Asda Strategic Initiative Report free essay sample

Kingston University London Kumi D. Atiadevey (K1038399) MSc Information System Strategic Initiative Report Strategic Information System for e-business (CIM401) June 2011 1|Page EXECUTIVE SUMMARY Asda stores ltd. is a British supermarket chain which retails food, clothing, toys, general merchandise and financial services,[1] as well as a mobile telephone and broadband network (Asda mobile launched in April 2007). ASDA’S roots dates way back to the 1920s when a group of Yorkshire farmers came together and formed the Hindells Dairies. Its first supermarket was then opened under the Queens name in Castleford in the early 1960s and became a subsidiary of the American retail giant Wal-Mart (world’s largest retailer) in 1999. [2] As at the end of the 2010 fiscal year, Asdas share of the UK grocery market stood at 16. 6% [3] making it the second largest supermarket chain in the UK after Tesco [19] and operating over 370 stores (and still growing) in the UK. Due to the tense and stiff competition, and saturation by its major rivals (Tesco, Sainsburys and Morrisons) in the industry, Asda is required to plan strategically and initiate new ways to further explore their multi-channel sale strategy and give them a competitive advantage over its competitors. We will write a custom essay sample on Asda Strategic Initiative Report or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page This strategic initiative report is to critically analyse and evaluate Asda’s macro, micro and meso business environment. Strategic evaluation tools such as PESTEL, Porter’s Five Forces and SWOT analysis of the company are identified, areas of improvement, and a recommended e-business tool for Asda disorganised data system are suggested to help achieve this aim whiles considering the organisation, people and processes. 1. INTRODUCTION Asda is among the largest food retailers in the UK with a recorded revenue of $31. 2 billion during the financial year ended January 2010 (FY2010) and employs about 170,000 people. 4] They currently operate approximately 377 stores in the UK (Subject to final regulatory approval, Asda will in addition to its 377 stores, operate another 147 Netto stores in the UK, adding 1. 2 million square feet of space to its portfolio). Asda which was founded by farmers of Yorkshire in 1965 currently provides a multi-channel retail chain including a www dedicated online chain (www. Asda. com launched in 1998). In addition, Asda currently provides a home telephone and broadband ser vice, and financial services (credit cards, savings account, and insurances) through Asda Personal Finance (APF). Over the decades, Asda has evolved to become the second largest UK food retail supermarket (Datamonitor, 2010). Below is Asda’s comparative positioning with the other major competitors in the UK market (Euromonitor, 2010): Fig 1: Share of Leading Players in UK Food Retail Market 2|Page 2. 0 ASDA’S ENVIRONMENTAL ANALYSIS 2. 1 SWOT Analysis STRENGTHS ? Strong financial position ? Strong bargain power ? Financial performance OPPORTUNITIES ? Acquisitions and Takeovers ? Emerging markets and expansion abroad WEAKNESS ? No loyalty scheme ? Signs point to serial acquisitions THREATS ? Increased Competition ? Economic slowdown ? External changes (government, politics, taxes, etc) ? UK structural change Table 1 – Swot Analysis 2. 1. 1 Strengths ? Strong financial position/performance: According to Datamonitor (2010), Asda is ranked the second largest grocery retail company in the United Kingdom, operating over 377 stores and a market share of 16. 6% of the UK supermarket. Asda, a subsidiary of the American retail giant Wal-Mart, (the world’s largest retailer) has a very strong financial position coupled with its un-abating financial performance underlines its strategic capabilities over its competitors. A summary of its 2009 growth of Asda and its UK competitors is shown below. Supermarket Asda Tesco Sainsburys Morrisons Consumer Spend (? 000s) 3,411 6,453 3,239 2,327 Market Share March 2009 17. 5% 30. 4% 16. 1% 11. 8% +/- from March 2009 8. 5% 4. 3%, 5. 7% 7. 2% Table 2-Growth in UK supermarkets ? Strong bargaining power: Asda is a big supermarket with a very strong bargaining power. This means that Asda can bargain for a cost effective supplies and hence lower their product prices (or profit margins) to attract more customers. This also means that customers get the product to suit their budget without compromising on the quality. 2. 1. 2 Weakness ? No loyalty scheme: Asda does not run a loyalty card scheme, stating that they prefer to invest the money they would use to set up such scheme into driving down prices. [6] However, this is a major setback as implementation of such scheme has increased its competitor’s customer retention rate. [7] ? Signs point to serial acquisitions: Asda clearly demonstrates that, it has an enormous firepower. It also has a vast range of products and hence could justify its purchasing ego. But while it’s ‘fill the gap’ method might of use to the company (as its been the case), it raises an asserting danger of Asda becoming a serial acquirer and this tends to reduce earnings visibility and quality. 