You are on page 1of 19

Kingston University

Current and future strategic fit of Oliveology in the operational environment


Report

Chen Sergey ID k1104310


4/10/2012

Contents
Executive Summary .............................................................................................................................3 Introduction ..........................................................................................................................................4 Methodology ....................................................................................................................................4 Oliveology Overview and Strategy...................................................................................................5 Business model ................................................................................................................................ 5 Competitive Strategy .......................................................................................................................5 Future Strategy .............................................................................................................................5 Oliveologys customers ...................................................................................................................6 Customer journey .........................................................................................................................6 Market Position ................................................................................................................................ 6 Order winners and Qualifiers ...........................................................................................................7 Analysing the Fit ............................................................................................................................... 8 Current Fit .....................................................................................................................................8 Capacity .......................................................................................................................................9 Supply Network ...........................................................................................................................9 Process Technology ...................................................................................................................10 Development and Organization .................................................................................................10 Recommendations for critical points of matrix .................................................................................11 Long term investment ....................................................................................................................11 Capacity .....................................................................................................................................11 Supply chain............................................................................................................................... 11 Medium term investment. Alternative to a new shop ................................................................ 12 Short term investment ................................................................................................................13 Cost Analysis. Permanent shop vs. online shop ................................................................................14 Permanent shop .............................................................................................................................. 14 Online shop ....................................................................................................................................14 References ..........................................................................................................................................15 Appendixes ........................................................................................................................................16 Appendices A1 List of questions for interview shop manager ...................................................16 A2 List of questions for interview customer...............................................................................16 Appendices B A summary of customer interview ......................................................................18 Appendices C3 List of Oliveology products ...............................................................................19

` Oliveology. Strategic operation management

Executive Summary
This report has been prepared Ms. Marianna Kolokotroni, owner of Oliveology. And briefly describes strategic fit within a changing operational environment.

Oliveology sells high-price products, such as olives, olives oil, tea and honey at shop on Brought market and online shop. Shop shows Defenders type of strategy that interesting in unique products with high quality of products

The current market requirements for its products (expressed as performance objectives) are cost (high price), quality of products, speed in logistics network and, (in case of open new shop and having backup). Oliveology has met these market requirements through operations capabilities and decisions about capacity, supply network, process technology, and development and organization. Current fit shows a critical gap in capacity, supply network and process technology and also possible solution to achieve them. Oliveology needs to address potential changes in market tastes and requirements and recommendations include focusing on sustainability including contracts with suppliers, and focus on uniqueness. In order to complete the current and future market, Oliveology should consider finding secondary supplier that supply less amount of olives than the main supplier but more flexible in term of ordering cycle. Thus, the shop could reduce the chance of the product is in short supply. Another recommendation is to invest into online business rather than open a new shop. Cost analyze shows how much Oliveology could save if they will work more on improvement of website.

` Oliveology. Strategic operation management

Introduction
This report has been prepared Ms. Marianna Kolokotroni, owner of Oliveology. It will analyze Oliveology current and future market requirements and operations and capabilities. It will shoe current and future fit, including recommendations to address challenges in sustaining fit.

Oliveology has opened in Borough Market since June 2009 by a Peloponnesian lady named Marianna Kolokotroni. The shop located in Jubilee market and open on Thursday Saturday from 11 17. Oliveology provides high quality products from Sparta. List of product can be found in Appendices D3. Oliveology focuses on organic and exclusive olive products that are using the traditional method and sustainable technique. Therefore, the products are different from others in term of quality and unique. Consequently, the price is higher as well \, but Oliveology offers a variety of price ranges from 9 30.

Methodology
The report based on direct observation and interviews with the owner of the shop and their customers in Borough Market. Twenty customers were chosen randomly to do the interview. The list of questions can be found in Appendices A1 and A2. The interviews with owner give a clear operation process including current strength and weakness of shop. Moreover, direct observation during survey shows how employees respond to their customer and technique to motivate potential customer to make a purchasing decision.
For the customer interview, each customer was asked short questions in order to discover order winner and qualifier. There was 95% response (19 out of 20). The Summary of customer interview, see Appendices B. Personal information was not collected, the survey is completely anonymous.

