strategic management.doc

Strategic Management Carol Hughes

SECTION ONE – PROPOSAL

THE CO-OPERATIVE GROUP

When carried out my first initial research for the original assignment in this module, I

realised that one of the biggest problems to be overcome was to get accurate and up to

date information on the particular organisation, not just for the first assignment but then

to get more in-depth information for the next assignment.

When I visited the Co-operative web site (www.co-op.co.uk), I found a lot of information

about the company and it’s initiatives. Through the site I e-mailed them for further

information, within days I got a parcel of leaflets and reports back from them. As a co-

operative they are very open with information, and though their business is quite diverse

including the main business of the food stores but including the cooperative bank, the

funeral service, the opticians, the travel agency and other miscellaneous business such

as it’s farming, energy services and property services, it is all managed under the same

philosophy with their literature describing the different branches of their business under

the same umbrella rather completely separate business enterprises.

Because of this openness of information with their customer, I have chosen to use the

Co-operative Group as my chosen company for my strategic analysis

BSc {Hons} Quality Management Year 3

http://www.co-op.co.uk/


SECTION TWO – EXTERNAL AND COMPETITOR ANALYSIS

On the 14th September 2001 The Co-operative Wholesale Society Ltd after it’s merger

with the Co-operative Retail Society Ltd was renamed to the Co-operative Group (CWS)

Ltd. It is the world’s largest consumer owned retail co-operative 1. It’s purpose is stated

as “to be a successful co-operative business”2. This essay will analyse the external

influences and competitors to the Co-operative Group (CWS) Ltd using PEST analysis

and five forces analysis (Porters Diamond).

The group consists of various interrelated businesses which work together towards the

aims of the organisation, which include “to act openly and responsibly” an aim which is

visible throughout their literature and activities. The core activity of the group is the food

retail business, which is supported by specialised businesses such as funeral care and

travel care. It has it’s own milk producing and distribution business Associated Co-

operative Creameries (ACC) as well as farming business, and the group incorporates

it’s own cooperative bank and CIS insurance services. In addition there are various

miscellaneous companies in the group including engineering, footwear and has

interests in pharmacies and opticians.

Though historically the food retail market remains stable through external influences

other parts of the co-operative are not so stable to the factors examined by a PEST

analysis i.e. Political, Economic, Socio-cultural and Technological. The recent events in

the US are like to have a direct affect on 330 Travelcare branches as with all travel

agencies, though no accurate data is as yet known as to how much this affect will be.

Used car sales are likely to diminish as new car prices are encouraged to move in line

with European prices, this have an affect upon the Priory Motor Group which sells

12,000 cars each year3. The Co-operative Group takes an active part in politics in the

retail field and has it’s own political party (the Co-Operative Party) which is closely allied

with the Labour Party4. At the 1999 Labour Party conference the CWS released a

packaging to open food co-operatives in socially excluded areas of the UK. The recent



increase in unemployment as previously stated may not effect food retail and in fact has

opened up new potential scope for trading, it does have a impact on the Co-operative

Group banking section which include The Co-operative bank and it’s online partner

smile.co.uk as if subsequent interest rates rise, less people will be purchasing

mortgages and saving plans. The group’s Insurance sections the CIS will also be

affected by the amount of income people have to spend.

The Co-operative Group has Britain’s largest farming operation5. Farmers in the

European Union are able to receive government assistance to provide organic produce,

this government assistance isn’t available in the UK6 so that over 75% of the organic

produce on sale in the UK is imported. This is a huge potential market for the

organisation. The recent foot and mouth crisis did not directly affect the farming

business, as it is agricultural. It did however affect the milk business, though the Co-

operative Group admits that it is difficult to access what the long-term impact will be7.

A recent study of British eating habits has shown that people now prefer pre-prepared

meals than to make their own from raw ingredients8. This in particular affects the

smaller stores in which products to offer. Other findings from the study show that 20%

of the co-ops customers now buy organic food, and 30% of their customers are willing

to pay extra for a fair-trade product 9.

