Strategic management Review of Burberry PLC
Strategic management Review of Burberry PLC
Abstract
This paper is a report about the strategic management review of the Burberry PLC Company. The report is based on the analysis of environmental factors, which surround the business. It also looks into the resources, competences, and organizational cultures that affect the business. In the report, every section builds up in a way that brings out its strategies and management efforts that influence the business position. The company is analyzed using various tools and techniques such as the SWOT analysis for both internal and external environments, PESTEL analysis, and the Porter’s five methods of analysis. The models used, provide a chance to choose the best strategic decisions for the company. The paper shows a review and analysis of the strategic analysis using both qualitative and quantitative data. In this case, the market that is served by Burberry is brought out including the segmentation process. Typically, the external macro environment of Burberry can help the management to plan for the company’s future through a clear analysis of the risks, which could occur or are currently occurring within the market. The report shows that that the management should be aware of the political conditions surrounding their businesses since such environments could have an adverse effect on the business. Aspects of politics like changing governance legal dynamics, and business regulations are also key factors to consider.
Introduction
Strategic Review and Analysis
This section involves an analysis of the company’s strategies through the use of both qualitative and quantitative data. The qualitative aspect of its strategies entails features or issues that are hardly quantifiable such as quality, culture, and values among others. Quantitative data on the other hand involves aspects that can be counted such as labor, financial position, market size, and other related trends. Since its establishment in 1856, Burberry has remained quintessentially British. It has however some outerwear at the business core (Anderson, et al., 2006). The company’s brand is purer, more relevant in a global scope, and more compelling than many other brands. These aspects are enhanced by the digital positioning as well optimization across innovative mediums that are based on the trench coat, icons of Prorsum knight heritage, and trademark check (Coyne & Balakrishnan, 1996).
The company’s business management is mainly underpinned by constant evolution, discipline execution, balance across channels, products, as well as regions. Again, among its strategic aspects include digital marketing initiatives, innovative product design, and retail strategies that are dynamic. These quality aspects drive the consistent performance of Burberry PLC. Aspects of culture are also common, since they play a significant part in promoting the company’s success. The management promotes a creative thinking culture that is closely connected, which encourages meritocratic and intuition ethos, and cross-functional collaboration (Zinderman, 2009). The company is united through the use of common communication as well as pure brand vision. Its core values help in protecting, exploring, and inspiring efforts as well promote the company’s growth.
For the quantitative aspect of the Burberry, constant revenue growth from the year 2008 to the year 2013 indicates that the company is doing well in terms of its financial position (Reuters, 2013). The company’s financial data is as follows:
(See APPENDIX 1)
Market
Burberry serves a global market. The company’s products target people from various cultures around the world. However, the company prefers to deal with British customers. The company gives top priority to its customers through their satisfaction. The market is mainly segmented with respect to cultural values, social economic aspects, and geographical differences. Its products are meant to target various groups based on such segmentation strategies. Some major aspects considered include the needs and expectations of consumers (Wright, et al., 1990).
SWOT analysis: Internal environment and external environment
The internal environment include entities, conditions, factors, and events that are within an organization, which influence the organization’s activities and choices. These factors also influence employees’ behaviors, and they significantly influence the strategic and decision-making efforts of the organization (Austrainer, 1999). In the case of Burberry PLC, factors could include its mission statement, the leadership/management style and the company’s organizational culture. Conversely, the external environment involves the conditions, events, entities, and factors that surround an organization and can influence its choices and activities, but are beyong its control. The external factors are mainly the organization’s threats and opportunities, and are best explained using PESTEL analysis. The PESTEL analysis include factors that affect the company but are beyond it reach. They include political, economical, sociological, technological, environmental, and legal aspects. Such factors also determine its risks and opportunities (Austrainer, 1999). With respect to these aspects, the environment of Burberry can be analyzed using SWOT analysis as shown below.
Strengths
The main strengths of Burberry are within its management style and the organizational culture. The management ensures that its employees work within a healthy environment. This and the fact that employees are often motivated to make the company grow strong in terms of its internal structure. The objectives of the management are strong and mainly focusing on the continued development of the company brand. Through its mission, vision, and core values, the company has remained strong since it was founded. It has adequate human resources that promote innovation and creative thinking for product development (Austrainer, 1999). The company’s management make it strong when it comes to its political, economical, sociological, and technological environemnts. Politically, the company is based in politically stable locations with its headquarters in UK, a politically stable nation. Its establishment in these locations was the work of the management. It terms of economic aspects, the company is large enough to enjoy economies of scale. It also has much power over suppliers due to its financial and market strength. Sociological aspects strengthening the company include its ability to serve the needs of various cultural and social groups. The company is comfortable to establish business and market anywhere around the world under the success of its management strategies. Technologically, it keeps in line with the prevailing technologies. It has strong communication tools that promote direct interaction with customers and suppliers (Austrainer, 1999). The main drivers of change are technological advances and the changing needs and expectations of customers.