3|Page 2. 1. 3 Opportunities ? Acquisitions and Take Overs: The commercial network of Asda is growing at a profitable pace. It has opened over 20 new stores since 2010 and subject to a final regulatory approval will operate an additionally acquired 147 Netto stores in various geographical parts of the UK, [8] adding 1. million square feet of space to its portfolio. The geographic diversification will help Asda in improving its economy of scale, while minimising its exposure to systemic risk. ? Emerging markets and expansion abroad: The government’s current promotion of UK industries abroad and the immersion of new European countries provide a platform for Asda to expand its retail network across the EU. 2. 1. 4 Threats ? Increased Competition: There is a fierce competition between the ‘big four’ supermarkets in the UK grocery market. Though Asda is officially the second largest in the industry, a recent media report suggests that Sainsbury’s may have overtaken Asda after a good Christmas sales in December 2010. [9] This shows the intense competition in the industry. ? Economic slowdown: The economic slowdown has caused a sharp decline in customer’s income and the rise in unemployment. This has negative affected the discretionary buying pattern of consumers, in particular the non-food items. ? External changes (government, politics, taxes, etc): Changes by External forces like the increase in consumer taxes from 17. % to 20. 0% in 01/2011 coupled with the financial downturn will affect the non-food sectors of Asda, such as clothing. ? UK structural change: The price followers in the UK market are becoming aggressive investors in price. New ownership of Safeway coupled with Sainsbury’s new management. Safeway’s prices are being slashed up to 6% by Morrisons whiles Sainsbury’s is b ound to see lower prices as one of the basic changes necessary to drive its recovery. With both Tesco and Asda committed to price leadership, the long run could result in a step down in the industry’s profitability. 2. Porter’s Five Forces Analysis Asda’s industrial structure is analysed using porters five forces to evaluate its effective sources of competitive advantage. [10] 2. 2. 1 Threat of substitute products and services In Asda’s grocery retail market, the threat of customer’s substitution is low for food items and medium-high for the non-food items. Substitutes of Asda’s food retail markets are off licenses and convenience stores. Though it is seen as low threat to Asda, Asda’s purchase of 147 Netto stores which are located in local towns and city centres creates a hurdle for these substitutes to enter the market. However, substitutes for non-food items, for example clothing, is fairly high. It should be noted that so long as the economic recession prevails, customers will be more geared towards discounted prices making Tesco is a threat to the speciality shops. 2. 2. 2 Threat of entry of new competitors The threat of new competitors entering the food retail industry can also be classified as low. This is because, entering into this supermarket industry and establishing a competitive 4|Page brand name requires a very huge capital investment. Obtaining a planning authorisation or permission from local government for example takes a considerable amount of time and resources and this in itself is a barrier to new entrants. Moreover, major brands namely Tesco, Asda, Sainsbury’s and Morrisons have already captured about 80% of the market. [11] Therefore, new entrants will have to provide products at an exceptionally low price and/or high quality to establish their market value. 2. 2. 3 Intensity of competitive rivalry The intense competitive rivalry in the food and grocery retail industry is extremely high. Asda is faced with intense competition from the likes of Tesco, Sainsbury’s, Waitrose and Morrisons who have their markets in same towns and cities. They compete with Asda over prices, products and promotions intermittently. E. g. Tesco’s setting aside ? 200m in price war against Asda [12] whiles Sainsbury’s opted for the â€Å"switch and save† method, demonstrating how much consumers could save by switching from branded goods to private label products. 2. 2. 4 Bargaining power of buyers The bargaining power of buyers in the food and grocery market can be considered as fairly high. This is because buyer can easily switch between brands in case the products have slight differentiations in terms of price and quality. The close proximity of supermarkets and the power of the internet also make this very possible. Asda’s idea of price marching the other supermarkets has been countered by Tesco’s similar offer. These price wars has led to a high bargaining power of buyers as they are more inclined towards lower product prices. 2. 2. 