2012

Strategic and Operation Management

Mominul Plabon
9/11/2012

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Executive Summary The following strategic and operation plan forms the basis for the strategic analysis of Iceland Food. A number of techniques have been used to identify the market position of Iceland and the outcome of the analysis enabled the researcher to identify the issues that need to be taken into account when Iceland devise their future business strategies. From the analysis it is found that Iceland has a sizable market in the United Kingdom while they are successfully competing on price and quality. Furthermore, the growth strategy of Iceland is very progressive unless they consider some issues such as targeting only lower income level buyer, specialising only on frozen food and some other issues. A detailed report can be found in the following sections.

Key Words: Strategy, Stakeholder, Product

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Table of Contents 1.1 Company Profile.................................................................................................. 1.2 Expectations of Stakeholders ............................................................................ 5 1.3 External Environment analysis ......................................................................... 6 1.4 Competitive Analysis ......................................................................................... 7 1.5 Strengths and Weaknesses ............................................................................... 9 2.1 Strategic Choice .............................................................................................. 10 2.1.1 Market penetration through existing product in UK market ......................... 11 2.1.2 Introducing new product into UK market ..................................................... 11 2.1.3 Considering EU/ Overseas Market ............................................................... 11 2.1.4 Diversification into other businesses............................................................ 12 2.2 Stakeholder Acceptability................................................................................ 12 2.3 The viability of Product Development Strategy ................................................ 13 2.4 Methods for Achieving Strategic Option .......................................................... 13 3.1 Strategy Implementation ................................................................................. 15 3.2 Strategic Direction .......................................................................................... 15 3.3 Implementation challenges ............................................................................. 16 3.4 Managing Challenges ...................................................................................... 17 4. Concluding Remarks ........................................................................................ 17 5. References ........................................................................................................ 18

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Company profile

celand Food is one of the biggest food retailers in the United Kingdom which is mostly renowned for delivering consumer products at affordable prices and its good quality frozen food. Dating back to the past, Iceland was founded by its present Chief

Executive Officer Malkom Walker CBO in 1970 (Iceland, 2012). The company CEO started the business with 60 capital and initially hired a small place to start up. According to the company history, Iceland have managed to prove that they were strongly capable of managing a company that could end up being closed down if the business and operations strategies were not as strong as effective whereas, they have many strong competitors like Sainsbury, Tesco, Morrison, Wilkinsons. By 1984 Iceland was one of the emerging food retailers in UK whereas, the business started to take off rapidly and by 1996 Iceland had opened its 752nd stores in England with the operating profit of 50m+ (Iceland, 2012). Currently Icelands business growth is at very fast pace as they announced net profit before tax up 22.5% to 184.3 million with also the opening of 18 net new stores in 2011 in UK (Iceland, 2012). The company currently has a steady aim to capture the whole UK frozen market through continuous product and service innovation.

Figure 1- The current market position of Iceland, sourced from: (Iceland, 2012 and bbc, 2012) However, success is never constant such as, it may rise up or fall down dramatically if the strategies taken by the Management level are not constantly reviewed and developed (Kew and Stredwick, 2005). In a modern business context, organisations need to continuously

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scan the internal and external environment of the business and devise strategies to either cope up with the demand or sustain more competitive advantage so that they can be ahead of their competitors.

1.2 Expectations of Stakeholders Icelands Stakeholders include its customers, employees, shareholders, government, suppliers, community, trade unions, and the overall management bodies. These groups of people have few expectations and requirements from the business, which must be fulfilled in order to gain support (Kew and Stredwick, 2005)

Figure 2- The expectations and requirements of Icelands Stakeholders, source: (Kew and Stredwick, 2005)

