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One of the challenges most firms have to face in crisis situation which is how they can adapt their resources and pay enough attention to maintain their business effectively and efficiency. According to the book, "Business Strategy: Theory and cases", strategic management was defined as "the ongoing process firms use to form a vision, analyze external and internal environments, and select one or more strategies to create value for customers and satisfy other stakeholders." By planning and identifying the company's competencies and capabilities, future risks and opportunities, the business can react immediately to the future risks and attain opportunities. In particular, discontinuous changes in the environment are often seen as necessitating substantial adaptation on the part of firms in order to survive, and firms that do so effectively are more likely to survive and prosper despite disruptive events (Chakravarthy, 1982). The inability to change, by contrast, is viewed by much of the strategy literature (and the MBA level core strategy course) as a pathology that needs to be cured by proper management. Adaptation in response to discontinuous change is usually seen in terms of designing more appropriate resource allocation (Burgelman, 1983, 1991). However, the empirical results regarding strategic adaptation are rather mixed and the process of strategic adaptation is not well understood (Jennings and Seaman, 1994).
A lot of studies were written about how business should behave in a changing environment, especially when it comes to changes like financial crisis. At that moment, financial crisis affected all of us and all business sectors. In particular, organizations within the service sector, they are faced with a wide array of potential crisis issues and this is due to both the nature of the service sector itself and the extent of interactions between elements of the industry. There are potential problems in managerial processes arise out of the activities within the organizations. At once, there may be other events occur along with crisis. For example, let's say a firm loses a key customer that represents a disproportionately high percentage of the company's sales. The crisis informs the date the company learned the customer defected, when service representatives began to neglect the customer, when the company slashed its research and development (R&D), marketing budget and stopped innovating, or even. Thus, in service sectors people are changing their buying preferences (Shama, 1978; Ang et al, 2000) and companies have to cope with this situation in one way or another.
In order to examine this situation, I am going to evaluate the keys that driving success of Tesco in economic downturn by looking at their changes in marketing strategies and their management in changing environments. The marketing mix, or 4P´s, is the tool through which organizations operate their strategies and where the changes can be seen, therefore the focus of this research will lay on the marketing mix of the grocery stores and how this is changed during financial crisis.
Purpose of study
This study aims to address the following questions:
How do businesses adapt to the competitive environment during difficult economic conditions in the ways they do and not otherwise?
Why do businesses choose to adapt in the ways they do?
What conditions enable, or constrain, particular types of strategic adaptation?
How do such adaptations contribute to short and long-term business performance?
Change and strategic management:
Change is phrased quite effectively by Kanter et al. (1992) as the shift in behavior of the whole organization, to one degree or another (p. 11). Senge et al. (1999, p. 14) refer to change as the way an organization adapts internally to the changes in the environment. In these senses, change is not something that just happens, but must be planned in a proactive and purposeful way to keep an organization current and viable (Robbins, 1990, p. 383).
Every company must have a strategy as a direction for an organization to operate and to create competitive advantage. Most people think strategy as a plan - a direction, a guiding course of action into the future. According to the book, "A strategy is an action plan designed to move an organization toward achievement of its vision. Thompson and Strickland (1993:6) define strategy as "the pattern of organizational moves and managerial approaches used to achieve organizational objectives and to pursue the organization's mission." Michael Porter (1996) states: "The essence of strategy is choosing to perform activities differently than rivals do."
At this time, financial crisis affects the customers not only economically but also psychologically. People start to worry about their future, and do not enjoy shopping anymore (Ang et al., 2000). They do not want to spend money on premium products anymore, even if they still could afford to do so, becoming more money minded. (Ferrell & Hartline, 2002). They only buy necessities, switch to cheaper brands and have a more rational view on promotion.
According to Roberts (2003) and Hiller (1999), marketing is the solution in a crisis period, because cost and price reductions affect the long-term relationships that companies have, and even the quality process will be seriously affected. Thus, a lot of company increased their marketing expenses in crisis, did not lose money, and even gained profits. Furthermore, companies that increased their marketing spending gained market share three times as quickly after the downturn. According to Michael Porter on long-term strategy in a downturn, in economic downturn the customer almost get more on price sensitive, partly because customers are under pressure. They have power so they can push and beat down hard on the company. The company should actually cut back on its services and on its features but actually that probably the worst thing you could do because then it will undermined the long-term success.
