business strategy 2

8/2/2019 Business Strategy 2

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WH SMITH PLC

BUSINESS STRATEGY

Case Study

HASSAN SHAHRYAR

3/31/2012


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Business Strategy

The Concept and its understanding

Assignment Task: WHSmith Case Study

Individually read the case study. Answer the following questions and perform its analyses:

Identify some businesses from which the company withdrew and analyze the reasons why.

Examine the various tables providing data on sales, profits, store numbers, floor trading space and

numbers employed. What is your interpretation of these?

What are the arguments for WH Smith disposing of its news distribution business unit? What are

the arguments for retaining it?

Examine why the company acquired certain businesses?

Analyze market penetration and product development strategies.


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To conduct an in-depth analysis of WH Smith withdrew from the above businesses the following areas need to be

understood:

SWOT analysis identification needs to be performed from the period 1996 to 1998providing more

details on the background to the decisions of acquiring and setting up joint-ventures and mergers for

the above companies from which it withdrew.

Also a brief understanding of the leadership and power changes that occurred before 1996 contribute

to the analysis of WH Smith disposed of such businesses. As these changes also influence the direction

and strategy choices made by WH Smith during these years. Strategies such as Vertical Integration

Merger, these are Heathcote Books, Niceday stationary and Paperchase firms in the same industry.

A strategic management tactical decision is to buy competitors that are selling similar substitute

products or more premium products like Paperchase; by applying business methods and theories that

examine the competitive market turning threats into opportunities and those opportunities into

improved strengths of the organisations main core competencies.

The strategic decision and movement made by WH Smith is Horizontal diversification under which afirm develops or acquires new products that is different from its core business in WH Smiths case this is

its DIY venture WH Smith core business is retail selling newspapers, magazines, journals, periodicals,

books and stationary items and

Video etc

SWOT analysis of WH Smith prior to 1996

STRENGTHS of WH Smith Own Brand (quality & value) Positioning & Locations Turnover & RevenueCompetencies: Books, Magazines, Stationary, Newspapers etc. Experience - almost 200 years Own publishing

of Educational branded British national curriculum help and support books (good demand)Improved product

range includes DVDs, CDs, Videos etc WH Smith Travel (Europe & US)

Weaknesses of WH Smith Competitors Up-market quality brand Differentiation Changing Leadership Power

Lack of Focus Dull shops and representation of products Over staffed & little knowledge Already undertaken

diversification too widely Lack of premium academic literature Ambiguous customer segment (who are the

prime customers?)

OPPORTUNITIES of WH Smiths, using their strengths to overcome Threats and turn them into Opportunities.

The Opportunities once dissolved into the organisation effectively should become part of the core strengths of

the company. Using WH Smith Revenue to buy up competitors and integrate wholesale bookselling

THREATS of WH Smith Political/Economic changes (Recession) Law changes in new legislation in 1995-NetBook

Agreement Legislation meant the lifting of fixed prices of books resulted in more Price Competition of books in

the UK. Supermarkets expansion during the recession and new laws allowed them to undercut the traditional

book sellers like WH Smith. Supermarkets large competitors with Sub-urban presence. Medium-sized


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competitors but with High St presence Such as Paperchase, Rymans, Staples etc. B&Q and Home base

Amazon.

In October 1995 Bill Cockburn left the public sector Post Office and took his new position as CEO of the WH

Smith Group. This change of leadership power led to new business strategies. At the time the group had a 2.7

billion turnover and 33,000 staff which run 549 W H Smith shops. It owned Water stone's, Virgin Our Price

(with a 75% share) and Britain's biggest newspaper and magazine distribution company as well. Despite its

prominent position as one of the best known names in the high street, it is widely perceived to have lost its way

in the fast-moving retail market of the '80s and '90s. A lack of focus on exactly what its WH Smith stores should

be selling

Withdrawal of Heathcote, Niceday Stationary, Paperchase and DIY stores: Possible Triggers

The SWOT diagram indicates the reasons behind the purchasing of Heathcote, Niceday and Paperchase. It

shows that at the time those strategic business choices were made so that WH Smith could improve and

further strengthen its core competences, develop its products and offer more variety. These choices also helped

to gain more market share, reduce competition on the High Street and take advantage of wholesaling. WH

Smith reacted to the uncontrollable external economic, political and legal factors by using its resources such as

revenue, experience and employee resources to turn those acquired businesses into strengths. The aim was to

position themselves competitively against the supermarket rivals. After spending an estimated 435 million tofund acquisitions and organic growth over the previous years, the company announced the sale of some of its

largest noncore businesses and a refocusing on the traditional retail operations.

(As the U.K. financial journal Investor's Chronicle put it.)Clearly Bill Cockburn had new strategies for WH Smith

he became the new CEO during an economic downturn, WH Smith chain was suffering from a decline in

sales/profits, the annual report for 1995 stated: dull and neglected stores, previous management neglected the

core business and spent revenue on diversification ventures, resulting in 7.6% reduction in group profits;

new laws affected price competition, increased competition from rapidly expanding large supermarket chains

who were expanding into non food items such as stationeries, books, newspapers, videos, music CDs etc.

