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02/12/2012

A Sample Strategic Management Report on Warehouse Ltd


1.                    Brief Description of Warehouse Ltd.

The Warehouse was founded by Stephen Tindall in 1982.  It was the first store opened on Auckland’s North Shore in New Zealand.  Similar to the success of Wal-Mart in USA in smaller case, The Warehouse was offering ‘more of what people desire’ at lower prices. As compared by Clark, (2000), The Warehouse’s core competencies were similar to Wal-Mart whereas their focus is on retail merchandising, cost accounting, inventory management systems and distribution.

From the previous growth of The Warehouse, in 1991 the sales exceeded to $100 million which enables the company to open the well-known ‘The Warehouse Stationery’. As for its continuing development, in 1994, The Warehouse was listed as a public company on the New Zealand Stock Exchange. By 2000, it was listed among the top 10 largest companies in New Zealand which had captured an estimated 40% market share (Bowden, 2003) and sales exceeded up to 1 billion dollars. The Warehouse goes into the Australian market in 2001 by acquiring Clint’s Crazy Bargains/Silly Solly’s chain of 115 discount variety stores. Nevertheless, the level of rivalry amongst large, entrenched competitors in Australia proved to be too much for The Warehouse and it eventually ceased operations there in 2005.

By June 2006, numerous stores of ‘The Warehouse Extra’ had been opened. Basically, these ‘hypermarkets’ were similar to Wal-Mart Supercenters in the USA. From this continues expansion, The Warehouse continuously had positive revenue growth and profits in 2007. As reported in the 2007 Annual Report, The Warehouse and The Warehouse Stationery stores had sales of over $1.76 billion, profit of $115 million and employed more than 8,000 team members (employees) (The Warehouse Group, 2007). With 85 stores nationwide, 95% of the population of New Zealand lived within a 30-minute drive of one of The Warehouse’s stores (The Warehouse Group, 2007). Despite of this positive growth and increase in revenues, the number of competitors also increases.  As seen in New Zealand and in department store retailing, direct rivals have included Kmart, Farmers, Deka, Briscoes and some smaller regional independently-owned stores. Usually, rivals had had nominal or negative growth in market share in recent years. Industry observers believed that the competitive strength of The Warehouse had contributed to rivals’ weaker financial performance and in the case of Deka, its closure in 2001. While all rivals participated in charitable partnerships or made charitable donations, they were relatively inactive in sustainable business development. Bunnings, a hardware store with a few home improvement product lines similar to those found at The Warehouse, had been more active in sustainable business development. Bunnings communicated its activities through Social Responsibility Reports, a commitment to being plastic bag free, timber policies to source products from legally well managed forests and had set the goal to be carbon neutral by 2015.  While there were some retailers participating in sustainable business development to various degrees, The Warehouse was a leader in the department store retail sector. The Warehouse’s reputation as a responsible retailer can be traced back to Stephen Tindall’s people-first philosophy, which he believed was unquestionably the most important aspect of The Warehouse’s success12. The people-first philosophy fits strategically well with the notion of sustainable business development. 

 

2.                    Mission, Objectives and Goals

Mission

The founder Stephen Tindall of The Warehouse believes on people-first philosophy. Basically, the company’s mission is to make a difference to people lives by making the desirable affordable and supporting New Zealand’s communities and the environment.  By putting the customer first, The Warehouse believes that they will succeed. The Warehouse enjoys success through team work.

 

Objectives and Goals

In order for The Warehouse to be persistent with its success both nationally and globally, it aims to offer desirable affordable products to consumers. With the growing influence of globalisation, competition within businesses and markets is inevitable. However, with an established goal and appropriate techniques, a company can gradually lead its way towards success. Objectives, goals and strategies are indeed significant in the business foundation as these serves as a guide to the company so as to serve its main purpose and obtain its core objectives. In the case of The Warehouse, the company goals and objectives are clear and catchy.

