Strategic Management 003 Aldi quyom PDF

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Strategic Management

Table of Contents Introduction...................................................................................................................1 Task 1:...........................................................................................................................2 Internal Environment Analysis (SWOT)........................................................................2 External Environment Analysis (PESTEL and 7s)........................................................3 PESTEL Analysis......................................................................................................3 Strategy Suggestion.....................................................................................................5 Business Strategy and Organisational Dimensions.....................................................6 Strategic Capabilities................................................................................................6 Competitive Analysis.................................................................................................6 Competitive Advantage.............................................................................................7 Organisational Culture and Strategy.........................................................................7 Task 2............................................................................................................................8 Critical Evaluation of Current (Low Cost) Business Strategy of Aldi............................8 Management Arrangement.......................................................................................8 Leadership Arrangement...........................................................................................8 Marketing and Promotional Strategies......................................................................9 Quality Control and Inventory Management.............................................................9 Benefit of the Low Cost Business Strategy.............................................................10 Downsides of Low Cost Business Strategy............................................................10 Relationship with Fundamental Resource Areas.......................................................10 HR Strategies..........................................................................................................10 Operations...............................................................................................................11 Finance....................................................................................................................11 Technology..............................................................................................................12 Task 3..........................................................................................................................12 Proposed Change Management Programme with Justification.................................12 Factors Affecting Change Management Programme.................................................14 Corporate Inertia.....................................................................................................14 Resource Constraints.............................................................................................14 Change in Customer Taste and Buying Pattern.....................................................14 Conclusion..................................................................................................................14

References.................................................................................................................15

Introduction This report has focused on aspects of strategic management within an organisation by focusing the theme of ‘Developing Strategy for Business Resilience and Sustainability’. As a strategy consultant of Germany based discount retailer Aldi, I have been approached to advice on future strategic decision of Aldi. In the first segment of the report, recommendation has been made over the current business strategy by focusing on internal and external business environment where strategic capabilities, competitive analysis, competitive advantage and culture and strategy have been focused. In the later segment of the report, the proposed business strategy has been critically evaluated by identifying relationship with organisational resources like people, operations, finance and technology. In the concluding segment of the report, appropriate change management programme has been suggested by focusing issues influencing the proposed change management programme. If Aldi adopts differentiation strategy, then it will benefit Aldi to enhance competitive advantage over the industry with enhanced quality and customised products for customers. Again if Aldi adopts differentiation strategy, then it will benefit Aldi to offer the best price to the customers by maintaining a standard quality which will enable Aldi to enhance its market share.

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Task 1: Internal Environment Analysis (SWOT)

Weaknesse s

Strengths

SWOT Opportunit Threats ies Figure 1: SWOT Model Source: Bozarth and Handfield, (2008) Strengths

Broad product lines, competitive price, traditional and online mode of business formats, mobile apps, lower employee turnover

(6%),

flat

management

structure, own-branded products etc. (Aldi, 2015). Weaknesses

No customer loyalty schemes, lack of investment in R&D, power organisational culture etc.

Opportunities

Focus on branding, focus on product development

and

expand

business

operations in Asian markets. Threats

Price war, rise of employee wages, 2

inflation, and conservatism views of countries and resource limitation (Aldi, 2015).

External Environment Analysis (PESTEL and 7s) PESTEL Analysis Political

Opportunity to expand business within the EU zone and take advantage of free trade agreements and political support to expand business functions.

Economic

The recovery stage of the business cycle will help to take advantage of the current economic environment.

Social

Increasing disposable income is the positive sign for the retailers.

Technology

Advanced ICT technology will help Aldi to take

communicate

with

stakeholder

groups

and

geographical

barriers

to

different reduce business

expansion. Environment

The retail market is too much competitive in nature and changing customer needs have made the entire retail market a volatile one.

Legal

Aldi should focus on sustainability issues and focus on laws and regulations related

to

business

expansion

internationally. McKinsey’s 7s Model Strategy

Aldi is a discount retailer and has 3

developed core competency by focusing on cost leadership strategy. Structure

Currently Aldi has organisational

implemented flat

structure

and

dual

reporting system. Systems

Aldi

deals

with

food

and

grocery

products. Shared Values

Aldi

has

focused

on

participative

organisational culture and has ensured full employee engagement. Skills

Employee efficiency and effectiveness has been emphasised and interpersonal skills have been demonstrated by the leaders.

Styles

Both

task

oriented

and

leadership

oriented approaches have been taken while adopting leadership styles. Staffs

Diversities have been ensured while recruiting employees and work based knowledge

development

programmes

are taken.

