Topps Tiles Plc Corporate Strategy - Example

Corporate Strategy Corporate strategy is a crucial part in the decision making process of a business firm. This paper presents an analysis on the strategic positioning of the largest tiles retailer in the UK, its SWOT analysis and provides an insight on the business model of the company. The company’s position is analysed using Porter’s five forces. Based on this information recommendations are made for ways to further improve the company’s performance. Topps Tiles PLC: Company overview Topps Tiles PLC is the biggest retailer of tiles based in England (Toppstiles, 2013). In UK, Topps Tiles is enlisted “on the London Stock Exchange” (Abou-Hamad et al., 2011) and is the largest retailer in the tiles industry. It alone holds almost twenty six percent of the market shares (Investigate, 2011). The products of the company are tiles, wood flooring, natural stones, laminates and other associated products. Since its establishment in the year 1963, the company has been witnessing phenomenal growth (Hemming Information Services, 2006). Between 2003 and 2004 the share value of the company shot up from fifty pence to almost three hundred pence. However, as the company grew bigger it experienced lesser growth and this slowdown was more evident in the year 2005 when the price of shares dropped down to 170 pence per share (Howard, 2007). However, in the long term the company has plans to adapt to the changing preferences of the consumers. In this paper we shall investigate into the company’s business strategies. Strategic positioning of Topps Tiles PLC Strategising reveals the answers to some of the important questions regarding organizations; their growth process and the way in which they innovate and change (Johnson, Scholes and Whittington, 2011). Strategic positioning of a company comprises the changing business environment and a systematic comprehension about company’s positioning in future. It includes the two fold process of devising the desirable position for the organization taking into account its current status as well as foreseeable future developments and making suitable plans to achieve such positioning. Topps Tiles has been able to maintain its position unfailingly since 1963 by adopting a strong business strategy. The management has focussed on ensuring the delivery of value for money to its customers. It has strong competitive advantage over the other firms in the market in terms of its customer service, locations of shopping outlets, layout and store design, and an array of choices for the customers and availability of its products. Three key features affect the strategic position of Topps Tiles. They are- the external environment inclusive of social, economic, technological, political, ethical and environmental issues, the strategic capability of the organization with regard to its stock of resources and technical knowhow and organizational culture along with stakeholders’ expectations. Scholz emphasises that corporate culture has a strong connection to corporate success (Scholz, 1987). The linkage among these three broad aspects determines the strategic positioning of the organization. The secret behind Topps Tiles market position is that they have formulated a mode of operation in which the company can mutually reinforce the external forces, the knowledge and resources into one another so as to successfully meet the stakeholders’ expectations. The company has responded to risks promptly by tightening costs, reviewing plans for growth, managing cash flows in a stricter manner and making extended utilization of banking facilities. It is the crux of the company’s strategic decision making process. Alongside it has taken care of external factors like customer service, marketing and advertising strategies and offers on products. Although currently the company is facing challenging environment in the wake of unfavourable economic conditions, from strategy perspective the company is well-placed to face these challenges. Business Model The development of a strong business model for a company helps in determining the ways to improve its performance over time, in identifying any gaps which businesses outside the particular industry might utilize to enter the industry and in devising a model that would enable the firm to compete with the other players in the industry (Hill and Jones, 2012). Topps Tiles PLC follows quite a flexible business model. The model depicts the enterprise’s endeavour to deliver value in return to its customers’ payments on its products and convert their payments into profits (Teece, 2010). It has a very capable team of employees that manage the business wisely. Throughout the years the team of managers have been able to bring significant progress in the company’s performance. They follow the four step strategic decision making process as described in the previous section to ensure that the organization is ready to face the organizational contingencies. These put a big impact on the firm’s strategies (Zajac, Kraatz and Bresser, 2000). The economic condition was tough in the year 2012. In this year profits fell to 5.6 million pounds and estimated debts increased to around 58 million pounds (debts increased since the company acquired the Cannon Textile Care and Nickleby businesses in the early months of 2012) (The Free Library, 2012). In this scenario the leaders have concentrated on company strategic decision. They have maintained focus on capitalising the position as market leader in the sector and further tightening costs while safeguarding margins. This shows a positive attitude in the phases of negative economic cycle and reveals the company’s expectation to regain momentum when the confidence of its consumers would return. The business model is designed in a way to bar entry of new entrants into the market. The management has planned to make operational improvement during this period, which