` Oliveology. Strategic operation management

Oliveology Overview and Strategy


Business model
The Oliveology business model is a good example of co-productivity; even its a young company with low income in the beginning. According to Fame (2010), the shop has slight sale in the first year while a setting up, branding and website costs are considerably higher. Since 2009, the company has created a stable supply chain model from Sparta to the customers, due to the unique products from Greece. We only work with independent, artisan farmers who produce truly high quality items using traditional and sustainable techniques. In this way, we can help preserve traditional methods and support independent local producers in Greece. (Oliveology, 2012). The philosophy of the company is to share the highest quality products, bringing good health and promoting sustainable living through fair trading and organic farming. We believe strongly in the benefits of organic food both to individuals and to society as a whole. (Oliveology, 2012) Nevertheless, the shop continually grows up about 10% in the following years. (Marianna, 2012)

Competitive Strategy
The Oliveology shop locates on Borough market. There are 7 competitors on the Borough market with similar products such as olives and olives oil. Although, the price on products of Oliveology is higher, according to customers opinion the product quality of Ovileology is much better than other competitors. According to Conant, Jeffrey S.; Mokwa, Michael P.; Varadarajan, P. Rajan Oliveology shows defenders type of strategy (1990)

Dimensions Product- market domain Success posture

Defenders type Narrow and carefully focused on products Prominence in their product market Domain (dominated and

Oliveology Owner interesting in unique products with high quality Customers are fully satisfied Owner gives to taste products for free. Also check all amount of products. Carefully involved new products such a honey and olive tea

Surveillance

cautious/strong organizational monitoring)

Growth

Cautious (penetration and advances in productivity)

Figure 1 Type of business strategy

Future Strategy Oliveology plans in the future to open a new shop somewhere in London markets and also invest more in online selling (Marianna, 2012). However, further in the report will show the analyze of the fit and
make question, should owner open a new shop or not?

` Oliveology. Strategic operation management

Oliveologys customers
Most of the customer is 30 - 40 age group including young professional, young family and people who concern about their health, diet and sustainable living. The direct observation shows that most of Oliveologys customer is from outside London who passing by the shop and interested an organic olive. Almost customer mentions that the owner and staff are very informative and products are good quality, authentic and unique. There is also regular customer who comes here once a month for two boxes of olive. Furthermore, Oliveologys olive can be found at Elliots Cafe which located in Borough Market as well. The online customers go further than UK dweller. The shop has customers from France, Russia, Ukraine and Hong Kong as well.

Customer journey
Pre-transaction: Potential customer usually stops for tasting olive sample that comes with big size. There are about six different types of olive and each of them has an individual description beside. On-transaction: Whilst customer tastes the olive, staff will explain the origin and information about the olive in detail which usually take about 2-3 minutes. Post-transaction: The staff will pack the product into the paper bag and also give a postcard (picture of the olive farm) for free. Finally, the customer will get a small cup of olive leaf hot tea as a complimentary after a payment.

Market Position
Oliveology defines itself on the dimensions of high cost, quality and unique Greece products (see Figure 2).
High High Oliveology

Supermarkets (e.g. Tesco) / Other retailers

Uniqueness

Quality

Other shops on Borough market with similar products

Other shops on Borough market with similar products Supermarkets (e.g. Tesco) / Other retailers

Oliveology

Low

High

Low

Cost Figure 2. Market position

Cost

High

` Oliveology. Strategic operation management

Order winners and Qualifiers


Factors Order winner or Qualifier Strategy

Exclusive Quality Product Quality Customer service Product reliability Suppliers Product variety Online sells

Order winner Order winner Order winner Order winner Order winner Order winner Qualifier

All products are authentic and unique. The products have been using organic farming method. Staffs are informative and friendly. They usually spend approximately 2-3 minutes to describe the product. The products are the produce of Greek artisan farm. The owner has unique products from suppliers in Greece, who are responsible for delivery to the UK Olive oils, organic unpasteurised olives, olive leaf tea, St. John's worth oil and raw mountain honey are available. Online sell opens broader target market, however website does not bring a big income yet. Not many customers know about it.

Store design Service speed

Qualifier Qualifier

The design and decoration of the shop create natural sensation. Although staffs usually spend a couple minutes explain about product, there is not too many customers come to shop at the same time.

` Oliveology. Strategic operation management

Analysing the Fit


Current Fit
The strategy, in general, refers to how this goal will be achieved. Consequently, the strategy as a whole is dealing with the relationship between means and ends, that is, between the results that we look for, and resources at our disposal. Strategy and tactics are interested in developing and implementing courses of action aimed at achieving specific goals. For the most part, the strategy associated with the deployment of resources at your disposal, while the tactics associated with them. Together, strategy and tactics bridge the gap between goals and means (Nickols, 2010). To understand this bridge we should use operation strategy performance objectives. There are five main objectives of the business are quality, speed, reliability, flexibility and cost. The five main objectives of the performance of cross four main decisions: capacity, supply networks, and development process and organization. The decision areas illustrate the key resources in a company that affects the ability to perform in each of the main performance objectives.
Quality

