The word change is something that stays as a constant with the business environment. To monitor this change, it is imperative to formulate and inspect the changes regularly. Additionally, all the respective developments need to be made in a very systematic manner. These variations and regulations come under the business strategies. These approaches help to define a framework which is mandatory to be followed. Further, the right and timely use of these strategies can bring positive changes in the profits of a company. Thus, it is important to understand the business strategic framework and its various steps.
The given article will detail the strategic framework of an organisation. There will be discussion on different elements under strategic framework and its importance for a company. Further, there will be step wise analysis of the strategic framework of Woolworths which will involve internal and external analysis of the company with different tools such as VRIO, Porter 5 force etc. There will also be analyses of vision and objectives of the company and the strategies used by it to achieve those objectives.
Strategy is a general plan or set of plans developed to achieve something. Strategies can also be defined as the set of the plans of actions aimed at achieving various long term goals and objectives (Strachan, 2005). Strategies are not only related with business strategies but include a broad spectrum of various plans developed in response to changing business environments. Further, strategies provide the complete plan for achieving various goals and objectives.
A business strategy can be described as the set of actions taken by an organization in order to achieve business goals and objectives (Peng, 2002). It can further be described as a blueprint and roadmap of a company to accomplish its desired goals. Business strategy guides the activities of organization towards accomplishment of its various goals and achievement of competitive position in the market.
The strategic framework refers to the hierarchy of strategies developed with the aim to achieve highest level business objectives and to earn good profits (Montreuil, Frayret & D'Amours, 2000). This framework includes a definite plan for the accomplishment of specified business objectives along with proper mapping of relationships between various strategies.
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Business strategy is a crucial element for the successful achievement of goals and objectives. The purpose of forming business strategy is to best determine the future direction of an organisation (The importance of business strategy, 2020). Moreover, with increasing competition in the market, it becomes necessary for an organization to understand where it should position itself on the basis of its strengths and weaknesses so that competitive advantage can be maintained. Following are the major purposes of business strategy:
Companies formulate their business strategies by defining organizational vision, achieving it, prioritizing various objectives, competing successfully and ensuring and optimizing the company financial performance. Further, the business organizations follow a definite procedure for developing organizational strategies. Also, rational and straightforward procedure is followed for achievement of various objectives and for formulations of different strategies. Following is the list of steps that are followed for strategy formulation in the organization:
Vision setting is the first step of strategy formulation where the organizations define the vision of the company by identifying and listing the core ideas. The vision of the company highlights the essential nature of organization i.e. what the organization does. Further, the vision of the organization is set on the basis of offering, value proposition, competitor analysis, firm’s industry and customer analysis. Following points highlight the procedure followed by organizations to define the vision of organization
The vision and strategies of the company are built on the basis of firm offering and value proposition. The value proposition of an organization further describes the goods and services provided by the organization to deliver value to customers. For instance, Amazon came up with its online book store in 1995 which was unique at that time. with strategies like these, Amazon has established a strong competitive position in the market for its quality services and customer centric strategies.
The firm industry analysis is must to evaluate the firm industry sector and competitors of organization. It further helps the company to foresee the type of developments that can take place in the respective industry.
Firm industry and competitor analysis can help in identifying the major competitors of an organization and the major strategies adopted by its competition (Hsieh & Hyun, 2018). For instance, Tesco is a large grocery based company in the UK whose competitors include grocery firms operating in the UK or international market. The major competitors of Tesco include ASDA, Sainsbury's and Morrisons. All these firms together are called the Big Four in the United Kingdom due to their brand image and market share in industry.
The firm must identify the customers to successfully develop various target market strategies. The customers of business can be further classified as final consumers and producers, who procure the products from the organization for further production. identification of target customers is must for the organization to further plan and implement various marketing strategies. Companies determine the target market for the firm offering and evaluate what the customers aim to purchase and when they intend to make the purchase (Alalwan, 2018).
This the second step of strategy building which analyse the business objectives and explain how the firm is aimed to achieve its objectives. It shows that besides analysing the internal and external drivers which impact the company, it is also necessary to analyse the core values and objectives of an organisation for which it is formed. Every business organisation is incorporated with the aim to achieve specific objectives which might change as the company grows. In order to build effective strategies, it is necessary to determine the inner self of the company and its core values are important to achieve those objectives.
Every company has major objectives that are linked to the long term vision of the company. The main goals can be to enhance the quality of products of the company, add to the financial growth of a company or to expand its business to the international level. The top objectives of the company are majorly formed by the management and thus, the objectives can be analysed through the mission statement of the company (Strategic planning, 2020). Therefore, this section will provide the view on the objectives of the company as per the views of different stakeholders.
Further, the profit statement of the company is a great way to examine the profitability goals of the company. Infact the analysis of shareholders related to documents or policies such as dividend policy etc. helps to identify the goals of the company related to its investors.
