Construction of IFE Matrix for Adidas and Nike - Case Study Example

Adidas: A Business report s Foreword: The first step ly the strategy formulation involves the development of thebusiness mission, evaluation of the opportunities and threats faced by the business organization in the business, by using tools such as SWOT analysis, examining the strengths and weaknesses of the business, determining the long term objectives of the business and designing the new strategies to eke in the process of achieving the new targets. It also include the processes to determine the investment direction, the business markets to be addressed, extension of the operations of the business, limitations faced by the business in order to undertake the business activities. Strategy formulation also helps the business in deciding about the matters to be addressed on priority basis. There is not any organization in the world which has unlimited resources. Therefore the business organizations need to evaluate which projects are important and need investment. The future of a business organization is very much affected by the strategic decision of the management of the organization. The classic models for developing strategy; known as the SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis and called the “Design School Model” by Mintzberg et al. (1998) has been presented in the proceeding section. In order to analyse the strategic situation first of all SWOT analysis have been under taken, which I have presented as under: SWOT Analysis of the Nike Company STRENGTHS Strong Brand name. Rise of 42% in operating profits. Extended customer in more than 50 countries. Use of SAP R/3 Enterprise Resource planning software Low threat of new entrants. Continuous training programs for employees. High budgets of advertising and promotion. Good relations with media. Web based presence. WEAKNESSES Low ROE as compare. Subsidiaries create legal and territorial problems. Old image still exists. Inconsistent marketing message. OPPORTUNITIES Expansion in shape of introduction of new and innovative products. Expanding market due to globalisation. THREATS Current economic climate. Over reliance on the debtors. Results to be achieved in future can be less than projected “The Threats-Opportunities-Weaknesses-Strengths (TOWS) Matrix is an important matching tool that helps managers develops four types of strategies: So Strategies, WO strategies, ST Strategies, and WT Strategies. SO strategies use a firm’s internal strengths to take advantage of external opportunities. WO Strategies aim at improving internal weaknesses by taking advantage of external opportunities. ST Strategies use a firm’s strengths to avoid or reduce the impact of external threats. WT Strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats.” (David, 180-181) SWOT Matrix: External Opportunities (O) 1. Double-digit growth rate in transportation market in Central and North Europe. 2. Increase of young tourists in Europe by 25%. 3. Serving the needs of today’s fashion oriented customers with high level of brand consciousness. External Threats (T) Nike’s current production capacity is disproportionate to demand; 1. The load factor of production is unsatisfactory; 2. The yield has substantially reduced; 3. Revenues from this activity have been falling since the beginning of 2003 .Internal Strengths (S) 1. Nike has remained a major investor in “the further establishing production facilities, distribution networks and technology 2. Nike has an employee base of 50,000. 3. Continuous improvement in the company by research and communication of company with customers. 4. The company does a fairly good job of disclosing its true drivers of performance and areas of concern in the MD&A and footnotes. 5. Nike has a number of intangible assets, consisting of trademarks, goodwill, and franchise rights. 6. Nike is one of the many organisations that use SAP R/3 Enterprise Resource planning software. This software allows all members of the organisation to access the information at anytime where ever they are in the world.” Internal Weaknesses (W) 1. Nike showed a relatively low ROE. 2. Relation ship with subsidiaries creates legal and territorial problems. 3. Lack of funds to continue expansion 4. Old image still exists. 5. Inconsistent marketing message. SO Strategies 1. Increase in investment in the creation of new product line. (S1, W2, W3) 2. Add more employees to speed up the process. (S2, O4) 3. Keep quality standards above the competition for more revenue. (S4, S5, O5) WO Strategies 1. Continuous introduction of new services in different directions with the changing demands of customers. (W1, O4) 2. Introduction of technology in advertisement. (W5, O1, O2) ST Strategies 1. Advertise more about top selling products instead of just high end products. (S4, S5, T1, T4, T5) 2. Advertise the products that Nike is able to get mass quantities year round. (S4, S5, T1, T4, T5) 3. Keep the product price competitive by keeping updates about the price policy of competitors. (S3, S4, T2) WT Strategies 1. Obtain a more reliable information management system for the company all over the world. (W2, T3) 2. Having contacts with the subsidiaries offering low cost and efficient services. (W5, T3) “The Strategic Position and Action Evaluation (SPACE) Matrix is another important stage 2 matching tool with four-quadrant framework indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organisation. The SPACE Matrix represents two internal dimensions; financial strength (FS) and competitive advantage (CA), but also represents two external dimensions; environmental stability (ES) and industry strength (IS).” (David, 184) 1.2 SPACE Matrix: Internal Strategic Position External Strategic Position Financial Strength (FS) Environmental Stability (ES) Competitive power Product pricing Return on investment Liability consequences Net profit competitive pressure Operational resources Rate of inflation Liquidity Price elasticity of demand Risk of market Technological changes Competitive Advantage (CA) Industry Strength (IS) Quality of product Potential expansion Customer service Potential profit Product life cycle Market stability Market share Technology advances Advertisement strengths Resource exploitation Know competition’s operations Productivity Financial Strength (FS) Ratings The Nike Company has had a strong return on equity (ROE) 2.0 for the past 5 years. Nike’s net equity 32.1% 3.0 Nike’s sustainable growth rate 16.1% in 2004. 