The concept of Strategy Dynamics was developed by Kim Warren of the London Business School as a framework for strategic management and strategy analysis in business. The Strategy Dynamics approach focuses on the 'time- path' of business performance.
This essay will examine the seven steps for analysing the strategic architecture of a chosen company; in this case the chosen company is JD Wetherspoons Plc, a large public house chain ('Pubco'); operating throughout the UK.
In chapter 6 of this work Warren outlines the theory of 'Strategic Architecture'; a system whereby the 'principal resources of a firm (or enterprise) is an intrinsically dynamic resource system, whose performance depends on the mutual reinforcement and balance between its component resources and asset stocks in its environment' (Warren 2006 p90)
The seven step process for capturing the strategic architecture is also termed the 'dynamic resource system view'.
The seven steps are;
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Â Identify the time-path of performance.
Identify those few resources at the heart of the business.
Identify the inflows and outflows causing the core resources to grow, develop, or decline.
Identify how flows of each resource depend upon existing levels of resources and other drivers.
Combine the resource dependencies from Step 4 into a strategic architecture of the business.
Be quantitative to see how the strategic architecture explains performance to date and into the future.
Revising policy to up- rate performance
These steps have been taken from Warren (2006 chapter 6). The seven step process has been examined and interpreted to relate them to the business strategy of JD Wetherspoons Plc; this essay will attempt to assess the extent to which these principles apply to this organisation.
This essay will adopt an approach of identifying the strategic resources of the business, and incorporate the seven steps, in order to provide a clear picture of the strategic architecture of Wetherspoons.
JD Wetherspoons Plc was founded in 1979 from a single pub; the company now owns 767 pubs. JD Wetherspoons Plc is a company which may be termed a 'Pubco', one of the new types of company formed since the 'beer orders' legislation of the early 1990's.Their main competitor is Mitchell and Butler. The Wetherspoons group also has 14 JDW Lodges (budget hotels), with one or two being added each year. The Company also owns a chain of newer 'style' bars, under their "Lloyds No. 1" brand. Unlike the Wetherspoon branded pubs, these bars play live music and/or have DJ's at weekends and often have a small dance floor.
JD Wetherspoons ranks among the top ten in the league table by numbers of trading units, and its turnover (an increase of £19m at £907.5m in 2008; a 2% rise from 2007) makes it a top five pubco. As part of an ongoing expansion programme; Chairman Tim Martin plans to open 250 new units in the next five years. All pubs are managed, with an average turnover per pub of more than £1m and operate public houses throughout the UK. (Keynote 2009)
The Seven Step Process
Step 1; identify the time-path of performance;
According to JD Wetherspoons website, the company has placed emphasis on continuous growth in the eating-out and drinking markets, pursuing an expansion policy as and when attractive potential new sites become available, and as noted above the company has shown continuous growth to date.
Step 2; identify those few resources at the heart of the business;
For JD Wetherspoons plc the identified resources are those of employees, customers and properties. These have been identified as the main core resources for a number of reasons, the first reason being that these are what the company has heavily based their strategies on. Also, it can be seen that these resources have both tangible and intangible elements to them, and cover the demand and supply areas of the business (Warren 2006). The fact that that the core resources are mainly tangible enable more accurate measures to be made, such as the number of employees who enter and leave the company, and the number of properties in the entire company and within each brand.
Properties are a key resource relevant to the strategies of JD Wetherspoons plc as these make up the portfolio of brands which make up the company. Property is used effectively by in order to offer a diverse choice of experience and venue to customers, and to drive forward the sales targets of the company. The company uses this assortment of properties and brand names to target various market segments.
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Step 3; identify the inflows and outflows causing the core resources to grow, develop, or decline.
JD Wetherspoons have been acquiring properties in key sites to fulfil company targets, and disposing of those which are not providing adequate returns; this is to allow for the full utilisation of all viable properties.
