Discuss about the Strategic Management of Woolworths.
Strategic management refers to the formulation and the development of specific objectives that are carried out by an organization in order to achieve the competitive advantages. Strategic management is based on the resources of an organization and the assessment of the external and internal environment of an organization (Wheelen & Hunger). This study deals with the different aspects of strategic management such as strength, competitive advantages, leadership, organizational structure and resources in the context of Woolworths. Moreover, the strategic position and current strength of this organization will be addressed through Porter five forces, model, value chain analysis and 7 s framework in this present study.
Woolworths is a well known Australian supermarket offers a verity in the grocery. They offer online grocery and food service to the customers. The vision of such organization is to make their business financially strong and secure. However, Woolworths provide financial security to their employees and their immediate families. The mission is to provide value to their customers and to provide quality service, which can satisfy their consumers. They aim to build customer oriented service and store-led culture. Apart from these developing sustainable sales in their business is also a part of their mission (Wecu.com.au, 2017).
Internal strength of an organization refers to the internal components such as capabilities of an organization, competitive advantages, structure, resources, and system of an organization (Ibscdc.org, (2017). In the context of Woolworths, they have strong resources includes 180000 employees, 3000 stores, and well-designed logistics and innovation skills. Therefore, this organization has started their business from 1924, which ensures that they are capable to incorporate right person in their business and they are able to utilize their resources properly. They use their strength to gain competitive advantages. The competitive advantages of Woolworth have developed through their supply chain. The main focus of Woolworths is to cut the cost in order to mitigate the unnecessary expense and to maximize the efficiency of staffs. Development of the slogan “The fresh food people” by Woolworth has improved their brand image as it ensures the consumers of providing healthy food with reasonable price.
The innovative idea of Woolworth as for example, the “re-fresh” is another internal strength of their organization to compete in the global market. Vertical integration of Woolworths with its supplier through the development of own input increases their market power. In order to get success from the competitive strategies, it is necessary for the business organization to make their strategy based on the sources of competitive advantages (Rees & Smith, 2017). One of the distinct competitive strategies of Woolworths is to provide assurance about the quality and freshness of their products through the excellent management of their supply chain. This strategy of Woolworths makes them unique from the other retailers in the Australian supermarket. This strategy of the competitive advantages makes Woolworths different, which enables them to obtain the unique market position in the Australian supermarket chain.
Porter competitive strategies are used to evaluate the generic strategies regarding an organization. In the recent year, Woolworths has been facing the threat of new rivalry in the supermarket such as Aldi and German retailer Lidl. In order to mitigate the power of such rivalry, Woolworths needs to obtain competitive strategies.
The current position of an organization highlights on its profitability whether it is below or above of the industry average (Simões & Sebastiani, 2017). Porter competitive strategies include cost leadership, cost focus, differentiation, and differentiation focus. However, by using cost leadership strategy Woolworths will be able to become a low-cost producer in the retail industry. Through this strategy, this organization will be able to get all the sources of cost advantages, which enable them to gain sustainable development in the cost leadership.
The differentiation strategy allows the organization to be different from the other organizations by providing unique product or service (Patel, Guedes & Pearce, 2017). However, Woolworths makes itself more competent through its unique product quality freshness of their product. Hence, by applying such strategy this organization will be able to ensure their significant characteristics for which the buyers are interested to pay for their products.
Focus strategy is another component of Porter’s competitive strategy, which enables the organization to concentrate in particular component such as particular product or particular market segment (Rowlands & Iles, 2017). In order to gain competitive advantages, Woolworths needs to give their concern towards their product or market or technology. Woolworths is famous for their product quality. Hence, by following this strategy they will be able to understand the demand of the current market and the evolving technology that are essential to obtain competitive advantages. However, the focus strategy is categorized into cost focus and differentiation focus. Cost focus will allow the firm to get cost advantages in its target market while differentiation focus allows Woolworths to make the differentiation in its target market.
Figure 1: Porter Generic strategies
(Source: Rowlands & Iles, 2017)
Porter value chain analysis model is useful to understand the value chain of Woolworths
Primary activities
Inbound logistic
Inbound logistic refers to the relationship between the suppliers and the organization consists of the activities from receiving to disseminate the product (Chan, Ngai & Moon, 2017). Woolworths use own distribution center and take products in bulk in order to get the discount from the supplier and to reduce the cost price.
Operation method
Operation process involves the transformation of input to output, which is delivered to the consumers (Johansson & Kask, 2017). Woolworths have their own farmers, as a result, they can supply fresh foods to their customers with reasonable rate.
Sales and marketing
Sales and marketing include the process through which an organization is able to motivate their clients towards their service by establishing effective communication with them (Peppard & Ward, 2016). This allows them to resists their clients from going to their competitors. Woolworths expands huge amount in their marketing, which increases their brand awareness in the customer domain.
Outbound logistic
Outbound logistics deliver the products towards the customers through the collection, storage and distribution procedures (Flax, Bick & Abratt 2016).Woolworths uses in store process of vendor management to deliver their products as it keeps the products fresh.
