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Strategic Management

Introduction

This report aims at analyzing an industry or sector and proposes changes to the strategy of the company. The emphasis is on using the concepts of blue ocean strategy and global strategy to bring changes in the operation of the business. The industry taken for the analysis is coffee industry of the UK. The company to be evaluated in this report is AMT Coffee, which is a UK based chain of coffeehouses. The stores of AMT coffee are mostly located at railway stations and the company has been known to use 100% fair-trade and 100% organic milk. Therefore, it was named ethical coffee chain in March 2011. The company also operates coffee kiosks on station concourses. Therefore, the company operates in the UK successfully. But the company has plans to redesign its strategy and also adopt a global strategy.

Task 1

Carry out a full analysis of the industry or sector in which the company is currently operating. Drawing on relevant models and using appropriate company data, critically appraise its current strategy. 

UK is considered as a leading importing country of coffee resource in the world. The coffee companies in the UK adopt different strategies to acquire high market share in the industry. The top coffee chain in the company is Costa Coffee, in terms of franchises. The company has over 1300 coffee shops in the UK only (Blowfield, 2013). However, there are other coffee chains such as Starbucks, Barista and CCD, giving tough competition to Costa. According to reports, the UK’s coffee industry is becoming the only country to have maximum number of coffee consumers. The coffee market in the UK is even run by non-professionalise players such as KFC, McDonalds and Marks & Spencer (Courville, 2013). Hence, there is high competition in the coffee industry of the UK. The strategic models such as PESTLE, five forces, strategic mapping ........

the UK. The company to be evaluated in this report is AMT Coffee, which is a UK based chain of coffeehouses. The stores of AMT coffee are mostly located at railway stations and the company has been known to use 100% fair-trade and 100% organic milk. Therefore, it was named ethical coffee chain in March 2011. The company also operates coffee kiosks on station concourses. Therefore, the company operates in the UK successfully. But the company has plans to redesign its strategy and also adopt a global strategy.

Task 1

Carry out a full analysis of the industry or sector in which the company is currently operating. Drawing on relevant models and using appropriate company data, critically appraise its current strategy. 

UK is considered as a leading importing country of coffee resource in the world. The coffee companies in the UK adopt different strategies to acquire high market share in the industry. The top coffee chain in the company is Costa Coffee, in terms of franchises. The company has over 1300 coffee shops in the UK only (Blowfield, 2013). However, there are other coffee chains such as Starbucks, Barista and CCD, giving tough competition to Costa. According to reports, the UK’s coffee industry is becoming the only country to have maximum number of coffee consumers. The coffee market in the UK is even run by non-professionalise players such as KFC, McDonalds and Marks & Spencer (Courville, 2013). Hence, there is high competition in the coffee industry of the UK. The strategic models such as PESTLE, five forces, strategic mapping, Yip's drivers and CAGE can be used to analyse the competitiveness of the coffee industry in the UK.

PESTLE of the UK’s coffee industry

PESTLE is a strategic tool used by the marketers to determine the political, economical, social, technological, legal and environmental factors impacting the industry or company. The PESTLE analysis is diagrammatically represented below.

pestle.png

Figure 1: PESTLE ANALYSIS

Political: The coffee industry in the UK is highly impacted by the political factors. However, the government in the UK has put increasing pressure for businesses to operate in an ethical manner. The coffee businesses are required to address social, environmental and economical issues. The supermarkets such as Tesco have launched their own Fair trade range, which enable the coffee shops to differentiate their products. For instance, Starbucks have the right to buy their fair trade coffee (Jolliffe, 2010).

Economical: The impact of coffee on the UK’s economy is stronger. The high difficulty of coffee production and trade has developed crucial sectorial linkeages within the UK’s economy. The coffee is the leading importing resource in the country (Jolliffe, 2010).

Social Factors: One social factor which can affect the sale of coffee is health consciousness. Coffee is rich in caffeine which creates health problems like sleep disorders and migraines. This can become a reason to avoid consumption of coffee by people which can affect its sales. On the other hand, coffee has some positive impacts also on health (Ibrahim & Zailani, 2010). It boosts metabolism which is helpful in weight loss. People’s preference for energy drinks and health drinks over coffee is making these products competitors in the coffee industry. There is also an increased diversification of tea and demand for premium and herbal teas. The UK coffee industry has responded to this change by offering de-caf drinks and alternative drinks like chai lattes, freshly squeezed fruit juices and herbal teas.

