Environmental Forces Affecting B&Q In The UK - Essay Example

? Environmental forces affecting B&Q in the UK Table of contents 0 Introduction 3 2.0 Part A Identify the various environmental forces affecting B&Q and explain their impact: external Macro forces (PESTEL). Internal micro analysis: strengths, weaknesses (finance, staff, marketing, operations) of B&Q 3 3.0 Part B Formulate a strategy that will enable B&Q to respond and prosper in its changing environment. Which external opportunities should it seize and which external threats should it counter? 9 4.0 Conclusion 13 5.0 References 15 6.0 Appendix 17 1.0 Introduction The growth of firms operating in highly competitive markets can be secured only if appropriate strategies are developed for controlling external environment. In the literature the power of an organization’s external environment to influence the organizational success is highly emphasized. Current paper focuses on the performance of a major competitor of UK’s home improvement retail industry: B&Q. The particular organization has achieved to acquire a large share of the particular market, as analyzed below. Still, concerns exist in regard to the firm’s ability to keep its profitability high in the long term. The firm’s macro environment has been reviewed and evaluated using an appropriate strategic management tool, the PESTEL analysis. At the same time, an internal micro analysis has taken place for checking the potentials of the organization to manage risks related to its daily operations and to stabilize its profitability. It has been made clear that the power of B&Q to achieve a long term growth cannot be guaranteed, especially since the UK economy is not stabilized. A strategy is proposed for helping the organization to face the external forces related to the particular market and to respond to the needs of its changing environment. 2.0 Part A Identify the various environmental forces affecting B&Q and explain their impact: external Macro forces (PESTEL). Internal micro analysis: strengths, weaknesses (finance, staff, marketing, operations) of B&Q In order to understand the environmental forces that affect B&Q it would be necessary to understand the characteristics of these forces, as they are related to the operations of the particular organization. In general, the term macro-environment is used for describing a firm’s “external forces and agencies” (Reynolds and Lancaste 2012, p.32). The most popular strategic tool for evaluating a firm’s macro environment is PESTEL analysis (Cunningham and Harney 2012). When using PESTEL analysis for explaining a firm’s macro environment it should be necessary to take into consideration the following fact: not all parts of this framework will equally influence the relationship between the firm and its external environment (Cunningham and Harney 2012). Reference can be made to the following example: for pharmaceutical firms patents will have a key importance for measuring these firms’ potentials to face their external forces (Cunningham and Harney 2012). In the case of firms operating in the services industry emphasis should be given on demographics, as a factor that will influence the relationship between these firms and their external environment (Cunningham and Harney 2012). The PESTEL analysis refers to the macro environment of organizations. It should be noted that the particular framework helps to identify the factors that affect “the whole economy and not only a particular organization” (Bowhill 2008, p.331). In the context of the PESTEL analysis the macro environment of B&Q could be analyzed as follows: a) Political; the political environment of UK is quite stable. The current government has tried to enhance the stability of the economy by keeping inflation low, at least compared to other countries (Wood 2011). It should be noted that no threats seem to exist for potential turbulences in the UK political sector (Wood 2011). As a result, B&Q would not be threatened by the specific element, i.e. the political framework, of its macro environment. Still, the challenges that the British economy has to face should be thoroughly reviewed; b) Economic; Britain has been traditionally a key player in the global market. Up to 2008 the country’s economy was considered as one of the most powerful around the world, a term that has changed since the appearance of the recession of 2008 (Wood 2011). In fact, for 2008 “the decline in the UK economy has been estimated to ?45.5bn” (Wood 2011, online article); the recession of that year is considered as the key reason for the above phenomenon. Moreover, it has been proved that the above decline has been related to the significant limitation of profits in the property sector, a critical sector for the British economy (Wood 2011). In December 2012, the HM Treasury published a series of forecasts, 26 in total, for the UK economy (HM Treasury 2012). These forecasts indicate the potentials of the British economy for growth from 2013 onwards (HM Treasury 2012). Table 1 in the Appendix section shows the average figures of these forecasts. It should be noted that the