Strategic Operation Management (Case Study of Iceland))

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Strategic Operation Management (Case Study of Iceland))

  1. 1. 2012Strategic and Operation Management Mominul Plabon 9/11/2012
  2. 2. 2|Page Executive SummaryThe following strategic and operation plan forms the basis for the strategic analysis ofIceland Food. A number of techniques have been used to identify the market position ofIceland and the outcome of the analysis enabled the researcher to identify the issues thatneed to be taken into account when Iceland devise their future business strategies. From theanalysis it is found that Iceland has a sizable market in the United Kingdom while they aresuccessfully competing on price and quality. Furthermore, the growth strategy of Iceland isvery progressive unless they consider some issues such as targeting only lower incomelevel buyer, specialising only on frozen food and some other issues. A detailed report can befound in the following sections.Key Words: Strategy, Stakeholder, Product
  3. 3. 3|Page Table of Contents1.1 Company Profile..................................................................................................1.2 Expectations of Stakeholders ............................................................................ 51.3 External Environment analysis ......................................................................... 61.4 Competitive Analysis ......................................................................................... 71.5 Strengths and Weaknesses ............................................................................... 92.1 Strategic Choice .............................................................................................. 102.1.1 Market penetration through existing product in UK market ......................... 112.1.2 Introducing new product into UK market ..................................................... 112.1.3 Considering EU/ Overseas Market ............................................................... 112.1.4 Diversification into other businesses............................................................ 122.2 Stakeholder Acceptability................................................................................ 122.3 The viability of Product Development Strategy ................................................ 132.4 Methods for Achieving Strategic Option .......................................................... 133.1 Strategy Implementation ................................................................................. 153.2 Strategic Direction .......................................................................................... 153.3 Implementation challenges ............................................................................. 163.4 Managing Challenges ...................................................................................... 174. Concluding Remarks ........................................................................................ 175. References ........................................................................................................ 18
  4. 4. 4|PageCompany profileI celand Food is one of the biggest food retailers in the United Kingdom which is mostly renowned for delivering consumer products at affordable prices and its good quality frozen food. Dating back to the past, Iceland was founded by its present ChiefExecutive Officer ‘Malkom Walker CBO’ in 1970 (Iceland, 2012). The company CEO startedthe business with £60 capital and initially hired a small place to start up. According to thecompany history, Iceland have managed to prove that they were strongly capable ofmanaging a company that could end up being closed down if the business and operationsstrategies were not as strong as effective whereas, they have many strong competitors likeSainsbury, Tesco, Morrison, Wilkinson’s.By 1984 Iceland was one of the emerging food retailers in UK whereas, the business startedto take off rapidly and by 1996 Iceland had opened its 752nd stores in England with theoperating profit of £50m+ (Iceland, 2012). Currently Iceland’s business growth is at very fastpace as they announced net profit before tax up 22.5% to 184.3 million with also the openingof 18 net new stores in 2011 in UK (Iceland, 2012). The company currently has a steady aimto capture the whole UK frozen market through continuous product and service innovation.Figure 1- The current market position of Iceland, sourced from: (Iceland, 2012 and bbc,2012)However, success is never constant such as, it may rise up or fall down dramatically if thestrategies taken by the Management level are not constantly reviewed and developed (Kewand Stredwick, 2005). In a modern business context, organisation’s need to continuously
  5. 5. 5|Pagescan the internal and external environment of the business and devise strategies to eithercope up with the demand or sustain more competitive advantage so that they can be aheadof their competitors.1.2 Expectations of StakeholdersIceland’s Stakeholders include its customers, employees, shareholders, government,suppliers, community, trade unions, and the overall management bodies. These groups ofpeople have few expectations and requirements from the business, which must be fulfilled inorder to gain support (Kew and Stredwick, 2005)Figure 2- The expectations and requirements of Iceland’s Stakeholders, source: (Kew andStredwick, 2005)
  6. 6. 6|Page1.3 External Environment analysisFor a big company like Iceland, the stability and safety of the political environment is crucialto success as political unrest, violence, terrorism can endanger the country’s tradingcondition (Thompson and Marting, 2010). In this term, Iceland combines a high level of risksfrom the political aspects of the country.From the economical point of view, Iceland combines many risks and opportunities. Forinstance, the exchange rate plays an important role for Iceland such as the company buys itsmost of the raw products or elements from outside UK (Iceland, 2012). Iceland reported itsmore than 15% raw materials come from different parts of Europe and further 10% comefrom different parts of the world i.e. Thailand, South Africa, and China. In this term, if theexchange rate fluctuates constantly, then the company might suffer from a short term profitdecline and also revenue will fall down as a result. On the other hand, taxation, inflation ratealso play vital role in developing or threatening the business prospect of Iceland (Bowhill,2008).Social environment is a great source of threat and opportunity for Iceland, which includes thedemographic structure of the country, lifestyle of the consumers, cultural aspects and thecurrent trends of the market.According to Office for National Statistics (ONS), from 2001 to 2009 period, the populationrate of UK increased by 2.7 million whereas, they notified that ageing population is one ofthe major concerns at the current time (ONS, 2012). The both issues outline many majorfactors from where food retailers like Iceland combines risk and opportunity. For example, itcan be assumed that from 2.7 million people a percentage of the people are immigrants whosettle here in UK. In this term, different national culture, religion, race aspects bring issuessuch as want for own country’s product, product customisation, and diverse workforce and
