In the last two years, the high street has been in crisis as well-known retailers such as Blockbusters, Jessops, JJB sport, and Comet among many others collapse into receivership. It seems to have been hit by the triple whammy of the double dip recession, digital competition and the emergence of mega shopping centres. Given the tough economic times, the importance of strategic thinking and change management cannot be sidelined. UK retailers must reinvent and realign themselves to the needs of the external environment for them to continue to thrive.
As well-known retailers go into administration, there is need for business enterprises to rethink their approaches and to realign themselves to the needs of the external environment in order to restore the high street to the heart of local community life. In this view, this paper identifies the need for strategic change in the digital competitive environment. The paper explores on how business enterprises can realign themselves to meet the needs of the modern consumer while drawing on a range of strategic management theories. Additionally, the paper provides a small critique of contemporary strategic management research and practice.
In the recent years, the high street has been hit by a crisis as major chains enter into administration. Blockbuster has seen its business slip away to online retailers such as LoveFilm and Netflix (Watkis 2013). Similarly, Jessops, JJB sports and Peacocks have gone into administration. The biggest loss was the demise of Comet which led to a significant loss of up to 6900 jobs after all of its stores were closed down (Anon 2013). More recently, fashion chain Jane Norman became the latest casualty to enter into receivership.
Experts have warned that ‘consumer recession’ is tearing through the UK and that many other chains are likely to be shut down (Hawkes 2013). The closure of established chains and the increase in empty units is a clear indication of a declining fortune of Britain’s high streets (Minton et al. 2013). As such, this paper identifies the need for strategic change in the digital competitive environment. The paper explores on how business enterprises can realign themselves to meet the needs of the modern consumer while drawing on a range of strategic management theories.
Need for strategic change in the digital competitive environment
Given the fast changing business environment, there is need for retailers to be innovative for them to remain competitive. In this context, innovation is not just about developing new technologies but it also includes finding new ways of doing business in the face of change (Afuah 2009). The convenience of online shopping online and the price cuts offered by most online sellers have no doubt contributed to the fall out of most of the well-known high street retailers. Consumers have changed their purchasing behaviours, ditching their customer loyalty to local shops and instead opting for online purchase.
For high street retailers to tackle digital disruption, they must realign their business processes to meet the ever changing needs of the modern consumer. This raises a fundamental question: how can business enterprises realign themselves to meet the needs of the changing business environmentWhat sort of strategy should organizations employShould they apply a click and brick strategy or a pure play strategyTo effectively address these questions; we will examine the case of Blockbuster video rental chain.
Strategic management/strategic thinking key to improving competitiveness and efficiency
It is indeed true that the challenges facing business enterprises in the 21st century are huge, messy and rich in operational and strategic threats (Konsynski 1993, p.111). The challenges facing major chains have been enormous from threats of a double dip recession to threats of digital competition. The question that is posed to management is how to manage these changes without getting swamped in the unpredictable chaotic environmental turmoil (Todnem 2005). The answer to this question lies with strategic thinking and change management. Knowledge of strategic thinking and change management is needed more today than ever before.
As exemplified in Michael Porter’s thinking, strategy is an outcome of rational calculation about competitive advantage that a company has in relation to new entrants and industry competitors (Pettigrew et al. 2001). According to Porter (1979), the goal of a corporate strategy is to find a position where in a company can best defend itself from these forces and influence them in its favour. In this regard, strategic thinking and change management has a greater role to play in improving the efficiency and competitiveness of Blockbuster. Applying strategic insights and approaches would enable the company to thrive in the changing business environment.
A model such as the one below may be used by the company for formulating its strategy. External appraisal may be conducted to assess the environment in which the company operates. External appraisal includes an assessment of industry structure and how changes in laws, politics and social preferences (changing consumer habits) affect the firm (Jofre 2011). An internal appraisal is equally important to identify the organizations strengths and capabilities as well as the threats, weaknesses and opportunities available.
Given that there are likely to be more than just one possible strategy, it will be necessary to discriminate among the possibilities through evaluation and choosing. A coherent evaluation should be based on goals and policies, competitive advantage arising from the strategy, and the alignment of the strategy to the needs of the external environment (Jofre 2011).
Fig.1 Basic model of strategy formulation (Jofre 2011)
To understand the internal and external factors affecting Blockbuster, it will be necessary to conduct a SWOT analysis of the company as well as examine porters 5 forces.