During the time of the early 1990s consumer patterns of spending behaviour had also changed mainly due to

the recession and expansion of supermarkets. The UK consumer confidence was low, people were saving andeating out less and the job market noticed a change in the workforce where people were taking on more than

one job and housewives returning back to work. This all favoured and helped the boost in supermarket growth.

People had less money and time to spend on the High Streets (partly due to the early closing hours). Instead

people preferred to shop in the evenings after work at their more convenient local supermarket. In addition

new legislation regarding trading ours was lifted and now stores especially supermarkets were allowed to

operate on Sundays, public holidays and 24 hours. Consumers could now buy everything they needed from

under one roof. All these factors summarise the reasons why WH Smith was losing sales and profit. For the

fiscal year 1996, WH Smith posted a pre-tax loss of 195million, the first loss in the 204-year history of the

company.

Unrelated Diversification DIY (Do It yourself) stores.Wednesday, 12 June 1996Boots and WH Smith finally ended their disastrous Do It All DIY joint venture yesterday. Boots has agreed to

take control of WH Smith's 50% share of the loss-making business. Do It All was originally created by WH Smith

in 1979 when the company acquired a DIY chain. 1990 it was merged with the rival Payless DIY chain, owned

by the Boots Group. The combined group in which WH Smith and Boots both had a 50%share was rebranded

under the Do It All brand. Fortunes did not improve, however, and in June 1996, after periods of substantial

losses, WH Smith sold their share in the company to Boots for a 1 gift voucher, giving the latter full ownership

The chain employs 6,600 staff. The decision to walk away from the six-year partnership will cost WH Smith a


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total of pounds 63.5m. This includes 50m staggered payment to cover the cost of selling unwanted stores. It

is also waiving 13.3m loan to the chain. WH Smith had invested a further 75m in the business during that

time in an attempt to restore it to profitability. It proved a financial catastrophe, consistently losing ground to

rivals such as B&Q-owned by Tesco and Sainsbury Home base. The decision to end the venture is part of a four-

month strategic review of the WH Smith retail empire undertaken by the new chief executive, Bill Cockburn,

commenting on the Do it all decision, he said: "With hindsight, the venture was a disaster. But at the time of

the merger the DIY market was booming and it looked like a good deal."

Related Diversification Waterstones

The chain was founded by Tim Waterstone after he was sacked by W H Smith. In 1989, WH Smith took a share

in the chain, and Tim Waterstone sold out to them in 1993. It was clearly differentiated from the WH Smith

brand in targeting the academic and serious reader. WH Smith took advantage of its strengths and benefited

from horizontal integration. It was therefore a logical fit with the main WH Smith brand in much the same

way that VW and Audi brands are owned by the same German car group but targeted at different consumers.

Branches of WH Smith and Waterstone were complimentary High Street brands with obvious synergies and

economies of scale. In 1998, WH Smith sold the chain for 300m to EMI Group. WH Smith chief executive said

the group had planned to float Waterstone's, but changed its plans after receiving "a firm offer at a

good price". He added: "Waterstone is an excellent business and I think this is the best result for shareholders,

staff and customers. We can now concentrate on developing WH Smith as a mid-market popular specialistretailer with core strengths in books, newspapers, magazines and stationery.

Withdrawal Reasons

1. A new CEO meant new strategies to overcome the declining performance and focus of the corebusinesses.

2. Disposal of Heathcote was mainly due to financial reasons: poor performance and cost of investmentneeded to maintain this side of the business did not meet its benefit. Heathcote had incompatibility

issues with WH Smith. There was a need to improve net margins by increasing customer satisfaction

and sales. Wholesale involves good efficient supply chains and logistics. WH Smith was unable to match

its strengths to operate this business profitably. It can be argued that it was underperforming that WH

Smith did not report its turnover contribution to the WH Smith group in the annual report of

1995. Furthermore the amount Heathcote was sold for to the purchaser John Menzies is undisclosed. It

was necessary to dispose of Heathcote.

3. Bill Cockburn had new strategies for WH Smith apart from the disposal of unprofitable businesses;Cockburn had plans to improve the existing High Street stores giving them a new makeover and plans

for growth through acquisitions. Both strategies are costly and with WH Smith making losses they need

to raise capital to fund such ventures. The Disposal of Nice-day stationary to Guilbert of France would

provide a good return of 142 million.


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4. Those businesses that are not making sufficient profit for the company to achieve its long-termobjectives would also be disposed (according to Bill Cockburn in a press-release). Paperchase met this

criteria and it can be noted that the little revenue contribution towards the Smith Group brought in by

Paperchase was insufficient. The sale of Paperchase to Graphite Capital of 1 million is also a small

sum for such a large company as WH Smith with a turnover of 2.7 billion.

