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Unit 1 ASDA PLC Business Environment Merit Copy
This Unit 1 ASDA PLC Business Environment Merit Copy About the company ASDA PLC. ASDA PLC is one the largest supermarket chain in the world. The UK based Retail Company which deals in grocery products and general merchandise was first started in 1949. The company has its headquarters in Yorkshire in London (Rancati, E). In terms of market share, ASDA is second largest company in the UK. The biggest change in the structure of the company came in the year 1999 when the company was acquired by Wal-Mart, the largest retail company in the world (Fernie, 2006). After the collaboration, ASDA took over Sainsbury in the year 2004; however, it is still behind Tesco which is the market leader in UK in retail sector. The company currently operates more than 560 stores across UK and employs around 175 thousand employees currently.
1. Describe the organization of your choice. You must explain the nature of the organization and its background, as well as the factors that have helped it to become successful in its sector. You will need to identify the criteria you have used for judging the organization’s success.
ASDA PLC is a public limited company which widely operates in UK. The different types of organization along with their core purpose are discussed below:
Types of organization
- Public Sector organization: Public sector organizations are those which are owned by the government of a country. Since, the government owns the organization; the sole purpose of such organizations is to general welfare and providing services to the society. The organization works for the improvement of the people and the society (Verbeeten, 2008).
- Private Sector Organization: The private sector organizations are those which are privately owned and their sole motive is to ear maximum profits. To achieve maximum profits, these organization aims to increase their growth, stay competitively ahead of its competitors, works efficiently to keep customers and other stakeholder satisfied. Some key Private sector organizations based on the type of ownership are:
- Sole Proprietor: When there is a single owner which runs the business it is known as sole proprietorship. The main aim of such organization is to make maximum profit.
- Partnership: When a two or more than two people comes together to open a business, it is known a partnership. The profits are shared by the partners and the decision making is also collective.
- Private Ltd. Organization: A private ltd. organization is one whose shares are owned by a group of people. The market shares cannot be distributed among common masses (Ball, 2005).
- Public Ltd. Organization: Public ltd. organizations are those organizations whose shares are owned by public. However, the company is run by a group of people known as the Board of Directors who look to achieve maximum benefits for the company by formulating proper business strategies (Ball, 2005).
- Franchising:The last type of private sector organization is franchising where a company uses its brand name to sell its product in a market through franchising small vendors in those areas, which help the company to save lot of money in construction of new stores (Kulic, 2009).
- Non-Profit Organization: Non-Profit Organizations are those organizations which voluntarily participate to work for the betterment of certain section of society like physically handicapped people or old age people and try to bring them equal to the society. These organizations are funded by government or other organization through charity, donation, etc. (Anheier, 2014).
ASDA PLC as the name suggest is a public limited company. Therefore, the company’s shares are bought by common people who are benefitted by the performance of the company and are known as the shareholders of the company. The company has its Board members who are leaded by the CEO of the company.
Factors that helped ASDA to become a successful company:
Firstly, the company realized the importance of being cost leader. Cost leadership strategy has been the key for success of ASDA in all these years. Its main competitors Tesco and Sainsbury operate globally and hence have wider range of marker. However, ASDA who majorly operates in UK keeps itself competitive ahead of its competitors because of low prices set by the company (Graff, 2006).
Secondly, ASDA PLC stores widen the product line in order to offer its customers with wide range products to choose from. The company earlier uses to deal only in retail sector, but slowly moved into gift items, travel and electronic products to meet the demand of customers.
Thirdly, the technological development of ASDA also plays an important role its success. Online business, acceptance of credit and debit cards at stores, use of RFID, self-checkout machines, etc. have facilitated the smooth transaction and easy and pleasant shopping experience for its customer. Promoting itself using loyalty card to existing customers also boost the sales of the company. Thus, technological developments have been a key for the success story of ASDA (Xie, 2013).
2. Discuss how SWOT and PESTLE framework can be utilized by the organization in its strategic decision making and how the use of these models can impact upon an organization’s long term success.
SWOT analysis on ASDA PLC (Vignali, 2009):
- Strong brand name:Operating as many as 560 stores across UK, ASDA holds a strong brand name with it. The company is known for its wide variety of products and value for money and is one of the most popular brands in UK.
- Low Cost Products: One of the core competencies of ASDA PLC is to be cost leader compared to its other competitors. The company offers its product at low prices compared to its other three competitors in UK, which is the key to success for ASDA in all these years.
- Benefits from Wal-Mart: ASDA collaboration with Wal-Mart has also been one of the strengths of ASDA, which has benefitted it a lot. The company uses the USA culture in UK thus making it a different company than its rival companies. Moreover, the company has boosted its sales in non-food items in the last five years. The main reason for this increase in sales has been the expertise and reach of Wal-Mart. ASDA has been able to source products globally and used store operations management techniques from Wal-Mart effectively to increase its sales.
