Strategy and Competitive Advantages of Aldi Group - Essay Example

Strategy and Competitive Advantages Study: A Case of Aldi Table of Contents Introduction 2 Definition of Strategy and Implementation 2 Implementation of Strategy 3 Strategic Drift 3 Information gathered for the strategic environmental change 4 Competitive Advantage 5 Organizational Culture and Implementation 5 Stakeholder Analysis 5 Leadership styles used in Aldi Inc. 6 Decision Making 7 Strategic Drift 7 Innovation 7 Overall Assessment of the strategies taken 8 Conclusion 8 Reference 10 Appendix 13 Introduction The aim of carrying out the research is to analyze the organizational culture and the strategic management adopted by the managers of Aldi. The research is also meant to understand the strategic change that takes place within the organization. As the organizational culture maintained within a company is very important for the employees to have job satisfaction and a good work culture helps the organization to maintain their reputation in the market. The managers within the organization also opt for an innovation as the company can compete with its rivals in the international markets (Homburg and Pflesser, 2000). By maintaining a healthy work culture the company is at an advantageous position to grab a large share of the market and expand its business. It is noted that the organizational culture is constructed socially and it is influenced by the environment change. It also depends on the leadership strategies adopted by the team leaders of the organization which influences the team members to perform well in teams and have a cooperative attitude (Homburg and Pflesser, 2000; Dunbar and Schwalbach, 2000). Good performance of the organization has a positive impact on the society and the company gains reputation in the international markets. Definition of Strategy and Implementation A well designed strategy involves the mission and vision of the organization and the way the employees can be motivated to contribute to the organization’s reputation (Parnell, 2006). By applying the cost cutting strategy the company earns a profit that it can utilise in future business activities. The company aims at developing a new business program in order to invite suppliers as well as provide benefits to the employees (Burt, 2000). The business model followed by Aldi was based on efficiency as well as simplicity. The product strategy followed by the managers of Aldi depended on carrying a limited variety of the relevant products that are of high demand in the market. Change management The change management theory involves the building blocks within the company in order to achieve the future goals. The managers of Aldi Inc. plans to carry out the change within the company so that it can compete with the modern world. The company follows the Kotter’s eight step change management theory that involves various steps to undertake a change within the organization. The first step involves the process of identifying requirement of change within the company. The next steps deals with planning for the change by forming a team. The third step involves that Aldi Inc sets a vision for undertaking the change. The fourth step involves that the employees of Aldi understand the vision and accept it. The fifth step involves that managers Aldi plans the strategies in such a way so as to remove the obstacles in path of undertaking the change. The sixth step involves that the employees and the managers of Aldi plan for a short term win. The seventh step of the theory involves that the company hires employees to undertake the change and plan for the process to be followed to undertake the change. The ultimate step involves that managers of Aldi Inc. ensure leadership development within the organization for the success of the organization and to achieve its goal. Implementation of Strategy Aldi Group expanded rapidly in other countries as well in order to set up its business and attract a huge customer base for its products. It has been studied that Aldi’s growth has accelerating due to the unique business model that the company follows that is to serve the customers with quality goods at low prices (Muller and Kraussl, 2011). The company was named as the low price grocery store. It is noted that more than 25 million customers each month take advantage from the company’s simple approach to grocery retailing (Dawson, 2001). Further the company is known for its track record that it has set by being an employer of choice by offering its employees with lot of compensation as well as the benefits. The company has reached a level of the customer satisfaction that the customers recommend the company to the friends and their family members (Hackbarth and Kettinger, 2004). Strategic Drift Aldi undertakes a strategic drift in order to compete with the rivals. The business model followed by the company undertakes a particular cost leadership strategy which is used to reduce the cost of running a grocery store (Dawson, 2001). The strategy involves purchasing of the low price land in the outskirts of the city and built cheap warehouses in order to store the products manufactured by the company. The company employs few members in order to cut the cost incurred by the company to train the employees. Figure 1: Business Model of Aldi (Source: Dawson, 2001) Another strategy that the company adopts is that of the differentiation strategy. The company undergoes product differentiation that is it manufactures wide range of products for its customers and they would not face any difficulty in their choice of the products (Homburg and Pflesser, 2000). The market mainly follows the policy of a monopolistically competitive economy where the firms undergo product differentiation and there are possibilities of the entry of the new firms within the market so that they can compete with the other firms (Enders, et al., 2009). However the managers of Aldi are involved in the decision making process of the company regarding the strategies that are to be implemented (Colla, 2003). The strategy followed by Aldi mainly aimed at providing products at low prices to the customers but the strategy was not successful in Switzerland and UK due to various reasons (Juhl, et al., 2006). The strategies adopted by the organization contribute to the strategic drift towards the mission of the organization and the managers of the company need to adopt the strategic drift so that the organization can achieve the goal and compete with the international markets. Strategies adopted by the organization are essential in order to overcome the challenges of the changing atmosphere. One of the main reasons was that the company compromised with