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1.3 External Environment analysis For a big company like Iceland, the stability and safety of the political environment is crucial to success as political unrest, violence, terrorism can endanger the countrys trading condition (Thompson and Marting, 2010). In this term, Iceland combines a high level of risks from the political aspects of the country. From the economical point of view, Iceland combines many risks and opportunities. For instance, the exchange rate plays an important role for Iceland such as the company buys its most of the raw products or elements from outside UK (Iceland, 2012). Iceland reported its more than 15% raw materials come from different parts of Europe and further 10% come from different parts of the world i.e. Thailand, South Africa, and China. In this term, if the exchange rate fluctuates constantly, then the company might suffer from a short term profit decline and also revenue will fall down as a result. On the other hand, taxation, inflation rate also play vital role in developing or threatening the business prospect of Iceland (Bowhill, 2008). Social environment is a great source of threat and opportunity for Iceland, which includes the demographic structure of the country, lifestyle of the consumers, cultural aspects and the current trends of the market. According to Office for National Statistics (ONS), from 2001 to 2009 period, the population rate of UK increased by 2.7 million whereas, they notified that ageing population is one of the major concerns at the current time (ONS, 2012). The both issues outline many major factors from where food retailers like Iceland combines risk and opportunity. For example, it can be assumed that from 2.7 million people a percentage of the people are immigrants who settle here in UK. In this term, different national culture, religion, race aspects bring issues such as want for own countrys product, product customisation, and diverse workforce and

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so on (Ahlstrom and Bruton, 2009). Furthermore, ageing population also concerns the human resource management of the company such as rise of cost against the elder workforce (pension, benefit), increasing training and recruitment cost for the new employees and so on. However, the culture, belief and lifestyle of the consumers have a significant impact on Iceland such as the changes in consumer buying behaviour might require the company to change its product or service strategy at a rapid or slow pace (Ahlstrom and Bruton, 2009). Technology is the vehicle of modern world. The rapid change of technology world has a significant impact on Iceland food. For instance, few years before customers used to walk in the store and buy products but the current invention of technology facilitates the consumers to buy products from their home (online ordering). In this term, consumer goods providers are greatly engaged in developing their business strategies to cope with the current demand. On the other hand, the increasing use of internet introduced many opportunities and threats for business organisations such as, online marketing, worldwide rapid data transfer, teleworking, advanced data management, fast pace media and so on (Kew and Stredwick, 2005).

1.4 Competitive Analysis Whether the business environment is stable or turbulent, the organisations are always required of scanning the forces within the industry that may have impact on their operations (Kew and Stredwick, 2005). In this term, identifying the factors which have influences on the business is one of the major concerns of current corporate world. Furthermore, to analyse the variables within an industry, Michael Porter had outlined five factors which have a significant impact on the organisations operating in a same industry (Porter, 1998).

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Figure 3 - Industrial Force, source: (Porter, 1998. p.145-147). According to Henry (2008), Buyers can be the ultimate product user or another business organisation who resell the products to another seller or consumer. Iceland develops its products and services for the ultimate product user and they do not have any re-seller but as the retail food industry in UK is very big and competitive, the buyers or consumers have a strong bargaining power. For instance, Iceland develops many products such as, frozen products, dry products and beverages, but at the same time big retail shops like Morrison, Tesco also do the same category. In this term, the bargaining power of Icelands buyer is strong whereas the buyers can choose the same category product in different price in different place and also with additional benefits. Iceland sources its raw materials from different national and international suppliers (Iceland, 2012). However, Iceland is immensely influenced by the bargaining power of suppliers i.e. if the existing suppliers raise the price of raw materials then Iceland might have to think about different supplier or except the offer if there is no alternative option (Murray and Galavan, 2008).

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The threat of substitutes is extremely viable for Iceland while, they provide daily life goods for the consumers, and there are many food retailers like Morrison, Tesco, and Sainsbury who avail almost similar products. For instance, Iceland is renowned for delivering frozen food, but if the price of the fresh foods becomes very affordable then consumers would consider having fresh food rather than having frozen. Similarly, if the qualities of the frozen foods are high then consumers would consider having frozen food rather than going to shop every day. The entry into food retailer industry in UK is very challenging while the government and the designated regulatory bodies have constant focus on the quality control and commitment of the existing retailers (Murray and Galavan, 2008). Although, the government have strict policy on food retail industry but it does not limit the entrance. In this circumstance, the existing number of loyal customers and sustainable competitive advantage can reduce the risk from the potential or new entrants in the industry.

