result it has become much stronger in focusing on lifestyles of customers (Kotler & Armstrong, 2008). For instance alone with strong brand name the company has adopted a strategically significant approach in reaching out to those potential customers who are attracted to good material. In addition to psychographic segmentation the company has heavily depended on demographic and geographic segmentations. In the case of the former it has successfully divided the market in to three segments based on age groups. Its books exclusively published for higher education are in great demand, especially in North America. Next it has successfully targeted kids in the age group of 5 to 12 in order to identify vacuums left behind by other publishers (Ross, 2007). Finally the specialist category of books intended for those casual readers has captured a sizable market share in Europe. Its CSR initiatives and policies have essentially helped it against rivals' strategies. In the first place its culturally diverse workforce has received a considerable amount of benefits (Greco Rodriguez & Wharton, 2006). Secondly the extended families of employees have benefited from a host of positive initiatives adopted at community level. Both customers and communities at large have also benefited from some CSR programs adopted at regional offices. However it must be noted that even rivals have not given up on this score. They too have adopted similar policies and initiatives with a view to winning over customer and market niches. This particular strategy is of great significance to the company in its long run people oriented action programs. However it has been pointed out that most of its resources are concentrated in North America where it has the largest market share. From the viewpoint of time related strategy such one sided resource utilization programs might affect its credibility among people. Its weaknesses include the near exclusive dependence on the North American market, i.e. 70% of sales and in contrast Asia and Africa represent only a negligible percentage of sales. Its diversification strategy on the basis of geography has been weak. Pearson Education is known for its fierce attachment to the North American continent. This is more of a weakness than strength because many rivals tend to expand their operations over diverse geographies for survival and long run tactical reasons (Stewart, 2008). Pearson Education has abandoned some of the market segments in Europe, Asia, and a Middle East while rivals are increasingly focusing their attention on capturing and retaining market niches. Next its near total dependency on English language publishing puts it at a particular disadvantage against smaller regional rivals like those who publish in national languages, e.g. French and German publishers in Europe (Schiffrin, 2000). Pearson Education's increasing hesitation to expand in Europe by directly confronting national and regional language based publishers is interpreted as a very strong weakness. In the first place many national and regional language based publishers have their own niche markets that invariably have been expanding on the cyberspace. For instance social networking sites and mass education sites like Wikipedia publish their contents in a number of languages. This has helped regional and national publishers to target niche market segments with considerable success as against English language publishers. Pearson Education concentrates a greater amount of its resources on higher education. As a result the company has been affected by the slow growth in this particular sector in the recent years. The company has made a strategic error by paying a greater amount of attention to higher education. After all according to recent research statistics almost 50% of the student population involving in higher education is concentrated in North America and Europe and therefore in times of an economic downturn there can be a negative impact on the demand for higher education related material. Pearson Education's present dilemma is related this outcome. For example many European and North American students have either postponed or given up their higher studies due to the current global financial crisis. Next Pearson Education depends on the US federal government and state governments for almost 90% of the fund requirements. This is strategically tantamount to committing financial suicide because almost 100% dependence on governments and government agencies would put the company in a financial tight corner in the event of a default on funding obligations by the authorities (Gage & Reinoso, 2002). This is obvious in the company's current rationalization and restructuring programs. Some of these programs have been initiated out of the sheer necessity rather than as part and parcel of corporate strategy. Finally according to the Annual Report, 2007, Pearson PLC has experienced a decline in free cash flows due to structural constraints in Group financial operations (Icon Group International Inc, 2000). Net cash flows have to be positive during economic recessions like the current one. This particular development at Pearson Education has forced the management to adopt some of the most unwelcome measures such as reducing costs and curtailing operations. The STEEPLE framework as outline in the introduction has to be posited against the SWOT analysis in order to understand both implications and policy related outcomes at Pearson Education during the immediately past few years. According to analysts many educational publishers have been affected by external environmental factors due to the current global economic downturn. However the extent to which each publisher has been affected cannot be determined without reliable statistics (Onken, 1999). Social factors have played a very important role in determining the extent to which Pearson Education was affected by the economic downturn and other developments. For example in North America the company was compelled to initiate CSR programs at a time when its resources were constrained (Jones, Bowd & Tench, 2009). Cultural diversity of its customer base requires a very articulate approach in