Business Is the Art of Predicting the Future and Getting Benefit from It
“The art of predicting the future and getting benefit from it” in business can be narrowed down to one term which is business forecasting. Business forecasting is the backbone of a successful business in every business venture. According to different scholars, the management of business should always make predictions based on overall running of the business, sales and finance handling (Hailey 2007).
Business Forecasting is described as the art and method that can be used by the business owner or shareholders to make a prediction of future business activities basing it on the accuracy of your data. The information obtained can be used in the determination of future trends in finance performance, sales performance and also customer behavior. Most businesses need business forecasting, and usually, they are done on a quarterly basis, but some can prefer forecasts made on a monthly basis (Evans 2009).
Types of Business Future Predictions (Forecasts)
General business outlook. Each and every business needs a forecast to is undertaken. This is mainly to foresee the likely changes that might occur shortly. There are certain conditions that are always present in a community that a certain business operates. Some examples are; controls, population, fiscal policy, political conditions, and the national income. Due to the presence of these factors, it is necessary to make future predictions of the business (Hailey 2007).
Sales forecast. The sales department is a major determinant of success in a company. Due to this reason, sales forecast should be carried out with precaution and due care to gain business success. In every business, sales forecasting is considered as the to notch factor in planning and a major aspect to consider in an organizational setting. Plans and policies made by the business to maximize their profits are obtained from expected sales so whether sales forecast is carried out annually or yearly; it is the main factor to future business plans.
Capital forecast. Every business in operation must have financial plans. Capital should be a factor to be determined to meet present and future needs of business. Forecast based on business capital requirements is a necessity and is considered as the primary step in every organization. Accurate forecasts greatly help an organization to employ capital fully and get optimum returns from their investments (Morlidge 2010).
Major Merits of Future Business Predictions (Forecasts)
Promoting a new business in the market. Making future predictions is one vital factor that has a huge contribution when it comes to setting up of a new business. This is because starting a new business is not as easy as it is perceived by most people because business is subject to risks and uncertainties. By carrying out forecasting, the business promoter finds out if the probability of the business thriving and if the business has high competition. After making these predictions, the business promoter assembled all the necessary resources and based on the forecasting made; the business is subject to success or failure (Morlidge 2010).
Formulation of a plan. Proper business forecasting plays a major role in business planning. Major business plans require proper forecasting in business thus making it an essential aspect in consideration. Therefore, as a business person, it is always important no note that adequate planning, whether long-term or short-term highly depends on forecasting.
Estimation of financial requirements. Estimation of business finances is a major business concern because in running a business, capital is vital. Business finances can be characterized by cash used to start the business, the money stored in the bank and cash used to run the day to day operations of the business. The presence of working and fixed capital is based on sound financial forecasting.
The viability of decisions made by management. Correct management decisions highly depend on the accuracy of forecasts made. As described by various scholars, the administration is a decision-making process, and management has the responsibility of making decisions which are uncertain. In the running of business whether small or large, certain changes might occur, e.g. personnel changes and unforeseen contingencies. Decision making by management is a process that goes on throughout the life of business (Evans 2009). Therefore, forecasting is relied upon in matters of production planning and resource allocation.
Business success. Proper forecasting helps the procurement department of the business to procure the necessary and necessary raw materials based on the business needs and future needs. The accuracy of sales forecasting is essential in making budgets. When a business fails to make accurate sales forecasts, it becomes difficult for the business and management to figure out how much production should be done (Hailey 2007).
As discussed in this paper, prediction of future is a vital step that every business has to undergo. Through future prediction, business is assured to thrive and reach its set limits. Many advantages have been realized by businesses which have taken the step of making good and proper business forecasts. On the other hand, lack of prospects might lead to a drastic failure of business. All the discussed merits are some out of the may many benefits of making future predictions of business.
Evans, Michael K. Practical Business Forecasting. New Jersey: John Wiley & Sons, 2009.
Hailey, Linda. Your Business, Your Future: How to Predict and Harness Growth. Crows Nest, New South Wales: Allen & Unwin, 2007.
Morlidge, Steve. Future Ready: How to Master Business Forecasting. New Jersey: Wiley, 2010.
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With the increased focus on renewable energy driving all, sector the country’s economy. The transport sector has also received numerous recommendations to reduce carbon emissions. It is against the backdrop of these ideal that Tesla Motors Company was created. This case study will examine Tesla motor companies strategies as well as assess their internal and external environment in order to create viable recommendations for a sector, which is highly competitive. This case study report will begin with background information about the company then assess the organisation strategic positions and this will be undertaken with the use of Porter’s five forces and SWOT analysis. The outcomes from this model will aid in the recommendation, which will be vital for the organisations.
Tesla Motors Background
According to Tesla (2014) the organisation was formed in 2003 as a revolutionary car business using the latest technology as its competitive advantage. The car was able to conceptualise and create an independently electric vehicle known as the roadster. The concept of the car designs was Silicon Valley inspired. According to Ehrler et al. (n.d, p. 381) the organisation “designs, manufactures and sells zero emission electric cars and power train parts, such as lithium-ion battery packs”. The organisation has sought for strategic partnerships with companies such as Daimler, Panasonic, Toyota and US department of energy (Ehrler et al., n.d, p. 383).
Tesla Motors PESTEL Analysis
PESTEL analysis is a viable tool used to examine an organisation environment and is crucial in the identification of key areas of improvement as well as potential problems likely to emerge (Yuksel, 2012). The external environment is a factor, un-controlled by the organisation and all the eternities function as influences to the organisation operations as seen in figure 1 below. The models take into consideration the political, economy, the social, technology, legal and environment.
Figure 1 PESTEL Model
(Sourced from: Business and Management: 4th November – 11th November 2013, – PESTLE Analysis, 2015).
According to Tesla (2014), Tesla motors sell their cars in numerous countries across the United States, Europe and Asia and hence, the company is exposed to different political situations occurring in all those countries. According to the Environmental- protection.org.uk (2014), some countries political environment are affected by climate change issues and hence, law enacted to cut carbon emission by a particular percentage and this affects car manufacturers. The US government is offering incentives to car manufactures that endeavour to product cars more efficient and better in utilising green car technology.
There is an alternative avenue for growth for cars offering cars, which utilise alternative energy. The increase costs of petroleum have made business more difficult and hence, businesses and individuals are in need of an alternative solution to the rising fuel costs. Most developed countries are now recovering from the financial crisis; the purchasing power is now higher, great new for manufacturers who have products that at needed.
Today the word green technology is associated with companies that are considered to be producing products that are good for the environment. Carbon emission from vehicle exhausts are a big contributor to greenhouse gases affecting the earth environments (Wunch et al., 2009).
The car sector has seen tremendous changes due to technological innovation affecting several aspects of the car efficiency. Vehicles have been going through metamorphosis with car manufactures looking for way of reducing the fuel intake in order to improve efficiency.
Eco friendly car is the word spoken to car manufacturer if they rare to remain competitive by customers across the world. With fuel leakages reported in some places, resulting in a loss of marine and bird life, there have been a growing number of environmentalists forcing their government to regulate the sector and allow only fuel-efficient cars on their roads. What happens to the ozone layer is another factor pushing some individual and institutions to consider vehicles, which do less damage to the environment.
The US has a market presents challenges for Tesla as a car manufactures especially due to the franchise laws in the country (Fisher, 2014). The energy loan program also in the country increases the chances of car manufacturer to produce more green cars in the sector.