particular forecasts have been produced “between December 1st and December 12th of 2012” (HM Treasury 2012, p.3). According to the issues discussed above, the British economy would not be a threat, at least not a severe one, for B&Q. It seems though that the pressures on the UK economy, which will continue to exist in 2013, can cause delays in the growth of B&Q especially if the latter will not seek for strategies for enhancing its competitiveness; c) Social; the specific element of the firm’s macro environment is highly influenced by the status of the local economy. It should be also noted that the crisis of 2008 increased the gap between high and middle social classes (Mail Online 2012). People who tend to spend more on home improvement are those of middle social class (Mail Online 2012). The specific social class represents the high percentage of population. The crisis of 2008 has severely affected the income and the spending potentials of people with average and low income. It is probably for this reason that the profits of B&Q in 2008 and 2009 have been significantly decreased, as indicated in Graph 1 (Appendix). However, from 2010 a trend for stabilization and increase of the firm’s profits has appeared, a fact showing a return of consumers in UK and Ireland to the home improvement sector; d) Technological; B&Q is one of the brands of Kingfisher Group, a global retailer in the home improvement industry. This means that the funds necessary for keeping the firm’s technology updated can be retrieved, if such need appears. Indeed, for Kingfisher Group, the particular brand is quite valuable, especially since it is mainly through the profits of B&Q that Kingfisher Group is able to keep its competitiveness worldwide. The above view is reflected to the following fact: in October 2012 the Kingfisher Group decided to spend about ?60m for improving the online selling services of B&Q (Monaghan 2012). In addition, it was decided that the services of B&Q would be improved, in all their aspects, so that the competitiveness of the particular brand is increased (Monaghan 2012). In this context, technology, as an external force, would not threaten the position of B&Q in the British market; e) Environmental; B&Q is a firm that highly emphasizes sustainability. In fact, the firm has adopted an integrate strategy for controlling the effects of its operations on the environment. As noted in the firm’s website, measures have been introduced for reducing waste, for keeping carbon at low levels, for reducing the amount of water used across its facilities and for promoting the development of sustainable homes (B&Q, Environment and Ethics 2012). The amount of waste re-used by the company has reached the level of 57% (B&Q, Environment and Ethics 2012) while by 2023 the reduction of carbon dioxide emissions by 90% has been set as a key target of the organization (B&Q, Environment and Ethics 2012). It is made clear that the firm is able to face the environment forces of its environment effectively; f) Legal; In UK, businesses are highly supported by the state, due to their high contribution in the development of the economy; in this context, law supports businesses in all industries, under the terms that they respond to their taxation and ethical responsibilities (TNS-BMRB, 2011). It is expected that B&Q will be able to respond to the challenges set by the legal rules related to business activities in UK, so that law will be no threat for the firm’s market position. At this point, the internal micro analysis of B&Q would help to identify a strategy that would help the organization to achieve a high growth in the UK market. In the context of the internal micro analysis specific elements of an organization are reviewed. Emphasis is given on the organization’s strengths and weaknesses, as related to its “human resources, marketing, financial status and location of operations” (Havaldar 2010, p.28). According to Ghuman (2010) the internal environment of each organization includes those elements of the organization that are under “the full control of the organization” (Ghuman 2010, p.36). From a similar point of view, Stonehouse et al. (2007) note that the internal analysis of an organization would refer to the organization’s strengths and weaknesses as related to specific organizational elements, such as “resources, competences and global activities” (Stonehouse et al. 2007, p.31). The internal analysis of B&Q would be developed as follows: a) strengths: a1) the firm’s HR management strategies. The firm’s workforce in UK has been estimated to 30,000 people (B&Q About Us, 2012). Each store has a support office that aims to support employees in their daily communication with customers but also in issues related to employees’ personal development (B&Q About Us, 2012). The firm has also developed a graduate programme for offering to graduates across UK the chance to enter the organization (B&Q About Us, Careers 2012). The Youth Board is a scheme through which youngsters can be urged to participate in the firm’s operations nationwide (B&Q About Us, Careers, 2012). In any case, the firm highly