Thornton's Strategic Choices - Essay Example

? Thornton’s Strategic Choices Table of contents Introduction 3 2. Strategic Choices of Thornton 5 2a. Analysis of the strategic position of Thornton 5 2b. Identification of the major strategic options facing Thornton 11 2b1. Ansoff matrix 11 2b2. Strategy clock 14 2c. Evaluation of the major strategic options facing the organisation 16 2c1. SAFe framework 16 3. Conclusion - Recommendations on both the direction and method of strategic development that would be most appropriate for the organisation over the next 3-5 years. 18 References 21 (Words 4997) 1. Introduction The identification of successful strategies is a key challenge for managers worldwide. Usually, the ability of managers to locate strategies that are able to respond to organizational needs is differentiated, according to the personal skills and perceptions. Also, each organization’s external environment is likely to affect, more or less, the progress of strategies of the particular organization. In this context, the establishment of an effective strategic management framework can help an organization to increase its efficiencies and stabilize its market position. Kew and Stredwick (2005) note that three are the key elements of all strategic management frameworks: ‘the strategic analysis, the strategic choice and the strategic implementation’ (Kew and Stredwick 2005, p.205). The first of these elements, i.e. the strategic analysis addresses the following two issues: ‘which is the organization’s current position and where the organization wants to go’ (Kew and Stredwick 2005, p.205). At the next level, the strategic choice refers to the need for the identification of appropriate strategic options, as appropriate, for responding to the organization’s needs, as they have been identified through the strategic analysis process (Kew and Stredwick 2005). The final phase of a strategic management framework would be the strategic implementation, referring to the implementation of the strategic options that have been found to be necessary so that the organization’s goals are achieved. The strategic choices of Thornton, a popular chocolate maker, are reviewed in this paper. Thornton has been established in UK about a century ago; the firm’s first store opened ‘in 1910s in Sheffield’ (Thornton, company website, 100 years of Thornton 2012). In 2011, the firm’s employees were estimated to 4,205 (Thornton, company website, investor relations 2012). The firm’s turnover in 2011 was estimated to ?218.26m, slightly increased to the turnover of 2010, which was estimated to ?214.55m (Thornton, company website, investor relations/ financial summary 2012). The firm’s performance during the last five years indicates that the organization has been able to face effectively the market challenges. Indeed, the turnover of the firm from 2007 up to 2011 has been changed, as presented in the table in Figure 1 below. Turnover of Thornton from 2007 to 2011 2007 ?185.99m 2008 ?208.12m 2009 ?214.80m 2010 ?214.55m 2011 ?218.26m Figure 1 - Turnover of Thornton from 2007 to 2011 (Source: company website, investor relations/ financial summary 2012) According to the figures presented in Figure 1 below, the organization has managed to achieve a continuous growth. However, if reviewed more carefully, the organization’s performance has not been improved the last five years. More specifically, the organization’s profits have been significantly decreased in 2011, if compared to 2007, as also revealed through the table in Figure 2 below. Profits of Thornton from 2007 to 2011 2007 ?5.21m 2008 ?6.07m 2009 ?3.60m 2010 ?4.35m 2011 -?0.25m Figure 2 – Profits (after tax) of Thornton from 2007 to 2011 (Source: company website, investor relations/ financial summary 2012) At the same time, the number of the organization’s employees has been decreased in 2011, as compared to 2010; in 2010 the firm’s employees were 4,377 while in 2011 they were reduced to 4,205 (Thornton, company website, investor relations 2012). Also, problems in regard to the alignment of the organization’s practices with the Health and Safety Regulations have appeared, as analytically explained below. It seems that the organization’s strategic choices need to be reviewed; in this way, the failures related to these choices will be revealed and appropriate measures would be suggested. This paper will help to examine the firm’s current strategic position, the strategic options available to the firm’s managers and the methods that would be most appropriate for implementing these strategic options so that failures in organization’s strategies, as indicatively explained above, are eliminated. 