5. WH Smith needed help to reduce a 170 million debt left over from the company's previous rash ofacquisitions.

6. The disposal of DIY was an inevitable decision that was perhaps overdue, the recession and the housingmarket down-turn and negative equity experienced by the UK population would leave this sector of the

market years to pick-up again. This decision made by Bill Cockburn was clearly due to financial reasons

and it assisted with retrenchment. There was no longer any need to pay the 6,600 employees that was

needed to run these stores. The exit barriers were high and this could be the possible reason for selling

their stake for a 1 gift voucher to Boots.

7. The demerger of Waterstone's is consistent with the board's strategy of strengthening WH Smith's

position as the leading popular bookseller, stationer and news and magazines vendor. The

demerger will enable management to focus on the core W H Smith business. It is noticeable that WH

Smith aimed to raise capitalthrough the demerger of Waterstone for various financial reasons. They

had intended to float the company but were able to receive a good firm financial offer instead and

therefore took this option to fulfil its objectives.

8. The capital gained from all the disposals would allow Bill Cockburn to continue with his strategies and are-modelling program was launched, spending on advertising was increased, and the management

took a more aggressive approach to promotions. Cockburn wanted to focus on WH Smiths strengths in

High Street retail stores, since they are the key business profit areas. These have been neglected, lost

direction/focus, reduction in sales and customer services need improvement. The key to rejuvenating

the company, though, will be sorting out just what it sells in its400 W H Smith high-street stores (the

other 149 are in airports and stations). They provided the bulk of W H Smith Retail's 927 million

turnover in the last financial year, but have recently suffered from falling profits (down 27% to just

below 48million in 1995/96) and a lack of direction. In Cockburn's own words but it is still hard to

know what Smith's retail proposition is. Do you go there to buy newspapers, Books, Pens, Stationery,

Videos or Music? It's no wonder that 38% of the people who wander into Smith's wander out againwithout buying anything.


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The total number of stores includes the High Street retail stores, Travel stores in Europe, USA and Asia. Bill

Cockburns strategy was to dispose of business units that were un-profitable and reinvest the income earned

from the selling of those units to improve and concentrate on WH Smiths core businesses (High St and Travel).

It can be noted from Table2 that the store numbers have increased from 1996 to 2000 to meet Cockburns

objectives. While continuing with efforts to enhance the performance of the WH Smith chain he also movedquickly to use the proceeds of the divestments to fund targeted acquisitions. In March 1998 the Company

acquired John Menzies' retail outlets for 68m, which for many years were the main rival to the company's

small railway-station outlets. This purchase also cleared the way for WH Smith's retail expansion into Scotland.

Prior to the takeover, Menzies' larger Scottish stores (carrying a very similar range of products to High Street

WH Smith stores elsewhere) dominated the market.

WH Smith gained 140 retail units in England and Wales, which were rebranded under the WH Smith name, and

about 90 stores in Scotland, which continued to use the John Menzies name under a license arrangement

(there having been no WH Smith outlets in Scotland).WH Smith also bought the Internet Bookshop that same

year, re-launching it the following year as WHSmith.co.uk, an e-commerce site selling books, CDs, videos, and

DVDs. WH Smith also made a surprising move into book publishing during 1999, first acquiring Helicon, the

leading U.K. publisher of consumer and educational reference material, and then purchasing Hodder

Headline for 185 million. By becoming a content producer, WH Smith hoped to distinguish its retail chain from

its competitors by developing proprietary products that would be available only through the chain. Hodder

Headline had an educational publishing division and this would help WH Smith to improve its own brand titles

and develop itself as a publisher. Furthermore this would also feed through to online content. Finally Bill

Cockburn stressed that part of his strategic plans was to necessitate there structuring of the organisation. In

Table 2 the figures from 1997 to 2000 shows the total number of employees shifted from 18,749 to 22,018, as

the organisation expanded the human resources needed for this expansion also increased. However with

any restructuring within an organisation especially during acquisition there will be a reduction in the number of

employees. For WH Smith during the period ofBill Cockburns leadership the reduction ofemployees was

noticeable for those who operated in the News distribution sector and the change affected a mixture of full andpart-time employees. The figures in 1997 are 8,467and reduced to 7,906 by the year 2000. This was also partly

due to the cost-cutting strategies at that time. These retrenchments were the decisions of Cockburns strategy.

Cockburn made other changes as well, including a workforce reduction of 1,100, the closing of the group's

Sloane Square headquarters, and the writing off of a significant amount of stock at the WH Smith chain in an

effort to narrow the offerings and free up space for more productive lines.

Analysis

Mentioned information and analysis concludes WH Smiths CEO Bill Cockburn had pursued his strategic growth

plans and strengthening core business units through acquisitions of main competitors. A major strength of WH

Smith (see SWOT analysis) is its locations. Since WH Smith had no presence in Scotland; therefore acquiring

John Menzies allowed WH Smith to gain market share, growth, stores, selling space, employees and revenue.

