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Strategic Management | A Case Study Of Wesfarmers, Australia

Introduction

Strategic Management refers to the formulation and execution of business initiatives planned by the mangers on behalf of owners through extensive assessment of the internal and external resources present in the environment in which the organisation functions. Management in a strategic process enables the company to gain directionality and propagates the company towards success. The objectives framed in accordance with the resources assists in gaining competitive edge in the business. Several models are employed in order to plan and compete in the business environment including SWOT, Experience Curve, Corporate strategy and portfolio theory, competitive advantage, value chain, core competence analysis and many more. However, strategic management has inherent caveats and resists change instead of enforcing it effectively. Despite the limitation, strategic management is essential to implement for ensuring sustainability and progress in the dynamic business environments.

The assignment discusses about the fundamental business strategies implemented by Wesfarmers, an Australian conglomerate involved in several sectors including retail, mining, hospitality, chemical suppliers, energy and fertilisers to name a few. The retail market in Australia tapped and led by Wesfarmers shall be discussed here. Strategic management is especially important for business involved in diverse sectors that have distinct dynamic trends and hence Wesfarmers in an exemplary for the study.

Background of the company

Wesfarmers Limited initially formulated as a co-operative company by Farmers’ and Settlers’ association of Western Australia in 1914 has gradually evolved into a leading Australian conglomerate functioning internationally today. Since its inception the ownership model has changed and the company has gradually ventured several arenas. Cur ........

enables the company to gain directionality and propagates the company towards success. The objectives framed in accordance with the resources assists in gaining competitive edge in the business. Several models are employed in order to plan and compete in the business environment including SWOT, Experience Curve, Corporate strategy and portfolio theory, competitive advantage, value chain, core competence analysis and many more. However, strategic management has inherent caveats and resists change instead of enforcing it effectively. Despite the limitation, strategic management is essential to implement for ensuring sustainability and progress in the dynamic business environments.

The assignment discusses about the fundamental business strategies implemented by Wesfarmers, an Australian conglomerate involved in several sectors including retail, mining, hospitality, chemical suppliers, energy and fertilisers to name a few. The retail market in Australia tapped and led by Wesfarmers shall be discussed here. Strategic management is especially important for business involved in diverse sectors that have distinct dynamic trends and hence Wesfarmers in an exemplary for the study.

Background of the company

Wesfarmers Limited initially formulated as a co-operative company by Farmers’ and Settlers’ association of Western Australia in 1914 has gradually evolved into a leading Australian conglomerate functioning internationally today. Since its inception the ownership model has changed and the company has gradually ventured several arenas. Currently headquartered at Perth, Western Australia the company serves Bangladesh, Ireland, New Zealand, UK and Australia obviously. It has several subsidiaries and has total assets worth of A$ 40.78 billion and revenue worth A$65.98 billion. The company employs 220,000 and operates on A$ 3.61 billion (Wesfarmers.com.au, 2018).

Figure: Wesfarmers revenue by segment

(Source: Singh-Peterson & Lawrence, 2015)

Objectives

The fundamental objective of Wesfarmers is to “deliver satisfactory returns to shareholders through financial discipline and exceptional management of a diversified portfolio of businesses”. The group focuses on strong management and ensures continual performance assessment through incorporation of divisional board of directors in the policy framing processes. Wesfarmers managing director and finance director directly guide each division throughout the strategy development and execution process (Wesfarmers.com.au, 2018).

Figure: The Wesfarmers Way

Source: (Wesfarmers.com.au, 2018)

Ownership structure

The structure of ownership has changed since 2001 for this company. The cooperative has evolved into a freely traded publicly listed company which has open ownership (Booth & Coveney, 2015). The company after being owned publicly diversified the business manifolds and ventured into disparate sectors by successive mergers and acquisitions.
Internal and external Governance

Corporate governance assists in determining the directionality and aligning the business with its objectives. The functionality of the business is derived from its basic internal way of working, the core values of Boldness, integrity, transparency and accountability towards it stakeholders. The external mechanisms for the corporate governance including the regulators, like governmental policies, trade unions and others also influence the company.

The objectives of the company are managed internally by the intervention and involvement of the board of directors, management and stakeholders whereas the external governance is exercised by the corporate laws and regulation formulated by the government and trade unions of nations that the company is operating in.

