John Lewis Partnership Business Analysis - Essay Example

?Introduction John Lewis Partnership is one of the leading employees owned organization running different businesses including John Lewis Departmental store, Waitrose and Ocado. The overall business model of the firm is unique in the sense that it is owned by a trust on behalf of employees with employees working as partners with appropriate share in the profit of the firm. Profit to the employees is often paid as a contribution towards their salaries thus increasing their overall salaries and compensation. Founded in 1864, the firm, due to its democratic nature of policies and procedures soon started to distribute its profits to the employees and also started to make expansion into the market. Initially started as a draper store in Oxford Street London, the firm has been able to make critical progress over the period of time by making acquisitions of strategic nature. The very structure and organization of the firm therefore provides it a unique identity and organizational culture which has allowed it to develop and grow over the period of time. A closer analysis of the financial performance of the firm would suggest that it has been able to continuously register an increase in its profitability and revenues. Such consistent performance of the firm therefore indicates that it is one of the leading businesses with stable revenues and profitability. This report will analyse the strategic position of John Lewis Partnership, making direct reference to the key challenges and opportunities for the organistaion and the capabilities which John Lewis can utilise in addressing these issues besides critically evaluating the current strategy of John Lewis and comment on their appropriateness to the competitive position. A Brief History of John Lewis Partnership John Lewis Partnership started as a draper store in Oxford Street, London in 1864 by John Lewis. The store later on went on to become the departmental store when Mr. Lewis started to purchase other stores and started to expand his business. The store thrived on the promise that the prices will be low as long as long as the prices of the neighborhood stores are low. This strategy seems to have worked for the store and store soon started to grow and generate higher levels of sales. In 1905 John Lewis purchased Peter Jones and made a change towards becoming a departmental store. It was during 1914 that John Lewis gave control of Peter Jones to his son who started the store on more modern footings and implemented new organizational changes including making employees as partners in the firm. 1 During 1955, firm opened first Waitrose store and the management also changed from Lewis family to Bernard Miller. However, after the retirement of Miller, the management of the firm was transferred back to the family. Management again changed during 1990s when Peter Lewis retired as Chairman of the firm. John Lewis’s major strategic change occurred with the launch of its online store during 2001 and the establishment of Ocado. Ocado was opened in order to deliver the grocessories purchased on Waitrose. (Wilson & Reynolds, 2006). John Lewis is now in the top 10 list of retailers in the country with more than 30 John Lewis Stores and 246 Waitrose supermarkets.2 SWOT Analysis SWOT Analysis of the firm is as follows: Strengths 1. Rich history of successfully operating for more than 200 years. 2. Overall organizational structure and democratic nature of the firm. 3. High level of employee motivation because of employee partnership in the business. (Russell, 2010). 4. Large and diversified network of stores and web stores. 5. Efficient and effective supply chain management system. 6. High brand recognition and value in the eyes of customers Weaknesses 1. Only caters to the mid and high end customers. 2. Privately owned partnership therefore restricting itself to procure cheaper funds from capital markets. 3. Largely concentrated into UK with no or very little presence abroad. 4. Too few departmental stores across the country i.e. less than 30 considering 200 years history of the firm. Opportunities 1. Opportunity to expand in international markets specially in Europe 2. Opportunity to diversify in other lines of businesses. 3. Expansion into low end market to cater to the needs of low income customers. Threats 1. Adverse economic situation may prove detrimental for the firm in short run. 2. Competitors serving low and middle income group customers may overtake the market gradually. In order to take advantage of its opportunities and avoid the threats, firm need to consider its existing strategic position in the market. Following sections will discuss and explore different factors outlining the strategic position of the firm. PESTLE ANALYSIS In order to critically evaluate the strategic position of the firm and its strategies, it is important first to evaluate the external environment of the firm and how it can affect it. Political Factors UK is considered as one of the oldest democracies in the world with a strong government and political institutions in place. Apart from that democracy in the country is considered as most suitable for the businesses with less intervention from the government. It is also important to note that UK is a welfare State and State offers many benefits to the citizens thus effectively increasing their purchasing power. As such political factors within UK are most conducive for conducting the business with less or no intervention from the government. Administrative machinery in the country is less bureaucratic and therefore does not create strong red tape for the businesses. (Carey, & Lawson, 2011). Economic factors UK’s economy is going through recession since last few years due to the prevailing global financial crisis. UK has experienced negative growth in recent past and the economic recovery is also slow and gradual. (Duncan, 2009) . Due to increasing level of unemployment, the overall purchasing power of the consumers has declined too. Further, as a result of the tighter control on credit by the banks, consumers are finding it hard to get the credit in order to make purchases despite the fact that interest rates are low. Economic factors may therefore be significant for John Lewis due to the fact that consumers will prefer to purchase less and less as the economic conditions