Business Strategy: The Case Harvey Norman - Research Paper Example

?BUSINESS STRATEGY: THE CASE HARVEY NORMAN of Executive Summary Every business entity develops and relies on particular strategies to ensure its success. The strategies chosen must always take into consideration the external and internal environment within which that firm operates as this can determine its profitability. The case study of Harvey Norman Holdings is a good example of the process of identifying the business strategies. The company formed in 1982 is based in Australia but also operates in overseas markets such as New Zealand, Australia, Slovenia, Malaysia, Ireland and Singapore. Over the last 30 years that the company has been existence, it has grown significantly to become envy for others. To develop its strategies, Harvey Norman had to carry out an analysis of the external environment which encompasses political and legal factors, technological and socio-cultural and demographic factors, environmental and economic factors. These factors may be indicators of opportunities which the company need to maximize on or may be barriers that can limit its operations. It is also critical to carry out the competitive analysis of the firm where the factors that can directly affect the company are assessed. These factors include the bargaining power of customers and suppliers, rivalry, barriers of entry and threats posed by substitutes. This essay therefore presents a review of the macro-environmental and pestle analysis of the company. It also identifies factors which will continue offering sustained competitive advantage to the company. Background Information of Harvey Norman Company Harvey Norman Holdings Ltd is a public company listed on the Australian Stock Exchange market (Harvey, 2010, p. 2). The primary activities of the company comprises of integrated retail, franchising and property entity. Harvey Norman offers franchises to sovereign businesses as owners who sell home and office products within the following categories; furniture, small appliances, bedding and Manchester, electrical, computers and communication equipments, home improvements, carpet, lighting and flooring (Harvey, 2010, p. 3). The company operates in different countries including New Zealand, Australia, Slovenia, Malaysia, Ireland and Singapore. The property portfolio for the company in Australia includes Domayne, Harvey Norman and Joyce Mayne Complexes. In the other countries it operates in, its property portfolio is Harvey Norman and Norman Ross (Pla, 2004, p. 16). Harvey Norman has grown steadily since its formation in 1982 by Gerry Harvey and Ian Norman when they opened the first store in Auburn, Sydney. Over the next five years, the company expanded steadily and managed to open another 12 stores in New South Wales. However, the turning point for the company came in 1987 when it was floated in the stock market and this has facilitated its massive growth ever since (Harvey, 2010, p. 3). As in 2009, Harvey Norman had managed to get to 195 franchised complexes. Gerry one of the co-founders of the company owns 30 percent of the company and according to Harvey, his retailing skills has been of great importance to the growth of the company. Gerry clearly understands the market in which he operates and is able to respond effectively to customer demands (Harvey, 2010, p. 4). Harvey Norman carries out its activities primarily under the Australian franchise system. The company has a strong motto which is similar to ones used when supporting teams. The “Go Harvey, Go Harvey, Go Harvey Norman” is brings out the entrepreneurial spirit and enthusiasm which drives the company. Describing the culture of the company is difficult although like other enterprises, Harvey Norman has taken up the culture of its founders who were great entrepreneurs. The management of the international market however differs from the Australian market. In its overseas operations, the retail complexes are either solely owned or controlled stores operating under the Harvey Norman name. The strategies used by the company to achieve its present growth are of interest to numerous people who would wish to replicate such success in other ventures (Varley, 2010). Macro-Environment Analysis for Industry within Which the Harvey Norman Operates Macro-environmental analysis is the initial step when conducting strategic analysis of a company and it is otherwise referred as pest analysis, external analysis or pestle analysis (Anthony, Daniel and Aidan, 2004, p. 307). The main goal of conducting macro-environment analysis is to help in identification of the opportunities and threats within a particular industry which cannot be controlled by the firm. In macro-environment analysis, the areas of concern include the social cultural trends of the market and its demographic, technology, political and legal environment, economic conditions and environmental factors (Anthony, Daniel and Aidan, 2004, p. 309). Looking at the social-cultural conditions and the demographics within which Harvey Norman operates points to various factors which continues to work in favor of the entire industry. Firstly, the lifestyle of the people has changed and they now demand more equipment for entertainment which means that the electronics industry must continue offering superior products for the same. Additionally, various products which were previously a luxury such as computers have become a necessity to the lives of most people. According to Inma and Shelda (2006, p. 6), presently people are more conscious about the places they live in and they continuously seek to improve their houses and therefore they are constantly demand for such products. Demographically, the population is rising although at a slow pace and the majority of people especially with the Harvey Norman market are between 20 