3)Relationships with suppliers *

7) Customers communication *

Speed

4)Delivery Depending on risks *

Dependabil ity

1)Order the products only once a year***

5) Location and number of suppliers*** 6)Sells online*** 8) add new product (Honey and tea for free)**

Flexibility

Cost

2) Location and number of retail stores ***

Decision areas
*** Pivotal ** Critical * Secondary

Capacity

Supply Network

Process Technology

Development & Organization

Figure 3. Current fit

` Oliveology. Strategic operation management

Market Competitiveness 8

Performance Objectives

Capacity 1) The shop has a chance to order only once a year due to the farm is quite small \, and some product is exclusive which made in small quantity; however, the delivery can happen several times during the year. Normally, Oliveology orders 1 2 tones of olive each year and the number increases every year. (Marianna, 2012) 2) At the moment, Oliveology has only one retail shop on the market and one rented

warehouse in London, Hackney. The current store and warehouse affect cost due to rent payment, however, the income, according to owner, is enough to cover all rented price. Supply Network 3) All product of Oliveology originates from Sparta beside raw mountain honey which has a source at Parnonas Mountains. The partnership between owner of Oliveology and supplier in Sparta based on cognitive trust. By knowing how each other see the world, each partner is able to predict how the other will react (Slack Lewis, 2011). The owner in touch with supplier every Friday by phone. The supplier has a farm that offers different olive from other farm and come with high quality\, but the price is two times expensive than others. Additionally, the famer is innovative, creative and friendly. (Marianna, 2012) 4) The delivery can reach the UK via Italy, Switzerland and France within 3 5 days

depends on stops and risks such as decision-maker related factors, environmental and organizational factors. As a result, dissatisfaction of customers due to effect of supply chain risks. 5) At the moment, Oliveology has only one supplier for olives, which could be an issue in

business. In case if something could happen with the supplier that Oliveology owner can lose income. On the other hand, raw honey has two suppliers and the product is very new, the owner decided to order in small batch \, and it delivers by lorry.

Figure 4. Current Oliveology supply chain

` Oliveology. Strategic operation management

Process Technology 6) Oliveology.co.uk is an official website of the shop where online sale is available. The website consists of detail of suppliers farm, product description, recipes and news. Customer could update product list and traditional Greek recipe from the website as well. Oliveology has created an online community by using social network Facebook. The shop gives away its olive oil tin for anyone who passing by. However, people who take the tin are required to send a photo of how the tin is being used. The photo will be shared at Oliveology page in Facebook. Development and Organization 7) Oliveology has created an online community by using social network Facebook. On the page customers are able to leave feedback about service and products. The shop gives away its olive oil tin for anyone who passing by. However, people who take the tin are required to send a photo of how the tin is being used. The photo will be shared at Oliveology page in Facebook. 8) The manager decided to add raw honey into product category which its price starts from 4. Marianna adds It is a successful product compares to olive oil which its price goes up to 30. It is much easier for someone to give 5 and it is also Greek traditional product. The shop gives a small cup of olive leaf hot tea as a complimentary. This is an indirect way to introduce a product to the customer. As the outcome, customer appreciates the service and sometimes decides to purchase olive leaf tea as an extra.

` Oliveology. Strategic operation management

10

Recommendations for critical points of matrix


Long term investment
Capacity Owner plans to open a new store in London. Separating capacity into several small units may be necessary if demand for a business`s products is widely distributed (Slack, Lewis, 2011). According to observation of Borough market the olives products are very popular, because customers, seem, nowadays are interesting in organic and healthy products rather that same products in other stores (Sainsbury) brought from nowhere. In addition, for example, stuff of Oliveology spend 2 to 4 minutes to explain customers how use products and why it useful. Creating a new shop will

increase costs because of the difficultly of exploiting economies of scale possible in large units (Slack, Lewis, 2011). However, it can increase the total income in the future, but also it could direct effect on transportation costs in supplying its distributed market. Demand related issues The Oliveology focuses its capacity planning efforts towards meeting its customers` requirements. To do this, it needs to manage demand, which involves identifying the nature and size of the demand and determining how the company is best going to meet it. (Hill, 2011) Whereas seasonality of demands occurs over a year, predictable variations in demand also occur at shorter intervals. To distinguish the two, the latter are normally known as peaks, and, as with seasonality of demand, they are caused by recurring factors that can be identified (Hill, 2011). For example, according to owner, the peak of income goes for summer and autumn periods (from June to October), as Oliveology located on Borough market which is one of the popular place for tourists in the warm period (Lonely planet, 2012).

