Has Dick Smith Foods achieved strategic competitiveness? La Trobe University MGT3SMG Lana Neuwirt 17035913 Words 1200 09/09/2011 Has Dick Smith Foods achieved strategic competitiveness? Lana Neuwirt 17035913 Introduction Dick Smith Foods (DSF) was founded in 1999 and is supporting Australian businesses and economy by distributing and selling products made by Australian-owned companies. For the firm’s competitiveness analysis a broader view on strategic management and its elements is presented in this paper.
Strategic management Strategic management process is the action plan of a firm’s formulated strategy and its implementation, whereas strategy is firm’s long term conception of means for attaining objectives, increasing performance and gaining competitive advantage (Rice, Martin, Carpenter, & Sanders, 2010). According to Barney (1991) a firm has competitive advantage when its performed value-creating strategy is not implemented by other competitor at the same time. Due to the ever-changing firm’s environment and competition, company’s competitive advantage might not last long (Lei & Slocum, 2005).
Hence, as stated by McGahan & Porter (2003) and Baloch & Inam (2009) firms which seek strategic competitiveness and above average returns in the long run must create strategic fit between the formulation and implementation of its value-creating strategy and learn to exploit the competitive advantage by using instruments of strategic management. Characteristics of the 21st century Based on the article of Hitt, Keats, & DeMarie (1998) the nature of the economy and competitive landscape in the 21st century is rapidly changing.
Global economy with blurred boundaries among the industries, hypercompetition, short product life cycles, economic interdependence and dramatic technological changes are significant consequences of the globalization (Ireland & Hitt, 2005). As a result, firms, such as DSF must adapt to the turbulent and highly competitive environment, identify opportunities and threats, be strategically flexible and maintain competitive advantage. DSF has been facing strong competition in the foods market which is dominated by multinationals and only a small share could be captured with Australian-made products. 2
Has Dick Smith Foods achieved strategic competitiveness? Lana Neuwirt 17035913 External environment Key point of implementing firm’s strategic actions for achieving strategic competitiveness is the analysis of the external environment which directly or indirectly affects the company (Hanson, Dowling, Hitt, Ireland, & Hoskisson, 2008). Only with the successfully determined opportunities and threats resulting from environmental change, company’s strategy formulation and implementation actions will lead to strategic goal achievement, high performance and effectiveness (Chattopadhyay, Glick, & Huber, 2001).
Firm’s external environment is divided into three dimensions: general, industry, and competitor environment. According to Bourgeois (1980) and Hanson et al. (2008) the segments of the general environment, including demographic or technological influence the industry indirectly. In case of DSF the global and economic segments are of a significant interest. Due to the globalization and escalating of multinational companies Australian-owned companies increasingly face takeovers by foreign firms which result in decreasing number of domestic suppliers left to deliver and manufacture “home-made” products (Walker, 2006).
As illustrated by Hawawini, Subramanian, & Verdin (2003), the industry environment which is based on the Porter’s five forces which are industry’s potential entrants, bargaining power of buyers and suppliers, competitors rivalry and existence of substitutes (Porter, 2008) is directly influencing firm’s competitiveness and profitability. For the DSF’s point of view, the most crucial forces might be the degree of rivalry, existence of substitutes and bargaining power of buyers.
A high number of rivals in the food industry offers imported substitutes at lower prices or with higher quality which cause only few or no switching cost to the consumer. With this in mind, buyers, e. g. supermarket chains, having strong bargaining power are switching between substitute products with only low switching costs and tend to buy their products from suppliers offering lower rates. As demonstrated by Barney (1991; 1995) the final step in the external environment analysis is the competitor environment which casts light on competitor’s objectives, assumptions, capabilities and strategy.
Only with thorough understanding and interpreting of competitors’ actions, a firm can successfully compete against its rivals and create higher value for customers. When analysing its competitors and their trends, DSF should have seen that most of its competitors are multinational companies which control a great share of the foods industry and seek above average returns from imported and lower priced goods. 3 Has Dick Smith Foods achieved strategic competitiveness? Lana Neuwirt 17035913
Internal environment Combined with the knowledge of its external environment, a firm analysing its internal environment, in particular its resources, capabilities and core competencies, is able to create its vision, mission and implement its strategies for obtaining a sustainable competitive advantage (Hanson et al. , 2008). It is argued by Berman, Down & Hill (2002) that only the sound combination of firm’s unique tangible and intangible resources provides a basis for competitive advantage. In case of DSF, the most important intangible, hard to imitate resource is its reputation and its founder’s iconic name.
Dick Smith is known as a smart and successful business man who is supposed to turn his ideas into gold. Compared to the foreign owned competitors like Kraft, by supporting exclusively Australian-made products DSF had obviously enjoyed popularity in making an appeal to people’s ethical thinking and solidarity with the homeland. In their articles Barney (1991) and Sirmon, Hitt & Ireland (2007) argue that for developing firm’s core competencies, the identified resources and capabilities must have four specific characteristics: valuable, rare, inimitable and strategically non-substitutable.
In DSF’s analysis its trust-based work with local manufacturers and its products which build only a tiny share of the whole foods market can be identified as a rare capability. Only few competitors work directly with Australian-owned companies since most are already sold to foreign multinationals. The positive and historically-based reputation of the founder Dick Smith can also be evaluated as a rare capability, which only few firms can imitate. These build at the same time firm’s core competencies.
Another crucial point for company’s long-term success is the value chain analysis. As stated by Baloch & Inam (2009) an insight into firm’s primary and secondary activities enables the company, in regard to the competitor’s actions, evaluating own non- and value-creating operations. Analysing its firm infrastructure, DSF should have recognized that numerous changes in the management did not contribute to efficient organisation structure and company’s success.
As a matter of fact, company’s revenues have dropped and its profitability decreased since money has not been reinvested to expand business. 4 Has Dick Smith Foods achieved strategic competitiveness? Lana Neuwirt 17035913 Business level strategy After the thorough analysis of the external and internal environments a firm chooses a plan of actions – the business level strategy (Dess, Gupta, Hennart, & Hill, 1995). Based on the three core strategies cost leadership, differentiation and focused cost leadership/differentiation, it is arguable that DSF is using a focused ifferentiation strategy. According to Porter (1996) compared to the cost leader who focuses with its low priced products on broader typical customer range, a focused differentiator is targeting only a special segment of the industry providing higher value products which differ from the competitor and serve unique needs. DSF is targeting the “native” segment of the population, especially farmers and manufacturers of Australian made products, but also companies which want to support Australian production, economy and culture.
Rather than offering low prices and an endless range of products, DSF is relying on only few own branded goods creating value for customers in terms of preserving the future of Australian made products. Conclusion The strategic competitiveness analysis of DSF shows that the company enjoyed only a short-living strategic competitiveness. In the start up phase the media, supermarkets and end consumer supported the firm which was able to create high value for customers and stay profitable for some years. After several years of declining performance the company had to realize the effects of the globalizing world economy.
Many takeovers faced by domestic companies and manufacturing plants in foreign countries made it easier for the buyers increasing their bargaining power. This resulted for DSF in decreasing demand for locally produced goods and declining product range. Having analysed the strategic position of DSF it is critical to develop a stable and effective management. In order to recover its economic stability and achieve above average returns reinvestments are inevitable. Supporting domestic farmers and local manufacturers and increased media presence might lead to higher loyalty and awareness of the brand.
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