Temple & Webster`s - External Environment, Core Competencies and Strategic Choices - Case Study Example

CASE STUDY ANALYSIS: Temple & Webster`s External Environment, Core Competencies and Strategic Choices Table of Contents Table of Contents 2 Introduction 3 3 External environment 4 Industry environment 5 Corporate strategy 10 Recommendation 11 Conclusion 12 References 13 Introduction The external environment coupled with the company`s core competencies and strategic choices are the external factors believed to be extremely important for the 21st century new business ventures. Temple and Webster is a private online company that specializes in homewares, furniture, and gifts from local and international designers. Brian Shanahan started the Temple & Webster Smart Company in 2011 with co-founders Adam McWhinney, Conrad Yiu and Mark Coulter. Temple & Webster has now grown as Australia's most beautiful shopping experience for the home. It is now declared as Australia's #1 online retailer of furniture and homewares with over 1.1 million registered members, was ranked #1 retailer in the 2014 BRW Fast Starters Awards, and is the fastest growing "Deloitte Tech Fast 50" internet retailer since the Deloitte Tech Fast 50 Awards were launched in 2001. Temple & Webster has also won SmartCompany's Best Blog two years in a row (2013 & 2014). Thus, firm performance factors such as the external environment, core competencies, and strategic choices will be discussed in this case report. External environment As a new business venture, its performance and survival are the major challenges Temple & Webster is currently facing. The belief that the entrepreneurial firm is an extension of the entrepreneur has led many researchers to examine the character traits of the entrepreneur that are most likely to influence the growth and survival of new business ventures. In the general environment context, it is well established that the strategies pursued by new business ventures have a direct and strong influence on the financial performance of those. Scholars have found strong linkage between the characteristics of top management teams and strategies pursued by established firms (Klein, 2008; McMullen & Shepherd, 2006). In this vein, the business strategy may be more important for Temple and Websters’ survival and growth because the ventures often possess limited resources. Therefore, the founding teams’ characteristics are likely to be critical to pursue more effective strategy in new business ventures. Industry environment Temple and Webster’s industry environment could be evaluated using the framework of Porter’s five forces of competition (Porter, 2008): supplier power, buyer power, competitive rivalry, threat of substitution, and threat of new entrants. Although all five of these forces exert pressure on a new business venture, the pressure to sustain a competitive advantage is even greater for an online business that does not have a single physical location. Competition Competitive rivalry affects Temple & Webster since it has quite a number of online competitors that offer comparable products and services. Although online business opportunities have a larger pool of possible buyers, they also have more competition for market share. For example, another small new venture online retailer that specializes in homewares might establish a web presence to increase its market share. According to Porter (2008), before going online, the business owner would have to identify other online homewares and distinguish his or her furniture from them. The factors associated with competitive rivalry are the number of competitors, differences among competitors, customer loyalty and the cost of leaving the market. Bargaining power of customers Two types of customers’ power can also affect a new venture business' competitive advantage. The first type of power is customers' sensitivity to price. If each brand of a product is the same, then customers will base their purchase decision on price. The other type of buyer power is negotiating power (Porter, 2008). Larger buyers have more leverage and thus can negotiate lower prices. When there are many small buyers, and all other factors are equal, the company supplying the product will have higher prices, and higher profit margins. The opposite is also true. If the company sells to a few larger buyers, those buyers will have the leverage to negotiate a lower price for themselves. However, if only a single supplier produces something a company has to have, the company will have little possibility of negotiating a better price (Porter, 2008). Substitutes Another barrier could be the threat of substitutes. According to Porter (1998), one of the most overlooked barriers is substitute products. Not only must a small business owner know what his or her competitors are selling, he or she must also be aware of what substitute products are available to customers. When the cost to consumer is low in switching to a new product the threat of substitute is high. Often companies may aggressively price their products when there is a new entry in the industry in an attempt to keep the customer New entrants The final force in Porter's (2008) five forces model is the threat of new entrants. The threat of entry is tied to: the cost of entry, special knowledge required, cost advantages, economies of scale, technology protection, and barriers to entry (Porter, 2008). Additionally, since there is no limit on the number of online business possibilities, there is always the threat of new entrants that can threaten the competitive advantage of established businesses (Porter, 1980, 1987). Entry onto the web is relatively inexpensive for a new business, hence, the threat of new entrants is a barrier faced by Temple & Webster owners. Strengths There are three major strengths identified in Temple & Webster`s as the #1 online retailer of furniture and homewares in Australia. Firstly, Temple & Webster`s superior performance is perhaps due to the characteristics of the founding team which have backgrounds and experience that are especially relevant to the strategies of this new online business ventures. As for this venture pursuing a strategy of online innovation required younger, more educated founders. The founding teams’ characteristics such as experience should influence strategic choice and firm performance among new online business ventures. That is, the human capital theory suggests that an experienced founding team should be more productive than a less experienced team, since experience is a valuable asset that has been shown to increase worker productivity and the economic value of the firm. According to Delmar and Shane (2006), prior entrepreneurial experience provides a particular type of knowledge that cannot be acquired easily through other types of learning, because it has many tacit components that are learned by doing. In this vein, founders with preexisting knowledge develop refined and complex