values its employees and for this reason it has focused on their learning and development but also on the fulfillment of their expectations from the organization (B&Q About Us, Careers, 2012); a2) the potential of the firm to access the funds necessary for its operations its another of its strengths. As already noted, the firm is part of the Kingfisher Group, a major retailer in the home improvement industry. The Group is willing to provide a full financial support for its brand’s projects and needs. The example of the recent investment of the Group on the brand’s technological development was mentioned earlier, in the Technological sector of the PESTEL analysis; a3) B&Q already operates globally; apart from its “350 stores in UK, the firm has also 9 stores in Ireland and more than 60 stores around the world” (B&Q Company Information 2012, online article). The potentials of the firm to expand more are high. Because of the issues analyzed above the power of the firm in terms of geographical expansion is considered as one of its key strengths; b) weaknesses; The firm has also certain weaknesses: b1) it does not have important strategic alliances with firms in foreign markets, especially in the US and the Canadian market where the home improvement industry is highly developed, as analyzed below; b2) no alternative plans of action seem to exist in case of downturns in the UK economy; b3) innovation is not highly promoted, especially in regard to the firm’s HRM practices; b4) employees are not encouraged to participate actively in the firm’s strategic decisions. In fact, it seems that in B&Q a bureaucratic leadership style seems to exist. Appropriate actions should be taken so that the above weaknesses are eliminated, as possible. 3.0 Part B Formulate a strategy that will enable B&Q to respond and prosper in its changing environment. Which external opportunities should it seize and which external threats should it counter? Strategic managers in B&Q should develop a strategy for increasing the firm’s potentials to respond to the changes of its environment. When formulating this strategy, the firm’s strategic planners should take into consideration certain external opportunities but also a series of external threats. In regard to the firm’s external opportunities, emphasis should be given on the following facts: a) the future prospects for the home improvement industry in UK seem to be positive; following the increase of the specific industry in other markets, related to the UK market. Reference is made specifically to the US market where as an increase of the industry’s profits at least by 13% is expected for 2013 (Chapman 2012) and the Canadian market where “the value of the home improvement industry is expected to reach the C$6m by 2016” (Bodimeade 2012, online article); b) In addition, the economy of UK is considered to be one of the most powerful globally (BBC News 2012). Under the influence of the global crisis, the UK economy has declined, meaning the period from 2008 up to 2011 (BBC News 2012). From 2012 the British economy has showed signs of recovery (BBC News 2012). The prospects for the growth of the UK economy from 2013 onwards are significant (BBC News 2012), showing the potential increase of the profits of all businesses operating in Britain. On the other hand, the stability of the UK economy has been doubted (BBC News 2012). From this point of view, the position of the UK economy in the global market is considered as a strength, in regard to all businesses in the UK market; but the performance of the UK economy can be considered as a weakness, since it has been proved that the ability of the UK economy to face strong market pressures is not guaranteed; c) Particular reference should be made to the findings of the National Home Improvement Survey, developed in 2011. In the above survey a high percentage of the participants, about 84%, responded that “they plan to proceed to home improvement activities in the next 12 months” (National Home Improvement Survey 2011, online report). In other words, the home improvement industry in UK is expected to be improved, in terms of its profitability, a trend that follows the similar trends of the industry in other markets related to the UK market in the context described above. Apart from opportunities, B&Q has also to face certain external threats: a) UK economy is not stabilized. Despite the signs of recovery, as analyzed in the Economic element of the PESTEL analysis developed above, there are still risks that cannot be ignored. According to the figures of Table 1 (Appendix) the potentials of UK economy for growth from 2013 cannot be doubted; still, it seems that this growth will be slow, mostly because of the severe financial turbulences in the global market. The challenges that the UK economy faces due to the global recession are made clear through the Table 2 (Appendix). Moreover, it seems that the pressures on the UK economy will continue to exist in 2013, as indicated in the forecasts (average) presented in Table 2 (Appendix), where the changes on GDP in UK in 2012 are presented. Because of the above, the