Technological Factors: The profits of the coffee industry can be increased by using better brewing techniques which makes the production process efficient. It can also help them in developing varieties of coffee which can enable them to offer wide range of products to its customers. The development of techniques of coffee machinery will enable the small scale companies to brew the coffee their own which will increase the competition in UK coffee market and also will give the customers a wide range of alternatives (Linton, 2015). This increased competition can cut down the sales of large companies definitely.

Legal Factors: The coffee industry can be affected by various laws in UK. The coffee manufacturer who is exporting coffee or importing its raw materials needs to comply with the import and export regulations of the country. If the rules are hard and strict, the company will face difficulty in operating there. The local and international labour relation laws are also important and should be considered.

Environmental Factors: The harvesting of coffee crop is heavily dependent upon the weather conditions and can be affected by natural disasters like flood, earthquake, drought and poor harvest. This can affect the quantity of coffee which can affect the supply of coffee as well (Linton, 2015). The impact of environment is always positive and the coffee production shall be considered for environmental needs to ensure physical sustainability.

The PESTLE analysis unlocks high potential of the UK’s coffee industry. The industry is competitive and tough for the new players to establish themselves effectively. However, AMT Coffee is a small coffee chain, which has achieved success in the industry in little span.

Porter’s Five Forces Model

Another strategic tool, which can be used, to analyse an industry or a company’s external environment is Porter’s Five Forces Model. The forces impacting the industry are represented in the figure below.

porters-five-forces.jpg  

Figure 2: Porter Five Forces Model

The Porter Five Forces Model of the UK’s coffee industry is given beow.

Threat of Substitution- High

The UK coffee industry possesses high threat of substitutes as there are large number of substitutes other than coffee like fruit juice, tea, beer. The places or outlets that offer people a relaxing place to hang out and work include ice cream parlours, tea houses, fast food places, side walk cafes, pubs and bars. There are so many substitutes available that the threat is high for coffee industry in UK.

Rivalry- High

There are many big and established players in the UK coffee industry. Few coffee shops are situated very close to each other which increase the rivalry. The market is growing and so is the customer base which means that the market will not get saturated with more coffee shops. The brand identification has helped to have constrained rivalry with each coffee shop (Reinecke et al 2012).

Threat of new entrants- Moderate

The new entrants in the UK market include fast food chains like Dunkin Donuts, McDonalds and Burger King. The entry of new entrant in coffee industry is moderate as the chains are established global leaders and have a strong brand image over the country.

Bargaining power of buyers- Low

Buyers do not enjoy much bargaining power in the market if we consider chains like Starbucks. The increasing revenue scale of Starbucks reduces the bargaining power of buyers, Also McDonalds provide its premium roast coffee of good quality at a low price, and hence, the buyers do not need to bargain.

Bargaining power of suppliers- Low

The UK coffee industry has low bargaining power of suppliers as the products of the chains are standardised due to various competitive suppliers. The ingredients of the products are also standardised during purchase and hence, the companies are not dependent on one supplier only (Reinecke et al 2012). Also, some of the chains are itself powerful suppliers which makes the bargaining power of suppliers low.

 

 

Task 2

Critically discuss the ways in which the company could shift its strategy from "Red Ocean" to "Blue Ocean".

Meaning and classification of Blue Ocean

Blue ocean strategy is a business theory adopted by the companies to search for ways to gain uncontested market space instead of engaging in traditional competition. It enables the businesses to be in a league of its own and set their own pace (Nag et al 2007). This is possible by developing unique products and generating profits from lucrative new markets.

