Business Strategies
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Introduction:
This report will evaluate the current structure of the company and will analyse how the strategy suggested can be implemented. The strategy suggested in this report for the growth if Burberry group is Product modification and market expansion. Product modification is developing new products or modifying existing products to target new customers to satisfy the needs of changing lifestyles of new customers. In Product modification strategy, a report will analyse the current product mix, current governing structures and how new strategies can be implemented in order to keep up with the growing market and increase revenue. According to studies and different SWOT analysis conducted by researchers, there is a need for product innovation according to changing fashion trends, in order to increase revenue and be the best in the existing market, Burberry can modify products and introduce new products for new markets i.e. India. The suggested strategy in terms of structure is the creation of research and design units that will work on finding the requirements of design in each region, and how to increase the revenue and expand in that market. The products can be modified according to the needs of the new market and that will help the company in gaining brand loyalty in new markets.Business Strategies
Following Section will discuss the company background, current management structure, operating model and how the suggested strategy can be implemented under the current structure.
Evaluation
Company Background:
Business Strategies Burberry designs produce and sells products under the name of the Burberry brand. The headquarters of the brand are located in London, United Kingdom. The manufacturing of products is developed in both companies owned facilities in the United Kingdom and through an external network of suppliers and manufacturers, predominantly located in Europe. Product modification, marketing and management are all developed internally. The products are sold around the world through proprietary retail platforms and third-party wholesale customers. The company has a global team of over 10,000 employees and relies on product and distribution expertise of licensing partners to develop the business. Currently, Burberry products fall into the following categories.
• Children
• Women
• Men
• Beauty
• Trench Coats
• Accessories
The current operating model of the company is as following:
(Strategic report, Burberry group, http://www.burberryplc.com/documents/ar-13-14/burberry-annual-report-2013-14.pdf)
The current governance system of the company is as following:
(Strategic report, Burberry group)
According to the annual report of the company, after the selection of Christopher Bailey, currently Burberrys executive board is working on servicing the stakeholders by choosing new members to bring innovation, e.g. the report states, “The Board is also in a period of evolution as it has been focused on how to build on its relevant skills and competencies for the future in accordance with its succession plan. Good progress has been made on this during the year, with the announcement of the appointment of three new non-executive directors. Longer-serving Board members will step down as appropriate but it is important to ensure stability while new Board members settle into their roles. The Board will continue to focus on its succession plan during the coming year” (Sir John Peace, Annual Report 2013-2014).
Business Strategies The current structure of the company includes management committees mainly i.e. committees that mainly analyse the financial factors of the company and work on risk management. The new strategy suggested can be run by the existing committee as well, but in order to better adapt to the new strategy and develop the company more, there should be a committee that works with the Product modification section of the operating system, and bring modification to the products according to the changing needs of customers. Moreover, Burberry’s major revenue comes from the existing customer base in the Asia-pacific region. The region is already providing double digit revenue but according to a report, due to changing trends, foreign exchange rates and changes in customers’ income the revenue is decreasing in the Asia-pacific region. Burberry’s annual strategic report suggests that Burberry has faced ‘softening sales’ from Chinese customers, both at home and when travelling.
According to the report “this would put “slight downward pressure” on its retail and wholesale margins as it continued to invest in “key initiatives” (Annual Report 2014) to drive long-term profit growth” (Strategic Report, Burberry group plc 2013- 2014). As mentioned in the reporting company is running long-term profit-driven initiatives, in that scenario, management can work on Product modification and also tapping into new markets in Asia, i.e. India. India is one of the growing economies, considering the cultural heritage and realities of India; in that region, both Product modification and expansion can work. Innovative lines that attract customers from India, and new manufacturing plants that can run on low cost in India, will prove to be a source of profit for the company Business Strategies.
In order to implement the strategy all operational units and especially operational units in Asia and governing units will need to work together to plan and implement.
According to the annual report of Buberry. “Burberry has consistently focused on delivering against its five strategic themes, which have sustained its growth during the period. These strategic themes are: Leverage the Franchise; Intensify Accessories; Accelerate Retail-Led Growth; Invest in Under-Penetrated Markets; and Pursue Operational Excellence. The following pages set out the Company’s key activities and initiatives during the year in the execution of these strategies” (Strategic Report, Burberry group plc 2013- 2014).