The organisation's market environment context is thus made up of all the conditions and factors external to the organisation that can positively or negatively affect the life, orientations, structures, development and, in a word, the future of your organisation. The research on an organisation’s market orientation would also be helpful in the study. Research on market orientation has centred on understanding the construct and examining its relationship to performance. Two important studies sought to define and operationalise market orientation. Based on an extensive review of the literature on sustainable competitive advantage and marketing strategy, Narver & Slater (1990) operationalised market orientation as consisting of three dimensions: customer orientation, competitor orientation, and inter-functional coordination. Using both a literature review and field interviews of managers, Kohli & Jaworski (1990) operationalised the market orientation construct as consisting of three basic components: intelligence generation, intelligence dissemination, and responsiveness. Intelligence generation extends beyond collecting information about customer needs and preferences to include information about the entire task environment confronting an organisation. To be market-oriented, an organisation has to communicate, disseminate, and often "sell" market intelligence to relevant departments and individuals in the organisation. (Kumar, Subramanian, & Yauger, 1998). And finally, the market-oriented organisation responds to or acts on the market intelligence gathered and disseminated.

As seen in the record of The Warehouse, year after year, sales, profits, and shareholder returns from this massive group of discount stores increase, defying economic cycles and the woes that seem to beset other retailers from time to time. Some argue the reason is market power: The Warehouse its business by opening stores mainly in small communities where there was less competition. Once a The Warehouse store opened in a small town in New Zealand there was no room for another similar retailer. Others point to its systems: electronic linkages with suppliers that keep the shelves well-stocked at minimal cost. Another explanation is highly motivated staff, inspired by their founder Stephen Tindall's habit of driving around in a pickup truck visiting stores, and supported by concepts like teamwork and delegation. Paying attention to customers is their main philosophy: at The Warehouse customers really do come first. And of course leadership, the most intangible but perhaps most potent factor in management cannot be ignored. The Warehouse represents a combination of factors - a thousand infinitesimal actions and decisions - that together have led to its unusual success.

 

Analysis of the Organisational Environment

External Environment

The general, long-term development of the retailing industry is one characterised by a series of evolutionary periods that at times can best be described as revolutionary in nature (Benson & Shaw 1999). In line with this observation, The Warehouse needs to constantly be on the lookout for their external environment which would help in maintaining their market leadership. Problems in the industry today appear from so many angles, at so many levels and in so many directions that their pursuit without a regular path will soon become lost in details. Porter’s five force model will help any organisation determine the direction in which they are going to take through an analysis of the five forces in their external environment: suppliers, buyers, competitive rivalry among firms currently in the industry, product substitute and competitive entrants to the industry. Using this tool, The Warehouse, as well as other firms, is challenged to understand an industry’s profit potential and the strategy necessary to establish a defensible competitive position, given the industry’s structural characteristics.

 

 

 

 

 

 

 

 

 

Figure 1 - The Five Forces Affecting Competition in “The Warehouse” Context

 

Industry Competitors

Concentration, fixed or variable costs, differentiation, capacity, pricing, behavior and market and company growth are some of the factors considered in this force. First, there is a need to identify The Warehouse’s industry competitors. In their kind of industry, the concentration of rivals is very large, evidenced by the numerous number of their competitors, come of the top rivals being Wal-mart and Kmart in the International market. Rivalry tends to intensify as the number of competitors increases and as they become more equal in size and capacity. Therefore it can be said that the intensity of rivalry in the retailing industry where The Warehouse belongs is very stiff. Also in this force, rivalry is usually stronger when demand for the product is growing slowly, as is the case of the retailing industry. Rivalry is likewise more intense when competitors are tempted by industry conditions to use price cuts or other competitive weapons to boost unit volume and is also stronger when the products and services of competitors are so weakly differentiated that customers incur low costs in switching from one brand to another. Further, rivalry increases in proportion to the size of the payoff from a successful strategic move and becomes more volatile and unpredictable the more diverse the competitors are in terms of their strategies, personalities, corporate priorities, resources, and countries of origin. The above conditions all apply to the arena of retailing industry where The Warehouse plays, thus the bigger need for the firm to focus on strategic management in order to gain competitive advantage over their competitors.

