The strategic analysis report critically analyzes the basis for the achievement of a higher growth and performance level by Wesfarmers in the company’s multiple operations. The organization uses a Strategic Information System and offers special attention on its external and internal environmental factors while primarily focusing on employee positivity and customer satisfaction, with an aim of increasing customer loyalty and improving shareholder satisfaction. Systems can provide cheap services and products which are varied and focused on specific segments of the market or pioneering. Strategies for business are implemented by strategic information systems since the systems contain resources which can be applied to strategic business opportunities and information services in order to enhance the performance of an organization’s computer system (Ciborra, 2009).
Generally, strategic information systems evolve in response to the corporate initiative, with the idea coming from businessmen and Operational Information Services which were responsible for the supply of the technological potential for the realization of profitable results (Galliers & Leidner, 2014). Most systems support business activities by mechanizing operations for greater control and efficiency, although they may not increase business profitability. The systems are easy to use and offer valuable information to the management for the smooth running of the business, and can also be used to find new directions in the analysis plan. Strategic Information Systems are a vital and integral part for any business, and affect the profits and market share directly, including Market Square aspects so as to increase profitability. The systems can also bring forth new ways of doing business and can introduce new markets and new products. Additionally, Strategic Information Systems directly affect the competitive position of the organization which can present a competitive advantage (Willcocks, 2013).
Started in 1914 as Western Australian Farmers’ Cooperative, Wesfarmers is a leading 102-year-old retail company in Australia which has currently grown multilateral through the domination of the New Zealand and Australian retail markets (Broadley & Martin, (2017). The organization has operations in energy and fertilizers, coal, industrial and safety products, departmental store, convenience store, office supplies, liquor, hotels, supermarket business, etc. According to Broadley & Martin (2017) the organization has 500,000 shareholders and over 220, 000 employees across New Zealand and Australia, and focuses primarily in the development of a committed, loyal and trustworthy relationship with its shareholders, and provides high value to them. Functioning with complete integrity and honesty and with an emphasis on environmental protection, the company largely contributes to the overall prosperity and growth in the countries it operates and has a high potential for growth in future. Wesfarmers completely devotes itself towards its employees by providing them with the best working environment, and through the provision of a positive reward system and opportunities for advancement.
Political
In the Australian retail industry, the political factors usually have a large impact. According to Akbar & Ahsan (2014) increase in the domination and growth of business in large Australian retail markets have stiffened the competition for other minor retailers. In an attempt to control the market, the government has formulated policies and laws restricting monopoly and protecting the rights of the shareholders. Additionally, the federal government has implemented similar decisions including the coal industry’s lucrative perspective, and the removal of interest rate barriers on electricity, which has favored the company.
Economic
An organization’s economic factors which include inflation rate, exchange rates, and interest rates can greatly affect an organization’s growth. Importantly, the service sector plays a vital role in the Australian market, with a contribution of 71.1 percent to the country’s GDP (Eichengreen & Gupta, 2011). The Australian market’s economic condition has greatly affected the performance of the organization with respect to the demands of consumers and their behavior of buying goods and services. The 2009’s global crises affected the behavior of the market consumption which led to a reduced disposable income of consumers (Rudd, 2009). Wesfarmers’s insurance market can enjoy a position which is more profitable in the Australian market since service and finance are Australia’s important service organizations.
Social
Wesfarmers is a major employer and has a high number of employees and shareholders. The company’s acquisition of Coles Group has enabled the company to target a larger population. According to McGraw & Dabski (2010) Wesfarmers takes many initiatives in Corporate Social Responsibility (CSR) and has strategies for engagement and employment with the people of Aboriginal and Torres Strait Islander.
Technological
Across Australia, technology has been playing a vital role for business success. in order to survive in the high competition, companies usually invest in smart store through ‘one shop’ and through the application of improved technologies. By integrating the technologies, organizations are able to maintain a competitive edge in the industry.
Environmental
The portfolio held by Wesfarmers across the entire retail industry portfolio has maintained conservation measures for the protection of the environment. Additionally, the company has invested in technologies which assist in the prevention of the wastage of resources, adequate water usage, and in the improvement of the resilience of climate change. Therefore, adequate and efficient standards have been put in place to prevent damage to the environment.
