Question:

This task focuses on a study of the Competitive Environment and Business Level Strategy for a chosen Strategic Business Unit within a larger corporation (not company). Should register in Australian stock exchange. You are required to write a report with reference to at least 20. Modules of strategic management. Separate scholarly journal articles and your subject core text. This report will include the following headings And response categories: 1. Hurdle requirement Pass/Not Pass: a. The item is in the medium of written English. Sentences are structured and conform to academic writing guidelines. The paper has an identifiable structure including an introduction, the main body, And conclusion. The paper follows the Harvard Referencing Style. Further assessment. 2. Corporation Identification: a. Identify a corporation with product or service portfolios that span multiple business units. i. In your discussion, define, with reference to scholarly articles, the term “corporation”. ii. In your discussion, define, with reference to scholarly articles, the terms “product Portfolio” and “service portfolio”. 3. Business Unit Research: a. Business Unit Identification. i. Identify a single strategic business unit within the corporation. 1. In your discussion, define, with reference to scholarly articles, the term “Strategic Business Unit”. b. Identification of Product and Service Lines. i. Identify the product and or service lines of the business unit. 1. In your discussion, define, with reference to scholarly articles, the terms “product Lines” and “service lines”. 4. Business Unit Revenue: a. Identification of Revenue Centre.
i. Identify the largest revenues created for the corporation by the chosen business unit. 1. In your discussion, define, with reference to scholarly articles, the term “revenue”. 5. External Environment Analysis: a. Identify the Political, Economic, Social, Technological, Environmental and legal operating Environment of the selected business unit. i. In your discussion, define, with reference to scholarly articles, the terms Political, Economic, Social, Technological, Environmental and Legal. 1. Provide a definition for the term “operating environment”. 6. Source of Sustainable Competitive Advantage: a. Identify the source of sustainable competitive advantage for the selected business unit.
i. In your discussion, define, with reference to scholarly articles, the four factors of Sustainable competitive advantage. 7. Strategic Direction: a. Make recommendations for the future strategic direction of the selected business unit. i. In your discussion, define, with reference to scholarly articles, the term “strategic Direction”.

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Introduction

Most business managers are urged to make wise decisions regarding their businesses. In order to evaluate the direction, goals, objectives and plans of a business a basis of reference is needed. Strategic management is goal-based management of resources to achieve a specific objective; it helps the managers to focus on effectiveness and efficiency of their decisions and actions. Most practitioners and researchers may agree that strategic management of a company involves at least three elements i.e. strategic goal setting, management of core competence and corporate governance.

Fixing appropriate goals based on the core competencies and resources available helps the business position itself favourably in the market. Core competences of a business are the things an enterprise does best or better than others. Researchers have identified three major factors to qualify core competence of a business i.e. competencies that are difficult to copy by the competitors, competencies that are used to produce specific products and services, and competencies that lead to solutions to customer problems or create customer satisfaction. Corporate governance is the manner in which a company is run and its shareholders are managed.

Identification of Corporation

Corporations are different from other business structures such as partnership, Limited Liability private enterprise, etc. (Smith 2017). Corporations are required to meet certain legal requirements such as incorporation rules, listing in stock exchanges, etc. and are considered as separate from the promoters or owners. Often, corporations are owned by many people through shareholding i.e. a set of individuals share the profit and losses generated by the company through its intended operations.  The shareholders and Board of governors have limited liability to the creditors of the company and the enterprise continues to exist beyond the life span of its owners because the shares of a company can be transferred to others through sales or gift of shares.

Analysis of strategic management helps the business managers to evaluate their business direction (Wheelenet al. 2015), and it helps the investors to assess the present and future position of the company. In order to demonstrate the strategic management of a company, an analysis of a listed company in the Australia i.e. Adair’s is performed.

Adair’sproduct and service portfolio

Adair’s is a well-known retail brand in Australia and New Zealand that offers speciality home furnishing materials to its customers (AO, D.R.H.M 2017). It operates through specialized retail stores across Australia and New Zealand and a dedicated e-commerce web site. The major strategy of the organization is to offer its customers trendy materials for home furnishing, backed by strong values and enhanced shopping experience (Mall 2017).

Adair’s has a relatively large product portfolio. A product portfolio is a set of categories of all the products or services offered by a business enterprise. Information on product portfolio provides an opportunity to understand the market segment of a company, the current trends related to the product consumption, the probable profit margins, future growth prospects, market leadership of the company, etc.  Information on product portfolio is critical for investors to assess the potential of the company.

