Strategies and Competitive Advantages of Sainsbury - Report Example

STRATEGIES AND COMPETITIVE ADVANTAGES: LIVE CASE ANALYSIS OF SAINSBURY Table of Contents Table of Contents 2 Introduction 3 Q1: Strategic Approach ofSainsbury 3 Strategy of Sainsbury’s: VRIO Analysis 3 Competitive Strategy of Sainsbury’s: Porter’s Generic Strategy 4 Change Management: ADKAR Model 5 Q2: Competitive of the company 6 Porter’s Diamond for Competitive Advantage 6 Stakeholder Analysis: 7 Internal Management Process: Mckenzie 7S 8 Q3 Key Success and Failure Factors: 9 Conclusion 10 Reference List 12 Appendix 14 Introduction Competitive advantage for business houses is no longer only related to the market activities but is being embedded in the functional aspects of businesses (Finney, Lueg and Campbell, 2010). In the words of Cool and Schendel (2010), the prevailing scenario reflects the intensity of the firms to transform their corporate strategies into a competitive advantage for sustaining the challenges in the market. However, the firms are also highlighting an increased focus on their internal operations so that they can enhance the productivity of the business functions. In relation to this statement, this report considers the strategic development and position of British supermarket chain Sainsbury’s in the domestic and international markets. Q1: Strategic Approach of Sainsbury Strategy of Sainsbury’s: VRIO Analysis Sainsbury’s business strategy has helped it to become one of the biggest brands in the international market as well as one of the most consumer connected business in context of their corporate social responsibilities. Smith (2009) mentioned that the corporate strategy of Sainsbury’s is tightly connected with the corporate social responsibility and sustainability practices which has acted as a brand enhancement as well as a market development strategy for the company. Parker (2011) stressed on the importance of interconnectedness of the vision, goal and strategy of Sainsbury which enables them to thrive in the challenging market environment. The vision of Sainsbury is to establish themselves as the most preferred location for their customers. The goal of Sainsbury is to develop a fair business practice and help their customers with better quality of service at fair price (J Sainsbury, 2015b). The strategy of Sainsbury also reflects a similar concern and state that the company will enhance their customer offerings by expanding their business services and values (J Sainsbury, 2015b). These facts suggests that the vision, aim and strategy of the company have been aligned in order to generate better service structure and efficiency. Further analysis of Sainsbury’s strategy can be performed by assessing their internal structure and strengths with the help of VRIO analysis. Options Valuable Rare Difficult to Imitate Supported by Organisation Competitive Implications Performance Brand Yes Yes Yes Yes Sustainable Advantage High Strategy Yes Yes Yes Yes Sustainable Advantage High Organisational Culture Yes No No Yes Competitive Parity Normal Leadership Yes No No Yes Competitive Parity Normal Social Relationship Yes Yes Yes Yes Sustainable Advantage High Table 1: VRIO Framework for Sainsbury (Source: Bingham and Eisenhardt, 2011, p.1453) The above analysis shows that Sainsbury’s internal aspects have a strong position and high level of competitive advantage. The brand value acquired by the firm is based on the quality of service, extensive market presence and customer communication. As observed above, the strategy of Sainsbury is to enhance their market scope for serving their customers in a better way (J Sainsbury, 2015c). This also relates to the support of the company and a rare alignment between brand development, strategy and the corporate social responsibility which generates the competitive advantage of Sainsbury’s. However, the organisational culture and leadership are the weaker sections in comparison to other variables considered in the model because of the simple hierarchical structure and the steady democratic management style of the company for handling their internal culture and structure of work (Gershon and Gershon, 2008). These factors can hamper the implementation of the business and corporate level strategies as the structure and leadership influence the communication of the roles and responsibilities of the employees and hence can fail to generate an unified commitment towards their goals. Competitive Strategy of Sainsbury’s: Porter’s Generic Strategy Sainsbury is one of the largest retailers and supermarket chains not only in the United Kingdom but also in the retail segment of Europe (Jansson, 2011). The company has established their brand position mainly by focusing on customer relationship, service quality and availability. In order to assess their competitive strategy, the Porter’s Generic model will be implemented. Figure 1: Porter’s Generic Strategy (Source: Dobson, 2009, p.126) Relating to the four quadrants of the above given model, the business strategy of Sainsbury’s will be evaluated for analysing their competitive strategy. In context of cost leadership, Sainsbury’s has focused on maintaining fair pricing