The number of total stores in 1997 was 907 and increased to 1,239 by the year 2000. Similarly retail selling

space was 258 in 1997 and increased to 339 by the year 2000. Hodder Headline also contributed toward these

figures. Growth is the key factor for the data presented in Table 2, as WH Smith acquired more businesses and

ventured into new markets its indicators also raised. Table 3 represents the effects of these strategies in

terms of profit. Following on from Bill Cockburns growth and strengthening strategies, he was determinedto


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improve the turnover portfolio of WH Smith, due to the 1996 announcement of its first ever loss in its trading

history of 204 years. Shareholders are one of the firms majorconcerns. Increasing profits was a must.

Combining the data from Table 2 and Table 3, it illustrates the companys movements had benefited from

synergies. The improvement on its core business shows that in Table 3 it was responsible for the

1,058 million turn-over during the period 1999-2000. Similarly Hodder Headline was responsible for 105 million

turn-over during 1999-2000.The downside of Table 3 is its Asia Travel and online businesses. WH Smith

diversified widely and expanded too quickly into new markets, the companys lack of knowledge and

understanding in the Asia region shows in the turnover column in Table 3, although it obtained some revenue,it is a poor performance indicator when compared to the other business sectors. WH Smith online also

indicates insufficient revenue. As technology and communication boomed during the 1990s businesses

exploited and took advantage of Internet opportunities in trading. When WH Smith launched their online

service, it could be argued that it provided a unique offering, but they entered this market too late, bigger

players like Amazon had already established and captured the majority of the online users in this sector

globally. They succeeded due to its distribution and storage facilities and specialised on core operations that

brought the bulk of revenue. WH Smith was unable to compete with Amazon. Table 3 is best summarised with

reference to the CEOs statement:

'We have a tremendous strength', says Cockburn, 'in that our high street sites are very well located. High Street

Retail has made further progress in its recovery plan with the focus on increasing profitability and improving

cost control. Travel Retail has continued to build on its good first half trading results. In a challenging market,

News Distribution has delivered a solid performance. The annual report announces that the strategic review

'prioritised the improvement of customer service, profitability, new margins and sales.

What are the arguments for WH Smith disposing of its News Distribution business? What are the

arguments (benefits) for retaining it?

Up to this point WH Smiths core markets and strengths were divided into three main areas:

High St & Shopping Mall Retail stores

UK, Europe Travel Retail stores

News Distribution

WH Smith News Distribution before the Joint-Venture with Tescos

WH Smith News Distribution before entering a joint venture with Tescos is best visualised using the SWOT

diagram. The SWOT factors would change considerably when WH Smith enters the joint-venture.

The Weaknesses and threats would no longer exist. There exist several reasons for retaining the

news distribution business and it is best to identify the background to the merger from the perspective of WH

Smith. The reasons can be identified on the SWOT diagram. From this analysis an understanding of the

strengths of WH Smiths competitive positioning can be noted and therefore provide the main indicators that

favour retaining the business over its disposal.


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Strengths:

Market leading business

market share 35%

Newspapers 36%

It has provided good cash flow to the Group with an average cash conversion rate of over 100%.

Investments in systems of approximately 23m since 1998provided enhanced customer service and new

revenue opportunities.

2004 first half performance profitability improved: trading profit margins increased from 2.5% to

3.0%between 2001 and 2003.

Cost control strategies, increased efficiencies and improved service.

Contract renewal with the major magazine distributor, Frontline, has recently been renewed.

Weaknesses:

In 1998 it lost a contract of 6 million.

75% of turnover came from its long-term contracts.

2000 growth in magazines slowed down.

Distribution is a major logistical exercise needs sophisticated updated technology and equipment

Timely distribution, not meeting sufficient quantities to match supply and demand

Newspapers have limited shelf-life. News this morning is history by evening

Retailers complained due to mismatch.36 million a year lost

Opportunities:

Improve Critical success path factor

Joint venture to improve resources and strengths

Venture to improve bargaining power with publishers and suppliers


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Invest in current distribution system and sell off other business units to raise capital

Take Over of smaller distribution companies and regional distribution companies

Create more contracts with large and small publishers even at the local level

Move into more suburban, rural areas of the country to increase market share and growth

Threats:

At the time their customers bargaining power was strong and pushed for extra discounts for bulk

arrangements resulting in profit margins being reduced.

Dissatisfied customers threat of seeking alternative distributors

Regional Distribution companies

Local distribution companies

Competitors such as the large supermarket chains now selling and distributing newspapers and

magazines

Economic forces

Internet trading, more online softcopies of journals, newspapers etc

Arguments for Retaining the News Distribution

Studying the SWOT diagram the arguments for retaining the business would be feasible after the joint merger

with Tescos, since the merger would eliminate the weaknesses and threats and as can be noted from the

movement of the SWOT diagram the company would be able to maximise advantage of its opportunities and

turn them into strengths. The main arguments to retaining the merged news distribution are:

1.

