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Strategic Management Report Assignment 1

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**Focus on Woolworths Supermarkets (not Woolworths Group) Resources and competences of Woolworths that provide sustainable competitive advantage -- justify with VIRO Current generic type of business strategy that Woolies implements -- by examining its strategy statement and value chain activities (module 5) Propose one new strategic initiative -- major functional initiative: marketing, technology, product/service innovation/development, M&A (module 7 & 8) Suitability of strategic initiative -- refer to findings of asst. 1 (external environment, strategic capabilities, current business strategy) ranking system...SAFE What needs to be changed & why? How will the changes be managed & implemented? Balanced Scorecard, strategy map (w/ key success measures & hierarchical relationships)

6000 words

Executive Summary The aim of this report is to provide a new strategic initiative for Woolworths Supermarkets, based on information obtained through a strategic analysis of their resources, competences and objectives. To analyze the Woolworths Supermarkets, we examined its internal operations to understand its strategy for success, as well as its external environment to identify the factors affecting the supermarkets and grocery stores industry and Woolworths’ competitive position in the market.

The report finds that Woolworths’ brand and reputation, as well as customer value and loyalty are sustained competitive advantages while their local sourcing plan has competitive parity and they have temporary competitive advantage online. Other than that, Woolworths’ business strategy is cost leadership by maintaining a customer-focused approach and creating competitive advantage. From the information collected, we established that Woolworths should introduce Artificial Intelligence in their supermarkets.

Introduction Woolworths Supermarkets, an Australian company founded in December 1924 in Sydney, NSW, is the leading supermarket in Australia with 37.2% of the market share in the supermarkets and grocery stores industry (RetailWorld 2019; Woolworths Group 2019). Woolworths has about 115,000 employees across 995 supermarkets (Woolworths Group 2019). They are involved in the food retail business scope and their product mix mainly includes dairy and frozen foods, meat, fresh bakery foods, general merchandise, health and beauty products, household items and liquor. They also own a variety of private label brands such as the Odd Bunch, Farmers’ Own Milk, Gold and Little One’s (Woolworths Group 2019).

VRIO Framework of Woolworths

Woolworths

Valuable Rare Inimitable

Organizational Support

Competitive Implication

Brand/ Reputation

Yes

Yes

Yes

Yes

Sustained Competitive Advantage

Local Sourcing Plan

Yes

No

No

Yes

Competitive Parity

Yes

Sustained Competitive Advantage

Yes

Temporary Competitive Advantage

Customer Value/Loyalty

Online

Yes

Yes

Yes

No

Yes

Yes

Figure 1: VRIO Framework of Woolworths For an organization to sustain its business in the long-term, it is vital for the organization to strategically analyze its internal resources to identify its competencies and pinpoint the aspects that will give them a competitive edge that is valued, rare and cannot be easily imitated. In order to achieve this, the business has to use the maximum value of its resources (Jurevicius 2013).

It is important to have a good reputation for customers to feel confident when buying products or when recommending the brand to others. Having a reputation for being the most valued retailer, Woolworths certainly lives up to its standard, hence, it remains the most reliable brand in the country with Coles being their closest competitor. Woolworths should strategically come up with a plan to prevent their competitors from catching up by capitalizing all their resources and expand their capabilities. In this generation, competition often occurs due to the fluctuating economy, which makes the top retailers fight for customers by coming up with deals such as half priced items, big drops in prices and lower prices to begin with. By constantly coming up with deals, retailers were able to attract customers, thereby, creating a positive impact as an increase in profit margin means an increase in total sales achieved, making it difficult for competitors to climb to their position. Besides that, a majority of people have moved to the “buying local goods” movement in support of local producers as it a way to improve the economy of the country. Furthermore, retailers in this generation are shifting to online grocery shopping as it is much more convenient than making a trip to the grocery store. According to a study by Finder (2016), when comparing Woolworths and Coles, it is evident that Woolworths has superiority in its online presence due to its functional phone applications and features. To keep up with technology, it is essential to advance by continuously improving all the online offerings. However, Woolworths competitors can catch up. For example, Coles has to invest in this field, and it can directly compete with Woolworths. Thus, at this stage, Woolworths is only given a temporary competitive advantage. Lastly, Woolworths believes that to gain maximum customer value and loyalty, it is essential to gain their customers’ trust by being responsible and doing the right thing. Not only are they dedicated to the wellbeing of their customers, but they also practice treating their employees fairly. Woolworths is committed to human rights and fair and safe working conditions. Similarly, their cultures and values being specific and exemplary enable them to gain a competitive advantage over their customers’ value and loyalty, which cannot be imitated by competitors.

