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Strategic Management - Sustainability - Essay Assessment Answer

December 21, 2017
Author : Ashley Simons

Solution Code: 1ACAG

Question:Strategic Management

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Strategic Management Assignment

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Introduction

Strategic management refers to the activities and business processes that are used and employed by organizations for assessing their internal and external environment, which then helps them in making use of their resources in the most optimized way possible to make strategic decisions regarding their business operations (Freeman, 2010). As discussed by Hitt et al (2012), strategic management is one of the most important aspects and functions of any organization because it helps companies in identifying the actions that they need to undertake to achieve their aims and objectives. Organizations hence tend to make use of different theories and models of strategic management while making their strategic decisions. The essay thus focuses on and discusses the way companies make use of strategic management theories and models for strategic decision making. The essay discusses the strategic decision making of Coles Supermarket, which has recently been under pressure to maximize sales and revenues amidst the increasing competition. Coles is one of the largest chains of supermarkets in Australia and is used by a large number of consumers. While the revenues of the company went up in financial year 2016 to $33 billion, it has been facing massive challenges because of the increase in competition. The essay thus discusses and evaluates the way different strategic management theories can be said to have inspired the management decisions made by Coles.

Discussions

Coles is an Australian supermarket chain and employs over 100,000 people all over the country. The company has been largely focusing on expansion of its supermarket networks and offers a plethora of products including grocery, liquor, apparels, fresh produce, dairy and bakery items and general merchandise (Keith, 2012). It has been established in Annual Report (2015) that the Australian supermarket industry is extremely competitive in nature and there are more than 32,000 specialty retailers in the country. As mentioned in Annual Report (2015), “We strive to offer greater value by lowering price of the weekly shopping basket, improving quality through fresher produce and delivering an easier, better shopping experience for our customers”. Hence, this suggests that the key area of focus for Coles is to enhance value addition to customers and also to make sure that it is able to reduce and cut down on its prices effectively to be able to enhance its sales.

This strategy of focusing on lower costs of products sold to customers can be explained on the basis of Porter’s generic strategies, which is one of the key theories or models utilized for strategic management and strategy development by organizations. Michael Porter has defined three key strategies that can be adopted by an organization for increasing its growth and revenues. These strategies are cost leadership, differentiation and focus (Leitner and Guldenberg, 2010). As explained by Leitner and Guldenberg (2010), the cost leadership strategy refers to the generic strategy, wherein companies aim at offering the lowest priced products so that they are able to outperform the competition, differentiation strategy refers to the strategy in which the companies tend to differentiate their products and services as compared to their competitors to achieve higher revenues and lastly focus strategy is the one in which the firms tend to focus on a specific, focused group of buyers or customers.

It can be established from the above discussions that Coles has adopted the cost leadership strategy or practice. As explained by Jie et al (2016), Coles supermarket in Australia has established its positioning as “everyday low prices”, which tends to attract customers and increase its sales tremendously. It has been discussed by Coles (2014) that the cost of living for consumers is continuously increasing and hence if there is an option or company that would help them in reducing or minimizing the same, the consumers would tend to prefer buying from them and hence that is the reason why the company is focused on minimizing the everyday prices for consumers. The outcomes given in Annual Report (2015) reveal that the company has been able to drop prices of more than 2000 products to ‘everyday’ prices, thus making products more affordable to buyers.

There are several debates surrounding the effectiveness and benefits of this strategy as adopted by Coles. News.com (2012) had established that the cost leadership and low-price approach that was adopted by Coles had helped it in increasing its sales by more than 5%. Grant (2016) has also supported the adoption of this generic strategy of cost leadership by establishing that the strategy helps companies in achieving a competitive edge and the company steadily achieves economies of scales, which further helps it in minimizing costs and increasing profitability. As explained by Armstrong et al (2014), Coles has also been successful in developing strategies that has helped it in improving the overall efficiency of its supply chain, which has helped it in reducing and minimizing its costs and ability to offer lower priced products to customers with high profitability.

