Aldi International: Organizational Strategy and Leadership Essay

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This essay examines Aldi International's strategic approach, organizational culture, and leadership principles, focusing on its success in the competitive retail market. It analyzes Aldi's business strategy, particularly its cost-minimization model, including store design, product selection, and employee strategies. The essay explores Aldi's organizational culture, emphasizing its simplicity, efficiency, and continuous improvement, as influenced by its founders. It also addresses the company's formal organizational structure and how these factors have contributed to Aldi's growth and competitive advantage in Australia and globally. The analysis includes insights into Aldi's client orientation, expansion strategies, and human resource management practices, highlighting the company's adaptability and focus on customer needs and operational efficiency.
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Organizational Strategy and Leadership
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Introduction
In the economic activities, consumption plays a primary role. Consumption in
many developed nations takes almost 60% of their Gross Domestic Product, of which,
retailing industry is considered the most essential industry. As a result of enhanced
employment, growth in the economy, and considerable tax regulations, retailing sector
has had the opportunity of developing in a serene and pleasant environment. Planet
Retail, a Retail Consultancy Firm, observes that the retail industry across the globe has
had considerable fast growth, leading to increase in sales. Despite the good
environment that facilitates the development of the retail industry, intensity in
competitiveness has become stronger than before. Most of the large supermarket
retailing organizations which include WA-Mart and Carrefour have intensified their
competition with the intention of expanding and dominating the domestic and overseas
market. To achieve these, the two have ensured that each of their strategies is
implemented effectively.
However, Aldi International is a hard-discount retail organization that is smaller
and simple compared to Carrefour or even Wal-Mart. This size is in regard to the items
sold and the store occupancy of these organizations. Nonetheless, in this competitive
environment, Aldi has had the opportunity to survive in the retailing market and has
been considered to one of the reputable retailer firms that have the capability of
contending with bigger retail corporations (Agarwal and Braguinsky, 2015, pp.382). Aldi
International is a hard-discount retail organization that was started back in 1946 by
Theo and Karl Albrecht, Germany. Over the years, this retail firm has developed rapidly
characterized by its low prices on retail items (Vaccaro, et al, 2012, pp.33). By 2003,
Aldi International had developed and became among the world’s biggest retail
corporations, having over 700 stores across the globe. Additionally, it created an annual
turnover of around 36.2 billion Euros by end of the same year. In 2001, Aldi’s first retail
store was opened in Sydney, Australia (Battistella, Biotto and De Toni, 2012, pp.720).
After reaping huge benefits from the sores, by 2010 Aldi had opened 72 extra retail
stores in Australia. To-date, Aldi has immensely grown and opened over 500 retail
stores in Australia. Hence, this essay will address the generic business strategy,
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organization culture, and Aldi International’s formal organizational structure which have
had great influence on its success in Australia.
Aldi’s Business Strategy
Strategic management has been the continuing initiative where businesses apply
it while establishing their visions and to carry an analysis of their internal and external
environment. This facilitates firms to select and adopt one or more strategy with the aim
of creating customer value, while at the same time benefiting other stakeholders. Every
organization is tasked with the mandate of setting its own corporate strategy that
defines the organization’s operations and the organization’s future goals (Belias and
Koustelios, 2014, pp.311). An essential part of an organization’s corporate strategy is
the business strategy. For a business to gain competitiveness, it is important that the
managers develop and implement an effective business strategy. By doing so, the
organization enjoys the opportunity of promoting its products within the market as well s
facilitating the firm to occupy a large market share. Aldi International’s business strategy
can be regarded to be very simple but effective (Bharadwaj, El Sawy, Pavlou, and
Venkatraman, 2013, pp.924). The primary business at Aldi is to minimize costs as much
as possible. Despite that Wal-Mart and Aldi are the most known retail firms that have
gained a competitive advantage as a result of their cost reduction strategy, the two are
very different based on the criteria which they implement the cost reduction strategy.
