Strategic Management and Strategic Competitiveness - Case Study Example

Table of Contents Table of Contents 1 Introduction 1 Strategic management and strategic competitiveness 2 Influence of external environmental factors on ALDI’s performance 3 Role of internal environment on ALDI’s performance 5 ALDI’s business level strategy 6 Conclusion 7 References: 8 Introduction ALDI is a large chain supermarket with its origins in Germany. The supermarket chain first opened its operations in Australia in the year 2001 and is known for offering low priced products to the market. It currently has more than 270 stores in Australia with a network of more than 7000 stores globally. Its success is attributed in providing value and quality to its customers through its fair and efficient approach to all it does. It is able to offer cheaper products for its customers owing to its use of own brands and simple store display. However, its competitive advantage is threatened by the rapidly changing external environment. ALDI therefore needs to counter this challenge if it is to remain relevant in the Australian market. This paper looks at environmental factors affecting ALDI’s performance as well as the business strategy it has employed in its bid to remain competitive. The paper concludes by suggesting a change in strategy if ALDI is to remain relevant in the market. Strategic management and strategic competitiveness Strategic management is about formulating and implementing organization’s major goals and initiatives as decided by the management on the basis of resources as well as an analysis of the company’s internal and external environments. As such, it provides the organization’s overall direction through specification of organizational objectives as well as the policies to be used in achieving the objectives and the eventual allocation of resources for implementing the plans. Strategic competitiveness on the other hand strategic competitiveness could be defined as the outcome achieved when an organization successfully formulates and implements a value creating strategy which cannot be duplicated or is too costly to duplicate in the short run (Kiechel, 2010). It enables the organization achieve its goals despite increased competition and hence gives the organization its competitive advantage. Influence of the characteristics of the competitive landscape on the strategic competitiveness of organizations ALDI operates in the supermarkets and Grocery stores industry. The competitive landscape of the industry is characterized by companies trying to compete along such lines as private labels such as the one ALDI competes on, technology where Woolworths has been noted to be ahead of others as well as selling at reduced prices as ALDI does. It should also be noted that the industry has been experiencing rapidly changing consumer tastes and preferences and hence the ability to respond to this greatly determines the success of a firm in the industry. The industry’s competitive landscape has greatly affected strategic competitiveness of organizations. For instance, the entry and rapid growth of ALDI has been mainly attributed to the fact that it almost exclusively sells private-label products at discounted prices (Webb, 2008). However, with most supermarkets working towards introduction of private labels and cheap products in the market, ALDI has to come up with new strategies if it is to remain as competitive as it is today in the Australian market. Influence of external environmental factors on ALDI’s performance The firm’s external environment can have a great influence on how the company performs and on its strategic management as well as its strategic competitiveness. In this regard, the Porter’s five forces analysis of ALDI has been carried out in a bid to better understand the influence of external environment on ALDI’s performance; The threat of new entrants -Low The threat of new entrants in the supermarkets and grocery stores industry in which ALDI operates is relatively low. This is as a result of the considerable barrier to new entrants erected by big supermarkets such as Coles, Woolworth and ALDI in terms of ability to access cheap and reliable suppliers (Walter, 2014). A study by Roy Morgan research finds ALDI to be the cheapest supermarket in Australian which implies that other supermarkets may find it hard to compete with ALDI in terms of pricing. This also implies that ALDI has a great market share (10%) over the ten years it has operated in Australia implying that new entrants will find it hard to survive using ALDI’s strategy. Bargaining power of buyers- high Though ALDI offers the lowest price in the market, the bargaining power of buyers is relatively high given that customers are able to switch to other supermarkets/products without having to incur switching costs. This is especially since customers have a wide variety of choice while paying attention to price and quality of good they buy. As such, ALDI has to strive to adhere to customers’ tastes and preferences at all times while offering cheap products. Bargaining power of suppliers-medium ALDI sources almost all of its supplies locally where it has a stable relationship with its suppliers. However, given the company’s low price strategy, it needs to seek low cost supplies in a bid to ensure it makes profit on its low priced goods. The goods supplied also have to be of high quality (Sustainabilitymatters.net, 2014). However, given that other supermarkets are gradually adopting ALDI’s strategy, it means its suppliers are increasingly having a choice on who to supply to. As such, their bargaining power can be considered medium. Rivalry among competitors: High The intensity of rivalry among competitors in the supermarket and groceries industry in Australia is very high owing to the price wars among supermarkets in a bid to gain more market share. For instance, ALDI’s low price strategy has been challenged by such supermarkets as Kmart (Wortmann, 2004). Local Australian supermarkets including Woolworth and Coles control 80% of the market share with a large customer base and good reputation. In addition, supermarkets like Woolworth has successfully leveraged on technology to improve its customer service thus heightening the competitive rivalry. Threat of substitutes- High The threat of products substitution is relatively high in the industry. For instance, other supermarkets have also introduced their private labels which also go at low prices. In addition, there are also other local brands with good reputation and customer preference implying the ability to substitute products is relatively high within the industry. Resulting from the porter’s five forces analysis, it can be concluded that the external environment has a great impact on ALDI’s performance (AU,2012). This is because the company has to constantly strive to offer high quality products at low prices if it is to remain ahead of competition. There is also need to employ technology in a bid to offer better services in a bid to effectively counter the high power of buyers, competitors