Strategic Management Analysis of Next Plc: Objectives and Strategies

This report provides a comprehensive strategic management analysis of Next Plc, a leading UK retailer. It begins with an evaluation of the company's objectives, structure, and internal and external mechanisms, including a SWOT and PESTLE analysis. The report then delves into the company's competitive advantages, assessing them through cost leadership, differentiation, and focus strategies, alongside Porter's Five Forces. A value chain analysis examines the primary and support activities. The VRIO framework is applied to evaluate resources and capabilities, concluding with strategic recommendations. The report covers various aspects of the company's operations, from supply chain to marketing and customer service, providing a holistic view of Next Plc's strategic positioning and performance in the competitive retail landscape. The report also analyzes the company's internal and external environment and offers recommendations for future success.

STRATEGIC
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Evaluation of organisation's objectives, structure and external and internal mechanism. 1
2. Evaluation of company's competitive advantage...............................................................4
3. Value Chain Analysis.........................................................................................................7
4. VRIO................................................................................................................................10
5.Recommendations.............................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
The term strategic management refers to the process of formulation and implementation
of organization's goals and objectives. It is a very crucial component in any business firm as it is
responsible for achieving qualitative position in market. Any business needs to plan strategies to
achieve long term success. Management of strategy by top management is a dynamic process
which keeps on changing due to external changes and internal modifications.
The leading retailer of UK, Next Plc was founded in the year 1982 by Joseph Hepworth
which has headquarters in Enderby. The company majorly deals in clothing for both men and
women, home products and footwear having more than 700 stores worldwide. The entity is also
engaged in online business offering wide variety of products.
1. Evaluation of organisation's objectives, structure and external and internal mechanism.
Objectives:
The main consent of Next Plc is to meet growing fashion need of customers thereby producing
best quality of products.
The entity focuses on sustainable growth by providing competent returns to shareholders in form
of dividends or buyback of shares.
It concentrates on increasing its profit margin by increasing its sales performance.
Next emphasizes on increasing its directory customers by providing online purchase facilities
which will increase its sales and profitability (Schot and Geels, 2008).
Through efficient management of inventory, cost and positioning of product the entity will
increase its net and gross profit margins.
The entity focuses on providing satisfactory customer services to both its online and retail
clients.
Structure of firm:
Next has a huge market segment for both men and women providing clothing,
accessories, footwear and home products both to national and international consumers. It has
positioned its products as fashionable, targeting the young and teenage groups who are exclusive
fashion followers. It has retail stores comprising of around 700 outlets in the UK and
international markets. It has a wide range of customer directory which includes around 3 million
online customers (David, 2011). Next Sourcing is another business firm engaged in branding and
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designing Next products. Lipsy is a women store, involved in branding and designing teenage
women products through online, retail and wholesale markets.
SWOT Analysis:
An organization needs to evaluate its internal working so as to execute any strategic
business plan. The strengths and weaknesses of Next Plc focuses on entity's internal working and
how changes in external environment impacts business decision making process.
(Source: Management Technology Policy, 2016)
Strengths:
The key strength of Next Plc are its sales ratios due to quick delivery of products. Next
emphasizes on quality products and excellent customer service through next day delivery of
products ordered online. It has been successful in brand positioning through various promotions
and advertisement (Ambrosini and Bowman, 2009). Next has a creative and responsive approach
which acts as a strength to build its future statements. The company also focuses on maintaining
the social and environmental balance.
Weaknesses:
Next Plc is an expensive store focusing on trendy and fashionable clothing as compared
to other home stores and shops. The entity has a weakened position to change its profit margin as
a result of change in demands and supply of the market. It has more of formal collection than
casual which also shift customers to other stores.
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Illustration 1: SWOT Analysis

Opportunities:
Next Plc always have an opportunity to expand its market both in retail sector and online
segment by enhancing its design, image and customer services. Focusing on new target market
can also increase Next sales ratios and overall profitability. It has huge store management to hold
up stock and expansion into new markets (Schot and Geels, 2008).
Threats:
Low discount providing firms is a major threat to Next Plc. Many competitors such as
M&S, River Island and John Lewis are producing similar and identical products thereby posing a
threat for the company. As the clothing retail market is based primarily on price competition, any
aspect of customer loyalty to a store or brand is severely diminished
PESTLE Analysis:
This analysis comprises of external environment factors which affects business
operations. These include -
(Source : Strategic Management, 2018)
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Illustration 2: PESTLE Analysis

