Business Management and Analysis of the Burberry Group - Case Study Example

1. SWOT analysis of the Burberry Group According to information obtained from Burberry’s official website (n.d the Company was established in 1856 and its commitment to quality and innovation in fabric and outwear design earned it a loyal following. Its operations are mainly guided by its mission which is: “To help young people realise their dreams and potential through the power of their creativity...” However, the initiative to close its factory in Ynyswen, Wales, UK and export jobs to countries with lower wages is a cause for concern especially to such a Company which had been thriving on its reputation and commitment to fair and acceptable practices of employment. Thus, the aim of this analysis is to explore the factors that can affect its operations and suggest further considerations in decision making with regards to its environment. The analysis will basically focus on the internal as well as external environmental factors using a SWOT analysis that may affect the operations of the organisation following its move to export labour to countries that pay lower wages and have poor working conditions. “A SWOT analysis is a useful instrument for helping managers to identify internal strengths and weaknesses of a business and external opportunities and threats facing it,” (Strydom J. p 31). Basically, SWOT stands for strengths (S), weaknesses (W) while on the other hand the external environmental factors are regarded as either opportunities (O) or threats (T). This analysis is very important to the managers as it allows them to focus on key strategic issues based on the notion that an effective strategy fully utilises the strengths and opportunities of a business and strives to minimise the weaknesses and threats. This study therefore, is primarily concerned with developing a SWOT analysis for Burberry. Likewise, this organisation does not operate in isolation from other firms. Of paramount importance is the need to establish if the organisation will be able to maintain its dominance in the market with regards to the quality of its products that have greatly contributed to its success over the last 150 years. It is imperative to give a critical analysis of the organisation’s environment in order to get a clear understanding of its operations through an analysis of its internal and external environment. SWOT analysis is primarily concerned with analysing the key factors of the environment and the fundamental internal strengths and weaknesses of the organisation which will help dictate the strategies appropriate to the firm (Robinson 1997). This must be based on a realistic appraisal of the organisation’s past and present performance. The organisation’s strategy must take into account its resources and competitiveness. Therefore, the objective of this analysis is to use the strategic pointers in order to use the existing business strengths to exploit the opportunities, create new opportunities, to counteract threats and repair the weaknesses (Robinson 1997). As clearly noted, the organisation has various strengths which give it a competitive advantage over the other players. The major strength of this organisation is the fact that its operations are moulded on the notion of British sensibility where quality and innovation are the guiding principles of the organisation. According to information obtained from the official website about its corporate responsibility, Burberry has five key strategies in pursuing operational excellence which is subdivided into the following categories. It aims to achieve healthy business partnerships, environmental excellence and excellence in people management by attracting and retaining talented employees, excellent products and service as well as contributing to society. These mentioned factors are internal environmental factors that have led to the success of the organisation. As a result of globalisation, companies are moving to the other global markets where it is relatively cheaper to outsource cheap labour as well as access cheap raw materials. Given that the organisation is endowed with a good reputation internationally, there is need for it to maintain its reputation and it can still sustain its market share and growth by operating in countries with relatively cheaper labour. China is a growing economy for instance and this can go a long way in ensuring the continual growth of the organisation. However, special consideration has to be taken given that this move will affect about 310 of its UK based workers which is a great weakness to a reputable organisation like Burberry. Whilst the organisation’s mission is aimed at helping young people to realise their dreams and potential through the power of their creativity, it can be seen that the essence of corporate social responsibility (CSR) will have been eroded in this case. Indeed, the concept of corporate social responsibility has become topical during the current period but there is no one agreed definition about the whole concept (Knights and Willmott (eds.) 2007). CSR has been defined as a function that transcends but includes making profits, creating jobs and producing goods and services (Oketch 2005 as cited in Smith 2003). On the other hand, (Strydom 2004 p.11) concurs that “Social responsibility is the concept that maintains that businesses are part of the larger society in which they exist and are accountable to the society for their operations.” In other words, there is need for the organisations to strike a fine balance between the needs and interests of customers, needs of the environment and the need for businesses to realise their financial goals. In this context, the move to export labour to other countries is seen as a major weakness as there will be low morale among the remaining workers which can negatively affect the reputation of the organisation. One major opportunity that can be achieved by Burberry is a reduction in production costs. All the organisations are in existence for the need to realise some profits from their operations. However, operational costs which include labour costs often impact negatively on the success of the organisations since a considerable amount of revenue generated will be channelled towards meeting the costs of production. This in turn will negatively affect the overall performance of the organisation through limited profits hence this move can greatly contribute to the profitability of the organisation if properly harnessed. Whilst exporting labour to countries with lower wages can be advantageous in that the production costs will be limited, one major threat likely to be encountered by Burberry is the fact that there will be likely chances of compromising on quality. Since its inception, Burberry has been synonymous with quality, innovation and style and this move is likely to see a major shift in this strategic position which greatly