MGT604 Strategic Management: Wesfarmers Limited

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 Executive Summary
The report involves the strategic framework for the context of Australian conglomerate
company, Wesfarmers Limited. The report evaluates the content in the light of strength,
weakness, opportunity and threat framework and Porter’s five forces. Adoption of these
strategies will enable the author to clearly identify the main details of the data and to
implement those measures, which can prove to be beneficial for the company. The report is
made according to the Australian economy, the information carried upon and studies applied
upon the information are latest, which is providing it with pure accuracy and validity.
 Table of Contents
Executive Summary...................................................................................................................2

Introduction................................................................................................................................4

Strategic Management............................................................................................................4

Wesfarmers Limited...............................................................................................................4

Aim.............................................................................................................................................5

Discussion..................................................................................................................................5

SWOT analysis.......................................................................................................................5

Strengths.............................................................................................................................6

Weaknesses........................................................................................................................6

Opportunities......................................................................................................................6

Threats................................................................................................................................7

Porter’s Five Forces...............................................................................................................7

Threats of new entrants......................................................................................................7

Bargaining power of suppliers...........................................................................................8

Bargaining power of buyers...............................................................................................8

Threat of substitute products..............................................................................................8

Competitive Rivalry...........................................................................................................9

Conclusion..................................................................................................................................9

Recommendations....................................................................................................................10
 Introduction

Strategic Management

Strategic management is a tool of which is used to plan, monitor, analyze and assess the
necessary requirement of an organization to meet its overall goals and objectives. A dynamic
environment requires every organization to review its tactics and strategies for a constant
corporate benefit and success. The process of strategic management provides assistance to the
organization to account the existing situation and construct effective strategies for
implementation. There are five different types of strategies which can be constructed by
strategic management process and can differ from each other when implementing, as they are
vividly dependent upon environmental factors and nature of the organization.

Strategic management is a conceptual framework which indicates three different aspects of an

organization; mission, values and vision. The process is supported by a deep understanding of
continuous strategic planning and analytics to frame the management and capabilities of a
business for short term objectives and long term goals as well. The planning and strategic
analysis also includes the planning and mitigation of probable outcomes along with resource
allocation and strategic decision making to achieve the predefined organizational goals and
objectives. The constant assistance from the strategic management process will lead the
managers to evaluate critical decisions of the business for logical reasoning and new goals
such as; new technology, market conditions and level of competition in the market.
Henceforth, strategic management can be used as a primary tool to develop understanding
and gain a competitive advantage in terms of market share and operational efficiency of the
business.

Wesfarmers Limited

Wesfarmer Ltd. is an Australian-based multinational company which primarily operates in

Australia and New Zealand. The multinational conglomerate operates in the retail industry of
fertilizers, chemicals and safety products. It is one of the highest grossing companies in
Australia with over $30.8 billion revenue in the financial year of 2020 and a workforce of
107,000 employees.
Wesfarmers as founded by the Farmers’ and Settlers’ Association of Western Australia in
1914. It is headquartered in Perth, West Australia. The company started its operation as a co-
operative to support the Western Australian farmers’ community by acquiring the assets of
West Australian Producers’ Union.

Wesfarmers is a public listed company having itself registered on the Australian Securities
Exchange in 1994 with a ticker symbol ASX: WES.

Aim
The aim of the report is to critically evaluate the tool of strategic management and planning
under the context of Australian conglomerate company, Wesfarmers Limited. The author is
set to look up for different strategic frameworks that could possibly have a favorable impact
on the management of Wesfarmers. A range of concepts and frameworks will be used to
assess the strategic position of the company in the context of Australian economy. The
macroeconomic situation of the industry will be evaluated by SWOT analysis to help the
author to identify the strengths, weaknesses, opportunities and threats related to Wesfarmers
Ltd. Moreover, the attractiveness of the industry would be evaluated using Porter’s Five
Forces Model which will help the author to emphasis over the viability of the industry.

