Woolworths Finally Gets Incentives Right - Case Study Example

Competitive Analysis Name of Student: Name of Course: Name of Instructor: Date of Submission: Competitive Analysis Abstract Strategy is a clear plan that provides companies with a chance to achieve competitiveness. The following report gives analyses the nature of strategy, its relation with value, industrial analysis and resources and capacities with reference to Woolworths Limited. The report seeks to give an insight into the importance of strategy and various issues involved in its development. 1.0 Introduction Strategy is a clear plan that seeks to transform a company to a desired state in the definite period of time. Strategy is normally focused at increasing an organisiation’s competitiveness and ultimately sustainability. Ideally, strategic management is an important practice for both profit and nonprofit organizations (Singh, Garg & Deshmukh, 2008). In the wake of increased competition in the global business environment; it has become imperative that organisations develop and implement innovative strategies that enhance their capacity to edge out their competitors. Woolworths Limited is one of the largest and successful companies in Australia. The company has been able to venture in diverse industries and its retail business is key to its success. The following report gives analyses various elements associated with business strategy with reference to Woolworths Limited. 2.0 Woolworths Limited – Company Background Woolworths Limited was established in 1924 and opened its first store Sydney Australia. Back then, the company was headed by Percy Christmas; it’s founding chief executive officer (Woolworths Limited, 2015). The company was established with the objective of providing customers with an ideal place where they could purchase good things at a cheap price. Since then, the company has risen to be a major company in Australia in addition to global expansions in other countries (Woolworths Limited, 2015). Currently, the company has operations in food, liquor, hotels, petrol, groceries, consumer products and general merchandise. The homegrown company serves about 28,000,000 customers per week and has over 3000 outlets in its Australian and international operations (Woolworths Limited, 2015). Looking at the company’s tremendous growth since 1924, it can be acknowledged that strategy has played a key role in shaping the company into what it is today. Its current strategies are expected to sustain this growth in addition to making it more competitive. The following sections will give an in depth analysis of various issues associated with strategy with reference to the Woolworths Limited. 3.0 Analysis 3.1 Strategy Strategy is a plan aimed at enabling an organization or individual entity achieves a specific set of goals within a definite period of time (Peng, Wang & Jiang, 2008). As such, strategy normally takes into the consideration the current state of an organization and develops a plan on how to organizational capacity towards achieving a specific target in a specified period of time. On this point, it is important to give an insight into the ‘double loop’ strategy as practiced by Woolworths Limited in the past decade during the leadership of the former chief executive Roger Corbert. The double loop strategy held more value on sales volumes and not margins. As such, Woolworths was able to compete effectively in the market using its low pricing strategy. During this period, Woolworth Limited enjoyed remarkable success with the company’s share price increasing by 400% in addition to a high rise in dividends (Addis, 2015). This strategy by Roger Corbert, regarded to be one of the most successful CEOs to lead Woolworths Limited in the recent times, drove sales volumes and ultimately profits that were later reinvested into driving prices lower. Under this strategy, the savings made from the implementation of the strategy were passed on the customers (Addis, 2015).Therefore, it can be acknowledged that the ‘double loop’ strategy was focused on achieving a specific set of objectives, low prices, high sales volumes and increased profits, and outlined how the company would make use of its organizational capacity to achieve the goals of this strategy. A successful strategy is based on the ability of an organization to develop clear, consistent and long term goals, a profound understanding of the industry and the objective appraisal of resources Ideally, strategy is a long term solution to achieving organisational sustainability and competitiveness hence the need to develop it in the light of an in-depth understanding of an organisations’s capacity and the competitive environment (Zheng,Yang & McLean, 2010). Additionally, there is also a need for effective implementation so as to realise the long term goals outline (Zheng,Yang & McLean, 2010). Under this process, appropriate organisational management practises should be used so as to keep an organisation in the course of its long term vision. Relating this to Woolworths Limited, it can be acknowledged that Roger Corbert’s leadership and management team provided the company with the much needed management skills to walk the strategy to its realization. The company noted that it could be able to increase its sales volumes and ultimately profits if it reduced its prices. This was expected to give it a competitive advantage, which it did going by the company’s success in the market. There are two basic types of strategy namely corporate and business strategy. Corporate