In 1999 Tesco carried out a survey of it’s customers and found that 25% did not want

Genetically modified products10 by the end of 2000 Sainsburys, Marks and Spenser and

Iceland had removed all genetically modified ingredients from it’s own brand products.

Before the merger of CRS and CWS the views of the two organisations were very

different the CWS removed all genetically modified products and the CRS was much

more relaxed. The new merged group has taken the views of the CWS that no

genetically modified foods stuffs be sold in its store or be fed to it’s farm animals.



The number of households with Internet access is ever increasing in the UK. Most of

the larger supermarket chains all have the facility to sell their groceries to their

customers online. The Co-operative Group have been carrying out trials an online home

delivery service called Co-op 2U, this is being introduced to various areas in

2001/200211.

The Funeralcare branch of the Co-operative Group is the countries largest such service

provider and accounts for 3% of the Group’s external sales12. The UK death rate fell by

2% in 200013 which if this trend carries on year by year will have a direct effect on the

groups funeral service.

The model that I am using to analyse competitors of the Co-operative Group is the

Porter’s Diamond model which concentrates on Competitive Rivalry, posed by the threat

of entry posed by new competitors onto the marketplace, the buying power of the Co-

operative group’s customers, the power of suppliers to the company, and the threat to

the company’s products by substitutes.

As the food retail part of the Co-operative Group accounted for nearly 50% of sales for

the 24 weeks ended 30th June14. This is an highly competitive area this section of

competitive analysis will concentrate on the food retail sector. As the Co-operative

group as a whole is well defended against external threats due to 25%15 of the group

sales figure being due to internal sales between the businesses within the group. There

has been a significant threat of entry from other retail stores such as Sainsburys, Marks

and Spencer’s and Tesco, have all recently entered the financial market, and are now

selling credit cards, pensions and ISA’s16.

The Co-operative Group deals with nearly 700 suppliers 17, the company is a founder

member of the Ethical Trading Initiative. One area of substitution which could arise is

that the Co-operative Group puts a high emphasis on sourcing it’s products from ethical



sources, and uses this as a marketing platform, with such products as it’s “Fair Trade”

range. The Co-operative group was the first supermarket to supply it’s own range of

“Fair Trade” produce (chocolate) 18. As the public’s awareness increases about ethics

in supermarket sourcing, other supermarkets could increase the publicity of this area.

Price wars between the larger supermarkets put more pressure on the larger stores

rather than the smaller convenience stores. The larger stores are in direct competition

with stores such as Sainsburys and Tesco. But by trading as a group at present there

is no single competitor that can compete with the Co-operative Group as by being a co-

operative and therefore paying dividends to members rather than shareholders, the

emphasis is on trading as a successful business instead of to simply make profits



SECTION THREE – RESOURCE AND CAPABILITY ANALYSIS

To implement a resource and capability analysis of any organisation we must first

identify the core competencies of the organisation across the portfolio of products and

strategic business units and identify where the organisation is strong and weak in terms

of strategic competitiveness. One model that aids internal analysis is Porter’s Supply

Chain Analysis Model.

(Source: http://www.acad.polyu.edu.hk/~msklma/SM/internal.html)

This is not the only model to do this process there are others such Alderson’s

transvection model, and both have many similarities, but for a company such as the Co-

operative group the Porter’s model is more applicable as it deals with strategic business

unit’s rather than organisational behaviour. Both models have the weakness of

assuming “perfect competition is homogeneity” 19. Porters model also tracks products

from the producer to the end user 20, which in the case of this organisation who is in

many cases it’s own suppler and customer is an apt model. Porter’s model relies on the

theory that information systems are a vital part into creating a strategy is in gaining a

competitive advantage 21.