2. Strategic Choices of Thornton 2a. Analysis of the strategic position of Thornton The strategic position of organizations is closely related to their environment, meaning that the conditions in the external organizational environment tend to influence each organization’s strategic position in its market. At this point, the following issues are critical: at which level is the organization able to align its strategies with its environment and which changes are required so that the relationship between the organization and its environment to be strengthened. Kozami (2002) notes that the strategic position of an organization is judged using specific criteria: a) the performance of the organization within its industry, i.e. the level of its profitability and b) the ‘competitive advantage of the organization’ (Kozami 2002, p.258); in the last case, the differentiation of the organization’s products/ services compared to those of its rivals is checked aiming to prove that the competitiveness of the particular organization within its market is high (Kozami 2002). Two frameworks are commonly used for exploring the strategic position of each organization: the PESTEL analysis and the Five Forces model of industry competition. These frameworks will be also used in this study for exploring the strategic position of Thornton within its industry. In the context of the PESTEL analysis, the following elements of the organization’s external environment are explored: a) Political, b) Economic, c) Social, d) Technological, e) Environmental, f) Legal. Using the PESTEL framework, the strategic positioning of Thornton would be analysed as follows: a) Political; the political environment of UK can be characterized as stable; there is no political instability or severe social conflicts caused by political decisions. In fact, it seems that the government in UK supports business activities, as entrepreneurship is considered as a key factor for the growth of the UK economy. In other words, in terms of the political environment, the operations of Thornton are not threatened; b) Economic; the economy of UK has been traditionally quite strong, as revealed through the level of the country’s FDI, as compared to other countries worldwide (see graph in Figure 3 below). Figure 3 – Countries with highest FDI in the international market (Source: Economics Online 2012) However, in 2012 the performance of the UK economy is expected to be stabilized; in fact, it has been announced that in the last three months of 2011 the GDP of UK was reduced by 0.2% (Sky News 2012), a fact that would negatively affect the efforts of the British government for promoting the increase of investment on entrepreneurial activities. Under these terms, the economic environment of Thornton would not be quite supportive, at least as it could be expected, to the firm’s growth; this means that the firm’s stakeholders would be negative in supporting business strategies that are considered as risky, even if the expected profit would be high; c) Social; consumer spending on chocolate products in UK is rather high; in fact, according to a report published in 2009, the amount of money spent on chocolate products in UK during 2008 has been estimated to ?3.5billion (The Telegraph 2009), which is among the most high figures in the context of European Union, with only Switzerland to report a highest consumption per person in the same period, i.e. in 2008. Therefore, the firm’s growth would not be threatened by a radical change on consumer preferences; however, the firm’s financial results have revealed a significant reduction in the firm’s profits during the last 5 years (Figure 2 above). The limitation in consumer spending, as related to the performance of the UK economy (Sky News 2012) would severely affect the firm’s prospects for growth in the future; d) Technological; Thornton has highly emphasized on the used of advanced technology in all phases of the manufacturing process; moreover, in UK market the machinery available for manufacturing is periodically reviewed, as of its update with global technological advances in regard to the specific sector; therefore, technology would not be a threat for the firm’s performance in the UK market. The table in Figure 4 below shows the technology available in various areas of the manufacturing industry of UK. It is clear that firms operating in various sectors of the particular industry can be effectively supported in terms of technology required in their daily operations; e) Environmental; as in all developed countries, the alignment of business activities with the rules of sustainability is vital in UK. The Quality Partner Programme that the firm has developed aims to promote sustainability in regard to the practices used by the firm’s cocoa suppliers (Thornton, company website, Corporate and Social Responsibility 2012); the Environmental Information Regulation 2004, as applied in UK, ensures the accessibility of firms to all vital environmental information; the BS EN ISO 14001:2004 Environmental Standards is a certificate verifying the quality of manufacturing processes in firms across UK; in other words, the firm is able to meet all requirements set in UK in regard to the quality of manufacturing processes, meaning especially the alignment of these processes to the rules of sustainability so that the negative effects of these processes on the environment are minimized; the firm’s managers would possibly try so that the organization is certified with the above certification on quality standards, aiming to increase the firm’s credibility in regard to its manufacturing processes; f) The legal environment of UK is quite supportive to business activities; the Companies Act 2006 addresses all issues related to companies’ operations across UK; the above legislative text ensures the effective and rapid resolution of problems related to all industrial sectors in UK. Figure 4 – Technology available in manufacturing processes of firms in UK (Source: BIS, Department for Business Innovation and Skills, 2010, p.18) The Five Forces model has been developed by Porter and highlights the forces that a firm operating in the global market is likely to face. Turner (2003) notes that the success of organizations within their industry is based on two requirements: a) the establishment