Potential entrants- Having several years of experience in the kind of business that they are in and with the incumbent retail giants existing (i.e. Kmart and Wal-Mart), the said combination puts up a considerable barrier to entry. Where in the earlier days it is relatively easier to enter the industry because of little competition and the giants now were just medium-sized firms before, the contemporary retailing landscape is proving more and more difficult to enter into. Potential entrants will find that barriers are imposed on them, either explicitly or implicitly, by the conglomerate incumbents. Access to distribution channels will also prove harder for those who want to enter the industry. As the incumbents have already cornered the more common distribution channels, it will be difficult to both compete with the already established chains in the distribution channels and look for new channels with which to dispense of the retail products.

Buyers- In the retailing industry in which The Warehouse belongs, the number of customers is very large, and often, they do not purchase in bulk. From this alone it can already be said that the bargaining power of consumers in weak. When the supplying industry is comprised of large numbers of relatively small sellers and when the item being purchased is sufficiently standardised among sellers that customers can not only find alternative sellers but they can also switch suppliers at virtually zero cost, the buyers’ buying power is strong. Fortunately for The Warehouse, their competitors are not as large as their own organisation, which makes the market disciplined, and the competitors likewise have a disciplined approach in price setting, partly due to set government regulations. When it is economically feasible for customers to purchase the input from several suppliers rather than one, their power also increases, which does not happen in this particular industry, as it is more economic to purchase from one retailer than from a host of retailers.

Suppliers- In The Warehouse’s kind of industry, they have the extreme advantage of being able to dictate the price that they are willing to pay the supplier, as the suppliers, if the retailing giants refuse to pay the formers’ asking price, will be left with no one to sell to save the small supermarket chains, which would not be a wise move on the suppliers’ part. Additionally, when the suppliers’ respective products are differentiated to such an extent that it is difficult or costly for buyers to switch from one supplier to another and when the buying firms are not important customers of the suppliers, supplier power increases. In the retailing industry, this is clearly not the case, thus it can be deduced that suppliers do not exert as much power as they would have liked to. Switching from one supplier to another will not be costly for a retailing giant such as The Warehouse. In fact, as suppliers, they will be clamouring for the firm’s attention to choose them as supplier in the event that the company decides to switch suppliers.

Substitutes-The price and availability of acceptable substitutes for a product places a ceiling on the prices which the producers of that product can charge, and unless the sellers of a product can upgrade quality, reduce prices via cost reduction, or otherwise differentiate their product from its substitutes, they risk a low growth rate in sales and profits because of the inroads substitutes may make. In the retailing industry, as mentioned above, there is a large number of competitors. This amount of rivalry is the main force that drives the prices of all companies in the industry down. For example, Sainsbury can match the low prices that The Warehouse offers in the market and even equal the quality of the products that they offer, making the substitute force high in the retailing industry where The Warehouse operates. Further, the competition from substitutes is affected by the ease with which buyers can change over to a substitute, a key consideration being that usually the buyers switching costs—the one-time costs facing the buyer in switching from use of a product over to a substitute for it, is low. Since switching from one chain to another will create a relatively low cost or fuss for the consumer, the substitute force in the industry is relatively high. This opens an avenue for The Warehouse to improve quality and differentiate from their competitors while driving down costs at the same time.

 

 

 

 

 

Internal environment

As for it internal environment, the internal environment summary of The Warehouse was shown in the SWOT Analysis Table below. 

Table 1 – SWOT Analysis in “The Warehouse” Context

STRENGTHS

WEAKNESSES

Wide knowledge of retail industry

Competent top management and rank & file for operation and maintenance

Existing customer base

Financial investment backing.