Discussion
Wesfarmers operates with the core values of long-term objectives with the maximum level
satisfaction to its stakeholders. The vision of the company is to become a high performance
resource company which maximizes stakeholders’ interest and demands efficiently through
initiatives, growth and innovation. The brand image of Wesfarmers prevails over the
Australian economy as it holds a ranking in the 2000 recognized companies of the country.
The main customers of Wesfarmers in Australia are grocery stores and supermarkets.

The strategic ability of Wesfarmers Ltd is to be addressed under a microeconomic analysis

indicating the firm’s strengths, weaknesses, opportunities and threats. Hence, the following
SWOT analysis framework would critically analyze the organizational ability to identify the
required strategic changes for a strategic plan.
SWOT analysis

It is a considerable strategic planning tool to identify and evaluate the internal environment of
the company. The technique also identifies the strategic position of the company in terms of
its operational efficiency. It is intended to analyze the favorable and unfavorable factors for
achieving the corporate objectives of Wesfarmers.

Strengths
 Capital Expenditure generating good returns - Wesfarmers Ltd have a good
advantage over supporting new capital projects and generating revenue from new
streams as well.
 Vertically integrated suppliers – Wesfarmers Ltd have a dedicated base of feasible
and cost-productive suppliers allowing the company to any sort of bottleneck in its
supply chain management.
 Brand imagery and Goodwill – Wesfarmers Ltd have developed a strong market
presence over the years with a range of products and attractive brand portfolio.
 Cash flow- Wesfarmers Ltd possess the strength of strong cash flow position allowing
it to retain resources for new projects and expansion strategies.
 Customer satisfaction – Wesfarmers Ltd have a dedication consumer base in Australia
and New Zealand. A high level of customer satisfaction equates all of its strengths to
gain a competitive advantage in the industry.

Weaknesses
 Research and development – Wesfarmers Ltd are engaged in high expenditure of
research and development, however it falls back behind some of the industrial leading
firms who are mainly engaged in introducing their products and/or services based on
market research and tested features.
 Low inventory turnover – Wesfarmers Ltd are required to invest a considerable capital
amount towards inventories and supplies which could be damaging in long term.
 Diversification- Wesfarmers Ltd is comparatively weaker in the field of innovation
and segmentation of products according to the present culture.
 Inefficient financial planning – Wesfarmers Ltd have a relatively favorable current
asset ratio and liquidity ratio which suggests the company to efficiently utilize its
resources for a long term benefit.
Opportunities
 New consumer markets – Wesfarmers Ltd can increase its expenditure in the highly
growing industry to capture a good market share and new consumer markets.
 Online segment – Wesfarmers Ltd can gain the benefit from the modern-day
techniques of marketing i.e., ecommerce facilities to grow in the industry
 Environmental policies - Wesfarmers Ltd have an ideal opportunity to gain a
substantial benefits by complying with its Corporate Social Responsibility (CSR)
through sustainable operations and activities.
 Inflationary effect – Wesfarmers Ltd can relatively be benefited from the current low
inflation rate of Australia, enabling them to acquire credits and debt finance at low
interest rates.

Threats
 Currency fluctuations - Wesfarmers Ltd operates in Australia, New Zealand, India
and Ireland, which subjects the business to various threats in terms of currency
exchanges.
 Competition - Wesfarmers Ltd is highly exposed to a significant level of competition
in the industry where Rio Tinto, Telstra and NSW Health imposes huge competition
for the company.
 Substitute products - Wesfarmers Ltd faces a threat of non-performers with low cost
brand portfolio.
 Environmental policies and regulations – Wesfarmers Ltd could be seriously affected
by the Paris agreement (2016).

Porter’s Five Forces

The strategic management tool is used to analyze the industry in terms of profitability under
five different forces as underlined by Michael E. Porter in his 1979 publication Harvard
Business Review.

The following five forces will determine the competitive intensity and attractiveness of an
industry in terms of profitability and success.
Threats of new entrants
The entry of non-performing firms in Food and Staples retailing industry are working over
disruptive innovation to bring cost-productive items in the market, which imposes a
significant threat on Wesfarmers. Hence, the threat of new comers is high.

