Strategy Formulation in the Retail Industry

dodge Formulation in the Retail Industry mark Spencer and succeeding(a)Johnson and Scholes (2006) define system as, Strategy is the anxiety and scope of an organization over the long-term which achieves advantage for the organization through its configuration of resources inwardly a challenging environment, to meet the needs of bell ringerets and to fulfill stakeholder persuadeations unified strategicalal guidance helps us to understandDirection Where trade is heading in the long run.Markets Scope In which market business should compete and what activities atomic number 18 involved.Advantage How business flush toilet do better than competitors in these markets.Resources To compete in the market what resources atomic number 18 required.Environment What atomic number 18 the performers which get out affect the business.Stakeholders What be the expectations of stakeholders.THE THREE LOGICAL ELEMENTS OF THE STRATEGY FORMULATION PROCESSThe three es displaceial elements of the scheme processstrategic Intent is the driver of the strategy process. Without an underlying intent, strategy lacks an overall sense of direction and in that location is no reason to choose one direction rather than another. Strategic intent provides the answer to the question Where do we want to go?The fundamental role of Strategic Assessment is to provide germane(predicate) k at a timeledge about the strategic context. It has to assess both the outside existence and the relative capabilities of our own get toprise. The role of strategic assessment is to anchor future strategies in reality. Strategic assessment must address the Where are we now?Strategic Choice is fundamental to the strategy process because it is the link to action. It must address the question Which options will we choose for getting where we want to be from where we are? If strategy is to be anything more(prenominal) than an intellectual relaxation whence actions must result from the strategy proces s.The strategy formulation process three inter-locking aspects. (Macmillan and Tampoe, 2000 64-65)Corporate success derives from a war-ridden advantage which is based on distinctive capabilities, which is most often derived from the unique character of a firms relationships with its suppliers, nodes, or employees, and which is precisely identified and applied to relevant markets. (Macmillan and Tampoe, 2000 22, 86, 87)In order to bob up competitive advantage, the decision-maker should understand in detail the enterprises skills and resources, and after that manage in a way that the business delivers superior customer value to target segments at a cost that leads to profit. (Wilson and Gilligan, 2005 405-406)IntroductionWe have selected Marks and Spencer, and Next as our face study. Both are UK based way retail companies having almost same product line. We shall review both companys current flummox and future potential development according to their strategic management concept s and techniques. By comparing the statistics of two organizations we will evaluate their enterprise skills, objectives and competences that associated with their principals and formulation of individual organizational strategy.Our findings and research shall accommodate companys resources that required addressing short term and long terming strategic challenges in pursuit of sustainable competitive advantage. Assignment counselling will implement the concept and theory they have followed such as door clenchers Five Forces Model, blighter analysis, School of Business strategy, etc. We will undertake a comprehensive review of their past corporate strategies as well as the present stinting situation and crisis of global economy.The Marks and Spencer (MS) is one of the most famous retailers in UK. It started in 1884 by Michael Marks in partnership with Tom Spencer in Leeds. go with offers various ranges of products that include stylish and high quality clothing, womens wear and li ngerie, means wear, kids wear, home wear, groceries, freshly produce prepared meals etc. They have around 2,000 suppliers globally, about 75,000 employees and have 750 stores round the world.Next is besides UK based retailer. It was founded in 1864 by J Hepworth Son as gentlemans Tailors in Leeds. In 1981 company develop a womens wear group of shops by the name of Next. Next has wide range of collection around the world that offers high quality products in clothing that include executive shirts and suits, stylish home products and accessories, children and teenage fashion, footwear and etc. Next has more than 500 stores in the UK and Eire. They have more than 170 franchise stores overseas. Next has following five strategic businessesNEXT Retail operates the high street shops NEXT Directory is the mail order division NEXT Overseas operates international retail outlets Venturaruns the financial services division and Other activities include telecommunication software services and pr operty managementMission StatementMission statement is indite statement which tells the core purpose of existence of business. Mission statement show the descriptive form of visionMarks SpencerVision To be the standard against which others are measured Mission To make aspirational quality accessible to all and Values Quality value, service, innovation and trust.NEXTWe atNEXT PLChave a task to build,with the main focus of magnanimous all of our customerswhat they deserve The Best. Individuality, long develop, courage in development, and open-mindedness are our tools. The idiom The Customer Is The King is, in our company, not simply a kind of market strategy -it isTradition.COMPETITIVE ANALYSISCompetitive analysis is done to evaluate the competitive position of the company with in an industry. There are many tools for competitive analysis just the important ones are Porters five forces model, PEST Analysis, Group mapping, Pricing and quantity dynamics, dress up analysis and etc.Porter ModelPorter says that there are five forces affecting a business and the company has to survive amongst all these forceBargainig mogul of SupplierDue to big mark off names and diversified portfolio both cross outs are not influenced by supplier. So negociate power of supplier is low for both brands. This factor works more when product line of business is less and there are few suppliers in the market. There is no such situation for Marks Spencer and Next.Bargaining power of buyerBecause of much competition in clothing market there are many sellers and limited buyers so buyers have more options that is way bargaining power of buyer