  7. 7. 7|Pageso on (Ahlstrom and Bruton, 2009). Furthermore, ageing population also concerns thehuman resource management of the company such as rise of cost against the elderworkforce (pension, benefit), increasing training and recruitment cost for the new employeesand so on. However, the culture, belief and lifestyle of the consumers have a significantimpact on Iceland such as the changes in consumer buying behaviour might require thecompany to change its product or service strategy at a rapid or slow pace (Ahlstrom andBruton, 2009).Technology is the vehicle of modern world. The rapid change of technology world has asignificant impact on Iceland food. For instance, few years before customers used to walk inthe store and buy products but the current invention of technology facilitates the consumersto buy products from their home (online ordering). In this term, consumer goods providersare greatly engaged in developing their business strategies to cope with the current demand.On the other hand, the increasing use of internet introduced many opportunities and threatsfor business organisations’ such as, online marketing, worldwide rapid data transfer, tele-working, advanced data management, fast pace media and so on (Kew and Stredwick,2005).1.4 Competitive AnalysisWhether the business environment is stable or turbulent, the organisations are alwaysrequired of scanning the forces within the industry that may have impact on their operations(Kew and Stredwick, 2005). In this term, identifying the factors which have influences on thebusiness is one of the major concerns of current corporate world. Furthermore, to analysethe variables within an industry, Michael Porter had outlined five factors which have asignificant impact on the organisations operating in a same industry (Porter, 1998).
  8. 8. 8|PageFigure 3 - Industrial Force, source: (Porter, 1998. p.145-147).According to Henry (2008), Buyers can be the ultimate product user or another businessorganisation who resell the products to another seller or consumer. Iceland develops itsproducts and services for the ultimate product user and they do not have any re-seller but asthe retail food industry in UK is very big and competitive, the buyers or consumers have astrong bargaining power. For instance, Iceland develops many products such as, frozenproducts, dry products and beverages, but at the same time big retail shops like Morrison,Tesco also do the same category. In this term, the bargaining power of Iceland’s buyer isstrong whereas the buyers can choose the same category product in different price indifferent place and also with additional benefits.Iceland sources its raw materials from different national and international suppliers (Iceland,2012). However, Iceland is immensely influenced by the bargaining power of suppliers i.e. ifthe existing suppliers raise the price of raw materials then Iceland might have to think aboutdifferent supplier or except the offer if there is no alternative option (Murray and Galavan,2008).
  9. 9. 9|PageThe threat of substitutes is extremely viable for Iceland while, they provide daily life goodsfor the consumers, and there are many food retailers like Morrison, Tesco, and Sainsburywho avail almost similar products. For instance, Iceland is renowned for delivering frozenfood, but if the price of the fresh foods becomes very affordable then consumers wouldconsider having fresh food rather than having frozen. Similarly, if the qualities of the frozenfoods are high then consumers would consider having frozen food rather than going to shopevery day.The entry into food retailer industry in UK is very challenging while the government and thedesignated regulatory bodies have constant focus on the quality control and commitment ofthe existing retailers (Murray and Galavan, 2008). Although, the government have strictpolicy on food retail industry but it does not limit the entrance. In this circumstance, theexisting number of loyal customers and sustainable competitive advantage can reduce therisk from the potential or new entrants in the industry.1.5 Strengths and WeaknessesIceland has a big market for frozen food whereas the current trends of consumer behaviourseem to be looking for food products which are affordable and easy to use and also reducesthe time to process (Murray and Galavan, 2008). Iceland was awarded the top frozen foodretailers in 2003, 2004 and accordingly until 2011 while, they are considered to be themarket leader in that field (Iceland, 2012). Furthermore, Iceland’s biggest strength is, itdelivers good quality products at affordable price. The company’s effort for retainingcustomers through bonus card is also considered as a good strategy.Although the company has a good strength in the market but few factors indicate that thecompany also combines various weaknesses. For instance, Iceland is heavily based onfrozen products and it is also blamed of addressing only particular types of customers.Furthermore, most of the product price is £1 value which de-motivates certain categories of
  10. 10. 10 | P a g ecustomers to buy from Iceland. In contrast, the business does not have any internationaloperation.2.1 Strategic ChoiceIceland was basically a frozen food based shop in earlier time, but the dramatic growth of thebusiness has influenced the organisation to move into retail industry as a competitor ofTesco, Morrison, and Sainsbury (Iceland, 2012). Since then, Iceland has devised manystrategies to acquire the market position such as by developing massive ranges of frozenproducts, introducing bonus card, online shopping, corporate social responsibility, mergingand aliening with other relative businesses. Although, the strategies were effective at a timebut, the business need to continually focus on its product and market position in order tomeet the future challenges. In this term, strategic options for Iceland will be analysed usingAnsoff Matrix (Henry, 2008).
