Organizational Strategy

Executive Summary

This report comprehensively describes the organizational strategies by exploring and describing “Porter’s five forces analysis” of the food retailing industry. Based on the analysis current profitability is accounted for along with the external factors supporting its profitability. Moreover, this report has focused on how the change in these external factors would affect the profitability in future.

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Introduction

Organizational Strategy is an expression of the evolution of organizational needs over time along with a collection of detailed assessments that need to be covered up to meet the objective of an organization. The development of such a strategy comprises of comparison of its current state to its targeted state. This helps in defining the differences and taking up the desired changes. There is a need for effective leadership for the development of organizational strategies. This unit will help to understand the fundamental concept of organizational strategies along with the elements of the strategic management process and develop skills in implementing strategy and managing strategic change by understanding the strategy from the perspective of a resource-based view (Dobrivojević, 2013). A supermarket in the food retailing industry is the best example for understanding all the fundamental concepts of Organizational strategies and various factors affecting it. In this, the five forces analysis of a food retailing company is carried out. Based on this analysis indications of profit and factors that drive this profitability are discussed. Moreover, the factor change in the future and how it will affect an industry in terms of its turnover is discussed (E. Dobbs, 2014).

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Key Variable in External Environment

The external environment refers to the uncontrollable forces outside of any industry. These forces can influence the business and are totally beyond control yet they can be responded to by adapting to their threats and sways with the controllable element from the internal environment. The uncontrollable external environments are as follows:

Competition: It refers to the check of the comparative focused items in the business sector by opponent commercial enterprises. An advertiser doesn’t have any immediate impact on these yet it is essential to screen the exercises and plan methodologies that are compelling utilizing the controllable variables.

Government Policies: These are the laws and legalities that guide the asset of an organization i.e. land and these can go in the long run to affect the business operations. The restrictions made by a government might inhibit the industry’s marketers in that particular field.

Natural Forces: As the name suggests it specifies the physical environment comprising the issues relating to the absence of natural resources that can adversely impact an industry and can cause huge losses.

Social & Cultural Forces: These are the forces that refer to the dynamics and structure of any individual & group along with their behavior, pattern of their thought, beliefs and lifestyles, etc. Many of these do affect the industry a long way. If adaptation to changing social preferences there will be a drop in sales and hence all of its strategies will fail (Heracleous & Wirtz, 2012).

Demographic Factors: The factor that refers to the investigation of individuals, for example, their sex, age, occupation, conjugal status, family estimate, and so on. This is termed as wild since one can’t control the age, or sex in the outside environment. Since demography provides limited information about various populations (Mwangi, 2013). If an industry grasps this data, then it will be able to develop efficient strategies about how to reach the targeted customers and give an idea about how to carry out marketing in such situations.

Technological Changes: The swift development of technology requires a rapid reaction by an industry to survive in an emerging and competitive environment. It is highly essential to keep up with the new trends and services have to be ingenious which can strengthen an industry and can be proved to be advantageous against the competitors (Watson, 2013).

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At present the net profitability of the food retailing industry grows steadily as such businesses provide products and services to the public whose number is maximum. So the profitability is quite obvious to be steady. According to a survey in the UK, it was found that its revenue increased from £ 40 million to £ 43.5 million between the years 2011 to 2015.

Porters Five Forces

For a better understanding, the food retailing industry is considered and its current profitability is determined. In each of the following sections, recommendations are also mentioned for accounting profitability in the future relating to the discussed factors. Following is a figure that exhibits Porter’s Five Forces.

Organizational Strategy

Figure 1: Porter’s Five Forces

Source: (Dobrivojević, 2013)

The Threat of New Entrants

The threat of new competitors in any food industry is quite low. To establish such an industry huge initial investment is necessary to leave a mark in the market. Industries like Asda, TESCO, Morrison, and Sainsbury have captured food market retail. Therefore for a new industry, it is either highly essential to produce something in the market that has a price exceptionally low as compared to other existing industries or introduce an existing product having high food grade quality as compared to other industries so that it can establish a position in the market (Wilkinson, 2013). Moreover, the authorization of the planning from the local government takes a protracted amount of time. Marketing techniques can help in increasing the brand strength therefore creating a brand with a strong identity that will not only curb the new threats but also inspire brand loyalty with its consumers and hence will always account for high profitability both in the present as well as in the future.

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The Threat of New Substitutes

The threat of new substitutes in an industry influences the aggressive environment for the organizations in that specific industry and impacts the firm’s benefit. Accessibility of new substitution empowers the customers to pick and buy the substitute item rather than the industry’s item. The non-appearance of close substitute items makes an industry less aggressive and thus builds profit potential for the business. There are a few deciding components to foresee this danger (Heracleous & Wirtz, 2012). At first, if the client’s moving or exchanging expenses is less. Second, if any substitute item is less expensive than the business item. Third is if the nature of the substitute item is equivalent or better looked at than the business’ item. Disposable incomes are quite finite and all the corporations that sell their products and services compete for a limited bunch of money. Apart from the threat to the value of the product the logistics, retailing, and branding are unaffected. So strengthening these unaffected factors and proper research and development can help an industry to maintain its profitability in the future.