Strategy Suggestion It is predicted that the discount retailers will hold 15% market share by 2020 and with the rise of disposable income of the customers there is a great market opportunities in this retail market (City am, 2015). The following strategies have been suggested for Aldi: Cost Leaders Strategy (Incremental): Aldi should stick to their current low cost strategy to keep the momentum of the business growth. The current strategy will help Aldi to sustain in price war situation and enhance market share by offering competitive price to the market. 4

Differentiation Strategy (New): Differentiation strategy will help Aldi to boost its profitability by charging premium price and increase market share through positive brand image and strong brand loyalty. The customer loyalty will help Aldi to sustain in different phases of business cycle.

Figure 2: Porter’s Generic Strategy Source: De Wit and Mayer, (2010)

Business Strategy and Organisational Dimensions Strategic Capabilities At present Aldi is operating its international business operations in 18 countries with 9,000 discount shops and both traditional and online mode of business formats have been adopted. ‘Mobile Apps’ has helped Aldi to influence customer buying decision and identify customer buying pattern (Aldi, 2015).

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Competitive Analysis Aldi has not introduced any customer loyalty programmes like ‘Match & More’ of Morrison’s and ‘Club card’ of Tesco. Aldi has focused on reaching to the broad market segments by expanding their business operations and in UK it has 500 outlets and is planning to open another 75 by 2015 (Telegraph, 2015). Name of the Retailer

Market Share

Core Competency

Tesco

28.6%

Customer

loyalty,

cost

leadership strategy, large supply chain etc. Asda

16.5%

Competitive market price, customised focuses

on

products, long

term

relationship

with

customers and suppliers. Sainsbury’s

16.5%

Focus on brand image and brand loyalty, focus on CRM schemes and broad range of product lines.

Morrison’s

11%

Loyal

customer

groups,

broad product lines, brand loyalty etc.

Competitive Advantage In 2014, Aldi had gained 4.7% market share and in 2015, their market share has increased to 5.5% (Kantar, 2015). This reflects that Aldi has been able to increase customer confidence by staying on their ‘ low cost’ business strategy. By introducing ‘own-branded’ products, Aldi has been able to make trade-off between price and quality.

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Organisational Culture and Strategy Aldi has adopted ‘Clan Organisational Culture’ which has helped the company to enhance the efficiency level of the employees through training and development. Employee efficiency has helped Aldi to enhance organisational productivity and steak to low cost business strategy.

Figure 3: Clan Organisational Culture Source: Dess, et al. (2011)

Task 2 Critical Evaluation of Current (Low Cost) Business Strategy of Aldi Management Arrangement Aldi has adopted flat organisational structure which has facilitated to keep eyes on both production cost and quality which is determining factors for low cost business strategy. This

management structure

has

also facilitated Aldi

to

reduce

communication gap between management and employees (Gamble, et al. 2014).

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Figure 4: Flat Management Structure Source: Greasley, (2009)

Leadership Arrangement In order to take advantage from low cost business strategy situational leadership style is a perfect one because here both task oriented and relationship oriented approach can be taken (Johnson, et al. 2011). The leaders can delegate decision making power to the followers on the basis of efficiency which ensures competitive environment within the organisation.

Figure 5: Situational Leadership Style Source: Kotter, 2012

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Marketing and Promotional Strategies Aldi has not introduced any customer loyalty programme but has focused on social networking sites to promote customer relationship. In their Aldi UK Facebook page they have more than 1 million likes (Facebook, 2015) and Aldi UK twitter page has more than 200,000 followers (Twitter, 2015). Aldi has introduced ‘Like Brands’ campaign where both above-the-line and below-the-line promotional activities have been adopted.

Quality Control and Inventory Management Aldi has adopted ‘Just-In-Time’ inventory management system to reduce inventory management costs and has used ‘Six Sigma’ quality control technique in its production process. By this way, variability in the manufacturing process has been reduced which has helped Aldi to take advantage of bulk production (Lynch, 2006).

Benefit of the Low Cost Business Strategy The key benefit of low cost business strategy is that it helps organisation to develop a sustainable competitive environment by focusing on the concept of ‘economies of scale’ (Mintzberg, et al. 2004). For example, in the UK market, Aldi has introduced more than 1,300 product ranges and has taken ‘ fill all the niches’ strategy (Aldi, 2015). This broad production line has facilitated Aldi to reach to every market segment and enhance market share. Low cost business strategy has facilitated Aldi to sustain in ‘price war’ situation and invest in changing customer buying behaviour.

