Application of Porters Five-Factor Model in Myer - Term Paper Example

Business report Analysis of Myer Retail Group by Student’s name Code+ course name Professor’s name University name City, State Date The Chief Executive officer, Myer Retail Group P.O. Box 784 Melbourne, Victoria. AUSTRALIA Dear Mr. Horward McDonald, RE: BUSINESS ANALYSIS Please find attached report regarding the above subject. The report was conducted under your authorization. It only reflects the financial status of your company, but also a detailed analysis of the company’s strengths, weaknesses, opportunities and threats. Appropriate recommendations are given after each step of the analysis. I would advise that you keenly go through the recommendations and implement them accordingly. The methods used in carrying out the analysis were based on Swot analysis and the Porter’s five-force model. As such the report is expected to shade light on the areas that need attention especially within the internal environment. Much as your company may have little control over the external dynamics, it is advisable that you start the implementation process from within the organization. The recommendations I have outlined therein are in line with your company mission. Should any questions arise, please feel free to get in touch with me. My office is at your service. Yours sincerely, Signature: Name: MANAGEMENT CONSULTANT Executive summary Myer is a chain of expensive high-class departmental stores in Australia. It is Australia's biggest department retail chain, dealing in a wide array of commodities including ladies’, men's and kids’ garments, shoes and ornaments; makeup and perfumes; household items; electronics; furnishings and bedclothes; stationery; foodstuff and confectionery; and journey needs. The Myer vendor group was established by a Russian immigrant by the name Sidney Myer who arrived in Melbourne more than a century ago in 1899. During his arrival, Myer had with him some little cash and a vague knowledge of the English language. Together with Elcon Myer his elder brother, they started the first Myer retail store in Bendigo 1900. As the store gained considerable prosperity, they opened the second store eight years later. As the small businesses grew they ventured into acquisitions, mergers, bought businesses and today Myer is a leading retail business with stores all over Australia. Introduction This business report is meant to analyze the structures, policies and strategies of Myer Retail Group with the aim of giving recommendations on new strategies that can be adopted, areas of strength that need enhancement, possible viable business opportunities and advise on the areas of weakness that need to be worked on. First, the analysis will entail a detailed SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. Appropriate recommendations will be given thereafter. The second part of the analysis will employ Porter’s five-force model in evaluating the potential of the organization with special emphasis to the competition aspect of business. This will entail all forces contributing to rivalry in the competitive business world. Necessary recommendations will follow this analysis. The final part of the report is the conclusion that will summarize the points in the report and make an appeal to the chief executive of Myer to implement the proposals made in the report. SWOT analysis of Myer In applying SWOT in analyzing any organization, the environments under considerations are two, namely the internal environment that covers strengths and weaknesses; and the external environment that covers the opportunities and threats (Clarke, 2005). Strengths The strengths of Myer can be seen in its strong internal systems of control. This can be attributed to the strength of the internal audit function. The internal audit department has instituted strong measures that have reduced fraud and pilferage considerably. The second point of strength is the fact that Myer enjoys economies of scale. It is capable of obtaining such discounts as quantity discounts. Other strengths that have made Myer the market leader it is today are points such as: big brand names, reputable corporate image, and favorable access to supply channels locally and internationally. Weaknesses Myer suffers some weaknesses such as: lack of copyrights and patent protection. The kind of business that Myer deals in does not entail the acquisition of patents. Retailers do not have the capacity to be given patent rights. Other weaknesses of the Myer organization are the fact that they only have stores in particular expensive neighborhoods and hence do not reach many customers. Limited range of products is another serious weakness. While competitors deal in virtually everything a household may require, Myer deals in a limited range. Opportunities The external setting offers various opportunities that promote expansion and development. Analysis of Myer shows that there exist various opportunities in the environment and the most important ones are: unsatisfied needs, technological inventions, flexible legal regulations and eliminated barriers to cross-border transactions. A flexible legal framework is the most important opportunity since all business activities take place within the legal restrictions of the country (Daft et al, 2010). Threats Dynamics in the outside setting do not just offer opportunities but offer serious threats to the organization (Dinitzen & Jesen, 2010). Myer particularly is faced with the threat of emergence of new substitutes. The emerging substitutes are cheaper compared to the high quality of products that Myer has always dealt in. This is especially so in the case of electronics and home appliances. Countries such as china are fast inventing cheaper options like cheaper solar panels and exporting them to Australia. Application of porters five factor model in Myer Most of the issues dealt with in the porter’s five force framework, are applicable to the retail industry as well as other industries. The model comprises Rivalry as the key factor together with four other factors linked to rivalry (Hill &Jones, 2008). The factors are all competition oriented and they are: the bargaining power of customers, the