Managing Capability - Asda - Case Study Example

Introduction A way of viewing the company and the approaching strategies that it has comes under the RBV that is the resource based view. The bundle of resources of the firm are analyzed and studied in this theory. In case where a firm wants to build a competitive advantage it is significant to have capabilities that value to the customers it has (Simpson, 2003). Managers can make this a point that some capabilities are of value to the customers just because they are distinctive. But most of the times this is not true. A more common and widely believed concept is that value comes from a careful consideration of the activities of the organization. Things of lesser value need to be considered too. A competitive advantage can be achieved if the competitor has a rare or unique capability (Fitzgerald, 2000). Innovation and the overcapacity are being experienced by the retailing industry and the products being the most important competitive advantage. Moreover a competitive advantage can be based upon the rare competences like for instance the development of unique skills over the period of time. There are three important things to be kept in mind to give a sustainable competitive advantage. The three things are transferability ease, core rigidities and sustainability. According to transferability ease the rarity is dependent upon the one who possesses the competence and the ease with which he or she transfers it to others (Thornhill, et al. 2000). The next is the sustainability. According to this what happens is that the success on the organization is dependent upon the unique competence set and the competing organizations are always in search of ways to get and copy those competence sets. Core rigidities relate something that is damaging and difficult for the organizations to change. Core competencies are basically those abilities and skills that link the processes and activities to resources to achieve a competitive advantage. Core competences require to fulfil things like a must relations to the process that brings value in the features of the service or product, it should lead to performance level that is importantly improved than the competitors of a similar business and the competences should for sure be not easily imitable (Cameron, 2005). ASDA UK Asda is fully owned by Wal Mart since 1999. This take over was due to the fact that Asda had been mirroring the strategy of Wal Mart for quite some years. This take over has a great impact on the retail business of UK as the competitor organizations had to look in for ways to stay in competition. Asda is the second largest supermarket chain in UK and has about 17% of the market share. It is a powerful retailing business and is well reputed for the products it has and the convenience it gives to its customers. The primary focus of Asda is to save money and keep the costs as low as possible. The company has a strong technology system that supports its operations. If we talk about the weakness of the company so it can be regarded as the lack of convenience stores and the small supermarkets (Ackerman, 1997). Talking about the biggest competition to Asda that is Tesco it is found out that almost two third of its total outlets are small and medium stores which Asda lacks. Asda has a lot of opportunities like going for mergers and strategic alliances amongst other retailers globally that operate in similar markets. The company wants to be the number one and overtake Tesco for this reason. Due to the inflation for food prices in Britain and the jump in prices of the petrol the things are not as favorable for retail business as it was in the past. The company also has a lot of threats like a large competition in UK, there are a lot of overseas problems too and the threat to fail to respond to all the investments that are thrown at Asda is another big threat for the company. Pestle Framework Decision related to tax changes, trade barriers, new laws, demographical changes and the new government policies etc have impact on any company’s performance. So is the case with Asda so in this part a pestle model will be used to analyze these factors. Political factors The business is greatly affected by the demand, prices, costs and profits so Asda takes care of it. The fluctuations in the taxations and the government policies affect the business greatly (Swanson & Holton, 2009). So the strategic planners of Asda keep a strict check on them and study their impact on the company and how they can cut it down. Economic factors Economic factors are also of major concern to Asda. Amongst the economic factors the high unemployment levels is one the most influential factors as it reduces the demand for a lot of goods effectively this adversely affects the demand needed to make goods like this (Armstrong, 2007) . The economic factors mentioned above are mostly beyond the company’s control but at the same time their effects related to marketing mix and performance can be reflective Social factors The changing social trends can impact Asda’s business greatly. It affects the business in a way that it affects the number of people and their availability and willingness to work for the company or any other company. So in such a case Asda tries to employ a pool of candidates that is of retired workers and that keeps on growing (Okumus, 2003). This ageing population impacts the retails business largely. The awareness of the health issues is increasing amongst the consumers day by day and the attitudes they hold towards food is continually changing. Technological factors It is obvious that new technology brings up new processes and new products so online shopping and business through computer aid is a part of Asda’s business. According to the company’s policy the usage of information technology for operations support is done (Tonchia, 2003). The trend of online shopping has increased over time and as Asda has this feature so it has been able to