This report is based on Sainsbury's UK, which is the 2nd largest brand in the retail supermarkets' industry of UK (Butler, 2016a). In this report, a new strategic initiative is proposed to implement an organisational change through the adoption of innovation and change management practices for value creation opportunities for Sainsbury's and its key stakeholders.
In this regards situational analysis would be performed to find the key challenges and based on which the change management innervations which are required for Sainsbury's to develop shareholder value and competitive advantage are proposed.
Before proposing an organisational change it is necessary to perform the situation analysis to know the internal and external environment in which the organisation exists (Kotler, 2009). In view of this situational analysis of Sainsbury's was performed based on SWOT and Porter's Five Forces Industry Analysis to establish a comprehensive understanding of current performance, productivity and competitive position, based on which the key challenges faced by Sainsbury's would be identified (Thompson, Peteraf, Gamble, & Strickland, 2013).
Using SWOT analysis Sainsbury’s internal strengths and weaknesses, as well as external opportunities and threats, have been identified as below;
There is an opportunity to;
The retail supermarket industry is highly competitive and Sainsbury’s have many existing rivals in the industry namely; Tesco, Asda, Morrison’s, Aldi and Lidl. Supermarkets compete with each other over price, products and promotions (Butler, 2016a). Convenience stores are taking over a large portion of the market with stores such as Co-operative food, Iceland’s and M&S food. Sainsbury's has a market share of around 16% (Butler, 2016b). The price deflation persists in the market due to which there is a huge pressure on retailers to reduce the prices of their products. (Palmer, 2016)
Convenience stores are emerging all over the UK therefore it is becoming highly convenient for people to buy products in all locations making the threat of substitutes even lower. Substitutes could include new technologies such as online shopping although Sainsbury’s already has the biggest online market share as well as the largest retail share. Demand for food is inelastic therefore there is no threat to the product itself. The threat for non-food items (clothing, electronic devices) is fairly high although customers are inclined towards discounted prices therefore Sainsbury’s poses a threat to speciality shops. (Mintel, 2015)
Capital requirements and start-up costs are very high in the supermarket retail industry. Besides competition and brand recognition acts as a barrier to new entrants. Moreover, the retail industry is in the maturity stage in the UK due to which the industry is saturated and there is less scope for new entrants. Furthermore, the major brands (Tesco, Asda, Morrison’s, Sainsbury’s) owns the majority of the market share in the retail supermarket industry in the UK due to which it would be very difficult to compete for a new entrant in the industry. (Mintel, 2015)
Suppliers are inclined towards major food and grocery retailers due to the large amounts of business they receive. They dread to lose their business contracts with large supermarkets therefore they are more flexible when it comes to deals and contracts. The switching cost to another supplier is low for the retail supermarkets. (Mintel, 2015)
Switching costs are very low and non-existent for retail supermarket customers. Customers easily switch if there are promotions. Food products are undifferentiated and widely available from other supermarkets retailers. Customers can now easily compare prices with the power of the internet and make sure they are getting the best value for their money. (Mintel, 2015)
Based on Porter’s five forces analysis it was found that Sainsbury’s exists in a very competitive business environment characterized by high competitive rivalry amongst the competing retail supermarkets. There are low threats of substitute products and new entrants in the industry. Moreover, the bargaining power of suppliers is low, while the bargaining power of buyers is high. (Mintel, 2015)
Based on situational analysis it was found that even though Sainsbury’s had improved its clothing and online sales performance, however, its supermarkets' sales, annual sales performance in terms of revenue and profitability has declined. The competition in the retail industry is high and there is a huge pressure on retailers to reduce the prices as the price deflation persists in the market. Nevertheless, Sainsbury’s still holds a strong position as the second biggest retailer in the UK.
However, the main challenge which Sainsbury’s faces and which prevent it from achieving its strategic ambitions for shareholder value gains are the intense competition in the retail industry which is forcing the retailers to slash their branded product prices. To be able to remain competitive Sainsbury’s was slashing its prices by adopting a Brand Price Match Strategy, where it was trying to match the prices of its competitors to prevent the customers from going elsewhere. This Brand Price Match Strategy is one of the main reasons which contributed to Sainsbury’s declining sales revenue and profitability.
Based on the situation analysis it was found that reducing sales performance was the key challenge faced by Sainsbury’s and this declining sales revenue performance and profitability was due to the adoption of the ‘Brand Price Match Strategy’ (Butler, 2016). The new strategy was required for Sainsbury's where the old ‘Brand Price Match Strategy’ is to be replaced by ‘Lower Regular Prices Strategy’, where Sainsbury’s would offer on reducing the prices of daily basics products such as bread and cleaning products (Palmer, 2016).
Therefore in this situation strategic intervention is required to achieve the feasible and desirable change focused to realise incremental value addition in terms of improved sales performance. The transformational change intervention is the proposed strategic intervention to achieve incremental value addition of Sainsbury’s (Ayars, 2009).
Following are the certain characteristics of transformational change based on which it was identified that if transformational change intervention can bring a feasible and desirable change to achieve incremental value addition for Sainsbury’s in the present situation. (Harigopal, 2006)
In the case of Sainsbury's the company was experiencing reducing sales due to inappropriate pricing strategy which was needed to be changed. The situation analysis has highlighted that this change is required in response to the internal and the external environmental change, where the internal profitability of the company was declining, while the company was trying to compete against price discounters in the retail industry.
