The future strategic direction of Burberry Assignment Sample
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Introduction
Strategic direction is defined as the organisational approach of planning and cumulative synchronisation and implementation of goals for the short, long and medium-term. This report is aimed at the board of directors of Burberry to advise them regarding the strategic direction of the company for the future. Burberry is the top luxury fashion company in the UK and the firm gathered a revenue of $ 3.8 billion in 2017 (Fashionunited, 2019). This report accounts for the external business environment and the industry in which Burberry operates along with an analysis of the competencies of the organisation in relevance to the market demands. Lastly, the strategies available at the disposal of the organisation to protect its core luxury apparel business gas been suggested.
Task 1
The external environment of Burberry has been evaluated by using PESTEL analysis framework. This has been done to assess how Burberry faces against the external factors and what impact it has on the future direction of the company in terms of performance and decision-making.
Political:
The apparel industry of the UK relies on the import of raw materials from other nations of the world and relies on the nations of the EU for an adequate supply of workforce. However, the implementation of Brexit on the country could have negative implications on the import and export of the products as new restrictions and tariff rates are to be imposed. This can affect the performance of Burberry in the long term as the company might face issues in the import of raw materials due to increased costs, which would affect the profits. Also, the company would face a decision-making dilemma regarding staffing as there would be visa restrictions on the employees working for the company belonging to other nations (Theguardian, 2019). Also, the financial performance of the company would be severely affected as it is a large exporter of luxury apparel and Brexit means that they would have to pay higher tax rates resulting in profit loss in millions (FT, 2019).
Economic:
The players in the apparel industry of the UK play a massive part in the import and export of the products. For companies depending on large exports, exchange rates prove to be very critical. The exchange rate of the British pound in comparison of the dollar is 1.34 GBP per USD. This assures the companies in the industry for the time being that their performance would not be affected in the recent future (BBC, 2019). It is favourable for the UK based organisations to export their products for greater returns.
The country has also recorded economic growth of 1.1% in the last quarter of 2019 along with recording a formidable GDP of $2,824,850 million in the year. This accounts for the stable yet slow situation of business growth in the country (Countryeconomy, 2020). This implies that the future direction for Burberry as an apparel company is stable owing to the expectation of stable business performance and scope of positive decision making to leverage the economic advantage.
Social:
The consumers of the UK are fashionable and quick to absorb the trends in the market. The wide cultural representation of people in the country and multiculturalism implies the multiple trending fashion and apparel preferences of the consumers. The total population of the UK is 66.4 million at present and witnessing good growth which also enhances the demand for apparels in the market (Worldbank, 2019). The luxury fashion segment of the country is highly valued with increased innovation in purchase process enhancement for the customers. The fashion industries of the country are valued very highly and employ 33 million people directly and indirectly. Therefore, companies like Burberry have the chance to improve their market position in the future by connecting with the customers and responding to their fashion requirements. However, the high unemployment rate in the country at 3.8% presents a challenge for the luxury fashion seller to continue to charge a premium price for their products (Gov.UK, 2019).
Technological:
The UK is a technologically advanced country and the capital being London is perceived as the financial capital of the world. The government of the UK highly values innovation and advancement for technology development. The technical sector of the country has attracted more than one-third of the total investment in Europe in terms of funding for technology development at $13.2 billion (Computerweekly, 2020) The technical awareness of the consumers of the country is very high which has resulted in the companies going digital and integrating eCommerce for convenience of the customers. The level of innovation in the country is high as the government has allocated funds for supporting disruptive innovation in the country up to $25 million (Apply-For-Innovation-Funding, 2020). Burberry as a leader in the apparel segment in the UK with high street and eCommerce stores has the chance to enhance their performance by using technology to the maximum potential to enhance sales and decide to innovate their offerings and business processes for reducing operations cost for earning more profits.
Environmental:
The UK based companies are compelled to follow the government regulations on the preservation of the environment and ensure that their activities do not harm the ecosystem. Environmental Protection Act (1990) has been set up as a guideline for the corporations in the country to be environmentally responsible and ensure no direct or indirect negative impact on the environment (Legislation, 2018). The government of the country has also initiated the measure of banking all apparels and accessories containing skin of exotic animals like crocodile, python and alligators. This can create a decision-making dilemma for Burberry as the company sells exotic accessories which are in high demand in the market (Businessoffashion, 2020).