bring in a lot of business for the company. Technology has always helped to cost reduction and innovation and improvement. Environmental factors According to the environmental factors the carbon reductions is suppoted in most of Asda stores (Acur & Bititci, 2004). The company has been working with most of its suppliers to work on the issue of reducing the carbon emission during the manufacturing, growth and processing of the products. This has helped the company built a good repute. A threat is created by the powerful competitor’s presences that have established brands that create an intense war of price wars and also create an environment of strong requirements in terms for product differentiation. Legal factors Asda needs to plan and make sure that it works according to the regulations and its expansion strategy should be according to the regulations. Performance and Planning Reporting The planning and performance reporting framework consist a strategic plan of four years for Asda. These reports and plans ensure effective policy and priority deployment for Asda. Financial management Asda has always worked on enhancing its financial management via improvement in its budgeting processes and the income management. Regular trainings and financial reviews have helped the company improve its financial position. One very important feature for Asda has been an urge to seek reduction in expenditure throughout its business areas (Martinell & Sparks, 2003). Contracting and purchasing The contracting and purchasing processes are designed by the company in such a way that they ensure identification of risk and cost efficiency. Outsourcing and Consulting Asda consists of a list of preferred suppliers that are contracted to work with the company. The company has also outsourced its few business functions. Regular reviews and thorough reporting arrangements have always been a part of the company policies for such situations (Wang, 2008). Asset management The business processes of Asda have always ensured the effective management of assests. These procedures have assisted the company in management and disposal of assests effectively. Risk management There is a proper framework named the fraud control framework and the risk assessment strategy that is approved by a proper committee of Asda to hedge all the big risks that the company faces (Green, 2004). Audit program A comprehensive audit program that has been implemented by Asda that is for its financial management, the information security and a number of other corporate functions (Millar, 2006). According to this audit the board and committee constantly work on improving the system and identify the areas that need attention and corrective actions. Information technology ASDA takes help of an outsourced service provider for delivering the advice related to IT infrastructure, its administration and maintenance. Effective customer service To deliver better and an effective service to the customers the company has specific processes and procedures to handle complaints (Williams, 2009). Managing community service obligations Asda has a well updated and informative internet website that is constantly monitored for the provision of better customer service. Balanced Scorecard Asda uses the balanced scorecard approach to measure its performance. According to this approach the focus is on tracking the main metrics according to the set of areas of broad performance like the financial performance, the internal processes and the customer satisfaction. During the process of strategy development, the senior managers define the goals of the organization and the performance is measured according to these areas. Four and sometimes five key indicators of performance are identified within the each area and the performance is then measured (Peteraf, 1993). The main purpose of this approach is to monitor and improve the performance by setting goals that are specifically for each measure and also the time period is identified for doing so. The top management monitors the performance and looks for the problematic areas. After the identification the problems are asked to be resolved by the local management and improvement is to be brought in. VRIN Framework The resources of the firm include the capabilities, assets the organizational processes the attributes, the knowledge the information that it possesses (Mabey, 1998). All these resources serve as input for the firms like Asda also. The resources must have four attributes according to the VRIN framework that includes Valuable, Rare, Inimitable and Non substitutable. The resources of Asda are capable of brining value to the firm and also serve as a source for competitive advantage. The resources that Asda has are unique and provide them with a competitive advantage as compared to its competitors. The resources are also unique and cannot be copied. This helps the company to win a sustainable competitive advantage. The resources that Asda has are also non substitutable. Value Chain There are several stages for the value chain out of which the first one is the inbound logistics. The reason that it comes first is that it has the ability for creation of value. Upstream activity is the name given to the essentials of this stage of value chain. Upstream Activities The goods handling & their transportation internally, goods storage, and their placement on shelves are all part of this task (Teece, Pisano and Shuen, 1997). The receipts from the suppliers of the goods are logistical tasks. Asda makes an effort for maintaining consumer choice level in store (+), at the same time looks to improve the distribution system’s efficiency (+). In case of applying the quality control process regarding damaged products and goods it gives an outstanding opportunity to lessen the costs incorrectly incurred, hence stopping these costs to pass on to consumer (P+). Production Activities This type of activity focuses more on the service provision by Asda. This includes