Downsides of Low Cost Business Strategy By adopting low cost business strategy, it becomes difficult to maintain business competitive only by focusing on cost efficiency as customer taste and buying behaviour change frequently (Myers, et al. 2012). Again the rise of disposable income is also a threat to the low cost business followers as customers will be attracted to differentiated products. Again it is not possible to offer customised products to the market as product variability is absent in the low cost business process.

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Relationship with Fundamental Resource Areas HR Strategies Aldi has adopted ‘Soft HRM Model’ which has facilitated Aldi to ensure complete employee satisfaction. In 2011, in its UK operations, Store Managers turnover rate was 6%. Again Aldi has ensured diversity in its employment opportunities and in its UK operations 48% of the employees are female (Aldi, 2015). These have contributed employee efficiency which has helped Aldi to enhance its productivity.

Figure 6: Soft HRM Model Source: Patron, (2008)

Operations By adopting ‘Just-In-Time Inventory’ system, Aldi has reduced carrying costs and inprocess inventory costs. Again Aldi is planning to build a Regional Distribution Centre (RDC) in UK by aiming to increase stores to 1,000 in the UK by 2022 (Supply chain analysis, 2015). Own distribution network has facilitated Aldi to keep production cost within optimum level and ensure competitive advantage.

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Figure 7: Just-In-Time System Source: Rosen, (2006)

Finance In order to adopt low cost business strategy, investment should be made in the production process so that defection rate in the production can be reduced along with maintaining optimum quality (Rouwette, 2011). Aldi has options to raise required finances by focusing both debt and equity financing. At the current market position, Aldi should go for debt financing to take advantage of tax deductible advantage.

Technology In order to gain advantage from the low cost business strategy, technology should be used wisely (Schein, 2010). For example, Aldi has taken ‘last-mover advantage’ in terms of introducing scanners in its outlets. By this way, Aldi has been benefited by the most state-of-the-art scanning systems at that time. Aldi has focused on operational innovation to reduce its operational costs. For example, Aldi has introduced bar codes in packaging to support the till operator in the operations (Retail Week, 2010).

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Task 3 Proposed Change Management Programme with Justification At present Aldi is conducting its business by adopting low cost business strategy and by analysing the costs and benefits associated with this strategy, in this report, it is suggested that Aldi should stay on this strategy. In order to improve the current competitive position, Aldi should follow McKinsey’s 7-S Model. The key advantage of this change management model is that here both rational and emotional components of organisational change are considered (Stacey, 2007). This change management model is an integral approach and address problems in a unified manner. The best part of the change management model is that it considers impact of current organisational change on future business performance (Buchanan and Huczynski, 2013). Again by adopting this change model, coordination among organisational departments can be ensured. As this change management model ensures coordinated efforts, optimum use of organisational resources can be ensured (Cameron and Green, 2012).

Figure 8: McKinsey’s 7-S Model Source: Cameron and Quinn, (2011)

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In the very first phase of the McKinsey’s 7-S Change Model, Aldi has to define the strategy by introducing the resources to be used along with organisational capabilities to maintain sustainability. In the next phase, organisational structure along with leadership style and roles and responsibilities should be defined (Drucker, 2007). In later phase, short term goals and objectives are set which are linked with the long term organisational goals and objectives. In this phase, mission and vision statements are defined that guide the organisational activities (Hofstede, et al. 2010). In the later phase, Aldi has to define the organisational culture by focusing on corporate governance issues. In the later phases, employee relationship along with employee training and skill development programmes are taken to bring desired change (Kinicki and Kreitner, 2006). Drivers of Organisational Change: Changing customer buying behaviour, rise of new competitors, political influence, technological change, innovation, economic cycle etc. are the drivers of organisational change. Leadership, Culture and Structure: By adopting ‘clan organisational culture’ and ‘situational leadership style’, Aldi will be able to ensure desired organisational which will ensure sustainable competitive advantage to Aldi.

Factors Affecting Change Management Programme Corporate Inertia If the change management model affects the current authoritative power within the organisational hierarchy then employees may show reluctant to participate in the change management programme (Mallin, 2012). In order to overcome this resistance to change, Aldi has to focus on the expected benefits from the desired change along with applying employee motivation and skill development programmes.

Resource Constraints Organisational change management programmes needs both time and resources along with management attention (Mintzberg, 2007). Huge investment in fixed assets and non-operating assets make it difficult to invest in change management programme. To overcome this resistance to change, Aldi needs coordinated efforts.

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Change in Customer Taste and Buying Pattern At present, Aldi has invested in low cost business strategy to draw attention of price sensitive customer segment which is in rise.

With rise of disposable income,

customers may get attracted to differentiated and customised products and this will affect the profitability and busi...