Enhancing Organizations and Employability - Analysis of Woolworths Corporation - Case Study Example

Enhancing Organizations and Employability Analysis of Woolworths Corporation Executive Summary Woolworths Corporation is the biggest retail company in the South Pacific with operations in Australia and New Zealand. The company holds a leadership position in the markets with great resources and good performance. However, with its current market being at its maturity stage it is getting increasingly difficult to maintain profitability. An opportunity has presented itself in the form of new emerging markets in various parts of Asia and the Middle East which the company can exploit by expanding into these markets. Woolworths has a number of strengths at its advantage including good financial capacity, deep experience in retail marketing, and a strong brand. These can be used in an expansion programme that will largely rely on a good market entry strategy and marketing strategy. Analysis of the external environment in Australia reveals that the current situation in the market calls for expansion into new markets, which is what this report proposes. 1.0 Introduction Being the largest grocery company in Australia, Woolworths Corporation sells a large variety of goods and hospitality services throughout the country and in New Zealand (Alam and Majumdar, 2011). The main purpose of this report is to carry out an analysis of the corporation so as to identify its greatest problem or opportunity and provide a strategic recommendation based on the findings that will enable the company to improve or gain success. The analysis in this report will utilize models for analysis of the internal and external environments of businesses. The SWOT analysis will be applied in the analysis of Woolworths’ internal environment while Porter’s five forces analysis will be used to analyze the external environment of the company. Both analyses will mainly used to clarify the current situation of the company and identify a major opportunity or problem that it faces. After the introduction, this report presents the main research methods applied in collecting data used in the analysis. The report then proceeds to examine the current situation of Woolworths. The current situation is described in general before giving a more in depth assessment of the internal environment followed by the external environment using relevant tools. The next chapter analyses the best opportunity or the most pressing problem Woolworth has so as to help in developing a strategy for success or progress. The paper then presents the strategy for success by discussing aspects of the company that need transformation depending on the problem or opportunity identified. Before the conclusion the report discusses management of change in the company by highlighting steps that should be taken to ensure that the company copes with the change brought about by the proposed strategy. 2.0 Data Collection Method Applied This study mainly involved use of secondary data collected from various sources. The first secondary sources that were applied included the recent company annual reports of Woolworths Corporation. Other study reports on the company performance, internet media articles and company reports were also applied in collecting information. Pamphlets, fliers, advertisement material, company magazines and other similar material with information about Woolworth and its products and services were also utilized as data for this report. The only criterion that was applied in obtaining the secondary data was that it was supposed to be recent enough, having been published within the last five years. 3.0 Company’s Current Situation Currently, Woolworths remains the largest grocery supermarket chain in Australia with its retail business being the greatest source of income for the corporation. The company also owns a number of hospitality establishments in Australia and New Zealand including hotels and restaurants. Woolworths stocks the greatest variety of grocery goods in its stores and has been making good profits in recent years with the last three years recording profits of over 50 billion Australian dollars each (Woolworths Ltd, 2013). However in the past few years Woolworths has been facing increasing competition particularly from new entrants in the market and lesser product differentiation and specialization by traditional competitors. The Australian grocery market has reached maturity and thus there is decrease in product differentiation especially in terms of variety of goods and prices. However, it is evident that Woolworth has been performing well with growth in earnings having been experienced in the past three years in several of its segments including supermarkets, hotels and liquor stores. Currently, Woolworths prioritizes reclaiming market supremacy in value and growth, increasing leadership in fresh food sales and gaining market leadership in New Zealand. The current market situation in Australia is characterized by saturation with grocery companies and goods which has brought about congestion; the company is therefore exploring possibilities of entering new markets outside Australia and New Zealand (Woolworths Ltd, 2012). 3.1 Internal Environment Woolworths enjoys a business performance in Australia with a large variety of goods and services distributed through an extensive network of stores. Both the vision and mission statement of the corporation are aimed at leading the company to greater heights of growth and profitability. Woolworths’ vision is to give high quality goods and services to its customers at all times through provision of fresh food and great service, and better pricing at all times (Alan and Majumdar, 2011). The company’s mission statement is to provide customers with better shopping experience each and every time they visit Woolworth stores for shopping. To attain its vision and mission, Woolworths relies on a number of key competences in its internal environment. The SWOT analysis is the best model for the effective analysis of the internal environment of the company. The model is based on the analysis of a company’s strengths, weaknesses, opportunities, and threats in the market. The main purpose of the SWOT model is to enable the company determine its competitiveness (Dess et al., 2007). It enables the company to address its weakness and make maximum use of its strengths and opportunities through repositioning so as to gain competitive advantage (Research and Markets, 2012). The SWOT analysis for Woolworths is presented as follows; Strengths Woolworth is in a strong financial position with adequate operating capital and the good performance of the company can enable it access financial support through loans easily. The company provides a wide range of products through a superior supply chain than its competitors Woolworths is a strong brand, as the market leader