All the factors seen above have the effect of directing the way a car manufacturer does business in US. It is vital to determine how external environments affect the organisation in order to work from there, building competence in a way, which is likely to result in a more beneficial manner. Of major significance in the assessment of Tesla’s external environment are the franchise laws, which would stop the company from distributing their cars in some states in the country. However, the much of the external influence faced by the car manufactures geared to more in support of the company and trends show the vehicle sector is set to follow Tesla direction in the future.
Tesla Motors Competences (SWOT Analysis)
In order to determine Tesla’s competences in the vehicle industry, a SWOT analysis is carried out to examine the organisations strengths, weaknesses, opportunities and threats (Hill, & Westbrook, 1997. It is vital to assess the organisation internal capabilities for a more effective recommendation outcome. A SWOT analysis model is presented in figure 2 below.
Figure 2: SWOT analysis
(Sourced from: Doing a SWOT Analysis to Focus Your Marketing Strategy, 2015)
Tesla motors have been able to create executive cars, which are totally fuel free and are energy efficient since they are based on electric power, which are saved on batteries. Tesla cars have been able to go for more than 300 miles without having to recharge their batteries and the closest competitor can only reach 100 miles, which is a significant benefit to the company. In 2013 their car, the “Tesla S” was awarded the price as the trendiest car of the year.
Tesla has been able to reduce its input costs significantly through outsourcing of other parts needed for the manufacture of their vehicles and this has allowed the organisation to reduce its costs. Its collaboration with Panasonic is likely to have an even more powerful battery, which is likely to push their cars even further. In addition, its collaboration with Daimler and Toyota has greater advantages and the company is set to provide vital parts for needed for electronic cars for the two companies.
The organisation has invested a large amount of research and development and this is key to pay off in the future when new technology which is likely to further revolutionise the car sector will be a necessity and this goes in hand with their objectives which is to be in the forefront of the electric vehicle sector.
The organisation has been able to utilise just in time JIT manufacturing systems and only those cars, which are ordered, manufactured and this reduces storage costs and enables them to have a smaller facility. This form of lean management process allows staff to become specialised in a vast number of skills hence, fewer staff are able to accomplish the task of the organisation.
The major problem that Tesla Motors has is a lack of adequate capital base on which to sustain its operational successfully. Despite having sales for its vehicles, the organisation is not making profits and is due to a low demand and high cost of sales, which are eating up the sales revenues.
The organisation is running on debt financing which is expensive and puts the company at greater risks of being taken over if they are not able to pay up its debts on time. The large research and development costs do not seem to bear profits at this time.
The Tesla car brand is not international recognised as compared to other brands such as the Toyota Prius. The organisation has focused on the higher end of the market, attracting only those with considerable resources to purchase the cars.
The opportunities for Tesla are enormous today especially with fuel prices rising, making life difficult for those who have cars that consume a lot of fuel. The car manufactures need to communicate the benefits of their vehicle to the entire car market since the benefits accruing with owning their cars far outweighs having a regular gasoline car. There is a ready market for small fuel-efficient vehicles also which the company has not tapped (Pollet, Staffell & Shang, 2012). Already the car manufacturer is in a sector, which few have tried to venture fully. Those car manufactures who have tried to venture either have hybrid cars of inefficient electric cars as compared to Tesla motors.
Other car manufacturers have greater financial resourced or sources, which could easily allow them to venture into the niche market, Tesla is viewed as a smaller inexperienced car manufactures are compared to the long term experienced car manufactures in vehicle sector. If other car manufacturer with greater capability for economies of scale to start making electric vehicles, this could affect Tesla revenue sine the organising is not able to manufacture as cheaply as those who are established worldwide.
Tesla Motors Competences (Porters 5 Forces Analysis)
Porters five forces as seen in figure 3 below is useful in assessing a business sector to find how attractive the sector is and who has influence in the sector.
Figure 3: Porters 5 forces Analysis Model
(Sourced from: Porter, 1981)
The Threat from New Entrants
The sector which Tesla Motors company is in has challenges for those who want to enter that market segment. The capital expenditure needed for this electric vehicle sector is very high and keeps new business away from this sector. The only business which may find it easy to enter this market are those existing car manufacturer that have large resources readily available as well as have the capacity to venture fully into this sector.
The Bargaining Power of Buyers
Tesla is a vital company in the electric vehicle sector and today they have a very solid relationship with their customers. Since the company has invested a lot of money and skill in research development, they have been able to manufacture quality products, which are useful for companies such as Daimler, and Toyota hence Tesla Motors power is very high. Tesla has a manufacturer, produces cars which are unique and scarce hence, with increased demand likely to set in the market, they will have considerable power thought, this is only vital if they are able to generate awareness of their brand.
Threat of Substitution
The threats of substitution are the Tesla Motors market segment can be seen from hybrid cars, diesel cars as well as other electric cars and solar power cars. There are also substitutes arising from people choosing to ride buses, trains as well as use bicycles instead of purchasing an electric vehicle.
The Bargaining Power of Suppliers
Since Tesla Motors is highly dependent on its suppliers and this is due to adopting lean management system where parts sought when an order is availed. This means that the suppliers have a higher bargaining power. If the suppliers do not bring the raw materials in time, Tesla is likely to suffer as a result.
The Intensity of Rivalry in the Industry
The global car sector is fiercely competitive with car manufactures competing on a global platform with different categories of their products to cater for different clientele. In the electric vehicle, sectors server car manufactures have created cars, which have not been able to meet the standard of Tesla though; companies such as Nissan have created compact affordable electric cars, which are selling in different countries.
Porter’s five forces show a growing threats to the Tesla car company if they do not work quickly and cater for other segment. This threat can only be from already established car manufacturer. The sector is still inaccessible due to the high capital-intensive investment an organisation will have to undertake and the skill needed to ensure an organisation is competitive.
This case study features Tesla Motors a company that was set up to create in 2003 as a revolutionary car business using the latest technology as its competitive advantage. The car was able to conceptualise and create an independently electric vehicle known as the roadster. The company’s revolutionary cars are set on a global stage, as a car with moves without the conventional fuel. The external environment scanning undertaken through PESTEL analysis of the organisation revealed that the organisation had greater opportunities to enhance their business with support from the American government. The international analysis undertaken using the SWOT analysis revealed that organisation has inherent weaknesses, which saw the company perform in a sector, which is very lucrative due to a lack of adequate finances. Threats in the electric vehicle sector were seen to arise from existing car manufacture, with greater competences as well as finances to build electric vehicles even cheaper than Tesla. Porters 5 forces analysis that was undertaken on Tesla Motors revealed that the sector was very hard to enter by new players in the sector. This was due to the high capital intensity the sector demanded as well as the skills necessary for a business to actually undertake the business successfully. The case study also showed that Tesla Motors strategy was more focused on the upper clientele of the car market with quality, better performance as well as expensive vehicles, which used electricity as compared to petrol.
Tesla was advised by its customer to manufacture a car that was of a lower price but the company has still manufacture a car that is half the cost of its pioneer car thought still relatively high for many to purchase.
Since Tesla is in a sector, which has the highest potential in the vehicle sector, the organisation should find ways of building a cheaper option, which can be bought by a number of people worldwide. Since the companies cars are of the best quality, in order to capitalise on this aspect, selling on mass production could be more beneficial to producing on demand. It is better to derive fewer profit margins and sell more cars, which then equates to a greater profit as compared to selling premium, which affects demand. With threats evident as existing car, companies have started embarking into electronic car sector, this is poised to destroy Tesla cars in the market if those car manufactures are able to manufacture and sell at a cheaper price. This is an aspect Tesla should not forget and having beautiful expensive cars does not equate to profits but rather having a car, which has demand.