become difficult. It is also however, important to note that during last one decade, the profitability of the firm has remained good and it’s only during 2010-2011 that the firm’s profit for the year has declined. It is also important to note that UK government has increased the VAT and has also announced plans to reduce the State benefits. Increased VAT therefore is believed to be increasing the overall costs for the consumers and a reduction in profitability for the firms. Social Factors The demographic trends in the country suggest that the population is ageing in UK thus potentially changing the way consumers shop. (Kinver, 2010). Since ageing population does not earn that much therefore it can be a significant factor which can affect the overall performance of the firm over the long period of time. It is also important to note that Britain as a nation is consumption based society where higher level of consumption and low savings is considered as a social norm. Though the savings patterns are changing due to tough economic conditions experienced by the consumers during the recent past however, society still remains a consumption based society. Such trends therefore can potentially affect the business and future strategic direction of the firm. Technological factors John Lewis is in the retail business therefore technology directly may not affect its business and its future strategic direction. However, one of the critical trends which are emerging is the online shopping of the retail items. In order to take advantage of the online markets, the firm has already launched its website and other allied services to take advantage of the technology. It is also important to note that the overall impact of the technology will be different in different segments of the business. Business segments like groceries may not be directly affected by the technology except the fact that consumers might prefer to buy online. Thus an extensive online presence and how the technology for ecommerce changes shall be a strategic priority for the firm.( Brown, 1990). It is also important to note that the trends such as social media and marketing are increasing providing a new and unique way to increase the access and reach to the customers and further increase the market penetration. JL will definitely be affected by how the technology and trends for social media and marketing emerge in the future. Legal Factors As described above that UK is a market based economy therefore rules and regulations are often in business friendly manner. Regulations as well as laws allow the holding of private property and allow the individuals to take on any business activity for the purpose of earning profit. Private property rights as well as the permission to engage into business for the purpose of profit therefore are two of the important elements which allow the firms in economies like UK to thrive and prosper. As such the overall impact of the legal factors on the firm will be minimal and the firm can easily navigate itself amid the current regulatory framework of the country. Environmental Factors Though John Lewis is involved in the retail business with potential harm to the environment directly however, firm has faced legal disputes in the past regarding the impact of the opening and construction of John Lewis stores on the environment. Since departmental stores often occupy large spaces and extensive exploitation of the land area, such activities therefore can potentially damage the environment and can cause significant strategic challenges for the firm. 3 Environmental factors can also be significant in terms of the firm’s overall supply chain management because the overall suppliers network of the firm is spread all over the world. Issues such as environmental damage in terms of supplying different items sold by the firm are really important considering the fact that consumers are increasingly becoming more and more ethical about what they purchase and to whom they purchase with. (Cathcart, 2006) Retail Industry and Market Segmentation UK is predominantly a services oriented economy despite the fact that it emerged as the leading industrial nation of the world. Its retail sector is also one of the largest and growing sectors of the economy with overall annual sales in excess of ?280 billion. It is also because of this reason that the retail sector in UK is also the largest private sector in the economy employing 2.9 million people. The retail sector which covers retail items such as groceries, clothing, fashion, consumer electronics items as well as home ware is mostly dominated by very few but large players dominating the whole market. The overall concentration in the industry is so high that more than 65% of the employees are hired by the small number of large retailers whereas almost 70% of the annual turnover is also generated by these large firms. It was reported that there are more than 280,000 retail units in the country with more than third of the shopping is done through the retail shops. The case of John Lewis in terms of its industry is relatively difficult to assess as it is at competition with different players working in different industries. Its major competitors are Asda, Tesco as well as Marks and Spencer with Tesco being the market leader. However, John Lewis (JL) also seems to be competing with other firms in the market such as Argos and Currys Digital. Due to fragmented nature of the industry, the overall degree of competition is relatively high as the competition arises from multiple sources. It’s also because of this reason that the overall margins in the industry are low and only big players tend to survive at such low prices. Most of the players have therefore developed better online presence through effective e-strategy. ( Chadwick, Doherty, & Anastasakis, 2007). Porter’s Five Forces Porter’s five forces analysis is used to assess the overall competitiveness of the industry and how the firm is placed within the industry. A Porter’s five forces analysis for JL is presented below: Threat of New Entrants As discussed above that the industry is dominated by the large players however, due to low cost of entry and the overall nature of the business, new entrants can easily enter and exit. It is also because of this reason that street shops are also considered as competitors of large retail firms