A Strategic Analysis of J Sainsbury PLC

Authors Avatar

  1. A strategic Analysis of J Sainsbury PLC
  2. Report To Managing Director by Christopher Robinson

1. Organisational Structure

  • 1.1 Current structure
  • 1.2 Disadvantages of Sainsbury’s current Organisation Structure
  • 1.3 Alternative Organisation Structures
  • 1.4 The Future of Sainsbury’s Organisation Structure

2. Finances

  • 2.1 Analysis of data

3. Marketing

  • 3.1 Introduction
  • 3.2 Conclusion

4. Management

  • 4.1 Open Systems
  • 4.2 Human Relations
  • 4.3 Internal Process

5. References

Appendix

1. Alternative Models of Business Structure

2. Analysis of Financial data

3.The Marketing Mix

  • 3.1 Porter’s 5 Forces Model
  • 3.2.1. Threat of New Entrants
  • 3.2.2. The Power of Buyers
  • 3.2.3. The Power of Suppliers
  • 3.2.4. Threat of Substitutes
  • 3.2.5. Industry Competitors
  • 3.2.6. Boston Matrix
  • 3.3 Conclusion

4. Strategic analysis of Sainsbury PLC using Porter’s 5-Force Model

5. The Boston Matrix

1. Organisational Structure

 

1.1 Current structure

J Sainsbury PLC is a decentralised organisation with a divisional or ‘group’ approach as the basis of structure (fig 1).

Fig 1

 Whilst the main focus would appear to be on the UK supermarket chain there are several other businesses (operating units) in which the organisation holds interests. Theses include:

  • Shaw’s Supermarkets Inc
  • Sainsbury’s Bank
  • J Sainsbury Developments Ltd
  • Sainsbury’s Property Company

In divisional structure senior Directors ( who are on the Operating Board which is responsible for the day-to-day running of the company. The Chief Executive and the Finance Director are also part of this team. “http://www.j-sainsbury.co.uk/ar05/index.asp?pageid=50”) give each unit the authority to design, produce and deliver the product or service, using resources under its control or bought from outside suppliers.

Fig 2

A functional structure (represented in Fig 2) can be expected to operate within each division and hierarchies become more apparent. The Group Director of a division or business area will report to the Operating Board which then reports to the board of Directors who oversee all the divisions of the organisation. The advantages are that the units can focus all resources on the one product or business area. Separate areas of functional expertise are more likely to cooperate as they all depend on satisfying the same set of customers. It is probably more expensive, as each business may have a wide range of specialisms, duplicating provision.

Sainsbury’s does not follow the divisional structure entirely, as some functions are common across all business areas such as Human Resources and Finance. This is where aspects of the Matrix model become apparent in Sainsbury’s organisation. Under retail services in the organisation there are; Sainsbury’s Supermarkets, Bells Stores, Shaws Supermarkets, JB Beaumont, and Jacksons Stores. A Director for Retail businesses sits on the Operating Board representing this collection of business. For these stores the Group Retail Director will set some policies at group level but then leave their corresponding businesses freedom to operate according to local need in other respects. It can be said therefore that Sainsbury’s is a hybrid of Divisional, Functional and Matrix structures.

1.2 Disadvantages of Sainsbury’s current Organisation Structure

  1. Staff are isolated from wider professional and technical developments
  2. There are high costs from duplication across the organisation(e.g. distribution networks, computer systems)
  3. An environment is created in which there may be conflict with other divisions over priorities, and there is no incentive to support other divisions.
  4. Divisions may develop policies independently of wider organisational interests.
  5. There is little communication between the lower levels of the hierarchy and the higher level i.e. between the Board of Directors/Senior Managers in the head office and Store Managers/workers within the stores.
  6. The smaller convenience stores do not have the freedom that the other divisions of Sainsbury’s are allowed.

Point 5 is a prime example where orders might simply be passed down through the organisation without local ‘buy in’, resulting in a lack of teamwork across the whole organisation.