Moreover, this change was aimed to develop a competitive advantage for Sainsbury’s and it is expected that the new working model would be required to implement the new pricing strategy (Ayars, 2009).
This proposed intervention is focused on systemic and radical change as the new organizational design would be implemented. The analysis of the present situation of Sainsbury’s and the characteristics of transformational change highlights that the change management intervention which was required for Sainsbury's to develop shareholder value and competitive advantage can be achieved by adopting transformational change based on Integrated Strategic Change (ISC). (Harigopal, 2006)
The concept of Integrated Strategic Change has usually defined as the restructuring of an organisational process or marketing plan strategy in order to improve the competitiveness and efficiency of a firm (Worley, 1996). It might lead to gradual changes or even radical systematic changes that comprise shifts in the movement of the firm’s environment in terms of its corporate policies, targeted market, mission and organisation structure. Eventually, this will contribute to bringing a positive effect on the firm’s performance and effectiveness.
Following is the ISC process diagram which indicates how it enables a firm to implement a strategic change plan, as in the case of Sainsbury’s. The process diagram highlights how the old strategy is replaced by the new strategy. (Ayars, 2009)
Figure 1.1 Integrated Strategic Change Process (Ayars, 2009)
The Organisational Design Model (ODM) was employed to implement the integrated strategic change to achieve business transformation change in Sainsbury’s scenario. The conceptual framework of the ODM is based on developing a design fit between the organisational strategy and the organisational design by aligning the organizational elements, as shown in the following diagram. (Ayars, 2009)
Figure 1.2 Organisational Design Model (Ayars, 2009)
There are three application stages to implement ODM, which involves; clarifying the focus of the new design strategy, designing the organisation, and implementing the change. By adopting the ODM for Sainsbury’s a design fit is created in line with the new proposed strategy of ‘lower regular prices strategy’.
The design fit is to be created by developing congruence between the management and information system, work design, structure and human resource practices. Implementing a design fit would require Sainsbury’s to source daily basics products at a lower cost rather than focusing on branded products.
The implementation of the transformational change by employing the Organisational Design Model would enable Sainsbury’s to get rid of its current price match promotion strategy and declining sales revenue and profitability.
When integrated strategic change is implemented in an organisation it replaces the current business practices of an organisation with the new ones. Moreover, while business transformation and change management interventions are introduced it is often encountered by resistance to change and therefore it is essential to manage resistance to change while implementing a new strategy.
John Kotter in his two books ‘The heart of change’ explained what change management is and how it should be managed or implemented. He evaluated and analyzed different approaches and responses of people regarding a change.
According to Kotter every stage of change has some recognized features which people sense, observe and then implement (Wilson, 2008). Kotter suggested eight steps to bring some change successfully which are (1) getting the vision right, (2) building the guiding team, (3) increasing urgency, (4) empowering action, (5) communicating for buying-in, (6) creating short-term wins, (7) Make change stick and (8) Don’t let up (Kotter & Cohen, 2002).
The second step of Kotter eight steps to implement change is to build the guiding coalition by combining a blend of individuals who would manage resistance to change. He stressed that choosing the right blend of individuals having appropriate skills, knowledge and emotions to bring the change is an important aspect (Kotter & Cohen, 2002).
For successfully managing the resistance to change it is important to put together the right people who could lead and motivate employees and develop trust in them regarding the change. Therefore to make a guiding coalition capable of managing the resistance to change it is necessary that it must have individuals who have support from different levels of the organisation so that resistance to change can be countered throughout the organisation (Britain & Learning, 2005).
The guiding coalition should have the right people with the right skills and on whom the employees have trust and they share the same objectives. The guiding coalition must consist of team leaders and managers that will develop new strategies for the firm and thus transform the business (Britain & Learning, 2005). It will contribute towards the productivity of the firm whereby the managers will have top control over the process while the leaders will emphasize the day to day actions planning.
However, According to Barrie (2008), the most efficient way of representing the guiding coalition is through the right composition, level of trust, and shared objective. Therefore while implementing the new strategy by means of guiding coalition it would possible to address the organisational learning challenges such as resistance to change.
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There could be various negative implications on Sainsbury’s business if it fails to accept the proposed enduring value propositions based on Transformational Change and the Integrated Strategic Change Process. Following are the reasons and the wider negative implications which Sainsbury’s business is subjected to if it does not accept the proposal.
In view of the above argument, it is concluded that if Sainsbury’s does not opt for the proposed transformational change management intervention based on the Integrated Strategic Change and Organisational Design Model then it is likely to; incur financial loss, loss of potential competitive advantage development, and fail to address the internal and external environmental changes.
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Butler, S. (4 May 2016a). Sainsbury's sales and profits fall amid price cuts. https://www.theguardian.com/business/2016/may/04/sainsburys-sales-and-profits-fall-amid-price-cuts
Butler, S. (7 April, 2016b). Sainsbury's drops price match promotion to focus on cheaper basics. https://www.theguardian.com/business/2016/apr/07/sainsburys-drops-price-match-promotion-to-focus-on-cheaper-basics
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Palmer, K. (8 June, 2016). Sainsbury's sales fall as 'challenging' market persists. http://www.telegraph.co.uk/business/2016/06/08/sainsburys-sales-fall-after-axing-multi-buy-deals/
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