cognitive structure as they gain experience in a particular area. Through their previous experiences, entrepreneurial founders have developed specific insights on the process of qualitative judgment. In terms of opportunity identification, such founders’ and the founding teams’ sophisticated judgment capability can enhance the process of opportunity identification. Second and thirdly, based on Porter’s typology, Temple and Webster’s` differentiation and low cost leadership influences the firm`s competitive advantage within its industry. A standard product or service with a routine task environment implies that the knowledge of ends and means is relatively high, which indicates high task programmability. As Porter (1980) pointed out, the primary focus of a firm with a low-cost leadership strategy is cost control. Miller (1991) argued that the differentiation strategy was composed of two dimensions: product differentiation and market differentiation. The first, product differentiation, is concerned with product innovation. The second, market differentiation, refers to the use of marketing techniques to achieve perceptual distinction. Product differentiation enables the venture to use its technological expertise to develop new and innovative products. It also enables the new venture to adapt its products to the needs of specific markets. Weaknesses As a new online business venture, Temple & Webster`s suppliers as resources is its greatest weakness. In the general environment of the retailers` industry, it is well established that the resources of online retailers have a direct and strong influence on the financial performance of Temple & Webster. In this vein, the business strategy may be more important for Temple and Websters’ survival and growth because the ventures often possess limited resources. Opportunities A major opportunity identified for Temple & Webster involves the founders’ creativity. The creation of a successful business is a result of an opportunity development process. This implies that the opportunity identification process is cyclical and repetitive: entrepreneurs continuously monitor and assess their environment and their firms in order to identify new opportunities or adjust their initial visions and strategies. Threats Just like any other new business venture, survival in an online market is the major threat Temple & Webster is currently and will be continuously facing. Secondly, the competitive online business environment in the online retailers industry is also an important threat. Corporate strategy Temple & Webster uses varied competitive strategies to further enhance its competitive advantages. In the strategic management theory, the characteristics of founding teams and the interaction effects of the types of opportunities and the types of strategies in the context of new business ventures, as well as the role of entrepreneurial founding teams in new business ventures are the key factors in the success of the business. Firstly, the depth of founding team knowledge is closely related with efficiency. The relatedness of founding team knowledge is at the same context of the depth of founding team knowledge. Secondly, efficiency centered business opportunities encourage founding teams with deeper and more related knowledge on their business to maximize the efficiency of decision making. The opportunities will positively moderate between the depth and relatedness of founding team knowledge and firm performance. Specifically, the relationship between the breadth of founding team education and industry experience and firm performance will be positively moderated by novelty-centered opportunities and differentiation strategies, while the relationship between the depth of founding team education and industry experience and firm performance will be positively moderated by efficiency-centered opportunities and low cost strategies. Hence Temple & Webster have gained the highest if not, above average competitive advantage in its industry. Recommendation Since the impact of the characteristics of founding team on performance in new business ventures is great, the founders of Temple & Webster should identify their opportunities and establish their strategies at the outset of their firm. Moreover, the management should be even more aware of the integrated moderating roles of the types of opportunities and the types of strategies on the relationships between the characteristics of founding team and firm performance. This case study provides the empirical evidence for such roles. Further, since efficiency-centered business opportunities are associated with reducing costs in business activities resulting in performance increases, the founding team of Temple & Webster could create new designs and reproduce and copy existing ones. In general, efficiency is largely related with deeper knowledge of the founding team. Experience with similar or related knowledge domains makes the search process more familiar and more efficient for Temple & Webster to develop the company’s competitive advantage for above average returns over the next 5 to 10 years. Conclusion As a conclusion to this case report for Temple & Webster as a new business venture, it should continue to pursue a differentiation strategy to be able to produce unique online shopping experience to its members as customers. In general, in producing such product, knowledge of means and ends is low, so the task of producing and marketing a unique product implies low task programmability. The key success factors for Temple & Webster as a differentiator include creative flair, strong basic research, and product engineering (Porter, 1987). This has been lived by Temple & Webster`s mission: “to inspire people to live more beautifully by helping them discover and buy beautifully priced items for the home, presented in an informative and entertaining shopping experience”. References Delmar, F., & Shane, S, 2006, ‘Does experience matter? The effect of founding team experience on the survival and sales of newly founded ventures’, Strategic Organization. 2006, Vol. 4 Issue 3, p215—247. Klein, P. G, 2008, ‘Opportunity discovery, entrepreneurial action, and economic Organization’, Strategic Entrepreneurship Journal. 2008, Vol. 4, p175-90. McMullen, J. S., & Shepherd, D. A, 2006, ‘Entrepreneurial action and the role of uncertainty in the theory of the entrepreneur’, Academy of Management Review. 2006, Vol. 31, p132-152. Miller, D, 1991, ‘Generalists and Specialists: Two business strategies and their Contexts’, In P. Shrivastava. A. H uff and J. Dutton (eds.). Advances in Strategic Management. JAI Press, Greenwich, Ct, Vol. 7, p3-41. Porter, M. E. 1980. Competitive strategy. New York: Free Press. Porter, M. E. 1987. From competitive advantage to corporate strategy. Harvard Business Review, 1987, Vol. 65 Issue 3, p43-59. Porter, M.E. 2008. The five competitive forces that shape strategy. Harvard Business Review, Vol. 86 Issue 1, p78-93. Read More