Marketing strategy is a plan for how the organization will use its strengths and capabilities to match the needs and wants of the market (Ferrell &Hartline, 2002). The marketing strategy is supposed to develop effective responses to changing market environments by defining market segments and developing and positioning product offerings for those target markets. (Hooley et al., 2008). To be successful on a market, especially a changing one, companies have to use proactive strategies and should not react on others events, but creating them. (Nilson, 1995).
In order to know what the market wants and what the company can offer them, they first of all have to analyze the current situation that they are in. The issues to look at are: the internal environment, including the organizational structure, resources and the company´s performance, further the customer environment, including current and potential customers, purchase of products etc., and finally the external environment- the competition, economic growth and stability, political trends etc.
To identify customer group, a number of variables is included to define segmentation
Geographic variables: region of the world or country, country size or climate
Demographic variables: such as age, gender, sexual orientation, family size, incomem, occupation, education, socioeconomic status, religion, nationality/race, and others.
Psychographic variables: personality, life style, values and attitudes
Behavior variables: such as benefit sought (quality, low price, convenience), product usage rates, brand loyalty, product end use, readiness to buy stage, decision making unit, and others
The marketing mix, also called 4P´s, and how it is changed during financial crisis is the focus of this study. The principles of the mix are controllable variables, which have to be managed in the correct way, to meet the needs of the defined target group (Kotler, 1996).
Product: brand name, packaging, features, options, quality, warranty, service, style appeal
Price: level, discounts, allowances, payment terms, deliver options
Promotion: sales promotion, personal selling, publicity, advertising
Place: distribution, channels, distribution, coverage, outlet location, sale territories, inventory levels, inventory locations
Development in Strategic Management
A number of practitioners, thinkers and academicians of management have contributed to the formation and development of management principles, thought and approaches. The study of theories is more important as they guide management decisions; they shape our organization, make us aware of the business environment and are a source of new ideas.
Managementhas been defined by Smit & Cronje (1997)
as the process of planning, organising, leading and controlling the resources of an organisation to achieve stated organisational goals as efficiently as possible (p. 11).
This definition is much in line with the scientific management theories which were developed by the engineers Taylor & Fayol, where management is viewed as an objective science that consisted of a number of clearly identifiable and controllable activities (Stacey et al., 2000, p. 61). Max Weber reiterated this in describing the ideal organization as one that is perfectly logical, efficient, impersonal, and had a clear hierarchy of authority (Robbins, 1990).
It may be stated that F.W. Taylor and Henry Fayol together gave an almost complete theory of management. Taylor studied the lowest level of industrial hierarchy whereas Fayol, on the other hand, worked from the top of the industrial hierarchy downward. Taylor recognized that scientific method was the key to success of industrialization, essentially in production lines. While Taylor's system began as an attempt to develop the perfect pay-for-performance formula, it quickly came to encompass broader issues of "work" and "control." Standardizing work, tools, and maintenance techniques is the way to achieve productivity in his theories.
Taylor set out to find a way for the 'best' method to get each sub-task done, 'best' being the quickest time to get something done. Time study became a crucial element of the Taylor system by examining not just how long a particular task took to complete but how long it should take by breaking each job and work process down into discrete parts, studying and timing the movements of men and machines.
One of these principles, for example, was to employ suitable people for the given job, e.g. you would employ a trained mechanic to a garage over someone who has no experience in that field, to increase efficiency. Another key principle was to remunerate according to how much work had been carried out that day, essentially "A hard days work for a hard days pay," using the piece rate of pay, it theoretically pushes employees to work faster to earn more money. It was technology, not people that interested Taylor.
The main limitation of Taylorism was that it failed to see that a factory like a corporation was as much a social system as an agglomeration of machines. However, as with Fayol, Taylor's theory had it's weaknesses; although the theory is still widely prevalent today, it again treated the employee as just another resource and by breaking the job down to repetitive tasks, it limited individuality within the work place, making jobs seem mundane and soul destroying.
Meanwhile, Henry Fayol was a major contributor to administrative management approach. Fayol felt that the activities of business could be divided into six groups: (i) Technical; (ii) Commercial; groups (iii) Financial; (iv) Security; (v) Accounting; and (vi) Managerial. He classified the managerial group into six sub-groups, viz., forecasting, planning, organizing, coordinating, commanding and controlling. Fayol stated the qualities required by managers to be physical, mental, moral, educational and technical.