Legal:
The Equality Act (2010) has been implemented by the government of the UK to ensure that the companies do not discriminate or bias in the process of selection of candidates for representing them and provide equal opportunity of progress to everyone (Legislation, 2019). This would affect the decision making of the company to adopt fair recruitment and port motion policies for the staff.
Porter’s five forces analysis of Burberry has been done to evaluate the industry factors which impact the firm in the existing market domain.
Bargaining power of the buyers:
The bargaining power of the buyers of Burberry is low as the company sells premium fashion apparels, which are highly differentiated and high in demand. This restricts the tendency of the customers to seek discounts and offers on the products. However, given the increase in the number of luxury apparel companies in the market and the pressure from the customers, the bargaining power of the customers might increase of which the firm would have to build a large customer base and innovate the existing fashion apparels and accessories to keep increasing the value provided to the customers (Ambrosini, et al., 2015).
Bargaining power of the suppliers:
The bargaining power of the suppliers of Burberry is high as the company uses selective suppliers and uses highly valued procurement system to gather the high-quality fabric ad apparels for their luxury products. The high bargaining power and negotiation of the suppliers can cause the profits of the Burberry to shrink in the future and hence the company would be required to enhance the efficiency of their supply chain by increasing the number of suppliers to reduce the bargaining power (Barney & Hesterly, 2010)r. Active experimentation with design and composition of the apparels would also reduce dependence on particular paw materials having a high price.
Threat from substitutes:
Burberry faces moderate threat from substitutes, as there are not many small stores and boutiques having the depth of collection as the company. The availability of substitutes in the premium fashion segment is relatively low and hence the scope of generating revenue and profit is optimum for the company. However, the company should stay alert for price challenges, substitute offerings in the future, and hence focus on customer service along with the products (Ambrosini, et al., 2015).
Threat from new entrants:
Burberry is valued at $ 5 billion and hence the form is strong and competent at its position (Statista, 2020). Therefore, the threat of new entrants is low for Burberry at the moment as the new companies in the market are unable to amass the financial power and reach of Burberry having almost 475 stores worldwide. However, highly innovative firms might threaten the position of the company in the future, which indicates the necessity of implementing economies of scale at the firm.
Competitive rivalry:
The competitive rivalry in the apparel industry of the UK is high as there are many operators in the market. Burberry faces stiff competition from firms like ASOS and Next Plc. This is one cause for increasing chances of the drop in prices of the products and profitability. Burberry would be required to provide focussed differentiation to continue to dominate the market.
Task 2
Mission and visitation statement of Burberry:
The mission statement of Burberry is to preserve their integrity in the operations and ensure the prominence of the brand vitality while ensuring the development of business following the needs and requirements of the customers (Burberryplc, 2020). The mission of the company is aligned with the demand of the marketplace as it has the provision of complying with the needs and requirements of the consumers and responding to the market trends. The criteria of consideration of the evolving trends are accounted for in the mission statement and it replicates the adherence to the present market demands with integrity in its operations. The company has been analysed to value the choices of the customers and operating in the global market with the same values.
The vision statement of Burberry is to be a market leader in the luxury apparel segment with a strong presence on the online domain along with building a responsible and social enterprise (Burberryplc, 2020). The consumers of the fashion apparel segment demand high quality and regularity from the businesses along with creativity in the designs and trustworthy operations. The vision statement of the firm is aligned to the market demands as the products of the company are of high quality and the company regularly engages with the customers over the social media to assess their needs and demands, which are reflected, on the products (Cescon, et al., 2019). The desirability of the consumers is well communicated within the company and conveyed to the departments with clear communication and adoption of integration strategies. Burberry aligns itself with passion and excellence in the production of apparels. The company maintains ethics in operations, serves the customers with honesty, and maintains the trust of the customers through the social enterprise approach.
Competencies of an organisation are defined as the source of competitive advantage for the company due to its resources and capabilities resulting in fruitful operational activities resulting in profits (David, 2011). Capabilities of an organisation indicate the business functions, which are undertaken for utilisation of the available resources in an integrative manner. The strategic competencies and capabilities of Burberry have been evaluated with the resource-based view model.
The resource-based view framework indicates the superiority of the resources of an organisation for shaping its core competencies and capabilities for gaining a sustained competitive advantage.