The joint-venture with Tescos created huge Growth opportunities in resources, location and businessnetwork. An asset that all businesses would strive for.

2. The combined companies had the opportunity to become the single wholesaler to supply the UKretailers.

3. They benefit from in-house sales supplying their own retail businesses a double fold on profit.


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4. The geographical locations coverage is extensive; the distribution would service the majority of the UKsHigh Streets via WH Smith and the suburban and rural areas via Tescos supermarket stores.

Therefore the distribution spread and reach is wide and varied. Excellent positioning and benefits

to organisations, where previously distribution was restricted and now it can service the majority of the

UKs districts.

5. From the stand point of the merged distribution, both partners are yielding strengthening power andacting as a monopolistic supplier-distributor of Newspaper and magazines. This is an advantage for any

organisation. No business would dissolve such a position.

6. The News Distribution will gain combined human resources and experience which will result inSpecialisation. The ideology of reaching specialism is arguable better for the consumer.

7. Performing as one supplier and distributor allows the News Distribution to exercise more bargainingpower with both publishers and customers nationally.

8. Another reason for retaining the merger is the advantage of economies of scale; this should in theoryassist toward achieving cheaper prices to the end user.

9. The combined resources of already two large organisations indicates an increase in vehicles, storagespace, equipments, technology and assigning employees to the task is maximising utilisation of the

resources providing twofold benefits. There would also be job creations for new and more positions to

operate the business.

10.Previously both Tesco and WH Smith lost sales, now with more bargaining power they can set pricesusing monopolistic features to benefit from surplus (abnormal) profits to recoup lost sales.

11.Other arguments for the benefits of the business are its large customer base providing large profitsTesco owning 7% sales of 1.8 million of the newspaper and magazine market, while WH Smith owning

16% sales. This could prove beneficial for share holders


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Summary of Arguments for Retaining the Business

A summary of the main arguments for retaining the merged news distribution of Tesco and WH Smith is mainly

from the perspective of the owners of this merger. The distribution sectors main advantages are best described

on Porters five forces

Potential Entrants Blocked out by Tesco & WH Smith due to new entrants lack of:

Economies of Scale

Capital Requirements and set up costs

No brand recognition

Switching costs

Distribution Channels

Experience

Contracts & agreements with publishers and retailers

Suppliers

The Suppliers are the publishers of the newspapers, magazines journals etc. The suppliers bargaining power

is reduced under the Tesco/WH Smith News Distribution as it is the main national distributor that can provide

the fast efficient service due to all its resources If each individual publisher of supplies unites together they can

achieve strong bargaining power

Customers

Under the Merged Tesco and WH Smith News Distribution customers would lose their bargaining power, as

they are subject to one main supplier. Such a service is not easily copied Customers are not able to by-pass

them If all the retailers unite and approach Tesco/WH Smith they will gain better bargaining power.


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Substitute

No available substitute for this service if Tesco/WH Smith is dominating the market

Industry Competitors

Tesco/WH Smith Regional & Local Distributors John Menzies Distribution (mainly in Scotland) little rivalry

amongst competitors as Tesco/WH Smith is acting under monopolistic conditions

The argument for retaining the WH Smith News Distribution is assuming the benefits are valid after the

merger with Tescos had evolved. Discussing the arguments for retaining the business before the merger would

have little benefits since WH Smith started to receive losses. On completion of the merger and the operation of

the business would it then provide beneficial results for the companies and therefore from the organisations

perspective is it worth retaining the news distribution for reasons mentioned above and summarised in Porters

five forces.

What are the arguments for WH Smith disposing of its News Distribution business?

The main arguments for the disposal of the news distribution derive from the negative responses from

the publishers, retailers, Newspaper Publishing Association (NPA) and Periodical Publishers Association (PPA).

Other factors also contributed toward the arguments of disposal such as change of leadership, EC Law, Office

of Fair Trading and members Parliament. The main points for disposal are:

1. No market freedom in customer choice.

2. Independent retailers would lose out and be pushed out of business due to the monopolistic forces thatthe company can exercise.

3. NPA are external stakeholders and acted as a pressure group and reported the affects and outcomes ofthis joint-venture to members of Parliament requesting a block to the merger.

4. Regional distribution would be abandoned in favour of national distribution.

5. The deal meant that over 50% of the magazine distribution market would be controlled by WH Smith,leading to unfair competition.

6. The merger would eventually show an impact on small publishing houses and independent retailers.

7. Consumer choice would be restricted and customers will be forced to purchase the products from eitherlarge stores such as WH Smith and Tesco. An example of this can be traced back to the late 1980s


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1990s during the expansion and growth of supermarkets, consumers saw less of the small retail shops

in operation, as they were slowly eaten away by large supermarkets, the disappearance of the milk-

man, local butcher, dairy shops, bakery etc. Supermarkets exercised price powers, to push out the many

smaller competitors.