Aldi is characterized by enhanced operations and management’s efficiency
based on the cost-reduction principle. The organization’ retail stores across the globe
are featured by decoration and simple designs that aim at minimizing cost (Bock, et al,
2012, pp.283). The organization’s cost-saving technique is reflected through various
ways as illustrated: first, with a comparison to Wal-Mart, Aldi’s stores occupy a
maximum of 750 square meters which to a large extent minimizes the rent as well as
water and electricity consumption’s expenses. Additionally, the organization has a
limited number of high-quality products that are sold in all stores across the world thus
saving on costs incurred on shelves (Bolton,Brunnermeier and Veldkamp, 2012,
pp.523). Typically, Aldi’s stores sell around 700 products. This may be deemed to be
less but it is able to satisfy customers’ daily necessities. This grocery structure greatly
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saves on logistic cost and facilitates Aldi to enjoy the absolute benefit of negotiating with
its suppliers in regards to product’s quality and price. Nonetheless, Aldi has an efficient
employee strategy. Usually, the organization hires four or five workers within a single
store compared to 15 workers who are employed at a standard supermarket (Brandes
and Brandes, 2012, pp.127). Regardless that the organization pays a lot to its workers,
it has significantly lowered employee cost. Aldi also uses a simple promotion method
compared to Carrefour and Wal-Mart. The organization does not carry out advertising or
public relations. Instead, Aldi is of the view that these costs should be saved and benefit
the clients. This is because the expenses incurred during public relations are all paid by
the clients.
Good quality assurance is another business that is associated with Aldi
International. The primary characteristics of Aldi store are its strong-discount. However,
this reduced pricing does not mean sacrificing on product’s quality (Buller andMcEvoy,
2012, pp.49). On the contrary, the organization has persisted in availing clients with
products that are of the same quality to goods found in other retail stores, but at a
reduced price. Also, the company has got brands that it owns, that range from cookies
and diapers. On these own brands, Aldi ensures that there is strict adherence to quality.
While purchasing goods from its suppliers, the organization recommends its own quality
requirements and makes use of a third inspection firm besides its own inspectors
(Tannenbaum, Weschler and Massarik, 2013, pp.141). The role of these third company
is to conduct strict and thorough inspections of the products to ensure that they meet
Aldi’s quality requirements. In instances where unqualified commodities are detected in
the inspection process, Aldi does not cooperate with the supplier but rather seeks to find
products that adhere to its requirement. The organization’s business strategy is also
based on the idea of client orientation.
Nonetheless, the organization focuses on the clients’ needs and pays all its
attention to these customers, aimed at enhancing and developing clients’ loyalty. The
organization considers the customer’s perspective and thus avails the clients with
practical advantages (Butler, 2015, pp.112). The organization does not apply the
promotion means such as “trying or wholesale” that are considered to give the clients
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favorable benefits. However, Aldi ignores the needs and demands of a particular
consumer group. Additionally, the organization ensures that the product’s prices are the
same regardless of the location of their stores. Hence, the consumers are not supposed
to be worried about there being a price difference. Aldi’s other success secret is that the
organization does not rush into expanding its market. Rather, it takes slow and
determined steps to ensure conformance with the customers’ needs (Chang, Wang,
Huang and Chiu, 2013, pp.431). First, the organization opens a trial center that is used
to analyze the benefits that are likely to be obtained before launching other retail stores
within a region. For instance, Aldi South may sell more commodities compared to Aldi
North. However, good communication is maintained between the two organizations to
enhance learning from each company’s management experiences. Aldi International
attaches its essentiality to exploiting and development of Human Resource
Management. The managers and all the workers are trained by the organization on the
understanding of Aldi’s principles, concepts, and business strategies before getting to
attend to customers at Aldi. Training to a large extent is very beneficial to Aldi since the
employees and managers are adequately equipped with the necessary skills and
knowledge (Chung, 2015, pp.47). This facilitates them to address certain issues that
may arise during the organization’s day-to-day operations as well as help maintain the
organization’s brand image.
Aldi’s Organization Culture
As the business and economic environment keeps on evolving and increasingly
becoming dynamic, it is important that organizations re-evaluate their organizational
culture. This is to facilitate these companies to adapt to the evolving business
environment and thus attain a competitive advantage over its rivals. Culture refers to
organization’s shared values, customary means of thinking as well as doing things, and
shared beliefs that assist in shaping and guiding the organizational members’ ways
(Cummings and Worley, 2014, pp.81). Thus, culture is considered to be very essential
since it is capable of influencing the employees’ processes and activities as well as the
organization’s functioning without having to impose measures and control. Every
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company possesses its own distinct form of culture with some organizations having
more than one culture.
