External Business Environment
In this essay, the organisation that I will be looking at is John Lewis. The outcome of the essay is to analyse how John Lewis is affected by the macro environment, analyse John Lewis using PESTLE and evaluate the strengths and limitations of using PESTLE as a strategic diagnostic tool. To discuss the market system and apply a range of market theories to John Lewis and to understand the organisational environment.
There are many factors in the macro environment that will affect the decisions that John Lewis make, as well as any other company. The macro environment includes tax changes, new laws, demographic and government policy changes.
PESTLE stands for Political, Economic, Social, Technological, legal and Environmental.
Political factors include tax policies, employment laws, environmental regulations and trade restrictions.
The political factors that can affect John Lewis are VAT, tax policy, employment laws, environmental regulations, trade restrictions etc. There is added tax on all goods except for food because of the increase in VAT which is now 20% from 17.5%. Businesses that are owned by workers are more favourably looked at by the government. John Lewis is an example of how businesses should operate.
The John Lewis store on Oxford Street has suffered a 5.52% drop in sales as a result of the congestion charges that have been put into place. Since the introduction of the congestion charging scheme, less people are shopping on Oxford Street.
Economic factors include economic growth/ decline, interest rates, exchange rates and inflation rate, wage rates, minimum wage, working hours, unemployment (local and national), credit availability, cost of living etc.
Banks are not lending money to businesses or to people in general. This is because of the recession and people are reducing their spending. Therefore, many supermarkets such as Asda and Sainsbury’s are now selling household goods, as well as clothing. This is not good for John Lewis because they are now in competition with supermarkets as well as other retailers.
There is a high rise in unemployment within the UK and because of this John Lewis will be affected as people have fewer wages. The minimum wage has been increased as from the 1st of October 2012. The amount you get paid depends on your age and if you are an apprentice or not. The current rates from the 1st October 2012 are:
• £6.19 – The main rate for workers aged 21 and over • £4.98 – For 18-20 year olds • £3.68 – The rate for 16-17 year old workers above school leaving age but under 18 • £2.65 – This is the apprentice rate, for apprentices under 19 or 19 and over and in the first year of their apprenticeship. This is bad for John Lewis becasue of the rise in costs and this rise will happen every year.
Social factors include health consciousness, population growth rate, age distribution, career attitudes and global warming.
John Lewis could be left with unsold clothes because of the changing styles within the fashion industry. To avoid this from happening, John Lewis needs to keep ahead of fashion industry. As the population in the UK is rising, it will bring in more customers for John Lewis. Also more people are living over the age of 65 and by having an older customer base could be good for John Lewis.
Technological factors include what is happening technology wise, how will this impacts on products or services, things that were not possible five years ago are now mainstream.
Online shopping is getting increasingly popular in today’s society. This is convenient as it allows people to find products and spend time shopping online. John Lewis will benefit from this because more people have access to the internet. The business has seen a large increase in their online sales and they sell a range of computers and tablets such as the iPad. This is because of the rising popularity in these items and the access that people have to the internet.
Legal factors include what is happening with changes to legislation. This may impact on employment, access to materials, resources, imports/ exports, taxation etc.
John Lewis must check leaflets, adverts etc because advertising must be accurate and it must not mislead the public. They must go by this because it’s part of the Trade Descriptions Act. As a business they must provide a safe environment for employees and customers, so they are kept safe. This could increase John Lewis’s costs because more training may be needed such as Health and Safety. This is part of the Health and Safety at Work Act.
Environmental factors include what is happening with respect to ecological and environmental issues.
The rising petrol costs can affect John Lewis and other businesses because of the transport costs that deliver products to each store. This can affect John Lewis because if the transport costs rise then the price of goods will have to rise. Also John Lewis gives out carrier bags that are recyclable but many businesses are now charging for carrier bags. Climate change is the biggest environmental challenge we face today. Rising global temperatures will cause sea levels to rise, weather patterns to change, and will lead to an increase in the frequency and intensity of extreme weather events.
Evaluate the strengths and limitations of using PESTLE as a strategic diagnostic tool. To discuss the market system and apply a range of market theories to John Lewis and understanding the organisational environment.