8. Smaller businesses are the main target sufferers, as they cease trading it also results in job losses forboth the retailers and publishers approximately 6,000 -8,000 retail outlets would be out of business.

9. Regional and local newspapers would be hit the hardest because they had contracts direct withretailers.

10.The Office of Fair Trading investigation would not favour the impact of the continuing power andsurplus profits being enjoyed by the joint-venture and would disapprove of the unfair competition left

available to consumers

11.The Daily Mail and Associated newspaper terminated two-thirds of the newspaper supplies with WHSmith as a result of expressing supplier power; WH Smith was not prepared for such a response and

thus making a loss of 100 million from Smiths revenue. Such losses are view by management as

unacceptable and would result in reduced shareholder value. Directors, CEO and finance officers started

to question the benefits of the merger.

12.Threats from E-map, BBCs magazines, frontline and Seymour also wanted to terminate contracts worth500 million total value leaving WH Smith to justify these results to the board and its shareholders.

13.Another major argument in favour for its disposal arose when disagreement from G&J publisher ofPrima and best magazine and its publications were withdrawn from the shelves on refusal to sign a

deal.

14.More pressure added towards the disposal when PPA searched an alternative hub for distribution withthe possibility of a direct route from publishers to retailers omitting the whole-sale distributor. The PPA

also focused on protectionism for 40,000 smaller retailers protesting for their fair trading rights.

What initially appeared to be beneficially monopolistic joint-venture for WH Smith with increased strengths and

bargaining power over their suppliers (publishers). It was the reaction of the suppliers in their withdrawal of product

lines and loss of contracts costing WH Smith reduced revenue that caused the need to reconsider their joint venture

with Tescos. The already large successful publishers managed to use their strengths in their product brand titles

together with unification in exercising this bargaining power led to huge costs and profits. Other pressures from EC law

on competition of such mergers did not approve, the intervention of OFT, the PPA and the changes of ownership, board

members and CEOs, the strategies of the company constantly changing; these factors contributed toward the reasons

for the disposal of the demerger.

The News Distribution business of WH Smith can be plotted on the Boston Consulting Group


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As a result, WH Smith now has limited operational synergies and the Board believes that there is no continuing

strategic logic for them to remain part of the same group. Accordingly, the Board believes that it is

now appropriate to separate the two distinct businesses into independently listed entities. This will allow both

businesses to benefit from greater management focus on their respective strategies as independent

businesses. As an independent listed UK retailer, the Board believes the WH Smith Retail business will also

benefit from greater focus, enabling the High Street Retail business to continue the delivery of its recovery plan

and the Travel Retail business to continue with its growth path. In 2006the demerger took effect on 30 August

2006

WH Smith had completed numerous acquisitions that date back to 1903 when it acquired its first printing

works business. WH Smith main core business is retail and it had already diversified into publishing its

own brand titles in line with the GCSE syllabus books, a range of educational books were available for 3-11year

olds and these were unique to the High Street. The company also produced other educational text books for

home learning and support such as the Teach yourselfbrand. In 1999 Chairman Jeremy Hardie stood down

and Martin Taylor became Chairman. New leadership meant new strategies as can be noted from Table 4,

within a short period of time from February 1999 to May 1999 Smith acquired three Publishing businesses.

Acquisitions such as these provided Smith with the benefits of Horizontal integration the publishing side is

complementary to the companys presentactivities. The reasons of which are listed above. These acquisitions

also fit within the vertical integration method of acquiring businesses, as the publishing side means Smith

would be its own supplier of certain books and distributor in the retail sense (it would supply its own published

books to itself at the retail stores and online stores). The main reasons why WH Smith would take such

a venture are to gain the following advantages:

It will secure the supply of components and materials and this would lower the supplier

bargaining power

Stronger relationships with the final consumer

The would gain a share of the profits at all the stages of the value chain

It provides a more effective differentiations strategy

It creates stronger barriers to entry

More recent acquisition has been identified in Table 4 year 2007, UNS Hospital group limited, reason why WH

Smith has chosen this option as part of its strategy, is to maximise benefits of organic growth.This is a

primary method of growth for many organisations for various reasons. It is achieved through the development

of internal resources. This would strengthen and provide growth opportunities for WH Smith Travel

business unit. WH Smith reported:


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We have developed a new hospital-specific format that takes traditional WH Smith strengths and integrates

ranges tailored to hospital staff, patients and visitors. This includes core ranges such as books, news and

magazines combined with a greater variety of lunch options, an improved convenience range and basic

groceries such as bread and milk. We continue to see good organic growth opportunities in this channel via this

wider category mix and new space. Travel achieved total sales growth of 8% and profit growth of 17%.

