Using PEST analysis to support decision making

ENVIRONMENT

Introduction Johnson Matthey operates in an industry driven by advancements in

technology. To remain competitive the company needs a highly
Johnson Matthey is a leading global speciality chemicals company. skilled workforce to establish new and more efficient ways of meeting
Science and technology are embedded in everything that it does. It the challenges faced by the industry. To be at the forefront of
has operations in over 30 countries and employs around 11,000 technological innovations the company requires people with skills in
people. It was founded in 1817 to refine and develop products STEM subjects (Science, Technology, Engineering and Maths) as
using precious metals – something it still does today. As well as well as skills in other areas. Johnson Matthey offers many highly
creating precious metal containing products, it also recycles rewarding career opportunities for people that share the company’s
precious metals and manufactures many other high technology commitment to sustainability and the creation of a positive impact on
products and chemicals. So, how does Johnson Matthey affect society through its products. It offers first rate training and
you? If you have ever travelled in a car it is likely to have been fitted development opportunities enabling employees to grow their careers
with a catalytic converter to reduce vehicle emissions. Johnson with the company.
Matthey produces catalytic converters for around a third of all cars
manufactured in the world. This product has huge environmental This case study demonstrates how Johnson Matthey uses a
and health benefits for everyone through reducing pollution. PEST analysis to monitor changes in its external environment
that will have an impact on its operations. The findings of this
analysis are used to form future business strategies to remain
P competitive in its fast-paced industries.
Political

External
T E
Technological environment Economic

S
Social

Its products aim to have a positive impact on society and the

environment, values which are at the heart of Johnson Matthey’s
operations. It creates catalysts which help to control pollution in oil
refining processes. These catalysts speed up refining processes and
help reduce the sulphur content of petrol, as sulphur is a major
pollutant. It also produces tiny components in medical devices like
pacemakers and cutting-edge technology such as technical
ceramics. In addition, it produces the active ingredients for a variety
of pharmaceuticals to benefit the healthcare industry.

Curriculum topics covered: • Political factors • Economic factors

• Social factors • Technological factors
 encourage certain businesses or types of business to operate in
their country. In the UK the government encourages innovation in
technology-focused businesses. Tax credits are given to businesses
that invest in R&D to create new products and techniques, many of
which can be exported around the world. Johnson Matthey benefits
from tax savings from its R&D, whilst the UK benefits from having a
company that develops, makes and exports leading, innovative
products. Johnson Matthey continually invests in R&D to remain
competitive in the marketplace. It spent over £135 million globally on
R&D in 2012, a large proportion of which was in the UK.

Political
Economic
Changes in the political arena influence many organisations.
For Johnson Matthey, which operates globally, changes in The world’s economies affect most organisations to a certain

laws and taxes in these countries can have a range of degree. For Johnson Matthey there are three main areas

impacts on the company’s operations and strategies. where economic factors influence its operations. These are
the global recession, economic growth in China and price
Since the 1970s more and more countries have passed laws to changes in the precious metals market.
control air pollution. Poor air quality affects peoples’ health, is bad
for the environment and has other knock-on effects. For instance, The 2008 banking crisis, when many major banks failed, caused a

poor health costs the economy money directly through increased fall in growth around the world because companies could no longer
obtain the loans they needed for investment. This recession meant a
healthcare costs and indirectly in days missed from work. The
fall in demand for many organisations’ products, including Johnson
amount of potentially harmful emissions rises as the number of
Matthey. Like many companies, Johnson Matthey looked for ways to
vehicles on the roads increases. Governments set limits to reduce
reduce costs. One solution was to increase efficiency. The company
emissions from vehicles and to control what pollutants are legal,
set targets to reduce the use of natural resources and decrease
putting pressure on car manufacturers. This means new technology
waste through lean production techniques. This created a more
is required to improve the efficiency of catalytic converters. Johnson
sustainable model of production. It also focused on developing
Matthey’s highly skilled research and development (R&D) teams
products that contained fewer rare non-renewable raw materials
develop this technology. Its converters use chemistry to convert
such as platinum. Achieving these targets meant Johnson Matthey
harmful pollutants in exhaust fumes into less harmful gases.
reduced costs and became more sustainable. The benefits of this
were two-fold – saving the company money whilst at the same time
Countries often seek new investment to help their economies
conserving the planet’s valuable natural resources. As the world tries
grow. As a result of the greater demand for catalytic converters,
to emerge from recession, Johnson Matthey’s focus on being more
Johnson Matthey needed to expand production in Europe. Its
sustainable and manufacturing more efficiently has improved its
options were to expand existing sites or build a new plant. After
position beyond where it stood in 2008.
considering all the key factors such as the cost of land,
availability of transport links and skilled labour, closeness to
customers and tax rates, Macedonia was chosen for the new
site. A similar new American plant was built to serve the US
market, with production beginning in 2009. Countries use many
strategies to attract new investment and it is vital that
businesses understand these and respond to them. The right
partnership of industry and country will bring benefits to both.

One way to attract investment into a country’s economy is through

the level of tax that it requires companies to pay. Countries have
different tax rates and systems to determine the amount of tax
payable. They also have different ways to levy tax – for instance, on
income, fuel or business profits. Governments can set tax to

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 Johnson Matthey employs a high proportion of staff in highly
technical areas such as science and engineering. Its people are its
greatest asset. However, it can be difficult to recruit people with the
skills and knowledge that the company requires. To address this
issue Johnson Matthey is trying to raise the awareness of young
people to the excellent career prospects available to students who
study STEM subjects at school or college. It uses social media to
promote STEM subjects. It works closely with schools that are local
to its sites, educating pupils both in what the company does and in
the exciting careers it can offer. Its apprenticeship programmes
combine on-the-job training with study opportunities, leading to
qualifications that benefit both the apprentice and the company. It
also follows more traditional routes, such as careers fairs in schools,
colleges and universities to demonstrate the type of work it does.

