PESTLE analysis of Barratt Developments
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Barratt Properties PLC is one of the largest property developers in the UK as well as the largest house builder in the country by sales. The company has experienced steady growth through the years, growing from strength to strength year after year. Despite Britain’s slow housing industry growth, Barratt has recently had one of the best performances in its 60 years of experience. However, the environment it operates it is still characterized by several threats that are likely to affect its future performance. Britain’s housing market has been slowed down by Brexit uncertainty, which has stopped many consumers from buying and selling houses, leading to a fall in house prices. The gap between property value and earnings also remains high, making it hard for younger buyers to step onto the property ladder.
Nevertheless, the UK government’s help-to-buy scheme presents a major opportunity to the industry, given it has since been extended to 2023. The demand for affordable homes is higher than the current supply, a fact that building companies should address in order to meet continued demand and good mortgage availability. Despite lower house costs, the price and earnings gap remains large.
In this report, the author uses the PESTLE framework to identify the changes and effects of the external macro environment on a firm's competitive position. The author identified PESTAL factors, analyzed possible effects on the firm, categorized them into opportunities and threats, and developed preemptive strategic recommendations.
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pestle analysis of barratt developments Case Study
Key Learning Outcomes
By the end of the case, students should be able to:
- Use the PESTLE framework to identify the impact of the external macro environment on a firm's competitive position.
- Understand and discuss the six elements of the PESTLE framework and how they impact an organization
- Understand how an organization can leverage external opportunities to strengthen its strategic position
1.0 INTRODUCTION
Founded in 1958 by Greensitt Bros, Barratt Developments PLC is the largest residential property developer and Britain’s largest house builder (BBC 2019). Headquartered in Coalville England UK, the company deals in acquisition, land development and selling of homes which it builds all over Britain. Barratt Development operates in two segments: Commercial developments and house building (Reuters 2019).
Its housebuilding segment operates through at least six regions and 30 operating divisions delivering over 17,319 homes while its Commercial developments are delivered by Wilson Bowden developments (Reuters 2019). As of 2018, the company reported an 8.9% rise in pre-tax profits to £909.8m for the year to 30 June and sold 17,856 new homes, up from 17,579 the previous year (Kollewe 2019).
PESTEL/STEEPLE-Why it is used
PESTLE is an acronym for six sources of change: political, economic, social, technological, legal and environmental factors. The framework is powerful and widely used by managers and strategists for understanding strategic threats and opportunities in the external business environment (Johnson et al 2017). It is used to identify the changes and effects of the external macro environment on a firm's competitive position. Firms or companies operate as part of an ecosystem which makes them vulnerable to a number of external factors, which can have a major impact on their competitive positioning (Alanzi 2018).
It is thus very important for managers to understand the key drivers of change and the impact they are likely to have on the company (Johnson et al 2017). This will help them evaluate how their business can evolve in order to adapt to the external environment. The effects of external factors can then be mitigated through preemptive strategy while opportunities are exploited in the wake of new competitive positions that may be created in the process. According to Sammut-Bonnici (2019), exploring a firm's external macro environment involves five main stages: identifying PESTAL factors, analyzing possible effects on the firm, categorizing into opportunities and threats, prioritizing factors, and developing corrective or preemptive strategic action (Sammut-Bonnici 2019).
GOVERNANCE
The Executive Directors manage the business on a day-to-day basis whilst the Non-Executive Directors provide an appropriate level of scrutiny, constructive challenge, and support to all executive proposals including those relating to strategy, performance, responsibility, and accountability. This enables well-considered and justified Board decisions. Barratt has put in place suitable Board processes to ensure enough oversight of the implementation of company decisions.
As a company, Barratt recognizes the importance of independent non-executive directors as it is vital when considering the appointment or removal of Executive Directors and in the determination of succession planning for Board positions and other Senior Management roles within the Group.
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