process against their products and services. Walters and Rainbird (2011) noted that Sainsbury’s operational processes are designed in a manner which enables them to reduce unnecessary expenses and keep their operational costs within check. However, the company does not actually depend on their pricing strategy for gaining competitive advantage and thus it can be stated that Sainsbury has cost focus rather than cost leadership. In respect of differentiation, the organisational practices of Sainsbury’s have been designed individually for gaining appropriate monitoring and performance measurement in context of quality enhancement. Sainsbury’s has always considered expansion of business for growth and has also segmented their service and product base accordingly. The company’s product base is mainly based on direct outsourcing from local and international suppliers (Hollensen, 2011).  In order to categorise their huge product base, the company segmented their operations into three types of stores namely, supermarkets, convenience stores and hypermarkets. The availability of these stores has been decided on the basis of consumer convenience as well as the compatibility of the company to shift the products from the nearest warehouse to the stores. Apart from the retail segment, Sainsbury’s have further diversified their customer offerings by engaging in the financial sector and opening Sainsbury’s Bank. Other diversifications include Sainsbury’s Property (Real Estate), Sainsbury’s Energy and Sainsbury’s Entertainment (J Sainsbury, 2015c). The company is trying to be a one stop solution for their customers in the European market and gain absolute competitive advantage over their competitors. All these operational divisions denote the differentiation leadership of Sainsbury’s for developing their competitive strategy.  Change Management: ADKAR Model According to Parker (2011), change is one of the integral parts of the business processes. Changes can take place in the external or internal environment of a firm and will influence their performance accordingly. Considering the retail industry, some massive changes that took place recently were induced because of the global financial meltdown of 2007-08 (Morris, Schindehutte and Allen, 2011). As the financial crunch began, customers started withdrawing their money from the market, reducing the sales of the retail and other industries. UK was one of the worst hit countries reflecting huge job cuts and reduced customer activities in the market. Apart from this, other changes that generally take place within industries include changes in structure, strategy and business approach. Figure 4: ADKAR Model of Change Management (Source: Finney, Lueg and Campbell, 2010, p.245) As mentioned previously, Sainsbury’s has a democratic leadership and management process which helps them include the employees in the decision making processes (Finney, Lueg and Campbell, 2010). This also reflects the direct communication system which is supported naturally by their organisational culture and the ability of the firm to make the employees conscious of the transformations taking place in business environment. The engagement of the employees in the decision making process enhances the psychological commitment of the employees towards the operational processes can be leveraged by Sainsbury’s in generating employee engagement in the change management processes (Cool and Schendel, 2010).  Q2: Competitive of the company Porter’s Diamond for Competitive Advantage Dyson (2010) stated that operating in the retail sector naturally initiates product differentiation for the company, but to ensure a sustainable growth, firms such as Sainsbury’s and Tesco have expanded their business domain to different service segments. In context of the competitive advantage of Sainsbury’s, the Porter’s Diamond model can be implemented. Figure 2: Porter’s Diamond Model (Source: Hall, 2011, p.139) According to the given model, opportunity and government are the two factors which influence the operations of the business and the other four variables related to the operational process (Lamming, Bessant and Jones, 2012). The factor conditions represent the human resource and other resources of a firm. Sainsbury’s has a strong resource base. They have managed their employee base with the help of the democratic leadership style which has allowed them to engage the employees in the decision making process of the business. In context of other resources of Sainsbury’s, Ander and Kapoor (2010) noted that communications flow within the operational culture of the company is one of the primary reasons behind their success. In relation to the demand conditions, it can be noted that the consumers in the contemporary scenario are fast adapters to new technology and service base (Chesbrough, 2009). The firm strategy of Sainsbury’s has been discussed above, but the Diamond model includes the aspects of organisational structure and competition in context of strategic approach of the business. The organisational structure of Sainsbury has been designed in a hierarchical manner (Please refer to the appendix) (J Sainsbury, 2015c). However, the organisational