Woolworths’ Business Strategy

Figure 2: Value Chain Analysis of Woolworths

Strategy statement: Woolworths’ business strategy is constructed on the basis of cost leadership through adopting a customer-focused approach, whereby the company maintains a commitment to providing their customers with the best quality products at the lowest possible price. Through the core competencies of Woolworths’ customer-based approach, they have gained competitive advantage over rivals which has facilitated their success, enabling the supermarket giant to be one of the two major players that have dominated the market. Their strategy is built on the main vision of the group, which is to ‘deliver the best in convenience, value and quality’ for the customers (Woolworths Group 2019). The company prides themselves on their ability to adhere to their strategy by prioritizing each customer’s experience and committing to exceeding expectations through offering greater convenience, better quality and value-formoney products at a lower price while maintaining high-end services. Woolworths has successfully established a positive reputation with their customer base, persevering towards their goal of having ‘its customers put it 1 , across all the brands’ (Woolworths Group 2019). This focus leaves customers feeling satisfied when engaging with Woolworths and leads to customers remaining loyal to their brand (Minculete & Chisega-Negrilă 2014). st

Value chain: The value chain is made up of primary and support activities, which underpin the basis of organisational functioning. A value chain analysis can be used to analyse a company’s activities to identify how these processes are utilised to create competitive advantage. Primary activities imply inbound logistics, operations, outbound logistics, marketing and services, whereas, support activities include Infrastructure, human resources, technology and procurement (Kaplinsky 2000). Through an analysis of Woolworths, it is indicated that the company has adopted a sourcing strategy that has a primary focus of achieving sustainable performance conditions. They have

adopted a local food sourcing strategy for ensuring growth and development of local firms as 100% of the fresh meat sold at Woolworths is produced in Australia and 96% of fruit and vegetables sold in stores are grown on Australian farms. Through buying direct from Australian farmers, it allows Woolworths to keep costs low for consumers and maintain competitive prices (Woolworths Group 2019). Once the inputs are sourced, they are processed and transformed by Woolworths to be retailed under the ‘Woolworths brand’ across all their supermarket stores. This method of sourcing and branding has earned their reputation with consumers, of providing certified Australian grown, fresh food produce which gives rise to their motto of being the ‘The Fresh Food People’. The goods coming from suppliers are delivered to distribution centres that are owned and operated by Woolworths. Within these centres, employees perform quality assurance tests on the incoming goods and check each delivery against quality specifications including size, weight, aesthetic values and temperature to comply with quality standards and to adhere to ‘Woolworths Quality Assurance program’. Having distribution centres owned by Woolworths allows the company to avoid logistical challenges of coordinating goods from the suppliers to supermarket shelves across the country. As a result of having greater control over their inbound logistics, it enables the company to plan more efficiently for goods, increasing its ability coordinated exchanges to save costs on delivery. Woolworths maintains successful brand awareness through their in-store promotions such as their weekly catalogue sales and innovative marketing campaigns such as ‘Everyday-low-value-pricing’. This campaign places focus on their commitment to providing low cost prices on a day-to-day basis, ensuring their customers are receiving the most competitive prices. This enables the company to pursue the low-cost strategy to gain competitive advantage over their rivals by providing quality products at a lower price. These primary activities are facilitated by numerous supportive activities that the company engages in regards to infrastructure of the firm, human resource management to coordinate human capital, technological developments and procurement. Woolworths infrastructure is recognised as being classed of high standards due to their strong presence throughout Australia and New Zealand, operating across 995 stores in Australia and 181 stores across New Zealand (Woolworths Group 2019). Due to the vast coverage throughout these countries and the quality of the stores it enables provisions of efficient service and availability to their customers to satisfy their needs. In addition to their booming infrastructure, Woolworths operations presents at the core of their business activities are the ability of team members and the culture they foster within the working environment. An analysis shows that the human resources teams dedicate and prioritise supporting and upskilling their team members as it is ‘an essential investment in our people and our future growth’ (Woolworths Group 2019). Through providing continual learning and development opportunities it equips their members with the knowledge and skills necessary to engage with and support customers to provide an excellent customer experience. Woolworths value chain is made up of various primary and support activities, which support the foundation of their organisational functioning. Through analysing their value chain activities, it is evident that their business strategy is focused on cost-leadership to create a competitive advantage. They aim to strive towards becoming the lowest cost organisation in the supermarket industry through cost drivers, such as lowering input costs throughout their primary and supportive activities.