of a clear strategy and b) the close monitoring of organizational activities so that ‘these activities enhance the particular strategy’ (Turner 2003, p.69). The Five Forces model of Porter is aligned with the rules of prescriptive approach, which promotes a particular format of strategic analysis: emphasis is given on ‘the analysis of the market and the strategic positioning of the organization involved’ (Turner 2003, p.69). Drejer and Boer (2005) note that the success of each organization in terms of its strategic positioning is judged on the following criterion: the level at which organizational activities are fully aligned with the organization’s goals and the strategies promoting these goals. For Thornton, the analysis of the organization’s strategic positioning using the Five Forces model could be developed as follows: a) Customers; Thornton is a firm well established in the UK market; in fact, according to the company website, the firm was first established in 1910 and since then its operations across UK have significantly expanded, so that today the firm is listed in FTSE; customers would not threaten the firm’s performance unless their spending behaviour, which has already negatively affected because of the decline in the performance of UK economy as explained earlier, would further change; b) Suppliers; according to the company website, Thornton buys its cocoa from ‘two of the most credible cocoa suppliers Cargill and Barry Callebaut’ (Thornton, company website, Corporate and Social Responsibility 2012); if the above suppliers would choose to increase their prices, then the organization would have to face a difficult dilemma: to change its suppliers and seek for less costly supply schemes; however, this fact would possibly negatively affect the quality of the firm’s products; suppliers would be able to influence the firm’s strategic choices at the level that the change of suppliers would result to severe problems of the organization, setting the firm’s image in the market in risk; c) Substitute products; as already explained above, the firm has highly emphasized on the quality of the cocoa used in its products; this means that other products of similar characteristics would be possibly identified in the UK market but they would not likely to be of the same quality/ taste; from this point of view, it would be quite difficult for substitute products to influence the firm’s strategies; d) competitors; the firm is well established in the global market; in fact, the firm is member of the World Cocoa Foundation (Thornton, company website, Corporate and Social Responsibility 2012), aiming to highlight the importance of sustainability in regard to cocoa farming; at the same time, the firm participates in the International Cocoa Initiative (Thornton, company website, Corporate and Social Responsibility 2012); the strategies of competitors would not particularly influence the strategic choices of the organization which has already developed effective strategic alliances, especially in regard to its supply chain, for securing its market position; e) industry; the chocolate market is quite competitive especially due to its high turnover; as noted above, in 2008, in UK, as in other European countries, the consumption of chocolate has remained at high levels (The Telegraph 2009); therefore, the firm’s strategic choices would not have to be altered by unexpected changes in the particular industry; however, the influence of these choices by the downturns in the UK economy, as explained in the PESTEL analysis presented above, cannot be doubted. At this point, the major strategic options available to Thornton for facing the market’s challenges, as analysed earlier, should be presented and appropriately evaluated. 2b. Identification of the major strategic options facing Thornton The strategic options available to Thornton in the context of the UK market would be identified using relevant theoretical frameworks and models, such as the Ansoff Matrix or the Strategy Clock. These two frameworks are presented below, as of their involvement in the identification of strategies that could help Thornton to overcome its industry’s challenges and secure its market position. It should be noted that in the literature, different approaches seem to exist in regard to the criteria that firms need to use when choosing among various strategic options. For example, Thompson and Martin (2010) that ‘successful consumer goods manufacturers would need skills in brand management’ (Thompson and Martin 2010, p.103). From a different point of view, Capon (2009) notes that the strategic choices of firms should be primarily influenced by the organizational culture. It is explained that a strategic choice, available to a particular organization, which promotes the financial interests of the organization should not be preferred if it is opposed with the organization’s culture (Capon 2009). 