PESTEL Analysis of First Direct

University Degree Business and Administrative studies

1.0 Introduction

According to Johnson et.al (2005), the external factors can be separated into six broadly categories that consists of political, ecological, technological, legal, social and cultural. These types of external environmental factors are uncontrollable for the organisation and also work as threats. In order to gain competitive advantage, an organisation needs to study its external environment and make use of the opportunities there. To sustain a competitive advantage, the organisation must respond to the information gathered through its study of the external environment by altering its strategies and plans as the need arises. The organisation will study any number of factors of its external environment, which can include the state of the economy, government interaction, the legal landscape, or its suppliers and service providers. However, Thompson (2002) stated that the world has getting complicated day by day and that cause the greater interdependence amongst world economies. According to Armenakes & Bedeian (1999) flourishing firms are largely motivated through the adoption of the internal assets and resources according to the response of the external business environment. This report will investigate the external environmental factors of “First Direst Group” and analyse the effectiveness of First has been in responding to changes in demand for bus services. This assignment will also evaluate the effectiveness of the way that First is meeting the challenge of providing sustainable solutions to transport needs.

2.0 External Environment Analysis

2.1 PESTEL Analysis of ‘First Direct’

“PESTEL” stands for political, economical, social, technological, environmental and legal issues of the business environment.

Political and Legal Factors

According to Pearce & Robinson (2005), the major constraint for managers is to formulate an organisation’s strategies is to the direction and constancy of political factors. Political process and legislation influence the environmental regulations with which industries must abide by (Taylor et.al 2005). Different types of uncontrollable political constraints such as regulatory bodies and processes, government policies, government term and change, trading policies, funding, grants and initiatives, home market lobbying/pressure groups, international pressure groups, wars and conflict etc are placed on organization (Businessball, 2009). According to the case study analysis, a key government policy affecting all transport services relates to the reduction of CO2 emissions. The UK government has signed an international treaty – the Kyoto Protocol. Countries which sign the agreement intend to reduce the emission of harmful gases. This can succeed only through partnership with business. A good example of this is the government initiative to encourage more children to use bus services rather than travelling to school by car. This will help to reduce carbon emissions. First is actively encouraging people to use the bus instead of their cars. In terms of legal factors, First has to anticipate and prepare to meet future legal changes. From 2010, as part of an initiative called Carbon Reduction Commitment, First and other companies will need to buy carbon credits. These credits will permit companies to generate specific quantities of carbon emissions. First is already preparing a budget to do this and is setting out clear plans for anticipating how much CO2 it will produce after 2010.

2.2 Economic Factors

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2.2 Economic Factors

Organisations are operating their activities by considering some economic factors that concern about the nature and direction of the domestic and foreign economy (Pearce & Robinson, 2005). The economy has a momentous impact on all industries from suppliers of raw materials and manufactures of finished goods and service over and above all stakeholders of the firms. Different types of economic indicators include such as interest rates, income level, unemployment rates, inflation, balance of payment, price index, GDP and net disposable income (Taylor et.al 2005). For instance the most common economic factor that affecting First’s business is taxation. High tax on fuel encourages customers to switch from using cars to more economical bus and rail transport. Congestion charges in cities like London also encourage drivers to switch to other forms of transport. Of course, First does not want to replace the use of cars. Cars are an important means of transport and many families now have more than one car. However, many people are not aware of the environmental impact of, for example, a single person travelling to work in a large ‘gas-guzzler’ car.

It is extremely important for businesses to respond to changes in demand from customers. For example, First has responded to increased demand in the Neath valley in Wales by working closely with the Neath Port Talbot Council to run improved services. Another good example of responding to demand is in the provision of high quality Yellow School Bus transport. Market research showed that parents and students wanted safer buses, so First designed special pilot services with the student in mind, based on the lessons learned from its US operations.

2.3 Social & Environmental Factors

Social factors consist of values, attitude, and demographic characteristics of an firm’s customers (Byars et.al 1996). Societal concerns over gun control, health and nutrition, alcohol and drug abuse, smoking, environmental pollution, sexual harassment and the impact of closings on local communities have caused many companies to temper or revise aspects of their strategies (Thompson and Strickland, 2001, pg 60).

According to the case study it has been indentified that some social changes may have a major impact on First’s business:

The number of older people in the UK is rising. There are more people with bus passes in this country than ever before. The passes mean that users travel free, as the local authority pays First for providing the service. Many elderly people prefer to travel by bus because it is convenient and safe.

Society’s habits and tastes are changing. People are more aware of the importance of the environment and becoming ‘green consumers’. Green consumers prefer goods and services that are ‘environmentally-friendly’ and which have less impact on the environment. The green consumer, for example, prefers to travel by bus or train than by air or in a large car.

