Sainsburys Business Strategy - Issues That Led to the Firms Crisis - Case Study Example

Sainsbury’s Business Strategy - Issues That Led to the Firm’s Crisis Table of contents INTRODUCTION 3 1.0 Sainsbury’s business strategy – issues that led to the firm’s crisis 1.1 Sainsbury – Company overview 4 1.2 General characteristics of Sainsbury’s corporate strategy 5 2.0 Sainsbury and its macroenvironment 2.1 Evaluation of Sainsbury’s macroenvironment using the PESTEL analysis 6 3.0 Evaluation of firm’s strategic options 7 Conclusion and recommendations 9 References 11 Appendices 13 Introduction The survival a company in the supermarket industry has always been a challenging task. Moreover, because the competition in the particular commercial area is really strong, the companies of this sector really struggle to keep their position towards their competitors. However, it should be noticed that there are certain firms that have presented significant performance the last year and for this reason they can be considered as the leading ones of the specific industry. In this context, Tesco, Asda and Sainsbury (as well as Waitrose) have been recognized as the most successful firms in UK regarding the supermarket industry. From the above companies Tesco which entered in the Stock Exchange in 1947 has ‘passed’ all its competitors – and Sainsbury which is the firm examined in current paper – and managed to reach the first position of the supermarket industry in 1995 (a position that keeps since then) [7]. Moreover, according to an article published in 2004 [6], Tesco had a stable and continuous growth (see Appendix I) over its rivals, particularly Sainsbury which failed to follow the rate of growth of its competitors in the specific industry. More specifically, in accordance with the above article [6] which refers to the results of 2003 and 2004 of the above supermarkets ‘The UK's biggest supermarket Tesco continues to reign supreme in the supermarket sector as Sainsbury's loses more ground to its rivals while figures from the TNS Superpanel showed sales at Tesco were up 9% from a year ago in the 12 weeks to 12 September while Sainsbury's saw no growth at all’. Regarding the above mention, it seems that the weak corporate strategy applied by Sainsbury has reduced the firm’s ability to respond to the demands of its market and gave to the competitors – mostly to Tesco which is Sainsbury’s most important competitor – the chance to improve their position in the industry. 1.0 Sainsbury’s business strategy – issues that led to the firm’s crisis 1.1 Sainsbury – Company overview Sainsbury’s has a long and important history in the UK commercial market. The company was founded in ‘1869 by John James and Mary Ann Sainsbury who opened their first small dairy shop at 173 Drury Lane, London; Drury Lane was one of London's poorest areas and the Sainsburys' shop quickly became popular for offering high-quality products at low prices’. Sainsbury plc is ‘a leading UK food retailer with interests in financial services’ [3]. Moreover, the firm includes a series of particular sectors the most important of which are the following: Sainsbury's Supermarkets, Sainsbury's Local, Bells Stores, Jacksons Stores and JB Beaumont, Sainsbury's Online and Sainsbury's Bank. It should be noticed that the number of firm’s employees in the UK market is really significant reaching the 153,000 people. The company has tried to keep a continuous communication with its employees, a fact that has been proved valuable until today for the retention of the firm’s strength in the market even during periods of strong turbulences in the local and the global financial area. Moreover, the participation of employees on the firm’s strategic decisions (Bechet et al., 1993) - through the existence of a series of initiatives and personal development plans - has led to the improvement of the firm’s HR strategies mostly during the last years which have been really crucial for the firm’s survival in the industry. The company – in accordance with its mission statement – is focused on the customer’s service and the achievement of high returns for its shareholders [3]. Furthermore, the employees are being given opportunities in order to develop their current abilities but also to receive a fair rewarding for their participation in the firm’s success. As for the firm’s behaviour towards its stakeholders, this is characterized by the application of a fair strategy trying to respond to any contribution regarding the business success. 1.2 General characteristics of Sainsbury’s corporate strategy Sainsbury’s corporate strategy was traditionally based on the existence of a series of strategic alternatives that could be proved helpful in case that the company face a period of financial turbulence either short or long term. One of the most important characteristics however could be considered the offering of goods and services of high quality (at the highest possible level) in a relative low cost. However, the existence of strong competitors was always the major problem for Sainsbury. For this reason, the specific supermarket, which was once the leading of its industry, has been found in third place behind Tesco and Asda. As a result the company was obligated to restructure its corporate strategy (from 2004 onwards) and proceed to a three – year recovery plan which included changes on the human resources management department but also increased investments (about £400 million) in order to achieve a more ‘approachable’ pricing but also to improve the quality of products and services provided to the customers [2, 8]. 