  11. 11. 11 | P a g eFigure 4 – Ansoff Matrix, source: (Henry, 2008. p.78-79).2.1.1 Market penetration through existing product in UK marketIceland is greatly known for their frozen products. In 2009 Iceland developed 134 categoriesof frozen products and by 2011 it was awarded the top company in frozen retail items in UK(Iceland, 2012). However, Iceland can steadily focus on its growth strategy by developingmore frozen products in the UK market. In this term, the company have to maintain orincrease the market share by combining competitive pricing strategies, advertising, salespromotion and strong focus on brand awareness among the consumers (Henry, 2008).Furthermore, the company needs to defend the competitors by creating a strong value of theproducts and focus more resource on the research and development sector.2.1.2 Introducing new product into UK marketAccording to the external environment analysis, many key opportunities have been foundsuch as emerging UK market, cross cultural aspect, rising population. In this term, Icelandcan consider introducing more ranges of products and services into the emerging UKmarket. Furthermore, they can also continue increasing their product and service ranges tocapture the existing market and have competitive advantage to compete in the future market(Henry, 2008).2.1.3 Considering EU/ Overseas MarketIceland can consider delivering their products in a new market. For instance, their frozenproducts have a high demand in UK but in developing countries the demand for frozenproduct can be high whereas the product is unavailable. Furthermore, they can export theirfrozen product in those countries by developing the market. In contrast, they can also
  12. 12. 12 | P a g econsider developing their existing products to attract a particular group of customers in UK.In this term, Iceland will be required to focus their, resource on the new market development.2.1.4 Diversification into other businessesWhether the business have existing market or existing product but it can considerdiversifying into a related or unrelated market or business which will give it more competitiveadvantage and the investor of the company will find the business more attractive (Kazmi,2008). For instance, Tesco, Sainsbury and Asda have diversified into financial services fortheir consumers, as a result; they acquired a large market share (Guardian, 2011)Figure 5 – Strategic suitability test, source: (Bowhill, 2008).According to Johnson et al (2008), the success of a strategy depends on three factors:suitability, feasibility and acceptability. From the Consideration of Company’s strategicanalysis the most suitable strategy the company can pursue is to introduce new ranges ofproducts into the existing market such as continuous innovation through the resource andcapabilities**2.2 Stakeholder Acceptability
  13. 13. 13 | P a g eStakeholders are the key elements of Iceland. From the stakeholder expectations andrequirements part, it can be assumed that stakeholders will accept the growth strategy ofIceland whereas; their key requirement for the company is grow fast in the market. Forinstance, the risk is low in product development strategy whereas the return on investmentcan be measured high. Furthermore, the product development strategy will enhance thebrand reputation of Iceland, thus will give more profitability (Bowhill, 2008).2.3 The viability of Product Development StrategyConsidering the factors in external environment the viability of product development strategyis strong. For instance, the changes in consumer behaviour, social trends, cross culture, fastgrowing technology, economical downturn, force of global company, rise of domesticcompetitors are the source of great threats and opportunities for Iceland. From the strategicanalysis, the need for product and service development has been found most appropriate tocompete in the retail world. Iceland has a strong market share through the large numbers ofstores within the UK, its competitive product quality and prices. In terms of the Industrialanalysis, the major influential factors were the need for competitive advantage whereas;Iceland can only gain it through the high concentration on product and service development(Trehan and Trehan, 2010). Furthermore, Iceland’s biggest strength is its market leadingposition for delivering quality frozen products in UK market. In this term, if the product andservices are continually developed and offered at affordable prices then they can create asustainable competitive advantage in the long run.2.4 Methods for Achieving Strategic OptionHaving selected the suitable strategic option, Iceland now needs to decide which methods topursue to achieve the chosen strategic option. In this term, the optimum solution forachieving strategic option can be growing through internal development, strategic alliance ormergers and acquisition (Johnson and Scholes, and Whittinton, 2010).
