Note: Corporate Strategy: Synergy and SWOT Analysis

Prepared by Ms. Bailey

SYNERGY

An important aspect of corporate strategy and the growth and development of

organisations is the concept of synergy, which was developed in management

applications by Ansoff. Synergy results when the whole is greater than the sum of its

component parts. It can be expressed, simply, in terms of the 2 + 2 = 5 effect.

Synergy is usually experienced in situations of expansion or where one organisation

merges with another, such as an organisation responsible for the development and pro-

duction of a product merging with an organisation, which markets the product. An

example could be a television manufacturer merging with a television rental organisation.

The new organisation could benefit from the combined strengths and opportunities, skills

and expertise, shared fixed overheads and technology, and from the streamlining and

economy of its operations. Another example could be the merger of a computer firm with

expertise in the design and marketing of hardware, with a firm expert in software

manufacture and systems design.

It is possible, however, to experience negative synergy or the 2 + 2 = 3 situation. Such a

situation might arise when a merger occurs between organisations operating in different

fields, with different markets or with different methods, or where the new organisation

becomes unwieldy or loses its cost-effectiveness.

SWOT ANALYSIS

Objectives and policy are formalised within the framework of a corporate strategy. An

explicit strategy is necessary in order that people may co-operate and because of the

effects of changing environmental conditions. A SWOT analysis may help the process of

strategic change although care must be taken that the analysis is not over- simplified. An

effective business strategy depends upon the successful management of opportunities and

risks. Organisations need to embrace successful e-commerce and e- business strategies.

Ansoff has also referred to the analysis of strengths and weaknesses of organisations

following the formulation of objectives; and to threats and opportunities in the process of

strategic change. This can be developed into what is a commonly known acronym,

SWOT analysis (sometimes also known as ‘WOTS up’), which focuses on the

Strengths, Weaknesses, Opportunities and Threats facing organisations.

The SWOT analysis provides convenient headings under which to study an organisation

in its environmental setting and may provide a basis for decision-making and problem-

solving. You may therefore find the analysis helpful in tackling case studies.

■ Strengths are those positive aspects or distinctive attributes or competencies which

provide a significant market advantage or upon which the organisation can build – for

example, through the pursuit of diversification. These are characteristics of the

organisation such as present market position, size, structure, managerial expertise,

physical or financial resources, staffing, image or reputation. By searching out

opportunities which match its strengths the organisation can optimise the effects of

synergy.

■ Weaknesses are those negative aspects or deficiencies in the present competencies

or resources of the organisation, or its image or reputation, which limit its effectiveness

and which need to be corrected or need action taken to minimise their effect. Examples of

weaknesses could be operating within a particular narrow market, limited

accommodation or outdated equipment, a high proportion of fixed costs, a bureaucratic

structure, a high level of customer complaints or a shortage of key managerial staff.

■ Opportunities are favourable conditions and usually arise from the nature of changes

in the external environment. The organisation needs to be sensitive to the problems of

business strategy and responsive to changes in, for example, new mar- kets, technology

advances, improved economic factors, or failure of competitors. Opportunities provide

the potential for the organisation to offer new, or to develop existing, products, facilities

or services.

■ Threats are the converse of opportunities and refer to unfavourable situations which

arise from external developments likely to endanger the operations and effectiveness of

the organisation. Examples could include changes in legislation, the introduction of a

radically new product by competitors, political or economic unrest, changing social

conditions and the actions of pressure groups. Organisations need to be responsive to

changes that have already occurred and to plan for anticipated significant changes in the

environment and to be prepared to meet them.

In striving to satisfy its goals and achieve its objectives, the organisation cannot operate

in isolation from the environment of which it is part. Organisational survival is

dependent upon a series of exchanges between the organisation and its environment.

Having identified the company's external opportunities and threats as well as its internal

strengths and weaknesses, you need to consider what your findings mean. That is, you

need to balance strengths and weaknesses against opportunities and threats. Is the

company in an overall strong competitive position? Can it continue to pursue its current

business- or corporate-level strategy profitably? What can the company do to turn

weaknesses into strengths and threats into opportunities? Can it develop new functional,

business, or corporate strategies to accomplish this change? Never merely generate the

SWOT analysis and then put it aside. Because it provides a succinct summary of the

company's condition, a good SWOT analysis is the key to all the analyses that follow.