2.0 Sainsbury and its macroenvironment 2.1 Evaluation of Sainsbury’s macroenvironment using the PESTEL analysis PESTEL analysis is a technique which is used in order to evaluate all the macro-environment elements that may have an influence to the operation of an organization. The main categories included in the above type of analysis are the following: political, economic, social, technological, environmental and legal. A comparison between the past and the future impact of these elements on the firm’s performance can also take place in accordance with the requirements on which this analysis is based. In this context and for the particular firm PESTEL analysis should focus on these issues: Sainsbury’s operates in a country which is characterized by a stable political environment which recognizes and rewards the commercial activity as a major element of the nation’s growth and development. The above character of the political environment in UK has led to the creation of a competitive financial environment which is not much affected by the turbulences occurring in the global area, although there are some periods that are less financially ‘proactive’. In the same context, the social structure favours the commercial activities offering a wide range of programs and options available to any potential entrepreneur in a way that the risk of the participation in the commerce can be considered as relatively ‘small’. It should be also noticed that the cases of differentiations among the people belonging in different races, genders or other particular teams of populations are ‘limited’ comparing the other countries around the world, an issue that can be considered as a major advantage for the promotion of entrepreneurship in this country. The legal framework has been organized accordingly in order to provide equal protection to all the participants in the commercial market. However, the control over the commercial activities is intense in order to protect the consumers from potential damages. The development of technology in the country is at really noticeable levels with companies like Microsoft to lead the market. Particularly in the supermarket area, the application of technology mainly appears in the sector of communication with customers – online shopping, which has offered a significant advantage to the firms operating in this area. The example of Tesco which has increased its performance introducing and applying online shopping for all its products can be used in order to support the importance of technology for the specific industry. As for the environment, Sainsbury like all the companies in the specific marketplace has to deal with a series of severe issues that have appeared regarding the protection of natural resources. In this context, the firm has introduced and applies a series of measures in order to follow the standards set in the specific area taking into account that its behaviour will be considered when evaluating its culture in general. 3.0 Evaluation of firm’s strategic options In order to evaluate Sainsbury’s strategic options, we should primarily compare the methods by the firm in order to proceed to a strategic planning procedure. In this context, and since the PESTEL, the SWOT and the Five Forces methods have all formulated a similar assumption, the use of alternative strategic options could possibly help the company to differentiate from its competitors and increase its performance in its industry. It should be noticed here that the application of appropriate strategic tools is considered as necessary in order for the company to increase its performance and face the challenges set by its rivals. Towards this direction we can refer to the study of Nattermann (200, 22) who examined another tool of strategic analysis, this of benchmarking. According to his study ‘Best-practice benchmarking--the measurement and implementation of the most successful operational standard or strategy available in an industry--can be one of the most effective tools for increasing a corporation's efficiency, productivity, and, ultimately, earnings; broadly speaking, strategic decision making occurs along three dimensions: product characteristics, price, and market opportunity’. The use of the above technique is mainly characterized by the combination of a series of ‘commercial market dimensions’ which can lead to the acquisition of a ‘competitive advantage’ by the specific company if applied in practice (Douglas et al., 1989). A very important characteristic of the above strategy is the fact that it can be used not only locally but also for the global marketplace (Ghemawat, 2003) while it is also suitable for firms of all types (Jennings et al., 2003). On the other hand, a recent study made by De Meuse et al. (2003, 2) proposed an innovative corporate strategy towards the evaluation and the controlling of organization performance: resizing which is defined by the above researcher as ‘the repositioning of employee ranks to achieve a company's strategic objectives’. If taking into account the mission of the above technique – as contained in its definition – we could consider this method more as a ‘supplementary’ and not ‘primary’ strategic tool towards the firm’s strategic restructuring (Carroll, 1993). Regarding the failure of Sainsbury’s corporate strategy towards specifically its major competitor, Tesco, this could be explained primary by the fact that Tesco has shown an aggressive business planning while Sainsbury has just tried to handle the market’s pressures without