2b1. Ansoff matrix The Ansoff matrix is commonly used for ‘identifying and evaluating a firm’s strategic options’ (Cadle and Turner 2010, p.17). The Ansoff matrix is presented in Figure 5 below. The four parts of the Ansoff matrix can be analysed as follows: a) Market penetration; it refers to a firm’s efforts to continue its operations within its market, avoiding the expansion in new markets; in the context of this strategy, the firm would continue to use its existing products but it should identify appropriate strategies so that its share in the existing market to be increased (Cadle and Turner 2010, p.16), b) Product development; this part of the Ansoff matrix refers to the following organizational strategy: the firm keeps its activities limited within its existing market but it develops its products, available in the particular market; in this case, the firm needs to ensure that the product or products introduced in the existing market respond to the demands of consumers (Cadle and Turner 2010, p.16), c) Market development; alternatively, a firm should choose to enter in a new market but keeping its existing products; in this context, costs related to the manufacturing of new products would be avoided. However, using existing products for entering a new market would limit the firm’s risks since the performance of these products has been already tested in the firm’s existing market (Cadle and Turner 2010, p.16); d) the most risky strategy, as revealed through the Ansoff matrix, would be the Diversification strategy which is based on the entrance to new markets using new products (Cadle and Turner 2010, p.16). The above strategies, as included in the Ansoff matrix, would be checked, as of their appropriateness for a particular organization by using the information revealed through the organization’s SWOT analysis. Figure 5- Ansoff matrix (Source: http://taydeaburto.com/ansoff-matrix-for-marketing-objective/) Beamish and Ashford (2005) note that the Ansoff matrix ‘provides four strategic options’ (Beamish and Ashford 2005, p.46) that allow organizations to evaluate their existing strategic and proceed to changes, as appropriate, for improving their performance. For Thornton, the Ansoff matrix, as combined with a SWOT analysis could help to the identification of strategic options that would help the organization to increase its competitiveness but also to increase its profits. The above two frameworks would be analysed as follows: a) SWOT analysis; a1) Strengths: high quality of products, excellent brand name, effective cooperation with suppliers, a2) Weaknesses: lack of innovation, failures in the firm’s manufacturing systems, a3) Opportunities: high performance of industry in UK, signs for the industry’s further growth in the future, a4) Threats: decrease of the performance of UK economy; chocolate products of low price continuously appear in the market. The information from the SWOT analysis, as presented above, would be used in combination with Ansoff matrix, for helping the firm’s managers to identify the strategic options most appropriate for responding to the firm’s needs. According to the issues discussed in the firm’s SWOT analysis, the firm should avoid the Diversification strategy; in the context of current economic conditions worldwide, entering a new market using new products would be quite risky for the organization. In general, the firm should avoid developing new products since its existing products perform very well, at the level that the total revenue of the organization has been significantly increased between the years 2007 to 2011 (see Figure 1 in Introduction). However, it has been also revealed that the firm net profits for the same period have been significantly decreased (Figure 2 in Introduction), leading to the assumption that the profits generated at a first level are spent on organization’s activities. This means that the firm should better organize its operations across UK. It also means that the expansion to a new market would be not feasible since the firm’s net profits (Figure 2) do not allow the development of such plans. Therefore, the Market Development and the Product Development strategies should be also avoided, as also the Diversification strategy. The firm should focus on Market Penetration, i.e. to its expansion within the UK market using existing products. In order to succeed in regard to this plan, the organization should update its existing strategies as following: a) the price of its products would be slightly decreased, allowing the expansion of the firm’s customer base, b) a marketing plan would be introduced for promoting the firm’s products; emphasis would be given on quality and low price, c) promotion plans would be developed in cooperation with the communities across Britain; for example: the firm’s products would be distributed in pupils of specific schools indicating the firm’s efforts to improve its relationships with its stakeholders. 2b2. Strategy clock Figure 6 – Bowman’s strategy clock (Source: http://www.mindtools.com/pages/article/newSTR_93.htm) An alternative framework for identifying the strategic options of Thornton within its industry would be the strategy clock of Bowman (Figure 6). The specific framework is based on the relationship between ‘price and perceived value of a product’ (Needle 2010,p.281). According to Needle (2010) the strategy clock of Bowman shows that the particular relationship can result to a series of strategic options for organizations operating in various sectors. The above researcher also notes that ‘the parts 6, 7 and 8 of the strategy clock should be avoided’ (Needle 2010, p.281) since they lead to the radical deterioration of quality of products using the justification that these products’ price has been significantly decreased; in this way, the value of quality, as an element of the market, is also decreased harming the market in the long term. Also, Needle (2010) that the development of practices included in the parts 6, 7 and 8 of the strategy clock are, in practice, feasible to organizations that ‘hold a monopoly position’ (Needle 2010, p.281). For firms that need to keep the price of their products low while offering at the same time products of high value, or at least of value higher compared to the average value of similar products of competitors, the parts 2, 3 and 4 of the clock would be most appropriate. These parts would be reviewed as of their potential use in the case of Thornton. The part no 2 of the strategy clock, i.e. the low price strategy, would be appropriate for organizations that ‘produce a high volume of products of the same characteristics’ (Needle 2010, p.281), as, for example, the supermarkets; in the above case, the quality of products is usually of average to low levels. The hybrid strategy would be used in organizations that can combine low price and high-perceived value, as for example, the case of IKEA (Needle 2010, p.281). As for the differentiation strategy, this would be appropriate for organizations focusing on product value and not so much on the price of the product; in the context of this strategy the organization involved cannot decrease the price of its products since such strategy would not allow the firm to focus on product differentiation, which is the key goal of the organization (Needle 2010). For Thornton, the hybrid strategy is considered as the most appropriate, offering the chance to the organization to improve the value of its products keeping their prices at rather low levels, compared to the prices of competitors. 2c. Evaluation of the major strategic options facing the organisation According to the issues discussed above, Thornton has two key strategic options for improving its market position and increasing its profits: market penetration, as identified using the Ansoff matrix framework, and a hybrid strategy, as identified through the strategy clock framework. These strategic options would be evaluated so that their potential feasibility and effectiveness for the organization are identified; the SAFe framework could help to evaluate the firm’s major strategic options and make appropriate recommendations. 2c1. SAFe framework In the context of the SAFe framework, three characteristics of a firm’s strategic option are checked: suitability, acceptability and feasibility. Using the above framework, the evaluation of the two strategic options presented above, i.e. of the market penetration strategy and the hybrid strategy, would be developed as follows: A) Market penetration strategy: A1) Suitability: the particular strategy is aligned with the organization’s objectives, which focus on the delivery to the customers of products of high quality and of a significant range; at the same time, the resources of the organization can support such strategy; in practice, the firm has been able to respond to quite emergent market needs increasing its level of production within a quite short period of time; for example, in February 2012 the firm managed to produce approximately ‘an extra billion sweet treats for the Valentine’s Day’ (Rawi 2012); the chosen strategic option is also aligned with the firm’s culture which supports efforts for responding more effectively to the customer needs; A2) Acceptability: the specific part of the SAFe framework refers to the potential acceptance of a strategic option by stakeholders; in Thornton such acceptance is considered as guaranteed due to the following fact: the expansion of the firm in its existing market would result to the increase of its profits, a fact that would please its shareholders; however, employees would possibly resist to the introduction of such strategy but if they are not given the appropriate support; for example, the compensation of employees after introducing this strategic option should be increased so that employees are compensated fairly for supporting the relevant plan; the community would also accept the specific strategic option at the level that the contribution of the organization in community plans would be increased; A3) Feasibility: at the next level, the specific strategic option would be feasible since the firm’s systems and resources can respond effectively to the need for increased production, as incorporated in the strategic option chosen, i.e. the market penetration strategy; an example of the firm’s ability to respond to the requirements of such plan is the recent increase of the organization’s production to respond to emergent market needs (Rawi 2012); B) Hybrid Strategy: B1) Suitability: the hybrid strategy is not opposed with the organization’s objectives and culture; in fact, this strategy reflects the organization’s key priority: the products of the organization need to be of the highest possible quality and range, responding fully to customers’ needs; the particular strategy would be suitable for the organization for an additional reason; as explained above the firm faces problems in regard to its low profits; while its revenues are high, profits are low; the introduction of an hybrid strategy would allow the organization to increase its production, improving its profitability, and to decrease its prices, increasing its competitiveness, B2) Acceptability: the specific strategic option would be welcomed by the firm’s stakeholders for the same reasons and under the same terms as the market penetration strategy above, B3) Feasibility: the firm’s existing systems can support the increase of production, as proved through the response of firm to emergent needs for increased production (Rawi 2012); the hiring of more employees would be possibly necessary so that the volume of the firm’s daily production to be significantly increased. The feasibility of this strategy in the long term would be judged after evaluating the results of the initial period of the option’s implementation in the organization, an issue that is further discussed in the section that follows. 