strategy is focused on ensuring that an organisation is in an attractive industry (Kaplan & Norton, 2006). As such corporate strategy provides an answer to the question of which business an organisation should be involved in. Relating this to Woolworths Limited, it is noted that since its establishment in 1924, the company has diversified into other business lines and is as of today having interests in food, liquor, hotels, petrol, groceries, consumer products and general merchandise. It can be acknowledged that this diversification was done in order to position the company in attractive industries that promised growth and profits. On the other hand, business strategy is aimed at providing a company with competitive advantage (Peng, Wang & Jiang, 2008). Under this point, it can be argued that the double loop strategy as implemented by Woolworths is a business strategy since it optimised the use of the organisation’s resources with an objective of lowering prices thus achieving a competitive advantage (Addis, 2015). Sustainability and e-commerce strategies can also be pointed out to be key business strategies that have provided the company with the much needed ability to compete effectively in the market. From the discussion above, it can be acknowledged that strategy creates a link between a company and the industry in such a manner that enables it to thrive sustainably. 3.2 Strategy and Value Strategy is often been regarded to be an organization’s quest for value. As such, strategy aims at providing value to various organisational stakeholders depending on their bargaining power in an organization (Hillman & Keim, 2001). Provision of value to customers, employees and shareholders are some of the key values that strategy seeks to provide. Looking at Woolworths, it can be acknowledged that the vision of its founder was to provide customers with cheap and high quality products. A look at the company’s current business model and practices identifies that the retailer still has this vision at the core of its business model. The double loop strategy discussed earlier in this report provided the company with a chance to achieve stakeholder value by providing customer value through its low pricing business strategy. With increased sales volumes and reinvestment of saving made in reducing the prices further, Woolworths was able to make more profits; hence providing shareholders with more value. As noted earlier, the company’s share value increased fourfold while the dividends increased tremendously. From this, it can be acknowledged that Woolworths was able to provide shareholder value to its customers thus achieving shareholder value indirectly. Corporate social responsibility is another key value considered in modern business organisations. Corporate social responsibility enables an organisation to give back to the society; thus providing value to various stakeholders. Corporate social responsibility is as of today a critical business practise owing to its influence on organisational success. On this point, it is important to highlight that ethical consumption has been on the rise (Cherrier, 2007). As a result of this, customers tend to associated themselves with more responsible companies. Therefore, more responsible companies are at a higher chance of being successful as compared to others (Cherrier, 2007). Woolworths Limited is committed to managing its business responsibly and addressing the problems facing the immediate society. In 2013, the company was rated to be the most responsible company in Dow Jones sustainability indices for food and staples retailing industry group (Woolworths Limited, 2013). The company has programs in environmental, community and internal employee welfare areas; all of which contribute to the high sustainability rating of the company. The ‘doing the right thing sustainability strategy’ is an example of a sustainability strategy 2007-2015’ that is being implemented by the company (Woolworths Limited, 2007). The company does sustainability reporting; a growing trend in managing business sustainability and ethics in the global world, which is an illustration of its rigid corporate sustainability strategy. 3.3 Industry Analysis It was pointed out earlier that a clear understanding of the industry dynamics in which a company operates in is a key element that influences the success of a strategy. For this reason, it is always important for organisational management to use various industry analysis tools so as to be able come up with the most appropriate strategy to address the findings of the environmental analysis. Porters 5 forces analysis is one of the most commonly used model of analysing an industry (Porter, 2008). According to Porter, the analysis of the five forces is what enables an organisation to develop a strategy that is bound to increase competitiveness in the prevailing market conditions. The first force is the bargaining power of the suppliers. In a good environment; the power is supposed to be low; thus enabling companies to be able to control the supply (Porter, 2008). Relating this force to the retail market; it can be argued that suppliers have varying power depending on the retailer that they are dealing with. However, in the wake of enhanced consumer markets; retailers have an upper hand in the bargain as suppliers/ manufacturers/ producers are dependent on them to sell their products. Woolworths has entered into contracts with its suppliers so as to be able to ensure that all the supply requirements are met. The second