Weakness
The company has a number of key weaknesses that deprive it of its potential success. The company is embedded in British culture, which forms its basis. The internal control system of the company is designed to manage possible risks rather than eliminating them. This is a weakness since such practice could expose the company to greater risks rendering its failure or future unsuccessful grounds. These weaknesses can only be eliminated by evaluating and getting rid of them (Ferrell, et al., 1998). Again, the company has no adequate strength to compete in some countries where local people may not prefer British culture to their own culture. There are also regulations which the company can hardly control such as export/ restrictions in some countries, government regulations, and heavy taxes (Ferrell, et al., 1998). The company is also not the industry leader in adopting new technology. To eradicate these weaknesses, the management needs to understand the weaknesses and act accordingly such as keeping in touch with technological changing, adapting diverse cultures, as well as targeting key rivals.
Opportunities
The company’s future success could be brightened by some of its extrnal factors. Politically, the company is located in politically stable nations, an aspect that gives it a chance to even thrive and grow larger in the future. Good political environments, especially in countries where its branches are established give the company optimistic operational grounds. From an economic perspective, the company’s opportunities lie within its possibility to expand financially and produce better quality products due to favorable economic conditions. Its share save scheme is one of its greatest opportunities. It has the capacity of encouraging the share ownership of employees at all levels. This opportunity forms a basis for encouraging employing and offering them a chance to save part of their payment. This money can be used as an additional source of capital. It can also sell shares to earn more capital of funding its projects. Employees in this case could have the largest influence, which is also a source of motivation (Hill & Westbrook, 1997). Again, the market for fashion and clothing is ever growing wider giving room for the company to expand. People’s needs and expectations are also changing fast (Murray & O’Driscoll, 1996). This could be a great opportunity for the company to exercise its innovative abilities. Besides, the UK is a developed economy with all the required resources for the company’s growth. The increasingly changing technology is also a source of opportunity for new innovation in fashion. Socially, the society keps on chaning with entirely new and better opportunities for the company’s products. Legal requirements are also favorable with some possibilities of even getting more favorable in the future. Given its product line, environmental constraints are not likely to hinter its success.
Threats
The main threats could be from new entrants, existing competitors, and increasing power of consumer. Politically, the company is located in politically stable nations. While the industry is expanding, consumers find it easier to demand better products as cheaper prices. This factor comes in as aspect of the economy in which more more companies are established thereby increasing the supply. This could be a significant threat to Burberry’s profitability. The industry is full of dynamic such as technological changes as well as the changing needs and expectations of consumers (Austrainer, 1999). Environmental regulations could be extreme in some countries making its growth impossible. This aspect also goes with the legal reguirements in certain countries, which further bars its expansion. Its operations also need to considerate to the social needs of customers as well as people surrounding its various firms, which may further threaten its future success.
Analysis of Burberry using Porter’s 5-Forces Model
Porter’s five forces involve a framework that analyzes an industry and the development of business strategy. The Porter’s 5 forces model includes aspects like threat of new entrants, threat of substitutes, customer bargaining power, suppliers’ bargaining power, and intensity of rivalry (Porter, 2008).
Threat of new entrants
Fashion and clothing industry is fast growing thereby attracting new entrants. Some of the new entrants introduce new techniques and secrets that could enable them take over the market easily. Burberry is faced with threats of new companying entering the market with the application better technologies to produce better products. This would definitely shrink Burberry’s market and its future success (Porter, 2008).
Threat of substitutes
Burberry is only a competitor like other players in the industry and market. This means that there are innovative activities initiated by its rivals to produce better substitute products (Porter, 2008). New entrants also generate a great risk of increasing the number of substitute clothing products in the market. Substituted would take part of Burberry’s market share.
Bargaining power of buyers
Burberry is faced with a significant challenge because as the industry grows, more and better products would be available at cheaper prices (Porter, 2008). This would be a problem to the company since it would not be in a good position to sell its products at high prices. Again, changes in consumer needs and expectations would dictate Burberry’s process of production. This would affect its strategies, revenues, and market share.
Bargaining power of suppliers
Suppliers have less power of bargaining than Burberry PLC. This gives the company management power to make decisions that control its suppliers. The company can bargain on price of raw materials, quality, and timely delivery dues to the many options available (Porter, 2008). The suppliers have difficulties in switching costs as Burberry PLC switches its costs. Input source options are also many, which as well decrease the bargaining power of suppliers.
Intensity of rivalry
Given the market and industrial trend in the case of Burberry PLC, intensity of rivalry is increasingly getting worse. As the market rivals increase, the level of completion increases. This means the supply of the products would be high thereby pushing down the market prices (Porter, 2008). This aspect would affect the Burberry Company if no quick market strategies are implemented. The company may not be able to sustain its competitive advantage especially if the rivals are more superior (Chastain, 1985).
Strategies currently pursued
Porter’s three generic strategies could be use to counter the market problems and difficulties depicted through porter’s five force. The Porter’s three strategies include segmentation strategy, differentiation strategy, and cost leadership strategy. The segmentation strategy is for a narrow market while both differentiation strategy and cost lead strategy are applicable in broader market.