Wesfarmers focuses on the interests of the shareholders and their objectives are directed towards enhancing the returns to them. Therefore, the ‘Anglo-American corporate model’ for internal governance is applicable in the business. The single tier of board directors nominated through non-executive directors and, ultimately elected by shareholders, form the operating head of the company. They participate in the strategic management and all plans are developed through their active involvement in the development process. The management is accountable and delegates the authority to all divisions to exercise their powers autonomously. Different segments of the company functions autonomously with the supervision of the board of directors that enables the company to function flexibly (Keith, 2012). Social responsibility, robust financial capacity and innovation drive the business internally. The governance encircles preservation of the ethics, culture and brand image.

For Wesfarmers, the rules and regulations set by the government of Australia forms the external governance factors. The trade unions, competition and financial institutions that support the organisation in terms of debt management and contracts govern the structural and functional components of the business. The Corporate framework of Australia mandates abiding by the ‘Corporations Act 2001’ and ‘Australian Securities Exchange Limited (ASX)’ to meet the market and investors expectations. Duties imposed on the board of directors of the company, policies, and committee composition guidelines direct the corporate governance to a huge extent (Rasjidin, Alam & Abosuliman , 2012). Continuous disclosure of the annual reports, profits and losses incurred, to the shareholders periodically is essential as per the guidelines of the government.

Sources of cost and differentiation advantage in Australian retail industry

Wesfarmers operates about 2200 supermarkets; Coles express and liquor outlets in Australia itself. The company is leading exporter of Coal in Australia and an open-cut miner. The competitive advantage that Wesfarmers enjoys is through its diversity and integrity. According to its current CEO, Richard Goyder employing 200, 000 across different sectors has provided the company with the provision to develop its human resource base and retain them by providing diverse opportunities (Antràs  & Chor, 2013). The competitive advantage here is the efficient management of the employees segregated into teams led by divisional managers who report directly to the board of directors. The employees being the fundamental asset to the company are the source of their ‘competitive advantage’. The quality of their people, their performance is thus the key to their success.

The competitive scope and advantage of Wesfarmers can be illustrated through Porter’s Generic Competitive Strategies. The company being a leader in the Australian Market and developing its market share in other nations as well falls within the broad target where differentiation has been the key to achieving success. The vast sites owned by the company and networks spanning Australia, the focus of developing cost effective strategies no more direct the company (Elms & Low, 2013). The costs have been levelled and are competitively determined as per market standards. The diversification adds to the scope of the expansion of markets and hence provides the company with the broad target zone to increase market share and maximize the profits effectively.

Image result for Porter's Generic Competitive Strategies (ways of competing

Figure: Porter’s Generic Competitive Strategies

(Source: Gereffi & Fernandez-Stark, 2016)

Position of organisation

The earnings and high revenues of the company place it in the top notch position in the Australian market. It is the biggest company in the Australian market and amongst its competitors, Best & Less, Myer, Woolworths and Hs Home in the retail sector; it has the highest revenues successively in the past several years. The equitable prices, variety and the reliability of the business have led to the development of the brand name as a synonym for quality at convenient prices. Diversification of the business through establishment of Coles, Kmart, Warehouse, Bunnings, Officeworks and Target has enabled the company to retain its position over years in the domestic market (Azizul & Jain, 2013).

Image result for position of Wesfarmers

Figure: Annual Revenues and earnings of Wesfarmers

(Source: Wheelen et al., 2017)

The strategic management of Wesfarmers in the previous years has brought about sufficient changes and though constant war amongst Woolworths and Wesfarmers continue in Australian market for the top position, the company in light here has won through its competitive strategies.

Image result for wesfarmers vs competitors

Figure: Comparative Analysis of Woolworths and Wesfarmers from 2013-2017 in terms of % change

(Source: Grimmer, 2018)

The major competitors can be strategically placed as per their market strategies in a perceptual map, which is a diagrammatic representation of marketers to explain potential customer’s perceptions. Market maps can however be multi-dimensional but for the ease of application and understanding a two-dimensional map has been chosen here.

 

 

High Quality

 

 

 

SproutsFarmers Market

Text Box: SproutsFarmers Market

Wesfarmers

Text Box: Wesfarmers

 

Low Price

                                     

 

Supervalu Inc.

Woolworths Group Limited

 

Tesco Stores Limited

The Kroger Company

 

           
 
 
   
 
    Text Box: Supervalu Inc.