Johnson Matthey is keen to benefit from the high levels of

economic growth in China. This growth has led to a higher As the world’s population continues to grow, the demand for food also

demand for cars in the country and a subsequent increased grows. As countries become more wealthy, the type of food eaten also

demand for catalytic converters. The economic growth has also changes. For instance, people eat less grains and pulses and more

created a building boom, meaning greater demand for the meat, which requires a lot more resources to produce. These social

plastics that the company’s products help to produce. Rather factors mean that more food and better quality food is needed, increasing

than transport goods to China, Johnson Matthey has established the demand for fertilisers. The chemical processes that produce fertilisers

manufacturing plants in the country. Its presence in China are made more efficient and sustainable if catalysts are used. Since

provides a platform for further growth. For instance, increased Johnson Matthey manufactures these catalysts, the increased demand

demand for food production means increased demand for benefits the business.

fertiliser to improve crop yields. Chemicals used to create these

fertilisers are another area that Johnson Matthey specialises in. Catalytic converters reduce pollution by cutting down harmful
emissions. This reduces illness and costs to health services.
One part of Johnson Matthey’s business is linked to refining and These catalysts are just one example of a product that can
recycling precious metals. 4% of its global sales are in this market. It benefit society as a whole and the vast majority of Johnson
mainly extracts metals such as gold and platinum from redundant Matthey’s products bring these sorts of benefits to society. Its
products and unwanted jewellery and recycles them. The inputs in this R&D is focused on growing the next generation of products that
model are the products that have reached the end of their useful life, the will bring benefits to society sustainably.
outputs are the precious metals obtained. The amount of inputs
available, and the value of the outputs, changes as the price for these
metals change. High prices mean more inputs, as customers are keen to
increase their returns. If prices fall, the amount of inputs will also fall. The
financial performance of Johnson Matthey’s refining business is therefore
dependent, in part, on the prices of precious metals.

Social
Social changes that affect Johnson Matthey’s operations include
changes in education, the population and environmental
concerns. As sustainability and protecting the environment are
high on the public agenda, the need for products that do the
most good whilst taking as little as possible from the natural
world increases. Johnson Matthey specialises in products that
benefit society and the environment.

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 www.matthey.com

the latest technology, including a mobile friendly version. For

investors, there is a tablet based app. It also uses key social
media routes such as Twitter, Facebook and YouTube.

Conclusion
Johnson Matthey’s values centre on health and safety and
developing sustainable, environmentally sound products and
processes. Johnson Matthey is focused on ‘doing the right thing’
with its products that aim to have a positive impact on society
and the environment. Its vast range of products bring a number
of gains. Cleaner air means fewer problems with pollution and
health issues such as asthma. Greater efficiency in fuel use and
in chemical processes means fewer natural resources are used.
Other products bringing benefits include its range of active
Its involvement in all aspects of the production process, from
pharmaceutical ingredients used to make drugs to improve
acquiring materials, manufacturing, refining and developing
people’s health. One of these drugs, morphine, is key to
technologies means that it positively improves the environment
controlling pain in critically ill patients. Cleaner air and better
in all aspects of its operations.
drugs both help contribute to a better quality of life for all.

To remain a world leader in its industry, Johnson Matthey has

Technological
to take account of a whole range of external factors over which
Johnson Matthey must not only try to benefit from it has no control. Through monitoring these factors using a
technological change, it must also be a driver of such change. PEST analysis, Johnson Matthey has been able to protect its
It is a world leader in R&D, led by highly skilled people future by making informed decisions regarding its business
recruited from STEM subject fields. Currently it is working on: operations and strategies to grow the business.
• new chemical processes that use bio-based materials,
cutting down the use of non-renewable natural resources
such as oil and gas
• low carbon, green power for cars and homes, based on
fuel cell and battery technologies
• methods to make water cleaner and purer
• production processes based on using fewer materials and
less energy and water.

Technological change could cause problems for Johnson Matthey. If,

for example, a new technology replaced the internal combustion
engine, catalytic converters may no longer be needed. Johnson
Matthey is therefore looking at alternative technology, for instance,
using catalysts in fuel cells. This is a low carbon way to produce 1. State two benefits to a business of carrying out a
electricity and could be an important source of power in the future. PEST analysis. (2 marks)
Johnson Matthey has made sure it is at the forefront of such change 2. Explain why STEM subjects are important to
-Exam sty

by working with car manufacturers on fuel cell vehicles. It is also technology-focused businesses. (4 marks)
working on better, more efficient batteries which could be used to 3. Analyse how a company like Johnson Matthey can use
le

power our cars, based on R&D advances. a PEST analysis of factors in its external environment
questio

to create a competitive advantage. (6 marks)

ns

Johnson Matthey actively uses new technology to reach its various 4. Evaluate which of the changes in Johnson Matthey’s
stakeholders. These range from investors and customers to external environment has had the biggest impact on
potential new recruits. It tailors its message to each audience using the business. Give reasons for your answer. (8 marks)
digital media. Its website is constantly being improved with

Johnson Matthey | Using PEST analysis to support decision making