the customer service and the shop premises were maintained at low rates by hiring few workers in the company (Talaulicar, 2009). Hence the strategy was not suitable for these countries and the company had to change its strategies by raising the prices of their products and invest in the extra financial resources that by increasing their product range. In order to manage the organizational change the managers of the company has to train the employees in order to make them accustomed to the new technology adopted by the company (Zhao, 2005). The 5 C’s of strategy implementation according to Aldi Inc. are as follows Coordination- that involves the coordination among the employees and the managers to communicate the tasks those are to be performed by the team members of Aldi Inc. Communication-this is an important activity that must be maintained within the team leaders and the team members of Aldi Inc. Command- the instructions that are given by the stakeholders related to a project that is to be handled by the managers of Aldi Inc. The command has to be followed both by managers and employees. Control- the managers of Aldi Inc needs to control and supervise the tasks performed by employees and train them to perform better tasks. Conflicts- resolving the organizational conflicts among stakeholders, managers and employees is an important task for the company to maintain an ethical work culture. Information gathered for the strategic environmental change In case of the internal change the response of the employees is necessary to bring in the change in culture as well as the techniques followed by the managers within the organization. Whereas the external change the response of the customers is necessary for the betterment of the products that are served by the company. Maintaining the quality of the product is essential for making the customers to have a brand loyalty. Competitive Advantage Aldi has a competitive advantage of carrying out in the market as it adopts product diversification so that it can manufacture products for a wide range of customers. The managers also adopt technological progress within the organization so that it can compete in the international markets. Organizational Culture and Implementation According to some of the theorists there are different levels of organizational culture. The initial level comprises of the fundamental assumptions about the culture that prevailed in Aldi Inc. The culture also involves the ethical value that the managers of Aldi are supposed to maintain with the stakeholders as well as the employees (Hesse and Rodrigue, 2004). The next levels relate to the pattern of behaviour that is followed within the organization and the final level involves the techniques used by the managers to maintain the organizational culture within Aldi Inc. Stakeholder Analysis The stakeholder theory refers to the relationship between the mangers within an organization and the internal as well as the external environment. The theory deals with the process in which Aldi Inc. conducts its business and the way in which the managers of the organizations addresses to the stakeholders. Stakeholders of Aldi are from within the organization as well as outside the organization. The stakeholders can be non-profit community organization, stockholders, employees, local community, customers and Government. The stakeholders prove to be important assets of Aldi as they invest in the development process of the company. Figure 2: Stakeholder Diagram for Aldi Inc. (Source: Talaulicar, 2009) Leadership styles used in Aldi Inc. Two types of the leadership patterns can be explained that are followed in Aldi Inc. They are the transformational as well as the transactional leadership styles (Grundy, 2001). The transactional leaders of the company provide rewards to the employees for their extra-ordinary performance contributing to success of Aldi (Gerhard and Hahn, 2005). Whereas there are transformational leaders as well who prefer to motivate the team members by offering them moral support. They allot the tasks to the team members and train the employees to work efficiently under pressure (Nygaard and Biong, 2010). Figure 4: Leadership Model (Source: Nygaard and Biong, 2010) The leadership of the managers of Aldi is essential to manage the change related to culture as well as the technological change within the organization and to train the employees in order to make them well versed with the inoovative strategies adopted by Aldi. Decision Making Changes take place in every organization as per the decision makers in those organizations but the changes that take place in Aldi are unique compared to all other organizations. The strict principles followed by the management within the company contribute as a key success factor for the company (Belz and Schmidt‐Riediger, 2010). The corporate structure within the company is transparent due to the large number of firms operating in the international markets and the firms manage the production levels as per the demands of the customers. The company looks after the interests of the employees such that they are motivated to serve the company for a long period of time (Morschett, Swoboda and Schramm-Klein, 2006). The employees of the company who complete their usual daily tasks are assigned interesting projects that are handled by the team leaders. Thus the study shows that the company offers the opportunity of job enrichment which is a part of the motivational program followed by the employees. Through its cost leadership strategy the company had a competitive advantage over its rivals that sold their products at high prices. Strategic Drift Since the company’s strategy related to maintaining a low price of its products was unsuccessful in Switzerland and UK it had to change its policy and adopt a strategy of offering high profile services to its customers (Collins, Steg and Koning, 2007). This in turn increased the cost incurred by the company. Frequently changing the organizational strategies affects the employees as well as the loyal customers. Hence the change has to be such that it is favourable to the customers. However the research says that the new strategy adopted by the company in UK and Switzerland is suitable for the local people. The internal market expansion strategy adopted by the company increases the profitability within the economy (Arnold, et al., 2011). The strategy has provided the company with the first mover advantage in the market were most of the firms’ sells products at discounted rates. It indicates that the company can sell its products at a lower price compared to all other firms that enter the market later (Broccardo, 2010; Leknes and Carr, 