The company’s strategy on focusing on premium cars and attracting the rich to purchase their cars is failing with little or no demand. The rich have the capacity to purchase any other car despite the consumption and hence, a change to their focus can create changes to the financial reporting. Coming out early and capturing a greater market share will hinder even existing car manufacturer from venturing into Tesla niche market. The organisation should come out with different models from compact small cars to their SUV since this is a car concept which any individual is unlikely to pass out.
Tesla should embark on selling key part to other car manufacturers to ensure they have a steady stream of revenue apart from selling their cars. This ensures that the car manufacture remains relevant even with increased competition, which is set to grow in the coming years. Being in the forefront or provision of vital innovative electrical parts for car manufactures can even bring in a greater percentage of revenues. Samsung Company has been able to remain competitive as a result of producing vital parts for iPhone which is a major rival.
Tesla should continue with its research and development and produce batteries, which are able to take the car further as well as reduce the time it takes to charge the car batteries, which many view as a challenge when using electric vehicles.
Most importantly, Tesla needs to create awareness of its products to the international market not just in American and Europe. There are many government and organisation, which could benefit from having a car that utilises less harmful substances as compared to petrol of diesel. A greater percentage of the revenue should be spend in advertisement and education on harmful carbon emitted in petrol and diesel consuming cars.
Business and Management: 4th November – 11th November 2013, – PESTLE Analysis (2015) Business and Management: 4th November – 11th November 2013, – PESTLE Analysis.
Doing a SWOT Analysis to Focus Your Marketing Strategy (2015) Doing a SWOT Analysis to Focus Your Marketing Strategy.
Ehrler, C., Gillis, J., Huesemann, M., Sandoval, M., & Turckes, L., (n.d) Tesla Motors: charging into the future? Case 29 1(1) pp. 381-395
Environmental-protection.org.uk, (2014) Car Pollution | Environmental Protection UK.
Fisher, D. (2014) Tesla’s Elon Musk Learns An Old Lesson Fighting Protectionist Dealer Laws.
Hill, T., & Westbrook, R. (1997) SWOT analysis: it’s time for a product recall. Long range planning, 30(1), 46-52.
Pollet, B. G., Staffell, I., & Shang, J. L. (2012) Current status of hybrid, battery and fuel cell electric vehicles: from electrochemistry to market prospects. Electro-chimica Acta, 84, 235-249.
Porter, M. E. (1981) The contributions of industrial organization to strategic management. Academy of management review, 6(4), 609-620.
Tesla Motors, (2014) About Tesla | Tesla Motors.
Wunch, D., Wennberg, P. O., Toon, G. C., Keppel Aleks, G., & Yavin, Y. G. (2009) Emissions of greenhouse gases from a North American megacity. Geophysical Research Letters, 36(15).
Yuksel, I. (2012) Developing a multi-criteria decision making model for PESTEL analysis. International Journal of Business and Management, 7(24), p52.
Business Strategy and Sustainable Development – John Lewis Partnership
John Lewis Partnership is considered one of UK’s major retail businesses that have over twenty seven departmental stores and a hundred and six Waitrose stores. The enterprise is owned and operated as a partnership entity and the first store was set up in 1864 with Waitrose chains coming up in 1904. The first trust settlement was established in 1929 when the business gained a legal entity and profits became available for distribution to all partners; employees. The owner, Spedan Lewis sacrificed his personal business to fulfill his vision of establishing a business owned and run by employees as part of promoting ‘industrial democracy’ in the business.
In 1950, the partnership trust was transferred from a settlement trust to a legal Trust company under the name; John Lewis Partnership Trust Limited. In this arrangement, the Trust company would be under the Trust Chairmanship and his deputy elected by the three governing councils. John Lewis partnership is also regarded as Britain largest worker co-ownership business with more than 63, 000 permanent staffs as partners in the business. In this arrangement, the staffs share business profits and participate in important decisions for the enterprise development. The staffs’ commitment has seen the retail giant garner a unique competitive edge for over seventy five years with unparalleled growth.
One of the major aspects that have propelled the business to greater heights is due to a partnership approach based on understanding that profit is the main aim of business. Another important aspect that has propped the enterprise to its position is a business partnership model anchored on the principle of social economy and the integration of workers as company partners. All these have shaped the structure and principle of the company into a cooperative ownership that shapes the company policy and development.
John Lewis partnership has a legal form based on governing partnership and at no time are business operations directed by shareholders quest for profits but principles of the members’ happiness as enshrined in the partnership constitution. In particular, workers happiness comes from good job performance in enhancing successful business. The partnership constitution has ‘responsibilities and rights’ which enjoins the workers obligation of good job performance with overall betterment of the business for their benefits.
Evaluating John Lewis Partnership principles of conscious capitalism
John Lewis partnership is governed through principles of power, purpose, members read and profits. The principle of purpose dictate that the aim of the partnership is to promote, enhance and facilitate the happiness of its members through their work as employees in the business and as managing members of the business success. The partnership is based on trust and each member shares genuine responsibility of ownership and rewards that are accrued from the business entity such as knowledge, power and profits.
At John Lewis, all employees are co-owners in the business a democratic management structure run the business. Power is held in esteem by John Lewis partnership and there are three governing authorities that share power; the partnership Board, the Partnership Council and the partnership council. The principle of profits in the partnership dictates that, the enterprise make more profits through its trading operations in order to sustain its commercial prominence, finance development activities and distribute part of the profits to members. Furthermore, the principle of profits making aims to enlarge the enterprise returns that enables the business engage in other activities in accordance to its goals.
Under the principle of members, the partnership constitution is to increase more employees who are competent and committed to working and supporting the enterpri9se principles. In the principle of membership, courtesy, mutual respect and equality among the different members is highly encouraged. The aim is to enhance and encourage individual contributions fairly and reward each accordingly.
Evaluate the principles of conscious capitalism
The concept of conscious capitalism refers to establishing enterprises that implement practices which benefit people and the environment (Mackey, 2013:123). The concept of conscious capitalism is tied to conscious business that is gaining popularity in the modern age especially with regard to increased demand for corporate social responsibility by many business enterprises. Conscious capitalism is ‘values-based’ economic values that push for social and environmental concerns for business as they pursue their economic interests (Baron and Cayer, 2011: 344). The principle of conscious business is driven by the belief that when conducting business, it is not just for profit but facilitating social environmental responsibility for the general good.
Principle of Conscious Culture
Besides a democratic management structure, John Lewis has upholds the principle of radical transparency when conducting all business operations. All employees (co-owners) share, inquire, criticize and tell the management all that is important (Laszlo and Zhexembayeva, 2011:156). Each partner has a priority to voice any aspect deemed necessary regardless of age, education or experience.
Another aspect of conscious culture at John Lewis is its conscious consumerism through socially responsible investments (Zender, 2015). Ideally, the principles of conscious capitalism are based on certain criteria that demand businesses do no harm while undertaking their enterprise operations. One principle of conscious capitalism is that the products and services of business enterprises should never be harmful to the environment or people. This requires business to have mechanisms that forestall social and environmental effects while doing business as well as adopting beneficial social and environmental practices (Korschun, Bhattacharya and Swain, 2014).
Another principle of conscious capitalism is the triple down line model of doing business. Under the triple down model of doing business, the aim is to promote positive value in domains such as the planet, profits and people (Mackey, 2013:123). Profits are what distinguish an entity as a business and not social enterprises. As such, the degree to which an organization has adopted ‘conscious capitalism’ may be reflected in how it utilizes part of the profits for social and environmental welfare. In modern firms, there is a tendency to utilize part of the profits accrued in business for social welfare through donations or establishing an organization foundation whose purpose is social welfare; a good example is the Aga-khan Foundation, Bill Gates Foundation among others.