it enjoys great brand reputation and recognition. The company has a large market share in the Australian and New Zealand retail markets. Weakness Woolworths large size and market extent means that the company has got high operating costs Woolworths’ debt has been on the increase in recent times due to its high overall costs Opportunities The company has a great opportunity to expand its market reach by entering unexploited markets outside Australia and New Zealand Even though Woolworths already has a large market share it still has an opportunity to expand its market share The company can make use of current technologies in IT, internet and other areas to improve its operations, particularly marketing Threats Uncertainty in the economic stability of Australia after the financial crisis which still manifests through slow growth Recession and increasing unemployment in Australia The increasing power of suppliers which is making them increasingly control the markets Technology is giving customers and competitors increasing advantages e.g. bargaining power, particularly internet 3.2 External Environment Analysis of the external environment is very important for the company to be able to develop competitive strategies (Thompson et al., 2010). Such strategies have to respond to developments in the external environment, particularly what competitors are doing. Woolworths operates in a very tough retail market characterized by high competition and increasing innovativeness from competitors. Even though it remains the market leader, Woolworths’ market share is continuously threatened by competitors. One of the best models that can be applied in the analysis of the company’s external environment is Porter’s 5-Forces model. According to Porter (2008), the awareness of the five forces that impact the external environment of a business is important for understanding the industry structure so as to position the company in a way that increases profitability while minimizing vulnerability. The model particularly helps the company reposition in the market on the basis of its strengths and opportunities that it identifies in the internal environment. Force 1: Bargaining power of consumers There is low product differentiation in the Australian retail market; therefore all the companies offer the same types of products characterized by low switching costs from product to product. This means that consumers in the market have high bargaining power (Cotterill and Walker, 2006). Force 2: Bargaining power of suppliers Just like in most other retail industries in the world, the Australian suppliers’ bargaining power is drawn from the strength of their brands and their market sizes. For example, suppliers such as Coca Cola enjoy great market power (Keith, 2012). There are a few important suppliers in the Australian market who enjoy greater bargaining power because of their size and importance in the market. This number is growing and suppliers are increasingly able to control the retail market in the country. Force 3: Industry Substitutes The Australian retain supermarket business is characterized by a large number of substitutes available to customers including smaller grocery stores that are closer to customers, convenience stores, pharmacies and others (Keith, 2012). Market research in the country has revealed that increasing numbers of consumers are willing to pay marginally high prices for the convenience of shopping in smaller stores e.g. better parking space and ease of access. Force 4: Threat of new entrants This is not a great force in the market and has lesser effect on Woolworths but it is also important. Due to low price offerings and therefore low profit margins and potential, the Australian retail market is not very attractive to many new entrants. Another barrier to new entrants is the considerable control of traditional companies in the market which includes control or distribution channels. Force 5: Rivalry among competitors The Australian retail market is characterized with great rivalry among competitors. This intense rivalry means that there is very little chance of cooperation in any areas and that Woolworth has to develop good strategy to compete. 4.0 Opportunity Analysis Woolworths has a very good opportunity of expanding its operations beyond the saturated Australian Market so as to tap into new markets. There are a number of emerging markets in the Asian Pacific region which provide great market potential for Woolworths. Countries such as Korea, China, Singapore and India have huge markets that Woolworths can try to penetrate. There are also some great emerging economies in the Middle East, particularly the Emirates. Woolworth has matured enough as a brand to compete favourably with any other retail store brand in the world. The corporation can therefore take this opportunity to move into new markets and tap into the existing demand created by high numbers of consumers. The SWOT model shows that Woolworths has sufficient strength to make use of the opportunity of rising demand in emerging economies. First of all the company has a great brand with good reputation as a retailer. Secondly Woolworths enjoys financial stability and sufficient capacity to get financial backing for investments in new markets. Third, it is also evident that there are many retail outlets which would be ready to team up with Woolworth through franchises in new markets because of the competitive advantage that comes with the corporation’s reputation, expertise in retailing and strong brand. In addition to the strong company characteristics, the company has the opportunity to make use of internet and social media as a powerful marketing tool for entry into new markets. According to Johnson (2010), internet provides the most powerful platform for marketing in the modern era, particularly social network. With a good strategy, Woolworth can expand its business and profitability by internationalizing its business by targeting these new markets which are characterized with high product differentiation potential, increasing buying power of customers, low customer bargaining power and demand for supply of greater varieties of grocery goods (Pettigrew et al., 2005). 