is high the nature of product and nature of buyer both Marks Spencer and Next can not get under influence. This factor affects more in B2B system.Threat of Substitute productThere are may not be the exact substitute of product in case of both Marks Spencer and Next. Because there cannot be any substitute of clothing.Threat of new-fangled entrantMarks Spencer and Next both have brand leal customers. So none of them has the threat of new entrant.Industry RivalryIndustry rivalry influences business relatively more when overall industry volume is small. When there are number of players in industry with huge investments and especially with brand name rivalry turns in shape of innovation. Being well established groups and having advanced financial health both MS and Next dont have such fear.PEST AnalysisPEST stands for Political, Economic, Social and Technological. It illustrates a framework of macro environmental factors. It explains how easy or difficult it is to make profit in a certain market. So Political condition of untied kingdom is stable and well-fixed for the business. So far as economic and social factors are concerned both are good. When we look at technological factor it also in truth much in favour of doing business in UK. So PEST for both companies is same since both are in UK.SWOT AnalysisSWOT Analys is shows business strength,weaknesses,opportunities and threats.INTERNAL ANALYSISInternal analysis is an internal evaluation of the business. It tells us the footing of the business that where it stands and what is the actual worth of the business. There are many tools for checking internal health of the company. For example BCG Matrix, 7s Model and accounting data of the company. Now we look at internal analysis of both companies.BCG Matrixcapital of Massachusetts consultant group matrix evaluates the strategic business units of the company with relative market share and market growth. If we evaluate different SBUs of MS and Next it will be like this.The portfolio of MSs products in terms of BCG matrix is good in clothing having star position and in food MS has occupied the position of question mark relative market shares is low with low industry growth and in financial services industry growth is high but MSs market share is low and will require substantial capital investment to t urn them into stars.either dogs (cash in balance) or question marks (cash user).In case of Next they too have good sales in clothing sector occupying star position then comes its homeware at question mark position, electrical SBU comes at cash cow while its other product line like flowers and wines comes at dog level.McKinsey 7S FrameworkIn strategic management McKinsey7S framework is considered as one of the major landmarks. In a wide variety of situations this 7S model can be used where it is necessary. The 7 Ss are Structure, strategy, system, skills, style, rung and shared values.Both NEXT and MS are fully exercising the 7s model and coordinating at all levels to generate maximum output. Structure of both companies are will defined since both are very old player in this industry so they have learnt a lot from their experience curve and now have developed an outstanding structure. In the initial phase both companies got experience through hit and trial method and now have devel oped good strategies and system. Both companies have got excellent skills and are full getting benefit of these skills. Both companies are well known figures in clothing industry and have gained professional and productive staff. Both companies have shared values which are widely spread in its all 7s and are reflected by their strategic moves.Accounting Data AnalysisAccounting data analysis shows the growth trends of the company which is very helpful in taking strategic decisions. Following figures just shows the trend of both companies that either company is getting positive response or if there is any polish upward trend is seen then its reason is traced out so that right strategic move should be taken in future.M S is the leading clothing retailer with market share11.2% Market share of food sector is 3.9% of total UK market. Market share fell down as compared with previous year from 11.2% to 10.7%this was because of effect of recession disembowel 3 2009/10 INTERIM MANAGEMENT ST ATEMENTGroup sales +2.6%UK sales* +2.3% General Merchandise +3.2% (Clothing +4.0% Home -0.7%) Food +1.3%UK like for like sales* +0.8% General Merchandise +1.2% Food +0.4%Online sales +32%International sales +6.0%Next Progress in the first half has been better than expected and the business has proved itself resilient in the face of a weak consumer environment.Sales and operating margins were ahead of last year in both Retail and Directory.Financial highlights are as followsGroup revenues increase to 1,512mGroup operating profit increases to 199mEarnings per share rise to 68.2pCash inflow of 114mNet debt reduced to 514m, ample debt facilities of 1bnInterim dividend increase by 1p to 19pAnsoffs Matrix We can use Ansoffs product/market matrix to identify directions for Marks and Spencer and Next strategic development. This matrix offers directions for strategic option addressable to MS and Next in terms of products and market coverage, taking into account its strategic capability and also expectation of stakeholders.We can see from the Ansoffs Matrix that Marks and Spencers lunch of Financial services products will have involved a diversification strategy. As MS did not already sells financial products, so new market and new product. Both capability and market consideration has driven MS into development of new markets and products. Similarly Next has also entered into other businesses which is to be done to diversify the product portfolio.MS and Next Generic strategiesThere are three main generic strategies available to all companies including, either endure the lowest-cost retailer or differentiate products and services in such a way that it is valued by customers to the extent that they will pay a pension price. By applying these strengths in either a broad or narrow scope, three generic strategies result cost leadership, differentiation, and focus. The case of MSs core products (food and clothing), it implements a focus generic strategy as it concentrates on a narrow segment (a particular buyer group (executives), market segment (high-end), product feature (freshness) and within that chosen segment MS attempts to achieve differentiation from Tescos Asda, BHS, Top Shop etc. The premise is that the needs of the group can be better serviced by focusing entirely on