Strong IT returns through internet shopping

Low supervision on international market

High turnover of employee

Require local partner

 

OPPORTUNITIES

THREATS

Expansion of target market

Healthy market environment

Increasing detraction of small retail businesses in New Zealand

Economic restructuring

Intensified competition

Government regulation

 

3.                    Strategic Issues

The main issues that are founded from both the internal and external analysis for The Warehouse are how to expand their growth in the global context without sacrificing the company’s philosophy i.e. people’s first. Firms respond to conditions in their marketplaces by modifying their competencies such as internal capabilities and linkages with suppliers and associates and the ways in which they position themselves in relation to their competitors specifically their strategic direction (Fredrickson, 1991). The value chain also is useful in retailing decision-making. Understanding the linkages between activities can lead to more optimal make–or–buy decisions that can result in either a cost advantage or a differentiation advantage. The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit (Del Vecchio, 2000). In the case of The Warehouse, the entire operation of the business should be examined and evaluated in order to determine the service delivery processes that strengthen as well as weaken the business. This will result to managerial options to eliminate the liabilities that detract the business or the need to developed and intensify some aspects of the operations. 

At present, health issues and environmental issues such as climate change and sustainability around the world are increasing and have become more pressing, and The Warehouse should continue to join the government and other NGOs in promoting green products and product sustainability development issues. The Warehouse can get actively involved by sponsoring symposiums, talks, and seminars on health and environment issues, with more focus on prevention of illnesses and other conditions. At the same time, The Warehouse can introduce and promote the fresh and nutritious food they can offer to the customers, and highlight the importance of good health in mind and body. Vitamins, food supplements and other medicines can be introduced as an addition to The Warehouse’s food and non-food lines. This strategy can greatly help millions of people by promoting awareness, and make them feel that their well-being is important and considered at The Warehouse’s. In addition, enhancing quality and efficiency enhancement should be given enough amount of attention. As these two aspects seems to be predominant pitfalls in the organisation’s operations.

Every day, top managers of The Warehouse stores gather for an hour-and-a-half customer advocacy meeting to pore over that week's performance statistics. What makes this unusual is that every performance measure under scrutiny relates to customer satisfaction, and this meeting is the most important one on the corporate schedule. Actually, satisfaction occurs when the product has been able to meet or exceed the conceived expectations that the customer has (Padilla, 1996). Furthermore, customer satisfaction may also be considered as the measure of the high degree of quality of the product (Jacobs et al. 1998). As the customers demand for higher standards, any shortcomings on the part of the companies to deliver would jeopardise the life of their respective company. Hence, it is really important for The Warehouse to not only maintain and protect these intangible assets. It is also a must that they increase these assets for future benefits (Sercovich, 2003). As seen, the management of The Warehouse was highly concerned with their customers’ welfare and satisfaction as this is one of the secret principles on being the leader in their area of industry.

Apparently, The Warehouse always put their efforts to do things “better, simpler and cheaper,” for their customers and employees. They usually enhance not by focusing on big aspects of the business, but by providing small enhancements. In customer welfare, consumer feedback system must be reinforced. The resolution of customer complaints and problems is a key for companies to be able to maintain the loyalty of their dissatisfied customers. Dissatisfied customers are more likely to tell people about their experience than satisfied customers are (Ganey & Hall 1997). After finding out the problems from the viewpoint of the customers, The Warehouse should undertake actions that would not only address the complaints of the customers but as well as actions that would lead to organisational improvements.

In implementing marketing strategies, there is a need for continuing optimisation – the ability to assess a myriad of possibilities in order to find the best one or near best one (Hoctor &Thierauf 2003). In cooperation with the other elements of marketing and business management, strategies must be evaluated and improved. In building the impression of people about the company, The Warehouse must reach out to a broader target market and must project an image relevant to every members of the society. Its corporate social responsibility must be defined. In the management of The Warehouse, leadership and administration of the company must be a supplemental mechanism in the workforce. Human resources management improvements must be considered to fully utilise human asset.

 

4.                    Strategies going forward

We suggested two possible strategic choices for The Warehouse. The first is to identify the stakeholders and the second is to improve the services delivery and assessment of The Warehouse financial standing.  