Porter’s Three Generic Strategies
Burberry can safely use the cost leadership strategy because it clothing and fashion products target cost-sensitive customers (Miller, 1992). It has been able to reach customers even in the developing world where customers are cost-sensitive and this strategy would be a good chance to fight through the increasing competition.
Ansoff’s (Product Market)
The company can also use Ansoff’s (Product Market) Growth Strategies. This strategy involves diversification, which could increase its sales volume especially from its new product as well as its new markets (Ansoff, 1957). This strategy could give Burberry a chance to expand its business even beyond the scope of its current business. It is thus a good strategy (Ansoff, 1957).
Conclusion and strategic options
The key strategic issues facing Burberry are based on cultural aspects, social aspects, its management, and its market strategic plans. Aspects of culture, politics, and social differences could ruin not only this company but also other companies. The company is faced with varying regulation in various countries where it has established branches. Social differences and cultural variations are also significant issues. Future success is threatened by new entrants and possibility of falling prices (Rainer & Turban, 2009). The company could incorporate cultural strategies that focus on various cultures depicted by its global markets. Social needs of the people where its businesses are established need to be considered as well. Again, the management should strategize on the best way to deal with industrial and market dynamics (Wright, et al., 1990). The management should implement the cost leadership strategy to counter the increasing competition in the market and industry. This strategy could be used alongside diversification. Diversification could increase Burberry’s sales volume especially from its new product as well as its new markets. This strategy could give Burberry a chance to expand its business even beyond the scope of its current business. These strategies would be important to the company’s future, but the management could collaborate with some employees in order to consider the benefits or risks associated with the strategies. They should be implemented only after they are projected to benefit the company.
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APPENDIX 1
Table 1: Financial Summary of Burberry (Reuters, 2013)
Year End 31st Mar 2008 2009 2010 2011 2012 2013 TTM 2014E 2015E CAGR / Avg
Revenue £m 995.4 1,202 1,185 1,501 1,857 1,999 2,148 2,326 2,556 15.00%
Operating Profit £m 201.7 -9.9 216.5 300 367 351 404.1 11.70%
Net Profit £m 135.2 -6 81.4 209.5 263 254.3 282 347.6 384.6 13.50%
EPS Reported p 30.5 -1.39 34.4 48.6 59.3 57 63.1 13.30%
EPS Normalised p 27.6 31 43.1 49.4 63.2 81.5 65.5 78.2 88.2 24.20%
EPS Growth % 10.8 12.7 38.7 14.6 28.1 28.9 -9.5 -4.02 12.8
HYPERLINK “http://www.stockopedia.com/ratios/price-to-earnings-ratio-723/” PE Ratio x 18.4 22.9 19.2 17
HYPERLINK “http://www.stockopedia.com/ratios/price-earnings-to-growth-5083/” PEG x n/a n/a 1.49 1.73 Profitability Operating Margin % 20.3 -0.9 18.3 20 19.7 17.6 18.8 15.80%
ROA % -0.6 13.4 17.2 17.7 15.2 16.6
ROCE % 39 -1.7 33.9 36.1 36.2 29.7 33.8 28.90%
ROE % -1.2 26.9 33.1 33.3 27 30.2 23.80%
Cashflow Op. Cashflow ps p 10.3 48.6 83.6 59.7 84.1 95.2 91.9 56.10%
Capex ps p 11 20.8 15.8 24.4 34.5 39.4 33.6 29.20%
Free Cashflow ps p -0.71 27.8 67.8 35.3 49.7 55.8 58.2
Last ex-div: 23rd Dec, paid: 24th Jan more… Dividends Dividend ps p 12 12 14 20 25 29 29.8 31.2 35.1 19.30%
Dividend Growth % 14.3 16.7 42.9 25 16 14.6 7.67 12.6
Dividend Yield % 1.94 1.99 2.08 2.35
Dividend Cover x 2.54 -0.12 2.45 2.43 2.37 1.96 2.12 2.5 2.51
Balance Sheet HYPERLINK “http://www.stockopedia.com/ratios/cash-short-term-investments-5106/” Cash etc £m 127.6 252.3 468.4 466.3 547 426.4 323.6 27.30%
Working Capital £m 152.2 195.6 265.2 322.3 420 403 436.3 21.50%
Net Fixed Assets £m 214.4 325.8 308 393.1 461 569.5 558 21.60%
Net Debt £m 64.2 -7.6 -262 -298 -338 -296.6 -208.3
Book Value £m 495.3 539.3 590.1 713.6 867 1,017 1,026 15.50%
Average Shares m 442.8 431.3 441.9 444 444 446.5 446.2 0.20%
Book Value ps p 114.5 124.5 135.7 163.8 198 230 231.4 15.00%
Source: HYPERLINK “http://www.stockopedia.com/share-prices/burberry-LON:BRBY/” http://www.stockopedia.com/share-prices/burberry-LON:BRBY/
