Macro And Micro Environment Analysis Of Woolworths Private Limited

Overview of Woolworths Private Limited

Question:

Disscuss about the external and internal business environment based on which managers of an organisation can form strategies.

Woolworths Private Limited is a retail company situated in Australia and expanding to New Zealand. The company was established in 1924 and the headquarters of the company is situated in Bella Vista, New South Wales. Currently, Woolworths is considered as the second largest company in Australia with major competition faced from Wesfarmers. However, the company is the largest takeaway liquor retailer in the country. The company also employs about 202,000 people (Woolworths.com.au, 2017). Recent studies have shown that the revenue of the company has had a drop from the earlier performances. 

Macro environment analysis

The purpose of the macro environment analysis is to identify the broader factors in the business environment. These factors are essential to analyse before expanding or setting up a new organisation (Armstrong, 2015). These factors include:

Political: The political factor of Australia is such that the Government does not interfere with the actions of the business organisations in terms. This provides opportunities for the business to continue innovation and open branches across the countries. However, this also poses a threat to new business enterprises being opened in the market (Botha, 2014). In the case of Woolworths, the non-interference of the political factors can help the organisation to continue with the business in the market. This includes increasing the number of liquor retail stores as long as it does not affect the environment.

Economic: The economic condition of the country can fluctuate depending upon the rate of fluctuation of the Australian dollars. This provides a huge threat in conducting a steady business throughout the year. The economic condition at an improved period provides opportunities for expansion in the business market. One of the main reasons for the fall in revenue of Woolworths in 2016 is due to the sudden drop in the income level of the customers (Dockalikova, 2014). This proved to be a significant factor for the growth of the company.

Social: The social factors of the country include the demography and the culture of the people. For a retail company like Woolworths, this factor is important as the company aims to satisfy customers. Hence, understanding the needs of the customers provides an opportunity for gaining a competitive advantage in the market. However, too many people in the community can cause threats, as the demand of the people needs to be met instantly. There remains a risk of losing customers to competitors like Wesfarmers in case of delay or unavailability of a product (Jankovi?, 2016).

Technological: The technological factor includes the recent developments in equipment and trends in the market. The advent of social media provides opportunities for promoting new products to the national and international markets (Chatzoglou, 2017). However, the threat possessed by the technology is the fact the competitors also get to understand the strategies of Woolworths and counter the strategy with a better offer to the people. Thus, the technological factor is one of the most important factors that need to be considered in the modern day.

Macro Environment Analysis

Legal: The legal factors of Australia are strict in terms of providing employment to the people and providing satisfaction to the customers. Acts such as Fair Work Act, 2009 and Competition and Consumer Act, 2010 provide legal support to the business so that the interests of both the customers and employees can be protected (Grant, 2011). This provides opportunities for logging complaints in case of violation of these acts. The threat, however, is the fact that these legal notions need to be kept in mind all the time while conducting any business activity. The violation of the rules may have a severe impact on the business.

Environmental: The natural environment of Australia is considered to be less polluted and picturesque in the world. Hence, business organisations need to keep in mind that such an environment is always maintained. The threat of violating this type of environment may mean legal actions from the Government (Grünig, 2015). The opportunity is the longevity of the business. Woolworths need to keep in mind that their waste products are not dumped away in places that may affect the society and the natural environment.

Microenvironment analysis

The microenvironment analysis provides a more specific analysis of the market factors that affect a business (E. Dobbs, 2014). This analysis takes into consideration the threats that may be received at a regular interval while conducting a business. The analysis of this can be done by using Porter’s five forces analysis. The factors related to this model include:

Threat from rivals: Woolworths receives the biggest threat from Wesfarmers. This is because the two companies are the biggest retail market chains in Australia and New Zealand. This proves to be a high threat to the company as the products of both the companies are similar (Rothaermel, 2015). The difference lies in the strategies that are applied by the companies in terms of satisfying customers. The revenue and recognition of Wesfarmers are better than compared with the revenue generated by Woolworths. Hence, it can be said that Woolworths need to mitigate the rival by proper analysis of the strategies of the competitors.

Bargaining power of buyers: The bargaining power of buyers refers to the ability of the customers to purchase a product. It can also refer to the willingness of the buyers to purchase products from one particular company (Sun, 2014). In the case of Woolworths, this threat is medium, as it has been seen that certain products of the company are considered to provide satisfaction to the people. The takeaway liquor store is the largest in the markets of Australia. Hence, Woolworths can gain a huge competitive advantage by continuing with the demands of the customers. 

Bargaining power of suppliers: The bargaining power of suppliers is the ability of the suppliers to supply the required materials for manufacturing products. This threat arises due to the existence of a large number of similar companies in the area and less number of suppliers. In the case of Woolworths, this can be a medium threat for the company as it is one of the major retail sectors in the country. Moreover, the number of suppliers in the industry is of a considerable amount in the market (Maltin, 2015). Apart from this Woolworths manufacture, the raw materials needed for the manufacturing of a certain product. Hence, a threat from suppliers can be mitigated in this manner.

