Woolworths Group as an Online Retailer - Case Study Example

1. Executive Summary: Each company has its live-cycle theory; no matter it is a world-wide organization or just a tiny store in a small town. From start up to expansion, then maturity to divestment; this is an inevitable process that leads Woolworths to a huge unexpected change. Inability of generating profits and to pay the money to debt holders forced the company to close all its stores and after the Barclay brother acquired the company, they decided to launch it as an online retail. There were certain external as well as internal drivers such as lack of innovative and quality products, higher prices and lower service quality, lack of effective leadership, change in technology, change in customer needs etc. that forced the organization to leave old conventional method doing business and adopting internet as the new method. These changes can be analyzed under several perspectives such as biological, rational, resource, contingency, post modern etc. that initiators of the change had thought in the beginning. There are certain tools that can be applied to manage the change smoothly. The one that Barclay brothers seem to adopt can be categorized as the Kurt Lewin’s Classical Model to implement the change which says that planned change requires that field forces be freed up, and then restored after planned change is complete. However, it’s not that the strategy followed by Barclay brothers, in association with the former board members of Woolworths, is the best one. There are several negatives aspects associated with the current strategy including job loss for employees and negative effect in the health of the companies which were dependent on Woolworths. The ne strategy would have been to close only few stores which are not providing the enough revenue to keep them open and then combine this with the new method of selling products i.e. online selling. 2. Company Background: Woolworths Group plc was a U.K. based general merchandise retailer, and entertainment wholesaler and publisher. It was started in the U.K. 100 years ago in 1909 as F.W. Woolworth, a subsidiary of the American retailer that was founded in 1879. Its first shop was opened on Church Street in Liverpool which sold a variety of merchandise, from children’s clothes to stationery and toys. Lately it expanded its products offering which covered events, confectionary, home and entertainment (A history of Woolies: 99 years of pic 'n' mix 2008). The Company's business was primarily divided into three segments: Retail, and Entertainment Wholesale and Publishing segments. Its stores comprise Woolworths outlets located in small towns and city suburbs, to meet basic mundane shopping requirements, and larger stores located on shopping streets in regional shopping centers. The key factor in its success was its mass production which enabled it to sell glassware at much lower prices than its other British competitors. Apart from this, to attract more customers and retain them for longer period it offered free pots of tea in its first year of retailing. This was primarily done to convince the British customers about the American style of retail stores layout which was based on the model to allow shoppers to surf around rather than the conventional method of shopping where in customers walk in, make purchases and walk out. Woolworths entered into its high growth phase from 1920s during which it opened a new shop at every two or three weeks and by the end of 2008 it had almost 807 stores to boast about. The company survived the Wall Street Crash of 1929 with listing itself on London Stock Exchange, which turned out to be a huge success (A history of Woolies: 99 years of pic 'n' mix 2008). In 1950 and 1960s Woolworths got new boost from the teenager due to arrival of pop music and bands like Beatles. By the late 1960s Woolworths offered increased entertainment products to meet growing consumer demand. Woolworth as an Online Retailer: With the continuing internal and external problems, faced by Woolworths, including high debt, negative profit margins and financial crisis of 2007-09, the company was forced to close all of its outlets. 5th January 2009 brought the day when all of Woolworths’s stores were closed permanently. However, in February 2009 the news came that the company has sold its brand including the Ladybird clothing brand to Shop Direct Group, a veteran in online shopping and the owners of companies such as Littlewoods, Kays and Great Universal. After the deal was done it was announced that Shop Direct Group will re-launch the Woolworths brand as an online retailer (Woolworths to be reborn on the internet after buy-out by web retailer Shop Direct 2009). 3. Drivers of the Change: If we compare the today’s typical conditions that retail industries are facing with one from 100 years ago when Woolworths started its retail stores then certain drivers of the newly emerging industry paradigm will come out as follows: There is a stronger emphasis on the customers with resulting flexibility, quality and speed of delivery (Graetz 2006). The focus on synergies, alliances, networks and outsourcing has increased (Graetz 2006). These factors combined with change in technology and emerging new players in retail industry with innovative products and way of serving them at cheaper rates put extra pressure on the Woolworths which was least concerned about these changes happening around it. There were several drivers that forced the Woolworths to close its conventional way of doing business which can be categorized in following two parts: 3.1. Internal Drivers: These are the drivers that originate from within the organization. In the case of Woolworths these drivers are as follows that led it to go insolvent: Lack of innovative and quality products: Woolworths was relying on its old brands (For ex. Ladybird in children clothing segment) with continuously decreasing quality of products. It was selling the products which were either not necessary or which can be bought from any supermarket store (Watson 2008). Higher prices and lower service quality: The offering at Woolworths stores were relatively priced higher than other retail stores. At the same time the staffs at the stores were indifferent about the need of the customers visiting the stores. Lack of effective leadership: Much of the recent work on leadership in the organizational behavior literature has stressed the importance of what has been referred to as transformational, charismatic, or visionary leadership (Robertson 1995). However, in case of Woolworths, the leadership placed at the top was not visionary and didn’t have any plans to move forward (Watson 2008). 