to 65 years (Anthony, Daniel and Aidan, 2004, p. 309). However, there is a significant chunk of the population which comprises of the old people especially those aged between 55 years and above. The economic trends within the market are also critical indicators as they help indicate the purchasing power of the customers. Presently, the economic status of a majority of people is improving given that the amounts paid are rising (Inma and Shelda, 2006, p. 6). However, the interest rates are also high which makes acquisition of the needed capital through borrowing more expensive. The political and legal factors within a particular industry also influence the operations of the firms within that industry. Harvey Norman operates within an environment in which there is political stability. Additionally, the integration of the European Union is critical in the operations of the company as it has lead to harmonization of the trade laws and currency and facilitates the free movement of goods and services. The integration of the European Union also comes with it harmonization of the taxes which makes operations easier. Technology is another critical factor when carrying out macro-environment analysis of the industry. Technological advancement that is occurring in the industry is critical factors which every firm must keep up with (Inma and Shelda, 2006, p. 9). Presently, due to technological advancement more and more firms dealing with similar products as the ones Harvey Norman offers conduct their business through the internet by use of the e-commerce tools. In addition, due to changes in technology, more customers demand for products which are up-to-date with changes in technology. For instance, currently most people would like phones that are able to run many applications. Industry players must therefore keep abreast with changes in technology and stock the latest models of phones, computers and other electronic devices. Every business today is influence by the ecological factors when carrying out its operations. This is because business sources their products from environment, conduct business within it and dispose their waste (Anthony, Daniel and Aidan, 2004, p. 315). Consequently, environmental legislations and regulations may affect a business. In the industry within which Harvey Norman operates, there are various legislations that have been developed when it comes to waste management and the products firms can be able to sell. For instance, the European Union environmental legislations require that firms should not produce products which can harm the ozone and the atmosphere. From the analysis of the environmental factors with the industry, Harvey Norman Holdings needs to ensure that it exercises caution not to pollute the environment as this can cause legal litigations. Competitive Analysis Using Porter’s 5 Forces Model By using the Porter’s model developed by Michael Porter, businesses are able to gain a competitive edge over their competitors within the same industry (Evans and Neu, 2008, p. 137). The model helps the company understand the industry within which it operates and come up with strategies that are superior to those its competitors. One of the aspects of the model is rivalry as competition among different firms can drive profits to zero and push some operators out of business. Harvey Norman Holdings alive to the fact that numerous other organizations are involved in similar businesses has pursued other strategies to deal with them. One of these strategies is product differentiation and changes in price. To achieve product differentiation, the company stocks various products thereby availing to its customers a variety of choices. In addition, product differentiation enables the company attract customers from different sectors thereby increasing sales. The company for instances deals with electronics, phones, bedding among others which means that it provide products for all members of the society. The other strategy used to dispel rivals is by use of online marketing platforms where customers can make purchases from the comfort of their homes. Threat of substitutes is also a critical factor when carrying of competitive analysis of a company. Substitutes refer to those products produced or marketed by other firms in the industry which can negatively affect the sales of a company (Evans and Neu, 2008, p. 137). Harvey deals with some products which have close substitutes and for instance phones and electronics. To deal with this threat, Harvey Norman Company provides superior products from manufacturers. Additionally, it offers competitive pricing and stocks variety of products from which its customers can choose from. The company is dynamic and keeps pace with changes in technology and customer needs. For instance, currently the company is selling smart phones given that more customers are demanding for these products as remaining static would make the company lose its customers to its rivals. The bargaining power of the customer is also a critical factor when carrying out competitive analysis. The bargaining power of customers can put pressure on a firm to reduce prices thereby impacting its profitability (McMillan, 2010, p. 13). When assessing the bargaining power of customers, a firms looks at their concentration, the information held by customers, availability of substitutes and switching costs. Given the availability of numerous firms and alternatives and the availability of information of products and their prices, Harvey Norman relies on competitive pricing where it sells its products at prices that are relatively low. To ensure that the company is able to sell its products at lower prices, the company procures its products from manufactures thereby reducing the cost of middlemen. In addition, by streamlining the delivery system where customers in