2004). Innovation The product differentiation undertaken by the company also involves technological innovation. Hence the company performs a cost benefit analysis in order to take decisions regarding amount of funds to be allocated in different operations (Hanf and Kuhl, 2005). However there are cases when the company was not successful in running its business practices (Muller-Lankenau, Wehmeyer and Klein, 2006). When the company entered the Chicago market in 1970, there was huge competition and the company could not satisfy the demands of the customers and hence it was on the verge of losing its customer base. The company developed a strong ‘promised based’ marketing program and adopted policy of decentralised pricing mechanism. The study reveals that the ‘hard discount’ model adopted by the managers of the company would be efficient serving the customers at low prices (Hanf and Hanf, 2007). However the company sometimes faces the problems when several products are out of stock that is highly demanded by the customers and the managers need to think of an alternative solution to this problem. It further depends on the managers in convincing the customers to buy Aldi’s products and they need to maintain an ethical relationship with the customers in the market. The low prices set by the company are helpful for enjoying a monopoly power in the economy such that the customers get attracted towards company’s products (Mitchell and Harris, 2005). It signifies that the customers’ perceptions for the company’s products would by positive if the company serve good quality products to them. Overall Assessment of the strategies taken Aldi enjoys the first mover advantage that allows the company to enter the market first and attract the customers for its products. It has the advantage to acquire a larger market share compared to all other firms. The intensive international strategy that is adopted by Aldi requires the company to undertake a significant amount of the investment (Wrigley, Coe and Currah, 2005). There is a possibility of the liquidity problem that may arise in case the sales in home country as well as the foreign countries decline. The management within the company deals with such situation by attracting additional funds for investments from the banks. However the study says that it does not make a positive contribution to the future growth prospect of the company (Taşan-Kok, 2007). Further the strategy makes the company to follow the policies of the host countries in which it is expanding. There are also risks related to the cultural differences among the countries in which the Aldi is operating and this in turn has a negative impact on the profitability of the company (Hooley and Greenley, 2005). There are possibilities of increasing controversies that may occur due to the cultural differences which may prove to be disadvantageous to the target customers. The strategy tends to cause a financial loss to the company and the economy as a whole. However the company in order to maintain its reputation in the international markets attracts the target customers through its innovative strategies. The other challenge that the company faces is the selling of rare goods at low prices than its competitors. Due to the scarcity of the goods in the market the companies find it difficult to sell these at low prices and Aldi in order to enjoy competitive advantages sells them at low prices by compromising with the profits that the company can earn (Jones, Comfort and Hillier, 2007). The managers within the organization go for innovation so that they can encourage more customers to purchase the goods manufacture by the company. Innovation adopted by the company helps it to set up its reputation as an international supermarket company and attracts new shoppers to their outlets. Conclusion The study has been conducted on the strategic management of Aldi and the way in which the company operates to set up its business. The business model followed by the company has the objective of serving its customers with quality goods at low prices. However the company faces several challenges in following the business model. The company has to adopt cost cutting initiatives by hiring small number of employees in order to save the cost of training the employees. Further the low cost techniques of Aldi are not preferred by the Switzerland and UK and the company had to adopt high profile management strategies in order to decorate their outlets with quality products and attract more shoppers to their outlets. The company aims at enjoying a first mover advantage by selling its products at low prices and obtain a larger market share in competing with its rivals. Nonetheless the company faces challenges while expanding its business as the company has to change its strategies according to the host countries in which it operates. 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The stores under the supermarket company sell a wide range of household and grocery items that includes the foods products as well as other items that are of daily requirement. The company was established in 1975 and it expanded its business in other parts of the world. The company has earned huge profit as it enjoys a first mover advantage in the market and sold quality goods at low prices to its customers. It has multiple product lines and allows its customers to choose from the wide range of products that it supplies. The study says that the company is planning to expand its business and hence it is expected to create more than 10,000 new jobs at the company’s division offices as well as warehouses set up across the world. The managers within the organization aim at maintaining a healthy work culture and hire very few employees such that the teams can be efficiently handled. The company often changes the strategies followed by the managers within the organization to carry out their business in the host countries and attract the local customers of those countries. Aldi Inc.’s profit rose by around 65% to £260m in 2014 which shows that the company has successfully set up its business in the international markets. Aldi has also developed its market for the fruits, vegetables and meat for the people who expect for fresh produce. The company has also conducts its research on the needs of the customers and produces the products accordingly. It advertises for its products so as to attract the target customers for its products in the market. The innovative strategies used by the managers to overcome the challenges faced by the company in the international market and the product differentiation adopted by the company is to cover a wide range of products demanded by the customers. Read More