Business Environment Analysis: Pearson Education - Case Study Example

Business environment analysis: Pearson Education Module Name and Code Institution Name Departments Name Students Name Students Number Instructors Name 15th Jan 2010 Introduction Pearson Education is a globally renowned brand in education famous for provision of educational resources, technologies, evaluations and related services to teachers and students across different subjects. The Company operates in collaboration with other publishing firms such as Addison-Wesley, Allyn & Bacon, FT Prentice Hall, Scott Foresman, Longman, Benjamin Cummings and Prentice Hall. The fundamental business concept is providing assistance to professionals, students, teachers, and authors an avenue for exchanging ideas and for career development. Pearson Education is a branch of the larger Pearson Group and a sister company to Penguin and Financial Times. Though the company generates approximately 60% of its sales in North America, it operates in more than 60 countries. The company also provides electronic learning programmes and test development, processing and scoring services to educational institutions, organizations and professional bodies globally (Pearson, 2010). The growing demand for high quality and effective education is the major driving force in the industry. Information is power and as a major player in the transfer of knowledge from professionals and authors to learners and students, the company and the industry in general plays a vital role. The company has over 34,000 employees who share a common purpose: “to help our customers live and learn” Pearson, 2010). Indirectly, the company offers thousand s of employment opportunities to authors who are the main company’s product. To enhance on the product output, the company carries extensive training on their authors to help them improve in their product delivery and quality (Pearson, 2010). Since inception, the organization Pearson has experienced tremendous growth and is listed on the London and New York stock exchanges (UK: PSON; NYSE: PSO). As of 2008 it reported operating profits in excess of £762 million and sales valued at £4,811 million (Pearson, 2010 STEEPLE Analysis Social Demographic factors are the most significant elements of the social environment to many businesses. In regards to Pearson education, the target market is highly determined by age brackets. With 60% of the organizations revenues coming from North America, it implies that such changes are most significant in that region. According to the CIA World Factbook (2010), many developed nations are experiencing either stagnant of declining growth rates. The minimal growth in population is attributed to new immigrants rather than birth. In the US the, there are 4.31 migrant(s)/1,000 population, 13.82 births/1,000 population with the total growth rate at 0.975% and a total population of 307,212,123 as per 2009 estimates. Population growth in the country increases the market size for the country. Unfortunately, there is increased life expectancy which does reduces the number of learners who buy Pearson products. This implies that higher population does not directly translate to a larger market size. The UK is the second largest market, and thus demographic changes in the market have significant implications on the decision making process and operations in the organization. The UK has a total population of 61,113,205 and recorded a 0.279% population growth as of 2009 estimates. The number of immigrants in the country is high standing at 2.16 migrant(s)/1,000 people. There are 10.65 births/1,000 people with a ratio of 1.05 male(s)/female. However, the ratio is inverted at 65 years and above at 0.76 male(s)/female. The relatively high population offers a considerable market size for the company (CIA World Factbook, 2010). The world is quickly moving towards electronic gadgets. As such, this has created a culture that tends to shun reading printing materials other than electronic ones. Increased use of the web and fragile cyber laws has seen publishers loosing a great deal of their revenues given that there are a number of hackers and cyber outlaws who illegally access published materials. The communal preference and movement towards electronic reading resources is thus changing the dynamics in this industry. There is growing demand for information only that the information demanded has to be integrated in the workflow. This implies that information providers such as Pearson will be forced to shift from “searching for information for their clients” to “finding answers” on behalf of their clients (Brown and Boulderstone, p. 30). For instance, the web has a number of websites such as Yahoo answers.com and Wikianswers.com that find answers for their clients rather than just searching for information. Pearson Education progress as an organization greatly relies on the people element and thus a change in their social life is replicated in the organization. Kew and Stredwick (2005) call this the work-life balance arguing that employers have a responsibility towards the social lives of their employees and “have to offer something else as part of their side of the psychological contract” (p.148). As of 2000 according to Kew and Stredwick (2005), 12% of the UK workforce was self-employed implying that individuals have to be offered better work-life benefits by employers if their services are to be engaged by employers such as Pearson. Technological This is viewed as the biggest challenge to traditional publishers and authors. Books and printed material are being replaced with digital versions thereby denying traditional publishers a large share of the market. Brown and Boulderstone (2003) say Disruptive technologies can upset the smooth transition for information providers in adapting to a volatile electronic publishing environment. What makes them so disruptive is that they are not anticipated- they arise from nowhere and are supported by circumstances that there were not anticipated. However, it is not disruptive technologies that pose a challenge. Disruptive competitors are equally a threat (p. 70). The publishing and retailing industry has welcomed inventions such as