3.2. External Drivers: These are the external factors that affect the way organization worked till now. Following are the drivers that can be cited as external in case of Woolworths with which it could not synchronize itself: Change in technology: The internet, now closing in on 16 years old in its mainstream incarnation as the World Wide Web, is one of the main causes for the business failures of Woolworths. Bits of information flowing over a wire proved to be more efficient than having physical infrastructure. People stopped buying records and video games in Woolies years ago. But Woolies could not change itself with these technological changes (Woolworths UK closes 2008). Change in customer needs: Increased competition in the retail industry because of new players led to new offerings at competitive prices by the competitors changed the customers’ needs to the certain extent, such as they changed the way they used to shop earlier. Now customers want more control over their shopping experience. Global economic meltdown: The ongoing economic slowdown exposed all of the internal and external weaknesses and problems that Woolworths was having and it could not survive this liquidity crunch. All the above internal and external drivers affected heavily the way Woolworths used to run its business. Its sales started coming down resulting in negative profits with increasing high debt level. It didn’t have enough liquidity to pay to its staff which raised a strong question on the feasibility of running the business. As a result of which its top management took the harsh decision to close all of its stores. 4. Purpose of the Change: The above internal and external drivers were forcing the Woolworths to abandon its conventional method of selling products to the customers. The company had no recourse other than declaring itself as insolvent under the pressure from its suppliers. The Barclays’ brothers bought the company to make this old brand remain alive in U.K. They bought the company with the purpose of using the core competencies (Presence in children clothing and entertainment products) with more effectiveness and efficiency by combining its own core competencies (Experience in online selling with good reach among customers). 5. Change Perspectives: Changes that are brought in the organizations are done keeping in mind some perspective. There are several perspectives under which a change is brought in an organization such as Biological, Resource, Rational, Contingency etc. However, many of these perspectives—grounded as they are in the prior discourse of stability—are often poorly suited to a world where change is no longer a background activity but a way of organizational life. These perspectives embody assumptions about agency, context, technology, and change which may be inappropriate given the different social, technological, and economic conditions emerging today (Orlikowski 1996). However followings may be the perspectives that may fit in to the change initiated in Woolworths: 5.1. Biological Perspective: Each company has its live-cycle theory; no matter it is a world-wide organization or just a tiny store in a small town (Graetz 2006). From start up to expansion, then maturity to divestment; this is an inevitable process that leads Woolworths to a huge unexpected change. After acquiring Woolworths, the two brothers, David and Frederick Barclay closed all the local stores and were planning to re-launch it online. 5.2. Resource Perspective: Effective changes drive an organization to fully utilize its resources through acquiring, growing and utilizing its potential resources and minimizing its ineffectual resources which includes human and financial resources (Graetz 2006). This can definitely save a huge amount on wages expense by decreasing human resources. And through online service Woolworths will save wages and other expenses. 5.3. Contingency Perspective: Three main factors- technology, structure and size; define and lead the competitive environment (Graetz 2006). Because Woolworths just sell narrow range of products not like the other three large stores companies, it was hard to change and input all stores around UK. While launching online is easier with Barclay brothers’ online trading experience. 5.4. Post-Modern Perspective: Considering this perspective after the change has been introduced in the company it should now focus more on giving customers control over their shopping experiences by using its own core competencies in addition to the Barclay Brothers’ online experience. Shopping online is very common, especially in Western countries, like US and Europe as there is deep reach of internet and plastic cards among customers. The successes of e-businesses like e-bay and Amazon have fully utilized this fact. 6. Change Strategy: The strategy that Barclay brothers of Shop Direct Group have adopted to bring the turnaround for the company is to make it fully an online retail company. However, the company has not yet decided which all products of Woolworths it will continue selling and what new products it is going to launch after this change. But, by adopting this strategy they can bring about following changes in the working of the company: Provide online service to the customers with higher choices and varieties. Bring higher efficiency in customer service. Reduce costs of running the physical stores, salary and wages of staffs. Deeper reach among the customers through internet given the fact that customers in U.K. have higher access to internet and plastic money. The above strategy seems to be inline with the mission statement of the Woolworths: Right Stock, Right Store, Right Quantity at the Right Time. But the biggest challenge ahead of the new management team is to implement this change in the organization i.e. to manage the change. There are several change management strategies and selection of which depends upon the Degree of Resistance, Target Population, The Stakes, The Time Frame, Expertise and Dependency (Warren G. Bennis 1969). Resistance to change can always be found in any organization. It is mainly a consequence of the hurry to change, loss of focus, concentration of decision making at the level of top management, arbitrary imposition of objectives and results, faulty communication, and the absence of motivational and financial incentive for change (Oliveira 2009). Similarly, there can be a resistance from the workers and stakeholders regarding the change brought about because of their conflicting interests with the new management of Woolworths. Already, the old Woolworths board is facing legal action from the company’s leading shareholder Ardeshir Naghshineh, who owns 10 per cent of Woolworths (Woolworths UK closes 2008). 