Organisations do not function in silos. They affect and are affected by varied factors ingrained in the internal and external environment of the organisation, the impact of which can be seen in its structure and strategies (Tran and Tian, 2013). These factors are inherently dynamic, leading to many uncertainties and largely interconnected to different aspects of the organisation in a manner which forces organisations to consider them before formulating any decision of strategic importance (Hitt et al., 2011). These factors also affect organisational structure that is static in nature thereby making it difficult to adapt to changing environment and maintain its efficiency. Thus, attaining an appropriate fit between an organization’s environment its strategy and structure is necessary for desired organizational performance (Wheelen and Hunger, 2012).
The following report discusses different external and internal factors inherent in the business environment and risks arising out of them in context of Woolworths Holdings Limited. It aims to highlight the factors that drive the decision making process in the organisation which in turn affects its organisational structure, strategies and objectives. It further outlines the risks the organisation faces and business practices adopted by Woolworths in order to mitigate those risks.
The following part discusses about the company’s structure, different factors internal and external to the organisation that impact its strategies and the company’s business practices.
Woolworths started in 1924as a small, entrepreneur dominated company with simple structure under the name Woolworths Stupendous Bargain Basement in Australia (Woolworths Limited, 2016). However, with its immense popularity and business success, the company grew to become a ‘chain’ of stores all over the country. The organisation grew in its size and scope by diversifying its portfolio of products from merchandise and food items to liquor, electronics, furniture and homewares, hotels, financial services and clothing items. All this was achieved through organic growth along with acquisitions of major market players like Centralian Traders Pty Ltd., Dan Murphy, Dick Smith Electronics, 126 Australian Safeway Stores, and may more (Woolworths Limited, 2016).
Thus, due to variety of unrelated product lines offered by Woolworths, the organisation now follows a conglomerate structure (Wheelen and Hunger, 2012). It operates three major divisions viz. Woolworths South Africa, based in Africa; David Jones, based and trading in Australia and Country Road Group based in Australia, New Zealand and South Africa (WHL, 2016). This structure provides the organisation with the much needed flexibility, speed and adaptability to face and mitigate the dynamic business environment thereby building ambidextrous organisation (Schreyögg and Sydow, 2010).
Figure: Group Structure (Source: WHL, 2016)
It is important for Woolworth’s to know about the internal and external environment factor, which influence its structure and achievement of business strategies.
External Analysis: External environment analysis is very important in any organization, as it cannot develop its strategies without analyzing external factors. External factors impact on performance and corporate strategies of business organizations (Libelli, 2016). To evaluate Woolworth’s external environment, Porter’s five forces model and PESTLE analysis can be used.
PESTLE analysis: Under PESTLE analysis of Woolworths’ external factors such as- Political, Economical, Legal, Technological and Environmental are explained.
Political factors are the political and legal regulation, which affect political stability, tax regulation and regional trading of Woolworth’s. Economical factors are especially important for international marketing of Woolworth such as interest rate, GDP, inflation and per capita income (Webster, 2010).
Under the Social factors, religion, attitude, language, gender roles, and population size are included, which affect the human resource and marketing strategy of Woolworth’s. Technological factors refer to the new technological innovation, which is useful to improve the organizational structure and strategy of Woolworths (Solhaug and Stolen, 2010).
Porter’s five forces model: From Porter’s five force analysis Woolworth’s can assess its position in the industry, based on its competitive strength. Bargaining power of Woolworth’s customers is extremely high except some stores which carter to a specific market. Bargaining power of supplier in retail industry depends upon the brand image and the size of the supermarket (Robertson, 2015). So the bargaining power of Woolworth’s supplier is high to moderate.
In the supermarket industry, a number of substitutes are available for consumers, which is less costly, such as substitute product of Woolworth’s is easily available in the market. The relationship of Woolworths with the suppliers and requirement of own distribution center by new entrants is a barrier, so threat of new entrants is moderate for Woolworths (Humphries and Gibbs, 2015). The rivalry between the competitors of Woolworth’s is intense.
In addition to external factors, an organisation is also influenced by internal factors like structure, culture, resources, etc. that provide it with distinct capabilities and advantages with respect to its competitors (Johnson et al., 2014). McKinsey 7-S Framework given by Thomas J. Peters and Robert H. Waterman is one such framework that can be used to identify interrelated factors that influence an organization (Bryan, 2008).
The framework analyses the organisational strategic alignment with its resources based on 7 key internal factors: strategy, structure, systems, shared values, style, staff and skills (Ravanfar, 2015). In context of Woolworths, the company follows a conglomerate structure with three distinct divisions. Its strategy is four fold with focus on market leadership in food and liquor segment, build new business and expand its portfolio to increase shareholders’ wealth thereby enabling sustained and profitable growth (Woolworths Limited, 2016). Woolworths has in place systems and business practices like pet recycling, waste management, cloth bank, refrigeration system, etc. that helps the organisation it not only reduce its costs but also work ethically and reduce its environmental footprint. Woolworths trains its employees effectively to develop required skills that are useful in career progression and building knowledgeable organisation. The company has diversified staff strength of 198,300 with a turnover of 6.6%. It invests heavily in training, motivating and rewarding its staff to help them deliver business strategies and prepare them for leadership roles. The company adopts de-centralized style of decision-making and promotes communication transparency. The company has a strong value system that promotes sustainability through social cohesion, advancement through education and environmental awareness. These values are shared by its suppliers, employees, customers and other stakeholders (Business Journey Report, 2015). Thus, these internal factors help Woolworths in building a highly engaged, innovative, and successful business.