tasks like opening each day according to the trading hours, shelves maintenance, and also the stock maintenance (+). Moreover, there are chances for it being restricted by planning councils or law, which basically takes away competitive advantage (-).To get competitive advantage in future Asda needs to expand in operating hours in areas where it does not exist and also in a smaller size too (P+). Outbound Logistics The company recently has increased the number of staff involved in the up-gradation of the anti-fraud software (infrastructure or technology, interdependence), and installation of newer security systems that serve to minimize the internal theft, as a failure to do so can result in the increased price for customers to purchase goods from Asda (+). Downstream Activities Human Resource Management comes under downstream activity which ranges right from the selection procedure to the development procedure. The company has an aim to raise the number of schemes of training and for further development of its recruitment programs in order to make customers benefit from a well recruited and well trained staff (+). Asda has always invested well in customer services (+), a case where the training is associated directly with pay. This keeps the staff motivated for learning, and always encouraged in improving their approach towards the customers and the provision of quality service (P+). One of the downstream activities is the technology development. According to this development the company is capable of offering innovative and unique solutions to its customers and also possesses a product range that forecasts the customer needs (Marcia, 2009). It remains to be a main competitive advantage, value additive, as brand name of Asda provides the product vitality (+). According to the company’s policy the usage of information technology for its operations is very significant for Asda (+). The trend of online shopping has increased over time and as Asda has this feature so it has been able to bring in a lot of business for the company. Technology has always helped to cost reduction and innovation and improvement (+). Benchmarking There are several uses of benchmarking and a lot of appropriate benchmarks should meet these criteria for making use of the benefits it offers (Warnaby & Woodruffe, 1995). The best benchmarks include the adjustments of floats, the best benchmarks are capitalization weighted and they also exclude the constituents that lack the sufficient liquidity for trade in a cost effective way. Asda uses benchmarking for two different purposes like the market standards and for the evaluation of the performance of managers. Ratio Analysis As SWOT analysis is basic tool to analyze the strategy of the firm so the analysis of the financials is done by Ratio Analysis (Wernerfelt, 1984). There are different types of ratios that are used by Asda. Cash Flow Statement Ratio Cash inflow and outflow are examined and the calculation shows the relative balance between the cash inflows and outflows. Asda calculates the cash flow statement ratios by the following ratios: 1. Cash Flow Ratio= (Cash Outflow / Cash Inflow) *100 2. Cash Flow Ratio= (Cash inflow/ cash outflow)* 100 Return on Capital Employed According to this ratio Asda calculates the profit earned in association to the money that is invested. The formula to calculate this ratio is: ROCE= (Net Profit / Capital Employed)*100 Solvency Ratio This ratio calculates the ability of the business to meet its debts by having sufficient working capital. Liquidity Ratio= Liquid Asset/ Liquid Liability Working Capital Ratio= Current Asset/ Current Liability  Profit Ratio By this ratio Asda can easily calculate the comparison of the profit earned in the current year and the past ones. The formulas used by Asda to calculate this ratio is as follows: Gross Profit Margin= (Gross Profit/ Sales)*100  Net Profit Margin= (Net Profit/ Sales) *100  Eeaning per Share = Profit After Tax/ Number of Equity Shares Asset Turn Over Ratio 1. Rate of Stock Turnover (in number)= Cost of Goods Sold/ Average Stock Level  2. Rate of Payment to creditors (in days)= (Average Trade Creditors/ Credit Purchases)*365  3. Rate of Collection of debtors (in days)= (Average Trade Debtors/ Credit Sales)*365  4. Cash operating Cycle (in days)= Stock Holding Period + Debt Collection Period- Creditors Payment Periods  5. Total Asset Turnover= Sales/ Average Total Assets 6. Stock Turnover (in days)= (Average Stock/ Cost fo Goods Sold)*365  Leverage Ratio Asda calculates the leverage ratio by the following formula and it is used to define the capital structure of gearing. Formula: Debt Equity Ratio is equal to the Total Financial Debt divide by Shareholders Equity Conclusion Structuring tools and strategy frameworks are main keys to assess the situation of the business. Value trade-offs and risks are made explicit that lead to proposals that are concrete for adding value and reducing the risk. The frameworks that have been discussed in this study and the Pestle analysis in specific are likely to help Asda in the identification of related planning laws and conform to reduce any distraction associated with them. To retain the customer base Asda meets the customer needs, customizes the service, ensures lower prices, helps in making better choices, continuous flow of in-store promotions.  These analyses will help the company is assessing the potential success for opening new stores that are small in any area which is the need to stay in competition. These analyses are likely to assist in identifying the policies, regulations and laws that govern the competition and monopolies.  This is one of the challenges facing Asda in its quest to expand its business.  Under the European Union law, the unfair competition and the large market share (dominant) can lead to low quality services and products that consequently will increase the prices of services and goods. 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