Legal
Legal implications in the emission of carbon have restricted the production of goods by various companies including Wesfarmers across Australia. Carbon Tax and other forms of taxation have affected the production and performance of Wesfarmers.
Wesfarmers operates in the retail business industry hence the bargaining power of buyers is significantly high. With the presence of other close competitors e.g. Woolworth, customers have alternatives from which they can choose to pu8rchase their products. The availability of substitutes improves the bargaining power of buyers.
Bargaining Power of Suppliers
In the retail industry, buyers have a moderate bargaining power (Mishra, 2008). As an important aspect of sourcing for the right goods and services, Wesfarmers maintains a respectful; and committed relationship with its suppliers in order to maintain long-term collaboration.
In the Australian retail industry, threats of having new retailers entering the market are low since big companies like Wesfarmers have multiple-operations, high technology, and a diverse portfolio hence making it hard for new entrants to survive in the industry. Consequently, new entrants do not pose a big threat to Wesfarmers as they do not have experience and usually operate in minimal economies of scale.
Industry Rivalry
Wesfarmers faces moderate competition from existing organizations which it mitigates through the provision of good customer service and a wide range of products at a cheaper price. The company is working towards integrating strategies for the improvement of customer centricity with programs for customer engagement.
Threat of Substitutes
Products in the retail industry are used for regular consumption hence available alternatives are minimal. Therefore, the substitute products threat is very low for Wesfarmers since consumers usually consume items they have been using without many choices and with little variations.
Competitive Environment
Wesfarmers faces fierce competition from Woolworths Group Australia which is a major Australian company operating in the retail industry and has extended throughout New Zealand and Australia (Richards, Lawrence, Loong & Burch, 2012). Woolworths has a high financial basis since it is the second largest Australian retail company. To sustain a market presence, the organization uses the price war strategy to mount pressure on its arch-rival, Wesfarmers. The organization presents a big threat to Wesfarmers since it provides an alternative from which consumers can purchase their products.
Opportunities
The organization has an opportunity to enhance its profitability and revenue. Since it is widely recognized, entering international markets beyond New Zealand and Australia would be easy. Additionally, the organization can improve the quality of services offered to customers hence achieving customer loyalty. Moreover, the consumers’ income is increasing constantly hence expenditure on retail products is expected to increase.
Threats
In Australia, raw materials’ cost is increasing which affects the financial status of the company. Furthermore, the high competition from close competitors like Woolworth, Myer, MetaCash Limited, has presented a high threat to Wesfarmers.
PART 2
The Firm’s Resources, Tangible and Intangible
Wesfarmers’ resources are classified either as intangible or tangible. According to ?ater & ?ater (2009) tangible resources are assets which can be quantified and observed such as formal reporting structures, manufacturing plant, equipment, and production. Tangible resources at Wesfarmers include furniture, machinery, computers, vehicles, land, and buildings. The total value of tangible assets in Wesfarmers is valued at 39.8 AUD (Taylor, 2018). The tangible assets have presented a good opportunity for the organization to earn economic benefits through distribution, provision, and production of goods to their customers. All the tangible assets of the company can be purchased or rented to other parties under agreed terms and therefore they are valued at a different cost as some machines are likely to depreciate over time. The assets can also be sold in case the organization plans to improve the cash flow of organization or acquire a loan from financial distributions as they catalyze the market value organization
According to Surroca, Tribó & Waddock (2010) intangible resources are assets that have deeply rooted in the history of the firm and accumulated with time and they are embedded in unique patterns and routine. The intangible resources for Wesfarmers include softwares, patents, customer loyalty, brand names, copyrights, and licenses. In Wesfarmers, the company’s brand name is the most valuable intangible assets, which has been a vital tool for the organization to generate high profits and revenues over time. The other intangible resources of the organization include goodwill and intellectual property, which have an assigned market value based on their benefit from economic expectation. The total intangible assets of the organization are valued at 19.3 AUD and all assets cost of the company are amortized. These intangible resources are very difficult for Wesfarmers’ competitors to analyze as things like ideas, trust between employees and managers, knowledge, organizational routine, capabilities of managers and innovation capabilities are undeterminable.
