Corporate Culture and Strategy: Hotel Chocolat - Case Study Example

Hotel Chocolat Table of Contents Table of Contents 2 Introduction 3 Part A 4 Strategy Clock 5 6 ANSOFF Matrix 8 Part B 10 SFA Analysis 10 Part C 13 Recommendation 13 Conclusion 17 References 18 Introduction Hotel Chocolat is a chocolate making company, well known for making new types of chocolates. It can be said, that this company is among those very few companies which make chocolates by growing cocoa themselves (Hulten, Broweus and Dijk, 2009). The company started its journey as a catalogue business company, but soon after its success in the initial stages the company made a plan to set up a website in the UK. Even in this case, the company achieved success and started a new strategy i.e. exporting its products to the US via an online ordering website. This strategy helped the company to avoid the risks of Foreign Direct Investment. Then the company started expanding in its domestic land and opened almost 43 stores in the UK and 23 stores inside John Lewis outlets. Hotel Chocolat mainly aims at making fresh chocolates which are way more adventurous in terms of taste. It produces chocolates using less sugar and more of cocoa, very different from the chocolates made by other companies. It follows originality and ethics in its services (Hotel Chocolat, 2010). In order to learn cocoa plantation the company decided to work with the local communities of Ghana. After achieving success in the production of chocolates, the company started many new projects. The company opened a restaurant called Boucan at its cocoa estate located in Saint Lucia. After its expansion in the domestic land, the company is now aiming at internationalisation. For this, the company needs an internationalisation strategy. According to Tyndall, Cameron and Taggart (1990), companies should achieve control over the business operation of both international and foreign market in order to achieve their strategic objectives. The next section of the study will discuss strategic options for the chosen company. In the first part it will be shown how the company will move towards diversification of products in the niche market and also show its internationalisation strategy, by using strategy clock and Ansoff’s matrix. In the second part, using suitability, feasibility and acceptability analysis model an analysis will be done to see whether or not the strategic options selected for the company in the first part is justified. In the third part, recommendation is to be provided, which is based on the directions and methods of strategic development which is appropriate for the organisation for the next 3 to 5 years. Finally, a conclusion will be drawn on the entire project. Part A At first it has to be decided, which strategy out of the three strategies of Porter’s generic strategy model the company should follow. The three strategies are cost leadership, differentiation and focus (Bruton, n.d.). Doise (2008) and Johnson (2008) have pointed out that Porter’s generic strategy can be segregated into four sub-strategies, such as cost leadership, focus strategy, focus differentiation and differentiation strategies. A company follows the cost leadership strategy in order to provide services at a cheaper or lower cost compared to the competitors. A company follows the differentiation strategy when it emphasizes on achieving competitive advantage over business rivals through diversifying its product portfolio. It follows the focus strategy when it wants to provide service to a focussed market. The focus differentiation strategy is a mix of differentiation and focus strategy and is a broader concept. The company Hotel Chocolat follows focus strategy concentrating mainly in the chocolate segment. Hence it should take steps to focus on differentiating its products and services by bringing more variability in it. The model of strategy clock is being used to reach the desired strategic option. Strategy Clock Porter (1980, 1985 and 1991) has stated that companies should adopt specific strategies in order to achieve competitive advantage over competitors. Research scholars such as Eldring (2009), FitzGerald and Arnott (2000), Grant (2010) and Griffin (2010) have pointed out that following a single pure generic strategy might not help a firm to survive in competitive business environment, hence companies should use mix of generic strategies to achieve competitive advantage over business rivals. According to Lowy and Hood (2004), generic competitive strategies are not much of a help for small firms. For example, low cost strategy cannot help a small firm to achieve competitive advantage because adopting low cost strategy requires huge amount of resource deployment, which might not be possible for small firms. These scholars have stated that companies need to adopt “Strategy Clock Model” in order to achieve competitive advantage. The Strategy Clock Model represents different positions of the companies in the market where their customers have different requirements. It consists of a set of generic strategies in order to achieve competitive advantage. It is a 360 degree model by Bowman and Faulkner extending the three strategies of porter generic model to eight strategies (Needle, 2010, p. 281). (Source: Thomson, and Fuller, 2010, p.184) This strategy clock shows eight positions having different levels of price and value. Position 1: This is a position where the companies never want to stay. They forcibly find themselves in this position because of the reason of the low differentiated value of their products in the market. The only solution for the companies in this position is to sustain in the market is through effective cost selling volume and by attracting the new customers continually. Position 2: The companies lying in this position are low cost leaders offering minimum price for high volumes of services. This becomes a strong reason for companies to sustain in the competitive market and become more powerful. One of the best examples is Wal-Mart, which offers higher volumes to