1.5 Strengths and Weaknesses Iceland has a big market for frozen food whereas the current trends of consumer behaviour seem to be looking for food products which are affordable and easy to use and also reduces the time to process (Murray and Galavan, 2008). Iceland was awarded the top frozen food retailers in 2003, 2004 and accordingly until 2011 while, they are considered to be the market leader in that field (Iceland, 2012). Furthermore, Icelands biggest strength is, it delivers good quality products at affordable price. The companys effort for retaining customers through bonus card is also considered as a good strategy. Although the company has a good strength in the market but few factors indicate that the company also combines various weaknesses. For instance, Iceland is heavily based on frozen products and it is also blamed of addressing only particular types of customers. Furthermore, most of the product price is 1 value which de-motivates certain categories of

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customers to buy from Iceland. In contrast, the business does not have any international operation.

2.1 Strategic Choice Iceland was basically a frozen food based shop in earlier time, but the dramatic growth of the business has influenced the organisation to move into retail industry as a competitor of Tesco, Morrison, and Sainsbury (Iceland, 2012). Since then, Iceland has devised many strategies to acquire the market position such as by developing massive ranges of frozen products, introducing bonus card, online shopping, corporate social responsibility, merging and aliening with other relative businesses. Although, the strategies were effective at a time but, the business need to continually focus on its product and market position in order to meet the future challenges. In this term, strategic options for Iceland will be analysed using Ansoff Matrix (Henry, 2008).

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Figure 4 Ansoff Matrix, source: (Henry, 2008. p.78-79).

2.1.1 Market penetration through existing product in UK market Iceland is greatly known for their frozen products. In 2009 Iceland developed 134 categories of frozen products and by 2011 it was awarded the top company in frozen retail items in UK (Iceland, 2012). However, Iceland can steadily focus on its growth strategy by developing more frozen products in the UK market. In this term, the company have to maintain or increase the market share by combining competitive pricing strategies, advertising, sales promotion and strong focus on brand awareness among the consumers (Henry, 2008). Furthermore, the company needs to defend the competitors by creating a strong value of the products and focus more resource on the research and development sector.

2.1.2 Introducing new product into UK market According to the external environment analysis, many key opportunities have been found such as emerging UK market, cross cultural aspect, rising population. In this term, Iceland can consider introducing more ranges of products and services into the emerging UK market. Furthermore, they can also continue increasing their product and service ranges to capture the existing market and have competitive advantage to compete in the future market (Henry, 2008).

2.1.3 Considering EU/ Overseas Market Iceland can consider delivering their products in a new market. For instance, their frozen products have a high demand in UK but in developing countries the demand for frozen product can be high whereas the product is unavailable. Furthermore, they can export their frozen product in those countries by developing the market. In contrast, they can also

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consider developing their existing products to attract a particular group of customers in UK. In this term, Iceland will be required to focus their, resource on the new market development.

2.1.4 Diversification into other businesses Whether the business have existing market or existing product but it can consider diversifying into a related or unrelated market or business which will give it more competitive advantage and the investor of the company will find the business more attractive (Kazmi, 2008). For instance, Tesco, Sainsbury and Asda have diversified into financial services for their consumers, as a result; they acquired a large market share (Guardian, 2011)

Figure 5 Strategic suitability test, source: (Bowhill, 2008). According to Johnson et al (2008), the success of a strategy depends on three factors: suitability, feasibility and acceptability. From the Consideration of Companys strategic analysis the most suitable strategy the company can pursue is to introduce new ranges of products into the existing market such as continuous innovation through the resource and capabilities**

2.2 Stakeholder Acceptability

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Stakeholders are the key elements of Iceland. From the stakeholder expectations and requirements part, it can be assumed that stakeholders will accept the growth strategy of Iceland whereas; their key requirement for the company is grow fast in the market. For instance, the risk is low in product development strategy whereas the return on investment can be measured high. Furthermore, the product development strategy will enhance the brand reputation of Iceland, thus will give more profitability (Bowhill, 2008).

2.3 The viability of Product Development Strategy Considering the factors in external environment the viability of product development strategy is strong. For instance, the changes in consumer behaviour, social trends, cross culture, fast growing technology, economical downturn, force of global company, rise of domestic competitors are the source of great threats and opportunities for Iceland. From the strategic analysis, the need for product and service development has been found most appropriate to compete in the retail world. Iceland has a strong market share through the large numbers of stores within the UK, its competitive product quality and prices. In terms of the Industrial analysis, the major influential factors were the need for competitive advantage whereas; Iceland can only gain it through the high concentration on product and service development (Trehan and Trehan, 2010). Furthermore, Icelands biggest strength is its market leading position for delivering quality frozen products in UK market. In this term, if the product and services are continually developed and offered at affordable prices then they can create a sustainable competitive advantage in the long run.

