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Executive Summary

The company that we have chosen for our research is Borders Group Inc. The research
question relating to the topic extracted from the textbook (Lynch, 2012), “Analyzing the External
Environment of a Firm” is “The failure of Borders to perform effective External /
Environmental Analysis”. We chose this topic for our discussion because we believe that
analyzing the competitive environment is important and in strategy management, the
environment basically means the outside forces that impact the people outside the organization,
including competitors, customers, suppliers and other influential institutions such as local and
national government. Environmental analysis is therefore crucial to a company and may even
affect its going concern, just as in the case of Borders.
The aim of this assignment is to look at the strategic issues faced by Borders and perform
a Strategic Analysis comprising three Strategic Tools (SWOT, PESTLE and Porter’s Five Forces)
by conducting secondary research by utilizing the Internet and even library books. Thus, our indepth research about the strategic issues of Borders has helped us come up with appropriate
solutions that could have helped Borders understand and adapt to the changes in the External
Environment to remain competitive. As such, we would be covering the Five Ws and One H
technique to assist in finding the core problems and solutions of the ineffective strategies which
caused the downfall of Borders Group Inc.
As it is important to study the environment surrounding the organization to gain not just a
competitive advantage but Sustainable Competitive Advantage, an organization must be able to
learn from its mistakes in the past and move forward. As such, we will also look into the lessons
learned from the mistakes made by Borders in failing to analyze its External Environment
promptly and accurately.

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The Borders brothers decided not to stay in the book business. 2011). It was also in the mid 1990s that Amazon launched as an online book retailer (The Conversation. An early innovator in controlling inventory. In retrospect. Kmart already owned Walden mall stores. and in 1995 Borders was spun off in an IPO (Bosmon & Michael. Book enthusiasts switched to eBooks and tablets were on the rise. 2011). but guess what Borders did instead? Instead of beginning to develop its own initiatives on the Internet. 2011).com to sell books online. Barnes & Noble (B&N. which were an awkward commercial fit with the Borders culture. Then came along Amazon.1. University of Michigan graduates who developed an inventory tracking system that. Kmart itself was at the start of a downward spiral. by the standards of the time. that was when the trouble began. B&N was quick enough to respond to the changes in the external environment. was as sophisticated as computers allowed (Osnos. The Internet made it possible for companies to expand without even opening a physical store. In this research. Under the leadership of Leonard Riggio. Borders closed an eye on the external environment. browsing space. building a substantial chain in the United Kingdom and opening physical stores as far away as Singapore.27 billion in assets in a filing in United States Bankruptcy Court in Manhattan. and outreach programs to surrounding communities. coffee bars. and the competition seemed tight. Borders superstores had all the attributes of good bookselling whereby it had extensive selections. The external environment at that point of time was influenced by globalization. and in 1991 sold the small chain and inventory systems to Kmart for $125 million. there was expert staff at its Ann Arbor headquarters and store managers who believed in the value of book-selling. 2 | Page . The company listed $1.29 billion in debt and $1.0 Introduction : Borders Group Inc Borders Group Inc was founded in the early 1970s by Tom and Louis Borders. At its peak. we will look into the various strategic mistakes made by Borders that caused it to always be a step behind where they needed to be. The Group is now non-existent. Borders went international. a big competitor to Borders) was expanding too.

this problem became widespread. including the apps that run on smartphones. it opted to neglect e-books completely. The top management’s (who) environmental scanning was poor because they failed to discover the changes in the external environment clearly. Borders ran away from the current market trend. Instead of catering to the needs of modern day smartphone users. Extracting one of the PESTEL’s checklists. The Amazon Kindle came out in November 2007. known as ‘Nook’. but not the programs that make those devices work. debuted its latest e-book system. instead of giving the market what they want (Gregory. Why was this a problem? Pushing a product to a market (selling physical books) instead of giving the market what it wants (eBooks) will cause customers to be frustrated and as such. its longstanding competitor. Nokia. the book industry was transcending to the digital age.0 Strategic Issues : 5W Analysis of Border’s Strategic Mistakes 2. loyal customers will look for another company that can meet their needs. Instead of adapting to the market’s changing needs. Apple's iPad came out as a direct result of the increase in popularity of ebooks (Lowrey. a hardware company rather than a software company. In the end. Nokia profoundly underestimated the importance of software to the new age customers. This similar mistake was done by the famous Nokia.1 Strategic Issue 1 : Negligence of Digital Technology and Poor Management During the period of mid-1990s (when). which was sold in Walmart and Best Buy. 2011). was at heart. and thus. Other companies adapted to market changes. the top management of Nokia continued to market its phones based on superior hardware designs without even implementing good software. Its engineers were experts at building physical devices. Borders just did not adapt and this was a very big problem that affected its going concern. Barnes & Noble (B&N). It basically gave the market a product Nokia thought is best for them.2. E-books were becoming popular compared to paper books. Borders failed to analyze its Technological future in the speed of change and adoption of new technology in its business plan strategies. 2011). Borders was now losing money from all over the world when B&N was diversifying its source of revenue without even opening stores overseas. Just like Nokia. But where did this problem take place? It started off in the UK and due to globalization. running away from the current wave (what). This strategic mistake 3 | Page .