In line with the principles of ‘conscious business’ firms that have an understanding of conscious capitalism should desist from accumulating profits through illegal means or deceitful operation practices such as failing to pay employees, poor working conditions or supporting harmful causes. For instance, the recent revelation that HSBC Swiss Bank has been evading tax cuts is an example of a business operating without conscious culture principles. The bank is alleged to have allowed bank transactions involving stolen oversees funds and this disqualifies the bank as being a ‘conscious business.’
A conscious business seeks to enhance the external and internal lives of its stakeholders (shareholders, clients, neighboring community and importantly its employees). In addition, a conscious business should benefit its other stakeholders such as the suppliers, creditors and humanity at large globally. Business enterprises embrace consciousness by forming welfare workplace programs, fair trade in manufacturing and assisting the general community with outreach programs. A business that is conscious aims to reduce the effects of its business operations on the environment in various ways such as engaging in recycling, using renewable energy and working with environmentally conscious partners.
Furthermore, businesses that are conscious use their resources in benefiting the environment and the society through direct or indirect programs related to the distribution of services and products. It has become increasingly important for businesses to reflect their ‘conscious capitalism’ spirit in the way they treat their employees and other stakeholders. Businesses are increasingly reflecting their consciousness through their company missions and values. In particular, paying employees well, donating services and products to non-profit organization is considered a good conscious business spirit. Operating under the spirit of conscious capitalism model pushes the fortunes of a business up by projecting a positive role of improving humanity in the society.
Conscious capitalism helps business to create value and ethics of economic exchanges, elevate humanity existence and creates prosperity by lifting people from poverty. In addition, when business operates on higher purposes other than the pursuit of profits, businesses creates value for all stakeholders, eliminate tradeoffs and elevate performance. The key pillars to conscious capitalism is having; higher purpose, stakeholder integration in the business, conscious leadership, management and culture (Rooke and Torbert, 1998). Neglecting one pillar would lead to jeopardized principle of conscious business. Examples of companies that have successfully embraced conscious capitalism are Google, POSCO in South Korea, Patagonia among others. These companies have created win-win situations for their customers, suppliers, employees, the general community and the environment.
Although conscious capitalism is related to corporate social responsibility, the two are different, Conscious capitalism purposes on creating value for the community stakeholders through actively engagement in business decisions as opposed to engaging them in periphery business programs (Fialka, 2006: 4).
The principle of conscious stakeholder integration
John Lewis Partnership is an example of conscious capitalism on many fronts. First, the partnership is based on conscious purposeful principles whose objective is promoting social economy (Mackey, 2015:1). By developing a co-ownership with workers is one important tenets of conscious capitalism employed by the partnership. Employees are important stakeholders in any organization and play critical roles in the success of an entity (Burden and Warwick, 2013: 3). It is common knowledge even among the company shareholders that employees are the cogs that support the organization in achieving its objectives and goals.
John Lewis Partnership is keen in building transformative relationships and co-develops solutions with all key stakeholders. John Lewis progressively builds transformative relationships with clients, employees, the local authority and charity organizations in its pursuit of sustainable business. In this way, by integrating the interests of all its stakeholders in the core of business activities, John Lewis is an example of a conscious capitalism.
Although organizations may boast of effective leadership, without competent and committed employees becomes an exercise in futile for mangers. Employees’ posses’ important skills and experience on areas that need improvement in the firm based on their day to day interaction with the various aspects of an organization. As such, having competent, committed and selfless employees is not easy and many modern firms are spending heavily in incentives and welfare programs meant to boost employees’ morale for performance (Mackey, 2015:1). Although these employee betterment programs are related to the principle of conscious capitalism, they are less effective in taping employees’ contribution to the firm. John Lewis might have done a critical assessment on these issues prior the development of a co-ownership with thousands of staffs at the retail enterprise. Enjoining employees in business ownerships serves many advantages. One is that employees contribute selflessly and actively in shaping the firms development policy based on their day to day work. Employees are not only motivated to work hard for the business but consistently strive to innovative new ideas that will benefit ‘their’ business.
In addition, the aspect of ‘owning’ the business and being part of decision making helps to improve employees motivation, cooperativeness and overall a corporate culture of harmony (Hind, Wilson and Lenssen, 2009: 23). John Lewis notes that, by enjoining thousands of his staffs in the business, he promoted ‘industrial democracy in which each employee has a fair equal responsibilities and rights in the affairs of the organization. The key pillar in John Lewis Partnership is promoting the happiness of its members who are employees. Human resources studies have found that, motivated and happy employees means happy customers and subsequently increase in sales returns (Somerville, 2013: 2). As such, by promoting the a conscious capitalism approach that focuses on improving employees happiness, the Partnership is a win-win model; employees will strive to make clients happy in return for good business to their partnership business (Abergene, 2005: 23).
Furthermore, by enjoining the employees in the business, this helped improve their welfare by raising their income thereby improving their social economy. In this way, by focusing on the general welfare of employees, John Lewis serves as an example of working ‘conscious capitalism’ enterprise. John Lewis is a good example of a ‘conscious business’ through its conscious management and leadership (Hind, Wilson and Lenssen, 2009: 23).
The Partnership enterprise is government by a well-structured constitution that establishes three centers of authority. These centers of authority promote democracy in the management and running affairs of the business especially in decision making; all employees are members while assessing the business problems. In this way, John Lewis partnership serves as an example to other businesses on what true conscious capitalism means.
Although modern firms allege to have conscious business, employees do not take part in decisions making and are often used as tools to achieve end goals. An example in case is Barclays bank that boast of a ‘conscious business’ but has been implicated with cases of employees mistreatment, underpay and contributing resources to programs that have hazardous effects on the welfare of humanity at large (Smith, 2013: 2). At John Lewis Partnership, employees have absolute freedom of openness in the management of the business; employees can inquire report and raise criticism based on actions deemed unsuitable for the business (Brown, 2012: 73).
Employees’ share business rewards, power and knowledge at the partnership and this has enhanced the firm have a competitive edge against conventional business those that treat employees as mere operational cogs in a business. All employees have equal opportunity to promote their potential and hold principle management positions in the Partnership Council. The management structure and organizational culture allows for two ways decentralized communications among the members. In this way, no individual feel neglected or out of the management structure (Lin, Hu S-y and Chen M-s, 2005: 534).
Another aspect of ‘conscious capitalism’ exhibited by the partnership is that, it does not condone or take part in social positions, sex, gender and political favoritism.’ This is a rare feat of ‘conscious capitalism’ especially in the modern world where most businesses take positions in social, political and religious matters (Burden and Warwick, 2013:2). According to Mackey (2013: 123), business enterprises project conscious business by contributing to the larger community in which they operate. At John Lewis Partnership the entity contributes to the general community in distinct ways. In particular, the enterprise has established links with Schools, local authorities, charitable institutions and other stakeholders in the community as part of giving back to the community (Shumate and O’Conner, 2010: 580).
John Lewis Partnership has important community outreach activities include the Partner volunteer work, charitable giving and development, customer panels and others. The principles established by John Lewis are strong indictors of a business operating under the principles of conscious capitalism. In particular, the entity main objective is to make more profits not for the purpose of enriching private shareholders but for the general good of partner members and the society at large (Korschun, Bhattacharya and Swain, 2014).