Step 4; identify how flows of each resource depend upon existing levels of resources and other drivers'
The next step in the process is to identify what factors and drivers affect the flows of the property resource. Factors like the current economic recession may have played a major part in the company selling off some of its property assets which have proved to be slow revenue earners and or/those which carry high costs. Other drivers include those of successful site location, for example the Counting House in Glasgow is conveniently situated in a prime city centre location in George Square, ideal for passing trade, and the Standing Order in George Street Edinburgh, situated in a very busy city centre pedestrian street frequented by tourists and locals . Site location is a very important driver; when the company identifies a key site with high potential, they are likely to attempt to acquire the property, hence the inflows. JD Wetherspoons have a policy of disposing of those properties which are in poor locations and are not performing well.
Step 5; Combine the resource dependencies from Step 4 into a strategic architecture of the business
Step 5 merges with steps 3 and 4; with regard to JD Wetherspoons, this can be demonstrated through the importance of property management. Here it can be seen that factors within and also out with the control of the company can impact on property as a resource; the fall in commercial property prices due to the recession may offer opportunities to acquire new properties cheaper than previously; conversely lower prices may be paid for properties being sold by the company. With respect to customers as an important key resource, there are inflows and outflows that may cause this resource to grow and / or decline as part of step 3. Expendable/disposable income is of the main inflows that can also act as an outflow; if potential and current customers have more money to spend, then they are more likely to eat and drink out. However, disposable income has recently being tighter as a result of the economic recession, causing the company to have to adopt short-term strategies in order to keep sales up and shareholders satisfied; for example price promotions.
The fourth step for the customer resource is that customers may be driven by competitive rivalry. The main competitor threat to JD Wetherspoons is perceived to be their main rival Mitchell and Butler. In order to compete against Mitchell and Butler and other rivals JD Wetherspoons offer a variety of food and beverage deals, emphasising a value for money message, in a strategy to retain existing, and attract new customers. This will have an ultimate effect on the flow of the key resource of customers as success in this strategy will produce inflows of resources to the business; conversely if rivals gain the competitive advantage this will result in customers defecting to competitors, which is an outflow of resources.
JD Wetherspoons is strongly focused on its pricing policy which is also a key driver for consumer flows. The scale of the company means it can take advantage of lower supplier costs, enabling it to undercut rivals in selling prices. This can potentially assist in attracting and retaining customers; additionally by offering special food and drink promotions the company can build upon the food sales part of the business. Therefore effective pricing strategies are a key means of attracting potential customers, regardless of disposable income level, to start patronising JD Wetherspoons instead of their rivals across a variety of locations.
As part of step 5, the combination of the previous two steps appears to already have been achieved by J D Wetherspoons. Analysis of their latest financial statements shows that the company is still attracting a large volume of customers successfully and achieving profits.
In common with all service industries, front line employees are a key resource as they represent the 'face' of the company to the customer and deliver the service product. In the third step of the process, it can be shown that the general hospitality sector has very high levels of employee turnover. Inflows of staff occur throughout the year; and there are peaks during the high seasons such as summer and Christmas, periods when hospitality/leisure businesses such as JD Wetherspoons are most likely to experience their peak trading levels Staff outflows can be caused by factors like pay rates; although staff may leave for a variety of reasons.
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From an employee perspective JD Wetherspoons have in house training programmes, which focus on building the skill base of their employees, enabling the staff to perform their jobs better, thus increasing job satisfaction; this is a driver for improving the rates of labour turnover, the company has achieved this by focusing on the on-going training and development of its staff; this may assist in increasing the labour efficiency rate while increasing the volume of sales at individual unit and company-wide level.
Step 6; be quantitative to see how the strategic architecture explains performance to date and into the future.
In step 6, indicators of the company performance can be found from the company financial statements, providing information on costs, revenues, and share price etc.; therefore this is the best source for information.
Step 7; revising policy to up- rate performance
Step 7 is according to Warren (2009) is about considering the first 6 steps in order to gain a strategic view of performance to improve future performance or by evaluating the use of current resources. Any future policy changes can be then implemented and monitored. It is an ongoing dynamic process.
The Beefeater simulation programme allowed me to experience the concept of strategic architecture as by using the software to make changes to the business dependent on changing resources and in a variety of scenarios. This helped me to gain some understanding of how resources in a business are interdependent and how changes to one resource have an effect on other resources. On reflection, more practice in using the software would have perhaps resulted in me gaining a deeper understanding. Warren's concept of business dynamics show how resources affect performance over time effectively.