marketing. The company was affected by an ever increasing shift in social attitudes towards higher education and its related benefits. As a result the top management of the company particularly in North America had to refocus on creating a dynamic network of social relations at each level of operations (Cunningham, Young, Lee & Ulaga, 2006). Technological factors include the rapidly changing internet related business strategies, the changing attitudes of people towards the print medium and the highly transient environment of higher education (Evans, 2000). The internet and related digital infrastructure have increasingly been impacting on the print medium in higher education. For example the university student populations are attracted towards electronic mediums such as the internet for support. The ultimate impact of this technology on Pearson Education is already noticeable. Many students are engaged in online education simply because it is convenient and less costly (Kodama, 1999). Technology plays a bigger role in redirecting resources from other less important uses to more important uses (Tian, Martin & Deng, 2008). In the case of higher education this is remarkably highlighted by the fact that busy women have found a convenient way out for them to be engaged in higher education either as distant learners or part time learners. The laptop and the palmtop have revolutionized the sphere of education as never before. The impact on Pearson Education and other educational publishers of this technological revolution is obvious enough. Economic factors such as the current economic downturn, government responses to it, government economic policies and a host of other related developments have had an inevitable impact on the global operations of Pearson Education (Warnaby & Upton, 1994). This aspect of the company's external environment has particularly disturbed the smooth process of its operations, especially in North America. The US government in response to the credit crunch and the subprime mortgage crisis adopted a variety of measures including interest rate changes and lending policy changes (Arthur & Sheffrin, 2003). These policies affected educational publishers in a number of ways. In the first instance when the Fed went on cutting interest rates borrowing increased and the demand for goods and services including education generally increased. But nevertheless it has been pointed out that higher education severely suffered during this period. In fact Pearson Education had to depend on federal funds for the entire duration of the crisis (Nagle & Hogan, 2005). Environmental factors also have had an impact on the global operations of Pearson Education. For example in North America federal government agencies and departments were particularly worried about the far reaching consequences of the 9/11 attacks. In fact as a result of the 9/11 attacks the environmental factors received a jolt in policy related outcomes at organizational level. The perception of safety and security was no more dictated by the need to manage the environment on the basis of continuity but on the basis of disaster management (Freeman & Kolstad, 2006). Henceforth organizational involvement in securing the environment for the benefit of business continuity was redefined to include emphasis on control and preventive measures. Pearson Education had to set aside a certain percentage of funds for the purpose. Political factors have also had an impact on the operations of Pearson Education. The impact can be divided in to strategic and operational. Pearson Education has been exposed to a very high level of political developments in the world (Watson, 1999). Its strategic external competitive environment was affected by a series of ups and downs. Global education markets had a lot of political pressure on its operations. However the company had to depend on the US federal government and state governments to secure funds. Those local events in North America had an impact on Pearson Education in a number of ways such as compliance with the political agendas of local politicians by emphasizing government policy in its publications. Next the government imposed regulations on educational products, e.g. standards (Lamond, 2008). The European Union (EU) from time to time requires its member governments to pass compliance legislation in national legislatures to meet its overall regulatory regimes' demands on product standardization. Pearson Education was not an exemption to this rule. Finally the ethical aspect of the education publication industry also affected the company. For example its CSR policies and initiatives were basically designed to meet the requirements of an expanding workforce and a community of customers and stakeholders (Honeyball, 2008). The strategic orientation of Pearson Education was influenced by its organizational and management structures, leadership style, culture and above all the very nature of its business strategy (Johnson, Scholes & Whittington, 2005). The company initiated a number of motivation related measures to distribute benefits to the culturally diverse workforce. Its resources were basically concentrated in North America and as a result many of its international HRM practices were focused on developing the social infrastructure for those employees there (Hussey, 2003). As a result of this its corporate goals elsewhere had to be curtailed to a greater extent. What was noticed by many critics in its global operations boiled down to three strategy related shortcomings as outlined below. Conclusion (a). Its corporate strategy was lacking in some essentially critical areas such as ways and means planning to achieve predefined goals, e.g. profits and sales volumes. In fact as the financial statements for the year 2007 show some of its operations suffered a setback due to poor strategic planning though overall the company performed better (Mehta,Lalwani, &Han, 2000). Its strengths are many including the primary concern with technology and North American markets. (b). Secondly its strategy related to competition was marked by a desire to overcome rivalry only in selected market segments. For example the company