force is the potential of new entrants; that is supposed to be low in a good environment. The threat of new entrants in the retail market is high (Porter, 2008). However, the threat of well financed companies who would be able to match the size of Woolworths is low. Next is the bargaining power of buyers that is supposed to be low in an ideal market so as to enable companies dictate the terms of buying (Grundy, 2006).. However, the bargaining power of the buyers in the retail industry is high. For this reason, companies in this industry such as Woolworths have to develop strategies that attract and retain customers such as low pricing and customer relationship management. The fourth force is the threat of substitute products. In the retail industry, this threat is high owing to the large number of retailers in the domestic and global market. Last is the level of competition amongst the existing companies (Porter, 2008). On this force, it can be noted that there is a high level of competition in Australian retailers. For this reason, companies in this industry are forced to come up with strategies that seek to increase their competitiveness such as the double loop strategy by Woolworths. 3.4 Resources and Capacities From the introduction, it was identified that the development of strategy follows a comprehensive analysis of an organizations current state and resources, industry environment and the development of goals that are to be achieved in a definite period of time. Organisational resources are a collection of physical and non-physical items that give it the ability to implement a strategy (Ho, 2008). The implementation of a strategy may require specific talents, knowledge, experience and skills from a workforce in addition to physical infrastructure such as buildings and machinery (De Martino & Morvillo, 2008). On the other hand, organisational capacity is defined by a collection of resources that include tangible, intangible and human capital, provides a company with the ability to perform specific tasks thus leading to the realisation of corporate goals. Organisational capacity is an important factor influencing organisational sustainability and competitiveness (Figge, Hahn, Schaltegger & Wagner, 2002). Ideally, an organisation with a high degree of organisational capacity is bound to be more competitive and sustainable in the event that the capacity is exploited appropriately. Reflecting of Woolworths, it can be noted that its large size gives it a wide range of resources from which it be able to base and implement its business processes. Its financial resources have enabled it to acquire other companies and outlets such as those in the hotel industry thus enabling it to diversify its business portfolio. Additionally, its highly skilled human resource base has been a source of its competitiveness. The company employs about 190,000 employees in its business operations around the world (Woolworths Limited, 2015b). So as to enhance its competitive and also provide its customers with better services, Woolworths Limited has implemented an e-commerce business strategy. This strategy increases the company’s operation capacity by making it possible to reach out the rapidly growing online shopping market (Woolworths Limited, 2015c). 3.5 Nature and Sources of Competitiveness As outlined earlier, the aim of strategy is to provide an organisation with a competitive advantage. There are two main sources of competitiveness; cost leadership and differentiation. Under cost leadership, a business organisation reduces its operational costs to the lowest levels possible and reduces its profit margins so as to be able to offer products to its customers at a low price (Allen & Helms, 2006). The double loop business strategy used by Woolworths focused on making cost savings and passing them on the customers in form of low prices. As pointed out earlier, this strategy led to fourfold growth of shareholder value. It is expected that cost leadership leads to an increase of sales volumes and ultimately profits. The other source of competitiveness is differentiation where a company develops its products so as to be able to meet the needs of its customers better (Akan, Allen, Helms & Spralls, 2006). Under this strategy, Woolworths has been able to enhance its competitiveness by diversifying its product range to other business lines such as liquor and hospitality in addition to expanding its operations in the global market. Woolworths has successful ventures in New Zealand and South Africa in addition to other countries in Africa and Asia. 4.0 Conclusion In conclusion, this report argued that strategy is a source of organisational competitiveness. The development of strategy follows an in-depth analysis of an organisations capacity and current state followed by the development of a clear plan to achieve a specific set of goals within a specific period of time. The report made special reference to Woolworths; the largest retailer in Australia. It was identified that the double loop strategy is the source of the company’s competitiveness and success. As per the strategy, Woolworths is able to make cost savings that are in turn passed on to the customers. As such, cost leadership is a key source of the company’s competitiveness. Diversification of products was also identified to be a source of the company’s competitiveness with the company having interests in food, liquor, hotels, petrol, groceries, consumer products and general merchandise. 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