and substitutes. Role of internal environment on ALDI’s performance An organization’s internal environment has a great impact on its performance and hence success. In this regard, ALDI’s value chain analysis has been conducted below; Tangible resources: a) Financial resources- These include the company’s cash account and inventory policy. ALDI uses just-in-time inventory policy. Its cash account and hence borrowing capacity is relatively high owing to its strong customer base and good reputation (Wood, 2012). b) Organizational resources- the organization has a strong strategic planning process coupled with a strong evaluation and control system. In addition, its unique layout, low turnover and excellent inventory management system serve to add to its strength. c) Physical resources –the company currently owns over 200 stores in Australia which increases its competitiveness. Intangible resources: a) Human resources- the company employs several employees to enable it achieve its goals and objectives. It has a simple, effective and efficient HR strategy which is considered a valued resource and hence their training and salaries are well considered. However, it fails to provide work life balance to its employees which may affect their morale and hence service quality (Albany.edu, 2014). b) Innovation- ALDI is a highly innovative brand. However, the company has been noted to lack innovativeness in media advertisement with almost no money being used in advertisements and promotion. c) Reputation – the ALDI brand is increasingly becoming popular in Australia owing to its cheap but quality product strategy. Strategic capacity analysis a) Distribution – ALDI has been noted for its strong logistics management being able to offer its services to its numerous customers efficiently. b) Marketing –ALDI advertisements are mainly done through full-color leaflets and local newspapers while ignoring TV advertising. This has been relatively effective while cutting down on costs. c) Research and design- with more than 700 products concentrated on its private labels, it is considered to be behind its main rivals Coles and Woolworth in R&D. ALDI’s core competencies Its core competency lies in its ability to offer low price, good reputation, technology and human resources. As can be seen above, ALDI has a relatively good internal environment. This has enabled it to offer quality goods and services to its customers at low prices. In other words, ALDI’s internal environment serves to help it to better serve its customer while boosting its ability to compete in the market. ALDI’s business level strategy Every organization should aim at using its core competencies in satisfying its customers preferences and tastes with an aim of achieving good returns and hence profitability. This can be achieved through business level strategies. Business level strategies include those actions that organizations take in their bid to provide value to their customers and hence gain a competitive advantage through exploitation of core competencies in specific markets. Business level strategy is mainly concerned with the firm’s position in the industry relative to its competitors as well as the porter’s five forces of competition. By employing business level strategies, organizations such as ALDI can achieve competitiveness. This is achieved when the business comes up with strategies that answer questions like which customer segments are to be served, what customers’ needs, wishes and desires are to be satisfied, why they are to be satisfied and how the customers’ needs are to be satisfied. It its effort to remain relevant in Australia, ALDI has chosen and implemented a mix of business strategies in pursuing its strategic objective of being a market leader. It should also be noted that ALDI constantly changes its business level strategy in an attempt to deal with the volatile and ever changing external environment and hence achieve outstanding competitiveness and above average returns in the long run. For ALDI, the primary business level strategy is that of offering low cost products. This is achieved through reduced cost through sourcing of local products from Australian suppliers (Fearne, 2012) . This has enabled the company offer cheaper prices to its customers compared to its competitors. However, this strategy may need to be changed as the increasing Australian dollar value is making Australian products more expensive compared to those sourced from abroad. Another strategy employed by ALDI is that offering private labels. ALDI is a proud producer of its numerous brands that are offered at relatively lower prices compared to those offered by its competitors. This strategy may however not be sustainable in the long run and may need to be changed given the fact that the prevalence of home brands by competitors like Woolworth and Coles have come up to compete with those of ALDI. Conclusion ALDI ought to maintain its cost leadership as its main competency based on its internal and external analysis. ALDI should also increase its presence in Australia through leveraging on technology to build a virtual supermarket just as its rivals are doing. As stated above, the business level strategies used by ALDI may not be sustainable in the long run and may hence require a change if ALDI is to remain relevant in the market. For instance, ALDI should consider sourcing products that are cheaper from abroad. In a addition, there is need to leverage on technology in a bid to improve its level of quality service to its customers. Cheap but quality products and private labeling may no longer be competencies for ALDI as the next battlefront shifts to the quality of service offered to the customer. References: Fearne, A2012, “Dimensions of sustainable value chains: implications for value chain analysis”, Supply Chain Management, Vol.17, pp. 575-581. Wood, L2012, “The brand description of Sainsbury's and Aldi: price and quality positioning”, International Journal of Retail & Distribution Management, Vol.34, pp.904-917. Wortmann, M2004, “Aldi and the German model: structural change in German grocery retailing and the success of grocery discounters”, Competition & Change, Vol. 8, pp.425- 441. Albany.edu, 2014, Business level strategy, Retrieved on 5th September 2014, from; http://www.albany.edu/faculty/es8949/bmgt481/lecture4.html Walter, J2014, Navigating the competitiveness landscape: The drivers and consequences of competitive aggressiveness, University of Kentucky. Kiechel, W2010, The Lords of strategy, Harvard, Harvard Business Press. Webb, C 2008, Aldi's simple recipe for success, Business Day, viewed 19/11/2012, . AU: Aldi still cheapest, 2012, Roy Morgan Research, viewed 19/11/2012, viewed 19/11/2012, < http://www.aldismartercareers.com.au/aboutaldi.aspx>. Sustainabilitymatters.net, 2014. Aldi Australia leads the positive charge in battery recycling 2012, Recycling/re-using, Retrieved on 5th September 2014, from; http://www.sustainabilitymatters.net.au/news/56567-Aldi-Australia-leads-the-positive- charge-in-battery-recycling Read More