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Report on strategic analysis and position of the UK Cooperative Group
This report aims to make a strategic analysis of the UK Cooperative Group. Through the analysis of the external environment, the internal environment, the SWOT analysis and the strategic position, this paper makes some suggestions for the future development of this organization.
The report firstly gives the introduction of this paper’s purpose, then the operation environment this organization works in, the strength, the weakness, the opportunities and the treats it faces are done in the main body part. The strength of it mainly includes the largest geographic coverage, the strong bargaining power resulting from the CTRG and the good market image its value and faith bring. The weakness includes the weakness in the hypermarket and supermarket, the brand position is not so clear and the lack of the range of products. The opportunities include the quick development of the internet and the deceasing affording ability of the customers. The threats consist of the emerging of the online retailing and the penetration of the “big four” into the convenience sector. In the last part, the strategy position of this organization is suggested based on the previous analysis.
After the analysis, this paper thinks that in the austere economy condition of UK, the UK Cooperative Group can use its location advantage and its low cost advantage to compete in the market. At least, at this kind of condition, it can attract more price sensitive customers and build up its image. As this organization is in the retailing industry and it focuses on the convenience sector which is mainly the price sensitive customers’ market and providing the satisfied products with the satisfied price fro the customers is their main target, so the price leading strategy is the right one for it.
Table of content
1.0 Introduction. 4
2.0 The strategic analysis of the UK Cooperative Group. 4
2.1 The external environment analysis. 5
2.1.1 Macro environment analysis: PEST model 5
2.1.2 Industrial analysis: Porter’s five force model 6
2.1.3 Competitor analysis: Strategic group analysis. 7
2.2 The internal analysis. 8
2.2.1 Resource audit 8
2.2.2 Value chain analysis. 8
2.2.3 The identification of the core competence. 9
2.2.4 The identification of the important stakeholder 9
2.3 SWOT analysis. 10
2.4 The analysis of the three possible future strategy choices. 10
3.0 Evaluations and Recommendations of the three strategies. 11
3.1 The evaluations. 11
3.2 The recommendations. 12
4.0 The critical review of the models applied in this report 12
5.0 Conclusion. 13
6.0 References. 14
(Words count: 2997)
The UK Cooperative Group is one of the largest cooperative retails in the world. It trades in many areas including the food business, retailing, insurance, tourism and so on. After the world financial crisis, in the austere economy conditions, facing severe competition from different aspects, this organization should find its new direction or better strategy to develop well in the future. This paper aims to make a strategic analysis including the external environment analysis, the internal analysis, the SWOT analysis and the identification and the evaluation of the basic three competing strategies for the organization. After comparing the basic three competing strategies, this paper will combine the special circumstances with the environment analysis to propose a suitable strategy position for this organization. This paper mainly includes four parts. Firstly, it is the introduction part. Secondly, it is the main body of this paper. In this part, the detailed strategic analysis of this paper will be done which consists of five steps which are external environment analysis, internal analysis, SWOT analysis, strategy position and the evaluation of the strategies. Thirdly, the recommendations will be suggested. Finally, it comes to the conclusion.
2.0 The strategic analysis of the UK Cooperative Group
This part aims to do a complete strategic analysis of UK Cooperative Group. The external environment analysis consists of macro environment analysis using PEST model, industrial analysis using Porter’s five forces model and the competitor analysis using the strategic group analysis to identify the relevant competitors (Saplitsa, 2008). Then, the internal analysis of the organization mainly includes the value chain analysis to identify where and how the value is added within this organization. The SWOT analysis includes the strength, the weakness, the opportunities and the treats of the organization (Miller, 2007). Finally, the identification and the evaluation of the basic competing strategies will be done.
2.1 The external environment analysis
2.1.1 Macro environment analysis: PEST model
The PEST model dive us an analysis framework about the macro environment of the organization. These factors generally consist of politics, economical factors, society culture factors, technology factors, environment factors and law factors (Peng et al, 2007).