http://www.acad.polyu.edu.hk/~msklma/SM/internal.html


One disadvantage in using Porter’s model is that due to the wide scope of the model

there is a lack of precision in the output from the model 21. Another disadvantage with

this model as with all of Porters earlier work is that it is built on static models 22. Though

despite these disadvantages this model is a reliable foundation to commence an

internal analysis and to be used as a framework to introduce other models into the

analysis to compliment the information gained from Porters. The core concept of the

Porters Model is that strategic capability is judged by the customer 22. So that any

strategic plan must take the needs of the customer as it’s core driver. The model takes

into account the primary activities that actually go into the process and the secondary

support activities. With an organisation such as the co-operative group the boundary is

not clear between primary and secondary activities.

The strategic business unit’s of the Co-operative Group 23:


RetailTravelcare

Coffin Man

FarmingFuneral

ACC

CIS

Banking

Distribution

Members

Customers

Staff

Internet


The Porter’s model helps identify additional competencies that may not necessarily be

identified, for example the human resources in the Co-operative bank have been

developed to such a level that the bank scored 36th in the “Sunday Times” top 50 of best

places to work in 2001 24. Once identified these strengths can be investigated an

applied to other strategic business units. According to Richard and Thompson 25 there

are 30 generic core competencies relevant to any organisation including identifying the

market place and the organisations location in the market place in order to diagnose

organisational strategic standing.

One method of analysing a company’s Strategic Business Unit’s is by applying a model

such as the Boston Consulting Group (BCG) Matrix, as an aid to identify where the

companies strengths, weaknesses and core competencies lie. These models are

generic to all modern business environments. There are a number of reasons to

analyse the current situation of the company and/or Strategic Business Unit. The

primarily aim being to understand the competitive situation, to enable the company to

devise competitive advantage creating strategies 26.

(Source: Business Basics)



Though the above matrix is easy to use and to understand, it does over simplify the

market, by concentrating only on Market Share and Market growth. Also it is a very

basic model as each Strategic Business Unit may provide various products covering all

the quadrants of the matrix 27.

A broader matrix is the General Electric (GE) model:

(Source: Business Basics)

Which goes into more detail and identifies the position of the Strategic Business Unit in

much more detail. Though like the BCG matrix, the GE Matrix is also very subjective to

opinion of the analyst. And its information can be used for guidance only at best 27.



If we apply the Co-operative group to the GE matrix:

Business

Strength

Strong

Funeralcare

Farming

Average Internet Shopping

Travelcare

ACC

CIS

Retail

Weak Bank

Distribution

Attractive Average Unattractive

Market Attractiveness

This matrix illustrates which strategic business units of the company that which could be

developed for maximum growth such as investing in the farming sector not only in such

areas as organic foods as discussed in part one, but as a more efficient supplier to the

retail strategic business unit.

The core competency of the group is retail through a wide selection of stores, they have

reinforced this competency by backwardly integrating themselves into the supply chain.

This has the disadvantage of missing out on opportunities by insulating themselves from

market forces and by only providing one customer for their internal supplier. Also by

reaching the stage, which the organisation is at today by organic growth the

organisation, may not be as sensitive to external factors to the same extent as it’s main

retail competitors such as ASDA. Though it has the strong advantage of self protection

in a highly competitive market.



As a co-operative the people who are making the decisions are not executives, and do

not necessarily have business skills needed to make the company as competitive as it

can be, as there is a linear progression of decision-making from the members up. This

could result in the organisation not operating in a cost effective manner, so could end

up in the situation of requiring sales to cover costs, rather than generating profit.

Strategic success comes from two main competencies: to create attractive products that

the customer wants and to organise the internal processes of the organisation so that

the product costs are below the price paid by the customer 28.

By having such a diverse organisation it is quite easy for the company to change

direction if necessary 29, which is a required core competency for any modern

organisation, so by having a wide range of retail outlets from small stores to

hypermarkets, the organisation can adapt to external pressures. By definition they have

to have the capabilities to meet their core competencies, though there may be excess

competencies not fully utilised. One weakness by having such a diverse organisation is

the difficulty in analysing any cost effectiveness of an isolated strategic business unit

such as distribution, which may have a significant affect upon the overall organisation.