contributed to the success of the organisation to become reputable internationally in manufacturing of quality designs. In essence, the operations of Burberry are not primarily concerned with mass production of goods but consistency with quality. The movement of the company from UK to other countries with cheaper labour like China is likely to result in loss of its lustre which will negatively affect its reputation created over a long period which in turn can affect its viability. According to an article entitled ‘Keep Burberry British’ (December 2006), the protests that characterised the announcement of the company to close its Treorchy factory heralded unprecedented challenges for Burberry likely to contribute as a major threat to its plans to move to areas with cheaper labour. For about 150 years it had been in existence, the company had managed to successfully develop to become an internationally acclaimed organisation in manufacturing quality items. A rejection of the proposal by the British is a major blow to the initiative which is a big threat. 2. Executive Summary a) Advantages of outsourced production (China vs Home Production) A critical analysis of the environmental factors that characterise the decision by Burberry to move to other countries showed that there are both advantages as well as disadvantages depending on how the strategy will be implemented. However, there are certainly some advantages of outsourcing production to China where there is generally cheaper labour compared to home country production in the UK. Luxury goods often attract premium prices but the major disadvantage is that during hard economic crisis as the global economic recession that characterised the world economy during the last two years, people will have little disposable income which will lower the revenue generated. This goes back to the production stages of the products. It may be difficult to keep a large workforce that is paid large amounts of wages while the organisation is not performing to the expected standards. Against this background, it will be advantageous to export labour to countries where it is cheaper as a way of minimizing the costs that would be incurred through payments of labour which may strain the viability of the organisation during hard economic times. Operational costs which include labour costs often impact negatively on the success of the organisations since a considerable amount of revenue generated will be channelled towards meeting the costs of production. This in turn will negatively affect the overall performance of the organisation through limited profits hence this move can greatly contribute to the profitability of the organisation if properly harnessed. Outsourced labour will not demand very high wages since there will be abundance of workers who can work for lower wages. Another advantage is that efficiency will be improved since these workers can as well work for shifts while getting low wages which will not offset the revenue generated by the company since this will mean that production has been increased while the costs are being lowered. However, this can be advantageous but there is need to maintain quality of the products. b) Similarities with other major brands of the clothing industry. Research has shown that the clothing industry is now heavily relying on outsourcing its production to countries with relatively lower levels of the wages paid to the employees. There is need to try to be original by these major competing industries while at the same time seeking to increase production which in turn will increase the revenue generated. Other competitors in this industry strive to maintain their brands by not allowing pirates to copy their products while at the same time they seek to set their industries in countries with cheaper labour. The clothing industry requires a comparatively large number of employees such that other major players in the industry are resorting to outsource their production to countries with cheaper labour. In essence, if an organisation manages to retain originality in its products, it can still manage to grow successfully in the global markets regardless of the fact that it is operating in an environment that is characterised by cheap labour. c) Ways of reconciliation with British Consumer (Home Market A luxury brand denotes prestige and it must not be compromising in terms of quality. Whilst the notion of outsourcing labour to countries with relatively cheaper labour might be noble in that it reduces the costs of production, it is highly recommendable that Burberry should streamline its operations in foreign countries in such a way that the products retain their value and luster while at the same time striving to uphold the principle of CSR back home upon which its success was based over a period of about 150 years since its inception. This must be done in such a way that does not compromise on quality since luxury brands are meant for prestige. During the process, it would also be advisable for the company to embark on projects that would in turn cultivate part of the benefits to the society in a bid to create goodwill on behalf of the communities back home which had come to closely identify with the organisation. If the organisation does not divert from its mission and vision, it is likely to retain loyalty in the home market considering that it would be able to retain its originality. Thus, it can be concluded that the most important thing for Burberry is to strive to maintain originality which in turn can motivate brand loyalty which can go a long way in helping the company to remain a favourite among the British people. References Burberry official website http://www.burberry.com/en-row/ Accessed 01 December 2009. Corporate responsibility, Official website http://www.burberry.com/en-row/#/en-row/aboutburberry/history Accessed 01 December 2009. Cant M.C. (2000). Marketing Management. 4th Edition. Cape Town. Juta. Guarnieri, R. & Kao, T. (2008) Leadership and CSR – a Perfect Match, People & Strategy, 2008, Vol. 31 Iss. 3, pp. 34-41. Keep Burberry British (December 2006), The campaign to keep Burberry factory open in Treorchy and save 300 jobs. http://www.therhondda.com/burberry/2006/11/index.html Accessed 01 December 2009. Knights, D. and Willmott, H. (eds.) (2007) Introducing organisational behaviour & management, London: Thomson Learning 658.4 KNI Smith, C. (2003) Corporate Social Responsibility: Whether or How? California Management Review, Vol. 45, Iss. 4, pp. 52-76 http://jmo.e-contentmanagement.com/archives/vol/15/issue/1/article/2734/evaluating-the-impact-of-corporate-social Accessed 01 December 2009. Kotler P. (1999). Kotler on Marketing: How to create, win and dominate Markets. London. Free Press. Robinson W (1997). Strategic Management and Information Systems. 2nd Edition. London. Prentice Hall. Strydom J. (2004). Marketing. 3rd Edition. Cape Town. Juta & Co Ltd. Read More