Although SWOT can offer a number of potential advantages for helping to evaluate

corporate performance, care must be taken that the process does not lead to an over-

simplified and misleading analysis. There are many ways of evaluating organisational

performance and effectiveness, and varying criteria for success. For example, Levine

suggests that the new criteria for assessing the strength of an organisation will be in the

area of quality results achieved through people.

Revolution in retailingA Dixons Group Case Study

Part 1 - IntroductionThe use of technology in the retailing environment has created a massive change in

expectations about how customers expect to shop in the future. Organisations which

adapt to this different focus are going to be the ones that have an influence in the future.

This case study focuses on how Dixons Group plc has built on the power of its existing

brands and created new brands to strengthen its market position.

If some of the largest and most successful retailing organisations of twenty years ago

were to be compared with those of today, the results would be surprising. They would

reveal numerous examples of success, failure or transition over this short time period.

Theory shows that organisations go through periods of evolution followed by revolution.

The retailing industry is about to embark upon the most radical process of change within

its recent history. Organisations that do not prepare for this process - and this may include

many famous high street names - may not be around for much longer.

Dixons Group specialises in the sale of high technology consumer electronics such as

domestic appliances, personal computers, photographic equipment, communications

products and related financial and after sales service. The Dixons Group has developed

its business through a strategy of both external acquisition and internal expansion. The

Dixons Group today comprises seven divisions.

Dixons - first choice for the latest technology and the leading retailer of consumer

electronics, offering the latest range of TV, video, PC, photographic and communications

technology on the high street and at UK airports.

The Link - leaders in communication technology; the nation-wide specialist high street

retailer of mobile phone and communication products and services.

@jakarta - the games console and PC software specialist. A new, dedicated format

selling a wide range of PC games console software and hardware through stores and the

Internet.

Currys – Britain’s biggest electrical store. As the UK’s largest electrical retailer, Curry’s

provides a comprehensive selection of TVs, hi-fi’s, domestic appliances, as well as a

wide selection of PCs and communication products. Larger stores offer demonstration

facilities.*

PC World - the UK’s largest chain of computer superstores. PC World incorporates PC

World Business Direct which specialises in direct sales of computer products to business

customers. Each store incorporates on-site technical support centres and customer PC

training facilities.*

Freeserve - the UK’s home on the Internet. The first fully featured internet service

available UK wide. Its flotation on the London Stock Exchange and NASDAQ will help

Freeserve realise its full potential. Dixons Group plc has an 80% shareholding in

Freeserve.

Mastercare - dedicated to customer support. Providing state of the art, delivery and

after-sales services for customers of Dixons, Currys, PC World, The Link, @jakarta, and

Mastercare Coverplan.*

Part 2 - External and Internal ExpansionExternal acquisitionDixons’ external acquisition strategy led to Currys, Mastercare and PC World becoming

part of the Dixons Group. As a method of development, acquisition makes sense,

particularly in markets which are relatively mature. This strategy enabled Dixons to take

over a large company which already existed in the electrical marketplace (Currys) and

also acquire a developing organisation with a bright future (PC World). Mastercare was

part of Currys when it was acquired by Dixons.

A key benefit of acquiring Currys was that Mastercare would help Dixons to develop a

lead in the area of service. PC World was not a major competitor, but Dixons recognised

that it had uncovered a formula which could provide a successful platform for further

development in the field of computer sales. Each of these organisations, except for

Mastercare, was an example of horizontal integration (absorption into a single firm of

several firms involved in the same level of production and sharing resources at that

level.).