  14. 14. 14 | P a g e Organic Development Mergers and acquisitions Product Development Strategy Strategic alliancesFigure 6 – Methods for achieving strategic options, source: (Johnson and Scholes, andWhittinton, 2010).Organic Development: Organic development involves the organisation using its ownresources and developing capabilities it believes will be necessary to compare in the future.However, Iceland can pursue organic development in terms of its need for organisationallearning and utilisation of own resource. The biggest constraint about the organicdevelopment is it takes a long time to build the organisation’s strategic capabilities (Ahlstromand Bruton, 2009)
  15. 15. 15 | P a g eMergers and acquisition: according to Ahlstrom and Bruton (2009), a merger occurs whentwo organisations join together to share their combined resources. In this term, bothorganisations can share their own capabilities to produce an optimum product or service. Anacquisition occurs when one organisation seeks to acquire another similar organisation.Merging and acquiring relative business can be suitable for Iceland as the organisation havea strong mission for growing fast in the UK market (Iceland, 2012). Furthermore, mergingwith relative sector can give the organisation competitive advantage to capture the marketand enable them to focus on continuous product development.Iceland has a strong growth strategy in which they aim to continue holding their marketleading position in the frozen food industry. In this term, they can merge or take over otherrelative businesses who have similar interests and willing to share their capabilities to keepleading the UK market by continuous product and service innovation.3.1 Strategy ImplementationAccording to Speculand (2009), “Strategy implementation is collective individual actionstaken every day staff members who will deliver the strategy for tomorrow”. Manyorganisations face difficulties in implementing strategy whereas it is considered the mostdifficult part of the strategic management.Most organisations face the need for new strategy in terms of two conditions such as if theorganisation has a mission for it or if the organisation faces challenges from the environmentto adopt a new strategy (Speculand, 2009). In this term, strategic implementation can bebased on two organisational approach i.e. Intended strategy or emergent strategy.3.2 Strategic DirectionIntended strategy: intended strategy is formulated by the organisational managers or theleader and it results from the role, vision or command of a leader (Speculand, 2009). In
  16. 16. 16 | P a g esome cases, the strategy is imposed by the organisation’s stakeholders such as,government, investors, and suppliers and so on.Emergent Strategy: whether the organisation operates in a stable or turbulent environment, itwill face challenges from the internal and external environment. In this term, an organisationcannot only rely on its intended strategy as many strategies derive from everyday routines,activities and organisational processes (Johnson and Scholes, and Whittinton, 2010).As identified in the environmental analysis part, Iceland operates in a high competitiveenvironment whereas the strategic directions can be shifted from intended to emergentbased on the difficulties faced in the internal and external environment. In this term, differentstakeholders of the organisation will put the strategy at different view.3.3 Implementation challengesWhen considering strategy deployment process organisations face different types ofchallenges based on the size, culture, environment and the objectives of the organisation.However, the possible challenges that can be faced by Iceland when developing andimplementing strategy are as follow (Johnson and Scholes, and Whittinton, 2010);Failure to understand corporate culture: Organisational culture plays a significant role instrategy implementation. The shared views, ideas, role, and beliefs of organisationalmembers are mutually exclusive to the effectiveness of organisational development. Whenimplementing the strategy Iceland may face difficulties in changing the corporate culture. Forexample, if strategy is enforced in a short duration, the change can be disregarded the bythe members of the organisation.Organisational Power and Politics: According to Kazmi “all corporate cultures include apolitical component and, therefore, all organisations are political in nature”. During strategy
  17. 17. 17 | P a g eimplementation Iceland may face challenges which might arise from the interest, behaviours,influence, resistance and competitions of different stakeholder groups. Organisational powerand politics play crucial role in strategy development process. In this term, Iceland has tocollaboratively work together to implement the strategy effectively.3.4 Managing ChallengesManaging or forecasting challenges in strategy development is a crucial part of strategicmanagement. Furthermore, the strategic implementation challenges can be managedthrough different roles of the corporate structure such as;Strategic Leadership: the Strategic leader has to create a norm or culture where corporatemission, vision, objectives are communicated to all levels of employees in a timely mannerand they are encouraged to take part in the idea sharing (Johnson and Scholes, andWhittinton, 2010).Encouraging Organisational learning: the 20th century is an era of ‘learn and earn’ whereasthe organisations which learn faster can live long (Johnson and Scholes, and Whittinton,2010). According to Burnes (2009), “organisational learning plays a key role in preparingpeople for change, and allowing them to cope with it”. In this term, the roles of managers areto create mechanisms which will allow them to become familiar with the companyperformance, market place, customers, competitors, legal requirements and so on (Burnes,2009). Furthermore, the organisational learning encourages the sharing of ideas, knowledgeand promotes pluralism, experimentation, effective communication.4. Concluding RemarksThe success in business is success in strategy development. Whether, the organisation hasa large capability of investment and resources but it cannot assure success until thestrategies are not taken effectively. In this term, the role of Iceland’s corporate managers are
  18. 18. 18 | P a g eto continually focus on the internal and external environment of the business and assess theoverall position of the business so that they can outline effective strategies. Furthermore, thedevelopment of new strategies must be focused and evaluated in terms of the businesscondition. In this way, Iceland can continually dominate the UK frozen market for a longperiod of time.