Oliveology is a very young business (since 2009), and according to Fame (2010) the turnover at 30/06/2010 was 3280 GBP; profit -27563 GBP, however, according to owner, the profit stabilized only in 2012 and shows 10% increase. Hence, to open a new shop would be a good idea for Oliveology, if only the company will show the same performance since they have opened in 2009. Supply chain As was mention before in strategic operation matrix, Oliveology uses only one supplier for the main products (olives, olives oil and tea) which able to do the delivery only few times a year by small bunches, and only once a year to supply a big delivery. (Mariana, 2012). As a result, it could
` Oliveology. Strategic operation management 11

have an effect on inventory and increase the supply risks. The shop owner reveals that the shop often
runs out of product, and she needs to wait until the next order cycle. According to interview, the shop acquires 80 per cent of entire products from one supplier in particular can be ordered once a year; this could make the shop to be in short supply situation frequently.

In order to complete the current and future market, Oliveology should consider to find secondary supplier that supply less amount of olives than the main supplier but more flexible in term of ordering cycle. Thus, the shop could reduce the chance of the product is in short supply. Assessment of the company should be based on Cost, location, target market and high quality products. Should be from Greece or at least have the same quality. Reliability. Supplier that have the resources to devote to backup sources, so if something goes wrong, they can perform their duties for you. Stability. The company, which has long been on the market, is a good sign, and a solid reputation with other clients is a promising indication that the company is stable. Advantages and disadvantages of new shop and a new supplier Capacity
Can potentially reach broader audience

Supply Network
May increase the availability of products to customers Could potentially reach a new shop, if owner decide to

Reduced cost through reduced investment in shops. Good for customers who want more products from Oliveology, for example, one customer wish to have the same shop in Manchester Can showcase existing product range

open it.

Backup of current capacity

The main disadvantage is the investment of money will significantly increase and will have an effect on turnover. In both cases (new shop, and new supplier) there will factors influencing on the new shop or the new supplier, such as, for example petroleum, insurance, local taxes, government financial or planning assistance, facilities investment and etc. Medium term investment. Alternative to a new shop Does Oliveology need to open a new shop? Since 2011 Oliveology has run a website Oliveology.co.uk. Nowadays, online sale for the shop is still in a small part of business therefore,
` Oliveology. Strategic operation management 12

the shop will invest more in online marketing and improve its website in the next year. (Mariana, 2012) Benefits of online sell (Business Link, 2012)
Save operational costs. You don't need to pay rent on the market, pay salary to assistants or answer a lot of pre-sales questions. Reach a global audience, hence increasing sales opportunities and number of customers. Compete with larger businesses by being able to open 24/7. Receive payment from online transactions directly to your account. Attract more customers who would have never been to the Borough market. Improve supply data collected by tracking customer purchase. Use the online shop as a catalogue for existing customers.

Ann Rooney, the director of Suki Teahouse Ltd, who sells leaf tea since 2005 and used to have similar operation process as Oliveology (Business Link, 2011). However, she has changed the business strategy mostly into online selling which goes now 50% of all sells, 10 % goes to selling in store and 40% goes to the restaurants. According to Fame (2012) since company changed strategy the Net Tangible Assets increased from 6.448 GBP (2007) to 35.386 GBP (2008), moreover in 2010 it was 74.348 GBP.

Short term investment


Loyalty card The card can encourage the customer to repeat purchasing. For instance, the customer who buys eight boxes of olives (250g per box) will receive a honey as a complimentary. Consequently, the increasing of sale volume could be the result. Glove use None of these three shops use glove when serving and preparing food items. Using glove can create hygiene perceptions among customer receives the service. Weigh scales Above three shops place their weigh scales inside the shop for only staff can see the screen. Based on interview with customers, they would like to see the weight for accuracy as well. Therefore, weigh scales should be located in the customers eyesight.

` Oliveology. Strategic operation management

13

Cost Analysis. Permanent shop vs. online shop


Permanent shop
To open a new shop cost a big amount of money. It includes assets, such as rental cost (6 months minimum), electricity, water, new equipment, design of new shop, which can run into the thousands of pounds. Let's take a moderate figure of 10000 for repairs, the sign of the establishment, closing costs and costs for equipment. According to Gumtree (2012) the average price for rent in center London is 270 /week or 1080 /month, depended on the location.

In addition, in the shop you need at least two member stuff who will work from 9am to 5pm, 7 days a week. Salary, mid 10 per hour, that will be 180 each day, 1260 per week, 5040 per month.

Total cost: 10000 first investment and 6120 for rent and stuff salary. Not include transportation cost from suppliers.