Moving further, the objectives of a company may vary in accordance to its type of being private, public, profit or non-profit. Thus, there can be different documents that reflect the objectives of the company. Majorly, the mission statement represents the objectives of the company related to achievements of its vision. To illustrate, the top objective of the Department of Transportation of Australia, reflects in its mission statement as “to plan and deliver transport solutions for the prosperity of Western Australian” (Our purpose, vision and values, 2020).
Every company has its own values to achieve its organisational goals which may be listed according to the nature of business or the shared values of people. Also, the values of the company can be evaluated on the basis of the extent to which a company takes care of the interest of its shareholders, and prioritises other stakeholders. This technique is applied because the companies have no more the sole purpose of earning profits. They also work with the motive to earn value in the market through its stakeholders.
Moving further, the value and mission statements of a company can prove to be great sources to analyse the core values and mission of the company. These sources highlight the concern of the company towards the implication of its values to achieve its objectives. To illustrate: the core values of the department of transport of Australia is clear direction, fresh thinking and excellent service etc. (Our purpose, vision and values, 2020).
This is the third step where the company has used all the information from analysis of the company in order to determine its competitive move. The external analysis of the company provided the view on opportunities and threats to the company and the internal analysis shows its strengths and weaknesses. This helps the company to develop the competitive strategy to outperform the market. Thus, this step provides a path to achieve the organisational objectives.
Firstly, the company needs to analyse the different strategies that may help it to differentiate its products from the competitors. In order to do this, the generic strategies framework by Michael porter can be used. This framework provided four competitive strategies under two broad categories of cost leadership or differentiation, However, this section will focus on the differentiation strategies only. Under the differentiation strategy, a company may provide such products to the customers which are not already available in the market or help in fulfilling specific needs of market customers (D. Banker, Mashruwala & Tripathy, 2014). Under this, there are two alternatives of differentiation with the company as shown in figure given below. It can either provide a product with unique features to the whole market or mainly target niche markets to provide products with special features for the customers in that particular market. The strategy to be used for differentiation depends on the nature of business and size of market audience.
The focusing strategy of the company highlights the market to be treated. The major target of the company under this strategy is the audience which demands products of the company or where there are no providers of similar products. Under focus strategy, the company divides its target audience in a specified segment (niche market) where the products have capacity to competitively meet customer’s needs (Ottosson & Kindström, 2016).
After analysing different competitive strategies and target market for the products, the company selects its final competitive strategy. The company considers all its strengths, resources and vulnerabilities in order to select the best strategy. It shall also consider the market dynamics. Thus, on the basis of all these elements collectively, selection of the best generic strategy for competitive advantage is done. It further ensures to serve best to accomplish organisational goals and vision.
After defining various strategies, objectives and mission of the company, the organization evaluates the proposed strategies by considering various market related factors. For this, the organization may develop a quantitative model for determining its key financial goals. Further, various financial estimates can be evaluated for generic strategies and business model which are highlighted as follows:
The company can examine the model credibility by evaluating the forecasted profits, margins and expenses. Further, the forecasted margins are credible if the expected revenues and other financial objectives are plausible. The company may provide Conservative revenue estimates and Pessimistic expense estimates in order to evaluate the feasibility of proposed strategies.
The acceptability of financial values can be evaluated by checking the key financial values and objectives (Chenhall, 2005). Following questions may be answered before accepting the financial values:
Thus, the list of above questions can help in evaluating the acceptability of forecasted profits and net profit margins by determining the expected impact of such financial values on the growth and success of the organization.
The success of organizations to a large extent depends on their generic strategies and thus, it is must for organizations to develop an effective strategic framework (Price & Chahal, 2006). Moreover, the generic strategic plans of organizations need support from low level strategies. However, the strategic framework of organization not only includes generic strategies but also includes definition of various other strategies of organization. It is a combination of product, marketing, operational and branding strategies that defines the success of an organization. The success of various organizational strategies depends on product development, product distribution, customer satisfaction, pricing, etc. (Payne & Frow, 2005). Along with this, the strategic framework of organization must ensure that all the strategic goals are achieved and all the strategic targets for various strategies are met (von Krogh, Nonaka & Aben, 2001).
Now, this section will take an example of ‘Woolworths’ to explain the procedure followed for strategic development.
Woolworths is an Australian retail company that was founded in 1924 to offer grocery items for sale to customers. The headquarter of this company is located in Bella Vista, New South wales, Australia. The company has established its operations both in Australia and New Zealand. It is known for convenient and quality services provided to customers. In this report, the strategic framework of Woolworths is evaluated by analysing the major strategic decisions of Woolworths.