The tangible assets of Burberry consist of the 475 stores of the company across the world along with their infrastructure and financial capital (Fashionunited, 2019). These are the assets of the organisation, which can be touched and felt and provide a great magnitude of competitive advantage to the firm. This is because the stock of products on the shelves and display on the stores and the eCommerce website of the company is one of a kind and enhance the competencies of the firm due to the network of retail. The intangible resources of the company include the human resources and the skillset of the diverse base of employees. The employees of the company are creative and innovative due to belonging from diverse cultures having their distinct perceptions and experiences (Vogue, 2019). The innovative capabilities of the companies along with the ability to respond to the market needs through such intellectual property. Besides, the patents and trademarks of the companies along with the reputation of the brand in the market and its value indicates the capability of the company to register themselves as competitive in the market for the long term.
The level of heterogeneity in the organisation is high as there is a scope for the skills and capabilities of the company to move to other organisations (Garcia‐Castro & Francoeur, 2016). This is because the competitors of the company can acquire the same raw materials as well as the employees in the long term along with the same kind of infrastructure of the stores, which limits the competitive advantage. However, the immobility of the organisational resources in this regard is high as the intangible resources of the firm like the brand equity and intellectual property is highly valued.
VRIO framework
Valuable:
The resources used by Burberry are valuable as their huge network of stores and eCommerce applications and social media presence are effective for attracting customer football and attention, which is crucial for increased sales (Burberryplc, 2020). The company can offer differentiated value to the customers, as they can purchase the luxury garments by visiting the stores, which are aesthetically designed to comfort them.
Rare:
The diverse base of employees of Burberry enhances their intellectual property and knowledge in addition to increasing the scope of creativity and innovation in apparel design and conception (Burberryplc, 2020). This is very rare as very few companies in the fashion industry have such a rich employee base in terms of cultural diversity.
Imitable:
The acquisition of diverse employees from multiple social and ethnic backgrounds are costly to imitate by the other organisations and hence provides a competitive advantage to the company (Burberryplc, 2020).
Organised:
The organisational resources of Burberry are used moderately and efficiently for ensuring thereby indicating their capability to make optimum resource utilisation for achieving the desired business results. The organisation is capable of exploiting the full potential of its resources being rare and valuable for gaining a sustained competitive advantage over the rivals, as the same resources are costly to imitate.
Burberry creates value for customers by focusing on their talent and capabilities as the company responds to the market trends quickly. The value chain of Burberry enables the company to capture value form the industry and deliver the same to the customers.
Porter’s value chain framework would be used to conduct an internal analysis of Burberry to ascertain how the company delivers value to the customers by capturing it from the market.
Primary activities:
Inbound logistics:
Burberry has a well developed relationship with the suppliers which enables the organisation to support the phases of product development and responding to the market trends in a streamlined way. The inbound logistics of the company are transparent and the company has also acquired some of its suppliers for having better control (Garcia‐Castro & Francoeur, 2016).
Operations:
The company provides value to the customers by using the raw materials and fabric to design the luxury fashion apparels and accessories which are packaged and sold in the stores and online.
Outbound logistics:
The outbound logistics of Burberry are handled by the product delivery team as the intermediaries are provided with the products which are supplied to the customers through the marketing intermediaries (Hill, et al., 2014).
Marketing and sales:
The marketing department of Burberry highlights the differentiation and value in the products to the customers for increased sales and profitability which in turn enhances brand equity.
Service:
The customer service department of the firm ensures customer satisfaction and loyalty by providing after-sales services (Hill, 2017).
Support activities
Firm infrastructure
The firm infrastructure of Burberry helps the company to manage the quality of the products and optimise value provided to the customers.
Human resource management
The diverse skill set of the employees of Burberry has enabled the firm to innovate its products and deliver value through talent management (Lenz & Engledow, 1986).
Technology development
The company has resorted to technology development for providing seamless online services to the customers as they can purchase online.
Procurement
Procurement is done carefully at Burberry for ensuring that the finished products take less time to market and maintain quality.
Task 3
To defend the core business of Burberry, the management of the company can adopt the strategic model of Porter’s generic strategy.
Burberry has the scope of implementing differentiation in the products for being able to widen the scope of attainment of competitive advantage. Differentiation is the process of integrating an element of difference in the products and services of a company for making it more valuable and attractive against the offerings of the competitors in the perception of the consumers (Lynch, 2015). The operations of the company in the apparel industry would mean that the company would be required to add more functionality and features to the clothes that they manufacture like adding more resistance against fading of the colours despite repeated washing and self-ironing of the garments before washing are some of the exemplary features that could be added to the clothes to ensure that the customers are provided greater value (Burberryplc, 2020). Additionally, more durability of the clothing and stitching are some of the features that are essential in for differentiation. Features like free alteration of the clothes at the dedicated stores even in the instance of online purchase would differentiate the value of the company and ensure that the customer keeps on visiting the company.