The universality of the principles of management could be understood throughout the treatise of Fayol. He should be regarded as the father of modern management theory since he was first to emphasize that better management is not merely a question of improving the output of labor, but of planning of the subordinate units of an organization.
Human relations theory
The human element was recognized by classical theorists like Mary Parker and Chester I Barnard. Elton Mayols are widely regarded and pointed out that the techniques of scientific management are not adequate and they do not contribute to individual and organizational goals. The essence of human relations approach is that workers should be treated as human beings but not as mere factors of production. Workers' needs, feelings, attitudes, values and desires are extremely important. The theme of human relations approach is that (i) organisational situation should be viewed in social terms as well as in economic and technical terms and (ii) the social process of group behavior can be understood in terms of the clinical method analogous to the doctor's diagnosis of the human
The study allowed Mayo to see how it was the social groups that decided how the social groups and leaders of these circles influenced how the groups' work based on norms and values rather than work related rules and regulations, not only this however, work also fluctuated based on the environment of which they were working in (Scanlon & Keys, 1979). For example, if lighting was changed, there'd be a rise in work levels for a period of time and then it would drop off after a while, then the environment would have a change to the layout of the rooms and the same pattern would happen again. Not only did productivity increase, but also so did absenteeism and the need to supervise the participants as much as before.
The conclusion of Mayo's experiment was that with changes to variables such as: environment, breaks, work groups and other rewards, workers' focus would increase for a period of time and then begin to diminish after an arbitrary amount of time, generally based on the social groups and norms the workers' would be surrounded with and not directly the manager themselves.
Weber & the bureaucratic organisation
Max Weber (1864-1920) felt the need for controlled regulations particularly in large organisations where thousands of people are employed and developed a theory of bureaucratic management, which emphasizes on a strictly defined hierarchy governed by clearly defined regulations and lines of authority. 11 For Weber, the ideal organisation was a bureaucracy. Today, we view bureaucracies as vast, impersonal organisations that put impersonal efficiency ahead of human needs. But Weber sought to improve the performance of socially significant organisations by making their operations productive.
Level of strategy
Strategy is performed on different levels in organisations, and although these levels are not easily distinguishable. Digman (1990), Johnson & Scholes (1999) and Oliver (2001, p. 3) identify at least 4 levels in organisations: (1) corporate, (2) business unit, (3) operational, and (4) enterprise strategy and functional strategy.
Corporate strategy is concerned with the financial orientation of the organization in terms of its portfolio of businesses and how resources are allocated to business levels. This is of importance for organizations engaging in more than one line of business (Robbins, 1990, p. 123).
Business unit strategy is marketing oriented and functions at the level of products, services and the competition in the market place. The functional level of strategy is occupied by integrating the different functions of the organisation in order to create synergy and to gain competitive advantage. Organisations with diverse business strategies will have a variety of structures to fit the strategies of each business unit (Robbins, 1990, p. 124).
The operational strategy level concentrates on putting all the above decision-making processes into action. On this level, action processes include setting short-term objectives and finding cost-effectiveways of obtaining them. Managers who function on a strategic level put more thinking into the enterprise strategy levels, and constantly try to balance the mission of the organisation with the demands of the external environment (Grunig, 1992, p. 119; Johnson & Scholes, 1999).
Strategic planning versus Strategic thinking
In formal strategic planning, defining the roles and functions for division and department is fundamental factors which are seen the center of the organization's process system (Johnson & Scholes, 1999, p.425). Meanwhile strategic logic was described in this context as the organization's operative rationale for achieving its goals through coordinated deployments of resources (Sanchez & Aime, 2004, p. 5). Hill & Jones (2004, p. 8) point out that many business thinkers see strategy as a result of a formal planning process, so strategy implementation is a process of designing appropriate organizational structures and control systems to put the organization's chosen strategy into action (p. 8).