5 Bargaining power of suppliers The bargaining power of suppliers in the industry is considerably low. Note that the suppliers are more inclined towards the major food and grocery retailers, and cannot afford losing their business contracts with these supermarkets. With many suppliers and few affording major retailers, the position of the retailers like Asda, Morrisons, Tesco and Sainsbury’s is further strengthened and negotiations are positive so that they can get the lowest possible price from their suppliers. 2. 3 PEST Analysis This paper seeks to discuss the unpredictable and dynamic operational environment of Asda and the forces that have most impact on its performance. 2. 3. Political The inclusion of 10 further eastern European countries into the European Union (EU) took place in 2004 promoting trade between Western and Eastern European countries. [13] This has provided Asda with a platform to expand its retail network across the EU. 2. 3. 2 Economic Economic factors are a matter of concern for Asda’s performance on the market since they have direct impact on its customers’ buying behaviour. Although the UK economy was declared officially under recess in 2008, the government’s substantial reduction in interest rates has helped in minimising further rises in unemployment during 2009. 14] As a result 5|Page of this, the spending power of consumers can be said to be on a steady rise as they are more confident about their current financial situation. However, lots of financial uncertainty means consumers are more likely to spend less on premium products, encompassing organics and ready prepared meals, which will negatively affect Asda’s sales value and margins. Fig 2: UK Spending on Food as a % of Overall Consumer Spending (2004 2009) 2. 3. 3 Social An analysis of the UK population shows that there are more retired people than children. 15] The ageing population is discouraging for Asda’s market as older people tend to eat less. They are also less likely to travel to supermarkets for shopping as compared with the you nger generation. There is a prediction that the ageing population would find online shopping more convenient although internet literacy level drops over the age of 65 years within the population [16]. However, small deliveries are considered to be ineffective and expensive. Also consumers’ attitude is incessantly changing towards food as they are becoming more health conscious. An increase in the demand for organic food has been accommodated by Asda to reflect this change in demand. 2. 3. 4 Technological Technology is one of the key macro-environmental variables that have directly influenced the supply chain, operations and processes of grocery and food retailers. The operation of supermarkets is being affected by the use of the Internet through online grocery retailing, which is showing steady growth. Subscriptions to the Internet have grown by over 50% and it has been estimated that the Internet is being used by 70% of the population in the UK. [15]. Also, the adoption of Electronic Point of Sale (EPoS), Electronic Funds Transfer Systems (EFTPoS) and electronic scanners have greatly improved the efficiency of distribution and stocking activities of Asda. 3. 0 ANALYSIS OF E-BUSINESS VALUE In this 21st century, business conducted over the Internet (which we refer to as ‘e-business’), is dynamically and rapidly growing, and highly competitive. It promises new avenues for the creation of wealth. Britain’s internet grocery market has been predicted to double to ? 9. 9bn by 2015, according to research group IGD forecast. E-business value is assessed through the 6|Page usiness impact of purchasing online. E-Procurement, or buying online, can potentially provide a distinct value propositions to Asda. However, for Asda to threaten the position of Tesco on the online market, it needs something that will give it a competitive advantage. Competitive advantage is here defined as the basis for reaching the fundamental goal of a company: long-term sustainable success [10]. Given the complexity of its supply chain, the idea of processing and supporting product data across a number of channels is counterintuitive, hence Asda’s Implementation of SAP ERP system. Asda uses SAP ERP for Financials and SAP Business Intelligence, with partner Deloitte and this helped reduced its year end close time to only four days, streamlined payment processes and improved reporting capability to the group head office as it is important for the retail system to be integrated. The overall project and quality planning process led to Asda been adjudged the gold winner of large enterprise implementation by SAP UK, beating its competitors. [17] 4. 