threat of new substitutes, threat of new entrants and the bargaining power of suppliers (Hill & Jones, 2008). Myer is not threatened by new entrants since for a proprietor to venture in to large scale retail they need a heavy capital outlay and to gain consumer acceptance and loyalty calls for heavy investment in marketing and advertising. Myer is not at all threatened by the emergence of new substitutes since it is not a manufacturing concern. It deals in a wide range of products and can always increase its diversity. The purchasing power of customers is adequately high. Having been in operation for over a century dealing in quality products, Myer has won customer loyalty. The clients have strong bargaining power. Myer has a large number of reputable suppliers both locally and overseas. The suppliers have a high bargaining power and these places Myer at a better position to gain from the quantity discounts and economies of scale. As such Myer expects low cost of sales. On the aspect of rivalry, Myer has competitors in the retail business though most of the company’s competitors have not specialized in one line like Myer has. Competitors such as Woolworths and Coles pose considerable competition though not as much as to cause panic in Myer’s stewardship. Recommendations Having performed this comprehensive analysis of the company, I would make a few recommendations. One, the company should embrace diversity so as to as to widen the customer base and reduce any risks associated with change in customer tastes. This can be achieved through carrying out a market research and stocking what customers want. Two, I would recommend that the company open more stores and in doing so, even distribution should be taken into account. The third recommendation is the adoption of a strong customer feedback system. Through this, the company will be in a better position to handle changes in the tastes and preferences of customers. Fourthly, I would also recommend that the management adopts a way of evaluating the performance and position of the company regularly to ensure stability. To facilitate this, the management can adopt such tools as the balanced scorecard. Finally, I also advise that the management of Myer carries out benchmarking of the other market leaders such as Coles and Woolworths. This is meant to use their standards as a yardstick for measuring performance. This may help in strengthening the company and keeping away competitors. Myer should work towards strengthening its weak points and using its strong points to take advantage of all the opportunities offered by the external environment. Conclusion In conclusion, I would say that as evidenced by the findings of the report, Myer is a market leader. It faces fair competition from other large scale retailers and departmental chains. It is however very important to make an observation that Myer does not employ variety. Much as it deals in many types of household items and appliances, it can do better still. I have made a number of recommendations in the report and these are meant to improve the company’s position in the market. I would like to appeal to the Chief Executive Officer to oversee the implementation of these recommendations as they will possibly boost the position of the organization in the market. The recommendations I have made in this report are in line with the company’s vision and mission statement. The implementation of the recommended will be easier if the administration starts with embracing the concept of change management. References Clarke, A.E 2005.Situational Analysis: Grounded Theory after the Post Modern Turn.London.Sage Publications. Daft, L.R.& Murphy, J& Willmott, H .2010.Orginisational Theory and Design. London. Cengage Publishers. Dinitzen, B.H&Jesen, L.K. 2010.Organisational Theory: A Practical Approach.Copenhagen.Trykkeriet Viborg Publishers. Hill, C.W.L&Jones G.R 2008.Strategic Management: An Integrated Approach (9th).Cambridge.Cengage Learning. Hill, C.W.L&Jones, G.R 2008.Strategic Management: An Integrated Approach (10th).Cambridge.Cengage Learning. Attachment 1: SWOT of Myer Retail Group An examination of the inside and exterior atmosphere is a vital component of the tactical planning practice. Environmental dynamics internal to the organization more often than not, are categorized as either Strengths (S) or weaknesses (W). Strengths and weaknesses are those aspects that the management of an organization has control over. They are part of the system and constitute the internal environment of an organization. There are those aspects of the external environment which the organization has no direct control over. Such factors can be classified as either opportunities (O) or threats (T). The analysis of an organization along this lines or factors is what is known as SWOT analysis. SWOT analysis works by answering the following questions: Strengths What plus does the organization have? What does the organization do better than competitors? What do customers in the market view as your strengths? Weaknesses What could be improved in the firm What should the management keep away from? Opportunities What good opportunities can be spotted outside the organization? What interesting emerging concepts is the organization familiar with? Threats What difficulties does the organization face? What are the rivals coming up with? Attachment 2: Porter’s 5-force theory as applied to Myer Retail Group Porter’s 5-factor competitive theory is concerned with the aspect of rivalry in the aggressive business world. It analyses the five most powerful elements of competition and they are: Power of supplier Threat of new entrants Buyer power Threat of new substitutes Competitive rivalry within the industry The Porter’s Five Forces Model demonstrates the way in which the aggressive setting of a trade is influenced by five major factors. The level of competition is the core of this representation as the other four factors branch off of this. All of these forces affect the environment of competition in the trade. In addition, managerial policies are always affected as companies create their policies in a bid to react to the leading aggressive factors in any given industry. Read More