The Application of Bowan's Strategy Clock Used To Assist Organization in Making Strategic Choices - Essay Example

Bowman's Strategy Clock in Strategic Choices of Organizations Introduction Achieving a competitive advantage over rivals is perhaps the most important business strategy that business houses wish to achieve. In almost every industry including the retail sector, competition among rivals is very high. According to the views of Michael Porter, there are primarily three different strategies that are employed by organizations, namely product differentiation, cost leadership and market segmentation (Smith, 2010). Michael Porter’s generic strategies have been widely debated over exact meanings of the terms proposed by him. It was for this reason that the strategic clock model developed by Bowman and Faulkner (1997) has been widely employed to describe ways in which a firm can have competitive advantage over its rivals (Martin, 2009). This paper selects Tesco, which is one of the largest retail marketing giants and explains its competitive business strategy by using the strategic clock model of Bowman. The first part of the paper elaborates on the chosen organization’s profile; the second part comprises justification of Bowman’s strategic theory; the last part explains ways in which Tesco has adopted Bowman’s strategic clock model; and finally, the conclusion follows. Organization Profile Tesco is the third largest retail store chain globally and the largest in Britain. The origin of the business can be traced back to 1929, when the first store was opened in Britain. In less than thirty years from commencing its operation, Tesco had become one of the most prominent food retailers in entire U.K. Since 1990s, the company had begun venturing out of U.K. as well as diversifying the products offered. Presently, the company operates in 12 countries across three continents, namely North America, Europe and Asia. During its initial days of operation, Tesco had focused on aspects of grocery retailing. However, with time, the business had expanded from food retailing to include a wide range of products and services. Some of the products and services offered by Tesco include retailing of electronics, books, clothing, petrol and furniture. The services offered include renting out of DVDs, financial and telecom services and internet services (Innovation Leaders, 2014). Tesco had showcased innovation not only in types of product offerings, but also by developing new concept of stores. Some of the diversified store structures that have been introduced by the organization over time include Tesco Metro stores specifically to meet requirements of local shoppers based in metropolitan areas; and Tesco Express, which is a petrol station based store for convenience of customers. The organization has also introduced innovative customer service products like, loyalty cards, for generating higher scope of business. The organization has even embraced online retailing in 2000 to increase customer base and raise revenue. The low-capital investment has been a major success from the beginning. As of 2008, online business of the company alone had generated sales of more than 700 million pounds, which accounts for 35 million pounds of the total profit (Tesco Plc, 2014). Strategic theory Business strategy has been defined as the strategies that are adopted by business organizations to gain competitive advantage over rivals (Porter, 1991). According to Ohmae (1982), business strategies are used as instruments in a competitive market for firms to compete with one another (Economides, 1999). There is a wide amount of academic literature relating to ways in which firms can achieve competitive advantage, namely works of Miles and Snow (1978), Porter (1980), Treacy and Wiersema (1993) and Bowman and Faulkner (1997) (Brown and Blackmon, 2005). The work of Bowman and Faulkner (1997) had presented an alternative view to describe the strategy in which a firm can obtain competitive advantage. The following diagram represents the eight different components of Bowman’s strategic clock. Figure 1: Bowman's Strategy Clock (Source: Voropajeva, 2012) Low Price/Low Value: This is not a very common practice among companies; but, is mostly followed by those who lack sufficient product differentiation and sell at a low price. Low Price: The rationale behind this is that a company charges low price to generate high volume of sales; this counterbalances small profit margins. Hybrid: This is akin to moderate price and moderate differentiation strategy so as to provide customers value for their purchase. Differentiation: This is done to ensure that customers perceive the products to be of high quality. Branding becomes an important part of this strategy. Focused Differentiation: This technique is used to convince customers that the quality of the product is high such that higher value can be obtained from them. Increased Price Standard Product: This strategy is unlikely to work for the company if customers are not convinced about the hike in price. High Price Low Value: This explains the situation of a classic monopoly, where consumers do not have many options. Low Value Standard Price: If value of a product produced by a company is not very high, then a standard price must be charged to sell the product (Faulkner and Bowman, 1995). The basic idea behind the model developed by Bowman is that competitive advantage can be achieved either by following cost or differentiation strategies. The model basically aims to understand needs of customers in order to provide them with superior quality products (Bowman and Faulkner, 1996). It can be said that Bowman and Faulkner had built their model as an extension of Porter’ model; but, the main variables considered in their model is price of the product and perception of value of the product by customers (Bowman, 2008). There are few elements of difference and similarities with Porter’s model. The major difference is that Porter had talked separately about cost leadership and product differentiation; whereas, Bowman’s strategic clock is about combination of both through parameters of price and value (Ysanne and Faulkner, 2006). The Low Price and the Differentiation strategy in the strategy clock are similar to