would make it ready for the market in the near future when economic conditions would improve (Investigate, 2011). The corporate strategy theory Kenneth Andrews has defined the concept of corporate strategy in a nimble way that helps the corporate firms to theorize their positioning in the market and strategize the ways in which they can achieve their targets. The pattern of decision making in a company is crucial in determining its objectives and goals and allows the management to formulate policies for the achievement of these goals. This is the corporate strategy of a firm (Andrews, 1980). The corporate strategy function reveals the pattern of organizational culture and economic as well as non economic contributions made by the firm to its employees, stakeholders, customers and the community (Foss, 1997). Porter’s work on the theory of five forces acting in a competitive industry describes the shape of competition in the industry and the company’s conduct in that framework (Collis and Montgomery, 2008). Porter’s Five Forces The framework devised by Porter provides an important dimension to strategic positioning. Industry structures strongly influence the rules of competition in the industry. Further analysis can be made on the basis of this crucial basic information. The strategies adopted by the firm would be dependent on the forces outside of the industry (Porter, 2008). Porter has identified the framework of five basic forces of competition in the industry. It helps the firm to find a position from which it can either defend itself from the effect of the five combined forces or might try to manipulate those forces to utilize them in its favour (Henry, 2008). Porter’s five forces are discussed below keeping in mind the competitive positioning of the firm with the tiles industry (Figure 1). Threat of new entrants: Low New potential firms might enter the industry thereby reducing the profit level enjoyed by the incumbent firms. As barrier to entry reduces it becomes easier for new firms to enter the industry and the rivalry increases. There are several factors that act as barriers to entry by new firms. Economies of scale The process of tiles manufacturing is a complicated process and large scale production is essential for the reduction of costs and increasing efficiency. When a company produces physical products it incurs more variable costs than fixed costs (Karagiannopoulos, Georgopoulos and Nikolopoulos, 2005). Topps Tiles can therefore take advantage of large economies of scale since new entrants would be doubly disadvantaged if they either start operating at small scale or if they take the risk of initiating their business at a big output level (Abou-Hamad et al., 2011). Switching costs Buyers make decisions about switching from the products of one brand to the other brand available in the market depending on price of the other brand and the quality of the new products compared to their price. Therefore the buyers face a cost when they switch from one supplier to the other in terms of the uncertainty involved in the level of satisfaction that can be received from consuming the new product. If a new firm decides to enter the industry it has to provided a greatly improved quality and/or lower price in order to gain consumers’ confidence (Henry, 2008). Product differentiation Product differentiation includes the differences in the quality of product and also the brand value. Topps Tiles has a strong USP for its products since it had opened its first outlet. Its existing products find a good customer base in the United Kingdom. Although in the past four years the company has been facing a slowdown in the demand for its products, it is an influence of the housing market crisis in the Euro Zone and is not directly linked to any lack in consumers’ loyalty for the brand. In this situation any new entrant would face similar market condition and it would be even difficult for the firm to sustain its market share (Henry, 2008). Bargaining power of buyers: Moderate Buyers’ bargaining power reflects the price level in the market. It depends upon the number of producers in the industry and the type of products they are purchasing. In case of Topps Tiles the products are differentiated. Although alternatives are available in the form of wood floorings, marbles and other related products, the brand value and the quality of the tiles offered by Topps Tiles creates a difference. The consumers are not left with many alternative options and hence cannot exert much influence on price (Henry, 2008). Bargaining power of suppliers: Low The real purpose of firms operating in a competitive industry is not only to increase sales but to increase its level of profits (Magretta, 2011). The factors affecting the bargaining power of suppliers or producers are similar to that of buyers’ bargaining power; the only change is that the producers act as buyers of those suppliers that provide inputs for their production process. Clay minerals and chemical additives are the primary raw materials required in the production process. There are only a few suppliers of raw materials due to which Topps Tiles does not enjoy much bargaining power. Threat of substitutes: Moderate Competition from substituting products like marbles or wooden flooring is not very steep for Topps Tiles. The company offers a broad range of products starting from ceramic tiles, porcelain tiles, laminate flooring, mosaics, wood flooring, natural stone and related accessories which makes these stores a one-stop shop for customers (ToppsTiles, 2013). Intensity of rivalry among competitors: Moderate The top competitors of Topps Tiles are B&Q, Homebase and Wickes (Abou-Hamad et al., 2011). There are also some other tile suppliers in the English market. All the companies have loyal customer base; however, moderate competition arises with regard to pricing and offers. Researchers have voted Topps Tiles as the largest