The analysis of the coffee industry in the UK done above has helped us understand that there is a rising demand and market value for sustainable coffees among people (Courville, 2013). Hence, the government insists coffee companies to invest in organic coffee beans. Also, there is rising trend of fair trade market in the UK and the industry is worth 100 million pounds. Due to the high consumption of the coffee in the UK, people who are willing to lose their weight will consume coffee, which will increase its sales. However, chains like Starbucks are in limelight in the UK for promoting obesity as their products are rich in full-fat milk, cream and sugar. So, there is a tendency that the weight loss conscious people may shift their liking to sugar free beverages instead of rich creamy beverages (Ibrahim & Zailani, 2010). Also, the advancements in the technology of brewing coffee have made the process easy and it means that everyone can brew coffee their own at home with use of simple machines. This will reduce the demand of coffee from cafes as people can now make it at home. This change will increase the sales of companies like Nestlé’s Nescafe Coffee that produces coffee beans but will decrease the sales of chains and cafes like Starbucks (Linton, 2015). The industry is highly competitive due to many established coffee chains so they tend to red ocean strategies to stay ahead in the race. All major and local coffee chains and even many non-professionalise coffee companies such as McDonalds or KFC are in race to acquire the largest clientele. Therefore, the whole scenario turns the market into red blood ocean. This situation is similar to the ocean filled with blood thirsty sharks. Any large company with high investments can be a potential threat to them (Reinecke et al 2012). The entry to this market is however easy as there are not much government restrictions and the technological advancement also make the entry easy to this market. Owning to this, it is vital that AMT Coffee adopts blue ocean strategy and develop a niche market for itself instead competing with the companies using traditional competitive strategies.

Considering this, there is a dire need that the companies resort to blue ocean strategy instead of red ocean strategy. The idea behind adopting blue ocean strategy is that operating with a red ocean strategy is not possible in today’s competitive scenario. Therefore, it is not a feasible option for investment. The competitive industries such as the UK’s coffee industry require the companies to adopt innovative techniques to survive in the market. As per Nag et al (2007), red ocean strategy is adopted by the companies to outperform their competitive and acquire the huge market share. When companies adopt red ocean strategy, the market space gets crowded, which decreases the prospects for profits and growth. The competitors act as sharks that fight to acquire the biggest market share. Hence, consumers are not left with many options. Therefore, unless the companies develop a new product which is different from current products, it is unlikely for the companies to succeed.

The companies are required to add something exclusive to their product or service to sustain in the highly competitive industry. As far as the coffee industry in the UK is concerned, the PESTLE and Porters Five Force analysis indicate that the industry is highly competitive. Therefore, there are numerous coffee companies that seek to acquire the major market share. The coffee industry in the UK competes principally on the price and functional performance. It then becomes important for the companies to create new markets and redevelop the existing ones by breaking out of the convergent behavior. The organizations such as Starbucks, Costa, Barista and other key coffee chains need to appeal to their products to consumers. In the competitive coffee market, coping with the standards of the industry become tough for a small coffee chain such as AMT Coffee. Therefore, AMT coffee needs to adopt blue ocean strategy to sustain in the coffee market.

Implications of Red Ocean for the company

It is crucial for AMT coffee to consider the implication of Red Ocean strategy for their business and turn to blue ocean strategy. However, there is a need to understand the reasons first. The reasons why Red Ocean is a not a recommended for the AMT Coffee are as follows.

One, developing new demand is vital for the AMT Coffee. Although marketing managers may believe that the customer is an asset and making the existing customers satisfied is only important but this is a misconception. The coffee industry is highly established and there are many big brands such as Costa or Starbucks. As per Tuncay (2015), developing new and engaging strategies for the existing customers are not possible for the coffee company. Therefore, the coffee company needs to aim at targeting noncustomers and developing new markets for the coffee. AMT Coffee has already been awarded as the most ethical coffee chain of 2011 due to its fair-trade practices and use of 100% ethical coffee beans.

Second, there is a need to target distinct market segments that have different preferences instead of sticking to one consumer segment. Generally, marketers use niche marketing strategies to segment the market into small consumer segments. The niche marketing strategies are effective but sometime, the segments are too small to be sustainable (Tuncay, 2015). Therefore, the focus of the AMT Coffee should not be to open stores at railway stations and airports instead they should open stores at malls and other high-profile areas.

Third, technological innovation is often confused with the market-creating strategies. As per (), technology is the key driver of market development and industry growth but creating new markets do not depend on the technological innovation. Therefore, AMT Coffee needs to shift its focus from product coffee sales to improving the customer experience. For instance, JCDecaux has shifted its focus to outdoor advertising due to which the business is able to open new markets without the technological innovations. The similar strategic moves need to be adopted by AMT Coffee.

Therefore, these are the reasons due to which AMT Coffee needs to create Blue Ocean by getting rid of red ocean strategies.  

Ways in which a blue ocean strategy could be developed

The discussion done above makes it essential for the AMT Coffee to develop Blue Ocean Strategy for itself. However, the question is that what can be the appropriate ways for the coffee company to develop blue ocean strategy for itself. To develop the blue ocean strategy, there is a series of ways that can be adopted.

