Examining methods of analysing a Companies Environment

There are factors within the environment that the organization operates that are beyond the control or influence of the organisation but these factors affect the business or strategy planning. The STEEPLE analysis is focusing on the external macro-economic environment that a business operates. This helps business to understand the environment, in which it operates, and the opportunities and threats that exist or are emerging within it. An understanding of the opportunities can help a business to take advantage of the opportunities that exist and reduce the threats to the barest minimum. The STEEPLE analysis helps to understand associated risk with growth in market or decline and thus the potentials and direction for business.

STEEPLE is an acronym for Socio-cultural, Technological, Economic, Environmental, Policy, Legal and Ethical factors respectively. Some of these factors tend to overlap when conducting the analysis. Below is a STEEPLE analysis of the UK motor car market.

Socio-cultural: the pattern of lifestyle affects demand of vehicles, availability and willingness of individuals to work and therefore the kind of vehicles are manufactured. The institution of marriage has fallen, there are more single parents, people are having fewer kids and consumer trends which include fashion ability, luxury preference, working population, spending power etc.

Technological: new innovations and technologies keep emerging in the car industry and bring about new products and processes e.g. introduction of three-point seat belt, airbag, electronic stability control, Intelligent Transport System (ITS), Intelligent Speed Adaptation (ISA), E-call, Driver Assistance Systems such as E-call and Driver Assistance System such as Electronic stability control and Emergency Brake Assist. Environmental: according to SMMT, the climate change has had a great impact on the car industry and this has great impact on vehicle demand. This overlaps with the ethical factors because the car industry is trying to make vehicles environmentally friendly by trying to make 95% of vehicles recyclable by 2015 in order to comply with the End of Life Vehicle (EVL) Directive. Average CO2 emissions of cars bought through the scheme were 132.9g/km, which was over 27% below the CO2 figures of the outgoing cars that were scrapped. Also there is an effort to improve environmental standards at sites processing vehicles and limit the use of materials harmful to the environment in the new vehicle Climate Change Level (CCL). This has increased demand for hybrid cars.

Ethical: some ethical issues have to be considered in the market, these include ethics in workplace, balancing stakeholder interests, human rights, reduction in CO2 emission from vehicle and manufacturing process (Farnham 2010). Also, the Climate Change Levy (CCL) agreement was signed by 11 UK vehicle manufacturers as co-ordinated by SMMT has effects on car industry.

Political: policies that affect the car market include 2008 piece of legislation which committed European Vehicle manufacturers to cut average CO2 emission from cars to 130g/km by 2015, 2009 European Whole Vehicle Approval Directive, introduction of the Scrappage Incentive Scheme, taxation, congestion charges, other policy areas being formulated include alternative fuels, smarter driving technologies, and lower resistance tyres. SMMT has reported that 395,000 new vehicles have been registered under the Scrappage Incentive Scheme, which has now ended. There were 388,540 new cars and 6,959 new LCVs registered for the period, with 8.1% of all new car registrations and 2.1 LCV registrations in April being linked to the scheme

Legal: this is closely linked to environmental political and ethical factors but includes health and safety, company law, consumer protection law. Manufacturers have to abide by policies formulated by government and regulatory bodies. This also affects the UK car industry either positively or negatively.

Economic: macro-economic policy, markets and prices, price levels, global trends, market structure, public spending, wages and salaries, balance of payment, taxation etc. (Farham, 2010) the industry generates turnover approaching 52billion GBP so the Scrappage Incentive Scheme was introduced to support the industry because of its importance to the nation. Over 181,092 new vehicles had been registered under the scrappage scheme by the end of September. There is an order bank of a further 80,000 vehicles. The scrappage scheme is largely self-funding for government with the 15% VAT paid on a car bought for £7,650 covering the £1,000 government contribution (SMMT).

The environmental, political and economic factors can be said to have the greatest impact on the strategy planning of the UK car industry. The product market, competitive structure and nature of competition of the UK car market cannot be analyzed without Porter’s five forces analysis.

Threat of entry: The UK car market has high barriers to entry because it is extremely consolidated, well developed value added chain, R&D capability, investment capability in terms of equipment which means existing manufacturers can make relatively high profits.

Power of buyers: Buyers have little or no bargaining power in the market, households have no power at all but companies that buy fleet cars for official use have very little bargaining power.

Power of Suppliers: there is a lot of power in retail and distribution of cars and this power depends on the price of the seller. The threat of substitutes within the industry also determines the power of the supplier as they can switch brands easily.

Competitive rivalry: The UK car market can be said to be oligopolistic in nature because there are about 30 firms with the major rivals being are Ford, GM (Vauxhall), VolksWagen, Renault, Peugeot, Toyota, BMW, Citroen and Honda. Ford is Britain’s best-selling commercial vehicle (CV) brand and last year took over 24 per cent of the CV market. In a challenging market new models such as the ECOnetic Transit and ECOnetic FiestaVan, will play an important role in maintaining Ford’s competitive position (Ford). In oligopolistic markets there is a high degree of interdependence and so firms will think carefully how their rivals might react to any actions they take. This can lead to an emphasis on non price competition; a price change is relatively easy to imitate and so firms may rely more on methods such as branding or product development. The presence of powerful competitors with established brands creates a threat of intense price wars and poses strong requirement for product differentiation. Also, there is cost of leaving the industry because of high levels of investments already on ground so firms fight hard to survive because resources are not easily transferrable and as the market is shrinking, these firms fight for a share of falling sales. Brand loyalty is very poor in this market because customers are likely to switch easily from brand to brand.

