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Internal And External Environment Of Woolworths

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You are required to make a strategic analysis report of a chosen local company, preferably a listed company.

 

Answer:

Introduction

Business environment has changed in various parts of the world and so is the case in Australia. It is essential that companies understands its position in the market and the changing dynamics in the market. In order to understand the business environment, companies must take use of strategic tools so as to evaluate various factors in it (Arli, et. al. 2013). Companies in different industry face different types of strategic challenges and they must take use of effective strategic management systems. These systems are capable of giving competitive edge to the company. Woolworths is a big super market and grocery chain based in Australia. Changing Australian business environment has a huge impact on the business operations of Woolworths. This report analyses that internal and external environment of Woolworths as well as competitive environment that is present in the industry. There are huge opportunities and threats posing the business of Woolworths. It also analyses that resources, capabilities and core competencies of Woolworths. In the last section of the report strategic Information system that can meet the needs of the company has been recommended.

External analysis

Business Background

Woolworths also known as “Woolies” is an Australian supermarket/grocery store chain. It is operational in Australia from 1924. It has specialisation in selling groceries. Along with this it also sells health and beauty products, magazines, household products, stationary items, DVDs, pet and baby products. Presently they have around 1000 stores in Australia in which 976 Supermarket and 19 are convenience store (Anitsal, Anitsal and Girard, 2013). Woolworths also has the online services also known by the name of “Homeshop”. It offers home shopping delivery service.

Industry

Woolworths is operating in Retail Industry. The supermarket chains are developing in Australia and have shown a positive performance. The growth has been modest. Grocery Retailers in Australia has shown a faster growth as compared to other non-grocery retailers. Woolworths also sells other products different from Grocery.

 

External environment analysis

In Australia external environment has changed a lot. The dynamic nature of the environment is also a result of the international factors changing all around the world. The analysis is as follows:

  • Economic: Australia is a developed nation and hence provides a strong economic support to the industries that are working in it. The per capita income of Australia is also high and hence it is an excellent market for the retail firms to operate in (Keith, 2012). The international economic environment has also influenced the performance of grocery retail firms in Australia.
  • Physical: The environment laws have strengthened in Australia and hence companies will also have to comply with it so as to avoid any legal consequences. The use of plastics and finding better alternatives in the industry is a major challenge for the Woolworths. The major part of their business is dependent on the groceries which is a farming industry product. The agriculture industry is showing a growth in Australia which is a good sign for the Woolworths.
  • Global: The global environment has changed and the effect of globalisation can also be seen in the Australia. This can be understood by the fact that there are many countries where the products are available at lower cost than Australia. Easing of trade rules along with the reduction in import taxes has helped Woolworths in availing the products at lower prices.
  • Political and Legal: The stable government in Australia has given an excellent environment for the growth of the companies operational within it. Government has helped in promoting the local firms by providing them with extra tax benefits. On the other hand the consumer laws along with the rules and regulation regarding product quality standards. Woolworths needs to comply with all these laws and rules so as to reduce the chances of any legal compliance.
  • Demographic: Australia is a market that is having huge demographic dividend and consists of people that are from different age groups. With the diversification of product range, it is easier for Woolworth to attract all these people. The income is also on the higher side hence the company’s growth can be ensured.
  • Sociocultural: The society of Australia has changed and so is there a need. They are going towards supermarkets chain as they do not have time to go to individual shop. They go to the supermarkets and take all the products at once (Walsh, 2014). This saves time as well as the money of the people. There is an increasing demand for the fresh vegetables which provides an excellent opportunity for Woolworths.
  • Technology: There is huge technology advancements going on in the retail sector especially the once that are related to supply chain management and data management. Online business is taking the leap in the market which Woolworths is also providing. It is crucial that the technology up gradation is also done on regular basis. Australia being a technologically advanced market has more customers that prefer online mediums for business and hence Woolworths will also have to switch their business operations very soon.

Industry Environment

Due to the dynamic nature of the business environment, industry environment has also changed. This change in the industry environment can be understood by the following factors:

  • Supplier’s power: There are large numbers of suppliers available in the Australian and International market. Such a high numbers of suppliers in the industry have led to reduce their bargaining power. They are also facing stiff challenge from different players which is forcing them to lower down their cost.
  • Buyer’s power: There are many big players in the industry. With so many options available in the market, the bargaining power of buyers is on the higher side. There are many small scale retailers that are operational in the local markets (Friedlander, 2013). This is further increasing the numbers of options that are available with customers.
  • Potential entrants: Since most of the market is captured by Wesfarmers along with Coles and Woolworths hence the chances that potential entrants can come in the industry is less. There is a huge capital investment required to come up in the industry which is not easy to manage as investors are always worried about generating higher profits. The only challenge that they are facing is by the entrants that are coming through online market which is providing services at lower cost.
  • Rivalry: With huge numbers of companies operational in industry, the competition has become cut throat. The Wesfarmers is leading the retail industry and hence capturing the larger part of the market is a challenge for Woolworths. In such a competitive environment ensuring long term profitability is a challenge for the company.
  • Substitute products: Number of substitute products in the market is less and hence the chance of getting replaced is less. It is also high in regards to online services as the new ways of services offers greater value preposition (Jie, Parton and Chan, 2015). Services are uniquely distinct from current offerings of the retail industry. Woolworths must focus towards being service oriented firm rather than just being product oriented.