Though Mitchell (2015) has argued that the cost leadership approach has been adopted by other supermarkets in Australia like Woolworths as well and hence that must have reduced the competitive edge of Coles, but Valibhoy (2015) argues that Coles has been still showing significant growth. The analysis presented by Valibhoy (2015) established that the overall sales of food and liquor of the company had increased by almost 5.4% in March quarter of 2015 and one of the key reasons behind the observed increase and growth was the fact that it offers low priced products to the customers, thus making it the preferred choice for them. However, the recent analysis and report presented by Low (2016) reveals that as the competition is increasing, Coles is facing massive problems in managing its profitability because there are large number of retailers in the market and there is a major price war in the market. Low (2016) has also suggested that Coles need to change or alter its strategy with respect to market changes. However, the cost leadership strategy has been a key success point for the company, and has evolved over time, which can be more effectively explained based on the life cycle analysis and evaluation of the firm as discussed below.

Life Cycle assessment is a commonly used strategic management theory, wherein the growth of a company is divided into four distinct life cycle phases, i.e. introduction, growth, maturity and decline. Guinee et al (2010) explain that every company must be able to identify and evaluate these life cycle phases before making their strategic decisions. First phase is the introduction phase, wherein the competition in the market is very low as there are only few players in the market. As discussed by Peltoniemi (2011), the companies in this stage of the life cycle are usually small-scale businesses that offer something different in terms of product or service or enter the market because of demand. Coles supermarkets was established way back in 1914 as Coles variety store. Keating (2015) explains that Coles was in the introduction phase at that time and had adopted the strategy of differentiating its products and services, wherein it was offering varieties of products in one store, which was not offered by any other company at that point of time. Hence, as described by Blengini and Di Cardo (2010) as the characteristics of any company or industry in the introduction phase, there were very few buyers and the company was offering differentiated products and choices, which helped it in excel and succeed in the given market conditions.

The second phase of a business or industry life cycle is the growth phase. Dibrell et al (2011) explain that when an industry is in the growth phase, number of players and competitors in the market tends to increase and the strategies that are adopted by the companies are focused towards achieving higher market share and higher competitive edge. Some of the key features of companies during the growth phase of life cycle include mass production, improvement in strategies adopted for selling products and services to the consumers and high focus on market penetration and new market development (Dibrell et al 2011). According to the discussions presented by Lyons (2007), the growth phase for Coles supermarkets started in the mid 1900s, wherein the company started changing and altering its strategies. The company started opening new stores in the 1970s, wherein several new retail outlets were opened all over Australia. Since the growth phase requires companies to make use of and adopt new and narrowed down technologies, this strategy was applied by Coles as well (Lyons, 2007). As Coles was expanding in the 1990s, it rebranded its stores as Coles supermarkets in the year 1991. The rebranding was done in an attempt to establish it as a multi-product store, which offers a wide range of products and services (Company’s Website, 2016). Lyons (2007) argues that the growth phase of the supermarket industry was well handled and managed by the company by adopting suitable strategies of expanding its product lines and also expanding its number of stores.

However, the competition in the first decade of 2000s also started increasing and the smaller retail chains were all replaced by the big supermarkets. This can be characterized as a symbol of the maturity phase. Dibrell et al (2011) have explained the maturity phase of a company or industry as a phase wherein the competition remains between a few large firms and companies and the consumers tend to become demanding and well-informed. According to the discussions presented by Dibrell et al (2011), companies that are in the maturity phase need to make small differentiations in their products and services and must work towards achieving higher economies of scale so that the overall costs can be reduced and minimized. Similar discussions by Verreynne and Meyer (2010) reveal that the companies in the maturity phase need to achieve a competitive edge over other companies in one way or another. Hence, the fact that Coles adopted the low price strategy in 2010 can be attributed as a response to the same. Carney (2012) explains that the supermarket industry in Australia had become highly dominated by a few players including Cole sand hence in order to differentiate itself from other market players and to achieve a competitive edge, Coles adopted the cost leadership approach.