One way is to create uncontested market space for itself. The coffee industry of the UK is competitive and therefore AMT coffee needs to invest in creating new markets instead of operating in traditional competition (Utting, 2012). This is possible by targeting consumers with different preferences. AMT coffee mainly targets the people who are health conscious and use 100% pure raw material. Therefore, the need is to develop new beverages for the customers.

Second way is to make the competition irrelevant. When AMT coffee will be operating in a market of its own, the competition given by big coffee brands would not impact its position. The use of ethical material has already made AMT coffee a huge success. This strategy can help the company enter global market. However, the company will have to adopt appropriate market entry strategy to enter the overseas market.

Third way is to align the system of the organisation with differentiation and low cost. AMT coffee targets middle class customers and hence prices are set accordingly. However, the focus of the company should be on differentiating its products from other coffee companies and adjusting prices reasonably.

These are the different ways that can be adopted by AMT Coffee to develop blue ocean strategy and sustain in competitive coffee industry.

Brief discussion of managing strategy development and implementation

The management of strategy development and implementation is backed by efficient strategic planning. AMT Coffee Company needs efficient strategic planning to manage the strategy development and implementation. As per Nag et al (2007), strategic planning is defined as the organizational management process that is used to set priorities, focus energy and resources. The strategic planning ensures that the stakeholders of the company are working towards achievement of one common goal. The strategic planning requires that the coffee company develops an efficient marketing plan.

The development of the strategies needs some appropriate steps to be followed. AMT Coffee Company needs to ensure that it follows these steps to make blue ocean strategy successful. One, establishing a strategic planning committee assesses the issue and recommends options to cope with it. The issue is the sustenance of the coffee chain in the highly competitive coffee industry of the UK. However, AMT Coffee is most ethical coffee chain in the UK due to which the company has developed a niche for itself. It is not part of the Red Ocean created by other coffee companies. Second is the reviewing the existing plans to build a new plan. Third is setting the objectives that should be achieved in stipulated time-frame. Therefore, these are the ways that can be adopted by the AMT Coffee to develop strategies.

There are different ways that AMT coffee needs to adopt when developing strategies for the organisation. One is to align the initiatives of the company with organizational goals. The development of new strategy will require the coffee company to set new priorities and conduct new activities. The activity should be reviewed against its relevance to the new strategy. For this, the coffee company needs to create a strategic value measurement tool, which measures existing and new initiatives. Second the coffee needs to align the organizational performance with the strategy. The performance measures are placed against the strategic goals. The employees should be aware about their role clearly to achieve organizational success. Third, the structure of the coffee company should be aligned as per the strategy developed. However, the most important step to develop strategies is the preparation of staff for the new strategy. The staff should be ready to adopt blue ocean strategy and shed red ocean strategy. These are the ways that can help the coffee company to implement blue ocean strategy effectively. Therefore the development of blue ocean strategy is vital for the AMT Coffee. With blue ocean strategy, the company will be able to target wide range of consumers and also expand in global market.

Task 3

Identify and discuss the key strategic challenges that the company should consider in developing a global strategy.

Use of models to identify global strategic decisions

The above discussion indicates that the development of Blue Ocean strategy is vital for AMT Coffee since it will enable the company to operate in uncontested market space instead of traditional competition. As far as AMT Coffee is concerned, the shops for the coffee company located mainly at the railway stations.

d9471681d309ee45496eea7797c1b402_400x400.jpeg

Figure 3: AMT Coffee

The current strategy of the coffee company is to use 100% fair-trade coffee and 100% organic milk. Due to this, AMT Coffee was named most ethical coffee chain in the UK. The coffee company has also focused on operating through coffee kiosks, which enable the coffee of AMT to reach larger clientele (Reinecke et al 2012). The key areas where the company considers opening its shops include railway stations, hospitals, and airports. The focus of setting up coffee shops in public areas is to target large group of customers and providing them healthy coffee.

The company can develop a new market for itself then to indulge in unethical marketing practices to stay ahead in the competition. The use of blue ocean strategy can enable AMT Coffee to outperform than competitors and also seek to go global. As per Nag et al (2007), global strategy is defined as the strategic move taken by the company and covers three key areas; global, international strategies and multinational. The use of global strategy enables the organisation to operate internationally and target a global clientele. The AMT Coffee has the potential to target markets such as the USA or Australia due to its ethical coffee making practices. There are various entry strategies that can be adopted by AMT Coffee to target an international market.

