Business Strategy of AMT Coffee - Case Study Example

Business Strategy Analysis of AMT Coffee Table of Contents Introduction 3 Business Level Generic Strategy 3 Different Strategic Development Directions 4 Ansoff Matrix 5 Evaluation of directions and Implementation Process 7 Key Issues for Implementation 8 HRM Functional Issue 8 Specific Business Function Issues 8 Change management Issues 9 PESTLE Analysis 9 Porter’s Five Forces 11 Conclusion 12 References 14 Introduction AMT coffee can be considered as one of the leading coffeehouse chains headquartered in UK. The organization was founded in the year 1993. The organization started its business operation process from Oxford City Centre. Slowly and gradually, the organization adopted and implemented several unique strategies in business operation process in order to gain potential competitive advantages over its competitors. This particular company is the first organization in the industry that used 100 percent organic milk and 100 percent fair-trade coffee to offer products to the customer. The organization is popular among its potential target customers across UK due to its adopted and implemented ethical strategies and approaches in business operation processes. The organization was named as the most ethical and renowned coffee chain by the ethical consumers in UK in the year 2011. The coffeehouse chains are mainly located in the railway stations. In addition to this, the organization also operates with small coffee kiosks on several station concourses across UK. In some cases, these kiosks are extended in coffee lounges that increased the popularity and acceptability of the brand among the target customers. However, the organization has developed unique business level and functional strategies in order to gain potential competitive advantages. But, some internal as well as external challenges created possible issues for the management of the organization. It affected the sales growth rate and profitability of the organization. This report will analyze the organization’s adopted strategies and issues that are faced by the organization with the help of strategies and models. Business Level Generic Strategy Porter’s generic strategy can be considered as one of the important strategic analytical tools that will helps to evaluate the adopted business level strategy of Amt Coffee. Business level strategy can be divided into three types, such as cost-leadership strategy, differentiation strategy and focus generic strategy. The management of AMT coffee has focused on these business level strategies in order to gain potential competitive advantages over the competitors (Augen, 2008, p.73). The organization has focused on differentiation generic strategy in order to gain potential sales growth rate. Effective adoption and implementation of differentiation strategy has helped the management of the organization to increase the number of kiosks and coffeehouse chains across different parts of UK. In addition to this, the management of the organization has decided to increase the number of differentiated menu items in order to increase the brand loyalty and brand awareness of the products (Bains, 2011, p.28). There are several organizations that have used cost leadership business level strategy in order to offer products and services at economic price level. It has increased the degree of industry competitiveness or rivalry. In terms of cost leadership strategy, the management of AMT Coffee has adopted cost-based premium pricing strategy. The organization offers seasonal discounts on each and every product line during the festive seasons. However, recent financial crisis and global economic recession affected the purchasing power and disposable income of people. Therefore, the sales growth rate of the organization has reduced slightly during that period (Blewitt, 2008, p.72). Therefore, it can be stated that the management of AMT coffee has strongly focused on only differentiation strategy in order to offer high quality differentiated and diversified products and services at cost-based price. Different Strategic Development Directions It is clear from the above mentioned generic strategy option that the management of AMT coffee has strongly focused on the differentiation generic strategy. Therefore, the organization has to change its strategic direction by looking into the unfavourable economic environment of the country (Blythe, 2012, p.48). The global recession and recent financial crisis of UK has affected the economic environment of the country. In addition to this, the purchasing power and disposable income of the common people also got affected by this economic slowdown (Boreham, Parker and Thompson, 2007, p.147). Therefore, it is highly important for the organization to co0nsider the strong market penetration approach through the use of cost leadership strategy as it can help the organization to increase brand loyalty and level of acceptance of the products quite effectively (Armstrong, 2002, p.18). Following Ansoff matrix will help the organization to determine the available and most effective strategic direction for it. Ansoff Matrix This analytical tool consists of four different elements, such as market penetration, market development, product development and diversification. All these elements will be discussed with respect to AMT coffee. Market Penetration In terms of market penetration, the adopted differentiation strategy has helped the organization to increase its sales growth rate. But, lack of adoption of cost leadership strategy has affected the potential sales growth rate comparing to other competitors (Carrollo, 2012, p.35). The lack of economic pricing strategy has created difficulty for the organization to penetrate the market place. Product Development In terms of product development, the organization used 100 percent organic milk and 100 percent fair-trade coffee to offer products to the customer. In addition to this, the organization has strong and diversified product portfolio (Chaffey, 2008, p.192). Continue development of differentiated products has helped the organization to ensure effective product development aspect according to the needs of target customer. Market Development The organization has succeeded in the adoption and implementation of domestic market development strategy. Strong diversification strategy has helped the organization to focus on effective market development aspect (Choi and Cheng, 2015, p.48). But lack of international expansion has made it difficult for the organization to focus on effective global market presence. Diversification Effective business diversification in domestic market segment has helped the organization to increase its brand value and brand name among the target customers (Collins and Shemko, 2009, p.79). But lack of global diversification has somehow affected its overall market share growth rate comparing to the other competitors. Evaluation of directions and Implementation Process According to the above mentioned Ansoff strategic analysis, it is clear that the management of AMT coffee is suffering from two different strategic issues. One is business level strategic issues and the other is corporate level strategic issue. In terms of business level strategic issue, the lack of adoption of effective cost leadership strategy has created serious problems for the organization in UK market place due to unfavourable and inadequate economic environment of the country (Dibb, 2012, p.71). In terms of corporate level strategic issue, the lack of global diversification strategy has created problems regarding sales growth rate and global market share growth rate issues. It affected huge problem for the management of the organization in this competitive business environment (Adrian, 2000, p.91). It is highly important for the organization to overcome these issues in order to stay competitive. First of all, it is highly important