Q This report is about MGT501 BUSINESS ENVIRONMENT to critically evaluate the effect of the external environment on firms Home, - MGT501 BUSINESS ENVIRONMENT MGT501 BUSINESS ENVIRONMENT Introduction Business environment is an extremely essential concept which is required to understand with great importance. Business environment is referred to the environment that includes all the internal and external factors which is the reason of influencing all the operating situation of any business or organization. The business environment includes factors like suppliers, owners and their competition, technology, market, economic trends and so on. The five most important elements of business environment are the legal and economic environment, competitive environment, technological environment, the global business environment and the social environment. In this particular paper the business environment of Woolworths Australia will be thoroughly discussed and analyzed. The five elements of business environment are critically evaluated in this paper. The different business strategies like the five force model, SWOT analysis, Cost Leadership strategies, Differentiation Strategies and competitive strategies will be demonstrated to justify the business environment of Woolworths. Woolworths is one of the largest retail companies in Australia. Woolworths is a supermarket and has diverse kinds of products which are sold demonstrating different kinds of business environmental factors which result in the operating of the entire business. However, Woolworths has a few flaws which are subjected to improvement and has been analyzed with the help of the recommendations. Background information Woolworths Limited was first established in the year of 1924. Woolworths is the leading and largest supermarket chain in all over Australia. Woolworths has three major divisions, in sub-Saharan Africa, New Zealand and Australia. Woolworths has over 995 supermarket stores all over Australia (Parkinson, 2018). The whole supermarket chain involves over 115,000 members who are assigned to provide support to the customers as well as helping in providing the best and superior service to the customers. Woolworths has always been concerned about proving the best products to the customers hence they have a regular contact with the farmers directly to receive fresh fruits, vegetables and other necessary products in the best form. Woolworths provides with the facility to shop from their home online which are freshly home delivered. When Woolworths was first established it was noticed that the shares of this company was worth the standard of gold. They have always been the largest supply chain all over Australia since 1924. They did face a downfall in the year of 2008 but since 2017 they have been back on track providing their best services to the customers. The most essential property of Woolworths is that they share the groceries i.e. the vegetables, fruits, meat etc. along with these they also sell baby care products, magazines, household products, stationery items, beauty and health products and also DVDs (Spillan and Ling 2015). Their most important slogan is “The Fresh Food People”. Body of information Business strategies Organizations all over the world thrive to fulfill their business goals and achieve their ultimate objectives (Deasy et al., 2016). For this specific purpose all organizations prepare certain strategies that are basically plans of the high level operating units of the firm that helps the company to achieve its selected set of goals. The strategy of business that is developed by all organizations around the world focuses on the growth of the organization. It also looks after securing of a strong position in the world market and finally, the economic performance of the company to be strong (Deasy et al., 2016). Woolworths supermarket in Australia follows this business trend and has been able to successfully develop ways in which the store can have maximum profit. These involve their schemes of loyalty and rewards to the consumers as well as the employees, the benefits provided to the workers, the cost of operations, the relationship and communicative aspects between the employees, employers, suppliers, buyers, stakeholders and many other aspects (Bah & Fang, 2015). The business strategy of a firm is considered to be good if it can satisfy the consumers, which is the ultimate goal of an organization. The strategies have to be adaptable and flexible so that they can change and modify themselves depending on the changes or shifts in the paradigms of the external environment and always maintain a stance of efficiency. The strategies of a business organization like the Woolworths store involve the understanding of further models like the five force model by Michael Porter (Bah & Fang, 2015). It also considers aspects of advantages like the cost leadership, differentiation strategy, focus strategy and the competitive advantage or strategy. These concepts are discussed in details in the sections to come and are always considered and compared to the prospects of Woolworths and its success rate in the last few years (Peng, 2017). The key questions that are expected to be answered by the strategies of the business ask about the target consumers that the brand is meant to serve. The kind of market to initiate the business in has to be identified and the needs and desires of the consumers have to be checked in order to satisfy them. Finally, it will also provide solutions as to