Strategic Management and External Business Environment free essay sample

This essay is a case study of analyzing the UK biggest chocolate company Thorntons’ existing strategy in current economic situation using different aspects from both external and internal business environments. In this report I will engage with the business frameworks that we learned in the first five weeks such as S. W. O. T analysis, Porter’s Five Forces, PESTEL analysis as well as Industry life cycle. Moreover the S. W. O.T analysis will be divided to tow parts, which are strength and weakness for internal business environment and opportunities and threads for external business environment. After the full analysis for the existing strategy, we can see whether the strategy is able to face many changes from macro environment or microenvironment in this ever-changing world. 2. Introduction When a new player wants to have business in a new industry, it would better to make a strategy to direct the right way to success. We will write a custom essay sample on Strategic Management and External Business Environment or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Strategic planning is upward focused, looking at ensuring how tactics link up to corporate goals and strategies, strategic thinking is downward focused, looking to ensure that meaning and purpose are diffused throughout the organization so that appropriate goals and tactics can be developed to meet the real needs of the organization. (Shelton amp; Darling, 2001; Whitlock, 2003) 3. External Business Environment 3. 1 PESTEL analysis of chocolate industry As a matter of fact, a full PESTEL analysis can help organizations to protect or handle the unpredictable changes from external environment efficiently in this ever-changing world. Political factors Basically, there is just a few political factors will effect the companies which are having business in chocolate industry, because governments do not have to many limitations to the food industry. However, as the largest UK chocolate company, which has been exploring the foreign market outside EU, several uncertainties, has to be faced, su ch as the taxations in Asia are constantly changing. * Economic factors In this difficult economic situation, every organization suffers a heavy blow from financial crisis and Torntons is no exception. Normally, food industry can reflect the inflation most at the first time. Generally speaking, price of food is the first sign to be noticed when the financial crisis happened. Source: Based on information from http://www. thorntons. co. uk/content 2011 We can easily see that the sales performances of Torntons own stores and franchise decreased during 2010 to 2011. Conversely, the total retail sales had an increase by 8. 2% from 2010 to 2011, which means customers did not spend too much money on the regular price goods. However people bought more chocolate when goods were on sale. In other words, the inflation has a serious impact on people’s life and food industry. * Social Factors Social factors have an impact on the chocolate industry. First of all, in general, people do not think chocolate is a kind of healthy food at all. However, more and more people are seeking a healthy life style right now. So for these people, they would not take the chocolates into considered. On the other hand, due to increasing competition, Torntons has to face lots of challenges with them. * Technological Factors Technology always plays an important role in strategy, because lots of parts of process in organization base on the technology. For a chocolate company how to continuously improve the produce process have to be taken into account. Environment Factors For any food company, they are more dependent on raw materials. However, environment can decided whether companies are able to get good quality raw materials with reasonable price. So environment factor is one of unpredictable factors in PESTEL analysis and organizations have to prepare a back up plan to protect them. * Legal Factors There are two mains factors of legal problems related to Torntons, which are human resource legislation and food hygiene. First of all, the human resource legislation always changes including the working hours and insurance and taxation for the employees. It will affect the human cost directly. On the other hand, because the continually improvement of the food hygiene, the quality of the chocolate will be higher. Food safety is of paramount importance to our manufacturing processes and out single site production facilities at Thornton Park are regularly independently audited against the exacting requirements of the British Retail Consortium’s Global Standard for Food Safety and were reaccredited in June 2011 with its highest Grade A status. (Thorntons PLC 2011:13) 3. 2 Porter’s Five Forces Before a company start to have business in one area, it would better to analysis that this area whether easy to enter in and make profits among the competitors from different aspects including force of entrants, suppliers, buyers, substitutes and rivalry which called Porter’s Five Forces. Porter’s Five Forces framework identifies the attractiveness of an industry or sector in terms of competitive forces. (Johnson et al 2010) * Power of buyers Because of Thorntons’ pattern of distribution, they are only own stores and franchisees. Meanwhile, they do not have store in any large retail chains that can reduce the power of buyers. Thus, power of buyers for Thorntons is small and steady. * Power of suppliers Thorntons is not only has in-house supply, but also has several aspects need outside suppliers such as some raw materials (cocoa beans, sugar and milk) and service. But in terms of the big brand name, Thorntons still got strong supports from the outside suppliers with reasonable price. * Threats of substitutes For chocolate, only taste, form and packaging can be imitated, which means the there are a lot of threats of substitutes, because these three points are very easy to follow and copy. Moreover, not only traditional chocolate companies could produce substitutes products, but also some other snack food item could imitate the chocolate taste. * Threats of entrants Normally, entry into the chocolate industry or market would need a lot of requirements, such as investment for the manufacturing facilities and human resource. However the most important requirement is having a unique formula to produce chocolate, which is the value for a new brand just entered into this industry. Thus, for chocolate industry is quite difficult for the new players to entry into. * Intensity of rivalry The intensity of rivalry can be many types such as price competition as well as advertisement between the competitors. Fortunately, competitions in the Thorntons’ level just have a few competitors. However this will be a big threat to Thorntons because fewer competitors that mean new plays will locate their positioning in this level. 3. 3 Industry life cycle analysis Source: Johnson et al, Exploring Strategy, 2010 According to the sales performance of the UK chocolate industry, we can easily see that from 2005 to 2012 the performance of sales increases steadily at the shake-out stage in the industry life cycle. . 4 S. W. O. T analysis (Opportunities and Threats) Opportunities More and more people like to buy box chocolate as a gift. Easy trade outside EU. UK government has a strong support to import and export food. Increasingly mature E-market. Threats Many traditional chocolate companies start to transform their product to Thorntons’ level. Because of epidemic s pread in EU, it seriously affects the export trade. Inflation makes the price of store rent, raw materials and human resource increase. 4. Internal Business Environment After analyzing the external business environment of the Thorntons, we can take a look of the internal business environment. It is also quite an important part for an organization. 4. 1 Internal capabilities: resources and competences As the biggest chocolate company in UK, the main resource of Thorntons is its intangible resource especially the brand image actually. When people want to buy a box of chocolate as a gift, Thorntons will be the first brand come to mind immediately. This is the core of success of the Thorntons. As a matter of fact, Thorntons realized this intangible and intelligent using it. They put more and more emphasis on making the products unique with the strong brand image. That is why they still have a large group of target audience until now. On the other hand, competence for an organization has to be divided to two parts, one is threshold competence, and another one is core competence. Obviously, the requirements of threshold competence of chocolate company are not too much. Except the manufacturing of producing chocolate, the rest requirements are similar to the other industries. However, in order to gain more market share in the chocolate industry, the core competence has to be very unique. For Thorntons, they put much emphasis on different type of chocolate whether the form or topic of chocolates or unique packaging. 4. 2 S. W. O. T analysis (Strengths and Weaknesses) Strengths * High quality chocolate * Unique packaging design * Mature supply chain * Strong brand image among British Weakness * High cost for international buyers * Too much operating cost for the own stores * Don’t have enough breakthrough in future 5. Conclusion After a deep analysis of the Thorntons’ existing strategy, we can draw a conclusion that there are still having several elements from external business environment will affect the organization. However a perfect strategy plan could protect the organization to survival from the unpredictable changings of the world. Through the PESTEL analysis, for the food industry, the economic and social factors will affect it more than others. Moreover, the marketing positioning of Thorntons is between traditional chocolate and premier chocolate. So there are just a few competitors in this part of market. According to the Porter’s Five Forces analysis, we can also see that the intensity of rivalry is low which means Thorntons does not have too much competition. It is difficult for new players to entry into this industry.