3. Conclusion - Recommendations on both the direction and method of strategic development that would be most appropriate for the organisation over the next 3-5 years. The identification of appropriate strategies is critical for organizations in all sectors. For Thornton also, the use of appropriate strategies is necessary in order for the firm’s performance to be stabilized. According to McKiernan (1992) the choice of wrong strategies would result to severe organizational failures, either in the short or the long term, taking into consideration the difficulties involved in updating or replacing the particular strategies. Moreover, it has been proved that taking risks should be an important element of the strategic decision making process; it is explained that the avoidance of risks on a continuous basis could delayed the growth of an organization, threatening significantly its competitiveness towards its rivals (McKierman 1992). From this point of view, the strategic choices of Thornton should not only focus on the increase of the firm’s profits, which have been significantly decreased in 2011, compared to the previous years, i.e. from 2007 onwards (Figure 2 in the introductory section of the paper). At the next level, Aras and Crowther (2010) claimed that the evaluation of the firms’ strategic choices could be effectively developed using the Flexibility Theory. The above theory emphasizes on the importance of flexibility as an element of firms’ strategic choices (Aras and Crowther 2010). In the context of the above theory it is suggested to firms’ managers to check their firms’ options as of ‘their strategic inflection points where flexibility offers the most value’ (Aras and Crowther 2010, p.258). For Thornton, this means that the organization’s managers should prefer those strategic options that can easily alternated, in regard to one or more of their elements, and which are of high value in regard to the increase of the organization’s profitability. Moreover, Wilson (2003) notes that in most organizations the choice of strategic options is necessarily followed by the review of organizational goals. Indeed, the introduction of specific strategies in a particular organization is expected to affect organizational activities (Wilson 2003). At the next level, the achievement of organizational goals, which are promoted by a firm’s activities, could be threatened (Wilson 2003). Thus, after choosing specific strategic options, the managers of a particular organization would check whether the achievement of the firm’s goals, in the context of these options, would be feasible. Then, the potential change of these goals would be decided, if necessary (Wilson 2003). A different approach would be also acceptable: the strategic options available to the organization would be primarily checked as of their alignment with the organizational goals; those that would be found as opposed to these goals should be rejected (Capon 2008). Thornton would adopt the strategic options for increasing its profits for the next 3-5 years. The success of these strategic options would be related to the simultaneous introduction of measures for supporting these strategies in regard to all the firm’s operations (Saee 2007). These measures could be possible differentiated according to the organizational area involved; more specifically, it would be necessary for such measures to be developed both in regard to the entire organization as also to each one of its units (Stacey 2007). In any case, the incorporation of the strategic options chosen in the organization would be gradual; at a first level, each strategic option would be used for a specific period of time, for example for a trial period of 6 months. After this period, each strategic option would be evaluated, as of its ability to support the growth of the organization; then, the full incorporation of the strategic option in the firm’s strategic framework would be decided. In this way, risks related to the specific strategic options are reduced; at the same time, improvements on these options are possible so that their effectiveness is increased. The above strategy would also allow the organization to develop appropriately its resources and infrastructure in order to be able to respond to the needs of these strategic options in the long term. In any case, the firm seems to be able to respond on time to the market demands (Rawi 2012). The failures that have appeared in regard to certain of the firm’s operations are rather limited, compared to the volume of the firm’s production (Rawi 2012). The implementation of the two strategic options presented above, i.e. of the market penetration strategy and the hybrid strategy could help the organization to control more effectively its operations, decreasing the chances for failures, and to achieve a better balance in regard to profits/ costs so that its market position is standardized. References Aras, G., and Crowther, D. (2010) A Handbook of Corporate Governance and Social Responsibility. Surrey: Gower Publishing, Ltd. Beamish, K., and Ashford, R. 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