was over concerned about higher education market segment. This approach produced one positive result and one negative result. The positive result is that the company managed to successfully carve out a market segment for itself by pushing out competitors (Earl, 2008). The negative result is resources were disproportionately concentrated on a particular market segment while others suffered. The outcome was that the company had some of those weaknesses like near total dependency on the North American market for sales and government funds. (c). Finally the strategy related to expansion through M&A activity was essentially successful. In fact its opportunities that were related to the changing economic and the technological landscape came from M&A related positive synergies such as technically qualified labor and a highly motivated managerial skill pool (Woll, & Nathan, 2006). The company benefited at an increasing rate from these positive synergies both in North America and Europe. In fact according to analysts many of the company's critical success factors are related to these outcomes as borne out by the STEEPLE analysis. REFERENCES 1. Arthur, O & Sheffrin, SM 2003, Economics: Principles in action, Pearson Prentice Hall, New Jersey. 2. Alexander, JA James A. Alexander (Author) > Visit Amazon's James A. Alexander Page Find all the books, read about the author, and more. 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Icon Group International Inc, 2000, PEARSON PLC: International Competitive Benchmarks and Financial Gap Analysis (Financial Performance Series), I.G.I.I., California. 16. Jones, B, Bowd, R & Tench, R 2009, 'Corporate irresponsibility and corporate social responsibility: competing realities', Social Responsibility Journal, vol. 5, no. 3, pp. 300 - 310. 17. Johnson, G, Scholes, K & Whittington, R 2005, Exploring Corporate Strategy, 7th edn, Prentice Hall, London. 18. Kallis, G, Alier, JM & Norgaard, RB 2009, 'Paper assets, real debts: An ecological-economic exploration of the global economic crisis', Journal of critical perspectives on international business, vol. 5, no.1/2, pp.14 - 25. 19. Kodama, M 1999, 'Strategic business applications and new virtual knowledge-based businesses through community-based information networks', Journal of Information Management & Computer Security, vol. 7, no. 4, pp. 186 - 199. 20. 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Tian, X, Martin, B & Deng, H 2008, 'The impact of digitization on business models for publishing: Some indicators from a research project', Journal of Systems and Information Technology, vol. 10, no. 3, pp. 232 - 250. 33. Warnaby, G & Upton, J 1994, 'Are Books Different The Impact of Price on Retail Market Development International', Journal of Retail & Distribution Management, vol. 22, no. 4, pp. 13-19. 34. Watson, G 1999, 'Power and value appropriation in the direct-marketing publishing supply chain, Supply Chain Management', An International Journal, vol. 4, no. 4, pp. 192-198. 35. Woll, T & Nathan, J 2006, Publishing for Profit: Successful Bottom-Line Management for Book Publishers, 3rd edn, Chicago Review Press, Chicago. APPENDICES Appendix I SWOT ANALYSIS Strengths Strong brand name with over 40 years of experience in publishing & education. Strong e-presence and products utilizing latest technology (e.g. podcasting). Strong marketing segmentation strategies to serve in targeting consumers. CSR active company and ranked 'Platinum' for a second year in 2007 in the Business in the Community Corporate Responsibility Index and the Environment Index rankings. Weaknesses Greater % of the sales (almost 70%) is generating from North America & has a very small presence in Asia and Africa. Highly focus on English language publishing. The growth in the higher education segment has been quite slow compared to other segments. High dependency on the US government with more than 90% funds coming from state, local governments and remainder from federal sources. Free cash flows have declined according to the 2007 Annual Report. Opportunities Expansion in Asia Pacific segment in countries like China and India where there is a huge consumer market is a very big opportunity. There is a worldwide growth opportunity for Pearson Education's My Labs adaptive e-learning solutions which is currently available in over 50 countries and whose demand has grown by 50% over the past five years. Strengthening position in publishing languages other than English could also be considered an opportunity. Threats Pearson Education's intellectual property rights may have insufficient protection in some countries. Despite of copyright laws, infringement may still exist. Operation in digital distribution channels in a competitive environment is difficult and need adaptability. Competition from non-profit organizations can also be a considerable threat. Foreign currency rates fluctuations pose a major financial threat. Source: http://www.managementparadise.com/ Appendix II STEEPLE ANALYSIS Social Economic downturn & other developments, Changes in social attitudes towards the higher education & related benefits, Slow growth in higher education segment in US. Technological Technology infrastructure such as the internet and other information exchange systems development, The growth of internet worldwide for e-business and as a communication tool. Attitudes towards in paperless technology. Environmental International Environmental Standards & Environmental Management System (EMS). Green Teams and Eco Committees. Climate change and the use of energy & natural resource. Economic Foreign currencies particularly the US dollar, and foreign exchange rate fluctuations. An economy undergoing recession will have high unemployment, low spending power and low stakeholder confidence. Credit crunch & subprime mortgage crisis. Political Changes in government educational funding, and/or changes in the state procurement process. Compliance with political agendas. Legal Intellectual property and proprietary rights, Ethical Code of business conduct, Common principles on labor standards & human rights, International HRM practices. 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