Nature of service
Service includes the process to maintain the value of the products after it is purchased by the consumer (Kim & Gray, 2017). Woolworths follows refined policy and trolley mounted scanner that reduces the waiting time of their customers while purchasing the products.
Support Activities
Woolworths has strong human resources in their Australian sector, which includes a large team in their organization. Firm structure is another aspect of support activities that ensure the strength of an organization (Dapiran & Kam, 2017). Woolworths follows hybrid framework in their organization that enables them to share their mission with their employees in order to take the proper decision regarding the service. Apart from this, it is crucial for Woolworths to cope up with the changing technology to compete and mitigate the power of rivalry in the global market as technology is vital to develop the existing system and improvement of service.
Figure 2: Porter value chain analysis
(Source: Dapiran & Kam, 2017)
The 7’s framework describes the way through which an organization is able to organize their firm. There are seven elements in this model which focus on the appropriate designing in an organization.
Demographic segment
The demographic segment focuses on the characteristics of the population and the general environment (Dapiran & Kam, 2017). However, in the context of Woolworths, the characteristics focus on its system of such organization that includes a hybrid structure. On the other hand, the geographic distribution and income distribution is also undertaken under this segment. Woolworths has a huge number of brands worldwide that ensures its geographic distribution.
Economic segment
Economic segment refers to the economic condition of an organization in which the organization is able to compete in its near future (Chan, Ngai & Moon, 2017). However, the economy of the Australia is not good as rising cost of the fuel is a big factor that affects its economy. Hence, inflammation, interest rate, trade deficit, budget deficit and the investment rate are undertaken in this segment. However, due to rising cost the investment rate is high in context of Woolworths in the Australian market.
Political and legal segment
Political and legal segment the interest group and the organization compete to get attention of the individuals (Dapiran & Kam, 2017). However, the operation of Woolworths in the Australian market is influenced by the government regulation and the government is also influenced by the business regulation of certain organization. Hence, it is important for such organization to follow the government rules to carry out their business operation without any legal issue in the Australia.
Socio-cultural segment
Socio-cultural segment focuses on the attitudes of people from the different societies and the cultural values of them (Kim & Gray, 2017). However, Woolworth has established their business in the different segments of Australia. Hence, the changing style of consumers and the behavior of the consumers from different classes is a big factor, which influences their business strategy and the product diversification.
Technological segment
Technology focuses on the rapid enhancement of the technology that introduces new features in the product out to improve the quality of product (Rowlands & Iles, 2017). However, Woolworths has adopted new technology to improve their system and operation process as well as the quality of the product. Woolworths has faced issues in their IT system after that they have implemented leaner operating model in their IT system that is an effective approach of such organization as this model makes the system stable.
Global segment
Global segment highlights on the global market and the existing competitors (Simões & Sebastiani, 2017). This segment identifies that Woolworths is able to survive in the competitive market where the customers and the competitors are global. Competitors are no longer be domestic and the customers have changing demand as awareness has been increasing among them regarding the global product. Hence, utilization of the rapid technology is an effective approach to cope up with global challenges.
Physical environmental segment
This segment refers to the environmental sustainability (Rowlands & Iles, 2017). Changes requires in the business practice in order mitigate the issues regarding global warming, and energy consumption. Hence, Woolworths needs to change their existing business practice to decrease such physical issues.
PESTLE analysis is beneficial to carry out the industry analysis in the context of Woolworths.
Political environment
The political environment is based on the stability of the government within a country (Price, 2016). However, the Australian government has a great impact on the supermarket regarding legislating the trading hours. Therefore, Woolworths has to maintain the rule of Trade Practice Act and Australian Competition and Consumer Act in order to avoid any legal issue in their business otherwise the company will be forced to change their operational process in this country.
Economic environment
The slow growth in the Australian economy is a big threat for the retail sectors in the recent years (Dapiran & Kam, 2017). However, if this situation prevails for a long time then it may prohibit the growth of the retailers in the Australian market. On the other hand, the rapid unemployment and the rising price of fuel will bring another threat for Woolworths in the Australian market.
Social environment
Changing lifestyle and attitudes of the consumers leaves a great impact on the Australian supermarket (Ahsan & Rahman, 2016). People are too much health conscious in the current years and they want healthy food, which is easy to cook. Keeping this mind Woolworths and other retailers try to innovate new features in their products to attract the customers.
Technological environment
Technology has been changing rapidly in the Australian market, which needs to be adopted by the retailers to obtain the competitive advantages (Pandey, Singh & Pathak, 2016). Woolworths has adopted new technology as for example, Global Electronic Marketing and Merchandising Network (GEMM net) has been obtained first by Woolworths. This technology enables Woolworths to develop their online marketing through website and it also a cost saving process.
Legal environment
Legal requirements are crucial for the organization that they have to maintain (Li & Luo, 2016). In Australia, Woolworths has to follow the rules of the Commonwealth Government in order to carry out their operation without any legal issue.