CIS and bank are away from core competency, not commercially as viable as other

branches. Here the knowledge has been acquired rather than grown organically. Porter

notes that the expansion of an organisation into other market areas, may result in the

loss of the strategic advantage originally achieved 30. Though since 1971 the bank has

been a separate legal entity from the Cooperative Group 31. In the 1990’s it returned to

the Cooperative identity and promoted itself as an ethical bank 32. Thus reintegrating

the bank into the organisational core competencies, in this case ethical retailing.

Though it is possible that this is purely a marketing strategy with no underlying

operational value as the following quote illustrates.

“It could be that the Banks senior management have failed to grasp the fundamental nature of

strategic corporate identity management. i.e. that a strong strategic corporate identity needs to be

underpinned by a supporting corporate culture”33



Though it must be pointed that the organisation publicises it’s aim as “to be a successful

co-operative business” and as the aims include “to put co-operative values into

everyday practise” 34 This lack of emphasis in providing profits for shareholders could be

interpreted as a core competency of the organisation as their focus is for the benefit of

the organisation than for short term profits, by allowing the organisation to give

consideration to all it’s stakeholders, including the customers and local community .

Though in most consumers are sceptics of the claims of any retailers who publicise to

be socially responsible 35, with concern for the community being one of the Co-operative

Groups main principles 36. In a recent interviews with decision makers at retail

organisations the Co-operative group was found to be non-active in issue of corporate

social responsibility 37. Which again highlights a divide in position between where the

organisation perceives itself to be as an ethical based organisation to where the actual

strategy of the company lies. Which could be at the expense of strategic advantage to

compete against the major retailers such as ASDA and Tesco.

A strength that the group has lost recently within its retail market is how it organises its

opening hours. It was the first main supermarket to open Sunday and late evenings to

accommodate as consumers become increasingly more aware of the time available to

spend shopping 38. With all the major food retailers opening 24 hours stores this

strength is being lost unless the organisation takes steps to prevent it.

Though the group does have some unique strengths and competencies, without the

organisation analysing it’s market sector and developing it’s strategy for success within

these sectors. These strengths that have made the company achieve what it has done

to date, such as working together to form one large organisation, could in time develop

into weaknesses.. If the Co-operative Group does not acknowledge the opportunities

being taken by competitors, these weaknesses could pose a serious threat to the

organisation.



SECTION FOUR – RECOMMENDATIONS AND REFLECTIONS

The most important criticism of my methodology in carrying out this assignment is that

the writer originally misunderstood the requirements of the assignment at the very

beginning. Such that the assignment was misinterpreted so that it was understood that

the assignment was to carry out a practical analysis of the chosen organisation rather

that what the assignment actually was, that is a conceptual analysis in order to critically

evaluate the tools and methodologies of strategic management. This was partly due to

the assignment being a reiteration of a earlier assignment by a previous lecturer, which

required a more practical analysis. Therefore the second section was concerned with

the external and competitor analysis of the organisation, instead of researching the

models and such as Porters Diamond and PEST analysis and discussing their

limitations such as Porters Diamond not accounting for changes in the macro

environment 39 and that PEST analysis which the writer feels concentrates on

segregation of factors rather than their interactions with the organisation and other

segments of the environment.

Another decision that with retrospection would have been different is the choice of

company to apply these models to analyse the market position of the company. As the

Co-operative Group is an integrated group of companies working together across a

wide range of core competencies, who’s goal is to achieve business success rather

than organisation profits it’s has a very unique position in the market sectors in which it

operates, making it extremely difficult in analysing the Group as a whole. It would have

been easier to concentrate the analysis on the grocery retail strategic business unit of

the Co-operative group and consider the other strategic business units as separate

entities for the purpose of this assignment. Though this itself does highlight a restriction

in the use of the models so far applied to the analysis of the company.