the web and the internet and incorporated them in their business processes and is reaping the benefits. However, technology in this direction is changing fast and it is upon the players to keep up. For instance, Pearson used to rely on the slow post and mail services to make deliveries to clients. However, online retailing a distribution in electronic form has increased available distribution channels. However, these new distribution channels have their own unique challenges and benefits (Kotler, 2008). Economic The recent global financial crisis not only meant unavailable credit for firms but also decreased disposable income for consumers as firms laid off employees and cut down on employee bonuses and other forms of rewards. Consequently consumer income levels and consumer purchasing power were dealt a big blow resulting into a decrease in revenue for Pearson and other firms almost across all industries. According to an internal audit by the firm for global operations, the management recognised the harsh realities of the economic crisis and said that there is “significant deterioration in Group profitability and cash flow caused by a severe economic depression reducing our liquidity and/or impairing our financial ratios, triggering a need to raise additional funds from the capital markets and/or a renegotiation of our banking covenants” (Pearson Annual Report, 2008). Similarly, the global economic depression impacted the newspaper business, Financial Times where the firm reported decreased advertising revenues and a fall in circulation levels. Firms have been keen on cutting down on their operational costs and thereby having a negative impact on the firm. Ecological Pearson has a health Corporate Social Responsibility record and was ranked ‘Platinum’ in 2006 and 2007 in the Business in the Community Corporate Responsibility Index and the Environment Index rankings. It again won a Big Tick award in Business in the Community Corporate Responsibility Index in 2007. Again the company’s diversity summer internship programme was among the nominees for the Race for Opportunity Chairman’s Award in the ‘Attraction and Recruitment’ category for innovation (Progress Report 2007, 2008). Political Needle (2005) says that the UK education system contributes towards the failure of learning and training in the UK where blame is directed to curriculum and players such as Pearson. He compares the UK education system with France’s and says that “Traditionally the UK has tended to see training as the responsibility of individual companies. Despite this there have been a large number of initiatives over the past 25 years to tackle specific problems such as youth unemployment and failing competitiveness. Such initiatives, however, have tended to be isolated responses without the framework of an overall long-term strategy” (p. 135) Therefore, from such a position, Pearson’s products are influenced by government policy. The taxation system on corporations and for the publishing industry directly influences how the company performs financially and in the market and how competitive it is against foreign based players. Legal The company has been faced by a number of lawsuits that have dented its public image. For instance, Financial Times was in 2004 sued for £240m by stockbroker Collins Stewart over the newspaper's reporting of its dispute with James Middleweek, a former employee. The reporting by FT had caused Collin Stewarts stocks stock prices to fall by a fifth prompting the lawsuit whereby the allegations by FT according to Stewart were false. The lawsuit which dragged for sometime also had some impact for Pearson with the share price dropping by 12p on the first week of hearing. Again, the management says that the management says that existing intellectual property and proprietary rights may not be sufficiently cosseted under current laws in some fields which pose a threat to the organization’s growth and business processes (Griffiths, 2004). The company is subject to providing annual financial reports for external auditing. As a listed company, the firm is also subject to a number of laws governing the financial and stock market. Other requirements pertain to labour laws in the country. For instance, as a national policy, the company is required to offer equal employment opportunities and enforce affirmative action. Ethical Given that the UK has a high number of immigrants it is ethically legible to have a representative workforce that also gives opportunities to minority groups. The company is bound to play a central role in environment conservation as an active player in environmental exploitation through use of paper. As such, the company has actively been involved in giving back to nature through a number of measure such as the ‘Plant a billion trees’ programme. According to Kew and Stredwick (2005), many employees in the UK have family commitments which if employers do not respect, affect performance at the workplace. For instance, a survey by Institute of management revealed that 46% of female managers have children, 20% care for elderly persons and 26% view family commitments as barriers to their careers. Therefore, Pearson Education is ethically bound to provide avenues through which to ease work related pressure on their families and social life. SWOT Analysis Strengths Pearson Education is a strong global brand name that has a long history that the market associates with quality and efficiency. One of the strongest elements in its brand awareness is the design and process of making its curriculum which undergoes a systematic and rigorous process. The company has effectively and strategically embraced technology and innovation such as ‘podcasting’ where audio lessons and study guides can be played back on iPods. The organization has segmented its target markets for efficiently in marketing initiates and for proper product development (Pearson, 2007). The company has an impressive affirmative action record indicated by the top ranking of the firm by the Observer in August 2009 in a survey of the Co-operative Asset Management on gender balance and diversity in the boardroom (Progress Report 2007, 2008). The company has successfully implemented green