The political factors refer to the impacts the state, the government and the local policies make on the organization (Peng & Nunes, 2007). The policies the government implements will probably make positive or negative impacts on the organizations. The UK government will make broadband available to every home by 2012 and to encourage the development significantly faster next generation (Grewal & Levy, 2009). Building of the foundation facility of internet is a technology support for the development of UK Cooperative Group and the customers. However, the wide use of internet will promote the online buying of the customers. Through this policy, the UK Cooperative Group can expand its retailing channels through online sale. In the negative aspect, the wide use of the internet among the customers will induce more online retailing competitors
The economical factors can make significant impacts on the organizations and can reflect the economic condition of the location and the operating environment which the organizations meet (Peng & Nunes, 2007). After the global economy crisis in 2008, the economy of UK is affected seriously. According to the data the UK National Statistics publishes, the inflation rate of UK has been increasing since 2007 and the increase of the average wage of the people is lower than the increase of the inflation rate. The inflation in December 2010 is 3.7% and now it is nearly 5%. Comparing with the data in 2007, the CPI in UK has grown 12%, but the wage level has an increase of near 7.6%. The living level of the ordinary households in UK decreases. The shrink of the affording ability of customers affects their consuming, which is a bad news for the UK Cooperative Group. To attract more price-conscious customers, the UK Cooperative Group should pay more attention to these customers. However, the UK central bank thinks that the economy of UK will revive better nest year. In this kind of expectation, this organization can operate in a better condition in the nest year. The budget and the resource allocation in this organization should be planned seriously (The data source: the UK National Statistics).
The society and culture factors reflect people’s code of conduct, value, and psychology (Peng & Nunes, 2007). The impacts of the society and culture of UK makes on the UK Cooperative Group are mainly from three aspects. Firstly, the aged tendency of the population will create more price sensitive customers. Secondly, the culture diversity in UK makes the ethical food more popular. Thirdly, the customers’ pursuit of the healthy life demands the companies providing more green and sustainable food. UK Cooperative Group should place importance on the new demands to maintain its own competitive advantage.
The rapid development of technology is the world success in the 21st century. The rapid development of the internet changes the life style of people. Online buying becomes a kind of fashion. With the popularity of the online retailing, the competing pressure of the retailers becomes more serious, including the UK Cooperative Group. The emerging of the online retailing is a new entrant which also brings heavier competing pressure.
2.1.2 Industrial analysis: Porter’s five force model
Porter’s five forces model provides an industrial environment analysis framework. In this model, there are five forces which push the organizations to develop and compete. The five forces include the threat of the potential new entrants, the threat of substitutes, the bargaining power of the suppliers, the bargaining power of buyers and the extent of competitive rivalry (Porter, 1980).
In the UK food retailing, the UK Cooperative Group plays an important role which is the 5th largest food retailer in UK after the big four of Tesco, Sainsbury, Asda and Morrisons. The “big four” takes up the hypermarkets and the supermarkets, so in the hypermarkets and supermarkets, the UK Cooperative Group does not have many advantages. In the austere economy condition, the consumers’ afford ability shrinks and the demand of the consumers decreases. In this occasion, the bargaining power of the buyer is stronger. The UK Cooperative Group participates in the CRTG which is a group of the retailers having similarities. Through the CRTG, the retailers can purchase lower price products from the suppliers. In this condition, the bargaining power of the suppliers is relatively low. With the rapid development of the internet and the popularity of the online buying, the threat from the potential new entrants (online retailers) is higher (Grewal & Levy, 2009). The online selling partly becomes a substitute of the existing selling channels of real outlets.
2.1.3 Competitor analysis: Strategic group analysis
The strategic group analysis aims to identify the direct competitors of the organization (Johnson et al, 2008). The strategic group is a kind of group in which the organizations have something in common about their competitive strategy, such as the location, the price of the products. This technique can help our organization to identify the similar and direct competitors and then we can find out the differences of the competitors （Lynch, 2006）. Through the strategic group analysis to find out the similarities and the differences among the companies in the group, the organizations can cooperate and create its own difference to maintain its competitive advantage. In the UK food retailing, the retailers are mainly divided into two groups. One is the hypermarket and the supermarket and the other is the convenience sector and the symbol group. In the first group, the major members are the big four who takes up nearly 70% market share. In the second group, UK Cooperative Group is the one owning the largest market share of nearly 23% in 2010. The first group focuses on providing a wider range of products and the second group mainly takes advantage of their location condition to provide convenient buying condition for the customers (Helterlin & Ramalho, 2007）.