6.1. Change Tools: The company seems to be following the Kurt Lewin’s Classical Model to implement the change which says that planned change requires that field forces be freed up, then restored after planned change is complete (Carr 1995). Unfreezing (breaking field forces for stability): This involves weakening psychological attachment to the past (Graetz 2006). Woolworths has already closed all the stores because it was not feasible to continue the business under the same model. Moving (introducing new norms of behavior): In this step, the new technology and new skills is to be introduced requiring new social relations between staff (Graetz 2006). Barclay brothers have opened the new site for the Woolworths under the same URL as it had previously with the new colours given to it. In the website a new section of Woolworths blog has also been added so that new visitors can put theirs views about their move and to inform the customers about their products and method of delivering the products etc. Refreezing (restoring field forces for stability): This step talks about the new norms or values that will support the fresh skills, technology, and social relations. The new management team has to adopt the new norms and values that can abide its employees to achieve the organizational objective within the choices available to them. 7. Alternative Strategy and Tool: The current strategy adopted by the Barclay brothers looks to be the perfect strategy under the given circumstances where Woolworths was unable to sustain its business due to high debt level and lack of liquidity. But the strategy has following negative consequences: Job loss to approximately 27000 people due to closed stores Realizing lesser than the worth value due to sell of stores under such conditions resulting in huge losses to the stakeholders Serious question mark on the survival of the companies dependent on Woolworths Considering the above negative consequences associated with the closing of the Woolworths’s stores, an alternative strategy would have been better which goes as follows: Company could have kept its stores as it is (Although it could have sold some of them which were not producing adequate revenue to the company) with adopting the online selling technology as well. This would have required it to change its product portfolio slightly, with putting more emphasis on selling CDs, DVDs and video games online while selling of clothing products on-store. This would have brought the much required efficiency in the system without closing all the stores and firing most of the staffs. Sale of few non-performing stores would have brought the short term liquidity in the system which is necessary to run the business. To bring about the necessary changes and most importantly to implement them the company could have followed ‘Best Practice’ tool which is a holistic or systematic in nature. The several elements of this tool would have addressed the problems faced by the company with new technology and management in place. These elements are as follows: A focus on simultaneous improvement in cost, quality and delivery. Closer links to customers & closer relationship with suppliers The effective use of technology for strategic advantage. Less hierarchical and less compartmentalised organisations for greater flexibility. Human resource policies that promote continuous learning, teamwork, participation and flexibility. 8. Conclusions: The additional pressures of new technology, global competition and changing markets, are forcing organizations for strategic level transformation. This transformation takes holistic approach towards the business covering its all parts such as, its structure, processes, resources, technology and its culture (Manag 2009). Change management is the process of developing and implementing a premeditated approach to change in an organization. Typically the intent is to maximize the shared benefits for all people involved in the change and minimize the risk of failure of implementing the change. The change management deals primarily with the human aspect of change, and is therefore related to pure psychology. The new management of Woolworths should keep in mind these aspects of change while transforming the insolvent company into a profitable one. While doing this they must remember that change initiatives go through a series of necessary steps that have their own lead times. They should address the staffs’ needs and concerns adequately while developing new and sustainable relationships with its customers by keeping the promises given to them. This will make the ultimate goal look realizable to participants and helps garner support even from those who have been erstwhile resisting change and sitting on the sidelines. 9. References: "A history of Woolies: 99 years of pic 'n' mix." timesonline.co.uk. November 26, 2008. http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article5237402.ece (accessed April 19, 2009). Carr, D. & Hard, K. Managing the Change Process: A Fieldbook for Change Agents, Team Leaders & Reengineering Managers. McGraw - Hill , 1995. Graetz, F., M. Rimmer, A. Lawrence, and A. Smith. "Managing Organizational Change. 2nd Edition." Australia: Wiley & Sons, 2006. Manag, J Change. "Change Management." Journal of Change Management, 2009. Oliveira, Otávio José de, Serra Pinheiro, Camila Roberta Muniz. "Best practices for the implantation of ISO 14001 norms: a study of change management in two industrial companies in the Midwest region of the state of São Paulo – Brazil." Journal of Cleaner Production, 2009: p883-885. Orlikowski, Wanda J. "Improvising Organizational Transformation Over Time: A Situated Change Perspective." Information System Research, 1996: 63-64. Robertson, Peter J., Shui-Yan Tang. "The Role of Commitment in Collective Action: Comparing the Organizational Behavior and Rational Choice Perspectives." Public Administration Review, 1995. Warren G. Bennis, Kenneth D. Benne, and Robert Chin (Eds.). The Planning of Change (2nd Edition). New York: Holt, Rinehart and Winston, 1969. Watson, Tom. December 28, 2008. http://www.tom-watson.co.uk/2008/12/a-goodbye-to-woolworths/ (accessed April 19, 2009). "Woolworths to be reborn on the internet after buy-out by web retailer Shop Direct." dailymail.co.uk. February 2, 2009. http://www.dailymail.co.uk/news/article-1133786/Woolworths-reborn-internet-buy-web-retailer-Shop-Direct.html (accessed April 19, 2009). "Woolworths UK closes." ausfoodnews.com. December 28, 2008. http://www.ausfoodnews.com.au/2008/12/24/woolworths-uk-closes.html (accessed April 19, 2009). Read More