retailer of tiles in the UK and claim that it has significant prospect of growth in future. Swot Analysis The SWOT analysis is a popular and effective method to revise the process of corporate strategy development (Hill and Westbrook, 1997). It is famous for simplicity and the effectiveness with which it delivers results (Helms and Nixon, 2010). Several weaknesses of the business process can be successfully redressed through systematic analysis of the decision making process (Agarwal, Grassl and Pahl, 2012). Strengths The company offers wide range of products for flooring and related products. It is a major strength for the company since it entices the customers to explore its products. Low production cost enables it to provide quality products at prices lower than many of its competitors. Besides, there are 305 stores across UK that allows people to have easy access to its products (Toppstiles, 2013). Weaknesses Tiles manufacturing is a process that requires indivisible inputs and large scale production. Therefore Topps Tiles cannot reduce the production level at times of low market demand so as not to increase average costs. Besides, poor after sales service leads to a certain level of customer dissatisfaction (Toppstiles, 2013). Opportunity The economic condition is on the way of improvement which shows that there is scope for further improvement. The company can expand and venture into markets outside UK. It has a good website which would help it acquire off-shore customers with little more efforts to improve delivery facilities (Toppstiles, 2013). Threat The company is facing a hefty amount of outstanding debt (The Free Library, 2012). Given the rough financial conditions, stakeholders might lose confidence on the profitability of the company. Potential entrants and competitors might utilize this circumstance in their own favour. Recommendations Topps Tiles is the largest retailer of tiles in the United Kingdom. However, the company can improve performance with minor alterations in its strategies. Changes in corporate strategies bring about changes in internal corporate behaviour and affect company’s performance (Burgelman, 1983). Firstly, the company might focus on improving its presales and post-sales service. This would allow help in winning back customer confidence. Since demand is low due to weak financial conditions in the economy as a whole, direct sales promotions might not be quite effective. Secondly, the company has acquired two companies in the last year. Now Topps Tiles has to discharge some of the less productive staff from these companies in order to tighten cost conditions. However, it is a sensitive issue and the company has to deal with sensibly to avoid political and social uprising. Thirdly, the company is into business for 50 years and has gained considerable customer loyalty and brand name. As the economic condition improves the company can experiment with increasing the price of some selected products. It would not hurt profit level as a whole, and if it sustains demand level the company might incorporate this strategy slowly for other products. Alongside price rise, it has to maintain promotions and advertisement to maintain popularity. Well researched marketing strategies supplements business strategies (Slater and Olson, 2001). Alternatively, it can put offers or discounts on bundles of two or three products that would help in sales as well as satisfy customers with the discounts. Considering the current economic scenario, the company should immediately focus on providing quality customer service that would help in increasing customer satisfaction level in the near future. Conclusion Corporate planning can create noteworthy value for business firms. Corporate strategy function makes various kinds of contribution such as managing the planning process, maintaining cases regarding development of methodologies and similar other responsibilities (Brunsman, DeVore and Houston, 2011). Although it is debated that Porter’s predictions do not lead to accurate results and vary according to the types of strategy adoption, managers can utilize this framework as a tool to access critical information regarding the positioning of the organization (Miller and Dess, 2007). However, while given frameworks help in generating ideas, the beliefs held by the leaders in an organization and individual characteristics play the actual role in developing business strategy (Jensen and Zajac, 2004). Original strategies can only be developed by preparing hypotheses and testing them in the industry setting (Goddard, Birkinshaw and Eccles, 2012). Corporate strategy, if framed efficiently, makes big contributions to corporate performances (Bowman and Helfat, 2001). References Abou-Hamad et al., 2011. Topps Tiles Investment Appraisal. Germany: GRIN Verlag. Agarwal,R., Grassl, W. and Pahl, J., 2012. Meta-SWOT: Introducing a new strategic planning tool. 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M., 2001. Marketing’s contribution to the implementation of business strategy: An empirical analysis. Strategic Management Journal, 22(11), pp. 1055-1067. Teece, D. J., 2010. Business Models, Business Strategy and Innovation. Long Range Planning, 43(2-3), pp. 172-194. The Free Library, 2012. Improved sales keep Topps Tiles on track. [online] Available at: . [Accessed 7 March 2013]. Toppstiles, 2013. Topps Tiles Terms and Conditions. [online] Available at: . [Accessed 6 March 2013]. Zajac, E. J., Kraatz, M. S. and Bresser, R. K. F., 2000. Modeling the dynamics of strategic fit: a normative approach to strategic change. Strategic Management Journal, 21(4), pp. 429-453. Appendix Figure 1: Porter’s five forces (Source: Porter, 2008) Summary Output: Porter’s five forces Factors Result Threat of new entrants Low Bargaining power of buyers Moderate Bargaining power of suppliers Low Threat of substitutes Moderate Intensity of rivalry among competitors Moderate Read More