Hence, the strategies adopted and utilized by Coles seem to be highly aligned with the life cycle of the industry, which can be said to be a factor contributing to its growth and success. While Mithcell (2014) argues that Coles supermarket in Australia is still in the maturity phase and can expand, Chung (2016) has presented a different perspective. Wagner (2011) discusses that a key feature or characteristic of a company being in the decline phase is that it starts facing heavy price wars and the demands starts to go down. This is the problem being faced by Coles. It has hence been recommended by Hardy and Howe (2015) that the company needs to come up with new and innovative strategies to make sure that it is able to sustain in the market and achieve high productivity and growth.

Above presented discussions thus suggest that Coles supermarket tends to devise and plan its strategies according to market conditions and needs and demands of the consumers, which can be explained on the basis of the rational view or theory of strategic management.

The rational view or theory of strategic management is a commonly adopted view based on which different strategies are adopted by organizations. The rational model or theory, as explained by Hill et al (2014), refers to the strategy making perspective and criteria, wherein organizations tend to adopt and make use of a deliberate and sequential process for decision making and strategy development. Though Mirabeau and Maguire (2014) have supported the emergent strategies suggesting that it helps companies in achieving higher innovation, Hill et al (2014) argue that the use of a rational strategy is much more effective because it helps companies in making informed decisions and the environmental opportunities are adequately leveraged upon so that the aims and objectives of the firm can be met. Earlier discussions reveal that the strategy formulation and adoption of Coles Supermarket has been in sync with changing life cycle phases and changing demands and requirements as defined by the external environment and hence it can be said that the company’s strategic formulation strategy has been based on the rational view and theory.

It has also been discussed by Dwivedi et al (2012) that the company has defined a few values that are focused upon completely and it is these values that drive the decisions made by the firm. The report presented by Coles (2014) on its strategy has also revealed that the company realized in 2010 that the Australian retail market was becoming highly competitive and hence it had to adopt some of the best strategies and practices being adopted worldwide to be able to increase its sales and growth massively. Hence, it started and adopted the low price strategy. Similar arguments and discussions have also been presented by Keith (2012), who argues that Coles was one of the first online grocery retailers in Australia and the introduction of Coles online was also a well-informed and thought after decision. Keith (2012) explains that the company while examining the external environment realized and identified the growth of technologies in the world and the need of convenience by the customers and hence the decision to launch the online website was taken. Thus, it can be said that the strategic management of Coles supermarket in Australia has been highly informed and well though and inspired from different theories and theoretical discussions. However, the report has identified and established that with changing conditions, it needs to alter its strategies to some extent. Further discussions thus conclude the essay and also provide recommendations for Coles based on the study.

Conclusion and Recommendations

The discussions presented above in the essay reveal that Coles supermarket’s strategies have been largely based on different theories and models defined in strategic management literature. The company’s strategies have been largely found to be based on its life cycle phases and have emerged over time, as the life cycle phases kept on moving further. The adopted cost leadership strategy has been based on the external conditions and factors and has been highly beneficial for the company in earning higher profits and revenues.

One of the recommendations that can be made for the firm is that the firm should focus on international expansion. The industry is entering into the decline mode and the cost leadership strategy might not be suitable after a couple of years because of increasing competition and hence international expansion into emerging markets might help the firm in maintaining its growth and profitability despite of these changing market conditions.

Another recommendation that can be made for Coles supermarket in Australia is that it might focus on product expansion and differentiation strategies. The company is currently focusing on offering lower priced products, however in order to capture the market in changing environment, it can look at or try to offer new and innovative products. Sales of international products and products from different categories can result into higher sales and growth of the firm.

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