In summary, it is evident that the John Lewis entity was not formed with the sole aim of profit making but to facilitate social economy for members and the society at large. John Lewis Partnership serves as a good example of a conscious capitalism through its interest in the welfare of its employees and other stakeholders such as suppliers, having a conscious management structure, leadership, and democratic work culture and spreading the fortunes of the business to surrounding communities.
Conscious capitalism is an important aspect for modern business. The principle of conscious capitalism enables business organizations to surmount myriads of problems associated with employee management, stakeholders’ relation and projects a good role model in the society. Conscious capitalism facilitates free enterprise capitalisms that uphold social and environmental interests beyond economic interests. Conscious capitalisms is inspired by the need to improve humanity welfare, create business value to all stakeholders and improve organization performance competitiveness against conventional enterprises. Conscious capitalism is pillared by stakeholder integration, having conscious leadership in organizations, conscious management, conscious working cultures and creating value for the general community at large.
John Lewis Partnership is a good example of a successful ‘conscious capitalism’ that enjoined its employees as co-owners. The principles adopted by John Lewis have enhanced the firm uplift the welfare of its employees, suppliers, shareholders and the general community at large. Conscious capitalism is inspired by the need to improve social and environment needs in line with achieving economic gains. In short, conscious capitalism is means through which the ends goals of company profits are increased due to improved social reputation. John Lewis Partnership is a creation of conscious capitalism and this has enhanced the enterprise to remain competitively profitable as the largest retail store in UK.
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Management of Organizational Culture and Structure In Pursuit Of Generics Business Strategy – A Case Study of Apple
Organizational Culture and Strategic management is concerned with the activities of various domain of the organization, which encompasses the creation and management of business strategy, values, and various organizational constitutions. Through proper management of strategy, firms are able to translate its vision and sustain a competitive positioning in the industry. Therefore, strategic management involves the dedication of organizational resources to meet its various challenges associated with its internal and external environment.
With a vision to make great products, Apple Inc. represents one of the most successful organizations in these days. Apple has revolutionized personal computer, computer software and mobile and portable device market through integrating innovation with design and functionality to bring performance and sophisticated user experience and has manifested itself as the most notable iconic designer in the consumer electronic market. Apple has achieved numerous awards for its innovation and design and was Fortune Magazine’s most admirable company several times. Due to this outstanding achievement in innovation and creativity, Apple has become one of the most valuable company with a market value equivalent to US$623 billion by the year 2012 (Heracleous, 2013).
The aim of the current study is to determine what business strategy the organization has adopted in order to achieve this rank and to assess the implications of its business strategy with its corporate culture and structure. The research will also investigate the effects of organizational structure on its communication and decision making processes.
Review of Relevant Literature
Generic Business Strategy
Firms’ profitability depends upon industry structure and the firms’ competitive positioning within the industry. Professor Michel Porter (1985) devised two theories to explain firms’ profitability–i) five forces theory to determine the industry structure or attractiveness and ii) a generic competitive strategy to determine firms’ positioning within the industry. Porter (1985) distinguished three successful generic strategies to outperform competitors in an industry: overall cost leadership, differentiation, and focus.
Overall cost leadership: According to Porter (1985), if a firm can achieve a sustainable cost leadership, it will perform above average in the industry, assuming that the firm has the ability to command an industry average price. In order to achieve an overall cost leadership, firms need to adopt a number of low cost production strategies, such as cheap suppliers, special R&D efforts, appropriate inventory management, enhanced distribution channels, reduced advertising and promotional costs, etc. (Porter, 1985).
Differentiation: Through differentiation, firms create products and services with special values to the customers and position themselves uniquely in the industry. Through successful differentiation, technology firms can gain customers’ loyalty and can command a premium price for the products (Porter, 1985).
Differentiation strategy is peculiar to the industry type and structure, and based on this peculiarity, firms can undertake a product differentiation strategy (such as new features, enhanced values, etc.), a marketing differentiation strategy (such as launching special campaign to target particular class of buyers from a mass market), etc. or a combination of both. Through differentiation strategy, firms can mostly target price insensitive buyers. However, differentiated products are vulnerable to low cost competitors offering similar products. So in order to make differentiation sustainable, strong R&D outcomes, innovation, and creativity are tied with the products so that it becomes difficult to emulate by the competitors (Porter, 1985).
Focus: Focus strategy allows firms to narrow the competitive scope to gain advantages. In this strategy, firms select a segment of the industry that can facilitate them to pursue either a low cost strategy or a differentiation strategy. The selection of one of these strategies solely depends upon the nature of the customers in relation to the product within the segment (Porter, 1985).
Organizational culture can be defined as a set of value, assumption, beliefs, artifacts, rituals, and ceremonies that help organizations to accomplish various goals and to coordinate with internal and external environment (Schein, 2010). Deshpande and Farley (1999) recognized four types of corporate culture: consensual, entrepreneurial, bureaucratic, and competitive. This classification of culture is very similar to the widely accepted classification of organizational culture described by Cameron & Quinn (2006): hierarchy culture, clan culture, market culture, and adhocracy culture.
The hierarchy (or bureaucratic) culture: German sociologist Max Weber found seven attributes in bureaucracy culture in government organizations–rules, specialization, meritocracy, hierarchy, separate ownership, impersonality, accountability (Cameron & Quinn, 2006). Cameron & Quinn (2006) determined hierarchy organization as a formalized and structured place to work leading to stable, efﬁcient, highly consistent products and services. Hence, organizations that require efficient, reliable, smooth-flowing and predictable output seem to adopt this culture. Other principle characteristic of hierarchy culture are– clear lines of decision making authority; standardized rules and procedures; and strong control and accountability (Cameron & Quinn, 2006).
The clan culture: The typical values of clan culture are shared goals, cohesion, participation, individuality, and a sense of togetherness. This type of organization is largely managed through employee empowerment, employee commitment, and loyalty. In a clan organization, customers are treated as partners (Cameron & Quinn, 2006).
The market culture: Market culture is the typical to an organization that functions as a market. The foundation of market culture is the strong emphasis on various external constituencies, such as suppliers, customers, contractors, and other market regulators to achieve competitiveness and productivity (Cameron & Quinn, 2006). In a market culture, organizational effectiveness is determined by transaction costs, i.e., exchanges, sales, and contracts, and other market dynamics, instead of internally defined rules and controls. The core values of a market culture oriented organization are competitiveness and productivity which are opposed to the complacent, hierarchy and arrogance observed in a hierarchy organization.
The adhocracy culture: Adhocracy culture represents an organizational culture that is typical to the modern high-tech firms where the organizations have to face the ever challenging and ever changing landscape. The assumption in an adhocracy culture is that the innovation and entrepreneurial initiative is the central to the organizational success or profitability, and the organizational activities are product and service oriented. The organizational configuration is temporary and takes the shape around project and product based structure such as teams, taskforce and committee.
The major characteristics of the adhocracy culture are the absence of organizational chart, lack of centralized power and authority relationship, temporary role of employees, creativity, and innovation. Leadership applied to the adhocracy culture is visionary, innovative and risk oriented, and the power flows from person to person on the need basis.
Formal Organizational Structure
Organizational structure can be determined through both formal and informal contexts. While informal organizational structure relates the social structure of the organization, such as culture, behaviors, interactions and social connections within the organizational context, formal structure can be understood as the abstract form of structure that is comprehended more easily through management structure, hierarchical relationship, leadership type, etc. (Meyer & Rowan, 1977 ).