5.0 Strategy Recommendations For Woolworths to take advantage of the opportunity presented by emerging economies to expand its market, a good strategy is required. Various hard and soft strategies can be recommended for the corporation to expand into new markets (Magretta, 2002). First, Woolworth requires securing enough capital to be able to finance the budget for its expansion strategy. The management can start by discussing with potential financiers to ensure that the expansion strategy can be sufficiently funded without affecting the supermarkets activities on Australia and New Zealand. Secondly, Woolworths needs to carry out proper market research in target markets so as to develop good targeting strategies for entry into those markets. Such strategies include navigating the legal and institutional business requirements in the new markets, identification of business suppliers and other business partners, identification of business premise locations, hiring of competitive managers to run the businesses and other requirements needed to start a business. The main strategy that should be assumed is to work with smaller retail companies working in those markets through franchising so as to establish large stores with huge varieties of products retailing at competitive prices. The second strategy would be to hire top managers who have experience in retail business in those countries to spearhead market entry. These managers can be assisted by managers from Australia who have experience in Woolworths’ market strategies for many years; the two groups would make teams with great experience. Finally, it will be important for the expansion programme to be approached step by step by targeting one market at a time. Some soft strategies that can be applied in the expansion include putting up an excellent marketing strategy, training new employees to work in the new stores, motivation of new workers and introducing a new working culture. Marketing is very important in market entry, only an excellent marketing strategy backed with value for money in the shops can endear customers in a new market to a brand (Johnson et al., 2008). Woolworths needs to study the new markets first so as to identify the culture, way of life, type of needs and similar information after which marketing strategies can be set up based on the market research. Secondly, after getting quality top level management who will be working with a few mangers with experience from Australia, the corporation should hire staff and train them in the culture and tradition of Woolworth. This training should emphasize the mission, vision, and values of the supermarket and customer relations techniques. The main aim here would be to make the customers see a marked difference when purchasing from Woolworths stores. The final soft strategy, particularly in the marketing of the Woolworths brand in the new markets would be to target senior people of stature and popularity in the markets so as to involve them in the launching process. For example, a senior government official or business leader in the region can be involved in the launching ceremony. This strategy will increase the acceptability of Woolworths in the markets and give it credibility among consumers. 6.0 Change Management Change management is one of the most important factors that must be dealt with correctly when a company enters a new phase (Thompson et al., 2010). Since most people in organizations resist change even when it is for the better, it is important for the top management to come up with workable strategies to manage change (Nwokah, 2009). With the new strategy of expansion into new markets, change will definitely be experienced in the operations of Woolworths. The change will be experienced at two levels, first and the strategic management level (Top level management), and at the lower employee level. First, the top management at Woolworths Corporation are more used to working in the Australia and New Zealand markets where they understand the market environment well and have been setting strategies that have ensured the success of Woolworths in those environments. Any of the new markets that the company will venture into will represent a great cultural and organizational transformation at the top level which will require adjustment of views, plans, focus, and management perspectives on the part of the top management. This change can be managed through intensive study of the new markets to understand their culture and operation. This may include trips to the markets by the top management and interaction with other experts from the new markets to help them change their way of thinking and operation to fit the new needs. The new employees that will be required to work with the newly established Woolworths stores will also experience considerable change in culture and way of doing things when than they are used to. It is important that these employees be helped to accept the company culture, value and way of doing things through training, motivation and gradual adjustment. A few workers may have to be expatriated from Australia to go and help in establishment of structures and introduction of new work ethics that are expected of Woolworth employees. For example, Woolworths may want to operate 24 hours shopping as part of the new strategy to gain more customers in the market. This may be a change in work culture for the new employees that will need to be slowly inculcated in them before it can start working perfectly. Training, guidance and motivation are some of the best strategies for implementing change (Magretta, 2002). 7.0 Conclusion Woolworth is a well established brand in the retail market in Australia and New Zealand. With those markets now at the maturity stage, they are characterized by great competition between companies and low product differentiation. To maintain profitability, Woolworths has got to look beyond the current markets and take the opportunity that has presented itself in the form of new emerging markets. These markets present the greatest potential for expansion because of their largely untapped consumers. With its strengths of huge resource base, long time experience and expertise in the retail industry, and a strong brand, Woolworths Corporation has a chance of performing well in these new markets if the company takes the opportunity to expand its operations into these new markets. The most important thing required for the exploitation of this opportunity is a good market entry strategy that can function in new markets with different culture from that in Australia and New Zealand. References Alam, Q. & Majumdar, N. A., 2011. Woolworths Limited: Retail leader in Australia. Case in Business and Management. Victoria: Tilde University Press. Cotterill, R. Walker., 2006. Antitrust analysis of supermarkets: global concerns playing out in local markets.” The Australian Journal of Agricultural and Resource Economics 50, 17-32. Dess, G., Lumpkin, T. & Eisner, B., 2007. Strategic Management: Creating Competitive Advantages. New York: McGraw-Hill/Irwin. Johnson, M. 2010. Seizing the white space: business model innovation for growth and renewal. Boston, Mass.: Harvard Business Press. Johnson, M. W., Christensen, C. M. & Kagermann, H. 2008. Reinventing Your Business Model. Harvard Business Review, 86, 50-59. Keith, S., 2012. Coles, Woolworths and the local. 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Annual Report http://www.woolworthslimited.com.au accessed March 2014 Woolworths Limited, 2012. Annual Report http://www.woolworthslimited.com.au accessed March 2014 Read More