3.0 Nike’s Gross Profit Margin 7.6% 4.0 12.0 Industry Strength (IS) Nike has the largest share in the industry revenue 2.0 Advertisement increases competition in the beverage industry. 3.0 Increasing share of Company in sports wear 4.0 9.0 Environmental Stability (ES) Nike is in a high volume and relatively low cost products with a short life cycles, operating efficiencies. -3.0 Technology changes has created competitive struggles -4.0 Increased competitive insecurity due to company expansion -4.0 -11.0 Competitive Advantage (CA) Nike has strong product line providing customers with quality Products -2.0 Nike has a large employee base with up to date information -3.0 The Sports wear industry is becoming more popular and more competitive. -4.0 -9.0 Conclusion ES Average is -1.0 / 3 = -3.667 IS Average is +9.0 / 3 = 3.0 CA Average is -9.0 / 3 = -3.0 FS Average is +12.0 / 3 = 4.0 Directional Vector Co-ordinates: x-axis -3.667 + (+3.0) = -.667 y-axis -3.0 + (+4.0) = 1.0 The Competitive strategies of Nike need constant updating. * “The Boston Consulting Group (BCG) Matrix is designed specifically to enhance a multidivisional form’s efforts to formulate strategies. This matrix graphically portrays differences among divisions in terms of relative market share position and industry growth rate. This matrix allows a multidivisional organisation to manage its portfolio of business by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organisation.” (David, 188) 2.1 Construction of IFE Matrix for Adidas: The evaluation of the strengths and weaknesses of the Company’s performance in factors, which are significant for the analysis of company’s performance, has resulted in the shape of the following IFE matrix. Internal Factor Evaluation -IFE Matrix Strengths Weight Rating weight score 1 Strong brands name worldwide in sports wear industry. 0.10 4 0.40 2 Promotion oriented strategy 0.10 4 0.40 3 High level staff recruitment 0.10 4 0.40 4 Product Differentiation 0.05 4 0.20 5 Strong product chain 0.05 2 0.10 6 Value retention 0.05 4 0.20 Weaknesses 1 Low ROE 0.10 1 0.10 2 Old image still exists 0.10 2 0.20 3 Relation ship with subsidiaries create legal and territorial problems 0.10 2 0.20 4 Inconsistent Marketing message 0.10 1 0.10 5 Lack of funds 0.10 1 0.10 6 Product, operation, service planning too complicated 0.05 2 0.10 Total 1.00 Score 2.50 * “The Grand Strategy Matrix is a popular tool for formulating alternative strategies. All organisations can be positioned in one of the Grand Strategy Matrix’s four strategy quadrants. This Matrix is based on two evaluative dimensions: competitive position and market growth. Firms in quadrant I are in excellent strategic position, firms in quadrant II need to evaluate their present approach to the marketplace seriously. Firms that are located in quadrant III compete in slow growth industries and have weak competitive positions, where firms in quadrant IV have a strong competitive position but are in a slow growth industry and these firms have the strength to launch diversified programs into more promising growth areas.” (David, 192) 2.2 The Grand Strategy Matrix: Rapid Market Growth Quadrant II Quadrant I 1. Market growth 1. Market growth 2. Market dispersion 2. Market dispersion 3. Product development 3. Product development 4. Technology advances 4. Technology advances 5. Horizontal incorporation 5. Horizontal incorporation 6. Liquidation 6. Advance arrangement 7. Backwards integration Weak Strong Competitive Competitive Position Position Quadrant III Quadrant IV 1. Economising 1. Related diversification 2. Related diversification 2. Unrelated diversification 3. Unrelated diversification 3. Combined Ventures 4. Liquidation Slow Market Growth According to the performance analysis of Adidas, the Company stands in quadrant III. It is hard for the company to maintain its position in the industry due to the increased threats by the lowered prices of other competing brands. Although the company has adopted all the promotion tactics in order to capture a wide range of customers. As the market is extending the company is also extending its product line by introducing new products. The main obstacle the company is facing is the increased expenses and lower margins of profit. The large budget and promotion activities of Adidas keep the new entrants away from the entering the market. The Company has adopted a positive and up to date strategy which has helped the Company to stay in the industry. The wide range of the products and a looking ahead strategy as compare to the competitors has given the company a competitive edge but still the company has failed to capture a large amount of market share. The company should adopt cost cutting strategies in order to compete in the global business environment. Massive marketing campaign should be undertaken in order to attract new customers. Customer retention strategies should also be adopted to increase the customer base. References Fred R. David, Strategic Management Concepts and Cases, Eleventh Edition, pp.165-190 SWOT Analysis Nike, Inc, (2008). Available at http://www.marketingteacher.com/SWOT/nike_swot.htm SWOT Analysis, Adidas Inc., (2008). Available at http://www.marketresearch.com Read More