Core Competencies and Strategic Choices - Case Study Example

Temple & Webster’s External Environment, Core Competencies and Strategic Choices Name: Lecturer: Course: Date: Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 External environment 3 2.1 Porter’s Five Forces model 3 2.1.1 Competitive rivalry 3 2.1.2 Threats of new entrants 4 2.1.3 Bargaining power of suppliers 4 2.1.4 Bargaining power of buyers 5 2.1.5 Threat of substitutes 5 3.0 Internal environment 6 3.1 Value chain analysis 6 3.2 Primary activities 6 3.2.1 Inbound logistics 6 3.2.2 Operations 6 3.2.3 Outbound logistics 7 3.2.4 Marketing and sales: 7 3.2.5 Services 7 3.3 Support Activities 8 3.3.1 Infrastructure 8 3.3.2 Human resources management 8 3.3.3 Technology 8 3.3.4 Procurement 9 4.0 Identification 9 5.0 Recommendation 10 6.0 Conclusion 11 7.0 References 11 1.0 Introduction Temple & Webster is an online furniture and homeware merchant based in Australia. Its concept is based on offering a diverse range of elegant functional home furnishings at low prices to make them highly affordable to many people (Low 2015). Instead of selling expensive home furnishings affordable by few, Temple & Webster concept allows the company to serve many by offering low-priced products (Keating 2015). However, to sustain its high revenues, it needs to counter growing competition. The company’s internal environment is analysed using the resource model and associated concepts, such as value chain. Porter’s Five Forces analysis is used to analyse the external factors affecting the company. 2.0 External environment 2.1 Porter’s Five Forces model Porter’s Five Forces model refers to a generic theoretical model that categorises an industry structure into five basic competitive variables, namely rivalry among the firms in the industry, bargaining power of suppliers, bargaining power of customers, the threat of new entrants, and lastly, the threat of substitute products (Aarons & Waalewijin 2002). 2.1.1 Competitive rivalry Temple & Webster operates in a highly competitive industry, which is made up of many other low-priced quality online and brick-and-mortar furniture and homeware merchants, such as eBay and Gumtree. Because of the attractiveness of the furniture sector in Australia, Temple & Webster continues to compete, as well as to grow in Australia. Temple & Webster is presently the undisputed market leader in the industry of online furniture and homeware at the national scale. The company currently encounters competition from Gumtree and eBay, which, however, do not specialise in furniture and homewares, as they offer general merchandise. Again, the traditional brick-and-mortar retailers are growing fast and expanding across Australia (Keating 2015). 2.1.2 Threats of new entrants Temple & Webster currently enjoys window of opportunity period that is free from the possibility of new entrants. However, the threat of new entrants into the Australia furniture and homeware sector is extremely high. This is because of the lucrative nature of the sector and the low entry barriers because of the low capital requirement to start an online business. Indeed, since Temple & Webster is still a startup, the possibility of the rise of new competition for the company is not flimsy. However, there is a high demand for homeware in Australia. Co-founder Shanahan learnt this opportunity while working for eBay and Gumtree. The company, however, benefits from first-mover advantage, having been the pioneer online company specialising in the online homewares category. 2.1.3 Bargaining power of suppliers Temple & Webster suppliers lack ample bargaining power since there are numerous furniture makers in Australia and globally. They have the capabilities and capital resources that make them attractive for forming partnerships with Temple & Webster. Similarly, Temple & Webster seeks to focus on the strategy of creating strategic long-term partnerships with its suppliers. It has low bargaining power, as it is continually competing to maintain its relationship with the global giants like eBay who have higher capital resources and capacity to form affiliation with Temple & Webster (Keating 2015). 2.1.4 Bargaining power of buyers Temple & Webster’s customers have low bargaining power since the competition is intense from the brick-and-mortar merchants, as well as from general merchandise companies like Gumtree and eBay. Again, Temple & Webster has limited experience in the industry, as it is still a startup, which has only worked for three years. Online marketing has been a challenge since once it markets using Google; it gets customers who are more price-conscious, which implies that it has to revise frequently the prices of its products. Besides, the customers encounter an extensive choice of alternatives provided by the local furniture retailers and producers (Keating 2015). 