what can be done to satisfy the needs and the trends of the market in which the brand is operating (Peng, 2017). There are five strategies that the company involves into for profit accumulation. Cost-leadership strategy Woolworths has been termed the largest and leading supply chain in all over Australia because of their adoption of various business strategies. They have adopted the cost-leadership strategy which had turned out to be the most beneficial for them. This concept deals with the preparation of products or services that are easily accepted by the target consumers and are available to them at the lowest possible prices (El-Masri et al., 2015). The products however, needs to have quality standards and needs to attract more than one consumer at a time and have the competitive price that is the lowest. The analysis of value chain for the cost-leadership process provided the notions of cost advantages of the following kinds: • The raw materials had low-cost sources and the management layers they went through were fewer in number. • The production was done effectively and the training of the employees was efficient that included policies that were consistent (El-Masri, Orozco, Tarhini & Tarhini, 2015). • The technologies involved were managed easily and had the automation process that was low in cost. • The sales force of the firm showed high performance level and had MIS that was cost effective. Differentiation strategy This concept is one that is perceived by the consumers and they decide whether the goods or the services that are being sold to them are different or not according to the level of importance and their affordability (Bui & De, 2017). This concept or strategy focuses on the innovation of new ideas and products that can be customized according to the needs of the consumers as well. The aim of this strategy is to shift the focus of the consumer from affordability to the differentiated aspects or features of the products that they provide. The concept of differentiation focuses on the generation of various dimensions for the products that they sell like the freshness of the food items and the quality standards of the goods in case of Woolworths (Bui & De, 2017). This separates them from their competitors and provides a competitive edge as well. The distinctive qualities can be analyzed in the value chain in the following ways: • The features of the product are both unique and unusual while the brand provides a high quality and improved consumer service that forms part of their promise (Bocken et al., 2016). • The technological monopoly that Woolworths poses has given it the chance to invest in the rapid innovation processes for newer and more developed items to sell. • Woolworths have opened up new departments and have engaged in selling different products, thus expanding the brand name, status and prestige of the firm and at the same time reaching out to more and more people with varied tastes (Bocken et al., 2016). However, it has certain limitations as well that needs to be checked like the price differential issue that gives chance for new competitors to enter. The diminishing standard or value and experience limits the perception of the consumers and the counterfeit products are there as well to replicate the unique products of the company. Integrated strategy This concept combines low-cost and the differentiation processes again by making innovative products that are sold or distributed at lower prices (Bocken et al., 2016). Woolworths have to generate capabilities that concentrate on both the differentiation and cost concurrently. Focus strategy The strategy is simple and to the point and focuses on the needs and desires of a specific segment of competition and serves that section entirely (Bocken et al., 2016). This concept focuses on specific buyer or consumer groups and works in geographic markets that are unique. Large firms like Woolworths needs to adopt this concept so that they can check the small niches and compete in the international market that is broader and focus on the activities of the value chain as the main aim is to have competitive advantages. This concept adheres to the cost-based and differentiation-based strategies by providing low cost, narrow segment of the industry, innovation, uniqueness, and more (Bocken, de, Bakker & van, 2016). However, chance of getting out-focused by competitors and the change in consumer trends affects the process. Competitive strategy The competitive strategies of a company can be divided into three units, namely differentiation, price strategy and cost leadership. While cost leadership increases sells and minimizes costs, differentiation provides competitive edge (Saebi & Foss, 2015). The price strategy involves further steps of penetrating the market, economy pricing based on it, skimming, bundling and promoting the products that have been developed. The low price development by implementing this strategy gives a benefit in the market that Woolworths was able to achieve and that helped it to be a leading business organization for almost a century. This concept is effective and still has slight variances from the products and the objectives of the competitors (Saebi & Foss, 2015). The leadership qualities that this strategy formulate helps to generate more efficient workers on a regular basis and they are motivated to work with their best effort to ensure products of high quality but lower prices. Swot analysis Strengths Ø Woolworths is largest retail company in