The first step of organizational strategic analysis and strategy development is internal and external analysis. Thus, the internal and external analysis of Woolworths is conducted by analysing various strategic frameworks.
The company has a vision to become the first choice of the customers through all its brands. Woolworths has mentioned in its vision statement that it aims to connect with customers through convenient ways to show and differentiate their food propositions. The company is based on the concept, ‘to be purpose led’ This is the reason they have mentioned in their vision “we create better experience together for better tomorrow” (Strategy and objectives - Woolworths Group, 2020).
Analysing Four P Marketing Mix is an important function of organisation in order to identify each element related to its marketing strategy. The four elements- products, price, place and promotion are necessary to identify so that effective marketing strategies can be formed for the business. Following is the explanation of Four P analysis of Woolworths
This is the first element that explains features and varieties of products provided by Woolworths. It has been analysed that Woolworths sell a variety of retail and grocery products to its customers including fresh fruits and vegetables, organic and inorganic food products. Daily care products such as shampoo, soap etc., baby care products, pet care products, DVDs, magazines, liquor, beverages etc. Most of the products are purchased from other manufacturers to be placed at Woolworths stores and some of products are also manufacturers under its own brand.
The company is known for its quality and thus, its products are sold on premium pricing for the quality products. However, it also makes changes in the prices of hundreds of its products so that the customers are able to purchase them at lower prices (Woolworths customers enjoy Low Price, Always - Woolworths Group, 2020). Thus, the company is focussed on a dynamic pricing model so that it is able to maintain its customer base against competitors.
In order to distribute its products to the customers, Woolworths have different supermarkets and convenience stores. Woolworths have more than 1000 stores all across Australia to provide products to the customers (Woolworths Supermarkets - Woolworths Group, 2020). The company also has an online website to place the online orders of grocery etc.
In order to promote its products among the customers, Woolworths use different communication tools which involve traditional as well as modern ways of marketing. The company has its own website which provides all the information related to its products, current discounts etc. Further, it also uses social media and marketing campaigns for attracting the customers towards its products.
|Woolworths resources and capabilities||Valuable||Rare||Imitable||Organized||Competitive advantage|
|Financial resources||Yes||Yes||No||Yes||Temporary competitive advantage|
|Human resources||Yes||No||Yes||Yes||Competitive parity|
|Local food products||Yes||Yes||Yes||Yes||Sustained competitive advantage|
|Patents||Yes||Yes||No||No||Temporary competitive advantage|
|Research and development||No||No||No||No||Competitive disadvantage|
|Brand image||Yes||Yes||Yes||Yes||Sustained competitive advantage|
|Cost structure||No||No||No||No||Competitive disadvantage|
|Distribution network||Yes||NYeso||No||Yes||Temporary competitive advantage|
The VRIO analysis of the company has helped in reviewing that the Local food products and brand image of the company provides sustainable competitive advantage. However, the cost structure, research and development processes of Woolworths are not valuable resources of the company. This is because research processes and methods of production of Woolworths leads to higher cost. Moreover, the research processes of Woolworths are not much effective to lead to improved innovation. Thus, Woolworths should develop strategies to improve the competitive image of organization.
The porter five force analysis is one of the best tools to evaluate the strategic position of an organization and to select the generic strategies of organization. The major generic strategies of organization include cost leadership, Cost Focus Strategy, Broad Differentiation Strategy and differentiation focus strategy. Following points highlight the porter five force framework of Woolworths:
The major competitors of Woolworths include Coles, ALDI, Tesco, etc. Following figure shows the market share of Woolworths in grocery and retail sector:
The above figure has helped in reviewing that the market share of Woolworths has increased from 32.6 % in 2017 to 34 % in 2018. Thus, it is found that Woolworths has established a strong competitive position in the market. However, Woolworths still needs to adopt various strategies to improve its brand image in the market and to maintain its competitive position.
The threat of new entrants is lesser to Woolworths as huge capital is needed by new firms to enter the retail industry. Also, Woolworths has achieved economies of scale in the retail which is even not possible for a new firm. In addition to this, rising government regulations in the retail sector further make it difficult for new firms to enter the retail industry.
The bargaining power of suppliers is moderate in the retail industry. This is because the presence of a large number of suppliers of grocery items reduces the bargaining power of suppliers but lack of availability of substitute items supplied by suppliers make their position strong in the industry.
Although, there is a large number of substitute items available in the retail sector but the product differentiation strategies of Woolworths lowers the threat of substitutes to the company (Bailey, 2005).
The customer bargaining power is very high in the retail sector due to the presence of a large number of retail companies. Further, the switching cost for customers in the retail industry is very low which further increases the bargaining power of customers. Thus, Woolworths must adopt a differentiation strategy to weaken the bargaining power of customers.