Risk refers to uncertainty, which surround the future events and outcomes. Risk measures the uncertainty that an investor is willing to take, to gain from an investment. Competition risk is increasing for existing firms as well as for new entrant, which may adversely affect the profitability level of Woolworth’s Limited (Annual report, 2015). There are some other risks, which affect the profitability and the level of exposure of Woolworths Limited such as- legal risk, political risk, economical risk, financial risk and socio-culture risk.
Political risk relates to political action or policies, which are posed by foreign government. Political risk affects the expansion strategy of Woolworths. This risk also affects the supply chain management of the company (Harrison, 2013). To mitigate the political risk, risk acceptance approach is followed by Woolworth’s limited in which financial crisis are to be managed.
Legal risk refers to the risk related to the taxation policies and employee management regulations of Woolworths Limited (McKeller, 2012). Human rights risk is also included in the legal risk. For the legal risk mitigation, risk acceptance approach is used by Woolworth’s Limited, under which anti-competitive strategy is used.
Economical and financial risks both are parallel to each other. Recession and unemployment has strongly affected the profitability and sales of Woolworth’s limited. The condition of organization has decline due to financial crisis. As such, company faces many problems related to the strategic implementation or business decision making structure (Coleman and Young, 2010). For mitigation of financial and economical risk, risks transferences approach is used. Under this approach hedging process is used by Woolworths to reduce the credit risk and market risk by transferring it to third party.
Social risk refers to operating different socio-culture activities in the environment. Under this food security, education to local communities, child vulnerability and safety risks are included by Woolworths Limited. Risk limitation approach is used to mitigate the risk (Ferris, 2015). This strategy is the combination of risk acceptance and risk avoidance.
Woolworths has adopted many business practices that carter to its social, legal and environmental obligations. As a result, it has been working for ongoing water balance project with the WWF-SA as a part of its water management strategy. It conducts training workshops for its store employees through the GBJ champ program. It donates surplus food from stores to charities, which would otherwise go to landfill. Woolworth’s is also committed to introduce programs which support recycling of customers’ waste and reduced use of plastic bag to minimize the adverse impact on the environment. Woolworth’s holding limited is a member of SEDEX the supplier ethical data exchange, an innovative web based platform (Woolworths, 2015). It helps to ethically manage supply chain risks and challenging process of engaging with multi-tier supply chain of the company.
An organizational function is core process and a set of activities, which are to be carried out with a department of business. Common functions of Woolworth’s include operations, human resources, marketing and finance. An operations function of Woolworth’s limited supports the supplier and customer to reduce the waste and driving sustainability (Clegg et al., 2015). It uses its own distribution center to produce bulk quality and reduce cost.
Marketing functions is a key strength of Woolworth’s. Their broader marketing strategy increases the aware customer base for Woolworth’s limited with the use of newspaper, television and magazines (Harford et al., 2012). Health promotion programs are managed by Woolworth’s through its marketing campaign. Human Resources functions, their people intent continue to establish an employment value, which continues to engage, attract, and retain the best talent in the Woolworth’s limited (Colin, 2012). Many types of training programs are conducted by the Woolworth’s to increase the efficiency level of the employee.
In addition to normal financial functions, Woolworths is involved in financial risk management functions to safeguards the credit risk, liquidity risk, interest rate risk, and foreign exchange risk through group treasury functions (Hill et al., 2016).
Woolworths Limited is one of the most trusted brands in Australian retail industry. From this report it can be concluded that, the organization follows conglomerate structure for maintain flexibility and fluidity in working process. The company faces intense competition due to easy availability substitute products and services but is able to exercise cost leadership as a result of its well integrated supply chain and moderate bargaining power of its suppliers. The organisation is exposed to many risks from its external environment. However, economic risks like 2008 financial crises and legal risks related to labor and tax laws critically impacts its workings. Moreover, it was found that Woolworths has adopted positive business practices related to waste management, water management and other environment friendly programs that not only reduce its environmental impact but also helps in saving costs and resources. Also, the company has in place well structured programs related to different functional areas that make it efficient and effective in delivering organisational objectives.
From the above report, it is recommended that Woolworth’s should improve their organizational structure so that complexity between the different levels of functions is reduced. Woolworth’s should also adopt a social media strategy to take advantage of low-cost promotional activities of the organization (Kaplan and Haenlein, 2010). It is recommended that the company should improve its CSR activities to reduce its environmental footprint. This in turn will help in improving its goodwill and enhancing its brand image. Woolworth’s should introduce some nationwide program to support recycling of waste by providing recycling facilities. Additionally, it should improve its supply chain management with the help of SEDEX that is helpful to manage its supply chain ethically and build better relationship with suppliers.
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