Blockbuster has abundance of retail stores which increases accessibility. The company also offers multiple outlets of delivery including online rentals (Miller 2010). Additionally, the company offers high quality products and ensures that its products are up to date (Ferrel & Hartline 2007)
The main weakness of Blockbuster has been its low adaptability to the changing business environment. Whilst the company implemented online video rentals, it failed to transform its business model early enough (Carr 2010). And as a result of the late entry of online video rental, the company has lost most of its customers to online competitors such as Redbox and Netflix. Its dependence on brick and mortar has been its main weakness.
Together with other high street retailers, Blockbuster faces the risk of being completely phased out in the market given the changing consumer habits and the emergence of online competitor such as Netflix and Redbox. Already more than 100 retail stores have been closed. Besides strong digital competition, the company faces the challenge of an emergence of alternative rental options which eventually provides consumers ownership of the rental movies. Consumers are increasingly migrating to these new choices such as Video-on-demand and DIVX (Clark et al. 2013)
The company does have many opportunities with which it can use to counter the perceived threats and weaknesses. The retail chain can, for example, use interactive media and other successful media outlets to regain consumer loyalty which has been lost to its online competitors over the past few years (Clark et al. 2013).
The retail chain also has a good position in the value chain. Blockbuster is a large company which makes contracts with major suppliers, producers and distributors of games and movies. Given its size and the large quantity of its purchases, the company is able to negotiate for lower prices than their competitors, providing them with an edge in the competitive business environment (Jordan 2011). Most recently, Netflix increased its monthly subscription rates. Blockbuster may take this to their advantage by targeting disrguntled Netflix customers.
Further, there is a huge opportunity available in the online market. The online video rental market has been growing in demand since the emergence of Netflix. With the growing demand, Blockbuster has the opportunity to move in and establish its presence in the online video rental market.
Blockbuster’s life cycle strategy
Fig.2 below shows Blockbuster’s strategic history. It comprise of four broad phases: start-up, growth, maturity and decline. The life-cycle also shows the impact made by initiatives to add to the original strategic position (Anon 2013) and a revision made when the original strategy becomes unsustainable or rather threatening.
Fig.2 Model illustrating Blockbuster’s life-cycle (Anon 2013)
Porter five forces
Threat of potential new entrants
With the current digital competition especially from Netflix, Lovefilms and Redbox, the video rental market does not seem appealing. The movie rental industry is mature and the company is currently at the height of product life cycle where a decline occurs (Clark et al. 2013). For the company to continue to thrive in the industry, it must try to outperform its competitors by targeting disrguntled Netflix customers through offering lower prices and focusing on growing their online rental subscriber base.
Bargaining power of buyers
Buyers are set to benefit from the competition as this increases their bargaining power. As Blockbuster and Netflix battle for market share, they utilize methods of price reduction which ultimately benefit the buyers (Janjua 2012).
Threat of substitutes
With intense competition in the Market, there is a potential threat of substitute products. In fact, as Netflix and Blockbuster battle it out, others are gaining ground in substitute offerings as seen with Video-on-demand which has grown at double digit rates in the past two years.
Bargaining power of suppliers
Suppliers are likely to have less purchase power especially given the acquisition of Movielink. If this acquisition leads to more online downloads, the company will have little need for plastic cases and DVDs and as such, the bargaining power of suppliers is likely to reduce (Janjua 2012).
Intensity of competitive rivalry
The rivalry in the market is definitely high. Already, Blockbuster has lost many of its customers to Netflix. The company must reinvent and implement strategies that would sway back customers.
How Blockbuster can realign itself to the needs of the external environment
The corporate strategy would require the company to capitalize on innovative emergent technologies to provide it with strategic breakthroughs in the competitive business environment, while not losing sight of its in-store operations (Fryman 2010). As such, a click and brick strategy would be more suitable for the company. Blockbuster must realigns its business processes with IT and use it in their favour.
In realigning their business processes with IT, the company must access the strategic alignment model in terms of purpose, initiatives, project leadership, infrastructure and goals that will create a paradigm shift (Carr 2010). The realignment process must enable the company to embrace online opportunities which Netflix and Redbox have already perfected.