spending potentials of people across Britain may decline in 2013. More specifically, the increase of unemployment, as appeared in UK especially in the post 2008 period, and the increase of energy costs, also related to the global crisis, will influence the local population, meaning especially the consumer spending trends in Britain. Indeed, due to the increase of daily life costs, the amount spent on home improvement will be reduced, a phenomenon that it is already in progress across UK (Mail Online 2012). The firm should adopt a strategy that would allow people to prefer the firm’s products instead those of its competitors, not only because of the products’ quality but also of their prices, at the level that in periods of strong financial crises the price of a product/ service is the key criterion for preferring the particular product/ service; b) the recession in the global economy has not ended yet. If competition in the international home improvement industry is further increased, the potentials of the firm to compete should be high. Otherwise the position of the firm in the particular industry would be threatened, especially since the firm has not a strong network on strategic alliances globally neither it has emphasized on employee loyalty, as explained earlier in Part A. In other words, in the case of strong pressures from its rivals, the firm would not be able to seek for support neither to its internal nor to its external environment. Taking into consideration the issues discussed above, a strategy would be introduced for helping the organization to increase its potentials to respond to its changing environment. Such strategy should meet certain requirements. According to Saaksvuori and Immonen (2011, p.208) “modern business environment tends to change constantly”. In this context, it is necessary that any business strategy is highly flexible, being open to changes when necessary so that the business is able to respond to the demands of its environment (Saaksvuori and Immonen 2011). As of its content, each business strategy needs to be wide, incorporating schemes for all business processes and sectors, such as “product development, resourcing and IT” (Saaksvuori and Immonen 2011, p.208). From a different point of view Gershon (2009) notes that all business strategies need “to incorporate a vision for the future” (Gershon 2009, p.25). In other words, flexibility and variety of content are not the decisive requirements of a business strategy. If a business strategy does not incorporate a vision for the future, then its ability to help the firm to face future challenges can be strongly doubted, as also explained by Gershon (2009). It should be mentioned that the vision of a business should be appropriately fixed so that it offers a clear explanation of the ways in which the firm will be able to respond to its changing environment (Gershon 2009). According to Gershon (2009) a business strategy may have to be changed with no delay in case of triggering events, meaning those events related to “the firm’s competitive environment or those related to the firm’s internal environment and resources” (Gershon 2009, p.25). In regard to the development of effective business strategies, attention should be given to the following fact: even if a business strategy is carefully designed and implemented, it may be proved unsuccessful because of “strategic dissonance” (Williams, Champion and Hall 2011, p.108), i.e. because of differences between “the firm’s intended strategy and the strategic actions that managers have taken for implementing the strategy” (Williams, Champion and Hall 2011, p.108). Under the above terms, the suggested strategy should incorporate the following activities that would be developed gradually, meaning that each phase of the strategy would take place only if the previous phase has been successfully implemented, a fact that would be checked carefully in the context described above by Williams, Champion and Hall (2011): a) market research for identifying key strategic alliances both in the UK and the international market; b) discussions should be developed with those competitors that could help the firm to significantly increase its power both in UK and worldwide; c) the firm’s employees would be informed accordingly, so that they have the chance to state their view and make their suggestions; d) an integrate plan would be introduced for changing the employees’ role within organization. This plan would include provisions for the employees’ personal and professional development but also for their fair rewarding, according to their performance. The particular plan would also include innovative strategies for keeping employee morale high, such as arrangement of workforce events and employee meetings so that the views of employees in regard to the firm’s strategic choices are noted; e) strategic cooperation would be established with those competitors who would accept the firm’s visions and objectives but also its strategies in regard to business operations and employee relations; f) the entrance in new markets would be promoted, either through cooperation with local competitors or independently, taken into consideration the prospects of foreign markets, as identified through the market research phase of the strategy. 