Australia have some of their products delivered to their homes; the company is able to lock in its customers. The other strategy that has been influenced by higher bargaining power of the customers is the provision of after sale services where the company gives its customers warranties for some products so that they can return them in case of default. The bargaining power of the suppliers is another determinant of the success of a company. When carrying out competitive analysis, the barraging power of suppliers includes consideration of the factors of production such as labor and supply of raw materials (McMillan, 2010, p. 15). To ensure that the bargaining power of suppliers does not negatively affect the success of the company, Harvey Norman has formed closer relationships with its suppliers and employees. This gives an assurance to the company that it will continuously receive supplies and the employees are available to handle the customers. In case the company failed to form strong ties with its suppliers and they refuse to supply products, then the company can end up losing customers. To ensure a good relationship with suppliers, the company also ensures that its pay suppliers and employees in a timely manner and that they are given a good working environment. The other aspect consider in competitive analysis is the threat of new entrants as these may take up the customers. The threat of new entrants occurs given that the company operates in a free market where other businesses enjoy the freedom of entering and leaving the market as they wish (Evans and Neu, 2008, p. 137). To control these threats, the company has formed a large network of stores in and outside Australia. Consequently, a new entrant seeking to compete with the company may find it hard to raise enough capital to compete with the firm giving the company an edge over its competitors. The other barrier to new entrants is that the company has already created customer loyalty among a large chunk of the population and wrestling these customers from it by a new firm may be hard. Resources and competences of the firm which are likely to provide sustainable competitive advantage There are various resources available to Harvey Norman Holdings which can support its competitive advantage over its rivals. One of these resources is availability of many stores distributed in different countries (Pla, 2004, p. 16). These stores give the company the opportunity to get closer to its customers and the customers can get to the stores and buy directly. By having many stores, the company beats its rivals and even new entrants. The other resource that which can guarantee the company sustained competitive advantage is its employees. The employees are able to pass down the culture to new employees and carry on with quality customer service. The experience of the company in this area also offers it an opportunity to continue enjoying competitive advantage for a long time (Pla, 2004, p. 16). The company has been in operations for almost 30 years and this has given its management the opportunity to learn about the dynamics of the industry (Harvey, 2010, p. 4). Another competency that can grant the company sustained competitiveness is the ability to diversify the product offerings as this ensures that the company is able to attract diverse customers and whenever one line does not give much profit, it may be compensated by the other products. Lastly, the company has a large base of loyal customers and this can continue to give it a competitive edge over its rivals for many years to come (Harvey, 2010, p. 5). Business Strategy the Harvey Norman Is Currently Implementing Harvey Norton has realized that it faces competition not only from large businesses conducting their business online but also from small retailers which are switching to carry their business on the internet (Wyk, 2012). Despite the company offering an online platform to make purchases, it seeks to offer them with a seamless continuum where it targets to integrate both its offline and online marketing channels and ensure that its customers have access to its products throughout. To achieve this, the company aims to use mobile phones as a touch-point to its customers. This strategy is supported by the fact that most customers have smart phones from which they can make orders instead of having to rely of computers which are traditionally used in e-commerce (Wyk, 2012). With introduction of mobile commerce, the firm will be able to boost its sales and lead to profitability. Bibliography Anthony, B., Daniel, S and Aidan, V. 2004, “A framework for comprehensive strategic analysis”, Journal of Strategic Management Education Vol. 1: (2), pp 307-342. Evans, G.E. & Neu, C. 2008, "The Use of Strategic Forces to Understand Competitive Advantages Provided by Information Technology", Journal of International Technology and Information Management, vol. 17, no. 2, pp. 137-III. Harvey, G., 2010, “Harvey Norman: Company Profile”, Harvey Norman pp 1-16. Inma, C. and Shelda, D., 2006, “Analysis of Franchise Performance through use of a typology: An Australian Investigation”, Singapore Management Review Vol. 28: (2), pp 1-30. McMillan, C. 2010, "Five competitive forces of effective leadership and innovation", The Journal of business strategy, vol. 31, no. 1, pp. 11-22. Pla, R.L. 2004, "MARKETING MAGAZINE MARKETING AWARDS; High-Performance; It is telling that, when asked to name his favorite brand in the world, Jesse Staines plumps for Audi. He tells our panel of marketing judges that he loves the engineering, the attention to detail and the brand's timelessness. By Ruth Le Pla", Marketing Magazine, , pp. 16-16. Varley, M. 2010, "Harvey Norman teams up with SBS", B & T Weekly, , pp. n/a. Wyk, S., 2012, “Reimaging the Harvey Norman experience”, Business Spectator pp. n/a. Read More