for the organization to adopt cost leadership strategy. It will help the management of the organization to offer the differentiated products and services at economic and competitive price to the target customers (Doole, 2012, p.45). In addition to this, reduction of unnecessary cost in business operation process through the adoption of cost leadership strategy will help to gain potential competitive advantage over its competitors. Overall, it will help to penetrate the entire market place. On the other hand, the global expansion strategy will help to strengthen its brand name not only in UK market, but also in the diversified global market place (Doole and Lowe, 2008, p.96). This strategic approach will help the organization to overcome the threat of degree of intense industry rivalry. In addition to this, it will help the organization to develop a potential client base across the globe (Aaker and McLoughin, 2009, p.84). Overall, it will help to increase its market share in both international as well as domestic market place. Key Issues for Implementation There would be some key implementation issues that may be faced by the management of AMT coffee during the implementation of proposed strategy. These issues are discussed below. HRM Functional Issue In terms of HRM issues, the organizational has to focus on workplace cultural diversity during the implementation of global market business expansion strategy. The organization needs to focus on effective leadership style in order to overcome these issues (Dreansfield, 2001, p.87). Too much cultural diversity in workplace regarding global expansion can affect overall workplace environment. It will also affect the collaborative workplace environment during the created issues among the employees of different cultural background. Effective democratic leadership style and adoption of cultural workplace diversity will help the organization to overcome the HRM functional issues and will improve the performance level of the employees in different parts of the world. Specific Business Function Issues Resource sourcing, resource allocation and development of the supply chain network in different parts of different countries during the adoption of global market expansion strategy can become a specific business function issue for the organization (Fabio, 2014, p.51). On the other hand, development and implementation of cost-leadership strategy can create a negative perception in the minds of the target customers regarding the quality of the offered coffee products. Effective awareness programmes, marketing campaigning, and strong research and development team will help to solve these issues. Change management Issues Immediate change in both business level and corporate level strategies can create misunderstanding and miscommunication among important stakeholders and management of AMT Coffee (Fyall and Garrod, 2005, p.64). It can affect entire strategy development, decision making and implementation process. Therefore, it is highly important to engage important stakeholders in decision making process in order to overcome the possible change management issues that may affect overall business performance of the organization (Ferrell and Hartline, 2010, p.55). PESTLE Analysis PESTLE analysis can be considered as one of the important strategic analytical tool that will help to evaluate the impact of external environmental factors on the business performance of AMT coffee. Political UK is politically stable. The government of UK is supporting the business operation process of coffee shop chain industry as the growth of this industry is helping to solve unemployment issues and is also helping to meet the social demand of consumers (Hall, 2007, p.28). Looking into these aspects, it can be stated that the political environment is favourable for the organization. Economical Recent financial crisis and global economic recession affected the economic environment of UK. Low disposable income and limited purchasing power of people are major consequences of this economic slowdown (Henry, 2011, p.39). Therefore, people are trying to limit their purchasing activities. Therefore, it can be sated that economic environment is slightly unfavourable for AMT coffee. Social Social environment is favourable for AMT coffee as the demand for differentiated and healthy coffee products is highly increasing among the people of UK. Therefore, it can be stated that focusing on cost leadership strategy will help the management of the organization to capitalize on the opportunity that has been created due to favourable social environment (Hill, 2009, p.82). Technological UK is technologically developed. The organization can get support of advanced technological resources and applications that may bring pace and effectiveness in entire business operation process (Hill, Jones and Schilling, 2014, p.54). Therefore, it can be stated that favourable technological environment will help to enhance positive sales growth rate. Legal Legal environment is slightly unfavourable for the management of AMT coffee as the government of UK has developed several strict legal policies, such as strong business ethical standards, employment standards, and industry environmental standards (Humby, 2007, p.82). Therefore, it is highly important for the organization to focus on these policies to avoid possible legal threats. Environmental The government UK has developed several strict general environmental policies for the business firms. In addition to this, the government has aimed on the reduction of the carbon emission level by 80 percent in next two decades (Jeannet, 2005, p.65). Therefore, it can be stated that environmental challenges can hamper the sales growth rate of the organization. Porter’s Five Forces Porter’s five force model can be considered as one of the important strategic analytical tools that will help to evaluate the impact of external competitive factors on the business performance of AMT coffee. Buyer’s Bargaining Power The threat of buyer’s bargaining power is very high for the organization due to strong industry competition and high market saturation. In addition to this, several organizations within the industry are trying to offer high quality and differentiated coffee products at economic price level (Kotler and Armstrong, 2011, p.78). Therefore, the organizations can easily switch over to the preferable brands from an existing brand. Supplier’s Bargaining Power The threat of supplier’s bargaining power is very low for AMT coffee as the industry is enriched with effective and cost-effective suppliers (Kotler, Burton and Deans, 2012, p.31). Therefore, the organization can select a cost and time effective supply chain option. New Entrant’s Threat Threat of new entrant is very low for the organization as the existing organizations have developed strong client base and have effective market share growth rate (lamb, 2010, p.91). In addition to this, high market entry cost and strict legal entry barrier will reduce the risk for AMT coffee. Substitute’s Threat Tea and other energy drinks are major substitutes of coffee products. On the other hand, the social demand for these substitute drinks and food products is increasing significantly among the people of UK (Lencioni, 2012, p.32). Therefore, it can be stated that threat of substitute is high for AMT coffee. Degree of Industry Rivalry The coffee chain industry in UK is highly competitive as well as saturated due to presence of several leading organization. Each and every organization is implementing unique strategies in business process to gain competitive advantages (Lynch, 2007, p.12). Therefore, it can be stated that degree of industry rivalry is high for AMT coffee. Conclusion It is clear from the above discussion and analysis that AMT coffee is one of the leading organizations within the UK coffee chain industry. 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