Competitive environment

Many big players are operational in the retail industry of Australia. The strategic group in the industry consists of companies like Wesfarmers, Coles and Aldi Australia. All these companies are capable of capturing the larger part of the market share. This has made the competition in the industry too intense where each and every company is trying to cut the throats of each other. There are many outside factors that are changing the dynamics of the competition. The first and the basic factor is the innovation in services. With the use of technology companies are bringing services for the customers at lower cost and hence they are attracting the customers. Companies in this group are threatened by the fact that the margin of profit is getting lower (Flax, Bick and Abratt, 2016). This is also to be noticed by the fact that lots of offers are provided to the customers in this group. This forces others to do the same or they might lose customers.

Opportunities and Threats

The size of the market is increasing at much faster rate and this has provided companies with lot of opportunities. Woolworths is having a huge customer base and hence it can add more numbers of products and services in its profile. With the emergence of online services, the opportunities in the market are going to expand. Online services will help the company in reaching deep into the market and reach to larger number of customers. Since they sell fresh foods hence they will have to make a strong suppliers team that will help will help in their door to door selling. People can book products through online mediums and apps and their sales executive delivers it at their doors. The biggest threat with such kind of services is that it gives an equal opportunity to the companies with lower capabilities to sell their products in the larger part of the market (Methner, Hamann and Nilsson, 2015). They can also sell products to people sitting in other parts of the Australia with ease.

 

Internal analysis and proposal

In the modern day business environment, it is also crucial that companies manage its internal environment in such a manner that could help them in their strategic plans. The analysis must be done on the basis of various elements. It helps in understanding the capabilities of the firm so as to grab the opportunities that are available in the market.

Resources of Woolworths

Woolworths is having high quality resources of both kinds that are tangible and intangible. These resources can be utilised by the firm as per their requirement to grab opportunities that are available in the market. Tangible are the resources that are physical. On the other hand intangible resources are the ones that do not exist in physical form.

Tangible resources of the Woolworths are as follows:

  • Cash: The cash deposit with the Woolworths is large. This cash can be used by the company for various purposes like for expanding their business to making new goals and doing investment for it (Dos Santos, 2012). This cash will also help Woolworths in making innovation as well as would help the firm in the time of their bad performance.
  • Inventory: They have an excellent inventory. This has been possible because of the highly skilled inventory management team. They have also implemented an inventory management system that helps the company in managing the overall inventory. This has also affected their inventory turnover in a positive manner (Laudon and Laudon, 2016). Since Woolworths deals in the fresh food market like groceries hence they need to have an excellent inventory to support their business.
  • Equipment: The equipment used by Woolworth is highly effective is highly advanced. Such advance equipment helps the company in finding new and innovative ways of doing business. It has also helped them in increasing the effectiveness of their business process. This will also help the Woolworth in sustainable management of resources.
  • Vehicles: They have an excellent transportation system that helps them in their processes related to transportation. The use advance technologies that help them in notifying the customers about their product delivery.
  • Building: Woolworths have an excellent infrastructure that is capable of handling large numbers of customers at once. The size of the supermarkets are too big and have all the facilities that provides highest of customer satisfaction. These stores are present in every part of Australia (Duggan, 2017). There are several convenience stores that help in delivering food items at the local levels.
 

Intangible resources are:

  • Goodwill: Company works in the market with their capabilities to work for the Goodwill of the society. With their CSR activities they are going add to this goodwill.
  • Accounts receivable: There is a huge amount of money that this company will receive from its customers. For the cited firm accounts receivable for the quarter that ended in June 2018 was approx. $97 Million.
  • Expenses: They have been utilising the best of resources so as to limit their expenses. They have been making cost cuts so as to limit pre-paid expenses (Mitchell, 2014). The plan for strategic utilisation of resources has also helped them in controlling their expenses.

Capability Identification

Capability of the Woolworths is good in various terms. The company is capable of doing various types of operations with the amount of resources it has. Capability Identification of Woolworths is as follows:

  • Buying power: It is valuable, rare and costly to imitate. It cannot be substituted which gives them sustainable competitive advantage (Pearson and Bailey, 2012). This has also given them above average returns.
  • Employee’s salary: The company is playing high to its employees and this is the reason that employee turnover at Woolworth is less.
  • Uniformity in prices: There is a unique price of the product that is same in the whole country irrespective of the area they are in.
  • High quality products for low prices: They offer best of products at lowest of prices.

Core competencies

  • Buying power: It satisfies all the four tests since it gives significant value, increases market share of the company, it is difficult to imitate and gives competitive advantage over the rivals.
  • Uniformity in prices: It also adds value, helps in dominating the market, not easy to imitate and hence gives competitive advantage to the rivals.
  • Employee’s salary: It is adding to the value of the firm, it is helping in dominating the market; it is difficult for competitors to imitate as well as provides competitive advantage to Woolworths.
  • Price uniformity: The prices are not easy to imitate hence provides significant value to the firm. At the same time it helps in increasing the market share and hence gives competitive advantage to Woolworths (Akbar and Ahsan, 2014).
  • High quality product at low prices: They offer high quality services at lowest of prices. This adds value to the products, helps in increasing the market share and the same time it is difficult for competitors to imitate as well as it provides competitive advantage to the company.