the customers at a lower price. Position 3: The companies lying here are companies providing products at a lower cost but with higher perceived values. As they promise to provide reasonable goods at fair prices, so volume does not become an issue and these companies sustain well in the market because of their reputation. Position 4: The companies lying in this position offer differentiated products and services to their customers for which they charge either high or low cost and acquire greater market share in order to sustain themselves in the market. Position 5: This is a position where the companies offer high perceived value and high price. The customers expect higher perceived value on behalf of the high prices charged. The customers make their decisions based on the perceived value only. So the companies lying in this position sustain by targeting their market. Position 6: The companies in this position increase the price of their products but do not bring any change on the other side which is the value of the products. The value of the products remains same. The companies following this strategy can sustain themselves only for a short period of time. Position 7: The companies in this position offer products of low value at higher prices. This is basically a monopoly pricing technique and the companies following this strategy put themselves in a risky position. Position 8: The companies lying in this position offer low value products at standard prices. This is a position not suitable for the companies in order to sustain in the competitive market. Position 6, 7 & 8 are very risky positions and these strategies should not be considered by a company if it wants to exist in the market for a long term. Hotel Chocolat provides chocolates to its customers which are very different from the chocolates provided by the other companies in the market. Moreover it has also opened a restaurant in its cocoa estate. The company should take steps towards development of new products in the same focussed market. Moreover, it should try to provide some more services to the customers. So it should shift its position from focus strategy to focus differentiation strategy. The company should invest in Research and Development so that it can develop new products, and conduct market research to have exact information about the customer needs. After a proper market research the company should develop innovative ideas for various services that can be provided to gain the attention and attraction of the customers based on their needs. It can update the existing products i.e., to bring some variations in the chocolate production. For example, the company can change the existing flavours or add some more items which will be new to its customers. It can also increase its services, like offering some special lunch or dinner packages that are different from the items offered by other competing restaurants in the same market. ANSOFF Matrix Research scholars such as Mintzberg et al (2009), Pettigrew et al (2006) and Walker (2003) have stated that companies need to change their product portfolio in order to match steps with the multidimensionality of consumer demand. The ANSOFF matrix produced by Igor Ansoff can be another model used as marketing tool for determining the product and market growth strategy (Venture navigator, 2006). Here, it is used to reach to the strategic option of internationalisation of the company. (Source: Stone, 2001, p. 51) According to ANSOFF matrix, companies develop product strategy due to four reasons: 1) Market Penetration- The main objective of market penetration is to sell the existing products only to the existing markets. 2) Product Development- The main objective of product development is to develop new products and services in the new markets. 3) Market Extension- The main objective of market extension is to extend the existing products in new markets. 4) Diversification- The main objective of diversification is to produce new products in the new markets. The objective of diversification becomes risky for any company that adapts it. At first the production of new products should be made in the existing markets and then if the customer feedback is positive, steps should be taken for diversification. Hotel Chocolat should adapt the objective of product development i.e., it should try to expand its operations. Now the company offers only chocolates to its customers. It can introduce some other products which can attract more customers in the existing market. Moreover, the company should also adapt the objective of market extension. The company can extend its operation and offer the existing products and services to foreign countries and take a step towards internationalisation. The company can achieve internationalisation by opening a strategic business unit i.e. a manufacturing unit in the foreign land or it can create a joint venture with any other foreign company. The company already possesses an online website through which it exports its products in the US. It can start new distribution channels i.e. it can start taking orders from other countries as well receive orders via mail or e-commerce. The company can also bring about a change in the pricing policies of its products which can attract new customers from markets outside the country. Part B SFA Analysis After strategizing the business plans, it is time to decide on whether the strategies are going to work in the external environment. The analysis of the proposed strategies can be done by Suitability, Feasibility and Acceptability (SFA) Analysis. Based on this analysis the evaluation of the strategies in the market is decided. Thus it can help the company to evaluate, choose or update the strategies as and when required. Suitability The analysis of whether the strategic choices made are suitable and compatible with the current and expected environment is known as suitability analysis. It determines whether the strategies achieve competitive advantage over the business rivals and also checks if these strategies can overcome or