The strategies proposed are already aligned with objective of the company. Therefore, market expansion and Product modification are two strategies that can easily be implemented in Burberry because of the already established units worldwide, and specialised units for segmentation. Market segmentation and Product modification will work in correlation here, because new products or product modification will be done according to the realities of the new markets Burberry is tapping into. For market expansion and Product modification following simple methods can be followed:
The financial stability and specialised units of the country allows the company to easily implement new strategies.
Assessment
Culture of Organisation and Leadership Style:
As shown in the organizational chart of the company, Sir John Peace (chairman) is leading and managing business of board and ensuring effective results. Philip Bowman (senior independent director) supports chairman in his role and leads non-executive directors in the in collaboration with the chairman. Christopher Bailey chief executive) is responsible for business management, providing direction and strategies to the group, Catherine Sukmonowski (secretary) supports the chairman for delivering corporate governance agenda.
The Chairman works in collaboration with the Chief Creative and Chief Executive Officer, Christopher Bailey, in setting the Board agenda and ensuring any actions agreed by the Board are effectively implemented. In order to maintain an open culture chairman engages with all members.
According to the board, the role of effective leadership is the key in achieving excellence:
“Burberry continues to experience growth and evolution of its business while in a period of transition in its leadership. It is the responsibility of the Board to ensure we continue to grow in a controlled and sustainable way for our shareholders and wider stakeholders, and to provide appropriate support to ensure a smooth management transition and Board evolution.” (Sir John Peace 2014).
According to studies, Burberry “promotes a culture of openness and trust which allows for debate and constructive challenge of the executive directors” (Sir John Peace 2014). According to chairman of the board, Sir John peace, “excellent results that the company receives are the results of team contribution across the globe”. Burberry has a culture that is important for the growth of any business. The global team of highly competitive and dynamic individuals receive training on regular basis. Burberry invests in the areas that foster development, i.e. career development activities and internal communication activities. One of the examples of Burberry’s vibrant culture can be the activity that brings all employees based in London on one campus. Moreover, the values of company can also be reflected by external activities and organisations such as the Burberry foundation.
New strategy proposed is Product modification, one of the ways that the new strategy can be implemented and considered as an option is if the company adds to its internal cultural activities. For example, most of the plans and important decisions are taken in the headquarters, if once a year or for some time, teams that are working in the headquarters, swap with other teams, then different teams will be able to understand the realities of different regions in a better way and in that way employees can constantly work on innovation of products that is required in the growing fashion industry. Moreover, in order to service the stakeholders and maintain the loyalty of brand loyal customers it is important to innovate.
Apart from the Product modification strategy, market expansion strategy is also important. In order to achieve company’s objective of investing in penetrated markets and achieve operational excellence, it is important to expand. For expansion, company can bring changes to the operation unit by adding a new operation unit of India in the Asia region, or one of the units that are close to India can work on a joint venture and work on increasing revenue and achieving excellence there. As mentioned earlier, one of the objectives of the company is to grow in a sustainable way and that can be achieved if there is modification. Burberry has been in the market for 158 years and as a successful and growing company, in order to maintain that name and that customer loyalty it is important to modify according to customers’ needs.
One of the ways this can be implemented is by customer feedback, by analysis of customer brand loyalty and by creating surveys that can show what innovations majority of customers want, product modification can occur and company can implement any new strategies through already existing specialised units.
This product mix illustration will help in understanding the product development better:
(Annual Report 2014)
Changes Required in Organizations Core Capabilities:
Burberry sells its products to end consumers through different channels, i.e. Retails, wholesale and licensing. The major markets for Burberrys products are Spain, America, and Asia pacific, that accounts to 90% of Burberrys profits (Annual Review 2014). In order to explain the required changes, it is important to understand the current conditions of the company. According to the annual report, following are the processing units and KPI’s of the company.
“Operational Excellence:
“Continue to pursue operational excellence consistent with the brand’s product and marketing expertise.
In 2013/14 the adjusted retail/wholesale operating margin declined 30 bps to 17.5% reflecting the integration of Beauty. Excluding the dilutive impact of Beauty, the adjusted operating margin would have increased by 40 bps to 18.2%”. (Annual Report 2014)
Key developments in 2013/14 include:
Supply chain
“The Beauty supply chain infrastructure was developed to support the recently integrated Beauty business, adding resources across sourcing, logistics and distribution.