To integrate acquisitions takes experience and synergies in order to reap benefits. WH Smith has managed this

implementation of this strategy with little difficulty. UNS Hospitals trades as United News and has 72 retail

units and 8 Caffe Nuovo coffee shops in 62 hospitals throughout the UK. UNS Hospitals has developed a leading

position in the hospital sector and has a strong and experienced management team. WH Smith currently has 8

units trading in 7 hospitals and this acquisition significantly strengthens their presence in this growing channel.

Exceptional integration costs will be around 1m. The acquisition of 80UNS units have now been re-branded

and the UNS chain is now fully integrated into their central functions, including all Head Office and field

functions, and all supply is now through Smiths distribution centres. The acquisition has resulted in WH Smith

growth path into newMarket Development benefits.

However, acquisitions can have a poor record of success if a lack of understanding and poor implementation

tactics exist. The risk factors must be addressed and included as part of the strategy.

Analyze market penetration and product development strategies?

One way of looking at risk is to use the Ansoff matrix. This was first published in 1957 as a way of categorising

market strategies, but it has equal relevance when thinking about acquisitions. The acquisitions completed by

WH Smith of the Travel business and Publishing businesses can be plotted on the Ansoff Matrix to understand

how the organisation utilized Market Penetration and Product Development strategies. WH Smith has over the

years in their business trading practiced all the strategies under the Ansoff Matrix gradients. However the two

main acquisition areas will only be addressed and examined.

WH Smith Organic growth for its Travel business sector adopts the Market Development strategies; the firm

sought new markets for its current products. They identified new geographical areas and spread throughout

the UK. They recognised the need to be selective in the type of products available. There was a need for Travels

stores sell a more tailored range of products than High Street stores, to cater for people on the move or in need

of a convenience offer. Travels typical customer has less time to browse than the High Street customer and is

more interested in reading materials for a journey as well as purchasing food, drink and confectionery.

Consequently, there is a limited demand for entertainment and stationery products and the stock and format

of each Travel store reflects this. They gained new distribution channels and were able to attract new

customers. These methods of growth have supported WH Smith to allow them to offer their customers the bestin the travel retail sector. The acquisition of the publishers is adopting relateddiversificationof both horizontal

and vertical integration. The reasons for this have already been discussed previously. This strategic method

allows the company to take advantage of the gradientproduct development. The rationale for such

acquisitions was to strengthen the publishing stream of WH Smiths portfolio. Performing heavy investments

of 6 million for Helicon publishing and 192 million for Hodder Headline. The purpose behind these two

acquisitions allowed Smith to maximise its educational publishing division and develop itself as a publisher

of mainstream books. The late 1990s had experienced an explosion of Internet trading and in particular books

with rival firm Amazon. Changing patterns in consumer behaviour with time constraints, moving toward

a to increased sales of E-Books, E-Newspapers, E-Magazines etc. WH Smith need


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strategies to respond to these factors. The acquisition of Wayland Publishing would service this need. Hodders

knowledge, skills, resources and experience would also benefit WH Smith with their diversification strategies;

with their range of electronic books in conjunction with Helicon with the intentions to launch the first

interactive encyclopaedia. The objective here would allow WH Smith to secure dominance of growth in the new

markets especially online publications. There are major benefits of the strategies associated to this gradient.

Conclusion

It has a history of acquisitions, diversification, expansion/growth, mergers and disposals; thus providing WH

Smith with profit and losses. Their acquisitions date back to 1903 when it acquired a printing company, this hasgiven them extensive experience in acquisitions and risk taking. They maintain core strengths in location and

positioning choosing strategic localities since 1848 with its first bookstall at Euston railway station. Throughout

the years it established its core business in newspapers, magazines, periodicals, books and later stationeries

and their brand name was associated with quality. From the mid-90s they took advantage of opportunities

such overseas expansion. It started diversification strategies into Travel, joint-ventures in DIY, progressed with

product ranges as technology changed and consumer interests moved towards the entertainment industry. The

organisation matched the external environment and adjusted its products offerings. Later Economic, Political

and Legal factors contributed to the reduction in performance. This was responsible for the price competition

and the 1990s recession mainly affecting WH Smiths DIY sector. The changes to top management leadership

and strategy styles also contributed to the decreasing performance. The lack of good telecommunications,software information technology advances and logistical distribution weaknesses revealed the reduction in

profits and in 1996 reporting losses for the first time. Strategies to diversify widely and quickly losing focus on

their core business strengths left the organisation at a poorer competitive edge, which proved costly for WH

Smith. Evidence of this is noted in the businesses it divested and demerged from. The ability to identify and

employ the correct mixture of resources for their ventures and lack of forecasting has left WH Smith with only

two major areas: Retail High Street Stores and the Travel Retail stores as prime drivers for generating profits.