Strategy to overcome the force

 Research and development is the main source of innovation which will bring new
product and services from Wesfarmers to the market engaging potential customers
towards Wesfarmers’ products and services.
 The modern technology for sustainable production of goods can help Wesfarmers to
achieve economies of scale, restricting any potential new entrant to compete in the
industry.

Bargaining power of suppliers

The suppliers in the Food and Staples retailing industry have a high bargaining power due to
their dominant position. The profit margins of retailing firms are heavily impacted through
high pricing by suppliers. Hence, the bargaining power of suppliers is high.

Strategy to overcome the force

 Wesfarmers Ltd can build strong and effective supply chain models to commensurate
a high number of vertically integrated suppliers.
 The retailing firms can switch to other suppliers which will ultimately decrease the
extended bargain power of costly suppliers.
 Wesfarmers Ltd can build a dependent and dedicated supplier like Nike and Walmart.

Bargaining power of buyers

The demand of buyers is much higher in this industry and due to various available options
they put significant influence over Wesfarmers. A small and rigid consumer base is the main
reason for high bargaining power. Hence, bargaining power of customers is high.

Strategy to overcome the force

 Product diversification can be adopted by Wesfarmers to penetrate in other markets. It

can help the company to reduce significant bargaining power of customer by having a
relatively wide consumer base.
  Product innovation can engage many potential customers with increasing demands.
The discounts and offering demanded by customers will diminish if Wesfarmers keep
on introducing innovative and cost-efficient products in the market.

Threat of substitute products

The industry of Food and Staples consists of high number of cheap producers offering similar
products and services with a low price. However, products of daily life have less risk of
substitution. There exist a low level of preference for any sort of substitution if the purchaser
is satisfied with the existing product. Hence, the risk of substitute products is much less.

Strategies to support the force

 An effective customer-care service can help Wesfarmers to retain brand loyalty and
strong consumer base.
 The quality of the products is to be ensured to meet the demands of the customers.
 Discounts and offering for potential customers.

Competitive Rivalry
The rivalry in context to Australian economy is intense which leads to low prices and
ultimately decreased profitability of the manufacturers. The Wesfarmers Ltd is subjected to a
high level competition in the Food and Staples retailing industry where competition lasts long
enough to raise concerns for profitability of a company in long-run.

Strategies to overcome the force

 Product differentiation can help Wesfarmers to build a strong brand image in the
industry.
 The company can exploit economies of scale to raise barriers for any potential new
comer and existing industrial companies.
 Strong and cognitive collaboration with industrial competitors can help Wesfarmers to
reduce industrial rivalry to a considerable level.

Conclusion
The strategic management analysis of Wesfarmers had identified different parts of the
company. The microenvironment was contextualized with the help of SWOT analysis
framework where it was concluded that Wesfarmers can utilize its productive potential to
gain operational efficiency and success by working on its favorable factors and critically
overcoming the unfavorable factors. The company possess an overall strong and competitive
position in the industry and can strengthen its position with various qualitative techniques of
strategic management and evaluation processes. In addition, microeconomic picture was
therefore supported by the porter’s framework where five different aspects of the food and
staples retailing industry were analyzed. It was found that the company holds good position
with the capability to exploit economies of scale to reduce any kind of competition, however
high bargaining powers of customers and suppliers raise concerns over the efficiency.

Recommendations
The possible and generic recommendations for Wesfarmers Ltd according to the above
detailed discussion can be proposed as follows;

 Wesfarmers can implement various internal controls such as bookkeeping, customer

relationship management, marketing mix and network administration to keep the
organizational control into one single framework.
 The implementation of SAP Business One is highly viable, as it may offer many
opportunities to the business to examine and administer the performance management
and business activities effectively.
 An appropriate marketing mix with a dedicated framework including the all 4Ps
(product, price, promotion and place) will support the business to market its products
into a mass market.
 Proper stock control, distribution center administration, inventory cycles and client
administration are the key are which are to be held accountable to construct strategic
plans.
References
 Appendices

Appendix 1: Annual growth sales of Australia, 2020

Appendix 2: SWOT analysis

Appendix 3: Porter's Five Forces Model