Threat of substitute: this is linked to the power of buyers and sellers. The car market also faces direct competitors like public transport, air, rail, tubes, sea, bicycle and walking but the major source of substitute is the sale of second hand cars. It can be argued that the demand for cars is elastic because it is affected by substitute goods (as listed above) and complimentary goods (insurance, tyres, fuel, license, taxes, Ministry of Transport (MOT).

Research two examples of how Human Resource Management in manufacturing has been influenced by and responds to changes in the environmental context as outlined in a.

The automotive sector is highly flexible, dynamic and ever expanding. As a result of its flexibility and expansion, it responds to the global challenges which include GDP and trade growth, deep cultural shifts in the economic patterns and strong environmental aims. The automobile industry is constantly changing and adapting to challenging commercial, regulatory and technological trends, competition in the market, discrimination by customers, pressure from government and influence groups. So it can be argued that the car industry adopts the contingency or best-fit school of HRM which advocates the need to fit HR strategy into its surrounding context.

The concept of E-V-R congruence as a measure of how well an organisation is attuned to its environment was developed by Thompson (2005). E- Represents the environment which includes the opportunities and threats that exist within it while R is the resources and V represents the value. The concept of congruence is very important and an organization achieves this when its resources, environment and values are mutually reinforcing. Its strategic position will be strong.

The macroeconomic understanding is needed by organizations in order to predict and plan for changes in demand for their products, human resources, inflation and changes in investment. Human resource has to match external environment to the company’s objectives. The most significant feature of HRM is the importance attached to strategic integration. Legg (1989) argued that one of the common themes of typical definitions of HRM is that human resource policies should be integrated with strategic business planning. As Baird and Meshoulam (1988) remarked, “business procedures and systems are developed and implemented based on organisational needs that is when strategic perspective to human resource management is adopted. Human resource managers play a significant role in ensuring that the strategies adopted by the organization are fully supported by the required workforce so HR has to know how many staff needs to be recruited, retained and developed to satisfy consumer demand.

In 2009, recession reduced demand for vehicles leading to a sharp fall in vehicle production and hence turnover. This year saw one of the biggest economic challenges of the automotive industry has ever seen with global sale plummeting, plants cutting production and R&D budget at considerable risk. This means demand for cars will reduce because of economic meltdown, supply will reduce and labour needed will be cut. Employment in the sector has decreased despite continued efforts to protect the vital industrial capability by introducing short-term working, time banking etc.

“Despite the surge in sales towards the end of the year as car scrappage scheme kicked in, Toyota in the UK saw production plummet 40 per cent from 213,000 in 2008 to 127,000 in 2009(Robert Lea times online jan 28,2010http://business.timesonline.co.uk/tol/business/industry_sectors/industrials/article7006329.ece). Toyota had to adapt to its work share programme to fulfill orders incentive by the Scrappage Incentive Scheme. Later on, it led to cutting of 750 jobs, or around a fifth of the workforce, in the face of crashing car sales. “The decision will come as a blow to Toyota workers who had already been rattled last year by workshare programmes, reduced hours and non-production workers. Over last year, Toyota also accepted 300 applications for voluntary redundancy.

(the times February 19,2010)

“Toyota is to shut down its UK production plant next month leaving 3,500 workers idle. The unprecedented halt for two working weeks is a result of a collapse in its car sales amid consumer concerns over the safety of the Japanese company’s vehicles. Sales of Toyotas are thought to be plunging worldwide after multiple recalls affecting 8.5million cars around the world. The company employs 3,900 workers at its main production site in Burnaston and 570 at its engine plant in Deeside. It has already cut 200 temporary jobs and opened a voluntary redundancy scheme last week. Toyota said in a statement: “following extensive consultations with our employees’ representatives, and with input from all employees, it has been agreed that the best way to secure long term employment is to temporarily reduce working hours and base pay by 10pc.” Toyota also scrapped the annual pay increase for employees and cancelled management bonuses, while its UK factories have just finished a fortnight’s shutdown. All these measures were introduced to reduce cost for the company because of the fall in demand for Toyota products caused by recession, the recall of Toyota cars due to safety issues etc.

SMMT estimates that approximately 70% of the cars bought under the scrappage scheme represent additional sales which would not otherwise have happened in 2009. Since there was an increase in the demand for cars, this means that the demand for labour in Ford, whose engine plants in Bridgend and Dagenham employ 4,000 people, had to introduce extra shifts to be able to supply more cars. August output was up 36.5% at Dagenham and 18.3% at Bridgend, compared to 2008. Ford estimates that this resulted in positive knock-on effect for around 100,000 of their UK jobs in sales, distribution and sale supply. (SMMT)

Also, due to the rapid change of technological advancement, new makes/models, reduction of CO2 emission and the introduction of the Scrappage Incentive Scheme, the car industry in UK now has a high demand for management/ leadership skills and technical skills. These changes have also made it necessary for the car industry to give staff constant training, since staffs with excellent sales skills are essential for the profitability and success of the sector. The ever-growing feast of technology and the need for constant on the job learning the sector specific product Automotive Technician Accreditation (ATA) was developed. To become ATA registered, an individual must pass a comprehensive and rigorous series of tests of practical skill and knowledge to ensure that they keep up to date with new technologies; technicians need to be assessed in order to maintain their accreditation.

http://www.guardian.co.uk/business/2010/jan/28/ford-announces-profits-2009

Andrew Clark in New York

guardian.co.uk, Thursday 28 January 2010 17.01 GMThttp://www.smmt.co.uk/articles/article.cfm?articleid=20676

http://business.timesonline.co.uk/tol/business/industry_sectors/industrials/article7032980.ece

http://www.ford.co.uk/AboutFord/News/CompanyNews/NewDirector

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htmhttp://www.oup.c.om/uk/orc/bin/9780199296378/01student/additional/page_10.htm

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http://www.smmt.co.uk/articles/article.cfm?articleid=20676

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