Burberry combined digital inventory pools with retail stock in the Americas to optimise inventory management and increase stock availability to customers. Business Strategies
In the Americas, Burberry moved its digital commerce operations in-house, with all online customer orders fulfilled by the distribution centre in New Jersey”. (Annual Report 2014)
Technology
“Burberry continued to invest in technology to enable the front and back-end applications needed to support the Group’s digital strategy and growth ambitions. These included the development of the Customer 1-2-1 platform and the infrastructure to support Beauty and Burberry Kisses.
Burberry World was rolled out in December to supply chain partners, fully integrating the back-end operations, providing access to front-end brand information through a single portal, streamlining processes and enhancing information flows”. (Annual Report 2014)
Planning
“Burberry continued to implement the global brand assortment, to offer a consistent product range across the Group’s online and offline retail channels. This global assortment delivers brand consistency and operating efficiencies while allowing for regional product nuances.
Inventory management continued to improve, supported by further assortment optimisation, consolidation of stock locations and embedded global processes”.(Annual Report 2014)
“Continued investment in the Business Intelligence insights enabling Burberry to leverage SAP in order to generate enhanced, globally consistent performance reporting”. (Annual Report 2014)
Process investments
“Increased focus on the commercial procurement process drove further efficiencies and cost savings.
In March 2014, Burberry expanded into the Horseferry House Two building, which is adjacent to the current global headquarters. The 291,000 sq.ft. the site will bring all London based employees into the expanded location and allow room for future growth”. (Burberry.com)
According to the date taken from the website, as shown above, company’s main focus in past few years have been only on expansion and innovation of existing processes, the annual report and the operational details mention product development in form of introduction of new products, but there is no mention of product expansion or market expansion in form of opening new units and expanding manufacturing market. According to the report, there has been work done on market innovation i.e. promoting the products in new innovative ways, however, there has been no work on product modification” (Annual Report 2014).
In the growing fashion industry with the presence of different luxury brands, it is important for Burberry to innovate because without innovation the revenues can decrease, as it is also mentioned in the annual report that growth in the Asia Pacific markets decreased recently.
Following marketing matrix will be used to discuss the need for diversification for the company:
As it is apparent from the details mentioned above, Burberry’s market is already established, and expanding in penetrating markets is one of the goals of the company. The company has already been working on product development in the form of introducing new beauty products, and in recent years company has extensively worked on market development strategies i.e. by developing online stores, by increasing social media reach, by providing iPads to employees to develop customer care. However, in terms of diversification company has only been working on the market expansion, by buying new retail stores all around the world. In term of product modification, not much work is done. Moreover, in terms of expanding in terms of utilising more factors of production and establishing manufacturing and designing units in different regions have not been done. With the increase in luxury brands in the market, with the constant replication of Burberry’s product, it is important for the company to diversify and innovate products. In order to implement this strategy company should develop designing units under different chief heads in different regions. The designing units will work on researching the needs of the market, and how customer’s preferences are changing with time, and how can the company modify its products keeping in mind the customers’ needs. Moreover, the company can develop a research unit, that works in closely with the customer care services and conducts regular surveys to receive customer feedback on kind of changes that would wish to see in the products and develop those products.
Apart from product modification due to a threat of alternative products, there is a threat of a decrease in revenues due to unstable foreign exchange rates. In order to solve that issue, along with buying stores Burberry can start manufacturing plants in emerging markets with cheap factors of production. Low labour cost, cheap resources and capital will help in increasing the revenue. This is especially important because the figures presented in Burberry’s annual report do not take into account future inflation and assume that exchange rates will be the same. On the basis of that in order to maintain and increase the revenue, new manufacturing units can be a source of earning higher revenues.
Implementation of the strategies:
As mentioned earlier, the current structure of the company includes management committees mainly i.e. committees that work on improving operational units in term of marketing and board of governors that work on improving the culture and efficiency. The current structure is an efficient structure, but in order to implement the suggested strategy company can start designing units in different regions. Currently, Burberry is buying stores in the emerging markets, along with the stores in emerging markets there should be research and design units. The research and design units will work on finding the requirements of design in each region, and how to increase the revenue and expand in that market. The products can be modified according to the needs of the new market and that will help the company in gaining brand loyalty in new markets. For example, India is one of the growing economies, considering the cultural heritage and realities of India; in that region, both Product modification and expansion can work. Innovative lines that attract customers from India, and new manufacturing plants that can run on low cost in India, will prove to be a source of profit for the company. In order to implement the strategy, all operational units and special operational units in Asia and governing units will need to work together to plan and implement. Therefore, units that work on how to modify products according to customers’ requirement will help in implementing the strategy of product development…
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