As organizational structure determines the relationship within various elements of an organization, it has profound impact on the behavior of employees, various organizational units, and the whole organization (DeCanio, Dibble & Amir-Atefi, 2000). Dissanayake & Takahashi (2006) recognized that the development of organizational structure is typically the result of two constructs–i) a “system organization” which is formed through the sharing of perception of their actors and ii) a “structural configuration” based on the first one. Csaszar (2012) noted that organizational structure can be conceptualized as the decision making structure among the people within the organization and argued that this structure substantially affect different initiative taken by the organization.
Chen (2006) noted four different types of leadership style, such as transactional, charismatic, transformational, and servant, and then identified interrelationship between the leadership style and organizational structure. Mintzberg (1989) demonstrated seven forms of organization in the effort to demonstrate organizational structure: entrepreneurial, machine, diversified, professional, innovative, missionary, and political organization.
The aim of the current research is to assess the business strategy, organizational structure, and culture of Apple Inc. The research evaluated Apple’s business strategy through Porter’s theory of generic business strategy and investigated various cultural elements through the cultural classification (Section 2.2) of Cameron & Quinn (2006). The structural aspects of the organization were analyzed on the light of generally perceived organizational constructs and conventional leadership concepts. Due to the nature of theoretical implications with the research, a qualitative research approach in the form of case study was adopted, which fulfilled the purpose of the research as well as revealed important insights on the subject.
The method of investigation was both descriptive and explanatory (Baxter & Jack, 2008). An explanatory approach was adopted on contextual investigations, where a descriptive approach was taken to document facts and figures (Yin, 2003). Data used in the research was secondary in nature that comprises of case studies, peer reviewed journals, and blog articles collected through internet research.
Results and Discussion
Apple’s Generic Business Strategy
Porter (1985) demonstrated that an organization will be able to sustain profits and perform above average if it adopts a differentiation strategy that can incorporate substantial values for what users are willing to pay a premium price. Apple successfully integrated differentiation strategy through serial innovation with its various product lines (Heracleous, 2013). The organization can successfully command a premium price which is the principle sources of revenue growth, highest profit margin, and substantial market share.
Apple’s Mac computer was the onset of the masterful combination of innovation and design in hardware and software in computer industry. Mac particularly targeted K-12 education, graphic artists, and high-end users, which is a unique indictor to differentiation (Gamble & Marino, 2011). Mac was unique from other computers, and the added values were realized by customer classes who were willing to pay high. The campaign that the Mac computers are immune (relatively) to viruses also attracted creative workers who need a very stable and consistent work environment (Bhatnagar, Gupta & Chauhan, 2012).
The most notable differentiation strategy of Apple’s iPhone was its 3.5 inch scratch resistance gorilla glass display–a unique attribute that carry substantial value for the product (Mickalowski, Mickelson & Keltgen, 2008). But this is one of the many features that the product offered, including the ease of use, simplicity, faster performance, and overall users’ experience.
Apple implemented differentiation in iPad through, among others, incorporating attractive design, introducing its own line of applications, and a built-in App store. Apple introduced focused differentiation by introducing sleeker and lighter second generation iPad. Apple added more value to the third generation iPad through incorporating processing speed. In both cases, Apple targeted high-end customers who are willing to buy the new products with extra price for its added value. Brand image, customer loyalty, etc. served to quickly reach differentiated products to the customers. Mac also gained a boost in sale after the success of iPad and iPhone, which indicates the effect of image and customer loyalty significantly created opportunity for Apple (Porter, 1985; Gamble & Marino, 2011).
Strategic route in differentiation: In order to successfully differentiate a product, firms may adopt extra means, such as outsourcing and strategic partnership (Porter, 1985; Hill & Jones, 2011). Apple successfully utilized both in its operation, for example, conducting high value added functions in California and outsourcing manufacturing activities to the cheapest locations (Heracleous, 2013).
Strategic partnership of Apple with AT&T helped the organization distribute their iPhone quickly first time to the US market (Yoffie & Kim, 2011). Apple also was able to command cost substantially over other players. When Apple launched its first iPhone, the major rival Nokia was selling their N95 at $749 in the US market (Mickalowski, Mickelson & Keltgen, 2008).
Apple’s differentiation strategy in marketing and sells: Porter (1985) argued that organizations can adopt more than one differentiation strategy to successfully pursue the strategy. Apart from great innovation and product design, Apple incorporated differentiation in its marketing strategy. Apple seems to create all sort of marketing buzz and creative marketing ploy before product launch, which adds substantially to the product success (Anderson et al., 2013).
Apple dedicates substantial resources and multiple subsidiaries in marketing and sells. Each retail points are organized with trained employees. In the retail outlets, customers have the opportunity to test and experiment with the products (Wooten, 2010). Apple indeed trained employees to interact creative ways to teach customers about the product, such as through one-on-one or workshop training, so that the customers can enjoy the best buying experience (Wooten, 2010).
The Nature of Apple’s Corporate Culture
Apple has a highly unique organizational culture that serves its vision and innovation. The principle characteristics of Apple’s organizational culture are–innovation, confidentiality, compliance, and self-responsibility.
An innovative culture: Innovation is the cornerstone of a successful differentiation strategy. Apple’s CEO Steve Jobs created an innovative culture that sustains enthusiasm and hard work (Anderson et al., 2013). Jobs and his leadership team put substantial efforts to recruit employees and socialize employees into its innovative culture (Wooten, 2010). The most emphasis Jobs would give was on intelligence and passion. To cultivate true entrepreneurship and innovation, Jobs established “Apple University” that teaches employees the fundamentals of Apple’s corporate DNA and creative culture.
A secretive culture: According to Porter (1985), an organization’s differentiation strategy will be sustainable if the product cannot be easily imitated. In today’s competitive landscape, corporate information is vulnerable to leakage and exploitation. Apple maintains a very secretive culture to protect its intellectual property. Each project or product development initiative takes a team-based structure, where teams work individually, tasks are micromanaged, and one unit is physically separated from other units (Anderson et al., 2013). Apple does not encourage people to discuss projects and share ideas. Instead, ideas are directly incorporated within the products. Team coordinates under the direction of CEO or top executives and on the need basis (Anderson et al., 2013). Despite this secretive nature of the organization, Apple has been able to manage seamless co-ordination of projects through clear direction, self-accountability, and constant feedback.
A culture of responsibility: Another feature of Apple culture is a strong sense of self-responsibility. Jobs would instill responsibility through clear and directive instruction to demonstrate employees’ positions and tasks. The term DRI is an integrated jargon in Apple’s culture which points to the “Directly Responsible Individual”, particularly at the executive level, for various agendas (Barry M. P., 2013).
Employee motivation: The employee perks in Apple are not similar to that of other high-tech companies, and in this regard, employee motivation comes from other sources, which is the product itself. Despite being a big multinational company, employees’ salaries in Apple are not better than the other places (Anderson et al., 2013). Apple believes that a great product development opportunity will retain people who are motivated (Anderson et al., 2013). So, Apple sustains a culture with people having some kind of passion for the organization. Nonetheless, employees are able to choose a customizable benefit package to suit their individual needs under the program called FlexBenefits (Anderson et al., 2013).
Apple’s Formal Organizational Structure
The structure has profound impact on an organizational management. Apple has a very unique and flat organizational structure. Before returning of Jobs in Apple (in 1997), the organization maintained a large number of middle managers. Jobs fired 4000 middle managers and rebuilt a flat structure composed of only the executive team and vice presidents. The executive team would directly pass Jobs decisions onto the employees (Anderson et al., 2013). This would facilitate direct and more personal level interactions. This flat organizational structure and considerable authority to the executive team successfully managed a large organization with approximately 60,000 full time employees along with 364 retail outlets situated in fifteen countries (Anon, n. d.).