The major competitors and competitive position of Woolworths is evaluated by considering the price and brand image of various supermarket and retail companies operating in Australia. Following figure shows the perceptual map of Woolworths:
The above figure shows that Woolworths has adopted low cost strategies and has established strong brand image in the market. However, it is found that ALDI, Coles, Costco and 7-eleven have implemented low cost strategies. Further, it is found that Tesco also has established a strong brand image in the market for its quality produce and Foodworks sells its products at premium pricing.
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Customer analysis provided the view on the needs and preferences of the customers in the market so that such products can be launched which will fulfil the customer desires. Woolworths is known to serve more than 2.9 million customers each week with its services. The company has partnerships with differ local farmers and manufacturers in order to fulfil the demands of its customers. Further, the company has also started providing organic products to the customers as per their demands for healthy food.
The inner position of the company is also needed to be evaluated by checking the major objectives, mission and core values of the company. Analysis of the inner self of a company can further help in evaluating the ability and value proposition of organization.
The major objective of Woolworths is to provide a convenient shopping facility to customers. Further, the main goal of Woolworths is to put its customers at 1st position for all the services. Further, the other objectives of Woolworths include providing exceptional quality in every product, improving network efficiency, to improve the standard of living of people, etc. (OUR PURPOSE, VISION AND VALUES, 2020).
The mission of Woolworths is to deliver convenience to customers in the value and quality of services provided. Further, the core values of Woolworths include service innovation, integrity, quality, energy and sustainability (Woolworths, 2020). The company has adopted a triple bottom line approach with higher focus on people, profits and the planet.
Woolworths has selected differentiation strategy in order to maintain competitive advantage in the market through its products. This differentiation strategy is based on premium quality of products as compared to other competitors in the market.
The company has focused on all the people in the market through its supermarket chains all over Australia. However, under its focus strategy, it has targeted the people who prefer quality of products instead of its price.
Under the generic competitive advantage framework, Woolworths has selected differentiation strategies to maintain its position in the area and this strategy is based on its quality. This strategy of Woolworths has helped it to attract market customers even for the products which are sold at premium prices.
The strategic position of Woolworths can be evaluated by analyzing the financial position of the company over the last 3 years. Thus, the evaluation of the profits, revenue and growth of Woolworths for the last 3 years is as mentioned below:
The above graph represents that the financial position of the company has improved over the last 3 years i.e. between 2017 to 2019. The net income and net margins of the company have also improved in the past 3 years. However, it is recognized that the sales of Woolworths have declined in 2019 as compared to sales of the company in 2018. Along with this, following figure shows the enterprise value of Woolworths:
The above figure shows that the enterprise value of Woolworths has improved over the period of time along with significant improvement in the EBITDA (WOOLWORTHS GROUP LIMITED (WOW), 2020). Also, the market share of Woolworths has also improved in recent times. Following figure shows the market share and growth rate of Woolworths
The above figure shows that the growth % of Woolworths has also increased in 2018 and 2019. Furthermore, Woolworths has attained the highest market share in the grocery and retail industry in Australia (Woolworths, 2019).
Woolworths has implemented a number of strategies in order to provide convenient services to customers. The strategic framework of Woolworths includes a hierarchy of strategies implemented for the purpose of improving the competitive position of organization. The major strategies of Woolworths include efficiency, growth, cost leadership and differentiation strategies. Additionally, the company has adopted various strategies to improve the core offer with the aim to improve its brand image and customer loyalty.
Along with this, the major growth strategy of Woolworths includes innovation. Woolworths regularly implement innovation in organization in order to meet the needs of its customers in the most effective manner. In addition to this, the cost leadership, differentiation and value strategies of Woolworths are aimed at improving the sales of organization through higher quality services provided to customers with enhanced convenience. Further, the company has implemented various loyalty systems to enhance customer satisfaction and to attract a large number of customers (Woolworths Food Group, 2020).
The above report has discussed the formation of the strategic framework for an organisation where detailed discussion has been provided on each step. It has been analysed that there are majorly five steps of strategic framework under which different types of analysis are done for collecting information related to a company so that a favourable strategy can be formed. The report has discussed this framework by taking example of Woolworths strategic framework. Further the example highlighted that the company has a vision to provide convenience service to the customers. Also, Value proportion analysis provided the view that the company has the feature of quality products which is its competitive advantage. The same thing helps the company in fetching premium prices for its products and helps to deal with competition by other supermarkets which are majorly based on low pricing strategies to attract more customers. Further, the analysis of objectives and vision of the company highlighted that the company has the objective to become the first choice of customers based on the values of integrity, suitability, innovation etc. Moving on, the implementation stage under strategic framework provided that the company is based on differentiation strategy which has helped the company to increase its financial performance over the years. Thus, the strategic framework of Woolworths explained that the company uses different strategies in order to maintain competitive position and to achieve its objectives in the market.