avoid the threats in the market or environment. Thus, as a whole it evaluates each strategic choice made and finds out whether these choices are suitable for existing in the market. As mentioned before, Hotel Chocolat believes in making new types of chocolates. The company believes in uniqueness of its products. It gives importance to the skills of staffs that are actually responsible for the quality of the hand-made chocolates. It has interest in cocoa plantation for which it started working with the local communities of Ghana. The company already follows unique ideas in the production of its products. So differentiation of the products remaining in the same market (i.e. focus differentiation) is the suitable strategic option here. It is so because bringing in more products and services with innovative ideas lying in the same chocolate segment does not affect the demand of the products and services negatively rather increases it. If some more recipes are added, it will help in maintaining the reputation of the company as well as attract more customers. One of the objectives of the company is still left to be fulfilled i.e. to build a boutique chocolate hotel. So it is also taking steps to increase its services. As a result the strategic option of focus differentiation of its product and services is suitable for the company. The company’s marketing capability and excellent technology in developing its website for the export of chocolates in the US helped to understand customer needs and analyse the trends in the change of the customer’s buying patterns. This will help the company to understand the customer needs in the new market also. Moreover, its advance technology will help to introduce distribution channels in other countries using mail order and e-commerce. Hence the strategic option chosen for internationalisation is suitable for the company. Feasibility Research scholars such as Rumelt (1986), Barney (1986), Dierickx & Cool (1989) and Grant (1991) have stated that companies should use both intangible and tangible resources in order to achieve competitive advantage over other companies. According to these scholars, feasibility analysis mainly looks after the implementation of the strategies and whether they are feasible or not with the current resources of the company. It focuses on the fact that the resources of the company can pursue the chosen strategic choices (Best, 2009, p. 18). In order to make the strategic options feasible it is very important to note if the implementation of such strategic choices involve minimum cost and risk. Focus differentiation is the strategic option that is chosen by means of strategy clock. As the suggested strategy is to produce different products in the existing focussed market only, it will not bear much cost and reduce the scope of high expenses. Moreover, it reduces the risk. So the option is feasible. Market extension is the strategic option that is chosen by using ANSOFF matrix. If the company exports its products to the international market using online sources rather than retail store it can reduce cost. Moreover, selling via retail stores needs more employees and incurs huge costs. If the products get damaged while selling them via retail stores, the company would have to bear a huge loss. On the other hand, online product purchase followed by a careful shipment of those products to the customers reduces the risk of damage. So the online resources suggested for internationalisation is feasible. Instead of operating directly in a foreign country if the company gets into a joint venture with another firm in that country, it will undoubtedly involve lesser risks. Direct operations in a new market without properly understanding the market involves high risks. Joint venture with a foreign company will help to understand the market and after some years of experience in this market the company can start direct operation. Hence the option is feasible. Acceptability Acceptability focuses on the other aspects of the strategic options. It focuses on the financial and stakeholder aspect (Kew, Stredwick, 2005, p. 219). Financial aspect covers the expected return for each strategic choice. The stakeholder aspect of the acceptability analysis evaluates how the strategic options will affect the stakeholders and their reactions to such choices. The company is expecting high return on investment after implementing the options of focus differentiation and market extension. This will satisfy the shareholders who have invested in this company. The profit is expected to increase after the implementation of the strategic options. So the stakeholders are also going to be benefitted from it. Moreover, the online source of selling products will provide quick service to the customers which will result in customer satisfaction. Hence the options are acceptable. Part C Recommendation After the analysis of the market strategies of Hotel Chocolat, the recommendations are: 1. The first recommended strategic option for Hotel Chocolat is to shift from focus strategy to focus differentiation strategy. This strategy combines the two strategies of Michael Porter i.e. differentiation and focus; and is also considered to be a broader concept (Hoskisson, Hitt and Ireland, 2008). A focus differentiation strategy means targeting a small group of customers with differentiated products and services. The main aim of focus differentiation strategy is to generate customer’s loyalty by tailoring the business strategies to the needs of the customers of that focused group. When different types of products and services are provided with attributes to the niche market segment, the reputation of quality of the products and services as well as excellence is achieved based on the needs of the customers in that group. Once the company succeeds in providing products and services with strong reputation and customer satisfaction to a niche market, the premium prices can be changed which will result in high profits for the business. Producing products and services that are better and broader in