Edgar Schein’s (2004) culture model is broadly accepted and views the
organizational culture in three distinct levels, with each level characterized by its
visibility and how accessible it is to people. The three culture levels include values and
beliefs, artifacts and creation, and basic assumptions. Nonetheless, Charles Handy
(1978) was of the view that the organizations could be broadly classified into a wider
range that is made up of four cultures. This culture’s formation is dependent upon
certain factors such as the firm’s ownership, organization’s history, as well as the
company’s structure environment among others. Among the many cultures advocated
by him was the Power Culture. He argued that this culture reflected on the power’s
concentration on a venture that is owned by a family, regardless of its size.
The organization culture adopted by Aldi has been greatly influenced by its core
founders. The organization’s cultural values and rules clearly depict Aldi’s organizational
philosophy, strategy, as well as its guiding principles. The organization’s culture was
described by Aldi’s former Managing Director, Dieter Brandes as being the culture of
‘simplicity’. The company’s model is based on a simple concept of providing high-quality
commodities at reduced prices. This concept is well understood by the company’s
managers, customers, and the employees. At every level, the managers and the
employees pay specific attention to economy’s effectiveness and are conscious of the
costs. In the organization’s operations, wastes and defects are intolerable. As such, the
employees possess the culture of working hard to avoid the likelihood of waste and
defect’s occurrence (Felin, Foss and Ployhart, 2015, pp.577). This type of culture was
initially instigated by the cost efficiency’s founders and can be practically demonstrated.
For example, it is said that Theo Albrecht personally switched off the lights in all the
offices when there was enough light coming from outside. The concept of watching on
costs extends into all the areas in the value chain, including coming up with new
techniques such as the transportation of commodities and the management of the
warehouses. This is very common in Aldi’s stores whereby they have a ‘buy your own
bag’ policy. In this instance, clients are required to buy their own bags or rather bring
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along their bags while shopping for products (Galpin and Lee Whittington, 2012, pp.41).
The primary objective of this policy is to identify improvements regardless of how small
they are in all areas as well as developing pleasure aimed at attaining little success.
Additionally, the organization has adopted the culture of continuous
improvement. This is accompanied by a strong focus on the improvement and
actualization of solutions. Brandes describes Aldi’s people as being practitioners. New
solutions and ideas are put into practice instead of exposing these ideas and solutions
into a detailed analysis, after which, if they indicate that they are successful, they are
immediately implemented. Also, adding to Aldi’s focus on efficiency in the economy as
well as continuous improvement, the company’s culture is featured by determination
and persistence. Analysis within Aldi indicates that the organization has experienced
very minimal changes in the manner in which it approaches its business (Grant, 2016,
pp.213). Consequently, the organization has pursued its business concept and has
resisted temptations such as increasing the number of its commodities, altering its cost
leadership strategy, as well as diversifying into other sectors of operation. This is
regarded as Aldi’s essential culture trait that only allows the organization to continue
doing what they do best. The company has a tendency of selecting, promoting, and
training managerial talents from within the company. Potential managers’ crucial
qualities are the primary focus on the economy’s effectiveness, fairness towards other
people such as the suppliers’ modesty, as well as reservation towards the press and the
public. Job descriptions that outline specific goals and competencies reinforce the
above-mentioned features (Hailey, 2013, pp.167). Managers at Aldi are employed by
various departments such as the stores and the warehouses. Generally, these workers
have a broad knowledge and expertise on how Aldi operates. In addition, these
employees are conversant with the organization’s culture, and they have accepted and
adopted Aldi’s culture.