because of their local presence. The overall switching cost in the industry is very low and consumers often prefer to shop from someone offering low prices. However, due to nature of large retail firms, they enjoy substantial economies of scale as well as better access to the distribution channels thus allowing them to have dominating position in the market. (Dandy, 1996). The overall threat of new entrants remain in the industry however, since most of the new entrants used to be smaller in size therefore they hardly pose any significant threat to the large firms. Threats of Substitutes Since the switching costs in the industry are really low therefore the overall threat of the substitutes is relatively greater. Consistent flow of the Chinese products especially electronics items therefore can pose a significant challenge to the firm and its ability to excel in different segments of the business. Since industry is fragmented in the sense that there are large number of smaller players in the market offering low end cheaper products therefore the overall threat of the substitutes remain significant. Bargaining Power of Suppliers The overall concentration of suppliers is low in the market as most of the players tend to purchase from the international markets. Since most of the items sold are sold as commodities therefore suppliers from developing countries tend to have relatively low bargaining power. Since JL and other competitors compete on the basis of prices which can only be achieved if low cost products can be sourced. Secondly due to the huge buying power of the firms, suppliers tend to have low bargaining power. It is also important to note that the switching costs for the retail firms is relatively low and many suppliers can be found across the globe offering commodities at relatively lower prices. Secondly, the overall differentiation power of the suppliers products is low due to the generic nature of the goods therefore suppliers tend to have low bargaining power in some segments of the business such as groceries. Bargaining Power of buyers As discussed above that the switching cost for the buyers is relatively low therefore the overall bargaining power of buyers is high in this industry. Further, since retail industry not only faces competition from its direct competitors however, there is also competition from the resellers and original manufacturers of the items also. This is quite significant in the electronics market where other players such as Curry digital, Argos, original manufacturers of the electronics items such as Sony. Further, the number of buyers as compared to total number of sellers is relatively high and buyers can use multiple sources to buy the product. Further the overall threat from the sellers to engage into the forward integration is also low thus giving buyers a great bargaining power to force many firms to keep prices at low. (Jones, Comfort,& Hillier,2008). Rivalry among firms The overall concentration in the industry is high as there are very few firms in the market which dominate the whole industry. Further, the overall relative size of the competitors is also high as compared to the individual size of the firm. For example, Tesco holds more than 30% share whereas ASDA has more than 19% share suggesting that almost 50% of the market is controlled by just two firms. Such high level of concentration in the industry despite the fact that growth rates are stagnant indicates that the industry has transformed itself into a mature industry with little room for achieving consistently high level of growth. Though industry lacks the product differentiation and diversity of the competitors however, there are strong exit barriers due to the high cost of investment involved in building such large chains of stores.( Pepe, Abratt & Dion, 2011) The above analysis suggests that the overall degree of competition is quite high in the industry and firms compete on the basis of prices. The overall strategic position of JL in the industry is therefore that of a firm which is among top 10 retailers in the economy however, it cannot be considered as a dominating player in the market. Major Competitors and their Performance The major competitors of JL include Tesco, ASDA and M&S with Tesco being the industry leader in the market. Market share for Tesco is over 30% which is also gradually increasing despite the fact that the overall market situation is relatively not good for the industry. (Wood, 2010). It is also important to note that the other players in the market such as Morrison as well as Sainsbury’s are also potential competitors of the firm. It is also important to note that the market share of ASDA is gradually decreasing whereas the market share for Waitrose- one of the stores of JL is increasing. These trends suggest that the consumers tend to prefer to shop with the brands which are truly local as Asda belongs to Wal-Mart- an American retail giant. One of the bases of the competition in the industry is the pricing in which almost all the major players in the market are engaged. The overall performance of the firms therefore is largely dependent upon offering consistently competitive prices for the consumers. (Fernie, Sparks, & McKinnon, 2010) Also the overall basis of competition is increasing in terms of the online presence where major players have developed significance online presence. Tesco, ASDA as well as M&S all have developed their online stores and offering facilities for purchasing of groceries as well as other items online with free shipment services. JL has also developed such services and is also running Ocado as a separate service to deliver groceries purchased through Waitrose. Comparative Analysis A closer analysis of the competition of the firm would suggest that the firm is equally placed with its major competitors. Its overall brand recognition is relatively superior as compared to other brands such as ASDA. A Comparative analysis of JL with its major competitors would reveal that JL is different in terms of its overall ownership structure as well as organizational culture. JL is owned by its employees and the profits are distributed among the employees as the shareholders and partners in the firm whereas most of the competitors of the firm work on the basis of the traditional shareholders type of organizational structure. The key differences between