- Small Stores in UK: ASDA do not have smaller supermarkets in UK. On the other hand, Tesco offer both small and medium size supermarkets in the rural areas of UK. Since, the government restricts the construction of big supermarkets in rural areas; it forced ASDA to open only in urban parts of the country. Therefore, the company does not cover major parts of the country.
- Large size:Wal-Mart is a global giant and operates in nearly all parts of the world. Moreover, ASDA PLC itself has lot of stores to manage. Thus, it sometimes becomes difficult to manage and control all the activities in all the stores which may lead to dissatisfaction among customers.
- Poor quality product: Being the cheapest retailer compared to its other rival companies, ASDA is supposing to sale low quality products. With rising awareness among people, it is believed that the people may shift their buying pattern to quality products and will prefer quality over price which can result in fewer sales for the company.
- Expansion to European countries: ASDA PLC till now was operating in UK only. However, since UK is part of European Union, ASDA has the freedom to operate in all those European nations which are members of EU. Thus, it is a big opportunity for ASDA to increase its growth by operating in these countries.
- Opening Small supermarkets: As mentioned above, another opportunity which lie in front of ASDA is to open small supermarkets in the rural parts of UK where the company does not operates till now. ASDA aims to overtake Tesco for which the key is to beat them while operating in all the parts of the country. ASDA has already started its making use of this opportunity by buying Netto supermarkets which is a move taken by the company to enter into small supermarket format.
- Competition in UK retail sector: The four giants namely Tesco, ASDA, Sainsbury and Morrison’s have been the dominating companies as far as retail sector in UK is concerned. Thus, ASDA faces stiff competition from the other three rival companies and have to come up with new innovative ideas from time to time to stay competitively ahead.
- Price War: Being Oligopoly type of market, ASDA faces stiff price war competition. The company is known for its cost leadership in the segment and sells its product at lowest price compared to other three companies. However, constant changes in the prices of their product by other companies, keeps ASDA on its toes in maintaining low price.
- Economic fluctuation: Operating at low price, Sales of ASDA are widely affected by the economic fluctuations. Food price inflation or increase in taxes results in very low marginal profits for the company and thus ASDA is affected mostly compared to the other countries because of economic fluctuations.
PESTEL analysis on ASDA (Metzger, 2014):
- Political/Legal Factors: Political Factors had both positive and negative effects on ASDA PLC. The company is benefitted by the formation of European Union which offers wide growth opportunity to ASDA. Addition of China to WTO has also resulted in ASDA opening of its stores in China and also imports products from China. However, the increase in the taxes by the UK government impact the profit margin of ASDA to considerable extent as the company already sells its product at lesser price to stay ahead of its competitors. UK law to open only small size supermarket in rural areas has also impacted company’s prospect to grow in rural areas as the company till now was operating in big supermarket format only.
- Economic Factors: The 2008 global recession resulted in low purchasing power among people and people losing on job played an important role in affecting business. However, it was seen that because of recession, the sales of ASDA stores were boosted because of its low price and thus, people who earlier used to prefer other stores were forced to purchase from ASDA. However, food price inflation forces ASDA to increase its price as the company operates on low marginal profits and therefore is widely affected by inflation.
- Social Factors: People are becoming more educated these days and prefer healthy food. Thus, it is important that ASDA increase the supply of organic food to meet the increasing demand.
- Technological Factors: With e-commerce and online business, ASDA also introduced its own online shopping experience which is currently in trend. ASDA has been a quick in adopting new IT methods to support its operations.
- Environmental Factors: ASDA stores are built in eco-friendly manner. The stores are 40% efficient and emit 50% lesser carbon compared to a new built store. The company takes keen steps to make sure that its corporate social responsibility is maintained.
3. Analyse the evolution of the culture of your chosen organization in the context of its changing business environment and how an organization culture can influence its long term success.
Organization structure can be classified into two categorize i.e. Hierarchical structure or Flat organizations. Organizations with hierarchical type of organization structure have more levels of management and the decision making is in the hands of the top management. The transfer of information from lower level to higher level is slow as it has to be transferred from each level.
On the other hand, a Flat organization has lesser or no levels and everyone in the company is considered equal. The communication and flow of information is easy. However, decision making may not be spontaneous as it may be passes only after discussion with all the employees.
ASDA PLC is a huge organization and as a result the company adopts hierarchical structure and culture. However, from a strict adhocracy culture where the decision making was solely in the hands of the senior members and the major workforce was expected to carry out tasks assigned to them by higher management, the company has evolved and has started valuing its employees more and more.
