Strategic Analysis Of John Lewis Partnership Limited Marketing Essay

Strategic Analysis Of John Lewis Partnership Limited Marketing Essay The following report will provide a detailed analysis of John Lewis Partnership. The retailer has been very successful in the UK and has performed extremely well in spite of more negative financial issues and other dynamics impacting upon the retail sector at large, predominantly in light of declining consumer income, technological advances such as the internet and increased competition. The reason the company was able to achieve these was because of their commitment towards their clients in providing innovative solutions as well as improved awareness of customer needs and the significance of creating a reliable customer base which ensures positive word-of-mouth and the company has achieved this due to its commitment to providing innovative solutions to clients as well as a heightened awareness of customer needs and further recommendations to increase new revenue streams through an appropriate CRM system in place. Therefore, the reports provides an evaluation of the companys current marketing environment assessing how the external factors impact the retail sector largely and specifically on the strategies that John Lewis chooses to adopt. The report will also evaluate the strengths and weaknesses as well as the threats and opportunities that the company is presented with and how best it can achieve a match with its own internal capabilities to the dynamics at play. The report will also look at how the John Lewis brand and customer proposition is placed in the UK market in comparison to other competitors, with an attempt to provide understanding in to how the company gains advantage through differentiation from other competitors, essentially highlighting how the company implements a differentiated strategy which allows it to maintain advantage. At the same time, the analysis has drawn attention to how the uncertainty which prevails and the continuous rate of change in the external market highlights the implications of continuous observation and continuous re-evaluation of the strategic options applied. Ultimately, the aim is to provide recommendations as to how the company can increase the probability of its advantage over the longer term. The John Lewis Partnerships 81,000 Partners own the leading UK retail businesses John Lewis and Waitrose. Our founders vision of a successful business powered by its people and its principles defines our unique company today. The profits and benefits created by our success are shared by all our Partners (John Lewis, 2012). Write the report as if you were working for an external management consultancy firm, reporting to the Board of Directors of your chosen company. The report should contain sections that address ALL of the main aspects of the module syllabus: that is the report should cover both strategic analysis (internal and external) and strategy formulation. It is essential that in undertaking your research and writing your report you make appropriate use of the strategic management tools and models to conduct internal and external strategic analysis and strategy formulation that you have encountered in this module. Credit will be given for analysis, evaluation and synthesis, and the appropriate selection and use of strategic management tools and models. 2.0 Introduction This report will discuss the strategic management tools demonstrating skills of analysis evaluation and synthesis of John Lewis. The report includes strategic analysis and an External Environmental analysis. The report also covers the strategy formulation in which the SWOT analysis and BCG Matrix will be discussed. John Lewis Partnership plc is one of the UKs top ten retail businesses. They operate amongst 2 sectors known as John Lewis and Waitrose. The company offers food as well as household products i.e. baked foods, fresh fruit veg, wines, household items, furniture, electronic items etc. The company functions in a chain of 287 Waitrose supermarkets, 39 John Lewis shops that include 30 departmental stores and 8 of them at home John Lewis stores. The company operates throughout the UK and is headquartered in London, they sell their products through retail stores, catalogues, and websites. The companys strategic focus is to accomplish its non-core business strategies through partnership with other firms. There are around 81,000 employees working in John Lewis stores who are partners in the business, they have a share in the companys profits and are given the opportunity to participate in the companys progress and growth. This is their unique source of competitive advantage as it encourages staff loyalty through being business partners (John Lewis 2012) 3.0 Strategic analysis 3.1 Mission statement The mission of an organisation highlights the broad directions they need to follow and provides a brief summary of the values and reasons that lie behind it (Lynch 2012). Like other organisations John Lewis also have a mission statement, it highlights their reputation established through their ownership structure as it is unique and they are very successful in being a profitable business. John Lewis aim to keep their staff satisfied so that their business can be a success. Their strategy is based on three key elements partners, customers and profit. (Refer to appendix 1) to see their full mission statement. 