the ownership structures of the firms therefore provide a relatively unique competitive advantage to the firm in terms of its overall employee motivation. The key strategic differences between the JL and other firms also lie in the history of the firm and its ability to generate consistently high profitability. Despite the fact that firm has relatively lesser number of stores in operations, its overall brand value and recognition is relatively higher as compared to its competitors. Its online presence and the strategic development of Ocado played a critical role in making Waitrose as one of the leading online grocer in the country. The above analysis also suggests that the JL is not a dominating firm in the industry as almost 50% market share is controlled by only two players in the market. This however, does not mean that the JL is not a significant player in the market. Given its traditional superiority in offering low cost products leveraged through presence of large number of stores, it is better placed strategically as compared to its competitors. Resource based view analysis Resource based view analysis provides an insight into the core competencies and resources of the firm which can be used in order to take advantage of the competition. Core competencies of the firm therefore allow it to gain competitive advantage and fare well against the competition. A closer analysis of the core competencies as well as the resources of the firm would suggest that its employees as well as the overall organizational structure are one of its key resources which set it apart. Since employees directly share the profits of the firm therefore the overall motivation level of the employees always remains high because of their own stakes involved in the success of business. (Street, 2006). Another important resource of the firm is its ability to offer a multi-channel proposition offering both the on-site and online shopping experience. The website of the firm is considered as one of the best websites in terms of offering a unique shopping experience to the consumers. Waitrose combined with Ocado has also proved a better combination for the firm to utilize because new trends within retail industry suggest that online shopping must be supported by efficient delivery system and JL seems to have achieved such combination. Another important competency of the firm is its ability to keep its costs down and thus offering competitive prices to the consumers. JL has a policy in place which will match the prices offered by the firm to all other stores within the radius of 8 miles. Such policy can only be successful if the firm is able to keep its prices down. Value Chain Analysis Primary Activities Primary activities of the firm are carried out through its retail stores as well as the online stores of Ocado and johnlewis.com. JL has more than 25 full fledged departmental stores and a web store where Waitrose has more than 220 supermarket stores across the country and an online store of Ocado. Thus the firm’s inbound logistic activities are managed through its stores and warehouses along with its web stores. Since firm is a retail business therefore its operations does not involved extensive manufacturing except packing and bundling of products sold through its stores. It is also important to note that the firm’s supply chain policies include different principles such as responsible sourcing whereas the firm attempt to ensure that pay, working hours, child labor issues, health and safety as well as the working conditions are better. Its inbound logistics activities therefore are of relatively more significance and provide it better competitive advantage as compared to others. Outbound logistics of the firm are mostly concerned with delivering groceries purchased through its online store. This is done through its Ocado services where the finished goods are delivered at the doorsteps of the customers. Outbound logistics of the firm also include its stores where it directly sells its products to the consumers. The marketing and sales efforts of the firm therefore include direct marketing and sales to the customers through in-store advertising as well as using other advertising media. Secondary Activities It is also important to note that the firm’s overall supply chain include procurement from the international suppliers. Its primary activities therefore also include coordinating with international suppliers and achieving low cost supply of goods. The management of its supply chain therefore is one of the key competencies of the firm in managing its costs to an acceptable level. Human resource management activities of the firm also provide the firm a key competitive advantage because all the employees are also considered as the partners in the business with due share in the profitability of the firm. Till now there are approximately 70000 so called partners in the firm who are also employees of the firm and carry out the normal day to day business activities of the firm. Firm manages its technology development through constant upgradation of the technology including its inventory management system, payment processing at the stores as well as its web stores. JL has to manage more than 350 lines in its stores and it has been made possible through its extensive investment into RedPrairie’s Warehouse Management and Workforce management system which has not only allowed it to better manage the inventory but also keep its costs down. A closer look at the infrastructure of the firm would suggest that it is run by a trust with the help of a Partnership board. Board has the overall responsibility for the management of commercial activity of the firm with chairman leading the business as well as the board.4 Firm has further so called management bodies including Group executive as well as the different divisional management boards. The boards of John Lewis and Waitrose are different however; both the operations are controlled by one chairman. Firm also has the democratic bodies and include divisional councils as well as the branch forums. Firm further has the registrar and the partners councilors in order to ensure that the overall democratic system in the firm remains intact and proper checks and balance system remains in place.5 Critical Success Factors Above discussion therefore suggests that in order to be successful in