New Strategic Initiative

After completing an internal and external analysis of Woolworths, we have decided to recommend the introduction of Artificial Intelligence (AI) in their supermarkets as a new strategic initiative. AI are computer programs that use the combination of algorithmic retailing, machine learning and deep learning to gain from the knowledge acquired and produce better results (Baltazar 2019). The introduction of AI in Woolworths would be beneficial to both the organization and its customers. A number of capabilities that AI can accomplish includes the ability to forecast inventory needs, the ability to promote items with high stocks, the prevention of theft, the ability to personalize marketing, as well as the analyzation of consumer behaviours (de Jesus 2019). According to Feizabadi and Shrivastava (2018), forecasting errors from traditional timeseries forecasting methods went up to 32% in 2017 due to the lack of accountability of demand-influencing factors. In contrast, when AI is used and fed with the right amount of data set, they are able to examine almost an unlimited number of data to produce trends, patterns and correlations that would be impossible for human analysts to produce (Milford & Mortimer 2018). From the information gained, AI is able to forecast the products that are running low on stock and take action. For example, if a product has stock available at its organization’s warehouse, the AI can send an order to have it sent to the supermarket in need. Alternatively, the AI can place orders for the product if it is not in stock at its organization’s warehouse. Additionally, by scanning the stocks available in store and at the warehouse, AI is able to promote items that are high in stock to prevent products from expiring before it can be sold. Other than that, theft and loss of stock has cost up to billions of dollars for Australian food retailers. One of the main contributors to theft and stock loss is unmonitored self-service registers. With AI in place, smart, camera-equipped monitoring checkouts will be able to scan images to ensure that the items shoppers have scanned are what they are paying for. The AI will use computer vision to observe both manned and self-service registers to spot when items are not scanned or scanned incorrectly and report faults to checkout assistants that are able to resolve the problem (Humphries 2019). Through deep learning, AI can use layered neural networks in combination with a compilation of database of customers’ purchases over time through loyalty programs in grocery stores to analyze and predict human behaviour (Kelly 2019). The information gained allows for AI to also examine which products should be promoted to attract customers to go into the stores, to add more items into their shopping cart and to better retain these items. Over time, the forecast of consumer behaviour will allow AI to recognize the items that should be promoted at a certain time and a certain price, to produce an optimum stock turnover for the organization. Thus, the introduction of AI in Woolworths will increase customer loyalty, optimize customer experience and enhance personalized service while avoiding food wastage, preventing stock loss and creating a good stock turnover for the organization. Additionally, AI can provide Woolworths the opportunity to gain more revenue by using AI to recruit workers, AI can be used to improvise all the short-listed candidates by using the innovative trends (Ashwood, 2014) and pre-programmed metrics to find information such as their work experience, skills, etc. Trainings may require a period of time and it might be repetitive therefore, AI can help the training procedure by deploying a machine algorithm.

(Seibt et.al 2014) rightfully mentioned that through AI, the recruiting process can be reduced and the probability of workers turnover will reduce during the process. By introducing the innovative trend of AI to Woolworths, it will develop an organisational culture in which encourage technological innovation which would influence future generations on the importance of technology. Technology plays an important role and organisations that are digitally excluded in it will not be able to sustain long run as technology is constantly developing.

Suitability of New Strategic Initiative Generally, a proposed strategy is ‘suitable’ if it can exploit opportunities and minimise threats found within the firm’s external environment (Kettunen 2003). However, we used the SAFe criteria to evaluate the fitness of the new strategic initiative, which evaluates a strategy in three criteria: suitability, acceptability and feasibility. Suitability involves assessing the proposed strategy by addressing the key opportunities and constraints that Woolworths will face. The opportunities that are available for Woolworths if they introduce AI includes having their inventory examined on a day-to-day basis to determine the items that are selling quickly and needs to be restocked. Next, from the information that has been generated, the AI would be able to place orders for stocks without manual interference, which can eliminate human errors that is common when working with bulk data. Other than that, according to Yahoo Finance (2019), Woolworths is one of the four Australian retailers who are the biggest victims of theft. In a survey of over 2000 people made by The Global Theft Barometer, almost 20 percent admitted to stealing roughly $25 worth of products on a monthly average from self-service registers (Yahoo Finance 2019). In this situation, AI would benefit Woolworths by preventing these incidents from recurring. Cameras will be installed to monitor the self-service registers for supervision purposes and reports will be made if a theft attempt was made. AI can also hold an almost unlimited amount of information, including the expiry dates of food products. With this function, Woolworths is able to avoid food wastage by receiving notifications from the AI regarding food products that are about to expire, which will prompt them to sell these food products at a lower price to attract customers. Finally, AI also examines inventory to find items that are high in stock, which means that it is not selling well, to promote and market these items. Most of these advertisements are tailored to customers through the tracking and analyzing of each individual’s online activity (Forbes 2018). A strategy called cross promotion is used, which is a form of marketing promotion that allows Woolworths to target customers with related products based on the customers’ history purchases through AI (Antonio, 2018). Customers will be encouraged to purchase items that are similar to the items that they have previously purchased. Constraints that Woolworths may face includes the massive shortage in graduates and postgraduates that possess the skills needed in order to implement AI successfully (Clarke 2018). To smoothly introduce AI in grocery stores, software engineers must be data literate, which means they must know how to systematize, influence and receive insights from the data, as well as to envision and produce models from the data, on top of recognizing the dangers of biasness. Software engineers that have all the necessary skills are very difficult to find these days, which proves to be a constraint. Next, the need to retrain employees and teach them how to use the AI may be a constraint. Younger employees or employees that have some knowledge in software engineering would not have much of a problem in understanding AI, however, older employees or employees that are not tech-savvy may have an issue with the introduction of AI. Besides that, safe data storage and consent management

is a constraint to the organization. Woolworths would require their customers’ personal information and preferences for the AI to be maximizing its full potential. Hence, Woolworths would require each customers’ consent to collect such information. Protection from hackers is another constraint that Woolworths will face. According to Ben-Israel (2019), hackers are provi...