proceed to significant innovations that could increase the firm’s financial performance. Moreover, it seems that the competition between these two rivals will have a long future. In accordance with the an article published in 1996 ‘Tesco is looking to build on its leadership by constantly working to ensure that it is maintained; Sainsbury's, on the other hand, could be said to have been complacent, especially as it was continuing to gain share; However, Tesco's recent aggression has been matched by a poor performance from Sainsbury's’ [5]. The above article proves not only the fact that Sainsbury’s corporate strategy has been traditionally ‘weak’ towards the one’s applied by Tesco but also that the company has not proceeded to an appropriate and effective strategic planning all these years in order to reverse the situation in its favour. Conclusion and recommendations When trying to evaluate the strategy followed by a specific firm we should primarily examine its structure, its aims and its targets mostly on a long term basis. The firm’s culture is also a significant element that should be taken into account. In this context, Soutar, Grainger and Hedges (1999, 203) stated that ‘culture is an important idea as it deals with the way people live and approach problem solving in a social and organizational context’. To a more general view of the issue Pritsker (1997, 32) came to the conclusion that ‘industry analysis typically focuses on a company's external dimensions such as its markets, customers, and competitors’. The examination of the general marketplace – as proposed by Pritsker – is of course a fundamental strategic method when examining a firm’s corporate strategy. However, in many cases the firm may be differentiated from its market and in this case its strategy should be examined using more specific criteria (connected with the particular company) and less the principles and the data related with the general marketplace. On the other hand, it has been stated by Parnell (2003, 16) that ‘sharing strategic information with lower-level managers and employees may enhance both job comprehension and organizational commitment; hence, the arguments for a "public" strategy are intuitively obvious’. The participation of employees to the planning and application of a corporate strategy cannot be denied. In the specific firm employees seem to participate actively in most strategic decisions, however such a scheme has not been proved as appropriate in order to face the strong competition that characterizes the supermarket area. Regarding the above, it should be noticed that the company should try to enhance its position towards its competitors – and mostly Tesco, see also Appendix II – by restructuring not only its ‘internal’ strategic decisions but mostly its ‘external’ behaviour. More specifically, the firm should try to develop its communication with the customers, to improve the level and the quality of the services offered to the clients of all its departments and to create an integrate plan of ‘customer – approach’ by introducing and developing innovative marketing techniques that could offer to the firm a competitive advantage towards its rivals. The existent plans and strategic options cannot be characterized as absolutely inappropriate however they should be revised in order to respond more effectively to the pressures made by the competitors who have put the innovation and the communication with the clients as their main priorities. References Arvey, R., Raghuram, S. (1994), ‘Business Strategy Links with Staffing and Training Practices’ Human Resource Planning 17(3): 55-66 Balanced Scorecard http://en.wikipedia.org/wiki/Balanced_scorecard [1] Bechet, T., Walker, J. (1993), ‘Aligning Staffing with Business Strategy’ Human Resource Planning 16(2): 1-12 Blumenthal, R., Kargar, J. (1994), ‘Successful Implementation of Strategic Decisions in Small Community Banks’ Journal of Small Business Management 32(2): 10-22 Carroll, A. (1993), ‘Three Types of Management Planning: Making Organizations Work’ Management Quarterly 34(1): 32-35 Cronje, J. 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(2005), ‘Exploring Corporate Strategy: Text and Cases’ Financial Times/ Prentice Hall. London Nattermann, P.M. (2000), ‘Best Practice [Neq] Best Strategy’ The McKinsey Quarterly 22-27 Parnell, J.A. (2003), ‘Five Critical Challenges in Strategy Making’ SAM Advanced Management Journal 68(2): 15-25 Porter, M.E., Millar, V.E. (1985), ‘How Information gives you competitive advantage’ Harvard Business Review July-August Soutar, G.N., Grainger, R., Hedges, P. (1999), ‘Australian and Japanese value stereotypes: a two country study’ Journal of International Business Studies 30(1): 203-211 Rodetis, S. (1999), ‘Can Your Business Survive the Unexpected?’ Journal of Accountancy 187(2): 27-34 Van Clieaf, M. (1992), ‘Strategy and Structure Follow People: Improving Organizational Performance through Effective Executive Search’ Human Resource Planning 15(1): 33-43 http://www.sainsburys.co.uk/home.htm [2] http://www.j-sainsbury.co.uk/cr/index.asp?pageid=63 [3] http://www.tesco.com/ [4] http://www.throughtheloop.com/knowledge/brand1.html [5] http://news.bbc.co.uk/nolpda/ukfs_news/hi/newsid_3682000/3682544.stm?(none) [6] http://www.digitallook.com/cgi-bin/digital/company.cgi?id=10091 [7] http://www.4ni.co.uk/businessnews.asp?ID=40623 [8] Appendices Appendix I Tesco – 6 month chart of firm’s performance (2006, 7) Appendix II – Tesco and Sainsbury’s growth for the years 1987-1996 (Institute of Grocery Distribution, 5) Read More