Currently, Adair’s product portfolio has a wider range than its nearest competitor. The variety of home decorator product is large (Adair’s 2018). However, the business managers in the small business units balance the range of products to meet the customer demands, optimally utilize the floor spaces in retail outlets, and create an ambience for the shopping experience. It is reported that Adair’s have included wall art, bedroom chairs, household fragrances, floor carpets, bedside lamps, decorative mirrors, etc. to the product portfolio. The critical aspects of product selection for offer depend on Adair’s strategy of categorizing products on fashionability, quality, aesthetics, and value for money. The product categorization helps the customers to have an integrated view of products and enables the retail staff to provide superior service. The company focuses on enhancing living in the customer’s homes.

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Strategic Business Units of Adair’s

Adair’s operation includes rolling out new points of sales i.e. specialized stores, manage the merchandise in it, and provide customer friendly web platform for the customers to do shopping sitting in their places of comfort. Adair focuses on four kinds of speciality stores (Adair’s 2018).  i.e. Adair’s homemaker, Adair’s Kids, Adair’s Outlet and the Urban Home Republic. Each outlet of Adair’s functions as a business unit of a larger system.  A strategic business unit (SBU) is considered as a profit centre that offers a specific product range to a market segment with a discrete marketing plan to capture local market share, maybe a city, town or a region.

Adair’s Product and Service lines

The product portfolio of Adair’s include, bedroom accessories, bathroom accessories, furniture division, homewares and kids section. In each of these product portfolios, specific product lines mark the retail inventory.  A product line is a set of interrelated products under a category, brand or utility. Adair’s sell multiple product lines in each of its portfolio, for example, the bedroom accessories portfolio included product lines such as pillows, quilts, blankets, bedspreads mattresses, etc. And, within each of the product lines, there are various brands and variants to meet the demands of the customers. Inventory of Adair’s is complex. Having wider product portfolios and product lines helps the company to meet the specific needs of the customers (Beck & Rygl 2015).

Adair’s Revenue Management

From the media reports, it is evident that Adair’s have not been doing good in terms of earning profits, but have increased revenues from the retail outlets and e-commerce.  The reports indicate that revenues from online sales have increased by 26 per cent and retail sales have increased by 7 per cent in the year 2016. Revenue is the income from the sale of products or use of capital/assets associated with the major operation of a company (Bannikovaet al. 2015). The revenue is indicated on the top of the profit and loss statement. Subtracting all costs, overheads, expenses and charges from the revenue, net income of an organization can be calculated.  Revenues are sometimes equated with total sales and turnover.

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External Environment Analysis

The operational environment or external environment of an organization stands for political, economic, social, technological, environmental and legislative factors around it. These factors are critical in accomplishing strategic plan and typically a strategy must effectively address these factors. The local conditions of each store also affect its business.  With respect to the operational environment, there are several risk factors specific to Adair’s and in general for lifestyle retail. The performance of the Adair’s is affected by a range of economic and business conditions such as changes in consumer spending for lifestyle products,  inflation rate, interest on loans, and exchange rates in the international market. Government policies regarding taxation, people management, etc. also affect the retail business. The risk factors that are to be considered by Adair’s include the following.

• Changes in consumers buying pattern
• The general economic condition in Australia and New Zealand
• The entry of new competitors and strategic changes of existing competitors
• Management may lag in the execution of the strategy
• Rented retail locations may have to be vacated
• Product range expansion and retail store expansion must be backed by sufficient resources.

Factors of sustainable competitive advantage

The company has been following a strategic direction for long but has recently attempted to improve the execution of the plans. The company believes that improvement in execution will have the corresponding improvement in results i.e. some of the key drivers of Adair’s strategy are discussed here(Rosemann & vom Brocke 2015).  One of the major strategies followed by Adair’s to attract more customers to its stores is product differentiation and product line expansion. Presenting high quality and appealing products to the customers is critical in home décor business. Adair’s, over the years, have developed an ability to address a broad range of customer needs by offering differentiated products that are superior in quality but at attractive prices. This strategy of Adair’s has been successful so far and the trend shows the company is likely to pursue incremental steps in adding a new range of products and reaping corresponding increments in sales.