2.4 Methods for Achieving Strategic Option Having selected the suitable strategic option, Iceland now needs to decide which methods to pursue to achieve the chosen strategic option. In this term, the optimum solution for achieving strategic option can be growing through internal development, strategic alliance or mergers and acquisition (Johnson and Scholes, and Whittinton, 2010).

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Organic Development

Product Development Strategy

Mergers and acquisitions

Strategic alliances

Figure 6 Methods for achieving strategic options, source: (Johnson and Scholes, and Whittinton, 2010). Organic Development: Organic development involves the organisation using its own resources and developing capabilities it believes will be necessary to compare in the future. However, Iceland can pursue organic development in terms of its need for organisational learning and utilisation of own resource. The biggest constraint about the organic development is it takes a long time to build the organisations strategic capabilities (Ahlstrom and Bruton, 2009)

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Mergers and acquisition: according to Ahlstrom and Bruton (2009), a merger occurs when two organisations join together to share their combined resources. In this term, both organisations can share their own capabilities to produce an optimum product or service. An acquisition occurs when one organisation seeks to acquire another similar organisation. Merging and acquiring relative business can be suitable for Iceland as the organisation have a strong mission for growing fast in the UK market (Iceland, 2012). Furthermore, merging with relative sector can give the organisation competitive advantage to capture the market and enable them to focus on continuous product development. Iceland has a strong growth strategy in which they aim to continue holding their market leading position in the frozen food industry. In this term, they can merge or take over other relative businesses who have similar interests and willing to share their capabilities to keep leading the UK market by continuous product and service innovation.

3.1 Strategy Implementation According to Speculand (2009), Strategy implementation is collective individual actions taken every day staff members who will deliver the strategy for tomorrow. Many organisations face difficulties in implementing strategy whereas it is considered the most difficult part of the strategic management. Most organisations face the need for new strategy in terms of two conditions such as if the organisation has a mission for it or if the organisation faces challenges from the environment to adopt a new strategy (Speculand, 2009). In this term, strategic implementation can be based on two organisational approach i.e. Intended strategy or emergent strategy.

3.2 Strategic Direction Intended strategy: intended strategy is formulated by the organisational managers or the leader and it results from the role, vision or command of a leader (Speculand, 2009). In

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some cases, the strategy is imposed by the organisations stakeholders such as, government, investors, and suppliers and so on. Emergent Strategy: whether the organisation operates in a stable or turbulent environment, it will face challenges from the internal and external environment. In this term, an organisation cannot only rely on its intended strategy as many strategies derive from everyday routines, activities and organisational processes (Johnson and Scholes, and Whittinton, 2010). As identified in the environmental analysis part, Iceland operates in a high competitive environment whereas the strategic directions can be shifted from intended to emergent based on the difficulties faced in the internal and external environment. In this term, different stakeholders of the organisation will put the strategy at different view.

3.3 Implementation challenges When considering strategy deployment process organisations face different types of challenges based on the size, culture, environment and the objectives of the organisation. However, the possible challenges that can be faced by Iceland when developing and implementing strategy are as follow (Johnson and Scholes, and Whittinton, 2010); Failure to understand corporate culture: Organisational culture plays a significant role in strategy implementation. The shared views, ideas, role, and beliefs of organisational members are mutually exclusive to the effectiveness of organisational development. When implementing the strategy Iceland may face difficulties in changing the corporate culture. For example, if strategy is enforced in a short duration, the change can be disregarded the by the members of the organisation. Organisational Power and Politics: According to Kazmi all corporate cultures include a political component and, therefore, all organisations are political in nature. During strategy

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implementation Iceland may face challenges which might arise from the interest, behaviours, influence, resistance and competitions of different stakeholder groups. Organisational power and politics play crucial role in strategy development process. In this term, Iceland has to collaboratively work together to implement the strategy effectively.