4.0 Conclusion The ability of an organization to face its external forces cannot be guaranteed. Even firms that are well positioned in their market may fail in responding to the demands of their macro environment, a fact that can significantly delay organizational growth. B&Q is a quite powerful organization. The firm operates in a critical industry: the home improvement sector. Until recently, the specific industry has been one of the most powerful of the UK market, especially because of the impressive growth of the country’s property sector. As explained above, the crisis of 2008 has influenced the performance of UK economy, as also of all economies worldwide. As a result, the potentials of B&Q to face its external forces have been decreased, as revealed through the PESTEL analysis employed in this paper. Still, the organization would be able to face the challenges related to its macro environment by focusing on the development of its resources and the expansion of its operations in the global market. In any case, the strategies employed should be characterized by flexibility, since the changes in the firm’s macro environment are continuous and unavoidable. 5.0 References BBC News, 2012. UK economy's return to growth gets cautious welcome. BBC News, October 25, 2012. Available at http://www.bbc.co.uk/news/business-20086872 [Accessed at January 3, 2012] Bodimeade, M., 2012. Canadian home improvement market to reach C$6 million by 2016. Companies Markets. August 14, 2012. Available at http://www.companiesandmarkets.com/News/Consumer-Goods/Canadian-home-improvement-market-to-reach-C-6-million-by-2016/NI4974 [Accessed at January 3, 2012] Bowhill, B., 2008. Business Planning and Control: Integrating Accounting, Strategy, and People. Hoboken: John Wiley & Sons. B&Q, 2012. Organizational website. Available at http://www.diy.com/diy/jsp/corporate/index.jsp [Accessed at January 3, 2012] B&Q, 2012. Environment and ethics. Available at http://www.diy.com/diy/jsp/corporate/content/environment_ethics/index.jsp [Accessed at January 3, 2012] Chapman P., 2012. US home improvement market to increase by 13%. Companies Markets. July 20, 2012. Available at http://www.companiesandmarkets.com/News/Consumer-Goods/US-home-improvement-market-to-increase-by-13/NI4470 [Accessed at January 3, 2012] Cunningham, J. and Harney, B., 2012. Strategy and Strategists. Oxford: Oxford University Press. Gershon, R., 2009. Telecommunications and Business Strategy: Industry Structures and Planning Strategies. 2nd ed. Oxon: Taylor & Francis. Ghuman, K., 2010. Management: Concepts, Practice & Cases. New Delhi: Tata McGraw-Hill Education. Havaldar, K., 2010. Business Marketing: Text & Cases, 3E. 3rd ed. New Delhi: Tata McGraw-Hill Education. HM Treasury, 2012. Forecasts for the UK economy: A comparison of independent forecasts. Available at http://www.hm-treasury.gov.uk/d/201212forecomp.pdf [Accessed at January 3, 2012] Mail Online, 2012. DIY gets the chop as we run out of money: Home improvement spending falls to the lowest level for 15 years. Daily Mail. May 7, 2012. Available at http://www.dailymail.co.uk/news/article-2140584/DIY-gets-chop-run-money-Home-improvements-spending-falls-lowest-level-15-years.html [Accessed at January 3, 2012] Monaghan, A., 2012. DIY group Kingfisher lines up ?60m fix for its B&Q chain. The Telegraph. October 16, 2012. Available athttp://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9610939/DIY-group-Kingfisher-lines-up-60m-fix-for-its-BandQ-chain.html [Accessed at January 5, 2012] National Home Improvement Survey 2011. Available at http://www.nationalhomeimprovementsurvey.co.uk/results2011.aspx [Accessed at January 3, 2012] Reynolds, P. and Lancaste, G., 2012. Marketing. London: Routledge. Saaksvuori, A. and Immonen, A., 2011. Product Lifecycle Management. New York: Springer, 2011. Stonehouse, G., Campbell, D., Hamill, J. and Purdie, T., 2007. Global and Transnational Business: Strategy and Management. Hoboken: John Wiley & Sons. TNS-BMRB, 2011. Home Repairs and Improvements: A Research Report by TNS-BMRB. A Report prepared for the Office of Fair Trading. Available at http://www.oft.gov.uk/shared_oft/markets-work/home-repairs/Research-Report-TNS-BMRB.pdf [Accessed at January 3, 2012] Williams, C., Champion, T. and Hall, I., 2011. MGMT. Belmont: Cengage Learning. Wood, L., 2011. Research and Markets: The UK Building & Home Improvement Products Distribution Market Is Expected To Recover and Show Growth in 2012, Reaching a Market Size of 44.5bn In 2015. Research and Markets. May 17, 2011. Available at http://www.businesswire.com/news/home/20110517005214/en/Research-Markets-UK-Building-Home-Improvement-Products [Accessed at January 3, 2012] 6.0 Appendix Table 1 – Forecasts for the UK economy (HM Treasury, 2012, p.3) Table 2 – GDP growth for the UK economy (HM Treasury, 2012, p.12) Graph 1 – Retail profit margin for B&Q in Ireland and UK (Source: Kingfisher group, Annual Report 2011/2012, p.4) Read More