Online shop
Oliveology already has a website; however they have to pay a hosting cost around 18 per month. Plus you will need a technical assistant which cost about 1000-1500 per month. Oliveology should invest more into advertising (20-30 per month) and might be change the design of the website (about 3000)

Total cost: 1548 per month, plus addition 3000 for change a design.

` Oliveology. Strategic operation management

14

References
Borough Market (2012) International food. Available at: http://www.boroughmarket.org.uk/ (Accessed: 5 April 2012). Business Link (2012) Create an online shop [ONLINE] Available at: http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1073792461&r.i=1086385509&r.l1=1073861169 &r.l2=1079589261&r.l3=1074021940&r.s=m&r.t=CASE%20STUDIES&type=RESOURCES [Last Accessed 8 April 2012]. Conant, J.S.; Mokwa, M.P.; Varadarajan, P.R (1990). Strategic Types, Distinctive Marketing Competencies and Organizational Performance. [ONLINE] Available at: http://proquest.umi.com/pqdlink?Ver=1&Exp=0405-2017&FMT=7&DID=809749&RQT=309&clientId=18060&cfc=1. [Last Accessed 6 April 2012]. Gumtree (2012) Rent hunting [ONLINE] Available at: http://www.gumtree.com/search?q=&search_location=London&category=retail-officespace&search_scope=title&seller_type=&min_price=&max_price= [Last Accessed 9 April 2012]. Hill, A. and Hill, T. (2011) Essential Operations Management, London: Palgrave Macmillian Lmt. Nickols, F. (2011). STRATEGY, STRATEGIC MANAGEMENT, STRATEGIC PLANNING AND STRATEGIC THINKING. [ONLINE] Available at: http://www.nickols.us/strategy_etc.pdf. [Last Accessed 6 th April 2012]. Nickols, F. (2011). Strategic Decision Making. [ONLINE] Available at: http://www.nickols.us/strategic_decision_making.pdf. [Last Accessed 7 April 2012]. Oliveology (2012) The finest Greek artisan products in harmony with nature. Available at: http://www.oliveology.co.uk/ (Accessed: 5 April 2012). Oliveology Ltd (2010), FAME [Online]. Available at: https://fame2.bvdep.com (Accessed: 7 March 2012). Slack, N.; Lewis, M, (2011). Operation Strategy. 3rd ed. England: Pearson Education Limited.

` Oliveology. Strategic operation management

15

Appendixes
Appendices A1 List of questions for interview shop manager
Question for Manager How long have you been in Borough Market? What is the most popular product? Do you make all products by yourself or buy from elsewhere? Where do you get material from? UK or abroad? How many suppliers do you have? Where do you prepare your food? Can you tell us about the ordering process? - Ordering via internet, phone or visit the supplier - Order in big amount? - Frequency of order - Delivery or pick up the material - Warehouse Have you ever face the problem with those suppliers? How can you handle the issue? Who is your major customer? Where customer can find you except Borough market? Do you have a website? Do you do online sale? #####

A2 List of questions for interview customer


Question for customer Where do you live? Can you find a similar product in your neighborhood? How often do you come to buy product from the shop? What is your favorite product? Why you choose this shop instead of others? ` Oliveology. Strategic operation management 16

What do you think about the service provides by the staff or manager? Any suggestion for the shop?

` Oliveology. Strategic operation management

17

Appendices B A summary of customer interview


C3 : Oliveology customers response
Customer / question How often do you come to buy product from the shop? What is your favourite product? Why you choose this shop instead of others? What do you think about the service provides by the staff or manager? Scale 1-often 5-seldom 1 1 Olives 1-7* 1 - like; 5- dislike 2,3 2 5 Honey 2 3 3 Tea 2 4 3 Olives 2 5 2 Honey 5 6 5 Honey 4 7 1 Olives, Tea 2,4,6 8 5 Olives 5 9 5 Tea 2,5 10 5 Honey 4 11 12 2 Olives, Tea 2,4,6 13 4 Olive 4 14 3 Tea 4 15 4 Olives 2 16 4 Honey, Tea 2 17 4 Honey 3 18 1 Olives 2 19 3 Honey 5 20 2 Honey 4

*The numbers represent following terms; 1 = Location, 2 = Product Quality, 3 = Product Variety, 4 = Product Reliability, 5 = Customer Service, 6 = Exclusive Product, 7 = Brand Name

` Oliveology. Strategic operation management

18

Appendices C3 List of Oliveology products


1. Single estate organic extra virgin olive oils 2. Organic unpasteurised Kalamata olives 3. Olive leaf tea 4. St. John's wort oil. 5. Raw mountain honey (Available in Orange, Pine, Wild flowers and thyme)

` Oliveology. Strategic operation management

19