Suitable information system

The information system need of Woolworth has enhanced. This is due to the fact that the data is accumulated in the firm from various sources and it is crucial that company uses suitable information system. For Woolworth suitable information systems are as follows:

  • Supply chain management system: This system is helpful for the Woolworth as supply chain management plays a very crucial role in the managing the balance between demand and supply chain (Grimmer, 2017).
  • Transaction processing system: This helps in managing the records that are generated in various transactional processes. It keeps the records related to both customers and employees. This plays a critical role in the operations.
  • Executive support system: This system will help the company in making decisions that are based on facts based on the trends that is present in the business environment.
 

Recommendations 

All these systems are helpful in bringing effectiveness to the business operations. Supply chain management is helpful in aligning the company’s goals towards the demands of the market. It must be used in sales department so as to reduce the gap between demand and supply at any point of time. POS system along with big data management tools can be effective and will help the Woolworths in analysing the results (Miranda, Konya and Havrila, 2015). A centralised database will be efficient in the case of Executive support system.

Conclusion

From the above based report, it can be concluded that Woolworths is one of the biggest retail firms in Australia. The external and internal environment in the country is both an opportunity as well as threat for the company. The competition has gone very high and the companies need to rethink about the challenges that they are facing due to this competitive environment. Woolworths has a high quality resources and it can utilise these resources so as to grab the opportunities present in the market. Its core competencies pass all the four tests. The use of supply chain management system, executive support system and transactional processing system can be effective for the business processes of retailers.

 

References

Akbar, S. and Ahsan, K., 2014. Analysis of corporate social disclosure practices of Australian retail firms. International Journal of Managerial and Financial Accounting, 6(4), pp.375-396.

Al-Kassab, J., Ouertani, Z.M., Schiuma, G. and Neely, A., 2014. Information visualization to support management decisions. International Journal of Information Technology & Decision Making, 13(02), pp.407-428.

Anitsal, I., Anitsal, M.M. and Girard, T., 2013. Retail mission statements: Top 100 global retailers. Academy of Strategic Management Journal, 12(1).

Arli, V., Dylke, S., Burgess, R., Campus, R. and Soldo, E., 2013. Woolworths Australia and Walmart US: Best practices in supply chain collaboration. Journal of Economics, Business & Accountancy Ventura, 16(1).

Dos Santos, M.A., 2012. Global warming mitigation promotes corporate entrepreneurship within Woolworths supply chain. African Journal of Business Management, 6(31), pp.9151-9160.

Duggan, T. (2017) Retail Management Information Systems. [online] Available at: https://bizfluent.com/about-5564925-retail-management-information-systems.html. [Accessed on 23rd August 2018]

Flax, J., Bick, G. and Abratt, R., 2016. The perceptions of supplier-buyer relations and its affect on the corporate brand. Journal of Brand Management, 23(1), pp.22-37.

Friedlander, J., 2013. Selling ethical consumption. Living Ethics: Newsletter of the St. James Ethics Centre, (91), p.8.

Grimmer, L., 2017. Is it so hard to say sorry? Revisiting image restoration theory in the context of Australian supermarkets. Asia Pacific Public Relations Journal, 18, pp.17-32.

Jie, F., Parton, K. and Chan, C., 2015. Australian beef supply chain integration: case studies of the two largest Australian supermarkets. International Journal of Supply Chain and Operations Resilience, 1(2), pp.121-138.

Keith, S., 2012. Coles, Woolworths and the local. Locale: The Australasian-Pacific Journal of Regional Food Studies, 2, pp.47-81.

Laudon, K.C. and Laudon, J.P., 2016. Management information system. Pearson Education India.

Methner, N., Hamann, R. and Nilsson, W., 2015. The Evolution of a Sustainability Leader: The Development of Strategic and Boundary Spanning Organizational Innovation Capabilities in Woolworths. In The Business of Social and Environmental Innovation (pp. 87-104). Springer, Cham.

Miranda, M.J., Konya, L. and Havrila, I., 2015. Fine Tuning Customer Satisfaction to Prevent Shopper Attrition. In Assessing the Different Roles of Marketing Theory and Practice in the Jaws of Economic Uncertainty (pp. 152-156). Springer, Cham.

Mitchell, S., 2014. Coles, Woolworths feeling online bite from retailers'. Sydney Morning Herald, 28.

Pearson, D. and Bailey, A., 2012. Exploring the market potential of ‘local’in food systems. Locale: The Australasian-Pacific Journal of Regional Food Studies, 2(12), pp.82-103.

Walsh, B., 2014. Chain store retailing in Ireland: a case study of FW Woolworth & Co. Ltd, 1914-2008. Journal of Historical Research in Marketing, 6(1), pp.98-115

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