it.Next has also adopted the product differentiation strategy by offer products of higher quality and charging premium price. gum olibanum Next is offering high end products by catering the upper middle social class of the society.GLOBAL STRATEGIC DECISION MODELWhen companies enter into international market so they have to take global strategic move in order to gain sustainable competitive advantage. For global strategic decision there are different models.Ghoshal ModelGhoshal put forward a theory for three types of enterprise in international markets Multinational, Global and International. He discussed the strategic competency and structure in Multinational,Global and Inte rnational Enterprise.Diamond ModelAnother model for global strategic decision making was defined by Michael Porters which is known as diamond model. He said that first firms in nations gain competetive advantage in local industry and then compete in international market. He also said that endowment factors of nation help firm to flourish. In his model he also discussed that in order to develop a competitive environment with in an industry there should be rivalry so that firms take more strategic decisions and learn to compete.Marks Spencer can move and set up their outlay in developing countries to where efficient workers and supportive utilities are available to gain advantage of factor condition and also act as supporting wall, have to move in those market where abundant and potential customer size (like as China, India where they currently operating) to gain adopt condition by avoiding ethnocentrism with adoptive firm strategy. They have to practice One-To-All trade in develo ping countries to become cost leader in those countries and One-To-One marketing where to perform as quality is matter.NEXT plc obviously to move in developing countries to ensure low cost of production (mainly labor cost), and in large potential market like as in China, India etc. with adoptive marketing strategy but with the think of cost leadership which will wee or add value. They have to FDI in global market place other than franchising.M S CURRENT STRATEGY (in recession)Short term Priorities apostrophize Saving initiativesIn global economic downtown and changing in customer needs the company taken major steps to cut down the costs and responding customer needs very quickly. Quality, Value, Service, Innovation and Trust is the prime strategy of MS keeping in mind the firm analysed its position in the last few years and to tackle global challenges the firm draw a new curriculum is called PLAN A to get in to success. This plan includes cutting down the cost of production, tri m down staff, closing down less operative branches and reducing dividends to its shareholders to invest in new business, widening its business activeness in the international market, improving performance in food and to retain the leading position in General Merchandising.To improve business performance MS invested in pricing. Delivering the best quality at unbeatable value the MS introduced new promotions in General Merchandising and in Food sector. For example overcharge for LessOne day Christmas SpectacularsWise BuysDine in for Two for 10Major Steps in the recession period (Cost vigilance)In 2009 the MS closed its 26 less operative branches mostly simply food stores, to cut down the cost. Secondly reduced its Head Office Roles and increase the level of pay for eligible to get pension which is major cost to the company. Changing in Logistics system i.e. merging GM and Food together, Introducing mechanisation in warehouse and Streamlining the international distribution system to reduce cost.The main ObjectivesIncreasing the pace of change and operational execution in the businessTo become multi-channel retailer focusing customer channelsInvesting in international business particularly in India, China and Eastern EuropeReinvigorating the brand to customers to highlight estimable and sustainability objectivesFuture plansImproving UK Core businessIntroducing MS Direct Sales (Online)Expanding international business (the revenue in this market is proportionately higher than the UK market)strengthen UK business Portfolio(modernising and expanding existing system)Integrating Plan A across the business (become carbon neutral CO2 emissions tonnes, Send no operational waste sent to landfill tonnes, Improve energy efficiency in StoresCompany Perspectives (NEXT)Nexts mission is to be the natural choice retailer in the UK for fashion aware men women who expect style, distinction quality from their clothing.Next have a task to build with the main focus of giving all to its customers what they deserve the best. Individuality, long experience, courage in development, and open-mindedness are the tools. The idiom the customer is the king to the company and not simply a kind of making strategy it is tradition.Current Strategy (2009)Concentrate on the design, quality and value of product together with excellent customer service and delivery. The company believe this will serve well through the current recessive period and it will keep in well place when recovery begins.Controlling costControlling stockContinue to invest in the brandOperational cost savingsNext found two ways to do the business during recession period. 1). Making the best of current position by providing customers with what they expect. 2) Exciting brand name, beautiful design with great quality in clothing and home ware. 3) Engineering product ranges to lower price points by reducing expense in design and quality.During recession next decided not to devaluate its product for the a spect of pricing nor quality and design of their product ranges, and keep maintaining market position and the company believes that this will provide strong foundation when economic conditions change.To improve the business performance the NEXT introduced pilot data warehouse recording system with its 300 stores to control inventory.REFERENCESBrews, P. J. and Hunt, M. R. (1999) Learning to Plan and Planning to Learn Resolving the Planning School/Learning School Debate, Strategic anxiety Journal, 20/10.Baker, M. (2000), Marketing Strategy and Management 3rdedition, Macmillan Business, LondonGhauri, P. and Cateora, P. 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(2000), Marketing Strategy and Management 3rdedition, Macmillan Business, LondonNext ArticlesNext Trading Update, inUK Retail Report,May 2000.Next Homes in on Bigger Stores, inIn-Store Marketing,October 2001.Internethttp//www.next.co.uk/shopping/homeware eyelid=01_02_08http//www.marksandspencer.com/