Resource capabilities are known as complex patterns of skills utilized in an organization in order for it to achieve the desired result. One of Wesfarmers’ key capabilities is cost efficiency. According to Sheth, Sharma & Iyer (2009) in the retail industry economies of scale are beneficial in marketing, distribution, and products manufactured by diverse companies within the industry. Wesfarmers has thirty percent of its market share strategically influencing cost through the scale of economies and the experience effect (Jie & Gengatharen, 2018). Despite large volumes of sales, Wesfarmers also have the ability to spread its overheads, labor specialization and strong bargaining power. With a high volume of sales as compared to the majority of its competitors, Wesfarmers benefits from the technology-driven learning environment, better use of equipment and resources, improvements in labor efficiency, specialization, standardization and an experienced curve.
Wesfarmers also has capabilities of cost and effective leadership and differentiation that have given the organization great rewards. According to Clardy (2008) achieving cost leadership and differentiation at the same time leads to lower prices with premium prices. Therefore, Wesfarmers generates high profits and have capabilities of investing more and diverse financial resources into one strategic capability. Furthermore, Wesfarmers acquires a competitive advantage from this ideal position as skilled employees also generate high revenues due to thorough training provided by the company. Wesfarmer’s capabilities of innovating and flexibility while adapting to the changing environment have increased market size and emerged to be a key sustainable comparative advantage.
The core competencies of Wesfarmers are based on customer service, product, and range. The organization emphasizes on its customer-friendly environment and logistics by providing the employees with effective training on how to enhance customer satisfaction and appropriate leadership that will make sure what is trained is implemented. Furthermore, the relationship between Wesfarmers with the suppliers has advanced to supply chain management from old-based procurement with a change in power balance as retailers have become stronger. Management system implied to the organization has driven production lines and suppliers to carry stocks. Evaluating from the supplier side, this has been a regular relationship which is unique. Therefore, the capability of cost leadership and skilled employees meets relevance core competency test. According to Grindley (2018) relevance core competence gives customers something strong, which influences them to choose a product of an organization.
Concerning the core competence of providing the best product ranges through innovation, Wesfarmers has control over its supplier’s New Product Development (NPD) with integrated supply chain management assisting in direct innovations towards untapped market segmentation with its supplying networks making firm flexible to changes in markets. Therefore, the capability of innovating new products meets the “difficulty of imitation” core competency test. Difficulty in imitation test allows the company to provide products that are better than its competitors since the company is continually working on products to sustain competitive position by improving skills.
Concerning the core competence of improving product value, Wesfarmers focuses on making a high volume of sales for it to benefit from experiential learning and purchasing buying power as it will assist in unit costs reduction and price reduction without interfering with unit margins. Indeed, Wesfarmers are combining perceived value added products with low prices and manages its capabilities and resources by understanding customer values and needs with a low-cost base which allows a large volume of sales with reinvestment profits to develop differentiation sources. Therefore, the capability of cost-effectiveness meets the “breadth of application” core competency test. The breadth of application test opens a better number of potential markets such as market size (North & Kumta, 2018).
Enterprise Resource Planning (ERP) will provide a suitable solution to the internal, external and competition challenges that the company is currently facing. ERP offers advanced synchronized automation and reporting which helps in monitoring the resources of the company and provides visual databases in comparison of previous reports hence determining the company progress. Despite the system being costly, it meets all customer needs as it tracks sales orders automatically flowing into financial system hence maintaining a clear record of customer orders and deliveries. Furthermore, the system ensures that order management department process orders for customers more accurately and quickly and therefore the finance department can close books and ascertain the profit margin of the company (Kasemsap, 2018). However, the ERP system is likely to provide internal solutions and therefore I will recommend the organization also to implement the EPSOS information system that will allow business to see the products that are in demand in the external environment and what complaints from customers so that they can improve on customer needs. Furthermore, the EPSOS system can print out vouchers and receipts for customers and it is linked to the website of the company where customers can address their needs and complaints (Critchlow et al., 2018).
Conclusion
The report has identified Wesfarmers’ strategic implications that have resulted in its high performance in different sectors in which the company has its presence. The company has a massive customer base and diverse portfolios that have promoted its success and popularity. The internal analysis has vividly pointed out that the strengths outweigh the weaknesses and that is the main reason why the company is generating high revenues. The general and industrial environment using micro-level factors impacts the company growth as well as fluctuation across the different portfolios. The resources and capabilities the company holds are sufficient when utilized appropriately to enhance customer satisfaction. The adoption of both ERP and EPSOS systems are the solution to the challenges of the organization.
References
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