For instance, it is compulsory for the managers to undertake a one-year training
within Aldi where they acquire knowledge pertaining Aldi retail management’s structural
and procedural elements (Vaara and Whittington, 2012, pp.331). This includes
administration, operations done at the stores, property management, store operations,
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as well as logistics (Hill, Jones and Schilling, 2014, pp.94). The most crucial part of the
training is on the organization’s management system which includes a focus on the
efficiency of the economy. Training begins at the store whereby the managers
undergoing the training takes up the store manager’s roles and responsibilities for a
particular period. The “hands-on” approach that is practiced by the organization focuses
on acquainting the new managers with Aldi’s operations as well as its core values and
business strategy. In the second step of the training, the new managers work alongside
colleagues who are experienced in a particular line of operation (Jaques, 2017, pp.312).
This assists the new managers to acknowledge their responsibilities and roles. The
roles and responsibilities comprise of planning, organizing the stores, and recruitment.
Aldi’s culture as observed is very effective and has assisted the company to in the
position it is as well as facilitating them to acquire profits that they reaped so far (Hitt,
Ireland and Hoskisson, 2012, pp.260). Over the years, this has enabled the organization
to grow internationally. Originally, Aldi was ridiculed for selling products that were of low
quality, and its clients were branded as being poor thus they could not shop at any other
place. Despite, this did not dent the organization’s profits. Instead, the German clients
recognized that the poor reputation of the company’s commodities was either
economically justifiable or it was underserved. Thus, the organization was capable and
it is still capable of striving for continuity as well as Aldi’s going concern with its current
culture. Nonetheless, just like any other organization, the organization’s current culture
has faced several criticisms particularly influenced by a change in the business
environment and the continued change in consumer’s behavior.
Aldi’s Formal Organization Structure
Surveys conducted at Aldi indicate that the organization applies a decentralized
structure. The lower level managers possess the necessary skills and are thus able to
make decisions by themselves. This decentralization structure was adopted after the
organization split into Aldi Nord and Aldi Sud in the year 1961. This decentralization
resulted in the formation of an autonomous corporation for every sixty to eighty retail
stores in a locality (Kuhn, 2012, pp.571). As a result, a large number of autonomous
companies were formed that competed with each other in a healthy manner to felicitate
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Aldi’s growth. In a geographically dispersed company such as Aldi, this structure has
proved to be a very efficient decision giving consideration to its growth and the
organization’s success so far. As a result of Aldi’s small size, there is less bureaucracy
and almost every issue is capable of being handled at the ground-level efficiently by
applying the local market’s knowledge. Aldi’s decentralization structure gives the
regional managers the opportunity to be involved in making decisions as well as
enabling efficient actualization of the organization’s strategies.
Such view of the decentralized structure is adapted from Robbins and Coulter
(2010). When defining a structure in terms of the span of control, Aldi’s structure can be
viewed as being flat. The managers are allowed a broad span of control hence resulting
to a flat rather than a hierarchical structure. The organization does not have a different
planning, Human Resource, Public Relations or marketing departments. The managers
have clear goal specifications, authority, and responsibilities (Netzer, Feldman,
Goldenberg and Fresko, 2012, pp.532). The managers are tasked with the duty of
delegating these to the subordinates in a clear and effective manner. To ensure that the
culture is maintained and authority exercised, regular checks and evaluation are
conducted. The chain of command at all Aldi’s stores adheres to the unity of command.
It is the manager’s role to delegate all the employees according to Aldi’s policies and
rules. Having a decentralized structure means that Aldi’s growth is an actual able
concept because the two stakeholders from Aldi South and Aldi North have the ability to
borrow ideas from each other (Odediran, et al, 2012, pp.257). Additionally, to some
extent, having such structure allows the organization to expand quickly into the existing
market since the two stakeholders possess distinct skills and abilities. Hence, this would
be considered an opportunity. However, operating in two divisions is also a risky
strategy because it creates a path for a rivalry between the two stakeholders, thus being
considered a threat.
The lean and flat structure that is practiced by the organization does not give a
chance of hiring a large number of workers. For example, the headquarters at Germany
employ around 150 employees who are well skilled and able to carry out their
responsibilities (Paksoy,Pehlivan and Kahraman, 2012, pp.2836). Hiring few employees
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serves as a strength of the company since it supports division of labor and maximizes
the utilization of skills and individual’s talents and also ensures that the employees are
satisfied. However, this may be viewed as a weakness because few employees may
limit maximum employment of skills necessary for organizational advancement.