4.0 External Environmental analysis 4.1 PESTEL Analysis The PESTEL analysis examines the macro-environment in which the business exists in. It is a helpful tool for understanding market growth or decline as well as the position, potential and the direction for business. It is also used for evaluating the Political, Economic, Social Technological, Environmental and Legal factors that a business operates in. The Political factors discuss government regulations such as employment laws, environmental regulations, tax policy and political stability. The Economic factors affect the cost of capital and purchasing power of an organisation. These factors also include economic growth, interest rates and inflation. The Social factors impact customers needs, potential market size such as John Lewiss goods and services, population growth and age demographics. Technological factors of John Lewis will discuss barriers to entry, making or buying decisions, investment and innovation and the technological change. Environmental factors include weather, clim ate and climate change. Climate change affects how John Lewis operates and the products they offer. Lastly Legal Factors include discrimination law, employment law and health and safety law. These factors can affect the way John Lewis operate their costs and the demand for their products. 4.2 Macro- environmental Factors It is commonly known, that those prevailing in the external environment of any firm shall have a significant influence in terms of decision making in the strategic options. Such analysis is known as PESTEL analysis and usually suggested as the first stage in the strategic planning process (Lynch, 2006). As Johnson et al (2008, pg.56) rightly declared, The key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy. (Refer to appendix 2) to see the PESTEL analysis for John Lewis. It can be concluded that each factor of the PESTEL has had an effect on John Lewiss actions, some of them are now stated in their mission statement. Previous factors are used to analyse different factors, furthermore, these factors can give a prediction for the future, so can be quiet effective if they are applied correctly. There are also some restrictions in this model, e.g. when the procedure of the checklist is applied to John Lewis it may be tough. The emergent corporate strategies may well comment that the future is so uncertain that prediction is useless (Lynch 2012 page 84), however, some may still give words of caution but still predict the future. The PESTEL analysis isnt the only framework that John Lewis take into consideration, their organisation has many other internal and external factors that also have an effect on the strategy formulation, this is why Porters five Forces framework is applied. The PESTEL analysis has a lot of information but yet doesnt offer a detailed analysis of the business. Porters Five Forces (1985) observes factors that have an impact on competition in the organisation. 4.3 Strategic Options The external analysis undertaken has underlined how the focus and the landscape of the UK retail sector has changed dramatically over the last decade or so. Such developments clearly present both threats, primarily from new entrants and modes of distribution, as well as opportunities such as the increasing utilisation of technology within the current offering to customers. As Johnson et al (2008, pg.3) highlights, strategy is about exploiting the strategic capability of an organisation, in terms of its resources and competences, to provide competitive advantage and/or yield new opportunities. However, many competitors in the retail sector at large have managed to expand into other range of products as well as expanding internationally, John Lewis seems to have adopted a more thoughtful approach and stayed loyal to its customers as well as confident in terms of its offering to the market. At the same time it has also developed a wide range of products as a lower price range to attract more customers across a wider range of segments in society. In times of economic uncertainty this also appears to be a sensible strategy in terms of situations where its loyal customer base may be experiencing declines in disposable income, thus enabling John Lewis to maintain their business through customers trading down to less expensive ranges in store. The recent introduction for its Essential Waitrose Range in 2009 was both a reaction to external events including activities of competitors but was viewed as an effective strategy highlighting the companys attention to external research as well as its innovative approach to dealing with such negative events. Furthermore, Porter put forward the idea that there were three generic strategies; cost leadership strategy, differentiation strategy and the focus strategy, which companies follow. It is clear that John Lewis has embraced a combination of these, but essentially, differentiation has remained key to its business model which positions more favourably when compared to other competitors, particularly given the range and extent of the goods and services it provides as well as its highly effective branding and promotional events which appeal directly to customers and incite purchase. Its decision to introduce its Essentials range within its Waitrose stores may have been considered by some as an indication it was lowering its standards, but on the contrary, despite offering a cheaper alternative, quality remained key which ultimately implied that its position in the market would not be negotiated. 