cost leadership and product differentiation of Porter’s three generic forces. In developing their model, Bowman and Faulkner had clearly stated that following strategy 6, 7 and 8 will ultimately lead to failure of the firm (Johnson, Scholes and Whittington, 2008). Application of Bowman’s theory An organization can gain competitive advantage by making strategic choices based on the strategic clock model that has been developed by Bowman. In retail industry, competition is very high as there are a lot of options for customers to choose from (Jacobsen, 2011). For instance, WalMart, Metro and Carrefour, which are the biggest rivals of Tesco, offer almost the same range of products and have international presence. It can be implied that customers expect value for money for purchase of the goods made; and hence, companies can build strategies of competitive advantage based on strategies that are adopted by them. As has already been discussed in the previous section, combination of price and value can yield eight different strategies that have been proposed by Bowman. This section of the paper shows ways in which Tesco had adopted its business strategies based on the strategic clock model. Tesco operates over several geographies; this is why the company has to adjust with varying market conditions in different regions of operations. In the home country, highest competition comes from ASDA; while in the global market, Tesco has to compete directly with WalMart, Carrefour and even local retailers. In order to achieve dominance in the global as well as domestic market, the organization has successfully tailored its price ranges. Moreover, needs of the local markets have been kept in mind for the purpose of providing customers value for their products (Tesco Plc, 2012). On the home front, it has been observed that most products available at Tesco are either in the same price range of ASDA or cheaper. This had won loyal customers for TESCO and established them as a leading brand in the home market. TESCO have a wide range of product offerings that ranges from finest quality to value for money. Tesco offers lowest prices for a wide range of products to its customers. This is done with the purpose of increasing customers’ base so that individuals in middle and lower income segments of the society can feed their families at a low cost within their budget (Tesco Plc, 2014). Tesco’s finest brand, on the other hand, focuses on the customer group with higher purchasing power and those who prefer higher quality products at a reasonable cost. This type of strategy that is followed by the company can be linked to the two strategies that are described in Bowman’s strategic clock. Inclusion of such strategies reveals the strategic business decisions that have been used by Tesco to propagate its business. At best, it can be said that Tesco follows a hybrid strategy in the line of Bowman’s strategic clock. This is because there are elements of both product differentiation and cost leadership in strategies followed. The prices charged are very reasonable, which has given cost advantage to the organization. This is equivalent to following the moderate price and product differentiation strategy. Hybrid strategy is the ideal one, which tries to attain product differentiation by charging a price lower than competitors (Angwin, Cummings and Smith, 2011). On an average, it can be argued that Tesco has followed hybrid strategy in the recent decades. The multiple brands that are offered by the company, including its own brands, are perceived to have good values by customers. Yet, the company manages to charge low prices for products that it offers. The economic reason behind this is that Tesco enjoys a low buying power. This implies that the organization enjoys monopsony power over the suppliers (Angwin, Cummings and Smith, 2011). The competition in the global retailing market is high as majority of the global retail brands enjoys this low buying power and hence, charge low costs. So, even though Tesco cannot charge the lowest price, it can still manage to charge prices equal to or less than its competitors (Needle, 2010). In one of the most recent developments, it has been observed that Tesco reduced prices charged for carrots and cucumbers in order to compete with its global competitors that include WalMart, Asda, Sainsbury's and Morrisons. In addition, extremely high discounts provided by Aldi and Lidl and upend market grocers like, Waitrose and Marks and Spencer, have created a lot of pressure on profit margins of Tesco. In order to overcome the situation, Tesco has adopted the new strategy of price cut. This can be directly related to the second strategy pointed out by Bowman’s strategy clock (Davey, 2014). The strategy that the company is following in this case relates to the situation where cost is reduced to generate higher volume of sales. When a company follows this type of a strategy, its profits can fall. Even so, rationale behind following such a strategy is that the higher sales generated from the process will counterbalance the fall incurred in profits (Obitz, 2008). Conclusion This essay has discussed business strategies that are adopted by firms to gain competitive advantage over rivals. Among the various theories in marketing proposed by eminent scholars, this paper elaborates on strategic clock theory that had been developed by Bowman. On analysis of the business strategies of Tesco, it is seen that the firm has been following hybrid strategy to enhance its business and gain competitive advantage over the competitors. This is because the organization offers a range of quality products, which reflects the product differentiation strategy that is followed. At the same time, it charges reasonable prices for most of the products to suit customers’ affordability. This has allowed the business to grow from strength to strength from the initial days. Nevertheless, in a recent development, it has been seen that Tesco is slashing prices to generate more sales. This can be linked to low cost strategy of the strategic clock. Reference List Angwin, D., Cummings, S. and Smith, C., 2011. The strategy pathfinder: core concepts and live cases. New Jersey: John Wiley & Sons. 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