Second strategic measure by Adair’s is increasing its retail store network. Despite the reduced profit margins, the company is betting their luck on not only expanding store network but also upgrading the floor spaces in the existing network. One of the executives has said that the company plans to open at least eight new outlets in Australia and New Zealand every year. However, the history of two to three years indicates that the company has opened only four outlets on average. The finance managers have reported that stores that upgraded their physical space have stated to give better returns in terms of revenue and profit margins.  Company has learnt that providing customers with a broader range of products, and differentiated customer experience can lead to better profitability (Shockleyet al. 2015).

Recently, Adair’s have started a concept called omnichannel retailing. The customers have the choice to buy the products from retail outlets or online site (Gao & Su 2016). Irrespective of the customer’s style of buying, the company has decided to provide flexible customer experience. The company has introduced loyalty programs to retain customers and enhance engagement with the company. Online sales are likely to post a higher rate of growth and the company is focusing on developing various services around it such as hassle-free returns, etc.

Capable staff is considered as part of the strategy at Adair’s. The company values passionate and high performing team members as critical for the success of the company. The company aims to provide an excellent shopping experience to its customers along with service. Great service can be provided by people only, for which the company encourages and trains the staff to provide excellent service (Vieira et al 2017).

Literature Review

Overall, Adair’s is placed to expand its international presence, especially in New Zealand. The executives in the company are confident that with their competitive advantage of larger product range, omnichannel sales, and appealing price it can do better in the coming years in terms of profitability. The competitive advantage of the company is the reason for sustained business from the customers. As per the five forces analysis, the entry barriers to a new competitor are high as the capital needed to start a retail chain is huge. The threat of substitutes is high as many retailers provide home décor items. The bargaining power of suppliers is neutralized by the brand value of the Adair’s and the bargaining power of the customers is high as they have many alternatives to satisfy their needs. The industry rivalry in home décor retail is neither intense nor trivial; the company needs to respond to the customer needs quickly. It is a set of attributes that allow a company to perform better than the competitors.  The increase in sales in retail outlets and the online site indicates a strong competitive advantage for the company.

Adair’s financial performance

The leading speciality retailer has always made a sincere attempt to bring about innovative and unique features in its home furnishing business so that value can be created for the customers as well as the business undertaking. The unique bedroom decors, hardware items, bathroom items and furniture components help the business to have a favourable business performance in the dynamic Australian market.

The table below highlights Adair’s business performance comparison with one of its core business rivals named “Nick Scali Limited” relating to the year 2015. The peer comparison indicates that Adair’s is facing tough competition from its rival in terms of dividend yield percentage, price-earnings ratio and earnings per share growth.

 

https://www.investsmart.com.au/shares/asx-adh/adairs-limited

The table below highlights the business performance of Adair’s in the market and the sector. Its performance shows that its current earnings are low as compared to the desired market performance and sector performance. But its price-earnings ratio is on track and is at par with the market trend. Similarly, its price-to-book ratio (P/B ratio) seems to be way ahead of the desired market and sector trend. The market performance of Adair’s shows that it’s quality “furnishing commodities” have played a crucial role to help the Australian business to create value for its end users.

https://www.investsmart.com.au/shares/asx-adh/adairs-limited

The financial performance of the Australian business undertaking can be understood by referring to the historical financial records for the years 2015 to 2018. The revenue of the business has gradually increased over the years and this is a positive sign for the business in the dynamic market setting. Over the years, the business has tried to strengthen its market performance by strengthening its core capabilities and resources and thus improving the standard of its furnishing items. The huge set of business offerings naturally attract the target audience to opt for its simple and elegant furnishing decorative items.

https://www.investsmart.com.au/shares/asx-adh/adairs-limited/financials

The consolidated income statement of Profit/Loss Account of Adair’s has been captured from its “Annual Report 2015”. The performance indicates that in the year 2014, the business performed better in financial terms as compared to the year 2015. Even though in 2015, the gross profit of the business was greater than that of the previous year, it has incurred higher expenses on the salary expenses, occupancy expenses, transaction expenses, advertising expenses and depreciation and amortization expenses. Thus the firm needs to strengthen its strategic model so that it can have better control over its financial performance and profitability.

The financial performance of the Australian furnishing brand indicates that it needs to focus on its business strategic model so that it can positively influence its profits and thus increase the consistency in its performance. Thus innovation can play a key role to introduce a unique range of “homeware components” that can improve its organizational performance in the dynamic and uncertain market context. To strengthen the sustainable and effective performance in the Australian furnishing market, Adair’s needs to focus on its strategic direction and business objective.

