This assignment considers alternative strategies for Premier Foods Plc., one of the UK's largest food production organisations (Premier Foods Plc., 2013, about us-online, available at www.premierFoods.co.uk/our-brands/ambrosia). At the time of writing, the company is facing a difficult financial future due to combination of factors in the external and internal environment. These include the rising prices of raw materials and energy for manufacturing, and consumers ''trading down'' (BBC News - 19th March 2012- Premier Foods pushed into loss by Hovis-online available at- www.bbc.co.uk/news/business) in their food choices meaning that they are switching from branded to own label food in the supermarket.
Moreover, Premier Foods Plc. is struggling to reduce their manufacturing and distribution overheads and achieve the necessary economies of scale at their production sites. Therefore, this assignment considers three alternative strategies: 1. Substantial growth, 2. Limited growth, and 3. Retrenchment. Having considered the strategies it will be an analysis which one of these strategies would be most suitable for Premier Foods Plc. to regain its profitability.
2. ALTERNATIVE STRATEGIES
Thompson and Martin (Thompson, J. and Martin, F.,-2010-Strategic Management- Awareness and Change -6th Ed) explain that when faced with competing internal and external pressures and a difficult economic marketplace, there are three alternative strategies which an organization could consider. There are: substantial growth, limited growth and retrenchment. Thompson and Martin elaborate that the reason for narrowing down strategic choices to one of these three approaches is that an organization can either choose to grow rapidly in order to achieve economies of scale, grow incrementally but focus on highly profitable customers, or choose to reduce overhead and cut back on assets. Each of these approaches attracts benefits and challenges as will be discussed below.
2.1 SUBSTANTIAL GROWTH
Porter (Porter, M.E., -1996-What is strategy) explains that strategy is a plan to change organizational circumstances. He further explains that in challenging market circumstances where there is a large degree of competition it is in fact possible for organization to grow their way out of recession. This is known as a ''substantial growth'' strategy, and it can take several formats.
Grant (Grant, R.,-2010-Conterporary Strategic Analysis-7th Ed) points out that unless the organisation knows that its target market has the requisite resource to suddenly increase their purchasing power, it is necessary to look to other marketplaces to facilitate substantial growth. These can include switching to new sub-markets or categories to help stretch the reach of company. For example increasing dominance in the own label market. This can be achieved by approaching new customers and offering them attractive pricing or delivery options which can be financially sustained through the principles of economies of scale (Mintzberg, H., Ahlstrand, B., and Lampel, J.,-2005-Strategy Bites Back). The benefits of this kind approach include reducing overreliance on a single section of the market which may be exposed to adverse fluctuations. However the risk associated with this is that Premier Foods Plc. may misjudge the new target market and will be unable to secure commercially viable agreements with the new clients. This is because for large-scale contracts it is quite unusual for customers to regularly switch suppliers as the transaction costs, associated with this are an unnecessary disruption to an established supply chain (Hong, K-T.,-2010-Supply Chain Collaborative Value Innovation: a New Mode of Supply chain Management). This being said, if it is possible to secure new contracts then this would be preferred mode of achieving substantial organizational growth, because it allows Premier Foods Plc. to leverage their existing assets and diversify their risk (Ireland, R. and Hitt, M.-2005-Achieving and maintaining strategic competitiveness in the 21st century: The role of strategic leadership).
As an alternative, Thompson and Martin (2010) suggest that substantial growth can be facilitated through activities such as Merger and Acquisition (M&A), or strategic alliance such as Joint-Venture (JV). These options represent complete areas of research in themselves as M&A activity is costly and high risk because of the fact that putting together two organisations often attracts considerable cultural difficulty and considerable organizational resistance (Ford,J.D., and Ford, L.W.,-2009-Decoding Resistance to Change).
Furthermore, Porter (Porter,M.E-2004-competitive Advantage: Creating and sustaining Superior Performance ) highlights the fact that M&A activity is usually costly and takes months, if not years, to come to fruition once a suitable organization has been found and agreement has been reached with all relevant stakeholders including major shareholders who have the capacity to block the decision.
JV may be a suitable option for expanding into new markets with existing organisations, as it is possible to utilize the existing infrastructure of the other company (Grant 2010). The benefits of this are that it is usually quicker and easier to move into a new territory; however it is a costly approach as it is obviously necessary to compensate the other organisations in some way (Grant 2010). Moreover, there is no guarantee that expansion into new overseas market will be effective as international expansion is also difficult for cultural reasons and because it becomes more challenging to manage the supply chain cost effectively (Murray, J.Y.,Gao,G.Y., and Kotabe.,-2011-Market orientation and performance of export ventures: the process through marketing capabilities and competitive advantages).
2.2 LIMITED GROWTH
Porter (2004) suggests that limited growth in the form of incremental expansion in the market attracts the lowest risk as regards initial investment; however it does not necessarily improve the efficiency of the organization, nor does it guarantee competitive advantage.
Arguably, Grant (2010) asserts that limited growth is simply the normal state of affairs for a mature organization who strive to maintain or marginally improve their market position and overall market holding. Potentially it could be accepted as a strategy in the short term in order to ensure that a company maintains the status quo whilst they are looking to adopt a longer term strategy which would generate further profit, however it cannot sensibly be regarded as her long-term strategy as there was a high risk that the organization will be overtaken by their competitors in the marketplace (Mintzberg, H., and Quinn,J.B.,-2006-The strategy process: Concepts, Contexts and Cases). For these reasons, limited growth is not considered to be a viable long-term strategy.
The final strategy to consider is that of retrenchment. According to Thompson and Martin (2010), this should be a strategy of last report as retrenchment typically requires redundancies and the sale of assets, which is undesirable in any situation. Not least of which the fact that as and when the economy or the position of the organization recovers it will be necessary to reacquire the assets. Armstrong (2011) points out that loosing employees is difficult for many reasons, as not only will their organizational knowledge leave with them, it will be difficult for those employees who are 'left behind'. There is growing body of research which has explored the psychological effects of retrenchment on an organization, and Caplan (2011) points out that maintaining talent within the organization is a major source of differential advantage. Therefore adopting a retrenchment strategy should be a last resort measure and only after as much organisational knowledge as possible has been captured and codified. It could be argued that there is synergy between the work of Caplan and Porter both of whom argue that in the contemporary business and retail environment, maintaining high caliber employees is probably the only reliable source of sustained organisational advantage and growth. A further risk associated with retrenchment is that it does actually cost a considerable amount of money to sell assets and make employees redundant, and the process is highly resource intensive (ACAS-Redundancy at www.acas.org.uk). For these reasons it is suggested that retrenchment is a strategy of last resort.
Having compared and contrasted the alternative strategies available to Premier Foods Plc. it is noted there are risks and benefits attached to all of the strategies. On balance given the current health of the organisation as a whole relative to its competitors, and its current market share it is suggested that substantial growth is in fact the preferred option and therefore an aggressive growth strategy should be pursued. This is because limited growth will make relatively little difference that the current position of the organisation as it stands and will not be viable in the long term, and retrenchment will result in Premier Foods Plc. losing highly valuable assets which are a source of competitive advantage.
In order to maximise resource utility substantial organisational growth is recommended. I would suggest that this should take the form of aggressive sales and marketing to attract new customers, and diversification into new sub-markets which would allow Premier Foods Plc. to maximise production efficiency and offer attractive pricing options to customers. Potentially, M&A or JV activity could be considered in the longer term with strategic partners in new geographical regions. Given timescales for these strategies to reach maturity it is important that Premier Foods Plc. seek to expand their market share in the UK in the first instance to provide sufficient funding for further expansion.