The result of strategic planning is a plan (Harrison, 2003, p. 24; Graetz et al., 2002, p. 53), and the steps normally followed are (Hill & Jones, 2004, p. 8): selection of the corporate mission and major goals of the organization; analyzing the external environment of the organization; analyzing the internal operating environment; making strategic choices based on this analysis; and implementing this strategy. Strategic planning involves setting of objectives, analyzing the environment against the resources available, and then producing a plan for implementation. Strategy, according to this process, is therefore the outcome of careful and controlled analysis and planning with a clearly defined sequence of activities.
Strategic implementation occurs when strategy is put into action through components such as organizational structure and design, the planning of resources, and the actions taken by managers to change processes (Johnson & Scholes, 1999, p. 22). Critics of formal planning systems argue that strategic planning is rigid and reduces intuition and creativity (Harrison, 2003), and does not allow for adjustments and flexibility in the ambiguous, uncertain and complex world we live in (Hill & Jones, 2004, p. 18). Rapid and unanticipated changes can leave any well thought-out plan useless, which is why recent approaches to strategic management have placed more value on the ability to respond quickly to environmental changes.
Considered to be
Only its form can be
envisaged; vision; scenario
implementation of plan:
Deterministic, top-management decision-making, rational, discrete,
involvement of all levels
Clear boundaries and
Job descriptions are tightly
controlled and protected;
clear report lines
No boundaries; holistic
approach in management;
Setting of strategic direction through analytical, systematic process
Strategy and change
recognition of effective
Self regulation; sense of
strategic intent and purpose
Creation of plan the ultimate object
Planning process seen as an important value add; provides direction and focus
(Adapted from Graetz et al., 2002, p. 56)
The classical school of theorists led by Frederick Taylor, Henri Fayol and Max Weber introduced ideas of the scientific approach in management theory (Robbins, 1990). They believed in tight control of production and productivity, and the importance of authority and bureaucracy as the most efficient means of obtaining organizational goals. Thus arose the development of the concepts of rational-planning and the idea that structure was a result of strategic planning and organizational objectives.
During the economic slowdown of the early 1990s, companies saw that a narrowly focused TQM had little impact on the bottom line, and so they began looking for business results by tightening processes and eliminating redundant steps in business procedures. This led to Business Process Reengineering, which included competitiveness, cost cutting, core business process focus, radical change and dramatic improvement (Cummings & Worley, 2001, p. 302; Graetz et al., 2002). Reengineering addressed the problems of traditional management systems where work was broken down into specialized units, but was slow to respond to unpredictable and complex environments. BPR integrated specialized working units into cross-functional work processes.
Together with these technical and work process system developments, the humanistic approach evolved with a more democratic and personal touch and flexible adhocracies being the ideal organizational form (Robbins, 1990, p. 41). The motivation of employees and participative decision-making were emphasized, as well as the facilitation of communication as an important role of the manager. The contingency movement gained momentum in the 1960s, and the influence of the environment on the structure of the organisation was highlighted. This view propagated that there was not 'one best way', and that variables such as the size of the organization had profound influences on the management approach and structure followed. The most recent approach, as discussed in Robbins (1990, p. 43), focuses on the political aspects that influence structure such as power coalitions, conflict and negotiation and control.
Case Study on services sectors
Effect of buying in financial crisis
According to Ang, Leong, & Kotler (2000); Shama (1978) people change their buying patterns during financial crisis and under stress. Thus, fear of the future is shaping the behavior of consumers and they do not anymore enjoy spending their money. Changing their buying behavior is as an effect of the financial crisis that the companies have to change their strategies in order to meet the customers' new preferences. Consumer purchasing behavior is a phenomenon of great complexity that is comprised of a combination of economic determinants, market stimuli, and decision-making processes. The complex processes that are associated with consumer purchasing make it hard to predict and control them. However, as consumers are the vital source of business revenues it is of major importance in order to achieve financial prosperity and market survival.
Consumer behavior in buying can be described as the set of attitudes that characterize the patterns of consumers' choices. Apart from the essential internal factors, which can be recognized as influential to buying behavior, there are a number of situational contexts that can be suggested to affect consumer choices. In this respect it can be proposed that consumer behavior is a combination of customers' buying consciousness and external incentives which are likely to result in behavior remodeling (Dawson et al., 2006). This is why researchers in the field of consumer buying patterns conclude that it is derivative of function that encompasses economic principles and marketing stimuli (Hansen, 2006).
