Strategic Management Concept
Discuss about the Strategic Management Theory and Practice Model.
This essay provides the reader with the understanding of strategic management concepts and models. It encompasses the three theoretical modal of strategic management which are TOWS analysis, Ansoff’s matrix, and Porter’s five forces model. Apart from this, the essay discusses these theoretical concepts in the context of Woolworths, which is one of the largest supermarket chains in Australia. Along with this, it shows the implications of these analytical concepts on the organization’s strategies and operation.Introduction to Woolworths:
Woolworths is one of the largest supermarket chains of Australia, which was established in year 1924. This deals in the field of retail, food and grocery. It is operating 961 stores across the Australia and it has the 111,000 in its stores across the country, support centers, and distribution centers. Woolworths is second largest company of Australia based on revenue (i.e. AU$ 61.1 billion).The TOWS Analysis of Woolworths:
The TOWS analysis is the analysis of the threats, opportunity, weakness, and strengths of the company, which are described below:
The Woolworths faces the threat of external environments risks, which comes from the political factors, economic factors, and technological factors. The changes in the political environments such as changes in government policies, rules, and regulations produce the political risk for the company. Economic factors include the exchange rate, inflation, recession and economic growth. Technological factors arise from the changes in the technology that increase the productivity and decrease the cost of products.
Apart from this, the cost of raw material is rising that affects the price of products and reduces the profit margin of the Woolworths. In the field of the retail market, the competition is increasing highly by the other competitor’s brands (Wilson, 2010). They provide goods and services at low prices with the discount, therefore, it can threat for the Woolworths. Moreover, the intervention of the government is also a major factor that affects the growth of Woolworths in the Australian market. The prices of the oil are increasing but at the same time, demand for oil is increasing that is difficult for Woolworths to maintain its prices at low in comparison of competitor’s brands.
The main opportunity for Woolworths is company can expand its market in untapped countries that can increase the sales and profitability of the company. Along with this, the retail industries in the world are doing growth in the field of retail market by effective supply chain management and facility of computerization in business. It creates the opportunity for Woolworths that company can grow. Apart from this, the level of customer income is continuously increasing in Australia that provides an opportunity to Woolworths, which is the cause of better employment (Fernie et al, 2015). So, customers want to develop the standard of living that creates the demand of Woolworth’s products. The promotional strategy of the company has the potential to influences the customers to purchase the products and services. Therefore, Woolworths can tap new customers based on its effective promotional and marketing strategies.
The weakness of Woolworths is that it adopted the new technologies but the company is not able to handle and utilize it in proper manner. Apart from this, the decision-making of the Woolworths management is very slow, which is the critical issue for the company. The company faces price competition from its competitors because Woolworths entered late in the market of online, which affect the overall market experience of the company (Palekar et al, 2015). Furthermore, the external market environment factors have the great impact on the growth strategy of Woolworths that affect its ability of controlling over the retail market. Moreover, the policy of Australian government restricts the Woolworths that it cannot increase the prices of products, which creates a major weakness for the company.
The Woolworths is the market leader of the retail industry in Australia, which is the main strength of Woolworths. Apart from this, the strong leadership quality increases the ability of the company in the market expansion. Due to this, Woolworths has the good brand image in the market, and strong resources to compete. Furthermore, Woolworths provides good quality products at a low cost that influences the customers and it has the strong position in house ware, toys, and seasonal products (David, 2016). Moreover, the lady Bird and Chad alley are the famous brands of Woolworth’s stores, which affect the customer’s decision making.
Ansoff matrix is a model that describes the different business growth strategies. This model includes the four different type’s business strategies such as market penetration strategy, product development strategy, market development strategy, and diversification strategy.
Market penetration strategy:
This strategy focuses on the existing product in the existing market that increases the market share of the organization. Therefore, the company sells its products or services to existing or new customers in existing market. Along with this, the Woolworths also focus on the manufacturing costs, branding, and operating expenses. This strategy is suitable for potential growth of Woolworths in Australia and overseas market (Cheng et al, 2014). In Australia, Woolworths has the effective leadership position but the company needs to focus on its brand image and after sales services.
Woolworths also try to reduce the cost of daily shopping goods such as food and laundries, which increases the sales and profit of the company. Therefore, Woolworth uses just in time inventory policy. This policy reduces the cost of storage but it has needs of effective supply chain systems support.