2.1.5 Threat of substitutes The threat of substitute products is high. The reason for this is since many companies offer similar products or products potentially substitute the demand for homewares and furniture that Temple & Webster offers. Hence, it is getting tricky for Temple & Webster to maintain a large customer base since the larger retailers like eBay and Gumtree are continually expanding their businesses with similar products. The only difference is that Temple & Webster specializes in offering low-cost, high quality homeware and furniture (Keating 2015). From the analysis, it is clear that the Temple & Webster has managed to realise its vision of becoming Australia’s “most beautiful shopping experience for the home.” The company is also highly innovative, offers high quality products. It is also resourceful. These aspects are consistent with its values of “valuing ideas, quality, and resourcefulness.” However, it faces barriers to realising its mission of ensuring that people turn first to its online store to buy “beautifully priced items for the home” because of the growing competition encouraged by the low entry barriers (Temple & Webster 2015). 3.0 Internal environment 3.1 Value chain analysis The Value chain analysis is a tool for analysis of the internal environmental of an organisation. The concept classifies organisations activities into “primary activities” and “support activities.” 3.2 Primary activities 3.2.1 Inbound logistics Temple & Webster owns and creates a well-structured inbound logistics that manages hundreds of furniture and homeware products made by hundreds of suppliers, as well as distributed and transported to its stores in its various distribution centres. The logistics function makes up nearly 25 percent of the jobs in its stores. Because of this, the company has strength in terms of financial resources. It is a subscription-based online retailer that achieved $28 million in revenues in 2014 and targets reaching $50 million in 2015. 3.2.2 Operations Temple & Webster currently operates in Australia. Its operations make up several stores across the two countries. Since the manufacturing is often outsourced, the company is left to focus on other activities like logistics and marketing. The company also plans to expand internationally, as there is a high international demand for Temple & Webster, having received numerous requests from the United States, Singapore, United Kingdom, New Zealand, Hong Kong, and China. 3.2.3 Outbound logistics The customers are charged for transporting the furniture and homeware, hence allowing Temple & Webster to add value to its products, as it can keep the final costs low. 3.2.4 Marketing and sales: Temple & Webster’s target is clearly defined. It consists of individuals with low-income level, young couples who are just starting a family and students. The company partners with heavyweight marketers in the industry. It uses online and offline marketing. It partnered with The Living Room on Channel 10, which has enabled it to market itself as an online homewares company. It has also managed to attract and engage high quality customers using print and magazine marketing. The company also benefits from brand power. The brand name is Australian and speaks of Australian heritage. Therefore, it resonates with the Australian consumers. 3.2.5 Services Temple & Webster’s business strategy concentrates on offering limited customer service, hence minimising the cost of operating the business. This also leads to low-priced products since most of the information on products is provided on the company’s website. The company also plans to start a bricks-and-mortar flagship stores overseas (Keating 2015).  3.3 Support Activities 3.3.1 Infrastructure Temple & Webster operates using a hierarchical organisational structure, and operates using small-sized stores. 3.3.2 Human resources management Temple & Webster shows high level of dedication to its HR practices. It also invests in employee training and development. The company benefits from a wealth of skills and competences. The staff has a wealth of experience, having worked in various major institutions. For instance, co-founder Brian Shanahan has worked for KPMG, as well as for JP Morgan where he mastered skills in managing online banking and e-commerce. He also worked at the rival companies eBay and Gumtree as finance officer and Gumtree International as the managing director. It has the benefit of an experienced team made up of 50 full-time employees (Keating 2015). 3.3.3 Technology Temple & Webster often invests in its research and development activities to develop its website in order to enable it respond better to the needs of the users and the market. The company is enthusiastic about using information technology in its business processes, and often utilises technology with the hope of providing low-priced furniture and homeware (Keating 2015). 3.3.4 Procurement Temple & Webster seeks to establish long-term relationship with its Australian suppliers, through maintaining positive working environment. It also ensures this by seeking for partnerships with the suppliers. 