3.4 Managing Challenges Managing or forecasting challenges in strategy development is a crucial part of strategic management. Furthermore, the strategic implementation challenges can be managed through different roles of the corporate structure such as; Strategic Leadership: the Strategic leader has to create a norm or culture where corporate mission, vision, objectives are communicated to all levels of employees in a timely manner and they are encouraged to take part in the idea sharing (Johnson and Scholes, and Whittinton, 2010). Encouraging Organisational learning: the 20th century is an era of learn and earn whereas the organisations which learn faster can live long (Johnson and Scholes, and Whittinton, 2010). According to Burnes (2009), organisational learning plays a key role in preparing people for change, and allowing them to cope with it. In this term, the roles of managers are to create mechanisms which will allow them to become familiar with the company performance, market place, customers, competitors, legal requirements and so on (Burnes, 2009). Furthermore, the organisational learning encourages the sharing of ideas, knowledge and promotes pluralism, experimentation, effective communication.

4. Concluding Remarks The success in business is success in strategy development. Whether, the organisation has a large capability of investment and resources but it cannot assure success until the strategies are not taken effectively. In this term, the role of Icelands corporate managers are

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to continually focus on the internal and external environment of the business and assess the overall position of the business so that they can outline effective strategies. Furthermore, the development of new strategies must be focused and evaluated in terms of the business condition. In this way, Iceland can continually dominate the UK frozen market for a long period of time.

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5. References Porter, M. E. (1998). On Competition. 1st Edition. Harvard Business School pr. Speculand, R. (2009). The Leaders Role in Sucessful Implementation. Illustrated. John Wiley and Sons. Kew, J. and Stredwick. J. (2005). Business Environment: Managing in a strategic Context. Illustrated. CIPD. Henry, A. (2008). Understanding Strategic Management. illustrated. Oxford University press. Bowhill, B. (2008). Business Planning and Control: Integrating Accounting, Strategy and People. Illustrated. John Wiley and sons. Thompson and Marting, F (2010). Strategic Management. 6th edition. Cenage Learning EMEA. Jain, T. R., Trehan, M and Trehan, R. (2010). Business Environment. Delhi. Ahlstrom, D. and Bruton, G. D. (2009). International Management: Strategy and culture in the Emerging World. Cengage Learning. Johnson, G., Scholes, G. and Whittinton, R. (2010). Exploring corporate strategy with my strategyLab. 8th edition. Pearson education. Kazmi. (2008). Strategic Management and Business Policy. 3rd edition. Tata McGraw-hill education. Murray, J. and Galavan, R. (2008). Strategy, Innovation, and change: challenges for Management. Oxford University Press. Burnes, B. (2009). Managing change. 5th edition. Pearson Education.

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Office for National statistics. Population. Available from: <http://www.statistics.gov.uk/Articles/Social_Trends/social-trends-41-population.pdf>. Accessed July 2012. Sainsbury takes Tesco and Asda with brand Match. Available from: http://www.guardian.co.uk/business/2011/aug/16/sainsbury-price-war-tesco-asda> Accessed July 2012. Tesco Market Share Dips Below. Available from: http://www.bbc.co.uk/news/business16817254 > Accessed July 2012. Record Sales and Profit for Iceland. Available from: http://www.iceland.co.uk/_assets/files/Iceland_2009_results.pdf > Accessed July 2012. Record Results and Massive expansion for Iceland. Available from: http://www.iceland.co.uk/_assets/files/Iceland_2009_results.pdf > Accessed July 2012. More awards on frozen food specialist. Available from: http://www.iceland.co.uk/_assets/files/BFFF_Awards_June_2010.pdf > Accessed July 2012. The Iceland Story. Available from: http://www.iceland.co.uk/about-iceland/the-iceland-story/ > Accessed July 2012. Iceland again delivers record results. Available > Accesses from: July

http://www.iceland.co.uk/_assets/files/Iceland-Foods-2012-Results.pdf 2012.

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Author of this Paper

Mominul Plabon is studying Business Management in Glyndwr University. During his study he achieved many appreciations for writing articles and academic papers. He has achieved much experience in the field of research while working with Deborah Meaden (Former Pollster to Gordon Brown). There are several articles and academic papers can be found on the internet by searching his name. All of the papers are written by him and approved by many academic professionals. Outside study, Mominul Plabon runs his own business organisation named ACADEMIACARE. Academiacare is a private limited company, which is dedicated for the betterment of the international student life in UK. Further information can be found on www.academiacare.com. Contact details: Mominul Plabon Mplabon@academiacare.com