4.4 Porters Five Forces Porters Five Forces framework highlights that the environment John Lewis is competing in is constantly changing, (refer to appendix 5). In this model it is believed that customers dont have more importance than any other aspect, however Aker, Baker and Harvey Jones argue that customers are more important than any other aspect of strategy development (Lynch 2012). Porters Five Forces of competition (1985) is a common tool often applied within the strategic management process to firms across several sectors. It is similar to the PESTLE analysis as it takes a predominantly external perspective of the firm within its given industry looking at how it is positioned against other competitors in the same sector. Recently many have criticised the ensuring importance of the framework given the changes that have risen, particularly with regard to the diversification of business which has ultimately created blurring across many previously distinct sectors. This is emphasized by the supermarkets entering into the clothing and electronics sector for example, as well as retailers including John Lewis expanding into financial services through insurance and credit facilities to customers. Barney (1995) and Henry (2008) underlined how Porters model is more helpful when it is applied at a strategic business unit level rather than at higher levels of industry analysis such as the sector at large as it cannot be expected that all competitors will be competing against one another. This tool is also believed to be useful in terms of assessing a companys strengths and weaknesses in light of how it stacks up against competition. As Barney (1995, pg.49) highlights, A complete understanding of sources of competitive advantage requires the analysis of a firms internal strengths and weaknesses as well. The importance of integrating internal with environmental analyses can be seen when evaluating the sources of competitive advantage of many firms. Looking at Porters five forces of competition, it is clear that John Lewis has attempted to not to just react to the external dynamics and actions of competitors, but actively be a step ahead. It has constantly adapted its business model, such as the introduction of store cards, its online offering and the Waitrose Essentials range in order to provide its business with a more appropriate fit to the market in line with Mintzbergs (1994) theory. A major element of its strategy however, is its reputation, branding and subsequent positioning in the market and how consumers view the business in its entirety. It has remained rather committed to its original proposition and further enhanced its appeal through appropriate branding and its reputation for quality and enhanced service to customers. 5.0 Internal Resource analysis 5.1 Value analysis chain StratISTh3 Source: Porter, Competitive Advantage, 1985 The term Value Chain was used by Michael Porter (1985), the purpose of the value chain is to analyse the activities that are performed by the business, linking them to the competitive position. It also evaluates the particular activities to see which add value to the businesses products or services (quickmba 1999-2010) While many critics and leading authorities dispute the validity of Porters earlier theories, many of his ideas do still appear useful from the perspective of strategic analysis, particularly the notion of the value chain. Ultimately, it is within the value chain which John Lewis has created that it has succeeded in terms of sustaining advantage in its market sector. It has created efficiencies and synergies through the interrelationships within (Mintzberg and Ghoshal, 2003). Value Chain Analysis which is often compared to the RBV of the firm as it looks to both internal and external dynamics impacting an organisation. In recent years importance has also been given to joint ventures, collaborations and relationships which add value to the companys positioning. Elements of the chain such as HR which were previously considered as supporting elements are now viewed as core and this is demonstrated by John Lewis in terms of its commitment to and investment in staff. By enhancing the quality of its internal resources it can achieve distinctive competencies which are difficult to emulate by other competitors (Teece et al, 1997; Terwiesch and Ulrich, 2009). As Porter (1985, pg.36) emphasises, the way it performs individual activities are a reflection of its history, its strategy, its approach to implementing its strategy, and the underlying economics of the activities themselves. 6.0 Strategy formulation 6.1 SWOT Analysis: John Lewis Partnership A SWOT analysis is a useful tool for understanding and decision-making, businesses such as John Lewis use this tool in all sorts of situations, a SWOT summarizes the Strengths, Weaknesses, Opportunities and Threats. This framework covers a crucial part of the strategic planning process a scan of the internal and external environment. Strength, Weaknesses are considered to be internal to the business whereas, Opportunities and Threats are part of the external environment. Looking at the SWOT analysis (refer to appendix 6) it can be concluded that John Lewis take this tool into consideration when making business decisions based on their customers. However, John Lewis need to expand their target audience because at the moment they are only targeting an older audience need to improve the diagnostic power of a SWOT analysis is to define the elements from a customer perspective rather than the organizational point of view. (Baker 2007, pg.267). By doing this they will generate a higher profit margin. If john Lewis wants to stay ahead of their competition they need focus on their weaknesses such as they need to ensure their prices are similar to their competitors. Also John Lewis need to focus on threats the business may have to face but they can avoid such matters by acting upon the threat before it occurs. Although the SWOT analysis tool is useful to businesses when making decisions, it has been criticized due to its simplicity and possible misleading approach to strategic analysis. This is because companies have failed to follow a few simple procedures. The SWOT analysis is a focused methodology (Baker 2007), therefore, when John Lewis the using this tool they need to ensure they are able to follow correct procedures of this tool to ensure they are able to achieve success. 