0 AREAS OF IMPROVEMENT Porter [10] believes that â€Å"satisfying a customer’s needs might be a prerequisite for an industry’s profitability, but in itself it is not ufficient†. Instead, in order to succeed, a firm must not only be able to create superior value over a sustained period of time, but it must also be able to capture the value created in the form of economic profits. In these competitive times, customer satisfaction and value capture is an asset to every business, and data plays a pivotal role in this. A huge amount of organised customer data can provide Asda a competitive edge if the wealth of the information is tapped and used effectively. These I believe has been the â€Å"competitive weakness† of Asda’s strive to become the market leader. Asda’s competitors like Tesco and Sainsbury’s uses a club card loyalty scheme (strategy) to gather this data, analyse and provide a tailored solution to meet each customer’s needs. Customer satisfaction is increased by linking customer information across systems and ensuring a consistent experience. Kostas Danas [18] in a Kingston lecture said and I quote â€Å"The odds of selling a product to a new customer is 15%, whereas the odds to sell a product to an existing customer are 50%†. He also said that â€Å"70% of complaining customers will do business with the company again if their complaints are resolved†. How can customer’s complaints be resolved if knowledge of their needs are disorganised? Although Asda has already implemented a SAP ERP system, ERP works like a backend system which is more inclined towards the internal process and reporting management. It needs a system which is more customer focused and extensively deal with customer management to improve its: Customer Contact Integration how would we integrate the customer contact across multiple channels and multiple data sources (products/services) ? Data Integration how would the data be collected, stored and cleaned, ensuring that each customer was unique and that the full extent of the product and service relationships was known ? Customer Analytics how would the client analyse the data, who would do it, how would this be achieved securely across multiple business units and organisations ? One-to-One Marketing once the data was in control, how would it be used to manage the customer relationship? ? 7|Page 5. 0 E- BUSINESS TOOL NEEDED In every phase of a business process, the potential use of primarily Internet technology is analysed. However, analysis of such nature should also include other potential enablers, such as: ? Intranets ? Virtual private networks (VPN) ? Personal digital assistants (PDA) ? Telephony systems such as interactive voice response (IVR) E-business tool identified to provide a solution to Asda’s downside discussed above is the CRM. Customer relationship management (CRM) as defined by Kostas and Danas [18] is â€Å"a combination of business process and technology that seeks to understand an organisation’s customers – effective management of customer relationships could provide competitive advantage – technology enabled strategy†. Although Asda is striving to threaten Tesco’s position on the market, Tesco is scoring points with its Loyalty club card scheme. Asda needs integrated sales, marketing and service strategy that depends on the company’s whole actions and focused on customers’ satisfaction demands to give it a competitive advantage. Although lower prices are a customer â€Å"attracting tool†, better CRM strategy is the â€Å"retention tool†. A CRM tool analytically determines how each customer in each region is targeted. Tesco’s Loyalty marketing is an active CRM strategy that seeks to exploit structural investments to drive sales, reduce costs and improve customer experience. If customer relationships are the heart of Asda’s business success, then CRM must be the â€Å"valve that pumps its life blood†. Below is a graph of the Relative Effectiveness of CRM Usage 3. 9 sales 3. 8 Marketing 3. 7 Customer service 3. 3 Management 3. 1 Product Design (1) Not effective High (5) Fig. 3. Relative Effectiveness of CRM Usage Source: IDC, Gartner, Meta Group, Aberdeen This strategy, when implemented will help Asda track it trends. Large supermarkets like Asda are very vulnerable to changes in taste or behaviours of their customers. Asda is noted for indiscriminately offering conventional promotion discounts to all customers whether needed or not. This might be a customer satisfying approach but not a value creation. What good is it to a single 15year old customer being offered a 50% voucher on children’s school uniform? CRM in summary will help Asda to: 8|Page Understand its core shoppers better and help develop the core store proposition to maximum effect ? Provide effective, efficient and consistent service across all customer relationships in a seamless way ? Market and cross-sell products across our various product and service lines, in the most targeted and effective way. ? 6. 0 ORGANISATIONAL TRANSFORMATION In the process of implementing this strategic plan, Asda must be careful with forces that might legitimately seek to sabotage the new system. It is important that effectual change management practices are instituted. These may include: The appointment of a change agent (as an individual who would champion the changes and seek to reassure and allay any fears arising). Ascertaining the causes of the resistance to organisational change (whether from employees, perceived loss of job security, etc. ) ? Via change agency, slowly limiting the negative effects that a change may uncover. ? 