 

Strategy one – Stakeholders Identification

For The Warehouse, the management should be able to take means of identifying of the stakeholders, the priorities of the stakeholders; understanding of the stakeholders’ perspectives and incorporating the stakeholders’ perspectives to the future plans of the company. Moreover, the company should cultivate growing consumer markets to promote growth and development of the business organisation. This will address the expansion possibilities of the organisation to serve not only the locale consumers but also provide services to a larger customer base. As such international relations and the overall business practices and trends all over the world should be investigated so as to make sound decisions that will realise the goals of the company. Furthermore, the company should continue cultivating community relations and environmental efforts to increase market visibility and improve brand strength such as community programs that will advertise the humanitarian causes of the company, charity and scholarship programs, and advertising messages that translates the environmental concerns.

 

Strategy two –Service Delivery Enhancement

Service delivery is an interactive and dynamic process that from the consumer's point of view is much more than a passive exchange of money for a particular service. Characteristics of services (e.g., intangibility, heterogeneity, simultaneity, and perishability) often require customers to be actively involved in helping to create the service value – either by serving themselves or by cooperating and often working collaboratively with service personnel. In high-contact systems customers can influence the time of demand, the exact nature of the service, and the quality of service (Chase 1978 cited in Culp 2001; Lovelock and Young 1979 cited in Thompson & Strickland 2003). If consumers somehow become better customers – that is, more knowledgeable, participative, or productive – the quality of the service experience will likely be enhanced for the customer and the organisation (Bowers, Martin & Luker 1990; Hackl & Westlund 2000; Jacobs, et al. 1998). In this regard, the company needs to strengthen relationship with suppliers and increase market share. This effort will result to parallel business interests that will contribute to the company as well as the suppliers’ business objectives. Contract agreements and other business transactions should present advantages and benefits for both parties. Efficient delivery of products and services through premeditated and tactical supply chain management initiatives should be prioritised.

 

Financial Management

As the nature of financial management, finance managers face a wide array of challenges, opportunities and options for him or her to enhance the investing and financing activities of the organisation as well as the inherent risks and circumstances of the decisions that will be made. The challenge now for companies is to explore the options and take advantage of the opportunities while taking caution in managing the risks (Macmenamin 1999). The Warehouse needs to keep operational expenses within budget to be able to devote the necessary financial resources to both exploration and marketing activities of the company. Financial management decisions that will supply for the internal and external business operations of the corporation should be closely monitored to be able to control the flow of cash. Investing on profit-generating projects as well as training-specific programs for the human resources of the company will ensure extended success.

The Warehouse should also enhance marketing campaigns and take advantage of company control over the New Zealand retail industry competition. It should initiate efforts to come up with sound advertising and promotional strategies that will bring the people closer. Lastly, there is a need to improve technological innovations to increase efficiency as well as quality of the service. This includes investments on machineries and equipment that will necessitate the increased and efficient operation of the business organisation’s management system. Financial assistance on human resources particularly to knowledgeable and skilled individuals should be accorded in order to improve the overall business operation as well as the engineering, monitoring, and control aspects of the business.

 

Recommended Strategy

With regards to the current strategic practices of The Warehouse, the company is experiencing different problems with competitors and however its standing in the industry is expressive. But given the proper use of the competitive advantage they have, the company can respond from such problems. In conclusion, the company has competitive advantage over retailers and the industry. One competitive advantage of the company is its brand name. The company is known as one of the established retail outlets in the industry. The locals of Australia easily recognise the company and the different product it has because of their low-priced products but excellent with regards to quality. They can easily think about the company when retailing or supermarket is mentioned. Another competitive advantage of the company is its image with the clients. The company is known as one store that provides excellent service to the clients. This can be proven by the frequency of visit clients do to the store and other marketing venues.