 

 

 

 

 

 

 

 

Figure: Perceptual Map of Position of Wesfarmers in the retail sector of Australia

(Source: Created by the author)

Game Theory

The strategic mathematical model can also explain the positioning and competition thriving in the retail market of Australia. The pay off of the game involving several elements including the mergers & acquisitions, pricing and industrial organisation forms the basis of the high performance of Wesfarmers in the competitive market. ‘Solution concepts’ or ‘equilibria’ forms the basic set of strategies that defines thee economic success of Wesfarmers over the others evidently (Keith, 2012). The rational behaviour of the competitors to adapt to the changes and trends forms the basis of the rivalry and continual changes incorporated into the business while keeping the fundamentals intact drives the business towards growth in market share and profit maximization.

Value chain analysis for Wesfarmers

A set of activities, which an organization functioning in a specific industry performs to deliver a valuable service or product for the market, is referred to as a value chain. The concept of a value chain is derived from business management. The concept was introduced in the year 1985 by Michael Porter. The basic idea of value chain depends on the process view of companies, the idea of witnessing service or manufacturing company as a system (Gereffi and Fernandez-Stark, 2016). It is made up of subsystems, each with inputs, transformational processes and outputs, which involves the consumption and acquisition of labour, money, equipments, materials, buildings, administration, land and management. The cost of an operation is determined by the value chain activities that are performed, it also has an effect on the profits of the organization.

The value chain of Wesfarmers is illustrated below:

          

Figure: Value Chain

(Source: Created by learner)

Inbound Logistics

It refers to an integral element of business operations for a manufacturing organization or company, engrossing the procedure of receiving, storing and distributing raw materials for production purpose (Moser et al, 2017). The inbound logistic practices of Wesfarmers depend on the following rationale:

  • It makes use of minimum amount of connections in the supply chain. It tries to eliminate traders in the supply chain and prefers to directly work with the manufacturers. This tactical decision has proved to be in favour for the company and has had a positive impact on it.
  • The organization also forms a strategic partnership with the sellers. The company inflicts strict conditions on several aspects of the business when bargaining with latent suppliers. Wesfarmers also tries to apply its huge negotiating power to buy materials at a lower price in order to sustain its ‘cost leadership competitive advantage’.

Operations

Wesfarmers runs operations on an international level with approx. 220,000 employees in Australia. The number of business operations of the company includes, retail, fertilizers, chemicals, safety and industrial products and coal mining.

Outbound Logistics

Outbound logistics refers to the goods and merchandises that are going out of the business. Owing to the size and scope of its operations mentioned above, Wesfarmers runs a ‘complex outbound logistic’ operation (Christopher, 2016). Wesfarmers endeavours to optimise its outbound sources and load ‘building operations’ in an organized manner to boost the overall competence of these operations and obtain cost diminution.

Marketing & Sales

Wesfarmers marketing strategy makes effort to connect the brand image with plentiful collection of products, extremely competitive price, and suitable access to stores by means of ‘carious channels’

Service

The company highly focuses on customer services and provides products and services to Western Australian farmers. The company also has a welcoming atmosphere that also adds up as an advantage for the organization.

VIRO Analysis

VIRO or VRIO is an analytical modus operandi for the evaluation of a company’s resource and thus can successfully evaluate its competitive advantage. The four composite elements that determine the competitive advantage through parameters like financial resources, human resources, material resources and non-material, intangible resources form the backbone for determining if the advantage is temporary, unused or long-term. The evaluation dimensions forms the basis of comparison for company and competitors as well. Thus the dimensions of VRIO are:

  • Value
  • Rareness
  • Imitability
  • Organisation

The Key resources identified for the company in the initial phase of the study were the human resource, competitive pricing, diversification, corporate social responsibilities, reliable and popular brand image and corporate leadership and vision.

Human resource – Highly developed human resources are the key valuable resource to the company who take the decisions, implement them and plan strategically to help the business to thrive and expand n in the dynamic environment. Though the resource is valuable and rare, mimicking is not tough but the organisation provides supportive arrangement to retain them effectively (Andjelkovic, 2013). Thus the resource contributes to the ‘Temporary Competitive advantage’ enjoyed by the company. The internal corporate governance is thus responsible for retaining and strengthening this resource through employee directed benefits and training and development respectively.