all over Australia (Lurati and Zamparini, 2018). Ø The financial position of Woolworths is stable and strong in the market. Ø An extensive range of essential products are offered by Woolworths. Ø The supply chain management of Woolworths is excellent and huge which leads to the retention of the customers extensively. Weakness Ø The costs of the products at Woolworths are expensive. Ø The cost of operation of Woolworths is extensively high. Ø The debt level of Woolworths has risen over the years. Ø For a particular product Woolworths has targeted multiple segments of income which confuses the customers whether they are receiving the products at a value price. Opportunities Ø The sales revenue of Woolworths can be increased with a stable and firm customer base. Ø Where healthy foods are concerned it can be justified that Woolworths has the perfect opportunity for growth. Ø In Woolworths new technology is being introduced which is opening up the scope of growth in the retail industry of Australia. Ø New opportunities seem to come forward for Woolworths as there is noticeable growth in the population of Australia and New Zealand. Threats Ø In Australia the rate of unemployment has been increasing which is standing out to be a potential threat for Woolworths. Ø The Australian economy growth rate is extremely slow which impacts the Woolworths’ business operation extensively (Lurati and Zamparini, 2018). Ø The advancement in the modern technologies consistently turns out to be a great threat for Woolworths. Ø The complete business procedure of Woolworths is being impacted expansively due to the dominating nature of the suppliers. Five Force Model Porter’s five Force Model is considered as strategic management tool which is used to determine the underlying conditions of industry profitability and also helps in analyzing the competitive forces which are pertaining in the market. Woolworths is considered to be the most efficient and growing industry in the Food and Staples sector. The five forces are: Ø Threat of New Entrants Ø Negotiating Power of Suppliers Ø Negotiating Power of Buyers Ø Threat of Substitutes Ø Industrial Rivalry Threats of new entrants- there are various new entrants in the food and staples industry which is resulting as a great threat for the Woolworths. Woolworths is being affected in the field of lower pricing strategies where the new entrants are capable of selling the products at a lower cost than Woolworths. The new entrants are providing propositions of new value to their customers who are resulting in Woolworths facing various obstructions in regard to the competitive edge. However, beating a giant like Woolworths is difficult as no new company can be as efficient as Woolworths and beat its supply chain (Grimmer, 2018). Negotiating Power of Suppliers- the raw materials that are bought by Woolworth are not just from a single supplier but from various suppliers. When the suppliers are projected in the dominant phase then Woolworths is faced with complication of decreased margins which could have been obtained by Woolworths easily. The negotiating power that in vested to the suppliers results in acquiring higher prices from the staples and food retail industry as result Woolworths incurs lower profitability. This increase in supplier domination is due to the implementation of the new agriculture protection act. Negotiating Power of Buyers- buyers turn out to be the most demanding people in the whole supply chain cycle. They demand the best products at the lowest prices with various kinds of varieties. To meet these demands of the consumers Woolworths senses a pressure in the profitability of the business. The threat for Woolworths rises is when the customer base is small yet powerful, at this instance they get the power to create a bargaining field where they seek offers and discounts. This bargaining power can be reduced by providing loyalty cards to their customers (Georgescu and Popescul, 2015). Threat of Substitutes- this substitution mostly occurs in the field of products. In this scenario when a single product serves the customer in various ways then the profitability of Woolworths extensively suffers extensively that can affect the future profit percentages. If there are various brands manufacturing the similar product, then the profitability is lost. The customers may prefer the product which is of fewer prices which may not be available in Woolworths. The threat in this regard Woolworths faces is when the product proposition offers a uniquely different product which are extremely different form industry offerings. However, when there are decreased threats among the substitute products then it would be easier for Woolworths to grab the market space effectively. Industrial Rivalry- this rivalry is among the present competitors. There are many other evolving industries within the Food and Staples industries. When the competition between the rival companies becomes excessively intense then that leads to a low drive in the price. The low price drive hampers the profitability of the company immensely. The rivalry that is faced by the Woolworths is with Coles, Aldi and Wesfarmers (Georgescu and Popescul, 2015). The increasing rivalry nowadays is mostly due to the huge range of products that is provided to the customers as well as the online services which are made available to the customers. Discussion of relevant topics The sections above details the various aspects of the Australian store Woolworths, which is a leading