structure of the company has also been customised based on the different levels of operations such as top management, middle management and operational level (J Sainsbury, 2015c). In context of competition, the retail sector is one of the most competitive sectors in the international market place owing to the varied nature of necessity products of the consumers and the sub-segments existing within the industry. (Glowik and Smyczek, 2011) stated that the competition in the retail sector is growing mainly because of the limited restrictions in the industry for new firms. For Sainsbury’s, the primary competition is from Tesco, ASDA, Wal-Mart, Marks and Spencer’s (Schoenecker and Cooper, 2010). Stakeholder Analysis: Sainsbury’s has designed a transparent business development process and has effectively communicated the business objectives and strategies with their internal and external stakeholders. Ethical and fair business practices are the core values of the company which is embedded in their business culture. Figure 3: Stakeholder Analysis (Source: Cool and Schendel, 2010, p - 53) The customers of Sainsbury are kept in the quadrant reflecting satisfaction whereas the employees are managed closely. The competitors are closely monitored meanwhile; government and other regulatory bodies of the company are kept in quadrant of information. Nevertheless, stakeholder management of Sainsbury is performed with the help of extensive communication creating continuous flow of information and a trustworthy relationship. Internal Management Process: Mckenzie 7S  The internal management of Sainsbury’s is mainly based on democratic form of leadership which enables the company to enhance the utilisation of the human resource and also develop a relative optimal utilisation of technical resources of the company (Lavie, Haunschild and Khanna, 2012). Lindgreen and Finn (2009) stated that the internal functions of businesses operating in the prevailing competitive market are also influenced by the external environment and thus there exists continuous change. Godfrey and Hill (2009) noted that the operational activities of a business correspond to the structure and culture of the organisation. Considering this sentiment, the internal management of Sainsbury will be analysed with the help of McKenzie’s 7S model. Figure 4: McKenzie’s 7S Model (Source: Hall, 2011, p.136) The structure of Sainsbury’s is designed categorically which allows each level of employees to perform their roles in an appropriate manner (Robinson and Pearce, 2007). The categorisation of the structure also is based on the nature of activities of the employees. For instance, the top management reflects a simple hierarchical structure, whereas, the operational level has been designed in matrix structure. The inclusion of the matrix structure also allows the managers to engage the employees in multitasking and initiate optimal resource usage of the business (Neal and Strauss, 2008). The aspect of multitasking shows the skill enhancement process applied by Sainsbury’s. With huge employee base consisting of almost 162000 employees, Sainsbury’s has focused on the individual concerns of the employees by expanding the responsibility of their human resource department (J Sainsbury, 2015a). Bottomley and Holden (2009) stated that Sainsbury’s training process is their key strength for managing their internal stakeholders. They train their employees with a long-term vision so that they can derive future successors for the company. This also shows the co-operative culture of the company which supports the organisational needs as well as the expectations of their employees. McDonald and Sharp (2007) stated that Sainsbury’s creates future opportunities for their employees and reduces the employee turnover of the company. It can be noted that the leadership aspect has been embedded in the organisational culture from the base level employees.  Q3 Key Success and Failure Factors: As analysed above, it can be observed that Sainsbury’s have designed their business strategy based on customisation of differentiation leadership and cost focus. They have developed the brand image of the company in a socially aligned manner so as to form better customer relationships. The internal and external stakeholders of the firm are managed within different platforms as per the requirements of the particular stakeholder group. However, based on the diversification of the organisation, the leadership and internal management culture are rigid in nature. Although the company follows democratic leadership and management style, it has reflected a slow trend in adapting to the changes in the business environment. In respect of market competition most of the industries are facing increasing pressures from the customer base to engage in innovative service structures. The diversification of Sainsbury’s can be thus responsible for the retention of their huge customer base. Eesley and Lenox (2006) considered that Sainsbury’s differentiation approach is one of the primary reasons behind their ability to attract and engage the customers with their functional aspects. In context of related or supported industries, Sainsbury’s