4.0 Identification The results of the analysis indicate that Temple & Webster uses diversification strategy. It deals in a diversity of homeware and furniture products. Such diversification strategies, as Hitt et al. (2012) suggest, can allow a company gain competitive advantage hence increasing its customer base. However, Fruhling and Digman (2000) suggest that the concept of Added Value is also particularly significant for internet companies. In their view, online businesses should combine diversification and differentiation strategies. Fruhling and Digman (2000 proposes that companies can use electronic commerce to apply mass customization strategies, generate huge numbers (mass) of customized items, in order to differentiate their products. Again, Temple & Webster operates in a sector with low entry barriers and only has the benefit of first-mover advantage. The only strategy it uses is pricing strategy, in this case selling at low cost. However, Razak (2011) comments the window of opportunity for a company may decrease fast even as its strategic advantage diminishes, unless it puts up entry barriers. Therefore, it is only a matter of time before Temple & Webster experiences reduced revenues. Mirow (2005) suggests that e-commerce companies can apply new technologies to put up new market entry barriers. In his view, differentiation will allow a business to create customer loyalty. He further argues that while being pioneer attracts a critical mass that stimulates demand using multiplication effect, knowledge of the buying patterns of the target customers is critical, as it embodies a prerequisite for offering customised products to encourage customer loyalty. In his view, using such a strategy lies beyond the traditional entry barriers that characterise the industrial organization theory. Temple & Webster’s key strength is, therefore, cost-advantage. Since it uses the e-commerce model, it is able to reduce the distribution costs by cutting overhead like retail space, inventory, as well as personnel. Hence, it manages to reduce the cost of its products. Richard et al. (2015) suggest that main advantage of e-commerce is in its capacity to reduce costs for the buyers since it eliminates much of the production and operating cost. Lambin and Schuiling (2012) also comment that cost reductions may boost a company’s bottom-line hence allowing them to further invest in alternative growth opportunities. 5.0 Recommendation To counter the emerging dynamics, Temple and Webster should develop and set up sufficient competitive strategies by integrating differentiation and cost-leadership strategies. Temple & Webster can customise its products innovatively. The company should mass customization strategies, generate huge numbers of customized items, in order to differentiate their products. Differentiation will allow a business to create customer loyalty, hence create some level of market entry barriers. It should also optimise cost reductions to boost the bottom-line hence allowing them to further invest in alternative growth opportunities. Afterwards, it should expand to the United States, Singapore, United Kingdom, New Zealand, Hong Kong, and China. 6.0 Conclusion Since Temple & Webster is a national brand, it can achieve improved performance levels by examining its external and competitive environment through the Porter’s Five Forces analysis, which would in turn enable it make most out of its huge financial resources brought about by high revenues. Porter’s Five Forces analysis identifies a dynamic and proactive approaches that when adapted by Temple & Webster will enable it maintain its competitive edge. The Value chain analysis also enabled it identify its weaknesses, which it can transform into strengths to strengthen the brand. It is concluded that by adding value to its value chain, Temple & Webster has huge opportunity to sustain its high revenue growth. Overall, the company will need to develop and integrate differentiation and cost-leadership strategies. 7.0 References Aarons, S & Waalewijin, P 2002, A Knowledge Base Representing Porter's Five Forces Model, viewed 15 Sept 2015, Fruhling, A & Digman, L 2000, "The Impact Of Electronic Commerce On Business-Level Strategies," Journal of Electronic Commerce Research, Vol. 1, No. 1, pp.13-22 Hitt, M, Ireland, D & Hoskisson, R 2012, Strategic Management: Concepts: Competitiveness and Globalization, Cengage Learning, New York Keating, E 2015, “How Brian Shanahan helped create Temple & Webster, a $28 million online destination for homewares,” Smart Company, viewed 16 Sept 2015, Lambin, J & Schuiling, I 2012, Market-Driven Management: Strategic and Operational Marketing, Palgrave Macmillan, New York Low, C 2015, "Temple & Webster doubles customer numbers with Wayfair acquisition," The Sydney Morning Herald, viewed 15 Sept 2015, Mirow, M 2005, Strategies to Achieve Market Leadership: The Example of Amazon, viewed 15 Sept 2015, Razak, M 2011, "Seven Unique Differentiation Strategies to Online Businesses: A Comprehensive Review of Malaysia Airline System (MAS)," Journal of Internet Banking and Commerce, vol. 16, no.2, pp.2-15 Richard, R., Palmer, S, Davis, P & Paula, H 2015, "Business-Level Strategic Choice in Low Market-Share Firms: An Empirical Analysis," Entrepreneurial Executive Temple & Webster 2015, Careers, viewed 15 Sept 2015, Read More