People are now more mobile and travel more.

According the changes of the consumer taste and preferences First is growing their market and more people are realising the benefits of a more environmentally-friendly form of transport.

2.4 Technological Factors

Technological factors are important factors in the remote environment. Pearce & Robinson (2005) stated that a firm must be conscious of technological changes to avoid obsolescence and promote innovation which would give a sustainable competitive advantage in their industry. According to Byars et.al (1996), “technological forces include not only the glamorous invention that revolutionizes our lives but also the gradual improvements in methods, materials, design and application” (pg.74). In terms of technological changes, In 2006 First introduced ftr – this is text shorthand for ‘Future’. These are state-of-the-art articulated vehicles that look like trams but have the flexibility of a bus and use normal roads. First has set up schemes using these vehicles in partnership with local authorities. First provides the bus service and the local authority the infrastructure, such as new road layouts and bus shelters. Ftr vehicles are capable of carrying more people per journey, so fewer bus journeys are necessary. They are also more popular with customers resulting in fewer car journeys. This reduces the amount of fuel used, reduces CO2 emissions and means less impact on the environment. Other technological solutions include the use of prepaid Smart cards to make payment on buses easier and faster.

2.5 Opportunity & Threats (OT) Analysis

An opportunity is an important element of the external environment firm that helps an organisation to accomplish its objectives. On the other hand, a threat is an issue or condition in the external environment that may prevent the firm from reaching its goals (Stahl and Grigsby, 1997). Factor under opportunity and threats can be outlined as follows (Cateora and Graham, 2005). According to the case study analysis, many of these external changes may be outside the control of the company, for example, new government legislation. Some changes may present a threat to the business, such as a competitor using new or improved technology. Social changes may bring opportunities, for example, migrant workers bringing new skills to the employment market. Environmental impacts, such as those caused caused by carbon dioxide (CO2) emissions or the management of waste, are of particular concern to businesses like First. A business must assess what external changes are likely and which it needs to react to or take advantage of. Business planners can then create strategies to help the business respond effectively. First use the term ‘business strategy’ to refer to a plan for a group of related products. First’s strategy relates to its transportation plans and takes into account all of the PESTEL factors in its environment. In 2007, First set out its Climate Change Strategy. The strategy sets targets to reduce CO2 emissions in the short and long term along with plans to achieve these targets. The strategy identified some of the risks of climate change. These included the vulnerability of road and rail infrastructure to flooding and storm surges along the coast. It identified ways of managing these risks, for example, by working with transport network providers to monitor and maintain roads and rail. The strategy also identified opportunities. For example, First has set out ambitious targets of reducing its CO2 emissions from its bus and rail divisions by 25% and 20% respectively by 2020. This gives First a clear advantage over its competitors.

3.0 Conclusion

Revealing the above discussion, it is obvious that, no organisation can succeed in the battle of competition if they do not hold a clear awareness and understanding of the changing trends in external forces of business environment. Opportunities can only be identified and upcoming threats can only be defended with proper knowledge and acquaintance of the key factors that dominates the external environment. Organisations should develop strategies keeping the forthcoming opportunities, threats and other factors into consideration to enhance organisational performance. The internal environment also identifies the strengths and weaknesses of the organisation that will help to find strategic gap as well as increase internal organisational performance. Such strategies will enable an organisation to match fit between its capabilities and opportunities to serve the needs of customer better than its competitors.

References

Johnson, G. et al. (2005), Exploring Corporate Strategy, 7th edition, Pearson Education Limited: UK

Pearce, J. and Robinson, R. (2005), Strategic Management: Formulation, Implementation, and Control, 9th edition. McGraw-Hill: New York

Armenakis, A. and Bedeian, A. (1999) ˜Organisational Change: A Review of Theory and Research in the 1990”, Journal of Management, Volume- 25, Issue-3: pp.239-315.

Taylor, Lumpkin and Dress (2005), Strategic Management, 2nd Edition, McGraw-Hill: New York

Thompson and Strickland (2001), Crafting and Executing Strategy, 12th edition, McGrew-Hill: New York, pg 60

Thompson, J. L. (2002), Strategic Management: Awareness and Change. 4th edn. Thomson: London

Byars Lloyd L, Rue Lesie W and Zahra Shaker A. (1996), Strategic Management, IRWIN. Richard D. Irwin, a Times Mirror Higher Education Group, Inc. company: London pg 60

Stahl, Michael J. and Grigsby, David W. (1997), Strategic Management, Blackwell Publishing, Canada

Cateora, Philip R. and Graham, John L. (2005), International marketing, 12th edn, McGraw‐Hill Irwin, New York, USA