As buying behavior is a key factor for companies' profitability, it is a phenomenon that has been attracting the attention of researchers for many years. One of the fields most significantly interested in consumer choice, is the field of marketing (Kotler, 2000).
Marketing is the discipline focused on extracting knowledge on consumers' characteristics to enable companies to respond to customers' expectations and facilitate organizations in providing high quality customer service (Groucutt et al., 2004).
The most recent financial crisis, which has caused an economic travesty, is presently recognized as a large challenge for the survival and profitability of the majority of global companies. The financial crisis's impact on consumers' buying behavior has paved the way for their experiences to be divided into two individual categories, direct and indirect. The direct factors can be recognized as the decreasing disposable income, job insecurity and credit financing hurdles (Office for National Statistics, 2008). On the other hand the indirect aspects of the credit crunch on customer behavior can be outlined as the challenges of credit financing and investment capability which commercial organizations face and which make these organizations unable to continue with producing high quality products and customer service (The Economist, 2008).
The uniting among of job uncertainty, lowered disposable income, decreased savings, and risk of opportunity cost results in consumers focusing on buying more efficiently by cutting wasted expenses. In other words, consumers are planning their purchases more than have in the past. This demonstrates that the planning process has transpired into an essential characteristic of consumers and is now considered a buying trend. The lowered disposable income is recognized to be the greatest challenge for the consumers' purchasing activities. Lowered disposable income makes individuals practice caution when making product purchases. Individuals are now more interested in the price-quality ratio and the transaction costs, which they are implementing towards their buying process now a day. However, they also indicate that price and quality are important determinants.
According to the information gathered, Real has understood that the buying behavior is changing and that, in order to stay competitive, it will mean changes for them as well. Except from the accumulated consumer buying behavior, with customers asking for premium products that are healthy and possibly also organic, at the same time as they are not too expensive, now the customers are also starting to ask more for discount products. This, nevertheless, the group tries to see as something positive, since it could lead to a raise in sales of their private label products.
Private label products are something that has a quite large focus by Tesco, and they consist mainly of TIP, Real Quality, Real Bio, Real Selection. TIP comes to meet everyday needs, bringing the best prices in Real stores. Articles TIP are already a constant presence in the wide range of products provided to clients. TIP is always the best decision if you do not want to spend too much, but you need good products that respond to your needs.
Real products - Quality offers many benefits and what is more important an alternative to branded products. There is already a wide range of real, - Quality, which constantly enriches you and your family. These products sold under Real Quality brand are of a great quality and at a medium price. Real-Quality offers the chance to enjoy top quality, saving money at the same time as the price of products is very favorable. All products Real - Quality offers quality comparable to famous brands.
If you are aware of how important it is to eat naturally means that you care about your health. Real-BIO offers organic products at the best prices. Real-BIO are products obtained without the use of chemically synthesized compounds which certainly gives clients a healthy diet. Through the quality assured by a biological production process 100% organic, these products meet the most stringent EU environmental directives. No preservatives or flavor modifiers, Tesco - BIO positively contributes to both health and ecosystem protection.
Tesco is a perfect choice, because goods distinguish by taste, remarkable quality, carefully chosen ingredients, product design and the package. Specialties refined in a top quality, Tesco products have a high quality and special features and the price is much less than other premium brands of high quality. Private label products combined with well-structured strategies based on lower prices and aggressive promotion policy help Tesco Hypermarket to pass the crisis being less affected than other companies in the field. During the last year of crisis, Tesco had a lot of promotions based on lower prices, bonuses and prizes.
Strategy and People
As growth continues, senior management become seriously concerned about the high levels of autonomy lower down in the organization and try to regain control by establishing better coordination between the various parts of the organization (coordinated evolution). Since the key to successful marketing is to have a suitable organizational structure, understanding this pattern of structural change can usefully indicate appropriate organizational and planning frameworks. The other key point is that marketing planning occurs that it affects and is affected by the nuances of company structure and culture. For instance, featuring among the many marketing planning issues is whether or not the company's management style can adapt sufficiently to enable the marketing planning process to deliver the rewards it promises.