1.3 Alternative Organisation Structures

Alternative structures are described and debated in Appendix 1. None of these in themselves seem to offer major advantages to the current structure

1.4 The Future of Sainsbury’s Organisation Structure

Sainsbury’s business principles and operating style seem well suited to the predominantly divisional, decentralised structures currently in place. This allows freedom for businesses to act on the basis that they know their customers and business issues best. Central control is limited to performance, finance and some core functions in HR and Marketing for example. In difficult business conditions it is tempting for organisations to abandon these principles for a more centralised, highly controlled approach. This is what is often termed the ‘turnaround’ or ‘burning platform’ approach. Whilst this may be necessary in the short term to avoid organisational disaster it is rarely a recipe for long-term success. Sainsbury’s may need to tighten some controls, particularly if issues such as logistics and supply to stores are failing but that should not be seen as a basis for altering the fundamental structure and values of the organisation.

2. Finances

The table below summarise a set of key financial ratios and margins as represented by Sainsbury’s balance sheet for 2001 and 2002.

A detailed analysis of this table is contained in Appendix 2. I have drawn out the key issues and conclusions in the next section of this report.

2.1 Analysis of Balance Sheet

 

We can see major changes in the profit mix at Sainsbury. Supermarkets are now contributing significantly less than they were five years ago; Sainsbury's bank is virtually operating at break even point since its profits are so small; Shaw's supermarket division is returning ever increasing profits and the profit sharing part of the business is suffering as a result of the drop in the overall profitability of the business.

The profit margins have seen weak growth, however this is not totally out of keeping with the retail sector. The figures certainly do not put Sainsbury’s at the top of the pile and given Sainsbury’s had been number one retailer for so long it suggests that all is not well and competitors are taking business away. There is no real indication of meltdown but figures such as liquidity and gearing show some signs of weakness. Supermarkets need to drive profits through sales/turnover and this is clearly proving difficult for Sainsbury’s.

It can be said that Sainsbury’s is currently performing ok but there are signs of financial problems to come. This table helps summarise some of these issues as it shows recent turnover dip as a worrying shift on top of some declining profitability, but the impact of cost controls is masking lost turnover. It is possible that cost-cutting has led to driving customers away.

 

3 Marketing

3.1 Introduction

The marketing mix comprises seven basic components over which marketing managers have control (Price, Product, Promotion, Place, People, Process, and Physical Environment). The mix positions products in the market in a way that makes them attractive to the target consumers. The position that a product has within a market reflects consumer opinions of that product and the comparisons that they make between it and competing products. The aim is to position products within the minds of consumers as more attractive, and better able to satisfy their demands, than competing products. The most important P’s to Sainsbury’s in order to revitalise their products on offer are product and price as this where Sainsbury’s can gain some product differentiation to separate themselves from their competitors. Furthermore, by changing their pricing, Sainsbury’s can also attract customers back from Tesco, Asda etc.

The concept of the marketing mix and the ‘7 P’s’ is described in more detail in Appendix 3

3.2Conclusion

To conclude the marketing mix is much more than just advertising. It is about constantly looking to amend the various elements of the mix to improve the balance and meet customer needs at a price and cost of production that will generate profits.  For Sainsbury’s it is crucial that they have more consumer awareness and are able  to adapt the products on offer as consumer requirements change.  Sainsbury’s main rivals are currently outsmarting them which is why they no longer hold number one position in retail profits. I think people do look upon the goods and services provided by Sainsbury’s as high quality and the Nectar reward points allow cheaper shops every so often (i.e. Christmas), but I believe that prices need to come down further still to gain customers from their rivals. High quality products and low prices would make Sainsbury a pioneer in the retail industry and is the way forward for this company even if it means abandoning a certain amount of the quality. The other option for Sainsbury’s however is to accept a narrower customer group by raising prices and thus getting fewer people to spend more. Following the idea of adapting to changing consumer requirements, more of an emphasis ought to be placed on e-shopping as it is a massively expanding market which with the right approach could be taken advantage of with the result of boosted profit.

4 Management

Diagram 3 depicts a useful model of alternative management styles which might be considered by organisations. This will help in the analysis of Sainsbury’s options.

Join now!

4.1 Open Systems

Starting at the top of the organisation, I believe Sainsbury’s Board of Executives should operate with an open systems model. This approach is based on an organic system, with emphasis on adaptability, readiness, growth, resource acquisition and external support. These processes bring innovation and creativity. People are not controlled but inspired. These aspects are crucial to how Sainsbury’s is currently performing, as they need to adapt to changing consumer needs whenever required. Tesco is a prime example of innovation and adaptation recently to target a specific consumer group by increasing the quality of their ...

This is a preview of the whole essay