production measures in partnership with the Nature Conservancy on its 'Plant a Billion Trees' programme where 1.5million trees have been planted to date. To complement these efforts, the firm has established funds in the UK and the US to stimulate innovative carbon saving programmes. For instance, it has placed a carbon cap on vehicle types and in the US gradually replacing diesel vehicles with hybrid ones. Weaknesses The company does not have uniform global presence and only dominates North America which contributes almost 70% of total revenues (Pearson, 2007). The firm has minimal market share in Africa and Asia while its competitors dominate the markets (Pearson PLC, 2008). The company has failed to diversify fully into non-English speaking markets such as Asia and the better part of Latin America. In addition Pearson has been unable to manage the discordance between scholars as consumers of the products and authors existing in the UK (Miller & Harris, 2009) While the company claims to be committed towards improved growth in the higher education, other segments such as the comic division under Penguin have been given more weight and Penguin has practically registered the most encouraging growth in all the subsidiaries (Pearson, 2007). In the US where Pearson has the largest market, its growth and presence in the market is highly dependent on state and local governments’ support accounting for 90% while the federal government accounts for the rest through the school funding project (Pearson, 2007). Such reliance on a large-scale client is not policy for any business organization as it awards the client huge bargaining power and has the capacity to manipulate business decisions (Thompson, 2005). Opportunities Emerging economies in Asia such as in India and China are great opportunities for Pearson to expand in as the countries seek to increase national literacy levels to support their human resource needs to power economic growth. Again the region has a large population that is potential market for the organization. Technological advances have presented challenges to the organization but also provide phenomenal growth opportunities in an unlimited virtual world. For instance, the firm earlier introduced the MyLabs adaptive e-learning solutions in a number of countries whose performance has been impressive with an estimated 50% growth in demand within the first five years (Pearson PLC., 2007, p. 5). In order to explore new markets, Pearson Education needs to accommodate non-English speaking authors and even introduce further translation of already published works. However, accommodating non-English speaking writers in other regions s more market sensitive and appropriate than outright translation. New communication modes especially the internet is offering better and more efficient channels of distribution which the company has integrated though the avenue remains to be fully exploited. This can be accomplished by partnering with more electronic financial and credit players. This gives the company a wider access to remote markets not explored by major electronic transactions players such as Visa and MasterCard (Friend, 2010). Threats Some countries in which Pearson Education operates have inefficient intellectual property rights laws that expose the company to copyrights infringement and lose revenue (Pearson PLC., 2007, p. 19). The new business environment in digital distribution channels requires heavy and additional initial investment for the company thereby implying additional costs that may reduce the company’s competitiveness in the market (Niraj, 2009). Operating in a global environment more so in the digital market exposes the organization to foreign currency rates fluctuations. Fluctuations in currency rates may be influenced by remotes events beyond the firms control such as political development in a given market (Pearson , 2007: Friend, 2010). The recent global recession has had devastating effects on the purchasing power of consumers and the situation is slowly improving. However, for leisure oriented subsidiaries such as Penguin might take longer to recover as consumers are still apprehensive about spending on leisure. This directly threatens the company’s profitability and future development plans. The company highly relies on long term contractual arrangements with governments and learning institutions which denies the company some degree of flexibility as changes in the contracts have to be arranged and negotiated. On the other hand, such contracts require delicate negotiations and have to be managed carefully to keep the organization in business. References Brown, D. & Boulderstone, R. (2003).The impact of electronic publishing: the future for publishers and librarians 2nd ed. (London: Walter de Gruyter) CIA World Factbook, (2010). Retrieved on 15th Jan 2010 from, https://www.cia.gov/library/publications/the-world-factbook/geos Friend, F. (2010). A journal business model to replace the big deal?, Learned Publishing, 23(1) 69-70 Miller, C, & Harris, J. (2009). Conflicting agendas for scholars, publishers and institutions in Greco, A. (ed) The State of Scholarly Publishing: Challenges and Opportunities, (London: Transaction Publishers) Griffiths, K. (2004). Pearson rattled by Collins Stewart lawsuit, The Independent, 10th July 2004 Johnson, G., Scholes, K. & Whittington, R. (2005). Exploring Corporate Strategy (7th ed.). (London: Prentice Hall) Kew, J. & Stredwick, J. (2005). Business Environment: managing in a strategic context, (London: CIPD Publishing) Kotler, P. & Armstrong, G. (2008). Principles of marketing (12th ed.). (New Jersey: Prentice Hall) Needle, D. (2005). Business in context: an introduction to business and its environment, 4th ed, (London: Cengage Learning) Niraj, P. (2009). Retrieved on 15th Jan 2010 from, http://www.managementparadise.com/forums/business-environment-b-e/89947-swot-analysis-pe-pearson-education-pvt-ltd.html Pearson (2010). Retrieved on 15th Jan 2010 from http://www.pearson.com/about-us/,: http://www.pearsoned.co.uk/ Thompson, J. (2005). Books in the digital age: the transformation of academic and higher education publishing in Britain and the United States, (London: Polity) Read More