Organizational Communication and Decision Making in Apple
Organizational communication and decision making is very unique in Apple. Apple’s flat organizational structure typically serves to reduce the layers of bureaucracy and creates a fast paced and collaborative environment (Sawayda, 2011; Anderson et al., 2013).
Before Jobs’ returning to Apple, the projects were discussed openly. Jobs created a patchy, segmented and team-based structure where team interactions were absent. Despite this secretive nature in its culture, the flat organizational structure increases communication and faster implementation of decisions (Heracleous, 2013). The co-ordination is done on need basis with the direct supervision of CEO and the executive team (Anderson et al., 2013).
Apple conducts a series of weekly meetings, which is the central strength of its organizational communication. The purpose of the meetings is to bring clarity, unity, and simplicity of the message, keep everyone at the same page, and to set the right tone for its upcoming journey (Barry, 2013).
Decision making at Apple is very unique and unusual. During the time of Steve Jobs, most decision would come from Jobs without any analysis, focus group or thorough consultations (Morrison, 2009). This style of decision making imply the fact of authoritative rather than autocratic, which was one of the Jobs leadership skills who had exceptional ability to provide clear and powerful message (Chaffin, n. d.). In many cases, Jobs would directly interact with the employees.
In the core of Apple’s success, there remains innovation, performance, and reliability, where a combination of differentiation in product design, marketing and customer services has been adopted. Apparently, two most important factors driving these successes–Jobs’ leadership skills, and the right set of people. Organizations’ culture and structure have profound impacts on people and their behavior, which is important for the success of any business strategy. The successful composition of various structural and cultural components in organizations is achieved through appropriate directions and a competent leadership. The paper discussed how leadership of Jobs applied to simplify the organizational structure and processes, such as to enhance communication and decision making.
From the study of this paper, it can be concluded that the organizational culture of Apple is that of adhocracy category where all challenges and tasks circle around the product success. This product oriented culture can be attributed to the reflection of Jobs’ leadership vision to make great products that customers will fall in love with, which is a significant proposition for its differentiation strategy. Jobs successfully diffused his passion and motivation in Apple’s culture and instilled accountability, self-responsibility, innovation, and creativity. To sustain innovation and entrepreneurship, which is the central to an adhocracy culture, Jobs surrounded his workplace with creative people through recruiting right talent and rewarding the creativity.
Adhocracy organizations lack of centralized power and authority relationship, which may apparently seem contradictory in Apple’s case. However, it is notable that Jobs reduced the bureaucracy of the organization to support a more flattened organization where authority can do more interactions on the need basis. Jobs’ visionary, innovative and risk-oriented leadership style is the perfect match to that of an adhocracy organization culture. Apple’s project or product based business units and team oriented structure also reflect the nature of the adhocracy culture.
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W H Smith is a company based in the United Kingdom and is one of the leading retail groups that specialize in selling stationary, magazines, books, entertainment products, and other impulse products. Its target market is travelers in places such as airports and train stations in addition to workplaces and hospitals. The company has grown over the years and has managed to open more branches all over Europe and internationally.
Porter’s Five Forces Analysis
The porter’s five forces analysis is mainly used to analyze the competition levels of an industry as well as the growth of strategic business developments. This analysis can be used to determine the overall profitability of a company, which marks a company’s success in its respective industry. The five forces are threat of new entrants, threat of substitute products or services, bargaining power of customers, bargaining power of suppliers, and the intensity of competitive rivalry (Jones & Hill, 2008, p. 45). Threat of new entrants refers to the introduction of new firms or companies into an industry that yields very high profits. Such markets attract new players into the industry that will in turn lead to lower profitability for the existing companies in that industry. Since new entrants will want to tap into the profits of the industry, they will tend to offer their products and services at a cheaper rate to attract more customers. Consequently, this will affect the whole industry, since the new competition will force all the companies in the industry to change their strategies in order to continue making profits (Jones & Hill, 2008, p.46). Therefore, these industries have to have certain barriers to ensure that few companies that enter are performing and the non-performing ones are unable to survive in the industry.
On the other hand, threat of substitute products or services refers to the different alternatives in the market apart from the commonly known products. Existence of such alternatives in a market is more likely to persuade customers to switch to such products or services with regard to their availability and suitability. Customer shift to a competitor’s products or services will mean that, a certain product will be less used at the expense of a new or better substitute (Jones & Hill, 2008, p. 46). The depreciation in the quality or the substandard nature of some products is the main reason for the switching to alternative products in an industry.
Apart from that, bargaining power of customers is also one of Porter’s five forces. This refers to the power that the customers have over a company on their products and services. This means that if a large group of buyers come together and demand a reduction in prices on particular products, then the company will be forced to make that decision due to customer pressure (Jones & Hill, 2008, p. 46). Such pressure is very high if there are many alternatives in the market in question, resulting in higher buyer power. Customer pressure increases the bargaining power of customers since they can put a company under immense pressure, when it comes to pricing of products.
Bargaining power of suppliers is another of the porter’s five forces. It involves supplier power, when there are few substitutes for raw materials, labor, or even components in a particular industry. Suppliers may possess power over a company if the resources they supply are unique and hard to get. This means that the company will have to heed to the demands of the supplier if they are to receive such resources to continue their production. Suppliers, hence, may be able to charge high prices for their products as well as choose which firms to work with due to supplier’s monopolistic nature (Jones & Hill, 2008, p. 48).
Lastly, intensity of competitive rivalry is the last of the Porter’s five forces. In any industry, the intensity of competition determines the success of the different companies in that particular industry. Firms, therefore, have to engage in practices that ensure that they have a competitive edge over their rivals (Jones & Hill, 2008, p. 49). This means that the industry will be more competitive, if more companies invest in advertising and other innovative ways, in order to attract the highest number of customers in a market, which has very many substitutes.
W H Smith’s Competitive Position
W H Smith is a competitive company, since it has diversified its retail stores and opened up various stores all over the country. In the travel sector for instance, the company was able to record high profits even though passenger numbers were small. This means that the stores in the travel sector of the company were able to sell more even in difficult economic conditions. The introduction of new businesses by the company ensured that the sales in travel grew significantly. Innovative strategies such as the rolling out of self-service tills in airside units led to increased customer numbers as well as reducing the management costs for the company. This made the company able to save on costs and use the funds to improve other facilities enabling increase in customer satisfaction.
With competition in the high street sales on the increase, the company has experienced a hard time in improving the sales in the market. It has, however, put in place measures to ensure that customers can have newer products in the market. These retailers in supermarkets and online platforms will ensure that the company is able to provide services to their customers with ease and at comfort, while undertaking their normal daily activities such as, browsing a computer at home, or doing shopping at a supermarket.
Difficulties in Utilizing the Porter’s Five Forces Analysis in Practice
The porter’s five forces analysis is a good tool that may be utilized by many companies, but may only be important for new companies planning to enter a new market. This analysis provides very few and weak links between the internal and external environments of a company, even though the two go hand in hand. This is because both environments play a role in the competitive forces of the company. Therefore, a company may be incapacitated in identifying the impacts that the relationship may have on the competition in the market. The strengths of certain forces are described by Porter’s model relatively, and may have different interpretations by different companies in the different industries (Meir, 2009, p. 36). Therefore, a company will require more analysis to identify any underlying conditions that may make either the buyer or supplier have more or less power.
Ansoff’s Growth Strategy Matrix
This strategy involves the marketing strategies that a company may use to determine both product and market growth. The four alternatives in marketing strategies include market penetration, product development, market development, and diversification. These strategies can be used to ensure that the company employs the right tactics to stay relevant in a competitive industry as well as maximize its profits (Maria, Grandinetti, & Bernardo, 2012, p. 72).