Political Factors

Threat of substitutes: The threat of substitutes in the case of Woolworths is high as similar retail stores exist in Australia and New Zealand. The fact that the competitors may choose to replace one product of Woolworths with that of Wesfarmers can affect the sales of the company. It can be argued that one of the biggest advantages that Woolworths have is the fact that it provides hotels and gaming opportunities to customers. However, organisations focusing only on these two areas may have a bigger advantage over Woolworths in terms of attracting customers (Leonidou, 2017) Hence, due to this reason, the threat of substitutes can be considered as high for the market.

Threat of new entrants: This factor provides a medium threat for Woolworths. The fact that the Government of Australia does not put restrictions on the growth of business in the country may prove to be a challenging factor for most organisations. New organisations may bring about skilled employees and updated technology to gain a competitive advantage (Jankovi?, 2016). However, in the case of Woolworths, this can be mitigated due to the reputation that the company holds in the market. Despite this threat may arise from a company like Tesco that is reputed not only in its original country, England but around the world as well. 

The internal environment analysis is done in order to understand the resources and the capabilities that an organisation possesses. Based on the analysis organisations can understand the strengths and weakness it has and can work on it in order to gain a competitive advantage in the market. The fact that these resources and capabilities provide the ultimate opportunity to mitigate from threat needs to be analysed by the companies (Grünig, 2015). In the case of Woolworths, the main resources of the company are the employees. The manner in which the company treats the employees provides them with an opportunity to retain employees.

It has been stated that Woolworths has over 202,000 employees in the company (Woolworths.com.au, 2017). Hence, the employees find proper motivation to work in the organisation. In this regard, the capability of managing resources of the organisation can also be praised. This is because Woolworths manage the human resources as well as the products manufactured by the company. The capability by which the resources are managed by the company provides an idea about the competency of Woolworths. The skilful nature of the employees in terms of manufacturing products, maintaining the equipment in the organisation and managing customers contribute to the success of Woolworths in the market.

Some of the resources of Woolworths include the employees, heavy finance, information technology and inventory. The capabilities that the employees of Woolworths possess are the ability to lead, collaborate, adapt and be creative in situations that require extra attention. Based on these resources and capabilities a value chain analysis can be conducted in order to identify the activities that provide support to an organisation. In the case of Woolworths, the value chain analysis is done based on the costs of the product and increase in differentiation of the products. Value chain provides a representation of the activities that an organisation engage in from the internal source in order to convert inputs into outcomes (Kim, 2015).

Economic Factors

The value chain analysis of Woolworths suggests the activities that are most important for the firm. The internal activities of the organisation are analysed in order to understand the factors that need to be improved in order to gain a competitive advantage. Woolworths has an advantage that it can produce goods at a lower cost. This is a unique characteristic of the company as it helps to earn a profit. The support activities and primary activities of Woolworths are developed in a manner so that its competitors cannot imitate it (Knott, 2015). This leads to huge profit for an organisation. However, after the recent dip in the revenue of the company certain changes can be made in Woolworths to continue its production.

The resources and capabilities of an organisation need to meet certain criteria in order to understand the competitive implications and the economic performance (Kim, 2015). In this regard, a VRIO analysis can be conducted in order to understand the advantage that the resources and capabilities provide to the organisation.

Table 1: VRIO for resource

(Source: Created by author)

Table 2: VRIO for capability

(Source: Created by author)

Thus, it can be concluded that the VRIO analysis of Woolworths provide the fact that the company is quite capable of gaining a competitive advantage. The resources and capabilities of the company suggest that Woolworths can become the best retail organisation in Australia and expand itself in the market.

After analysing the external and internal factors, it can be said that Woolworths faces tough competition from Wesfarmers. The macro environment factors suggest that the apart from the competitors the economic factor of the country can act as a threatening factor for the company. The unpredictability of the economic factor decides the bargaining power of the buyers. The entry of new competitors in the market is made easy by the fact that the Government of Australia does not pose any restrictions to the rules of business. In this regard, certain recommendations can be provided in order to ensure that Woolworths can complete its aim to expand the organisation and become the leading retail store in the country.

After the analysis of the external and internal factors, it was seen that the skill level of the employees working at Woolworths are not rare and can be imitated by other companies. This means that competitors can derive the services of the employees working at Woolworths or can recruit people better than that of Woolworths. This can be recommended by providing extensive training to the employees keeping in mind the talents required in the organisation. Apart from this, the use of technology needs to be done in a strategic manner. Woolworths need to use the social media as a means to promote the new products that are launched by the organisation. This can be done by improving the website to provide more details about the organisation and the type of products and services provided by it.

Conclusion

As a conclusion, it can be said that Woolworths need to analyse the internal as well as the external business environment in order to understand the important threats in the market. Despite being a reputed company, Woolworths need to ensure that the macro environment and microenvironment factors do not pose a serious threat to the business of the company. This can be done by implementing the recommended tactics in order to be competitive in the environment. The VRIO analysis provides a distinct knowledge about the resources and capabilities of the company. This suggests that Woolworths the resources and capabilities possessed by Woolworths can be used to gain a competitive advantage in the Australian retail market.

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Woolworths.com.au. (2017, Decemeber 20). Woolworths.com.au. Retrieved from https://www.woolworths.com.au/: https://www.woolworths.com.au

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