retail store in the country. The supermarket deals with the distribution of fresh quality food to the people of the country and has been doing so for years. Their stable business strategies have enabled them to run successfully for so long and to expand the business by opening new stores all over the country (Saebi & Foss, 2015). Proper focus on the scientific as well as the technological advancements with the consideration of the growing competition has made it possible for Woolworths to identify the possible threats and benefits too. The company or the store has a scheme of providing rewards to the regular consumers on a daily basis by presenting them with possible promotional aspects, discounts, rewards, etc. as discussed above, the company has gone through some serious changes in their outlooks in the contemporary times as the main aim is to achieve the goals of the stores (Saebi & Foss, 2015). The store is no longer only an Australian entity but involves foreign investors and suppliers as well. They have certain power over the company but ultimately help in the competitive field by providing advantages. Other aspects that affect the effectiveness of a company involve the arrival of new companies with innovative ideas who pose a great threat to the existing companies. The condition of the world economy is a major issue as well along with the notions of employee outsourcing. The buyers of the store as well as the suppliers have equal rights on the materials that are being sold in the supermarket (Venkitachalam & Ambrosini, 2017). People are a lot more conscious about certain facts and the companies need to evolve accordingly. Based on the findings the different operational units of the store and the management style can be said to follow some models or frameworks that gives competitive advantage and provides competitive parity as well. VRIO Model The model that is called the VRIO model is basically an acronym for four sets of decision making components of an organization, namely value, rarity, imitability as well as organization. These are the four pillars on which all the strategies and discussions depend (Venkitachalam & Ambrosini, 2017). The environment of any business organization has both internal and external involvement, but these four components that helps a company like Woolworths to have a competitive advantage that is sustained, remains constant. Woolworths would only be able to have the competitive edge once it can identify and implement all the four components that form the part of the model. The VRIO analysis can be done on both levels, which involves the company as whole or individual assessments of employees or departments (Venkitachalam & Ambrosini, 2017). This provides the management team with a view that is well rounded and complete so that the position of the store in the world market is stronger. Value is that resource which is able to add value for the sake of the customers. Woolworths have loyalty programs and rewards that help them to retain consumers and the employees that are skillful and are efficient. The human resource management department works incessantly to secure employees who have stronger potentials and manages to retain them as well for the development of the firm. That is how they are able to expand and open up new stores with new and innovative ideas and products for sell. Woolworths have not only opened up new stores all over Australia but have also indulged itself in the grandeurs of the new departments that it has initiated (Venkitachalam & Ambrosini, 2017). Rarity is a significant tool that separates one company with another. It is the aspect of a firm to stand out from the others in the same industry. Woolworths have developed and issued an unique and rare concept that has formed their logo, which states “The Fresh Food People”. In the year 1926 Woolworths became the first ever store in the whole world to ever use a cash register machine that printed the receipts. It soon gained popularity and made Woolworths a brand name that suggested innovation and success (Venkitachalam & Ambrosini, 2017). In a similar way, the company tries to indulge the management teams to produce items that are cheap and has the option of having the money back in the contemporary market. That is a huge advantage that Woolworths provide and others do not, which makes the supermarket an obvious choice for people to shop regularly. Then there is the ‘Frequent Shopper Club’, which is famous in Tasmania and offers $20 to any customer who has accrued 2000 points. Thus, conditions like this makes Woolworths stand out in the Australian supermarket industry and has made it a huge success for years (Beamish & Lupton, 2016). Woolworths was also able to take the significant and historical decision of stop using the plastic bags of single use that the stores provided to the consumers. The ban on plastic bags pushed the company towards a sustainable growth and development and generated a feeling of trust amongst the consumers. Imitability is that notion or framework of an organization that is hard to copy or imitate by other growing competitive firms. The supermarket invests in the technological advancements of the operational units which is hard to keep up with as the company keeps up with the fast changing pace of the technological world so that it always has a competitive edge (Beamish & Lupton, 2016). The success of Woolworths in initiating brand labels that are private like the Woolworths Homebrand, Woolworths Select, Woolworths