Investigations conducted within Aldi indicate that there no planning department that has
been set aside to manage development activities. Additionally, within the organization,
there no staff’s positions. Hence, any new plan that arises is performed by individuals
that are delegated when the need arises to carry out the activities (Peters, et al, 2013,
pp.129). The individuals that are delegated not only do they offer practical solutions for
specific issues but also are mandated to implement the new strategies. The
decentralization and delegation principles are used to guide Aldi’s management. The
above factors are essential, though, lack of adequate staff, planning as well as
marketing departments should be regarded as a threat to the organization since it
seems that there no changes that can be put in place at Aldi (Rumelt, 2012, pp.40).
However, if the changes could be implemented, it would be difficult to change
management because it is almost impossible in delegating the appropriate individuals
with the right skills immediately whenever a need arises. An efficient organization
structure requires labor division for purposes of effectiveness. Nonetheless, this lacks in
Aldi. In addition, the lean structure that is used by the organization facilitates business
communication since it enhances the feedback cycle that includes listening, speaking,
and decoding the message. By using the feedback cycle, Aldi has been in a position to
attain mutually beneficial decision. Communication across the organization’s distinct
levels, the type and time frame of the feedback has determined Aldi’s overall efficiency.
Conclusion
Aldi has been observed to be very successful due to its unique business strategy
and operation style. This regards its concept of the cost-saving strategy, running small-
quantity commodities, and hard-discount strategy aimed at attracting customers. In the
expansion strategy, the organization has been wise in that it does not take risks in
expanding its operations through the opening of other stores unless it observes that a
similar store within that region is reasoning profits. This concept applied to this
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organization is simple and is centered at the clients and seek to improve on benefits
acquired by the customers. As a result of this business strategy, the organization has
acquired many loyal customers.
In any firm as in Aldi’s case, organizational culture is essential for four reasons;
organization culture helps in shaping the company’s image which the society has for the
firm, it improves on the firm’s performance, it avails the company with direction on what
they want to achieve, as well as assisting in attracting and retaining motivated
employees. These four reasons are necessary for any company’s growth and the
organization’s culture influences and determine their performance and attainment of its
goals. This means that in some instance companies are required to ensure that the
firm’s current culture is efficient enough to facilitate them attain their goals, enhance the
organization’s performance as well as maintaining their growth. Usually, this results to
change, which is not a necessary but important task. It will not take a single for Aldi to
change its culture because such change does not take a day’s time. It is thus crucial
that the top management understands that culture’s change should not be done
instantly since this is to cause disaster and disorder in an organization.
In its structure, Aldi makes use of self-directed work groups as a hub for sharing
knowledge, hence lowering the organization’s costs in training new recruits. In addition,
due to the reduced number of staff, issues and conflicts that arise due to leadership are
not witnessed at Aldi. Thus, leadership in this organization is considered to be a
relationship whereby an individual has an influence on other people’s actions and
behaviors. Nonetheless, having minimal employees facilitates exerting influence
effectively and enhancing their ability.
For a firm to achieve its goals efficiently, there is a need for a formal structure.
The essentiality of this is that it helps in distributing tasks to various groups thus
ensuring that there no two individuals that are acting on the same task to help attain
maximum output. However, since firms are not able to run without people, this creates a
different informal environment within the company. This results in varying perceptions,
traits, behaviors, as well as attitudes. In formal structure’s constraints, people are
required to work together on a particular activity. As a result, people tend to speak and
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interact in certain ways which lead to the formation of organization culture. Also, a
business strategy is developed from the firm’s vision and mission. The actualization,
effectiveness, and evaluation of this strategies is dependent on individuals in the
organization, who form part of the organization culture. Hence, culture plays an
essential role in formulating and evaluating this strategy. Also, there is a link between a
company’s structure and business strategy in that the business strategy assists a firm to
define and build on the firm’s structure. A firm's structure is dependent on the outcome
resulting analyzing the company’s strategy. Based on this results, an organization can
then determine the areas to concentrate on and the manner in which to position itself to
be successful. Thus, it is true to say that formal organization structure, culture, and
business strategy are linked to each other.
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Appendices
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