Company Analysis J Sainsbury Ltd - Essay Example

? Company Analysis - J Sainsbury Ltd Module number: Module and number: Word count: Table of contents Introduction 3 2. Analysis and evaluation of the business strategy that J Sainsbury Ltd has pursued using Bowman’s strategic clock 3 3. Identification and analysis of the unique resources and capabilities that underpin the value chain 4 4. Identification and justification of the two most critical challenges that J Sainsbury Ltd might face in an international expansion plan 5 5. Conclusion 7 References 8 Appendices 9 1. Introduction The success of organizational strategies is usually depended on various factors; the characteristics of the market and the industry involved as well as the organizational capabilities are taken into consideration for evaluating the ability of each organization to secure its market position in the long term. Current paper focuses on the operations of J Sainsbury Ltd, a major competitor in the grocery retail sector of UK. For the last 5 years the sales turnover of the organization has been significantly increased, reaching in 2011 the ?21,102m, compared to ?17,151m in 2007; also, for the same period, the operating profit of the organization has been increased to ?851m in 2011 from ?520m in 2007. At the same time, the firm’s cost of sales has been also increased, reaching the ?19,942m in 2011 from ?15,979m in 2007; on the other hand, the firm’s gross profit has remained at same levels from 2007 up to 2011, indicating the inability of the organization to support its growth in the UK market. The analysis and the evaluation of the organization’s strategies and capabilities will help to understand whether the firm’s position in the UK grocery retail sector would be improved and whether the expansion of the firm in the international market could support the organization’s growth. 2. Analysis and evaluation of the business strategy that J Sainsbury Ltd has pursued using Bowman’s strategic clock Bowman’s strategic clock, as presented in Figure 1, Appendix is used for the identification of strategies that promote effectively the organizational goals (Rosenhauer 2008,p.11). One of the key challenges in regard to the use of the Bowman’s strategic clock is the following one: the identification of the appropriate strategy, among the strategies included in the above model, is often difficult, especially if the priorities of the organizations are not clear. According to Muller (2011) organizations can use the Bowman’s strategic clock for identifying strategies that are most feasible having in mind the resources available and each organization’s internal and external environment. The Bowman’s strategic clock is based on the following principle: each organization should choose strategies that most respond to the plans of the organizations in regard to the value and price of its products/ services (Needle 2010, p.281). Using the Bowman’s strategic clock, the strategic choices of Sainsbury’s could be analysed as follows: as noted in the case study, the firm is among the four key players in the British grocery retail sector (case study, p.1). The above fact can lead to the following assumption: the particular sector in Britain can be characterized as oligopolistic, allowing the growth of specific firms. From this point of view, the parts no 6, 7 and 8 of the Bowman’s strategic clock cannot be applied in Sainsbury’s, since the strategies incorporated in these parts are feasible in monopolistic industries (Figure 1, Appendix). The potential use of the other parts of the strategic clock would be further explored. Part 1 is characterized by both low price and added value. Such strategy would lead to the decrease of quality of the firm’s products towards its competitors that have managed to promote products of satisfactory value at a low price. It is made clear that the strategy that most responds to the firm’s strategic choices is that of the second part of Bowman’s clock. The specific strategy is based on the following two requirements: a) the price of products/ services is kept low, as possible and b) the quality of the products/ services is at an average level; in other words, this strategy requires that the price of products/ services is low but not at such level that quality is decreased, since in that case the first part of the strategic clock (low price/ low value) would be applicable. The parts 3, 4 and 5 of the strategic clock do not reflect the strategy of Sainsbury’s for the following reason: the specific parts focuses on the differentiation of a firm’s products/ services so that their value is increased; such initiative results, with no doubts, to the increase of price of products/ services. If Sainsbury’s would adopt such strategy, its competitiveness towards its rivals would be decreased. 3. Identification and analysis of the unique resources and capabilities that underpin the value chain The ability of each organization to achieve its goals is closely related to its performance in regard to the management of its value chain. The term value chain is used for describing the organization’s activities and functions at all levels of the organizational hierarchy (Wickramasinghe and Von Lubitz 2007, p.170). In the context of the Value Chain analysis model of Porter (Figure 2, Appendix), these activities and functions can be improved so that their value is increased, a fact that would also benefit the organization’s performance (Wickramasinghe and Von Lubitz 2007, p.170). The Value Chain analysis model is based on the principle that the functions of each organization can be categorized as primary and support (Figure 2, Appendix). From another point of view, the Value Chain analysis model is quite effective ‘in cases of crisis and emergency planning’ (Elliot et al. 2009, p.19). Grant (2010) notes that the effective management of value chain requires the following tasks: at a first level, ‘the order of organizational activities should be identified’ (Grant 2010, p.140); then, the capabilities of the organization, as revealed through all its activities are explored (Grant 2010); then, ‘the resources supporting these capabilities have to be identified and analyzed’ (Grant 2010, p.140), in regard to the potential increase of their value. The firm’s unique resources and capabilities can be identified and analysed using the Porter Value chain analysis model of Porter (Figure 2). Reference can be made first to the firm’s Primary activities: a) Logistics: the firm effectively supports the flow of its goods to customers; this is achieved through the existence of an extended network of branches across UK and the continuous improvement of the firm’s online services both for communication and for selling purposes; b) Operations; the firm has established an extensive land bank; the land necessary for opening new branches or for establishing supportive units is available on a permanent basis; at the same time, the firm has diversified its strategies, entering