2.2 The internal analysis
2.2.1 Resource audit
The resource-base view thinks that a company has its core competitive ability from the resources it owns. The resource a company owns mainly includes the physical, human and organizational resources. The competitive resources can bring added value for the organization. In general, the competitive resource is sparse, specific and it can meet some specific needs (Hee, 2010). The special technology, knowledge, location advantage, brand and image are the main competitive resources which are the main source of the firm’s competitive advantage. The UK Cooperative Group has the largest geographical coverage in the convenience sector. It is a location advantage for it to have convenient access to customers. The value and the faith of this organization can help it build up good image among the customers. The location and the value position of this organization are the important resource for it.
2.2.2 Value chain analysis
Value Chain model defined company activities as two kinds including basic activity which consists of internal logistics, manufacturing, external logistics, marketing, sales and services, and supporting activities which consists of purchasing, technology development, human resource management and corporation facilities (Peppard & Rylander, 2006). These producing and operating activities make up of a dynamic process which can creates value for companies (Reed, 2009). Porter thinks that every company should be good at a link or several links in the value chain and the advantages construct their main competitive advantages and capabilities. UK Cooperative Group as a group with a wide range of businesses firstly has an advantage of scale. In the angle of the basic activities, the UK Cooperative Group does well in its logistics. Its purchasing source is 100% from CRTG which is a cooperative group made up of several food retailers in UK. This group has stronger bargaining power to the supplier. Through this logistics purchasing channel, this organization can obtain the products in lower price. In the supporting activity, the technology development helps this organization to put out some activities to maintain the external relationship, for example, maintaining its relationship with its customers through the VIP card plan. In sales and services, it has the largest geography coverage and the value and the faith of this organization help build up a good image in the market.
2.2.3 The identification of the core competence
Through the resource analysis and the value chain analysis, this paper thinks that the core competences of this organization mainly from three aspects. Firstly, it has location advantage with the largest geography coverage to attract more customers of the convenience stores. Secondly, the supply chain which purchasing from the CTRG is its another core competence. Finally, the value and the faith of this organization help to build up brand advantage for it.
2.2.4 The identification of the important stakeholder
The UK Cooperative Group is an organization which consists of customers and it should tries to provide suitable services and products to the customers. In the case, the purchase ability of the customers which is affected by the financial crisis makes a deep impact on the operation and the strategy choices of the organization. In summary, the special characteristics of the convenience sector which the organization is involved in and the self condition of the customers making important impacts on the organization, so the most important stakeholder is its customers.
2.3 SWOT analysis
SWOT Analysis is an analysis tool to recognize the opportunities and threats from the external environment and the strengths and weaknesses from the inner condition (Bwlay et al, 2010). The SWOT analysis is a premise of the strategic decision of an organization (Mengel et al, 2007). The SWOT analysis result is as the following SWOT analysis matrix.
Table 1 the SWOT analysis matrix of the UK Cooperative Group
(1) the largest geographic coverage;
(2) the strong bargaining power resulting from the CTRG;
(3) the good market image its value and faith bring.
(1) the weakness in the hypermarket and supermarket;
(2) the brand position is not so clear;
(3) the lack of the range of products.
(1) the internet development can probably broaden its selling channel;
(2) the decreasing of the real affording ability of the customers makes an opportunity for it to provide low-price products.
(1) the emergence of the online retailing takes up a part of the market share of the food retail;
(2) the possibility of the big four’s penetration into the convenience sector.
Source: the author organizes it based on the case of the UK Cooperative Group.