Recommendations for Future Strategic Direction

It appears that the strategic direction of the company is right, but the management should focus on the execution of the strategy i.e. product differentiation and store expansion. The correlation between the new store’s development and store up-gradation, and the growth of revenue and profitability are strong, and it must be pursued (Davcik & Sharma 2015). The company managers have acquired a unique ability to include new products that meet the needs of the customers; the company must encourage and nourish such initiatives of the managers. The product differentiation with an affordable price range and product category expansion also need to focus to keep away the competitors.

The ambition of starting eight stores per year appears to be a bit impractical, looking at the profitability and the resources of the company. It would be safe to start four new stores per year for the next two years and four-floor expansion projects. Physical floor expansion in the existing stores has been more profitable than opening new stores (Nishida & Yang 2015).  The managers must pay attention to the profitability of the retail store differentiation i.e. homemaker, kids, urban republic, etc.

Overall the company may adopt the following recommendations.

• Continue the loyalty programs
• Strengthen online presence and develop web pages to enhance the shopping experience
• Facilitate a broader range of products availability
• Provide realistic and precise product information in the online facility
• Reduce the number of clicks in the purchase process and simplify payment procedures
• Expand to new and unrepresented areas depending on the recognized demands
• Look for newer international markets
• Initiate mobile marketing and mobile commerce

Conclusion

Analyzing a company’s strategic management has several benefits (Puntet al. 2016). Strategic evaluations present an opportunity to objectively analyze the effectiveness and efficiency of the current strategy. To help the investors and job seekers to assess the future potential of the company. For the managers and decision-makers, it provides an opportunity to take corrective actions to bring back the company in the right direction.  Performance assessment and corrective actions are two significant outcomes of strategy analysis.  Though Adair’s had low profitability in the past few years, the coming years appear to be positive for the company.

References

Adair’s, 2018. Find your nearest store. Available at https://www.adairs.com.au/stores/, (Accessed on 23^rd March 2018).

Beck, N. and Rygel, D., 2015. Categorization of multiple channel retailing in Multi-, Cross-, and Omni‐Channel Retailing for retailers and retailing. Journal of Retailing and Consumer Services, 27, pp.170-178.

Bannikova, N.V., Baydakov, A.N. and Vaytsekhovskaya, S.S., 2015. Identification of strategic alternatives in agribusiness. Modern applied science, 9(4), p.344.

Coffee Jr, J.C., Sale, H. and Henderson, M.T., 2015. Securities regulation: Cases and materials.

Davcik, N.S. and Sharma, P., 2015. Impact of product differentiation, marketing investments and brand equity on pricing strategies: A brand level investigation. European Journal of Marketing, 49(5/6), pp.760-781.

Gao, F. and Su, X., 2016. Online and offline information for omnichannel retailing. Manufacturing & Service Operations Management, 19(1), pp.84-98.

Mall, A.S., 2017. Aussie Shopping Mall. Shop at Australian Online Stores, Valentine Day, Christmas Shopping Ideas.

Nishida, M. and Yang, N., 2015. Better Together? Retail Chain Performance Dynamics in Store Expansion Before and After Mergers. Unpublished manuscript. Available at https://pdfs.semanticscholar.org/1107/48c7001e2318b12ff3fcfb9dc2fb3568274d.pdf, Accessed on 23^rd March 2018

Punt, A.E., Butterworth, D.S., Moor, C.L., De Oliveira, J.A. and Haddon, M., 2016. Management strategy evaluation: best practices. Fish and Fisheries, 17(2), pp.303-334.

Rosemann, M. and vom Brocke, J., 2015. The six core elements of business process management. In Handbook on business process management 1 (pp. 105-122). Springer Berlin Heidelberg.

Shockley, J., Plummer, L.A., Roth, A.V. and Fredendall, L.D., 2015. Strategic design responsiveness: An empirical analysis of US retail store networks. Production and Operations Management, 24(3), pp.451-468.

Smith, M.G., 2017. Corporations and society. New Jersey, Transaction Publishers.

Vieira, R., O’Dwyer, B. and Schneider, R., 2017. Aligning strategy and performance management systems: the case of the wind-farm industry. Organization & Environment, 30(1), pp.3-26.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2015. Concepts in Strategic Management and Business Policy. Pearson.