6.2 BCG Growth-share Matrix The Boston Consulting Group (BCG) growth-share matrix was developed by Bruce Henderson, founder of BCG, in the late 1960s (Baker 2007, pg.125). The BCG Matrix is a simple tool used to assess a companys position in terms of its product range. It simplifies how a companys thinks about the products and services and makes decisions about which it should keep and let go and which products to invest in further. It provides a useful way of seeing the opportunities that are open to the company and also helps to consider how the company can maximise the profits in the future. Below is the BCG Matrix for John Lewis, highlighting where in the market the different departments of John Lewis are positioned. John Lewis was voted Britains best retailer in 2009 and have won awards House Beautiful Awards 2008: Online Home Retailer of the Year Gold Award (washerhelp 2012), making them leaders in departments such as House and Garden, Electrical Appliances, Fashion, Gifts and Toys. They now have a high growth and a high market share in this segment, thus putting them in the star category. Further, technology and baby departments are between the star and question mark category this could be due to high growth and market share or high growth and low market share as they are faced with high demands but have low returns. Moving on to the sport department as it is in the cash cow category, as a markets it isnt growing but yet the market share for the products is high. Looking at the final category it can be said that John Lewis are safe as there isnt any products in the dog category. The BCG Growth-Share Matrix 7.0 conclusion Overall, the company has responded admirably to the changing dynamics impacting upon its market and customers, it is also clear that going forward, more challenges and threats shall be presented to it, particularly given persistent uncertainty relating to the global economy as consumer confidence within the UK. It would appear that in addition to a thorough and consistent approach to its markets in relation to external analysis of those factors deemed to impact most significantly; the company also adopts an internal approach, evaluating its inherent resources and competencies within the business. In line with the resource based view of the firm (Barney, 1991) and subsequent research by other authors such as Grant (2005), this analysis is often viewed as a more appropriate approach to the task of strategic management as ultimately, organisations have much more control over their internal resources than external market variables. Such an approach enables companies to incite the innovat ion process and thus create change in the wider environment as well as improvements to its value chain. 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Last accessed 20th Nov 2012. Reynolds, A., 2012. John Lewis Partnership on Target to Cut Emissions. Supply Management, 17 October, available at http://www.supplymanagement.com/news/2012/john-lewis-partnership-on-target-to-cut-emissions/, accessed 12/11/12 Teece,D.J., Pisano, G. And Shuen, A., 1997. Dynamic Capabilities and Strategic Management. Strategic Management Journal, Vol.18, No.7, pp.509-533. Terwiesch, C. and Ulrich, K., 2009. Innovation Tournaments: Creating and Selecting Exceptional Opportunities. Boston: Harvard Business Press. Washerhelp. (2012). John Lewis. Available: http://www.washerhelp.co.uk/Retailers/John-Lewis.html. Last accessed 20th Nov 2012. Appendix 1 John Lewis mission statement The John Lewis Partnerships reputation is founded on the uniqueness of our ownership structure and our commercial success. Our purpose is the happiness of all our members, through their worthwhile, satisfying employment in a successful business, with success measured on our ability to sustain and enhance our position both as an outstanding retailer and as a thriving example of employee ownership. With this in mind, our strategy is based on three interdependent objectives Partners, customers and profit. Appendix 2 PESTEL Analysis for John Lewis Political Factors John Lewis operates within the UK market and therefore changes in the policy related to the governance of UK business, as well as advanced policies in the context of the UK, have an impact on the business. The laws and codes of conduct relating to ethical business practices and CSR initiatives particularly impact John Lewis. Subsequently, there has been conscious effort on the role of the retailers to combine relevant Codes of Conduct concerning the supply chain as well as giving a guarantee to customers that have been sourced in an ethical manner. It is likely that changes such as this will continue to impact going ahead but at the same time as this, pricing will be raised as a concern for the retailers as margins will certainly be eroded as prices are put higher, epically where the products may be obtained from developing markets. Economic factors It is obvious that economic factors have a major effect on the strategy implemented by John Lewis; such factors have had a negative impact on the UK. However, when the government took the decision to decrease the VAT rate temporarily in 2008 due to financial crisis, this had a direct positive impact on the retail sector. The company faced major setbacks in relation to its revenue and performance in 2001. The company was successful in reversing its fortunes