RecommendationsWH Smith is a company which in the face of falling profits began to expand in all directions and unsuccessfully

squeeze their brand. Their return to their rootsas described in the2004 Annual Report now appears to be

bearing fruit. The ideal strategy for WH Smith in the last decade would have been to focus on its core activities

and increase efficiencies with new technologies, improve buying power, sell at more higher margin items and

followtheir customers habits with sales of newer lines. WH Smith did not follow this path but instead decided

to try to leverage its brand, stretching the brandas WH Smith described it, and expand vertically, horizontally

and diagonally searching for new revenue. WH Smith should build on its position as the UKs most popular

stationer, bookseller and newsagent by continuing to grow its strongly performing Travel business and

delivering its High Street plan. Travel should focus on delivering value to shareholders through organic growth

in its existing outlets, securing new contracts, trialling new formats, increasing average transaction value andmaking improvements to trading efficiency. They must invest where they will achieve a return on investment

above their cost of capital. While external economic and other factors might affect them, they need to monitor

the external environment more closely with contingency plans and adopt appropriate strategies. It is also

important to respond to changes quickly unlike their response time to launch the online trading. The market

was already mature by the time WH Smith entered this form of distribution. The key problem was expansion

using various strategy methods without adopting the correct strategic plan and neglecting all other business

forces such as legal changes, recession, and industry bargaining power and consumer patterns. WH Smith

needs to focus on their strengths, resources, employee and technology changes that can improve business

activities, perform better speculation, forecasting methods and political movements. For example, political


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movements such as the joining of the EU may affect businesses in various ways; there may be tighter

restrictions on trading or directives that lift restrictions in which case would open up opportunities for more

businesses. Organisations in the business world are moving closer to globalisation opening up the opportunity

for more travel in some cases and due to modern information systems and sophisticated software less travel.

However the travel industry has seen an increase in travel over the past two decades. Therefore is would be

recommendable for WH Smith to continue to improve and grow its Travel Retail stores and spread into new

markets. Where resources prevent restrictions the idea of franchising should be considered. There are still

opportunities to move into more travel areas such as the main motorways that link the UKs main cities

together; these have every few miles service stations that already have the selling space. Smith needs to

consider agreements with these companies such as Road Chef, Welcome Break, Moto; these are all located

along the main M1, M62, M4, M3 etc. The opportunity for growth nationally is huge.

Other new markets should be viewed as an international opportunity and aim to trial different operating

models: directly run, partnership and franchise.

Comparison of other Companies

The comparisons of the companies are regarding their acquisitions with reference to the Ansoff Matrix.Market extension

Through acquisition Tesco acquired T&S Stores a chain of convenience stores as a means of entering a new

market sector, but using the same products it distributed in its larger stores .In Ansoff terms, this is a market

extension strategy. The acquisition of T&S Stores enabled Tesco to start operating 800 convenience stores the

day after the acquisition. Consider the alternative of organic growth, and the amount of time, effort and

resource required achieving similar foothold and you can see how acquisitions can provide a shortcut to

success.

Market Penetration

In the same sector as Tesco, Morrisons acquisition of Safeway represents Market penetration. Although this is

intrinsically lower risk, it has taken several years for this acquisition to bear fruit, at least partly because

the Morrisons management team underestimated the resources required to integrate the two businesses.

Product Development

Through acquisition is very common in the IT Industry and one illustration is Sage Softwares development of

accounting and ERP systems. Sage began as a provider of accounting systems for the smaller businesses, but

through a number of bolts on acquisitions can now offer systems for businesses of many different types and

sizes

.

DiversificationThis is the strategy with the highest risk. This was

Williams Holdings and others acquires substantial, unrelated businesses. More recently, diversifiers have

looked for some commonality of customer, product or service, positioning the strategy close to the very

centre of the matrix. Such related diversifications are much more likely to succeed. Similarly the Virgin group

are major advocates of diversification into unrelated businesses, from transportation, music, entertainments,

drinks, wedding clothes and the list goes on. These are examples of strategic acquisitions completed by

substantial companies. They specialise in bringing knowledge, skills and experience to the market place.


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Recommendation of other companies

Companies intending to practice acquisition strategies as a means of growth and profitability, the

organisations must consider the aspects:

The acquisition must provide advantages in the product or service

Synergies must be identified

It should eliminate competition

Provide maximum utilisation

Obtains greater production capacity

Improve bargaining power

Benefit from economies of scale

Checks and monitoring of the external environment factors

Human knowledge and skills should be maximised

The pooling of cash/profit resources of both the companies in order to dissolve the acquired company

the simulation process should be efficient and effective

The assets should be beneficial rather than costly

Innovation advantages

The chance of spreading risk

Improve overall strengths


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The incorporation of all the above recommendations should be a check list and included in the strategic

planning process. Each organisation should decide the type of method it sees fit, that is related to the Ansoff

matrix in either choosing one of the gradients or a mixture of the gradients in extension, development,

penetration and or diversification.


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