Firstly, market penetration involves methods that will enable a company to get its products into a market. It should be noted, that this is the lowest risk strategy. This may involve promotion of the product, creation of an extensive distribution process to reach a wider consumer area, and putting attractive pricing to lure more customers into purchasing the company’s products. Coming up with innovative ways of increasing the usage of the product will also, help a company improve its sales in an established market (Maria, Grandinetti, & Bernardo, 2012, p. 72).
Product development on the other hand involves the introduction of newer products or modifying the products to suit the customers’ customized needs. Modifying a product in the existing market by changing its outlook, improving both its quality and performance, will create a more appealing product in the market (Maria, Grandinetti, & Bernardo, 2012, p. 73). This will attract more customers into buying the product, therefore, increasing the company’s sales.
Apart from that, market development is another marketing strategy in the Ansoff matrix. This involves the company venturing into new markets to increase its client base. Opening up different branches at different locations will enable the company to reach new customers in areas that the product was not available. Such new markets require a proper strategy that will enable the product attract more people. Selling through the internet or mail order will make work easier for the company, since they will reach a vast number of customers who can access their products online (Maria, Grandinetti, & Bernardo, 2012, p.75).
Finally, the last strategy is diversification of both the market and the product. This means that the company will be producing a new product that will be sold to a totally new market. This requires a lot of research to ensure that the move leads to success. Since it involves two unknowns, the risks involved are very high and the company will have to assess these risks and understand the consequence of such a decision (Maria, Grandinetti, & Bernardo, 2012, p. 77). A company may decide to diversify into the same industry that is less risky or join another completely different industry that has higher risks. Therefore, the company should have a balance between the risk and the reward to ensure that the company gets the highest rewards from the diversification.
Analyzing W H Smith’s Business Objectives Using Ansoff’s Matrix
Travel in W H Smith focuses on delivering value to shareholders through growth in the different sectors it is involved in. This means that the company aims at market development by looking for new contracts and trialing new formats that will improve customer’s productivity. Apart from that, the company has incorporated a product development strategy, with the introduction of newer products that improve efficiency such as the self-service tills. Such new products increase both customer numbers and the average profits of the company.
The high street plan for the company plays a huge role in not only cutting its costs, but also maintaining its presence in core categories of the market. The company is able to develop the market by continued brand awareness and efficient advertising on television and other forms of media. Additionally, introduction of new products such as the Gadget shop products, which is part of the new gifting ranges, will increase the client base since it aims at reaching more customers.
Difficulties of Utilizing Ansoff’s Model in Practice
The Ansoff’s matrix can only be used sparingly because different companies interpret the matrix with respect to their circumstances. This means that it is impossible for it to be used as the basic standard tool for all companies analyzing their marketing strategies. It requires each company to analyze their products well before deciding on a strategy, in order for it to reduce risks that may lead to its demise. Apart from that, risk management is highly required for any decision in the company that involves the product or market. Since the matrix does not put into account the nature of a company, it is possible for a company to undertake a certain risk that may be disastrous hence the need for extensive research, which the matrix does not produce (Maria, Grandinetti, & Bernardo, 2012, p.79).
PESTEL Analysis for W H Smith
The PESTEL analysis aims at looking at external factors that a company is involved with when undergoing a market research or undertaking strategic analysis. It enables the company to understand its position in the market, its growth or decline and its overall potential. The PESTEL analysis involves different factors, which include political factors, economic factors, social factors, technological factors, environmental factors and legal factors. W H Smith has various external factors that affect its overall performance.
Firstly, political factors influence many businesses in a country. In the United Kingdom, the government allows proper competition by giving fair allocation of opportunities for companies that may wish to indulge in different businesses. W H Smith has benefited from this since it has been able to set up retail stores in different travel points such as airports and train stations without many barriers. The proper infrastructure such as hospitals and airports set up by the government has provided different opportunities for the company and enabled it to expand over various sectors.
Secondly, economic factors also have had an effect on W H Smith as a company. The low inflation rates and economic growth of the U.K. in general has enabled the company to thrive. Even though the economic times have had several changes over the year, the company was able to increase its operational profits by 8% within a year. This increase in the company’s profits under the given circumstances shows the company’s capabilities at such times which show the planning put in place and the strategies to ensure a balance in the economies of scale. The ability of the U.K. to attract visitors in major transport lines also played a huge role in the success of the company over the same period.
Thirdly, the social factors in the country also impacted the company. Since trends in social factors are able to affect demands for certain products, the company was able to adapt to new demands of the customers. New products and services were introduced to various parts of the area that were aimed at serving customers more efficient. Additionally, a growing number of travelers in the country provided the right platform for the company to develop over the years. W H Smith has been able to reach more people through its initiatives which have eventually benefited the company. Use of the Internet has increased exponentially and the company has taken advantage of this by sensitizing the society on the Internet. This has grown its market base significantly and increased sales.
Moreover, technology also influenced the strategic decisions that the company had to undertake, with the company having to introduce automation in some parts of the retail stores such as the self-service tills. Apart from that, the introduction of e-commerce and mail order enabled the company to increase its online presence, since a huge number of people are always on the internet (Sekhar, 2009, p. 52).
Environmental factors that may affect the number of travelers visiting train stations and airports also affected the company at one point. Apart from that, the products that W H Smith sells to its customers are recyclable. This means that the products are environment friendly and does not in any way harm the environment. Such green products are approved by standardizing bodies hence are fit to be used by the different customers.
Lastly, legal factors are the final element in the PESTEL analysis that looks at the laws that govern the operation of companies. The laws that are in place enable W H Smith to operate within an acceptable range, since the company adheres to all the possible laws, which means that the company is able to monitor its costs, demand for the products they sell, and their overall operations.
Evaluation of W H Smith’s Current Position Using the SAF Model
W H Smith has developed and grown over the year and has been able to open up new branches in addition to the already existing 561 travel units and 612 high street stores. Through these various stores, it has made it possible to employ over 16000 employees who manage the running of these retail stores. Using the SAF model which consists of suitability, acceptability and feasibility we can evaluate the company’s current position.
Suitability in the company’s case can be seen with the strategies that it has put in place to address the different issues that the company in the industry. Furthermore, it has also begun e-commerce projects that will enable customers to see and order their products online and be able to purchase them from the comfort of their homes (Jones & Hill, 2008, p. 54). In addition, the mail order service it has begun will facilitate customers to place orders and then receive the products through the mail delivery process. All these are aimed at cementing the company’s position as a leader in this sector, and enabling it to gain access to more customers, therefore, increasing their market share in the U.K. and worldwide.
With regard to acceptability, the company has been able to manage their risks and returns in such a way that it can gain profits in the different ventures it has taken part in. W H Smith is in a position where it has an advantage over its competitors, since it has put its attention to growth drivers that will allow the expansion of the company. Diversification has also helped the retail stores to tap into new markets and gain a huge client base in this industry, with the development of more stores in both the travel units and the high street stores. All these factors have aided the company to develop significantly, and build its brand image, therefore, creating a huge force in this industry.
Lastly, feasibility in the company’s case refers to the resources that are required to implement the different objectives of the company. Through their development strategies the company is able to cope with the different challenges that it has faced in recent times. A significant number of problems affect the company such as, economic changes that affect the country, as well as competition in high street stores by other companies. The company has put in place measures to counter these problems by introducing innovative ways that aim at improving service delivery, efficiency, and sustainability in the company.
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