concept than competition often requires a higher cost basis. However, customers always remain ready and willing to pay more than the added costs in the expectation of the extra value they will receive from the branded products of the company. A successful focus differentiation strategy helps the company to cater to the needs of a specific group of customers in a better way than its competitors rather than to serve a broad market. Once the company achieves success as a leader in that focused market, it may cause the competitors to shift to another niche market or a broader market. For meeting the targeted needs of the customers in a narrow segment, focus differentiators can be more easily adapted to the changes occurring in the product demand as well as the expectations of the customers. Interaction with the customers in a small market segment becomes easy and helps to know their choices regarding the current products. As a result it becomes easy for a focused company to satisfy small market needs with broader products and services than a company targeting a large market. Hotel Chocolat should adapt focus differentiation strategy and aim at providing different kinds of products and services within the same chocolate segment. It should first make a market research and learn the customer needs and then bring in more products according to the customer choices but in the chocolate segment only. It can also provide different services like providing different dinner and lunch offers which will attract more customers. If the company lies in the niche market then it will involve less risk as it already possesses a reputation in the current market. 2. The second recommended strategic option for Hotel Chocolat is to adapt the strategy of market extension. A market extension strategy which in other words is known as market development, brings selling current products in a new market (Phillips, Doole and Lowe, 1994). If a company extends its area of operation and finds new markets for its products and services, it can increase its sales and profits. It may also help in bringing in new ideas about differentiation in the products and services. Market extension strategy requires strong dependence on the internet and focuses on the growth. The company adapting this strategy should have the ambition to be the best in the industry in order to achieve success. Internationalisation means extension of the techniques used in the home country of a company to the outside countries. The advertising should be done initially through internet. The company should have its own website for promoting its products and services. Online selling becomes easier and cheaper than selling via retail outlets which incur more cost. The orders can be received from the customers belonging to the international market through mails. The best way of entering an international market is exporting the products or starting a joint venture with a foreign company. Hotel Chocolat should adapt market extension strategy i.e. internationalisation. It can start a joint venture with any foreign company as that will involve less risk as compared to operating directly in the international market. It can open distribution channels in the international market through internet. Evaluation of Strategy Let us take the help of Rumelt Model for understanding the potentiality of the recommended strategies: Consistency Hotel Chocolat will follow business level strategy while applying the strategic option using strategy clock. The strategic option recommended using strategy clock is focus differentiation. The main aim of the company is to achieve leadership but in the niche market. The strategic option recommended using ANSOFF’s matrix is market extension i.e. introduction of the business in the international market. Hence the aim of the company remains the same in the internationalisation strategy, but in a broader concept. Thus the strategic options are consistent. Consonance The company should consider the external and other environmental trends that might affect it and the external influence supporting the strategies and those that are not supporting them. It should emphasize on political stability and legal structure of the country in which it is planning to start its operations. Entering into a joint venture with a foreign company will give the company an opportunity to understand the external and environmental factors of the foreign country reducing the risk factor on the other hand. Feasibility The strategic options recommended involve low cost. Focus differentiation strategy will not involve high cost as the company only remains in the niche market. Moreover, the steps of entering into a joint venture with a foreign company and the utilisation of online sources for the operations in the international countries involves low cost, hence both the options are feasible. Advantage Hotel Chocolat has already achieved competitive advantage lying in the niche market. The strategic option of focus differentiation will help in earning good reputation. The aim of the company is to achieve leadership in the domestic as well as the global market will help to gain a competitive advantage over its business rivals. Research scholars such as Kogut and Zander (1992) and Boxall (1996) have suggested that, companies should use their internal resources such as human resource, technological skill and tangible resources in order to design their international strategies. The company should use those strategies in order to achieve competitive advantage in the foreign market. Conclusion Hotel Chocolat has been successful in serving the domestic land and has achieved a reputation in the existing market already. It has been successful in expanding its business in the UK. Export is being done only to the US. It has also taken interest in cocoa plantation and has started working with the local communities in Ghana, in order to learn the methods of cocoa plantation. The business of Hotel Chocolat is mainly concentrated in the UK. 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