Direct investment: One strategy which can be adopted by AMT Coffee is to directly invest in different markets such as USA or Australia. However, this requires huge investment by AMT Coffee, which is risky for the coffee company initially.

Export route: Another strategy which can be adopted is export route in which AMT Coffee can export its coffee made from 100% pure raw material to other markets. This strategy is not risky and can enable the coffee company to make its coffee in foreign nations successful without directly entering.

Strategic alliance: The third strategy which can be adopted is forming a strategic alliance. The formation of strategic alliance with another similar coffee chain can help AMT coffee to use the knowledge about local coffee industry. AMT Coffee can partner with an established local coffee chain of the selected market and then enter it. This market entry strategy is least risky. For instance, Starbucks have parterned with Tata Global Beverages Ltd in Indian coffee market. Starbucks hold 51% of the total share while Tata holds 49% of the stakes in the venture. This enables the American coffee chain to target the local clientele of India efficiently. Similarly, AMT Coffee can partner with a native coffee company.

 

Franchising: Another strategy which can be adopted by AMT Coffee to target global market is franchising. As per this strategy, AMT coffee can provide franchise to manufacture the coffee and sale it to another company. This will allow the coffee company to generate profits and also not taking the risk of entering the coffee industry of a foreign country directly. However, there is a chance that the company which is given the franchise may or may not be able to handle the product in an efficient way. This can impact the reputation of the company in global market. Therefore, this market entry strategy is risk for AMT coffee.

 

After examining different market entry strategies available for AMT Coffee, it can be inferred that ‘exporting’ and ‘strategic alliances’ are the best strategies for the same. The exporting of coffee to other markets or forming strategic alliances with an established native coffee company are least risky options to enter the global coffee industry. Therefore, these can help AMT Coffee to target the global coffee company.

Relationship between Blue Ocean and globalization

With globalization, it becomes vital for a business to offer exclusive and innovative products and services to the consumers. The idea is to engage customers by providing them something new instead of using the same products to engage them. However, it is also vital that companies develop uncontested market space for themselves to sustain in the market instead of focusing on traditional competition. This is known as blue ocean strategy. There is a critical relationship between blue ocean strategy and globalization. The companies that are able to create and implement blue ocean strategy can cope with globalization effectively.

To conclude, it can be indicated from the report that blue ocean strategy is one of the best strategies to be adopted by businesses in today’s scenario. It is vital that businesses develop a new market for themselves with no competition instead of resorting to unethical competitive strategies. AMT Coffee is already an established coffee chain in the UK and has been recognized as an ethical coffee company. However, it is recommended that the company develops blue strategy instead of operating with red ocean strategy. Also, the company has high potential to enter global market by using different market entry strategies. The two key strategies that can be used are exporting and strategic alliance. These strategies are least risky and do not have much investment. Therefore, these are highly recommended for AMT Coffee.

 

 

References

Blowfield, M. (2013). Ethical supply chains in the cocoa, coffee and tea industries. Greener Management International, (43), 15.

Courville, S. (2013). Use of indicators to compare supply chains in the coffee industry. Greener Management International, (43), 93.

Ketchen, D. J., Boyd, B. K., & Bergh, D. D. (2014). Research methodology in strategic management: Past accomplishments and future challenges.Organizational Research Methods.

Jolliffe, L. (Ed.). (2010). Coffee culture, destinations and tourism (Vol. 24). Channel View Publications.

Ibrahim, H. W., & Zailani, S. (2010). A review on the competitiveness of global supply chain in a Coffee Industry in Indonesia. International Business Management, 4(3), 105-115.

Linton, A. (2015). Partnering for sustainability: business–NGO alliances in the coffee industry. Development in Practice, 15(3-4), 600-614.

Nag, R., Hambrick, D. C., & Chen, M. J. (2007). What is strategic management, really? Inductive derivation of a consensus definition of the field. Strategic management journal, 28(9), 935-955.

Reinecke, J., Manning, S., & Von Hagen, O. (2012). The emergence of a standards market: Multiplicity of sustainability standards in the global coffee industry. Organization Studies, 33(5-6), 791-814.

Tuncay, M. (2015). SWOT Analysis in Strateg?c Management and a Sample Applicat?on in Public. International Research Journal of York University, 2(3

Utting, K. (2012). Assessing the impact of fair trade coffee: Towards an integrative framework. Journal of Business Ethics86(1), 127-149.