Environmental norms
An environmental norm means the maintenance of the sustainability of the environment (Reimers & Scheepers, 2016). Woolworth needs to adopt the CSR activities in their business to keep the sustainability of the environment as it is a prime area to enhance the business by maintaining the hygienic requirements.
Porter five force model is vital in order to understand the structure of an industry and its competitive strength in the global market (Simões & Sebastiani, 2017). In the context of Woolworths Porter’s five force model will be beneficial to understand the competitiveness of such organization in the Australian supermarket.
Bargaining power of the consumer
Supermarket of the Australia offers similar products with the low price that increases the bargaining power o the consumers (Burke, van & Thurik, 2016). Hence, the bargaining power of the customers in the Australian market is high that often forces the organization to change their product price. However, keeping this in mind Woolworths offers the quality product with reasonable rate to resist the bargaining power of the customers. On the other hand, such bargaining power of the buyer often affects the profitability of the business as the organization has to decrease their product price in order to compete in the market.
Bargaining capacity of the Supplier
Bargaining capability of the supplier leads the organization to face high cost during the input process of their production (Pandey, Singh & Pathak, 2016). However, in the Australian market, the bargaining capacity of the supplier is based on the brand and the size of the Australian supermarket. Hence, Woolworths has to face high bargaining power of the suppliers, which may increase the operation cost of such business.
Threat of new entrants
Entry of the new player in the existing market is a big challenge for the retailers (Ahsan & Rahman, 2016). However, in the Australian supermarket, the price is low and the government has strict regulation, thus it is difficult for the new organization to get the quick entry in the Australian supermarket segment. This leads Woolworth to get the competitive advantages in Australian retail industry. On the other hand, in order to establish own distribution center by the retailers needs the partnership working with the new entrants that may bring a threat for such retailers. Apart from this, the threat of the new entrants in the Australian retail industry is moderate in nature.
Rivalry between the existing competitors
A strategy that is taken by the existing competitors is a concerned thing for the retailers in the Australian supermarket segment (Price, 2016). However, Aldi and Lidl are the main competitors of Woolworths. Hence, such rising organizations may bring new challenges for Woolworths in their business operation.
Threat of the substitutes
Consumers prefer to pay the high price based on the availability of the products (Ahsan & Rahman, 2016). However, in the Australian supermarket, people buy products with the high price if they get it from the nearest store of their residence. On the other hand, sometimes online marketers offer similar products with the low price that have resemblance with the product of a well-known organization. That brings the threat for the Woolworths in the Australian supermarket. Many small stores offer alternative products with the very low price that affects the business of the popular organization.
Figure 3: Porter Five force model
(Source: Ahsan & Rahman, 2016)
The entire analysis of the above-taken model will enable people to understand the structure, system, operation process, external environment and the competitive advantages in the context of Woolworths. However, the value chain analysis model highlights on the operation and the logistic process of the organization (Price, 2016). This model will enable Woolworths to identify the issues in their logistic process and the operation process thus they can take necessary steps to resolve the issues. On the other hand, the 7’s model includes the demographic segment, technological segment, physical segment and son on to analyze the organizational environment of the Woolworths. Analysis of such model focuses on the external factors that influences the business of such organization. Therefore, the PESTLE analysis reveals the industry analysis, which highlights the macro elements of Woolworths. Hence, analysis of the external environment will allow the organization to carry out a proper market research before launching new products in the market. This also enables them to understand the present market demand and the government rules regarding any service through this analysis Woolworths will able to carry out a safe business operation in the Australian market. Apart from this analysis of the Porter Five force model reveals the threats of the Woolworths in the Australian supermarket. Evaluation of such model enables Woolworths to understand the ways through which they can gain competitive advantages in the Australian supermarket segment. This model is also beneficial for such organization to identify the present challenges, which is essential to develop the new strategy to cope up with such challenges.
To offer reliable and consistent customer service
Achieving competitive advantage is the major issue for the retailers in the global market. Hence, providing reliable and consistent service to the customers will be effective for Woolworths to enhance the customer loyalty for a long time.
Keeping the cost down
Rising cost of the operation cost and the customer service cost affects the business. Hence, it will be beneficial for Woolworths to use human capital analytics to cut the cost of their operation to achieve sustainable growth in business.
Reduction the high turnover
Rising price of fuel and huge turnover of the employees are the big factors that affect the business of the retailers in the Australian supermarket. Hence, by enhancing the employee engagement and providing job security Woolworths will be able to retain their employees for long period.
Comply with the government law and proper market research
Compliance with the legal requirements can be effective for Woolworths to operate easily in the Australian market. Therefore, proper market research will enable them to keep updated information regarding the new entrants and the strategic position of the competitors.
Conclusion
The above study reveals the strategic position of the Woolworths in the Australian supermarket segments. Hence, PESTLE, Porter five force analysis, 7’s model and value chain analysis focuses on the strength, weakness of the current organization system and emerging threat in the market in the context of Woolworths. However, more employee engagement and the market research will enable such organization to achieve competitive advantages and sustainable growth
References
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