Political:
The taxes levied by government has an impact on Next Plc corporate tax and the
customers ability to spend. With the exit of Britain from European union, the economic state of
UK is not so stable any more. The imbalances in interest rates affects the firms borrowing
capacity. At present the rate of interest in UK is 0.5% which infuses Next to borrow money for
the purpose of capital expansion at this rate.
Social:
There are many social and cultural changes taking place in the UK at present which may
have a high level of impact upon the performance of fashion retailers such as Next. Next is
experiencing a vast threat as young generations tastes and preferences are changing and the aging
of major population of UK which is the main segment the company focuses on (Ambrosini and
Bowman, 2009). The social and cultural changes had a huge impact on the company affecting its
profit margins.
Technological:
The developments of technology had a great impact on Next Plc. The growing use of
internet has opened new doors for Next Plc to use websites and mobile Apps for online
purchasing of its products.
Economical:
Next being the leader in the retail industry is primarily affected by the economic
imbalances. Increase of inflation and high prices of cotton had an adverse affect on Next Plc. The
company has seen low level of growth in 2007 due to the global financial crises.
Legal:
The changes in the government reforms such as increase in wages of labor and VAT rates
has affected Next Plc as now the company spends more money (Dobbs, 2014).
Environmental:
The natural calamities in UK has affected Next Plc to a great degree as sales have been
interrupted by floods, snow storms etc. The company is focusing on reduction of carbon footprint
while selling products to customers.
2. Evaluation of company's competitive advantage.
Next Plc experiences a competitive position in the industry in which it operates. The
entity's competitive advantage is evaluated through -
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(Source : Strategic Management, 2018)
Cost leadership:
Next Plc has a structure which focuses on low cost of production in the industry. By
achieving cost leadership the company influences economies of scale, prices of raw materials
and the finished goods.
Differentiation:
Next has a unique segment of customers emphasizing on 20-40 age group. The entity
focuses on specific components that is crucial to many users in an industry. Thus, it positioned
itself differently in the minds of customers which rewards Next Plc with a premium price.
Focus:
It has two basic components a company should look into in an industry -
a. cost focus aspect of the entity implies advantage in form of cost from market the firm
targets on (Dobbs, 2014).
b. differentiation of cost from its competitors which impacts on customers buying more
of Next Plc products.
Porters five forces:
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Illustration 3: Porter's Generic Competitive Strategies

The porter's five forces concept is used to evaluate the Next Plc competitive environment
and its position in the industry. This analysis focuses on sustaining profits in the company by
negotiating prices from suppliers, demanding more prices from customers, creating barriers for
new firms and producing differentiated products to create competitive advantage in the long run.
(Source: Management Technology Policy, 2016)
Bargaining power of suppliers:
The monopoly of suppliers can decrease profit margins of Next Plc in the market share.
The suppliers are powerful in the consumer sector in negotiating prices from the company. The
cost of changing suppliers is relatively low, influencing Next to procure raw materials at
discounted rates. The suppliers of Next are concentrated providing cost relative to total purchases
made in the industry (Schot and Geels, 2008).
Bargaining power of customers:
Customers being the key component can discard a product if its not according to their
tastes and preferences. The small lot of customers at Next Plc influences the profitability of the
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Illustration 4: Porter's Five Forces