2.4 The analysis of the three possible future strategy choices
Strategy direction is about the competitive strategy of a company. Porter’s general competitive strategy consists of price leading strategy, differentiation strategy and focus strategy (Hee, 2010). When a company implements price leading strategy, it should have low cost advantage through controlling its operating cost (Li, 2008). However, this strategy will probably ignore the varied needs of the consumers (Malighetti et al, 2009). If a company applies differentiation strategy, it pays more attention to the different kinds of needs and tries to meet the individual needs of their consumers. But this strategy will cost more (Elbanna, 2009). In terms of focus strategy, a company produces for a specific market. An organization can get its core competitive ability when implementing focus strategy, but it will be easy for them to be defeated by the new entrants and high-tech (Porter & Kramer, 2006). Porter thinks that companies should choose their strategy direction according to their competitive edge in the market.
3.0 Evaluations and Recommendations of the three strategies
3.1 The evaluations
After the previous analysis, this paper mainly gives the following recommendations for the UK Cooperative Group. Firstly, the sustainability, feasibility and the acceptability will be analyzed.
Sustainability: applying the low cost advantage and location advantage, it can attract more customers who are price sensitive in the austere economy condition. However, in the long run, it cannot maintain the competitive advantage of the firm. The focus strategy focuses on a small part of the market; it cannot help enlarge the scale of the firm. In terms of the differentiation strategy, it can create sustainable competitive advantage for the firm to attract more customers.
Acceptability: in the austere economy condition, the price leading strategy can make a difference, however, in the long run, it will probably ignore the real needs of the customers. As the focus strategy can only coverage a small part of the market, it is not suitable for the development of the retailing companies. In terms of the differentiation strategy, though it has the disadvantage of higher cost, it can build up long-term competing advantages, because it can meet the needs of the customers well.
Feasibility: according to the features of the retailing industry, the low cost and large market share is their target. To attract the price sensitive customers, the company should pay attention to its cost control. To meet the changing demand of the customers, the organization should make it different from other competitors to meet the customers’ needs well.
3.2 The recommendations
According to Porter’s opinion and the specific characteristics of the UK Cooperative Group, this paper makes a suggestion to the UK Cooperative Group to implement a price leading strategy when the economy condition of UK is austere. Under the austere economy condition, with an quickly increasing inflation, the real buying standard of the ordinary people decreases, so more people become price sensitive group. At the same time, comparing with the “big four” which mainly compete in the hypermarket and the supermarket, the UK Cooperative Group can have low-cost advantages. In the other hand, it can apply its location advantages to attract more customers which are sensitive to the increasing gasoline price. Through implementing the leading price strategy in this period, the UK Cooperative Group can use its advantages better to compete well in the convenience sector. At the same time, the UK Cooperative Group places high importance on the convenience sector and this kind of market focus decides that it should implement price leading strategy.
4.0 The critical review of the models applied in this report
The models used in this paper can help identify the external environment and the internal environment of the organization; however, all of them have their own disadvantages. The PEST model only pays attention to the external environment and it is lacks some micro-environment analysis. The industry analysis which uses five-force model can make up this disadvantage, however, the five-force model only considers five factors which probably affect the firm and it possibly ignores some other important factors. The internal analysis is based on the situations of the organization, so it can only consider the problems in the organization but not outside. The SWOT analysis is based on the external analysis and the internal analysis and it is a summary of the environment analysis to help identify the strength, the weakness, the opportunity and the threats, but it in some degree ignores the detailed core competences such as the resource advantages.
This report aims to make a strategy analysis of the UK Cooperative Group. Applying the PEST model to analyze the external operating environment, using the five force model to analyze the industrial environment and the value chain to analyze the internal environment, this paper wants to find out the competitive advantage from the environment analysis. Through the reorganization of the strength, the weakness, the opportunity and the treats of the UK Cooperative Group, this paper suggests that, under the austere economic condition, this organization can use its low cost advantage and location advantage to attract more price sensitive customers and builds up its image. As this organization is in the retailing industry and it focuses on the convenience sector which is mainly the price sensitive customers’ market, so the price leading strategy is the right one for it. The limitation is that it is a case study, so the analysis cannot be used widely in the retailing industry. The further study will pay attention to the overall industry.
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