through a complete re-evaluation of its supply chain practices; they improved the company model so that it met the needs of customers. The company is still conscious that the confidence levels of customers are slightly unstable, this is highlighted in its current financial results, (refer to appendix 3). Such uncertainty has an obvious impact on which strategies companies can follow and directly influences which marketing strategy John Lewis decide to apply in relation to pricing, advertising and other variables of the mix. Increas ed global uncertainty also influences their operations which are mainly UK based. This is especially true regarding the price of raw materials that has been changed considerably over the past few months, with products such as cotton, coffee and oil being a great concern. Such fluctuations put pressures on retailers as well as customers whereby margins shall be reduced and costs passed on to consumers who may in fact seek cheaper alternatives as their own incomes may decline. A full appraisal of all elements of the supply and distribution chain is needed to ensure that efficiencies are being formed and improvements are made to the overall value chain (Porter, 1980; 1985). This may also clarify the companys latest challenges in integrating its business with Waitrose, John Lewis are becoming much more aligned over the past months (refer to appendix 4) Events overseas such as Spain and Greece could also have more implications for the sourcing policies the company accepts as well as its foreign currency payment methods etc. to suppliers given the weakening Euro currency. Social Factors Social factors for John Lewis are very important across the business as they are considered to have a direct effect on how successful the customer behaviour is and the preference towards the items or brands. While many have pointed out that overtime as consumers we have slowly become more similar across country borders (Ohmae, 1989; Levitt, 1983), latest indications actually highlight much divergence in consumer buying habits. Much of this might also be attributed to progress in internet trading whereby consumers have further choice as well as getting updated and having more knowledge about the alternatives available in the market. This has increased the competition which has therefore, put pressure on prices, mostly in the case of stores as there are much higher fixed costs involved. Another major progress relating to the retail sector in the UK has been the success of the supermarket chains in growing into non-food items with shares of the clothing market increasing every year from competitors such as Asda, Tesco, and Sainsburys. a report from Keynote in 2009 outlined how supermarkets share of the clothing market increased from around 10% in 2000 10 23% in 2008, and this expansion is likely to continue as the major multiples devote increasing amounts of floor space to non-food items such as clothes such growth has completely changed the retail space in the UK and certainly, many have attributed the demise of many High Street incumbents directly to the strategies pursued by supermarkets. At the same time, it is also clear that John Lewis has followed somewhat of a different method and thus located itself apart from these competitors and is seen being more exclusive, of higher quality as well as providing higher levels of service to customers. Technological Factors It is impossible to ignore the progress that occurred in technology over the decade or so. Such advances have completely changed and improved all features of the supply and distribution chain particular with regard to online shopping. Over the past few months John Lewis have become more of this and adapted its business model appropriately so that they are capable of understanding customer expectations, with regards to convince and availability. Another major development has been the increasing use of media and subsequent positive word-of-mouth recommendations. Such tools are viewed by companies as an important ingredient to their overall strategy, not just in terms of communicating with customers but also in gaining further knowledge through customer feedback which can assist them in gaining further knowledge through customer feedback which can assist them in engaging more with their customer base and addressing any potential problems or other threats. Technology is considered as pro viding more choice to customers but increasingly is being embraced within the overall customer management strategy and is likely that this will intensify going forward and further facilitated by new developments such as improvements in text analytics and the capture of real-time data (Gartner, 2011) Environmental Factors Making the right long term decision is one of John Lewiss founding principle, environmental sustainability is key to this approach. There are programmes, processes and targets in place to ensure that environmental commitments are delivered (John Lewis 2009) John Lewis recently revealed new plans where their key aim is to cast their CO2 emissions to 15% by 2020 (Reynolds, 2012) Legal Factors John Lewis is also impacted by changes to employment regulations as well as procedures guarding trading standards. Over the recent years many retail competitors such as Primark and Gap have been negatively criticised due to concerns on the unethical sourcing and manufacturing of products. Primark, a leading High-street label attracted unpleasant headlines in the media in response to claims they were using child labour, consequently affecting their position in the market. Other changes in the economic framework of overseas markets on which John Lewis depends on depend on