Strategic Management for Achieving a Competitive Edge - Tesco and the Body Shop - Case Study Example

Strategic Management for Achieving a Competitive Edge: Tescos and the Body Shop By Introduction Globalization and advances in information technology have significantly changed the market place. Consumers are increasingly aware of and have greater access to a variety of goods and services, and have diverse preferences and expectations (Fox & Sethuraman, 2010). Globalization has increased competition among businesses with the result that businesses are forced to incorporate strategic management techniques so as to gain a competitive advantage (McClell, 1994). At its core, businesses are seeking to gain a competitive advantage by adopting strategic management techniques with a view to distinguishing their products and services from their rivals (Dbhholkar, Thorpe, & Rentz, 1996). Strategic management is defined as the implementation of “a course of action” and “the allocation of resources necessary for carrying out” and achieving the organization’s long-term goals and objectives (Amason, 2011, p. 3). In order to demonstrate how strategic management techniques are put in practice for gaining a competitive edge this report analyses Tesco and the Body Shop. Tesco is chosen because in the UK the supermarket chain is dominated by five supermarkets who compete for market dominance. Tesco claims the largest market share of 30.6 per cent (US Foreign Agricultural Service, 2010). The Body Shop is chosen because heightened awareness of the need for environmental protection permitted the Body Shop to distinguish itself as an environmental-friendly provider of cosmetic goods (Bouee, 2010). Moreover, surveys demonstrate that one third of consumers are prepared to follow green goods (Bouee, 2010). Competition for green goods has forced the Body Shop to further distinguish itself as a provider of green cosmetics (Bouee, 2010). In order to demonstrate how strategic management is an organization-wide process for achieving a competitive edge by case studies of Tesco and the Body Shop, this report is divided into three main parts. The first part of this paper provides a brief overview of the literature on strategic management as a method of achieving a competitive edge. The second part of this paper provides a case study of Tesco’s strategic management in practice. and the third part of this paper provides a case study and analysis of the Body Shop’s strategic management in practice. Gaining a Competitive Advantage Through Strategic Management: A Review of the Literature Powell (1995) argues that since the mid-1980s, strategic management has shifted away from solely focusing on “industry structure and competitive positioning” (p. 15). Instead, organizations are also looking toward “internal, firm-specific, within strategic group factors such as culture”, capacity, managerial skills, “reputation”, “know-how”, “learning”, “process improvement” and “organizational climate” (Powell, 1995, p. 15). Informed by resource theory, organizations are becoming more concerned about any economic gain that can be derived from a variety of strategic factors either internal or external factors as well as tangible or intangible factors and economic, and behavioural factors that provides value, distinction and meets the needs of market conditions (Powell, 1995). In other words, strategic management for achieving a competitive advantage can include a number of strategies ranging from brand building (reputation), to product innovation in response to external factors, employee development and any number of factors in the market. For example, Barney and Hansen (1994) argue that building trust through corporate social responsibility governance systems not only builds social capital but also builds economic capital for an organization and enhances the organization’s competitive edge. This approach is consistent with neoinstitutional theory that argues in favour of strategic management through ethical and professional standards that position an organization apart from its competition (Bresser & Millonig, 2003). Saa-Perez and Garcia-Falcon (2002) conducted a study of savings banks in Spain and concluded that resource-based approach to strategic management ensures a competitive advantage. In this study, Saa-Perez and Garcia-Falcon (2002) found that human resource management that transferred over to customer service distinguished more successful savings banks in Spain for less successful savings banks. The competition was fierce in terms of globalization among the market, changing consumer demands and products on the markets. Banks that distinguished themselves on the basis of improved customer service were able to gain a competitive advantage (Saa-Preez & Garcia-Falcon, 2002). Hitt, Keats and DeMarie (1998) suggest a collective approach to strategic management for achieving a competitive edge. In this regard, Hitt, et. al., (1998) suggest first concentrating on “building strategic flexibility” (p. 22). In this regard, building strategic flexibility involves incorporating “strategic leadership” “building dynamic core competences”, “developing human capital”, making use of information technology”, “employing valuable strategies (exploiting global markets and cooperative strategies)” and “implementing new organization structures and culture”, being innovative and “managing” the organization as a “bundle of assets” (Hitt, et. al., 1998, p. 22). Informed by the literature, this report analyses the strategic management practices of the Body Shop and Tesco. Tesco: Strategic Management Overview Tesco is a major UK supermarket chain with business operations in 14 different countries employing approximately 500,000 people (Tesco PLC., 2013). Tesco’s mission is articulated in its vision statement which reads as follows: Our vision for Tesco to be most highly valued by the customers we serve, the communities in which we operate, our loyal and committed staff and our shareholder; to be a growth company; a modern and