Burberry would be able to gain a competitive advantage over the rivals by performing adequate market research to assess the needs and desires of the customers and the latest trends. The capability of the company and its workers to offer high-quality products to the customers ensures that they have a differentiated value in the market and have a competitive advantage (Burberryplc, 2020). Proper administration of the marketing and sales function of the company followed by conveying the benefits of the products to the customers would ensure a rise in sales and revenue generation for the company due to their differentiated offerings.
The integration of the new processes of product development in manufacturing of the apparels is also essential to upscale the efficiency of production and keeping up with the market demands. This would prepare the company for competing against competitors like ASOS and Mark and Spencer’s as they might also adopt similar strategies. Product differentiation strategy would justify the premium price charged by the company and enable them to achieve non-price competition. This is beneficial for sustaining the competitive advantage for Burberry as the company will be able to compete in the area of quality and design of the apparels. Differentiation of the products would ensure added value for the company in the market and enable them to develop a loyal customer base (Ambrosini, et al., 2015). However, this would also involve an increase in operational cost, as well as research and development as well as innovation in the products, require a formidable investment which strains the organisational resources. Also, the company would require to continually inject creativity into the business processes and the products as the perceived value of the customers would being to decline. The company would be able to create further value for the customers by designing distinctive and beautiful apparels with the highest quality for gaining the attention of British customers.
Burberry could also follow the Ansoff matrix to defend their core business and sustain its competitive position in the market.
Burberry is presently operational in 33 nations around the world and sells luxury clothing apparels to the customers (Burberryplc, 2020). The company would be required to engage in diversification aspect of the Ansoff Matrix to defend their core business and achieve competitive advantage in the market. Diversification means that the company would be required to enter into new markets apart from the 33 countries in which they operate through physical stores and eCommerce websites. Also, the company would be required to come up with new products and services for the customers in the new markets according to their culture and preferences (Lynch, 2015). The diversification aspect of the model positioned in the top right quadrant indicates the maximum risk form the business in comparison to all the other options due to the decision of integrating new products and services assortment along with the decision of entering into new markets.
The possibility of the products to remain unproven or tested might cause issues for the company to convince the customers to purchase the product but there is the possibility of developing the products based on the local customer preferences (Barney & Hesterly, 2010). Additionally, the new market in which the company would operate might not be adequately researched and understood and hence this could be dealt with by sending expatriates to the country. Although there are some risks, diversification presents the company the opportunity to expand their operations across diverse regions and expand the product assortment. The company would be able to establish their advantage in the new markets if they perform adequate market research before entering and send ex-pats in before the regions before developing new products by knowing the choices and requirements of the local population (David, 2011). Therefore, adopting the strategy of adaptation would ensure that the company is successful in the new markets and able to register revenue continuously.
Diversification would be beneficial for the preservation of the core business of Burberry as the company would be able to generate profits from one region and set of products even if they witness failure and revenue loss in other areas (Garcia‐Castro & Francoeur, 2016). Diversification would allow the growth of business operations of Burberry and provide scope for the optimal utilisation of the available resources and capabilities for the development of new and creative products. Diversification of the products would enable the organisation to create new additions to the product lines which could potentially save the company and keep the revenues steady despite the change in preferences and purchase patterns of the customers (Hill, 2017). Diversification is in alignment with the product strategy of the company to constantly reenergise and act on the visible and immediate changes in the market trends. Diversification would enable the company to earn long term sustained value for the shareholders by taking a responsible approach towards the core business. This would increase organisational revenue in the long term and provide a competitive advantage to the company.
Conclusion
From the report, it is concluded that Burberry is affected as a result of the political decision of Brexit in the UK as they might lose their skilled workers belonging to other nation of the UK. The company is concluded to be preferred by the customers as they have low bargaining power due to the premium quality fashion apparels sold by the company. Additionally, the company faces a moderate threat from competitors like ASOS and Mark and Spencer’s. The company can provide value to the customers as they offer the latest design products which are of premium quality. The strategy of product differentiation would enable the company to defend their core business and achieve competitive advantage by offering additional perceived value to the customers and diversification would allow the firm to serve customers in different nations of the world and offer them the products as per their needs by conducting market research and sending ex-pats in prior.
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