corporate social responsibility and sustainability approach is considered to be a connecting factor for the company with other business firms and industries. One of the key contributing and supporting segment for Sainsbury’s is the horticulture industry which is fulfilling their corporate social responsibility. On the other hand, the online industry is also one of the major segments for building the brand image and service base of the company (J Sainsbury, 2015c). In order to enhance the transfer of knowledge and flow of information among the various operational segments, Sainsbury initiates various types of employee engagement activities such as team meetings and practical activities in relation to the type of change. Also, the fluent inter-team communication of the company is used for information sharing. Sainsbury’s has successfully diversified their business into multiple industries and have also expanded their core business practices to larger markets which involve changes in the operational structure of the organisation (Morris, Schindehutte and Allen, 2011). The ability of the firm to handle and sustain changes in the business environment can be gathered from their past performance and the existing performance of the business in the relevant industry. Based on the above performed analysis, it can be noted that Sainsbury’s has successfully established itself in the international market place. Their ability to connect various functional aspects of business has allowed them to focus on both cost and diversification opportunities in the market. Furthermore, with extensive focus on corporate social responsibility and ethical business process, the brand equity of Sainsbury also acts as a customer driving factor. Considering these observations the key success and failure factors for Sainsbury’s has been highlighted in the below table: Key Success Factors Key Failure Factors Brand Name Rigid Internal Management Corporate Social Responsibility and Sustainability Centralised Leadership reducing specific focus on needs Product and Service Diversification Reducing market space with increased competition Fair Price Policy with cost focus Funds management and direction Conclusion Evaluation and analysis of the business strategies and competitive advantages being developed by Sainsbury’s in the contemporary business scenario was the primary objective of the report. It was noted that being one of the leading retailers of the European retail industry, Sainsbury’s has successfully diversified their business and developed a differentiated competitive advantage. The company has established a democratic management and leadership approach for gathering the acceptance of managerial decisions by the employees. Sainsbury’s has efficiently aligned their business strategy, mission and vision so that they can enhance their operational capability to meet the demands of the market. It was also observed that the company has significantly connected their business strategy and brand image with the corporate social responsibility and sustainability activities. Overall, it can be concluded that Sainsbury’s has successfully utilised their resources for managing their corporate strategy and competitive advantage. Reference List Ander, R. and Kapoor, R., 2010. Value Creation in Innovation Ecosystems: How the structure of technological interdependence affects firm performance in new technology generation. Strategic management Journal, 31, pp. 306-333 Bingham, C. B. and Eisenhardt, K. M., 2011. Rational heuristics: the ‘simple rules’ that strategists learn from process experience. Strategic Management Journal, 32, pp. 1437–1464 Bottomley, P. P. and Holden, S., 2009. 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Strategic Operations Management - a value chain approach. 4th ed. New York: Palgrave. Appendix Sainsbury’s is one of the leading supermarket chains in the European market. The company employs around 161000 employees and has 592 supermarkets and another 611 convenience stores along with Sainsbury’s Bank (J Sainsbury, 2015a). The company has steadily increased its business functions over the years and have developed global brand equity. The financial performance of the company can be evaluated from the below given figure: Figure 5: Financial Performance of Sainsbury over the last 5 years (Source: J Sainsbury, 2015d) The above given figure reflects a steady growth in the sales of the company over the last 4 years. Also it can be noted that the operating profits of the company has steady increased along with the earnings per share of the company. However, the year-on-year increase in percentage of EPS has reduced from 9.6% in 2014 to 6.5% in 2015. In order to maintain the financial inflow, the company has also increased its operating space mainly in context of convenience stores and supermarkets. The organisational structure of Sainsbury’s has been segmented into various levels in accordance with the employee structure. The top management and operational level structures have been given below for reference: Top Management Structure Sainsbury (Source: J Sainsbury, 2015c) Operational Store Structure Sainsbury (Source: J Sainsbury, 2015c) Read More