In addition to issues surrounding marketing information and forecasting, companies also face issues regarding how best to organize for marketing planning. While the marketing planning process itself remains more or less consistent throughout, how that process is managed must be congruent with the current organizational culture. In other words, marketing planning organization must reflect the organizational evolution of the company as it passes through characteristic life phases. organizational growth is propelled by reaction to crises. At start up the firm is often organized around the owner who tends to know more about customers and products than anyone else in the company (creative evolution). However, as the firm grows in size and complexity, and new products and markets are added, the organizational form breaks down and the owner must either sell up or allocate certain functional duties to specialized departments.
Aligning people strategy and business strategy will affect to the business' operation and process. Human resources function can help the company to gain competitive advantage in a number of ways. It ensures that the company has the right people to perform its value creation activities effectively. A common purpose can be implemented by different ways. Wal-Mart, for example, uses local managers to run Wal-Mart's stores and logistics operations in countries outside the United States instead of using managers from United States. That is why local managers will have a better feel for the tastes and preferences of local customers. This affair will help the company to increase sales as this improves the fit between Wal-Mart's merchandising and local tastes.
Companies using institutional logic can generate a long-term perspective and emotional engagement. Therefore, companies are willing to invest in the human side of organization. The human resources function also ensures that people are adequately trained, motivated, and compensated to perform their value creation tasks. People culture will enable the company to embrace customer friendliness and customer satisfaction. The company should empower the workforce to make decision with considerable freedom and responsibility. Worker flexibility, including the ability to demonstrate skill across multiple job roles, facilitates customer services. Simultaneously, competitors easily copy these programs; it is not enough to engage employees to stay with an organization. Learning and development programs, complete with flexible and fun work environment provide employer to better differentiate themselves from the competitors and enhance the employees' commitment to the organization.
As Wal-Mart's mission push them to make cheaper prices every day, in order to achieve that goal, the company does not satisfy the employees with low ways and benefits. A method that Wal-Mart can use is utilization of part-time workers. Additionally, to better serve their customers they can deploy workers during peak shopping hours. Beyond intangible motivation, financial rewards play a key role in motivating people for a company to attract and retain talent as benefits, insurance, pension, appropriate salaries, time base rate, commission and so on.
Employees are motivated to perform their jobs effectively and do so in accordance with the organisation's objectives. There are a number of means that organisations use to achieve this, some of which will be discussed further later in this chapter. These means include:
development of goals for individuals and groups
assessment and appraisal
training and development.
The reward system of an organization comprises the monetary and non-monetary payment given t employees in return for work performed. Reward system can have a significant impact on recruitment, retention, the motivation of employees and the improvement of performance. The internal and managerial aims of reward system are:
to provide a fair and consistent basis for motivating and rewarding employees
to motivate staff to maximize their performance
to further company objectives through an externally based, fair system
to reward performance by progression or promotion through developed pathways
to recognize the various factors apart from performance such as job/role size, contribution, skill and competence
to control salary costs.
Rewards to employees may be made up of a number of different components, which can be considered as falling into three categories
Basic pay the wage or salary that forms the base level of pay for a particular job. This may be determined in a number of ways such as job evaluation or market rates.
Benefits, or indirect payments a wide range of nonmonetary rewards, such as health insurance or company cars. These may be the same for all employees or be based on a 'cafeteria' style of benefits, chosen as appropriate by individual employees
Levels of reward
Rewards can be given at different levels, all of which will have a different impact on behavior.
Individual rewards - such as salary - that aim to influence individual behaviour.
Team rewards, to encourage cooperation and collaboration within a team.
Group or organisation level rewards that aim to encourage behaviour in line with organisational goals.
Issues to consider when designing a reward system
Each business strategy needs to be supported by an appropriate reward system. A number of issues need to be addressed, including.
What behavior the organization wants to encourage for example is the scheme one that should encourage individual performance, or teamwork, which might require the use of a group incentive scheme?
How does the scheme reflect the organization's strategic objectives and critical success factors? For example, quality initiatives are often undermined by reward schemes linked to short term profitability.
Are there organizational constraints for the scheme, such as funding?
This may be a particular issue for organizations competing for skilled workers, where affordability may limit the level of skilled staff who can be employed.
â€¢ The rewards offered by competitors.
â€¢ Consistency with government policy or legislation.
â€¢ The drivers of change within the organisation. For example, business
process redesign may result in new job roles and responsibilities.
Similarly a switch to increasing online sales could require a rethink of
how sales staff should be rewarded.