An advantage of the method in which the assignment was produced is that feedback

was given throughout so that the misinterpretation during the first stages was identified



and hopefully rectified during the final stages, though no feedback as received from the

internal analysis is time for the final reflection of the project. Due to this original

feedback the emphasis changed in section three from concentrating on the company to

concentrating on analysing the tools used and researching related topics rather than

organisations. Though one question that this does raise to the writer and one which at

present cannot be answered is that if it is so simple to misinterpret the question

concerning strategic analysis, what precautions need to be taken to prevent

misinterpretation the actual data of the organisation and it’s environment when carrying

out any strategic analysis exercise? Though in any changing and competitive business

environment knowing where a company in placed in the market place is vital to the

success of the business, interpreting this information incorrectly could result in fatal

errors being made concerning the organisation.



REFERENCES

1THE CO-OPERATIVE GROUP, Working Together – CWS Social Accountability Report Year Ended January 8 2000, Manchester, CWS Communications,2000. p.2

2THE CO-OPERATIVE GROUP, Home Page.[online] available at www.co-op.co.uk 2001 [accessed 10/10/01]

3THE CO-OPERATIVE GROUP, The co-operative group – A Family of Businesses, Manchester, CWS Communications 2001, p. 9

4THTHE CO-OPERATIVE GROUP, Working Together, op. cit. p. 49

5HOOVERS, Co-Operative Group Search, [online] available at www.hooversonline.com [accessed 10/10/01]

6THE CO-OPERATIVE GROUP, Green and Pleasant Land, Manchester, CWS. Communications, 2001 p. 2

7THE CO-OPERATIVE GROUP, Interim Report 2001, Manchester, CWS Communications, 2001, p. 4

8DIAGNOSTICS SOCIAL AND MARKET RESEARCH LTD, THE DIFFERENCE ENGINE , 1999. The Family Study, Manchester, CWS Ltd. p. 6

9 Ibid. p. 10

10JONES ET AL,. Food retailers responses to the GM controversy within the UK. [online] http://www.anbar.com [accessed 12/11/01], 2000 p.4

11 THE CO-OPERATIVE GROUP, Green and Pleasant Land, op. cit. p. 812 THE CO-OPERATIVE GROUP, Interim Report , op. cit. p. 6

13NATIONAL STATISTICS, Death rates 2000. [online] available at http://www.statistics.gov.uk [accessed 15/11/01], 2001

14 THE CO-OPERATIVE GROUP, Interim Report , op. cit. p. 615 THE CO-OPERATIVE GROUP, Interim Report , op. cit. p. 6

16ANON., Strengths, Weaknesses, Opportunities and Threats, [online] available at http://hybrid.keynote.co.uk/KEYNOTECD/HOME/decrpt4.htm [accessed 14/11/01] [password and username = SALFORDLIB1], 2000, p. 5

17 THE CO-OPERATIVE GROUP, Working Together, op. cit p. 40

18THE CO-OPERATIVE GROUP, responsible retailing initiatives, Manchester, CWS Communications, 2000 p.10

19PRIEM R.L., ABDUL R.M.A., Alderson’s transvection and Porters value system: a comparison of two independently-developed theories. Journal of Management History, 1997, 3(2) 145 – 165 p. 148

20 PRIEM R.L., ABDUL R.M.A., lbid. P. 151217. PRIEM R.L., ABDUL R.M.A., lbid p. 153

228. ANON ANON., Internal Analysis, [online] available at

http://www.acad.polyu.edu.hk/~msklma/SM/internal.html 2000, [accessed 02/12/01]23 DIAGNOSTICS SOCIAL AND MARKET RESEARCH LTD op. cit. p. 3

24THE SUNDAY TIMES, Greatest Place to Work [online] available at http://www.greatplacetowork.co.uk/ 2001 [accessed 02/12/01]