They possessed similar products and services which complemented the existing Dixons

portfolio, consequently helping to increase market share. The benefits of these

acquisitions were:

the development of the business across a horizontal plane. This provided growth

and enabled it to stay close to its expertise in electronic and electrical retailing

the opportunity to take over a competitor and increase its market share

the fusion of resources across the business which allowed a larger Dixons Group to

gain from economies of scale (eg. Bulk buying - discounts) and improve its

commercial efficiency.

synergy - the synergy equation 2+2 = 5 signifies that a portfolio of businesses is

more valuable than each as a stand-alone entity, because of the influence of the

group as a whole in areas such as management, channels of distribution, customer

care and service.

Internal expansion

The internal development strategy adopted by Dixons was particularly effective for

developing products and services where high growth is most likely. For Dixons this led to

the development of The Link, @jakarta and Freeserve. Dixons used these internal

developments to:

segment its markets

increase its market penetration

take advantage of further business opportunities and improve its overall

competitive advantage

move into related areas which complemented existing markets.

Part 3 - SWOT analysisWhile Dixons is the market leader in the UK retailing electronic and electrical market it

cannot afford to be complacent. The business has progressed through the acquisition and

development of new businesses. However, Dixons needs to maintain its competitive edge

by capitalising on current trends and creating a cross brand infrastructure that can

accommodate new services in order to meet customers’ expectations.

The aim of the Dixons Group is to provide unrivalled value to its customers through the

range and quality of its brands, competitive prices and high standards of service.

A SWOT analysis is a useful planning tool. It sets out to focus on the Strengths,

Weaknesses, Opportunities and Threats facing a business at a given moment. Carrying

out a SWOT analysis requires research and exploration of an organisation’s current and

potential future position. It is used to match an organisation’s strengths and weaknesses

with the external forces in the business environment.

SWOT analysis for Dixons

Strengths

It is the leader in its market and 2-3 times larger than its nearest UK competitor.

It enjoys the economic benefits of a large organisation with the competitive

advantage of different brands, allowing diversity in proposition.

Its scale and financial strength gives it purchasing power, placing it at the leading

edge of systems, products and discreet brands.

Its entrepreneurial culture breeds enthusiasm and competitiveness.

Its national direct fulfilment operation and supply chain infrastructure create a

ready made framework for direct and e-commerce sales delivery.

Weaknesses

Because of Dixons’ size and perceived power, its competitors and suppliers regard

it as much more of a threat.

Also due to its size, the problems of the entire industry are reflected in Dixons and

reported by the media.

Its leading position in many of its markets means that its opportunities for further

expansion by acquisition within its present sectors are limited.

Many of its staple product lines have gone from luxury to differentiation in the

marketplace.

Although it buys products internationally, it has no overseas retail outlets.

Opportunities

The key opportunity for Dixons is the emerging convergence of technologies, such

as the Internet, telephony and digital television.

The Internet has increased opportunities to communicate with customers and to

create new channels to market for many of its products. This will help Dixons

maintain a competitive edge

Threats

The Internet is perceived as a potential threat to the traditional retail industry. It

has the capacity to reach huge numbers of customers and is a route to the market,

which is potentially lower in cost.

Price deflation in most product categories continues to squeeze margin levels.

Potential European legislation requiring retail co-operation in the recycling of

electrical products could considerably increase Dixons’ costs of sales.

Potential UK introduction of a digital TV licence and the continuation of analogue

broadcasting could restrict the take-up of digital TV.

Part 4Retailing propositions

Dixons focused on individual brand building. This positioned the retail chain in relation

to each other, emphasising the ability of each to meet the needs of particular consumer

segments by product and competitive attributes. This created a broad range of retail

opportunities, each meeting different customer requirements, with in-store and after sales

service underpinning each of the retail brands.

Different store brands and different methods of retailing have alternative meanings for

customers. For example, they might prefer to shop in one supermarket rather than

another. They are thus influenced, for a number of complex reasons, by different retail

propositions. 

Strategies used by Dixons to develop different customer propositions have been designed

to help the Group’s products and approaches to retailing appeal to different groups of

customers. These positioning propositions are broadly related to customer, product and

competitive attributes. Currys, for example, has moved away from the high street to

larger edge of town superstore units in order to satisfy customer needs such as a wider

product range, emphasis on bulkier and larger goods and improved space for browsing

and parking. In contrast, Dixons, @jakarta and The Link remain in the high street and

provide a more portable range of goods.