this industry there are certain critical factors which need to be taken into consideration. Low Prices Probably the key success factor in the industry is the ability to keep prices at low level. Though JL’s target market is mostly focused on the middle and upper class of the society however, it has started to target the low end of the market. As such in order to be successful in this market, it is extremely important to keep prices to at least at the comparable level as that of the competitors. Good distribution network Another important critical successful factor for the firm is having a better and efficient distribution network. This also involves having better and diversified network of stores as well as better online presence. Customer Services Another important element for the success is having better customer services and efficient after sales services. Delivering goods on time as well as offering better customer services in stores is an important source of competitive advantage for the firms. Stakeholder Analysis Given the overall organizational structure of the firm and the fact that the employees serve as the partners in business, the overall presence of different power groups within the organization is relatively negligent. Since firm is run on the democratic grounds with representation of employees at all level, there is very little presence of the power groups within the firm. Employees as well as the management of the firm therefore both are the stakeholders with high power and high interest in the organization and its success. Porter Generic Strategies A closer analysis of the strategy of the firm would suggest that it is following a narrow strategy with focus on the low cost. It works an industry where low cost is the key for survival and the firm has successfully employed the low price strategy over the period of time. The overall strategy of the firm therefore is based on the focus strategy with special emphasis on offering low cost products despite the fact that the firm has historically targeted mid to high end customers. It’s important to note that the focus strategy is best applied when the firms concentrated on a very narrow segment of the market and from there can employ either the cost leadership or differentiation strategy. JL seems to have adapted both the strategies as its online store Ocado offers a unique differentiation flavor to it due to its better delivery system as well as the complete user experience. Differentiation strategy is followed in the sense that that firm is targeting a very specific segment of the market with higher income levels and better purchasing power. It is also however, important to note that despite perusing the low cost and differentiation strategies are adapted because the firm has been able to achieve the economies of scale over the period of time. Through careful development of its supply chain, firm has been able to create a cost advantage which is allowing keeping its competitive advantage intact. Ansoff Matrix Ansoff Matrix provides key insights into what strategies firms have to take and what are some of the ways under which firms can actually take advantage of its strengths and weaknesses. (Watts, Cope & Hulme, 1998). A closer analysis of the strategies of the firm using Ansoff matrix would suggest that the firm is engaged into the market penetration strategies. Firm is utilizing its existing products in the existing markets and employing a market penetration strategy with the help of low prices and better management of its online presence. This strategy is useful in the sense that JL has very little presence abroad and it is in direct competition with other players in the market. A closer look at the overall pricing strategies and the bundling of the products along with the aggressive advertising efforts suggest that the market penetration in the existing markets with the existing products is the most suitable strategy which the firm can employ in the given situation. It is also however, important to note that such strategy may not be suitable in the sense that it may restrict the potential of the firm in the long run. Since JL has no presence abroad therefore this strategy may seem suitable in UK market but at the same time it is also restricting it to expand in other markets. Another important reason as to why the firm may have stuck with UK markets may be based on its overall organizational structure and the partnership with the employees. Firm may not be either willing or due to legal reasons share its profits with its potential employees abroad. Conclusion UK is predominately a service oriented society with retail sector forming a significant portion of the economy being the largest in the private sector. The above analysis suggests that John Lewis Partnership is well placed among its competitors and is one of the leading retail chains in the country. Its target market is based upon middle and high income level groups however; it has also started to focus on the low income consumer groups also. Its core competencies include its ability to offer low prices to its customers, its employees and organizational structure as well as the better utilization of technology. It is focusing on market penetration strategies in its existing markets with focus on low cost and differentiation strategies. These strategies are more suitable given the overall strengths and weaknesses of the firm. firm has mostly concentrated itself into the domestic market however, I has the opportunity to expand into international markets given its overall history and expertise in retail sector. References 1. Atilgan, C, (2011). Improving supply chain performance through auditing: a change management perspective. Supply Chain Management: An International Journal . 16 (1), pp.47-55. 2. Brown, S (1990). Innovation and Evolution in UK Retailing: The Retail Warehouse. European Journal of Marketing. 24 (9), pp.62-69. 3. Carey, S & Lawson, B (2011). Governance and social capital formation in buyer-supplier relationships. Journal of Manufacturing Technology Management . 22 (2), pp.89-97 4. Cathcart, A (2006). A quite unreasonable state of affairs: Corporate Social Responsibility and the John Lewis Partnership. Social Responsibility Journal . 2 (2), pp.45-53. 5. Chadwick,, F , Doherty, N, Anastasakis, L (2007). 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