  19. 19. 19 | P a g e5. ReferencesPorter, M. E. (1998). On Competition. 1st Edition. Harvard Business School pr.Speculand, R. (2009). The Leader’s Role in Sucessful Implementation. Illustrated. JohnWiley and Sons.Kew, J. and Stredwick. J. (2005). Business Environment: Managing in a strategic Context.Illustrated. CIPD.Henry, A. (2008). Understanding Strategic Management. illustrated. Oxford University press.Bowhill, B. (2008). Business Planning and Control: Integrating Accounting, Strategy andPeople. Illustrated. John Wiley and sons.Thompson and Marting, F (2010). Strategic Management. 6th edition. Cenage LearningEMEA.Jain, T. R., Trehan, M and Trehan, R. (2010). Business Environment. Delhi.Ahlstrom, D. and Bruton, G. D. (2009). International Management: Strategy and culture inthe Emerging World. Cengage Learning.Johnson, G., Scholes, G. and Whittinton, R. (2010). Exploring corporate strategy with mystrategyLab. 8th edition. Pearson education.Kazmi. (2008). Strategic Management and Business Policy. 3rd edition. Tata McGraw-hilleducation.Murray, J. and Galavan, R. (2008). Strategy, Innovation, and change: challenges forManagement. Oxford University Press.Burnes, B. (2009). Managing change. 5th edition. Pearson Education.
  20. 20. 20 | P a g eOffice for National statistics. Population. Available from:<http://www.statistics.gov.uk/Articles/Social_Trends/social-trends-41-population.pdf>.Accessed July 2012.Sainsbury takes Tesco and Asda with brand Match. Available from:http://www.guardian.co.uk/business/2011/aug/16/sainsbury-price-war-tesco-asda> AccessedJuly 2012.Tesco Market Share Dips Below. Available from: http://www.bbc.co.uk/news/business-16817254 > Accessed July 2012.Record Sales and Profit for Iceland. Available from:http://www.iceland.co.uk/_assets/files/Iceland_2009_results.pdf > Accessed July 2012.Record Results and Massive expansion for Iceland. Available from:http://www.iceland.co.uk/_assets/files/Iceland_2009_results.pdf > Accessed July 2012.More awards on frozen food specialist. Available from:http://www.iceland.co.uk/_assets/files/BFFF_Awards_June_2010.pdf > Accessed July 2012.The Iceland Story. Available from: http://www.iceland.co.uk/about-iceland/the-iceland-story/> Accessed July 2012.Iceland again delivers record results. Available from:http://www.iceland.co.uk/_assets/files/Iceland-Foods-2012-Results.pdf > Accesses July2012.
  21. 21. 21 | P a g e Author of this Paper Mominul Plabon is studying Business Management in Glyndwr University. During his study he achieved many appreciations for writing articles and academic papers. He has achieved much experience in the field of research while working with Deborah Meaden (Former Pollster to Gordon Brown). There are several articles and academic papers can be found on the internet by searching his name. All of the papers are written by him and approved by many academic professionals. Outside study, Mominul Plabon runs his own business organisation named ACADEMIACARE. Academiacare is a private limited company, which is dedicated for the betterment of the international student life in UK. Further information can be found on www.academiacare.com. Contact details: Mominul Plabon Mplabon@academiacare.com

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