innovative company and winning locally, applying our skills globally (Tesco PLC., 2013). Tesco competes against “industry giants” successfully (McLoughlin & Aaker, 2010, p. 126). Tesco is the UK’s largest grocery/supermarket retailer and the fourth largest in the world after Wal-Mart, Carrefour and the Home Depot. Tesco is also the world’s “largest on-line grocery retailer” (McLoughlin & Aaker, 2010, p. 126). Beginning in 1999, Tesco established and maintained itself as the “most profitable” retailer in the UK (McLoughlin & Aaker, 2010, p. 126). In February 2009, Tesco’s “gross turnover” was 59.4 billion pounds up 13.5 per cent over the previous year with profits at 3.12 billion pounds (McLouglin & Aaker, 2010, p. 126). By 2009, Tesco had 4308 stores located in 14 countries with over 2300 in the UK (McLoughlin & Aaker, 2010). Strategic Management In order to achieve its mission of growing and leading, Tesco created a steering wheel that drives organizational performance through human resources. The steering wheel advances two values: trying harder than competitors to meet customer needs and treating people they that they would “like to be treated” (Tesco PLC., 2013) (See Figure 1). Figure 1: Tesco’s Mission and Strategic Management Values Source: Tesco PLC. (2013). http://www.tescoplc.com/ (Retrieved 15 January, 2013). Tesco established a corporate social responsibility management strategy which corresponds with brand and reputation building. In this regard, established five pillars of corporate social responsibility: 1. Supporting the communities in which Tesco operates. 2. Purchasing and selling products that minimize environmental harm. 3. Protect the environment. 4. Ensuring that consumers have healthy choices. 5. Providing jobs for as many people as possible (Tesco PLC., 2013). Essentially, Tesco builds value via brand reputation. According to Hiles (2011), creating and sustaining value via brand reputation increases shareholder value. This is because building brand value improves the chances of recruiting and retaining talent, increases the opportunities for production and innovation and improves the chances of investment. From an external perspective, building value through brand reputation also permits organizations to charge higher prices for their goods and services and influences new product acceptance (Hiles, 2011). According to Hiles (2011) Tesco has been entirely consistent in managing its brand reputation for the last two decades. Beginning in the 1990s, the Tesco brand was perceived as a large discount retailer. Its reputation was perceived as provided volume at cheap prices. During this time, consumers were not loyal and continued to explore the market for groceries. Tesco also experienced high staff turnovers, offer few high quality goods, maintained an unstable supply chain and have very few innovative products. Tesco was essentially third in terms of market share to Marks & Spence and Sainsbury’s (Hiles, 2011). However, taking advantage of advances in information technology, Tesco conducted research canvasing stakeholder interests and launched initiatives for improving its brand reputation. Tesco began by creating a persistent consumer information data channel via the Tesco Clubcard loyalty program which began in 1995. In responding to consumer preferences, Tesco opened Tesco Express stores both in the UK and abroad in 1996. In 2000, Tesco began providing online services to its customers. Product expansion followed with the provision of mobile telephones, baking, electronics and furniture. Each of these initiatives were followed by large scale advertising campaigns in the print and video/digital media. Tesco also continues to maintain its research initiatives which are built around the Clubboard Loyalty programme so that it can keep abreast of consumer preferences and satisfaction levels (Hiles, 2011). In other words, Tesco employs a strategic management technique that measures the message that its brand sends to all stakeholders and thus drives future and on-going strategies. Tesco therefore using a strategic management process that checks that what it communicates about its brand is being received and accepted. Thus trust and neoinstitutional theory appears to be guiding Tesco in strategic management initiatives. This is manifested by virtue of Tesco’s corporate social responsibility initiatives and brand reputation building. Tesco also uses product expansion as a means of penetrating the market and this in and of itself speaks to Tesco’s ability to hold onto a larger share of the market for foods and drinks. As Holt (2002) explains, product expansion is a method of product innovation as it not only introduces consumers to new products, it also provides consumers with an opportunity to shop in one place and increases the chance that consumers will purchase spontaneously and return to the store. In this regard, spontaneously shopping involves making an unplanned purchase (Holt, 2002). The Body Shop: Strategic Management Overview The Body Shop International Plc. is an “original, natural and ethical beauty brand with” more than 2,500 stores located in 60 different markets (The Body Shop, 2012). The underlying premise of the Body Shop is its promise that each of its products are free of animal cruelty and that it is a vegetarian business. The Body Shop was the first company to receive recognition by the Humane Cosmetics Standard as a result of its police against animal testing (Body Shop, 2012). The mission statement of the Body Shop reads as follows: We will operate our business with a strong commitment to the well-being of our fellow humans and the preservation of the planet (The Body Shop, 2006). Since opening its first store in the UK 1976, the Body Shop spread quickly as a result of its unique brand and its corporate social responsibility initiatives. However, in time, the Body Shop lost its uniqueness and with increased competition, the organization saw a significant drop in sales. After a number of initiatives, the company