Realigning business process with IT (Kalakota 2011)
Whilst Blockbuster seems to have already embedded IT into their core business model as seen with the total access program which enhances online customers’ experience, this has not helped much as the company has lost most of its customers to online retailers such as Netflix and Lovefilm .The failure by the company to quickly adapt to the changing business environment and consumer habits is suggested to have been the main problem. The company took long to transform its business model and when it did, the competitive landscape had already been fundamentally altered and the tradition model destroyed by the new platform model (Carr 2010). The company needs to conduct a massive marketing campaign which should focus on growing their online rental subscriber base.
The company could also form an alliance with cell phone companies and arranging with these companies to allow customers to stream movies on their cell phones. This would be a great idea considering that people have their cell phones all the time. With larger cell phone screens, customers would be able to stream movies from anywhere including in the subways, bus stations and even at workplaces. Viewing could be per subscription or pay-per-view (Clark et al. 2013).
Another strategic move would be to partner with airline companies in order to implement a blue box program at airports such as the Redboxes at McDonalds (Jordan 2011). The blue box program would enable travelers to pick up a movie at one airport and to return it to another airport or blockbuster store.
Further, the company should focus on strengthening customer relationship management by implementing a business strategy that maintains relevant value across all its customer groupings and introducing new customer proposition initiatives that would provide them with an edge over their competitors (Afuah 2009).
Additionally, Blockbuster needs to implement an ERP system that will enable it to track their inventories. The system can be implemented incrementally from one region to another. This will reduce the time and duplications that the company currently has, thereby increasing efficiency. Currently, for customers to check out their movies from different blockbusters, they are required to register with each store individually. Given that the ERP system integrates data and allows for sharing of information across multiple departments, this may benefit the company through quicker processing of orders and faster shipments. .
Whilst recognizing the need to realign business process with IT, the company should not to lose sight of its in-store operations. Customers of today have become savvier and are increasingly taking charge of their own shopping experience (Deloitte 2011). Retail stores must equally evolve to become part of the complex relationship between the retailer and customer by providing new ways of experiencing breadth and depth of range (Deloitte 2011). In-store theatre and a ‘touch and feel’ experience around the product item should be able to sway more consumers back to shopping in high streets. Provision of personalized services and guided shopping experience should equally encourage more consumers to go back for rental services from the stores.
Critique of contemporary strategic management research and practice
But while strategic thinking and change management has a greater role to play in resuscitating high street retail stores, such practices are not always successful. For example, while the ERP system may increase the efficiency and effectiveness of management decisions, failure of such systems may adversely impact on the organization resulting in cost overruns and supply chain problems (Morgan & Smith 2002).
Moreover, a strategy formulation that positions a firm in a niche may narrow the firm’s perspective (Mintzberg et al., 1995). That is, such a strategy may overlook opportunity if they are only concentrating on a certain group of market. Another criticism is that strategic planning systems are designed as top-down planning systems and as such strategic decisions are only relegated to top management (Morgan & Smith 2002). This implies that the planning systems serve to fulfill only the goals and interests of the top management and not that of the organization.
Strategic management is based on rational decision making. But because most of the time we have incomplete information, fully rational decisions may not be possible and change process may result in adverse effects (Jofre 2011). Hence whilst change management may be intended at increasing the firm’s adaptability, structures developed to promote rationality may have opposite effect (Jofre 2011). Nonetheless, it is clear that high street retailers need to realign their business processes to meet demands of the changing business environment.
There is no doubt that the past few years have seen a crisis as major high street chains such as Blockbusters, Jessops, JJB sport, and Comet among many others go into administration. The collapse of well-known retailers into receivership is a clear indication of a declining fortune of Britain’s high streets. All these retailers which have gone into administration do share certain commonalities. They all tend to have a significant number of stores and have all had difficulty adapting to the changing business environment and retail habits.
For these retailers to continue to thrive in the industry, they must reinvent and realign themselves to the needs of the external environment. For example, Blockbuster needs to realign its business processes with IT and use it in their favour. The company should adopt a click and brick strategy. That is, the company must embrace online opportunities without losing sight of its in-store operations. The company could also form alliances with cell phone companies to allow customers to stream movies on their cell phones. The company may as well partner with airlines and implement a blue box programs at the airports such as the Redboxes at McDonald. The company may also implement ERP systems to increase their efficiency and effectiveness of management decisions.
Its retail stores must also evolve and should be able to provide customers with new ways of experiencing breadth and depth. In-store theatre and a ‘touch and feel’ experience around the product item should be able to sway more consumers back to shopping in high streets. Provision of personalized services and guided shopping experience should equally encourage more consumers to go back for rental services from the stores.
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