25THOMPSON, J., RICHARDSON B., Strategic and competitive success: towards a model of the comprehensively competent organization. Management Decision, 1996, 34 (2) 5 –19 . Appendix 2

269. RICHARDSON B., THOMPSON J., Strategy evaluation in powerful environments: a multi-

competence approach. Leadership and Organizational Journal 1995, 16 (4) 17-25 Part 1927 BUSINESS BASICS, Marketing 2nd Edition, London, BPP Publishing, 1997, p. 15628 THOMPSON, J., RICHARDSON B, op. it. p. 729 RICHARDSON B., THOMPSON J., op. cit. p. 1830 PRIEM R.L., ABDUL R.M.A., op. cit. p. 155

31THE CO-OPERATIVE GROUP, The Partnership Report 2000, making our mark, Manchester, CWS Communications, 2000, p. 28

32 Ibid p. 2933 Ibid p. 3234 DIAGNOSTICS SOCIAL AND MARKET RESEARCH LTD op. cit p. 8

35PIACENTINI M., MACFADYEN L., EADIE D., Corporate social responsibility in food retailing. International Journal; of Retail & Distribution Management , 2000, 28 (11) 459 – 469 Page 461

36 DIAGNOSTICS SOCIAL AND MARKET RESEARCH LTD op. cit. p. 2237 PIACENTINI M., MACFADYEN L., EADIE D., op. cit. p.e 464


http://www.greatplacetowork.co.uk/

http://www.acad.polyu.edu.hk/~msklma/SM/internal.html

http://hybrid.keynote.co.uk/KEYNOTECD/HOME/decrpt4.htm

http://www.statistics.gov.uk/

http://www.anbar.com/

http://www.hooversonline.com/

http://www.co-op.co.uk/


38 NEWMAN A.J., CULLEN P., From retail theatre to retail food show, The shrinking face of grocery. British Food Journal, 2001, 103(7) 443 – 452 p 446

39 PRIEM R.L., ABDUL R.M.A., op. cit. p. 155



BIBLIOGRAPHY

KEYNOTE – Supermarkets and Superstores 2000 market report , - Eighteenth Edition 2001, Edited by Emma Wiggin – ISBN 1-84168-160-1. http://www.keynote.co.uk (special password needed to access this site)

DOUGLAS. J.T., LAWRENCE J.R., 2001, Viewpoint:the decline and fall of Internet grocery retailers., [online] http://www.anbar.com [accessed 13/11/01]

HALLSWORTH A.G. WORTHINGTON S., 2000, Local resistance to larger retailers:the example of market towns and the food superstore in the UK. [online] available at www.anbar.com [accessed 12/11/01]

KOTLER et al., 1999. Principles of Marketing, 2nd European Edition., Essex, Prentice Hall.

JOHNSON G., SCHOLES K., 1999. Exploring Corporate Strategy, 5th Edition, Essex, Prentice Hall.

MARKETING TEACHER., Five Forces Analysis, [online] available at http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm [accessed 14/11/01]

MARKETING TEACHER, Pest Analysis. [online] available at http://www.marketingteacher.com/Lessons/lesson_PEST.htm [accessed 14/11/01]

THE CO-OPERATIVE GROUP, 2001, Annual report & accounts 2000, Manchester, CWS. Communications

THE CO-OPERATIVE GROUP, 2000, Blackmail, Manchester, CWS Communications

THE CO-OPERATIVE GROUP, 2000, Food Crimes, Manchester, CWS Communications

THE CO-OPERATIVE GROUP, 2000, responsible retailing initiatives, Manchester, CWS Communications


http://www.marketingteacher.com/Lessons/lesson_PEST.htm

http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm



http://www.keynote.co.uk/


THE CO-OPERATIVE GROUP, 2001, Consumer Jury – The Third Report on Honest Labelling, Manchester, CWS Communications

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strategic management.doc

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strategic business units

responsible retailing initiatives

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