Gold, Woolworths Fresh and Macro Wholefoods Market are all part of the framework that is difficult for other organizations to keep up with. Organization is part of the framework and is a wholesome concept but the responsibilities are divided to ensure effective results. While the human resource team manages the employees of the store, the finance team looks over the cost effectiveness; the employees are also trained to focus on fruits and vegetables that are stronger (Beamish & Lupton, 2016). Providing products of high quality is a major goal of the store and all the operational units focus on those aspects on top of everything else. That is how the company has been able to survive for almost a century and have maintained the leading position in the grocery industry in Australia. Profit Model The internal capabilities of any organization have to be assessed before discussing the competitive advantages that it might develop. The advantages in the world market that any organization can secure depend on the internal workings of the firm (Beamish & Lupton, 2016). The resources available in the operational units of a company have to be efficient and effective in bringing the maximum profit to the firm. When the scenario of the internal environment improves the external environment will see a shift in the profit paradigm as well. The Profit Model helps a firm that has achieved international standards like Woolworths supermarket in Australia, to assess the significant capabilities that the store possess internally. The term Profit is again an abbreviation and stands for the following concepts: P- Physical resources R- Reputation O- Organizational capability F- Financial resources I- Intellectual property or innovation T- Technical These concepts form the reason for the sustainable growth and provide competitive advantages to a company like Woolworths (Hacklin et al., 2018). While few of these resources forms the tangible resources, the others are the intangible resources that gives any company an edge in the field of competition for future reference and in long run. The tangible resources of a firm are anything that can be perceived physically or can be counted or amounted to. These aspects have a physical presence in the regular working units of a firm and support the company with their framework and structure (Hacklin et al., 2018). The tangible resources can be identified as: • The financial or economic resources of the company that gives the firm the ability to borrow money from the suppliers or investors in order to carry on the regular operations. The economic aspect of the firm shows how a company like Woolworths manages to generate funds in huge amounts with the help of the various operations that they perform internally. • The organizational resources like the reporting structure of the company for the various works done and the money invested has to be presented in a formal way so that there is always a record for future referencing (Wirtz et al., 2016). • The physical resources of a firm comprises of the location or geography of the store. The stores of Woolworths are built in places where the population is readily agreeing to buy from it. Stores that are located in sparsely populated areas are bound to generate lesser profits than in the developed and populated zones (Wirtz et al., 2016). The equipment used to keep up the good quality of the products that Woolworths sells is another physical attribute that attracts both customers and investors from foreign nations. The facilities of distribution are user friendly and help the consumers in every possible way and there is the presence of the product inventory as well that benefits all the people related to the store. • The technical or technological aspects of any company are of great value in the contemporary market (Wirtz et al., 2016). Without the presence and proper implementation of the advancements of science no organization has the scope to survive. It is vital for all firms to incorporate the technological changes that form the heart of the business world in the current market. These involve the copyright concepts of the private brands that are owned by Woolworths like Woolworths Gold and Woolworths Fresh (Wirtz et al., 2016). The trade secrets of the firm needs to be recorded monitored and secured from the competitors by storing it in advanced computer systems. The trademarks and patents of a company are an integral part of it and needs proper attention too. The intangible resources like the tangible resources form the Profit model of a company and give the management team with a better understanding of the functional units of the organization (Wirtz, Pistoia, Ullrich & Göttel, 2016). These involve the following: • The human resources that are present in a firm are the most important functional units that the company poses and have to be regulated by a human resource management team to ensure that they are working with positive outlook and confident skills. The human resources of any company has to be trained in order to understand correctly the goals and objectives of the company they work for and to work positively towards the achievement of the goal from the very beginning (Dijkman et al., 2015). Both the parties need to have sufficient knowledge and information about each other so that there is no chance for false expectations to enter the bond. Trust is a major tool for positive development and the communication channels has to be efficient to ensure collaboration from