other sectors, as for example the financial services sector; the expansion of the firm’s operations in other sectors can help to the increase of the organization’s profits; c) Marketing; the firm has introduced a unique idea of marketing: ‘the traffic-light labelling on the front of its products’ (case study, p.6); at the same time, products of a healthy diet have been clearly labelled; the introduction ‘of new healthy option logos’ (case study, p.6) has been another advantage of the firm in terms of marketing; d) Service; the firm emphasizes on the quality of customer services; online service options are available to customers for shopping or for communicating with the firm. In terms of support services, the performance of firm is also significant: a) firm infrastructure; an extensive network of stores has been developed across UK; also, the firm’s online services are closely monitored as of their efficiency; b) Human Resources Management; the firm emphasizes on the relationship with employees; Pension plans have been introduced for increasing employees’ confidence and trust towards the organization; c) Technology; online services have become key part of the firm’s operations; ‘web-friendly features and low prices’ (case study, p.6) have been used for attracting customers to shop online. In terms of procurement also, as part of the firm’s support services, the firm’s performance is significant; the firm’s relationship with its suppliers is excellent (case study, p.6). Currently, the increase of value of one or more parts of the firm’s value chain is not considered as necessary, taking into consideration also ‘the high exposure of the firm to the UK business cycle’ (case study p.6). 4. Identification and justification of the two most critical challenges that J Sainsbury Ltd might face in an international expansion plan The expansion of a firm in the international market has to be carefully planned so that major damages on the organizational performance are avoided. According to Stone and McCall (2004) an organization that wishes to expand internationally should primarily check whether its strategies in regard to its existing market could be also used in the new market; in this way, expenses for identifying and testing new strategic options can be eliminated. The above issues should be taken into consideration when evaluating the potential attempt of Sainsbury’s to expand internationally. Two would be the most critical challenges that Sainsbury’s would have to face in an international expansion plan: in the target market the grocery retail sector may be fragmented, meaning that the firms operating in the particular sector can be many and the chances for profits of new entrants would be limited. At this point the firm’s managers would have to consider the following two issues: a) are the costs for the realization of the relevant expansion plan too high? In such case, the plan should be rather avoided, since the time required for the payback of the relevant investment could be high, b) could the firm seek for alternative modes of operation in the foreign market, as for example, through a strategic alliance with a major competitor in the grocery retail sector of the target market? In any case, alternative strategic choices would be available for ensuring that risks related to this initiative are minimized. For example, if the firm’s profits for an initial period of 6 months or 1 year in the foreign market are not satisfactory, the firm can use an alternative mode of operations for continuing its operations in the target market. Another important challenge that the firm would have to face in regard to its expansion internationally would be the following one: are the conditions of the local political and economic environment stable? Even if the foreign country’s grocery retail sector is not fragmented and even if the chances for growth are many, still the risks can be high if political or economic turbulences are common, or they are highly expected. The firm’s potential to face effectively such challenge would be limited, unless a non-direct operational mode would be chosen for the specific market; for example, if the firm would choose to enter the foreign market through online-shopping, at least at a first level, then the risks for severe losses would be eliminated. It should be noted that the potential existence of other challenges in regard to the firm’s expansion internationally cannot be rejected; reference can be made for example to the lack of willingness of local employees to support the firm’s plans or the significant differences of culture between the home country and the host country. 5. Conclusion The performance of Sainsbury’s in the UK grocery retail sector is quite satisfactory if taking into consideration the strong competition that characterizes the particular sector. However, the continuous changes in the industry’s trends, especially the changes in consumer preferences, the increase of costs of energy required for the daily operations of firms in all sectors and the growth of online shopping have set an important dilemma: can the firm face effectively these strategies or its existing strategies should be alternated? The analysis made on the firm’s existing strategic choices and the management of its value chain verifies that the firm’s ability to face its industry’s challenges is high: the firm uses a low price strategy, as its competitors, for standardizing its market position, while it also tries to keep the value of its functions high, by emphasizing on the monitoring of its value chain. The firm could try to promote its growth by expanding internationally; however, in this case, it should be prepared for facing certain challenges, as explained above. References Elliot, D., Swartz, E., and Herbane, B. (2009) Business Continuity Management: A Crisis Management Approach. Oxon: Taylor & Francis. Grant, R. (2010) Contemporary Strategy Analysis: Text Only. Hoboken: John Wiley and Sons. Muller, C. (2011) Case Study and Comparative Strategic Analysis of Toyota and Ryanair: The Key Differences in the Operations Strategy of Manufacturers and Service Firms in Terms of Process Design, Supply Chain, Human Resources, Capacity, Innovation and Quality Management. Munich: GRIN Verlag. Needle, D. (2010) Business in Context: An Introduction to Business and Its Environment. Belmont: Cengage Learning. Rosenhauer, S. (2008) “Profit is a Wonderful Word”: IKEA’s Strategy Behind the Profit. Munich: GRIN Verlag. Stone, M., and McCall, J. (2004) International Strategic Marketing: A[n] European Perspective. Oxon: Routledge. Wickramasinghe, N., and Von Lubitz, D. (2007) Knowledge-Based Enterprise: Theories and Fundamentals. Hershey: Idea Group Inc (IGI). Appendices Figure 1 – Bowman strategy clock (Source: http://www.finntrack.co.uk/learners/prog_20.htm) Figure 2 – Porter Value Chain analysis model (Source: http://logisticsglobal.blogspot.com/2011/08/analysis-value-chain-porter-model.html) Read More