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Intensity of Competitive Rivalry

In the industry of food and grocery retail, the magnitude of vying rivalry is genuinely high. Leading corporations face intense clashes with their direct opponents in terms of price, commodities as well and advertisement in a recurring fashion (Dobrivojević, 2013). Failing in any of these means the growth rate declines and in turn, the industry suffers a huge loss against the investment that it made for the advancement in the industry. These are the factors that initiate and increase competitive rivalry between the industries:

A larger number of firms increases the possibility of competition among industries for the same products and as well as for the same customers.
In a period when an industry grows rapidly, they can increase profits because of the expansion of the industry.
High storage costs in a few industries will always battle to compete against others to gain the largest amount of market share to cover up the high storage costs.

However efficient planning is highly required and it is the purpose of a leader who has to develop appropriate organizational strategy to overcome such mishaps.

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Bargaining Power of Buyers

A buyer or a group of buyers with full information i.e. their notion of supplier cost, demand, and market prices gives them leverage for bargaining in the food retail industry. Therefore it is highly essential to assess the power of a buyer group. The existence of dynamic buyers scales down the possible turnover in any food retailing industry. It is true to claim that these buyers raise the competition within an industry simply by bargaining and bargaining power for more services at less price or for improved quality at less price or vice versa (Mwangi, 2013). Powerful buyer groups result in turning competitors against each other whose consequence is borne by the industry itself as it dwindles the industry profitability. It is very important to assess the power of a buyer group as well as must have an idea about the different types of buyers present. These are the various types of buyers found:

Innovators: These are the group of buyers who stay updated and advanced with the industry and the various upcoming trends. These are generally a small group and are early purchasers and they look forward to experimenting with new things.
Adopters: The early adopters are the second type of buyers who set an example for others and provide opinions in a particular market segment.
Early Majority: These groups of buyers are relatively slower in trying out a new product launched by an industry. They follow strong references given to them by their peers and will embrace the referred product. This group is considered to be a more practical group and they are not necessarily excited about a newly launched product.
Late Majorities: These are the group of people who consume a product in its much later lifecycle when other stronger buyers would already have discovered the next new product. The main motive behind such buyers is that they always wait for the prices to drop and are known in the market as proof of reliability and durability.
Excessive Traditionalists: These are the people who at last come on board regarding the product (Watson, 2013). The product may also have become obsolete by this time and the prices would also have reached their lowest point because of the presence of competitors in the market.

The bargaining power of the buyer is inversely proportional to the number of buyers, if there are more buyers then the bargaining power decreases significantly. Implementing various offers as well as loyalty bonuses periodically can decrease the bargaining power of the buyers.

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Bargaining Power of Suppliers

The bargaining power of suppliers is when very few goods are being chased by several buyers, it can also be said that the goods from a supplier are highly distinguished and have either no or few substitutes. This is an indispensable function that requires a strong relationship between the buyer and seller. If the suppliers are few and have certain knowledge and strength then they can leverage this to yield momentous command over the industry. The bargaining power of the supplier is quite similar to the bargaining power of the buyer as the industry is the one that has to bear all the consequences as it directly affects profitability and also affects the competitive environment (Heracleous & Wirtz, 2012). Apart from discussed above suppliers those who are in a strong bargaining position can also choose to reduce the amount or the quantity of goods that they are providing to the retailing industry. If the concentration of purchasers is high it indicates that the suppliers have less chance to bargain and have a weaker bargaining position (Dobrivojević, 2013). So food retailing company must be in a place where there are other competitors nearby so that their number is more than the suppliers accounting for a healthy profit in the future as well as maintaining the current profitability.

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Change in External Factors and Its Effect on Profitability.

In the future, the factors may change as the market grows so such an industry has to be ready for new competition in terms of its consumers, suppliers, new emerging rivals, and various government policies. So a little adaptation concerning the factors can be advantageous in maintaining a steady profit and based on the analysis it can be found out that the food retailing industry has a healthy profitability by following this particular model and as it helps to study all the external factors that are responsible for its net profitability at any point of time.

Conclusion

Porter’s Five Forces analysis is termed a tool for the possible profitability in an industry. Still, there are a few limitations to Porter’s five-point analysis. Proper care must be taken while using this model by not underestimating the importance of the existing strength of the organization. This model was developed and designed to analyze individual strategies of industry and does not grapple with the interdependencies and synergies that come within the portfolio of much larger corporations and industries. From a further theoretical view, the model doesn’t specify the possibility that an industry can be attractive because of the existence of certain companies residing in it (Chan & Marchington, 2013).