Competitive pricing – The resources for competitive pricing is valuable but not rare and thus extended by several other competitors, mainly Woolworths in the dynamic environment. The pricing strategy taken by the firm of delivering high quality as comparatively low prices is thus effective for competing but does not provided any advantage (Minifie, 2017), it brings the companies to a ‘Competitive parity’  in terms of the rarity. The strategy is not difficulty to imitate and thus many have walked the same path and current organisational strategies are not supportive for the propagation of the resources as a competitive advantage.

Diversification - Diversification is valuable, rare, difficult to imitate since huge resources and intensive planning is required for the development of this resource. The organisation is furthermore arranged around this fundamental ideology and has been expanding the business ever since it changes the ownership form through successive mergers and acquisitions. Thus, the diversification has played as a major factor in the development of the advantage as a ‘long term competitive advantage’.

Corporate social responsibilities – Corporate social responsibilities are integrally oriented within the ideals of the business and have facilitated the creation of the brand as a renowned, reliable entity in the domestic market of Australia. The people centric business has developed through fundamental integrity and values that are reflect in the corporate social activities. This renders the company with competitive advantage as the resource valuable for creation of brand value, rare since every firm does not show equivalent consideration towards their responsibilities, difficult to imitate since it requires a huge fraction of profit to contribute substantially to the society and the organisation has be arranged with the basic ideal of benefiting stakeholders and the society, its people which evidently portrays the structure to be encircled by values (Cardeal & Antonio, 2012). This thus forms a ‘long term competitive advantage’ that the competitors can’t imitate easily, especially in the Australian market since they have the experience of explore the advantage.

Reliable and popular brand image – The experience of serving the Australian market since 1914 has provided the company with adequate time to establish a strong foothold in the domestic market and the brand name built through years of quality services and products a convenient prices, variety of products and an understanding of the market demands has enabled this resource to develop prolifically. The resource is valuable, rare and difficult to imitate as it took years of service and reliable business strategies to reach up to the expectations and create a positive impact on the consumer’s mind. Thus the organisation however does not embark on it strongly and hence the resource is an ‘unused competitive advantage’.

Corporate leadership and vision – Corporate vision and the leadership is an essential resource employed by the business, Wesfarmers in the development of the strategies (Campbell, 2017). The resource is valuable, rare and difficult to imitate since these are individualistic ideals that govern a business. The leadership provides an essential boost to the propagation of the business towards fulfilment of its objectives. Thus, the resource can be termed as ‘long term competitive advantage’.

Recommendations for development of strategic resources

Recommendations for development of strategic resources in Wesfarmers are as follows:

  • The company must continuously set yardsticks against its competitors and other industries. The company must engage themselves with their stakeholders and consult with the corporate governance professionals in order to strengthen their processes. The company must also conduct a yearly assessment process as a tool for supporting the efficiency of the board of the company in order to facilitate the board of directors of the company along with the CNGC (Compensation, Nominating, and Governance Committee) (McCahery et al,  2016).
  • The company can also penetrate into the online make or e-commerce in order to increase its competitiveness in the market. By entering the online market, the company will not only expand its market reach but also increase its customer’s base, thus resulting it better competitiveness.
  • The can also take initiatives in order to reduce the amount of emulation of its products.  The company can take initiatives in producing products that are not easily emulative, for instance, it can make use of raw materials that are only available in Australia and are not easily accessible elsewhere. This will help in retaining the consumers, as they will not opt for any other company, as they will solely produce the products. 
  • The company must penetrate into the markets of other different countries besides the existing ones in order to improve its economic growth and development rate. By expanding internationally, it will not only be able to increase competitiveness, but will also improve its brand name in the market.
  • The company must also focus in hiring skilled employees as in order to become successful in the market. New workforce will help the company to work out complex investigative problems, think decisively and critically, and manipulate complicated technologies.

 

 

Conclusion

The assignment has put lights on the objectives of ownership structure in relation to the external and internal governance method. It has further identified the source of differentiation and cost benefits in the industry. The project has also conducted a VIRO analysis for assessing the resources of the company along with its competitive advantage. In addition, the project has made use of value chain in order to recognise the competitive advantages of the organization. The major competitions of the organization in the similar industry have been identified in this section. In addition, several theories have been used in order to recognise the advantages. The project has also proved a number of recommendations for development of strategic resources by focusing on factors like increase competitiveness in the company, corporate governance and so forth.