company thereby demanding more discounts and offers. Customers of Next Plc are brand loyal,
therefore there is less chance of product substitution.
Threat on new entrants:
The new firms and their new ways impose a threat on Next Plc by pressuring it to reduce
cost, change its pricing strategies and designs for customers. Capital intensive and big firms enter
into the market without any barriers. New firms are rare to enter such big industry as there are
many entry restrictions and it is difficult to compete already agnostic firms (Hill, Jones and
Schilling, 2014). Various government regulations also creates barriers to enter such markets,
therefore Next Plc has a rare chance of competition from new firms.
Threat of substitutes:
The threat of substitutes is relatively low, as Next Plc deals in branded and patented
products. The competitors ability to make identical products cannot meet the company's quality
standards. Next focuses on creating value to its customers which enhances brand loyalty. Slight
dissatisfaction may turn the customers towards other brands which affects Next competitive
advantage (James and Jorgensen, 2009). Thus, product should be manufactured keeping the
standards in mind as small defects may cost a huge cost to Next Plc.
Competitive rivalry:
Next Plc operates in a very competitive Retail industry. The prices and profitability of
Next is related to the competition in the market. The major competitors of
Next are Marks and Spencer and ASDA which emphasizes the company to maintain excellent
quality of goods and services. The diversity of competitors and product differentiation may at
times influence customer to shift from one brand to another.
3. Value Chain Analysis.
The value chain analysis describes the primary activities of a business and its impact on
the competitive advantage of the company. Next uses internet for shopping and has positioned its
brand as an excellent company producing quality goods in the minds of consumers. Next stores
are specious and they also make use of standalone lime stores (Andreasen, Kotler and Parker,
2008). Value chain analysis of Next Plc -
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(Source: Management Technology Policy, 2016)
Primary Activities:
Inbound Logistics:
Next Plc involves procuring of best raw materials for production purposes. They have
fixed suppliers providing products at negotiated rates which are then transported to the plants for
further manufacturing. The product packaging and storage at retail stores is another crucial
activity at Next Plc which involves huge cost and time (Hill, Jones and Schilling, 2014).
Operations:
The transformation of inputs into outputs comes under operations category. Next a
leading retailer of United Kingdom has more than 500 stores selling its branded products all over
UK performs this simple step of converting raw materials into finished goods. The company
generates huge revenue from its day to day operations.
Outbound Logistics:
This includes the storage and distribution of products. Next Plc generally involves less
intermediaries and has company designed outlets serving directly to its clients. This reduces cost
of maintaining warehouses and holding stock for the company. The company generally offers
sales to formal wear in respect to clothing. Next usually provides next day delivery of goods
when ordered online before 9 P.M.
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Illustration 5: Value Chain Analysis

Marketing and Sales:
Next Plc incur huge investment in the promotions and advertisement of its products. Its
main segment is 20-40 age group people who are fashion oriented and demands high quality of
products. Next has increased its sales ratios over the years by expanding its market segment and
overall market share (Huang, 2009).
Service:
Next Plc creates value by provide exclusive customer services to both its retail customers
and online customers locally and internationally. It is a very crucial step taken to acknowledge
the customer loyalty and their demands and desires. Next always keeps its customers in mind
before launching or manufacturing new designs or products.
Support Activities:
Procurement:
Next Plc has preferred suppliers from whom the company procures raw materials and
other things used in for manufacturing of its products (David, 2011). For producing quality
products it is important to use good quality raw materials to create brand image. Next will never
compromise in quality which is a prime objective of the company.
Human resource management:
The workforce is a key to achieve success. Next Plc has a huge base of workforce
ranging from workers producing quality goods to top management personnels working to
achieve higher market share. Next follows employee appraisal and rewards policy to provide
employees incentives and benefits for achieving standards. This helps the company to retain
quality employees thereby motivating them to work harder.
Technological development:
Next Plc uses technical advancement while manufacturing products. The increasing use
of internet has provided the company with facilities such as online surfing and shopping of
products and placing order of raw materials to suppliers. Any changes in the latest technology
are accessed for ripening the benefit by Next Plc.
Infrastructure:
The infrastructure at Next Plc plays an important role in defining the stores and its
designs which influences users to shop (Hill, Jones and Schilling, 2014).
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4. VRIO
VRIO analysis is a process to achieve competitive advantage over rivalry firms. By
analyzing the different factors such as Value, Rarity, Imitable and Organistaion of a firm, top
management is able to evaluate the strengths and then decide the activities to achieve desired
results. It analyses the internal environment of the company.
(Source: Management Technology Policy, 2016)
Valuable:
Next has a strong worldwide presence which increase its market share, size and overall
sales margin which enhances its total revenue as compared to its competitors. Every firm
operates to transforms inputs of raw materials into outputs of finished products. Next Plc is also
involves into the same process thereby adding value to its products by providing quality and
exclusivity to its products (Huang, 2009). Next has recruitment and selection process which is
based on certain norms. Resources of Next adds value by enhancing opportunities or by
decreasing the threats by efficient use of skills and techniques. Such resources increase the
competitive advantage of the firm thereby strengthening its position in the market. Next
incorporates these resources to enhance its productivity in the long run.
Rare:
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Illustration 6: VRIO