Ansoff's Matrix Concept of Strategic Management
Product development strategy:
New product development strategy focuses on the developing new products for existing market. In this regard, this strategy has the needs to continuous focuses on the research and development for identifying the needs and wants of customers (Arli et al, 2013). This strategy is suitable for Woolworths when company provides the new products and services in existing market.
Market development strategy:
Market development strategy helps the company in identifying new market for the existing products. This strategy also has the needs of the research and development for identifying the new market and customers. Woolworths is planning about expanding its retail business in untapped market because company has the higher reputation. Therefore, company expands its business in china because the products and services of Woolworths attract the Chinese customers in comparison of Wal-Mart and Carrefour (Solomon et al, 2013). When Woolworths expands its business in the new market segment, this new market development strategy is more risky in comparison of market penetration strategy.
This strategy involves the entry of new product into new market at the same time but this strategy is highly risky from new product development in new market. This strategy of business expansion has the needs of experience about new market and products. Along with this, Diversification strategy is more risky for Woolworths in comparison of product development because company has no experience of new market and products (Hubbard et al, 2014). Therefore, development of new strategy and experience is necessary for the Woolworths, which helps in marketing and operational activities.
Porter’s five force model is a model which helps in analyzing competition level within industry and it also helps in strategy development of the business. The elements of the Porter’s five force model are:
Threats of new entry: Threats of new entry to Woolworth is very low. There are many of the International players which are interested in investing Australian market but many of the large players made it difficult to the International players. Many of the international firms are interested in the grocery industry of Australia. But it is so difficult for them to entry because they have to face competition with Woolworth and Coles by landlords (Bohari et al, 2013). They are the big giants in grocery market in Australia. The new investors also keep a specialized person (expertise) to manage the things for them and this will cost them high. The infrastructure and Facilities also cost high to the new entry. Due to these aspects, new entrance is low to Woolworth.
Porter's Five Forces Model
Bargaining power of supplier: Bargaining power of supplier is relatively low in Woolworth. The Australian manufacturers have very limited options available in the market premises because Woolworth and Coles captures the 85% of the market (Fung, 2013). So, these producers have to sell their products to these market giants. But after the entrance of Costco and the spread of Aldi, the powers of the supplier have increased. Along with this, the one of the reasons of increase in the power of supplier is because of implementation of new act to agriculture protection.
Bargaining power of buyer: Bargaining power of buyer is relatively moderate to Woolworths. The purchase by the buyer impacts on the revenue of the seller. The consumer purchase depends upon the low rate of the products (Ortega et al, 2014). For this, consumers do the comparison between the different retailers in the market. Along with this, the bargaining power of the buyer in some conditions is high. This is due to the customer’s affordability of price of the product. The customers use its bargaining power and mold the pricing of product according to their affordability. If the seller provides loyalty cards to the customers, these cards will leads to decrease the bargaining power of the customers.
Rivalry among Existing Firms: The threats of rivalry are high to Woolworths. In Australia, the Woolworth mostly competes with Coles, wesfarmers, and Aldi. They compete with each others for capturing the larger space in the market. In the grocery industry, price war is very common aspects which increase rivalry among the existing firms in the market (Eskandari et al, 2015). Range of the products and online services increase the rivalry among the competitors.
Threats of substitutes: Threats of substitutes is comparatively low to Woolworths. The daily usage products are sold by Woolworth, which meet the basic needs of individuals. Customers do not have choice to purchase for meeting their needs at low rate (Safari et al, 2016). This will decrease the threats of substitute for the company. Decreased threats of substitute provide the company to grab the market opportunity. Woolworth keeps prices of its products high due to lack of competition in the market and at the stores of Woolworth there are wide range of products are available. These two factors attract more and more customers to the Woolworth store.Implication of TOWS model in managerial practices of Woolworths:
TOWS model helps the Woolworths in identifying the internal strengths and weakness. The level of competition is going high. This helps the company in determining the strategies and tactics to use the strengths in proper and effective way as well as reduce the weaknesses. Through this, company can increase its competitiveness in the market, which in turn imparts a strong image to company in the market. Along with this, the next strategic implication of TOWS model is opportunity through the uses of this strategic implication Woolworths can focuses on the identified opportunities (Kizil et al, 2013). Therefore, it helps the company in designing its strategies based on identified opportunities that are available in the market and compatible with its resources and strengths.