6. 1 People For Asda to implement the CRM system, staffs from all the different departments must be involved. People respond to organizational change in different ways, essential and important key management intervention is required. Asda must convince its staff that the new technology and workflows will benefit both the employees as well as increase in revenue which will infer a stability of their job positions. Participation is probably the most accepted technique for reducing resistance to change. Allowing affected employees to participate in both the planning and implementation of the change can contribute to greater identification and understanding of the aims and goals of the new strategy. Participation in implementation also helps to counteract the disruption in communication flows, which often accompanies implementation of a change. Senior executives must also need to be strong and visible advocates to clearly state and support the case for change. 6. Process Though the new proposed CRM system may have many technological components, business processes lie at its core. It can be seen as a more customer-centric way of doing business, enabled by technology that consolidates and intelligently distributes pertinent information of customers, sales, marketing effectiveness, responsiveness, and market trends. Because Asda currently makes use of an ERP system, it will likely need to re-enginee r the new system to link the front office (CRM) with the back office systems (operations support) to better serve the overall goal of winning and satisfying its customers. Moreover, planners need to determine the types of customer information that are most relevant, and how best to employ them. 6. 3 Organisational Aspect In evaluating a successful implementation of a CRM technology, key factors including the alignment with the company’s business process strategy and goals, ability to deliver the right data and sufficient ease of adoption and use must be considered. Galbraith and Kazanjian argue 9|Page that â€Å"there are several major internal subsystems of the organization that must be coordinated to successfully implement a new organization’s strategy. These subsystems include technology, reward systems, decision processes, and structure. As with any system, the subsystems are interrelated, and changing one may impact others. The technology employed must fit the selected strategy for it to be successfully implemented†. Asda’s purpose of implementing this strategy is to differentiate its services on the basis of quality and meeting individual customer needs. Hence it must take steps to ensure that the CRM is in place to provide a superior quality of services to ts customers To succeed with a CRM program, Asda and its staff must be ready, willing and able to make the change. The organisation needs a solid planning and proper integration into its current system. Reward systems can be an effective organisational tool for motivating individuals to support the CRM strategy implementation efforts. Commonly used reward systems include stock options, salary raises, promotions, praise, recognition, increased job autonomy, and aw ards based on successful strategy implementation. These rewards can be made available only to managers or spread among employees throughout the organization. Since they currently has an ERP running am sure implementing a CRM wouldn’t be much of a problem. 7. 0 CONCLUSION In light of the above analysis, it can be concluded that Asda’s position is highly threatened in the turbulent retail segment by Sainsbury’s because of its analytic and organised collection of data. Technology alone has been argue as not giving a competitive advantage as it could easily be bought and implemented by another. However effective use of the technology aligned with its core aim and vision gives one a competitive advantage. Asda has been able to achieve both with the help of a lean and agile supply chain management, along with the strategic use of information technology. However, implementation of this customer-centric management system will give it an extra edge again its competitors in this turbulent retail segment. 10 | P a g e REFERENCES [1] http://www. asdafinance. com/ [Retrieved 07/06/2011] [2] Wal-Mart buys Asda in UK retail shock. ttp://findarticles. com/p/articles/mi_m0DQA/is_1999_June_17/ai_55041044/ [Retrieved 07/06/2011] [3] YouGov SixthSense. http://sixthsense. yougov. com/retail-reports/supermarkets-reports. aspx [Retrieved 07/06/2011] [4] Asda as an employer. http://www. asda. jobs/all-about/who-we-are/index. html [Retrieved 07/06/2011] [5] Asda sales growth. http://www. guardian. co. uk/business/2011/may/17/asda-supermarket salesgrowth-stalls [Retrieved 07/06/2011] [6] FAQs â €“ About Asda. http://www. about-asda. com/faq/. 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