was able to bounce back. However, set-backs in terms of giving into the demands of big businesses and it conflict with the company’s mission statement created another downward trend in sales. In 2006, L’Oreal acquired the Body Shop and it became L’Oreal’s subsidiary (Vault, 2013). Strategic Management The Body Shop was initially successful as an innovative provider of earth-friendly cosmetics with a “price to earnings ratio which stayed well above the retail sector average throughout the 1980s” (Thompson & Martin, 2010, p. 321). However, increased competition and market expansion saw a significant drop-off in profitability. The Body Shop responded in 1999 with a reduction in production and thus cut back on the products it offered to the public (Thompson & Martin, 2010). According to Greenhalgh and McKersie (1980), cutting back on products and maintaining quality is a more preferable method of management as opposed to compromising quality by reducing staff. Regardless the Body Shop continues to promote five core values including a policy against animal testing, supporting fair trade, promoting self-esteem, defending human rights, and protecting the planet (see figure 2). Figure 2 Core Values Driving the Body Shop’s Strategic Management Source: Body Shop (2012). http://www.thebodyshop.com/content/services/aboutus_company.aspx (Retrieved, 15 January 2013). The Body Shop’s success is grounded in the fact that consumers and trade partners have always been enthusiastic and committed to the business. It’s founder aspired to a strategic management tenet that promoted the idea that the Body Shop “must never let itself become anything more than a human enterprise” (Thompson & Martin, 2010, p. 321). Much of the environmental friendly management strategies of the Body Shop emanate from the founder’s vision. Management strategies are aligned with marketing and product innovation which as revealed in the literature are methods by which companies can distinguish themselves from the competition. In this regard, the Body Shop not only offers environmentally sound products, but it also packages its products in environmentally sound ways. In-store strategies include posters that campaign for human rights and environmentally responsible behaviour. For example posters will display campaigns for saving the whales. Other in-store strategies will include “strong and distinctive aromas” (Thompson & Martin, 2010, p. 321). As Thompson and Martin (2010) explain: The packages, together with posters and shelf cards, provide comprehensive information about the products and their origins and ingredients. This has created a competitive advantage which rivals have at times found difficult to replicate (p. 321). However, product information and brand reputation should be supported by human resource development and good customer service. While brand and product innovation and in-store strategies may distinguish a company from its competition, strategic management that creates and maintains superior customer service and reflects know-how increases the chances of creating and maintaining a competitive edge (Schuler & MacMillan, 1984). As Thomson and Martin (2010) observed, while customer services manifested know-how, they failed to be “forceful” and did not “sell aggressively, generally offering advice only if it is requested” (p. 332). Marketing strategies focused on “health and well-being” rather than the current need for “instant rejuvenation” (Thompson & Martin, 2010, p. 332). Moreover, the Body Shop opted to forego advertising campaigns and relied instead on in-store promotions (Thompson & Martin, 2010). The company did break with tradition and offered some advertising strategies in the US. However, some problems arose with questions about whether or not the Body Shop is true to its core values. It can therefore be noted that neoinstitutionalism requires widespread trust to be successful. Although profits were demonstrating an upward trend in the 1990s with 40 million pounds for the year 1998, they dropped to 13 million pounds in 2001-2002. Shareholders obviously pressed for changes. The green market in consumer goods had changed as more and more markets emerged offering similar products for relatively cheaper prices. This eventually led to the acquisition of the Body Shop by L’Oreal. Conclusion The case study of Tesco and the Body Shop demonstrate how two organizations in two different market sectors used strategic management in two different ways. Tesco used strategic management to improve its market position with relative success. The Body Shop used strategic management successfully in launching its product. However, while Tesco demonstrated success, the Body Shop failed, although both companies relied on trust, brand reputation and corporate social responsibility under neoinstitutional theory. What distinguished Tesco from the Body Shop is the fact that Tesco was more resource-based and invested resources in canvasing consumer preferences and developing human resources for improved and superior customer services. Moreover, Tesco ran aggressive advertising campaigns. This served to distinguish Tesco from the competition. The Body Shop on the other hand did not invest enough in resources in human resource development and consumer data sources. In addition to developments that led to trust issues, the Body Shop failed to create communications channels with its customers via the media and this caused a disconnect in which the Body Shop was less aware of its consumers’ preferences and consumers were not altogether aware of the Body Shop’s products. Inferior customer services also contributed to this disconnect. Therefore while strategic management helped to turn Tesco’s fortunes around, it was not adequately implemented by the Body Shop to turn its fortunes around in a fiercely competitive market. Bibliography Amason, A. C. (2011). Strategic Management: From Theory to Practice. New York, NY: Routledge. Barney, J. G. and Hansen, M. H. 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