And since The Warehouse shows established position in the market of New Zealand, as for recommendation the company only needs to create ways that would maintain this credibility and position. Efficient marketing strategy such as billboard and television advertising could help in sustaining the market position of The Warehouse. Basically, the competitive advantage of the company is its increasing venue of marketing their products. The company is taking steps to ensure that their products can reach more people at more locations that’s why the company engaged in having more branches at different places. The company also made use of the internet and created a website that more people in the world can use to transact with the company. Lastly a competitive advantage of the company is the wide range of business venture they are engaging in.

 

5. Implementation Plan

 

ACTIVITY

RESPONSIBILITY

DATE

Human talent and management structure development

HR, Team Managers

3rd Quarter 09

Realignment and improve product / services development

Team Managers and The Warehouse staff

4th Quarter 09

Setup Project Committee

Team Managers

3rd Quarter 09

Proposal Plan and budget approval

Team Managers and Project Committee

4th Quarter 09

Communication and structure setup

Team Managers, Project Committee

4th Quarter 09

Implementation on Staggered working hour

Team Managers, Project Committee and The Warehouse staff

1st Quarter 10

Monitoring and Review

Team Managers, Risk and Compliance

Quarterly

 

 

 

 

Reference List

 

Benson, J. & Shaw, G. (1999). The Retailing Industry, St. Martin’s Press, New York.

 

Bowden, S. (2003). The Warehouse Group: Entry Into Australia. Journal of Australian and New Zealand Academy of Management, 9(2), 58.

 

Bowers, M.R. Martin, C.L. & Luker, A. (1990).’Trading places: Employees as customers, customers as employees’, Journal of Services Marketing, vol. 4 (Spring), pp. 55-69.

 

Chase, R.B. (1978). ‘Where does a customer fit in a service operation?’, Harvard Business Review, vol. 56, no. 6, pp. 137-142, in Culp, C.H. (2001). the Risk Management Process: Business Strategy and Tactics, Wiley, New York, 8.

 

Clark, D. (2000). The Warehouse Group. 8th Waikato Management School Case Competition.

 

Davies, H. & Lam, P. (2001). Managerial Economics: An Analysis of Business Issues, Financial Times Prentice Hall, Harlow, England.

 

Del Vecchio, J. (2000). Assessing Internet Stocks. The Motley Fool Homepage.

 

Fredrickson, J. (ed.) (1991). Perspectives on Strategic Management, Harper Business, New York.

 

Ganey, R. & Hall, M. (1997). “What’s most important to customer satisfaction: Service recovery,” ABA Banking Journal, vol. 89, no. 9, pp. 73+.

 

Hackl, P. & Westlund, A.H. (2000). “On structural equation modelling for customer satisfaction measurement,” Total Quality Management, vol. 11, no. 4/5/6, pp. S820-S825.

 

Hoctor, J.J. & Thierauf, R.J. (2003). Smart Business Systems for the Optimised Organisation, Praeger, Westport, CT.

 

Jacobs, F.A. Latham, C., & Lee, C. (1998)., “The relationship of customer satisfaction to strategic decisions,” Journal of Managerial Issues, vol. 10, no. 2, pp. 165+.

 

Kohli, A.K., & Jaworski, B.J. (1990). Market orientation: The construct, research propositions, and managerial implications. Journal of Marketing, 54: 1-18.

 

Kumar, K., Subramaniam, R., & Yauger, C. (1998). Examining the market Orientation Performance Relationship: A Context Specific Study, Journal of Management, 24(2):201-233.

 

Lovelock, C.H. & Young, R.F. (1979). “Look to consumers to increase productivity”, Harvard Business Review, vol. 57 (May-June), pp. 168-178, in Thompson, AA & Strickland, AJ 2003, Strategic Management: Concepts and Cases, International Edition, McGraw-Hill, New York.

 

Narver, J.C., & Slater, S.F. (1990). The effect of a market orientation on business profitability. Journal of Marketing, 54: 20-35.

 

Sercovich, T. (2003). ‘Output of the corporate responsibility policy and practice taskforce’, Business in the Community, Ireland. Retrieved October 26, 2009, http://www.bitc.ie/attachments/engaging.pdf

 

The Warehouse Group. (2007). Annual Report o. Document Number

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