Along with this, the model increase the effectiveness of decision making of the management as it provide the required and quality information in decision making. Besides this, this model provide the information about the possible threat for the company in future which can help the company to be proactive to risks to be occur in the future. This information can be used in developing the strategies and actions to preclude these threats (Shaemi et al, 2014). Therefore, it can be said that this model provide the information of internal as well external environment of the company which helps the company in developing its competitive skills and effectiveness.
Ansoff’s matrix has the greater impact on the managerial practices of Woolworths. In this regard, if Woolworths adopt the market penetration strategy then company should increase the market share for the current products. Market penetration strategy influences the market growth and overall performance of company. Along with this, Woolworths focuses on reducing the cost of daily shopping goods such as food and laundries (Beech and MacIntosh, 2012). On the other hand, if Woolworths selects the market development strategy then company should focus on the new distribution channels and implementing new strategies that helps company in attracting new customers at new market place.
Product development strategy has the greater impact on the managerial practices of Woolworths. This strategy has the needs of new product development and modification in the products for existing market. On the other hand, if Woolworths adopts the market development strategy then company can face high risk because company is entering into new market (Fernie et al, 2015). Therefore, company has the requirement of experience about the new market and customers needs and wants.
Porter’s five forces model shows the effects of rivalries, customers, suppliers, substitutes, and new entrants on the strategies and actions of Woolworth. Porter’s five force models evaluate the whole structure of the industry. Porter’s five force model helps in developing and management of the strategy of the company as this model states the strengths and weakness of the organization. This model also helps in developing best strategies systematically for the organization. These strategies are very important in achieving organizational goals effectively.
Organization focuses on maintaining strong relationship with its buyers and suppliers. This is done to maintain the power of buyers and suppliers at a moderate rate. Threats of substitute in Woolworth is diminishing, this is due to the less availability of alternative sellers to the customers. To compete with the competitors Woolworth needs to be innovative enough to compete efficiently.
The Woolworths should expand its business outside from the Australia, which can maximize the profit, market share, and brand image of company. In this essay, three strategic management models is used, which is TOWS model, Ansoff’s model, and porter’s five forces model that helps in managing the managerial practices of Woolworths. The TWOS model describes the weakness, opportunity, threats and strengths of Woolworths. So, company should focus on use of new technologies, decision making, strategies and actions to remove its weaknesses. This types of weaknesses can be reduced by the company through proper use of technology and by improving the decision making power of management.
Woolworths can expand its business from the outside of Australia, through this company can increases its market share, profitability and brand image in the mind of customers. This can be done by the use of effective marketing tools and sales promotions. Apart from this, to overcome the threats of Woolworths such as external business risk and cost of Raw Material, Company should focus on the innovation and cost reduction. Along with this, company can grab the opportunities through the product development and innovations. Company should use low cost pricing but competitive and product will be designed according to customers’ needs and wants.
The Ansoff’s model discusses about the company’s product development, market development, market penetration, and diversification strategy. In this regard, for the increasing the market share and customer satisfaction, they should focus on the reducing the cost of products manufacturing, operating expenses and advertising of company. The company can use market development strategy to achieve its goals and to reach at the every corner of the world. It has the potential, as it is capable to deliver the products to customer at low cost.
In Porter’s five force model; it is discussed that the threat of new entry to Woolworth is relatively very low. But to maintain this at a moderate rate Woolworth needs to be innovative enough to compete effectively with its competitors. In this aspect Woolworth needs to use out of the box thinking to improve its existing products features and it also needs to use innovative techniques in the production of new products. Along with this, to lower the bargaining power of buyer Woolworth needs to use different pricing strategies, attractive plans on loyalty cards, and special discount coupons to the customers. These techniques will attract more customers towards Woolworth and it leads to increase in the sales of the company.
To reduce the threats of the substitutes, company should use quality ingredients and low cost pricing strategy. There are some of the massive firms which can give tight competition to Woolworth in the future. To safeguard themselves from these competitors company should use different marketing strategies such as: provide product at less price, quality product, and focus on customer satisfaction. Along with this, Woolworth needs to decrease the intensity of rivalry among its competitors. The competitors of Woolworth are Coles, wesfarmers, and Aldi and to decrease this rivalry company needs to use different marketing techniques.
From the above essay, it can be summarized that the three models used above helps the company in analyzing its actual position and developing the effective strategies. TOWS model shows the threats, opportunities, weakness, and strengths of Woolworth. Five-force model states the competitive position of the Woolworths in the Australia. At the same time, the Ansoff’s matrix represents the four-expansion strategy such as market development, market penetration, product development, and diversification. This model helps in selecting the best expansion strategy for the company.
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