The Dixons customer - Impulsive retailing

• Individuals, younger, male, wanting excitement, the latest/newest/smartest.

• Looking for a deal.

• Wanting uniqueness/exclusiveness.

• Instant gratification.

• Individuals and small businesses wanting computers and related products.

The product offer - for the individual

• New technology, latest, newest model/brands, understandable deals, variety from which

to choose.

• Strong emphasis on portable (take-away) products.

• Convergence of technologies and products.

• Mobile phones/organisers. Products accessible for mass markets

The Currys customer - Destination retailing

• Families, all ages wanting choice & value.

• Need security that products are good and prices keen.

• Know product they want but not the model.

• To meet a ‘need’ rather than a ‘want’ and the purchase will be planned and will not be

instant.

• Require convenience, high quality service and simple methods of payment/delivery.

• Few business customers, some individuals.

The product offer - For the home

• Comprehensive range with keen prices and deals on prices/exclusiveness.

• Dependable names/major brands.

• ‘One stop’ electrical shop.

• Products for the home, often delivered.

• Some products linked to major purchases (i.e. link to kitchens).

The PC World customer - Knowledgeable customers

• Category killer, appealing to all sectors of the market.

• Households, individuals and business customers.

• Some customers seeking choice and value, others seeking technical advice and know-

how.

• Desire to see latest/newest but need security by purchasing dependable products with

reasonable life cycle upgradeability.

The product offer - Specialist retailer

• Huge choice.

• Expanding categories as technology grows.

• Products with short life cycles and subject to continuous change.

• Brands important.

The Link customer - Communication retailing

• Individuals wanting advice.

• Looking for best price and the right service.

• Small business.

The product offer - Communications for the individual

• New communication products and services.

• Latest and comprehensive range of mobile phones.

• Office communication equipment and organisers.

@jakarta customer - Software retailing

• Individuals looking for information, advice and an enjoyable shopping experience.

• Looking for best price and the latest and popular products which are easy to find in

store.

The product offer - Specialist retailer with general appeal

• Wide range of games consoles and computer software products.

• Stores laid out to make products easy to find.

• A separate information desk. 

• Brightly lit colourful store to make the shopping experience exciting and enjoyable.

• Retail environment supports

Part 5 - New channels to marketChanging technologies offer opportunities for moving into new fields of business, but

provide a threat if these new fields are not successful. Dixons has been instrumental in

bringing personal computers, software and the Internet into the home. Shopping habits

are changing rapidly and late-night and Sunday shopping are now an accepted part of our

modern lifestyle. The current trend in Internet shopping may well be the key to the future

of retailing and opens doors to an entirely new retail proposition.

One application of e-commerce is the use of the Internet for business. It is revolutionising

businesses because of its speed, reliability and accessibility. Building on the expertise of

the Dixons Group in electronic and electrical retailing, the advantages of e-commerce

provide an obvious way for the Group to add value to its current proposition and meet

changing customer needs.

In 1997, Dixons established both its corporate website and one of the first customer

fulfilment websites in this country through which customers could purchase over 1500

lines, on-line. In 1999 Dixons launched PC World and @jakarta sites. Electronic

retailing:

1. Allows customers to browse through a store’s products to gain information,

before they go to the retail outlet to make the purchase

2. Allows customers to buy direct from the Internet in the comfort of their own

home

3. Adds value to the Group’s existing products and services

4. Allows the Group to communicate with its customers before its competitors.

Part 6 - Conclusion

The Group’s strength has come from its entrepreneurial approach to doing business, as

well as its size. It has developed into a non-bureaucratic organisation, which is quick to

respond to new ideas. Its group structure offers the potential to operate a business which

focuses upon diversified customer needs in a fast-changing marketplace.

E-commerce has placed retailing on the precipice of change and the Group is ideally

placed to take advantage of the opportunities that direct marketing and selling over the

Internet offers.

Personal Notes:

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