all the human resources, from the employees to the employers, stakeholders, investors, and others. • The innovative concepts or notions of innovation helps a company and pushes it towards improvement too (Lewandowski, 2016). The newly formed ideas that are developed by the skilled professionals for example, the slogans and the Safeway Australia concept are all part of it. These have to be incorporated with the scientific capabilities that the firm can adopt so that there is a future potential for the company to have the capacity for innovation. • The final intangible resource that has equal importance is the reputation and the brand value of the company (Lewandowski, 2016). Woolworths is a well-known and well accepted brand in all over Australia and New Zealand. However, that is not the case in the rest of the world. Therefore, to improve internationally and to have a competitive edge the company needs to focus on the expansion of its brand name. The company already focuses on providing the “Aussies” with fresh foods and quality products but they have to gain proper perception of the durability of the products, the reliability of the goods and the quality of the products (Lewandowski, 2016). The firm has to keep a positive outlook while dealing with the suppliers and the customers as well as the stakeholders so as to ensure a positive relationship between these people who forms the integral part of the organization and results in the generation of more profit. The Profit Model finally helps the company to define the four criteria’s that helps the company have the competitive advantage, which is sustainable (Dijkman et al., 2015). These involves the: 1. Visual capabilities of the company to identify and resolve possible threats or opportunities of exploitation. 2. The rare features of the firm that has been discussed in the sections above regarding the technological improvements that no other competitors pose. 3. The capabilities of the firm that are costly to copy or imitate that have resulted in the brand name origination and have formed the complex social relationships between the human resources of the firm (Dijkman, Sprenkels, Peeters & Janssen, 2015). 4. The capabilities of the company that cannot be substituted or there are no equivalent strategies to contest it. Recommendations The company discussed in the paper is a leading brand selling retail products to the common people. However, the company faces certain issues and problems regularly that come in the way of the attainment of great success. Therefore, in such a condition the company is in need of proper recommendations that will help the company have better market shares (Hacklin, Björkdahl & Wallin, 2018). The company has to look over the various aspects of the firm, be it external or internal and have to decide what steps to be taken for the necessary changes to take place. There are a few vital steps that the company Woolworths can follow so as to achieve the goals and objectives of the firm in a smoother way. These include: • The different teams in the company or store have to work collectively in order to try and reduce the costs related to the operational units of the store (Georgescu & Popescul, 2015). • The management teams of the company are expected to involve more number of suppliers as that will reduce the domination faced by the other employees. • The most significant tool of any business organization is the consumers so the strategies of business that the company develops have to be focused on the consumers and their needs (Hacklin et al., 2018). • The policies and the principles of the company have to be legit so as to be able to attract the foreign investors and possible business partners. • It is vital for any organization to have a clear communication channel between the employers and the employees. Providing clear objectives of the firm and discouraging any form of false expectations are part of the business and have to be practiced effectively. • Finally, saving time is a very significant aspect and open as well as transparent communication between the employees, suppliers, investors, etc., is crucial for the success. The competitive advantage to the profitable expansion all are related to these issues itself. Conclusion The sections above have established the need for a stable and efficient set of strategies for any organization to survive in the world economy and in the global market. The Woolworths Supermarkets in Australia was founded 94 years back and is still running as a successful organization as well as expanding their business on a regular basis, because they focused on the maintenance of the strategies. These strategies gave them a clear picture of their strengths and weaknesses after being implemented properly and from that the company is able to understand the rate of profit as well as the competitive advantage of the brand in the industry. The paper has equally focused on the various aspects of the business attributes of Woolworths while discussing the reasons affecting the firm. Different models are being considered based on the evidences formed. Based on the strategies formed the paper also presents ideas that will help the firm to evolve in a better way in the future. Possible solutions for the issues faced by the company in the country Australia are provided as well in details. Understanding of the profit percentages and the competitive advantages through proper models that justify the processes are presented as well for better knowledge.