all of its competitors had already tried to make a change for their business strategies in order to follow the rise of the new era. a total strategic catastrophe! Peter Wahlstrom. They mistook the popularity of technology by venturing into the sale of CDs and DVDs.Barnesandnoble. 2 Strategic Issue 2 : Outsourcing Online Sales to Competitor. 2011). In fact. Costco.by Borders caused it to lose its customer loyalty which is crucial for a market leader. and other stronger retailers reset their outlook by launching their own online bookstores. it was apparent to everyone that book sales would increasingly be made online. Why was this a problem? Borders basically grew its competitor for eight years! Outsourcing its website to Amazon. to avoid system development costs. B&N quickly took advantage of this strategic mistake and launched www. Amazon After many years in the red (due to its decision to ignore the Internet). It was obvious that online sales would start making up its main source of revenue but Borders choose to hand over their most important growth channel to a competitor. The top management of Borders was unable to identify and understand digital trends (what). Amazon. Realizing that Borders was going the wrong direction. books have been sold over the Internet. During the era of globalization and the age of the Internet. the top management of Borders was unable to use effective strategies to adapt to the fresh web-based environment. At that moment. It can be said that the environment and marketplace changed and Borders was finally aware of this (Austen.com. Since 1995 and the founding of Amazon.com. The first strategic mistake made by Borders is to outsource its online book operations to Amazon (from 2000 to 2008) instead of establishing its own web presence (what). In the short-term. an investment researcher stated that Borders’ strategy showed that Borders was “handing the keys over to a direct competitor" and was making “mistakes after mistakes” (Noguchi. 2. 2011). Walmart.com had cut deeply into Border’s profit and even goodwill (brand). it wanted to create an online presence to finally follow the market trend. Borders' branding.com within two years. it decided to outsourcing Borders. this saved a lot of money while in the long run. However. Borders rethinks its strategy to go online.com to the most efficient online organization. multi-channel 4 | Page . In 2000 (when). The competitors such as B&N. hoping that this partnership would be able to turn around Borders.

It seemed that Amazon anticipated a parasitic outcome through this partnership. inflation rate in America at that time was at 5. This shows that Borders’ management’s poor strategic decisions and ineffective strategic leadership (who) caused it to suffer net losses of $344 million for 2008 and 2009. Strategic Issue 3: Overexpansion in Physical Stores Overseas with High Costs In the late 90s (when). while at the same time. its international strategy failed (The Atlantic. Borders’ strong brand empowered Amazon's e-commerce platform. Borders decided to venture into the overseas book market. senior analyst with Simba Information.15 per hour in 1997 to $6. instead of keeping abreast with the current market changes and fast-booming growth in technology. New Zealand and opening stores as far away as Singapore.d. Why did this move stretch the company thin? “They over expanded and caused costs to escalate. 2011). as seen through its evident success in making its brand publicly-known through Borders’ mistake. earning high fees (from Borders) for this service. This caused labour costs to escalate as most of Borders’ bookstores were reliant on labour.55 per hour in 2009 (Labour Law Center. All over the world (where).55 per hour in July. The stores tended to be too big and expensive in terms of overhead.strategy. So. This is similar to the case of IBM in the 1980s whereby IBM “naively” handed over crucial parts of the computer business to companies like Microsoft and Intel which caused IBM to soon lose the early lead in both. Ireland. To top it all.” said Michael Norris. In the midst of expansion. federal minimum wage rate increased from $5. further cutting into profits. Fair Labor Practices Act in America were revamped due to the increased number of Labour Unions. 2008 and it kept going up to $8. PC hardware and software to small companies like Microsoft and Intel (Sommer. most parts of the world were hit by the financial crisis in the early 1990s and 5 | Page . who provided research and advice to publishers. 2011).. The focus on Borders’ business in the United States seemed to have been blurred by this global expansion. n. and customer base suffered worldwide (where) because we know that the internet is too important (Clarke. For example. 2011).). minimum wage rates increased gradually. what did Borders actually do? It hesitantly went overseas building chain stores in the United Kingdom. Eventually. In the late 1990s. Australia.4% (highest till today).

N. making it harder to shed unprofitable locations later.laborlawcenter...com/bw/magazine/the-end-of-borders-and-thefuture-of-books-11102011. This seemed like a terrible time for Borders to be expanding but that was exactly what it did! This shows that the management (who) of Borders clearly neglected the importance of the PESTLE Analysis. the more collateral was demanded by banks and this increased loan interest rates (Jacobsen. [Online] Available at: https://www. Bosmon. The vast use of Debt Financing to finance its expansion also caused high interest expenses. Borders could not even sustain its own expansion and the decisions made were costly and seemed irreversible.html [Accessed 14 June 2015]. Borders closed most of its stores and laid off tens of thousands of its employees after a failed attempt to sell the company at an auction as part of the process (Even other companies thought that saving Borders was a terrible idea!). 2006. References Austen. J.d. Borders also noted that it had signed too many long term leases (in line with its strategy to expand overseas)..org/2006/05/are-leaders-portable [Accessed 29 June 2015].bloomberg.. The End of Borders and the Future of Books. & Michael. 2011). Boris Groysberg. Are Leaders Portable. The more unprofitable it was. 2011.com/2011/02/16/borders-files-for-bankruptcy/? _r=2 [Accessed 15 June 2015]. n. N. L.the Asian Crisis in the early 2000s (Duggan.nytimes. These events caused expansion costs to increase even more. 2011. A.d. DealB%k.. In the end. In the end. [Online] Available at: https://hbr. [Online] Available at: http://dealbook. M. B. State Minimum Wage Rates. J. [Online] Available at: http://www. 6 | Page .com/state-minimum-wage-rates/ [Accessed 27 June 2015]. L. n.). Center.

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