Before, 2002, ASDA slogan was to be the best clothing and food superstore. However, the slogan was changed to be the best valued retailer in the country (Leech, 2007). Thus, the company started operating on four values which are (Leech, 2007):
• To provide excellent service to its customers.
• To always strive for excellence.
• To respect all the colleagues and stakeholders.
• To work with integrity.
ASDA PLC in the year 2009 did a survey on Customer known as “Customer Pledge” to understand what customer expects at work place. The company did the same survey on its employees to understand what the employees expect from the company and found four basic pledges from the employees which were: Fairness at workplace, everyone should be given equal opportunity, everyone should be respected within the organization and everyone should take pride while working for ASDA.
The autocratic leadership style which once was the main characteristics of ASDA slowly started to change to Participative leadership style. Though the company’s decision is still taken by the senior members, the company has started various employee forums where employees are free to give their suggestions and opinion about the company. Thus, it makes employees feel more committed towards the company. According to Hertzberg theory, ASDA realized the importance of motivational factors other than Hygiene Factors and therefore the management works closely with its subordinated and sometimes even help them to make them feel better (Guest, 2013). The managers also develop personal relations with the employees and listen and understand their personal problems and tries to sort them out which improves the efficiency of employees at ASDA. The Line managers in ASDA, in order to fulfil the employee pledges discussed above, do “Tiny Noticeable Things” to engage the employees. The leaders are polite in their behaviour, discuss the targets set for each individual and team with the team, help the employees at the store to make them understand better and make them feel comfortable.
Working on evolution of its culture, ASDA also understand the important of having diversified workforce. The company values diversity more than ethnicity and expects its employees to respect and work together as a team irrespective of caste, sex, religion, culture, etc. of the person. The managers are also expected to be fair and give equal opportunities to all employees in ASDA.
While merging with Wal-Mart, ASDA collaboration was smooth and was greeted by the employees. The company never faced opposition from its employees. The main reason was company’s transparent policy (Eisenstat, 2008). Though, the company decisions were taken by the Board members, the company kept its employees always aware of the structural changes as well as future strategy of the company. Thus, employees felt secure by the decision making of the company and did not panic and supported the company at the time of merger.
Thus, it can be seen that ASDA cultural change was smooth as the company was able to follow the Lewin model of change effectively. According to Lewin model of change, a company has to undergo three stages while undergoing a change. The three stages are: Unfreeze, transition and Freeze (Helms-Mills, 2008).
During unfreeze state, a company decides the benefits and disadvantages of going through a change and weigh them together. It can be seen that before ASDA’s merger with Wal-Mart the company was already behaving like a USA based company adopting the values of Wal-Mart. The next phase was the transition phase which went on smoothly because of the strong leadership qualities by the senior management of ASDA who make sure that the employees were kept aware about company’s changes and hence were supported by the employees. The last stage of freeze has also been carried out by ASDA strongly as the company has shown remarkable growth after its merger with Wal-Mart and the company continues to threaten Tesco to remove it from the number one position.
Thus, ASDA has experienced a huge change in its culture and approach. The company bureaucratic type of management style which kept staff members and managers in separate offices and flow of information was from top to bottom slowly changed as the company realized the importance of human resource in their company. The declining sales of ASDA made them realized that the company needs to make changes in its culture. Thus, the company following Hertzberg Motivational theory removed extra layers which were stopping them from flow of information and narrowed its structure to understand the organization better. The employees were given the opportunity to give their views and opinion. The company also started using technical means to communicate with each other. Email became one of the major means to communicate. ASDA realized the importance of managing its customer and therefore introduced automated tools for customer relationship management. Some key changes done by ASDA at organization level are:
- Firstly, the company started to be price competitive in the market.
- Secondly, the company widened its range of products to attract more customers.
- Thirdly, the company produced high volumes of product to improve trading.
- Finally, the company tried to reduce the fixed cost so as to be cost leader in the market.
Thus, all these changes helped ASDA to sustain in all these years. The company needs to be more open towards its employees in future so as to value them more and bring out the best from them.
Thus, it can be seen that ASDA PLC has wider opportunities to grow in European and Asian countries which will also help the company to overcome its Threats and Weaknesses. The company is highly dependent on UK market and hence needs to grow internationally to achieve higher benefits in the long run. The environmental factors also suggest that in order to achieve better returns it is essential that ASDA should look to grow globally. The organizational structure and culture of ASDA is also discussed and the changes that were brought were also discussed. The organizational changes brought in by ASDA have helped the company to sustain itself in the long run. The management style have changed a lot since the company was started facilitating communication system within the organization and adopting proper motivational theories into effect.
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