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Strategic management at JB Hi-Fi Essay

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Updated: Jan 9th, 2019

Executive Summary

Strategic management is a vital aspect that has ample and diverse benefits which when properly implemented, increases enterprises output through performance amplitude, improvement of quality, productivity, commitment and motivation levels. In JB Hi-Fi, strategic management is a continuous and interactive process that has been implemented and integrated as a whole in its macro environment. In its micro-environment, several factors such as legal, social, economic and political factors impacts on the business’ management strategy.

Public policy makers and marketers in the JB Hi-Fi are faced with various market challenges that include threat to entry, rivalry between competitors and bargaining power. Others include cost disadvantages, access to channels of distribution, switching costs, capital requirements, product differentiation and economies of scale. These barriers hinder potential entertainment products from entering profitably in the market.

Its competitors include Megamart, Target, Kmart, Coles Myer-Myer, Tandy and Harvey Norman among others.
Rivalry between JB Hi-Fi and its competitors has been on the rise. The latter increases when differentiation is low, myriad barriers for entry, higher fixed costs as well as when declining and flourishing markets. However, through the competences of the company, it has managed to exploit and new marketing opportunities.

The strategic initiatives of JB Hi-Fi targets growth through the sale of its large range of entertainment products. To achieve this, it attracts its price sensitive customers and enthusiasts through discounted prices. Currently, the company has some sustainable advantage and makes tremendous gains because of its inarticulate strategic intent, competencies and resources that are non-substitutable and unique.

Introduction

In a business enterprise, excellence and success are influenced indirectly or directly by strategic management given that they are guided by internal and external factors.

In a business, management involves processes such as controlling, coordinating, directing, organizing and planning (Kroes & Ghosh, 2010). Strategic management is a vital aspect that has ample and diverse benefits that with proper implementation, increases the output of a business through performance amplitude, improved quality, productivity, commitment and motivation levels.

Other benefits include the fact that it facilitates and aids in identifying inabilities and capabilities directed at current and future expectations as well as necessities. In JB Hi-FI, strategic management is a continuous and interactive process implemented and integrated as a whole in its macro environment. This essay offers a succinct analysis of strategic management in JB Hi-Fi Company in Australia.

Company background and information

JB Hi-fi was founded in 1974 in East Keilor, Melbourne as a single store. This company, whose initial business dealt with vinyl records and CDs, has in the recent years expanded and diversified as a major retailer of IT gadgets, DVD movies, computer and video games, in-car entertainment, portable audio, LCD, plasma televisions and digital photograph camera (Helfat & Peteraf, 2003).

Established in Melbourne, it has over 26 stores that are spread far and wide in countries and cities such as Auckland, New Zealand and in other major cities in Australia. In these destinations, it operates from shopping centers and stand alone sites. Additionally, it also imports CD’s from South America, Africa, United States and United Kingdom.

Today, JB Hi-Fi has opened larger-sized stores in Perth and Adelaide, relocated some of its existing stores to new areas and expanded its retail space purposely to enable the sale of all its product categories to grow. Besides, it has established superstores and shopping center locations for DVD and music in the aforementioned destinations. It has introduced system software in the business for enhanced management, management information and point of sale system (Helfat&Peteraf, 2003).

In terms of customer proposition, JB Hi-Fi offerings are of rare quality, and as such, it gains them a competitive advantage. Its offerings include customer services that are both informative and informal. Through these offerings, they promote and provide customers with a shopping experience that is distinctive and enjoyable. Additionally, it provides low price offerings that are consistent and branded home entertainment products of a broad range that appeals to customers.

JB Hi-Fi Annual financial reports

According to the Australian Bureau of Statistics (ABS), JB Hi-Fi business annual report for the year 2010 indicated remarkable returns in terms of growth in sales and innovation. For instance, its retail turnover rose by over 0.7% and its sales to $20.4 billion in July 2010.

In the same year, the company experienced a consumer sentiment index rebound resulting from an increase in consumer spending. As such, its consumer spending index since July 2010 stands at 5.4% and is projected to grow during 2011 by 3.2%. Technologically, the same year marked the growth in sales of HD and 3D TV’s. Additionally, the company maintained its competitive position in the sale of DVD’s .

It is imperative to note that the growth rate in terms of revenue the company has seen in the period FYO7 to the period FY10 has been characterized by high returns at 30.70% per annum. Research studies attribute this to growth in store sales owing to new store openings in the year, locating of stores in strategic points and filling in the gaps to increase sale volumes and gain deeper penetration in the market.

Macro-environment analysis

A business environment is composed of aspects that are within and without a business, and that affects its strategy. Basically, a business environment is divided into two broad categories such as industry environment and macro-environment. In any business, an environment is a very vital aspect. Its changes generate threats as well as business opportunities (Garcia-Morales, Llorens-Montes &Verdu-Jover, 2007).

JB Hi-Fi understands its environment, challenges, and opportunities as well as threats it presents as well as its implications and how to survive. This can be achieved by collecting competitive intelligence, monitoring and scanning the environment.
The reason why conducting a macro-environment analysis is vital to JB Hi-Fi Company is to determine how external factors that are beyond its control can influence the success or failure of its management strategies.

The extent at which an organization can be effective is often pre-determined by myriad of factors. The mode used to implement policies and strategies devised by JB Hi-Fi, as well as how its human resource pool is organized is a factor that may determine its success level.

All these are vital in achieving an organization’s purpose in production (Helfat &Peteraf, 2003). Besides, the running of the company and achieving its purposes requires knowledge in the use of information technology and its management. In an organization, decisions made by managers are effected by factors in the macro-environment such as government policies, demographic change, trade barriers, new laws and tax changes.

In analyzing the macro-environment of JB Hi-Fi Company, Garcia-Morales, Llorens-Montes &Verdu-Jover (2007) argues that reaching the goals set by the company requires identifying factors that influence organizational environmental process, current and future risks, as well as opportunities and capacities. JB Hi-Fi organizational macro environment is made up of legal, technological, social, economic and political factors.

Technological environment

JB Hi-Fi business and its information systems are made up of work systems, technologies, structures, and people. Most of the design work is done by the managers and the IS practitioners. Making its ICT system effective requires proper management strategies with a design activity that is extensive and that covers organizational design and infrastructure (Kroes&Ghosh, 2010).

ICT provides businesses and organizations with solutions to identified organizational communication issues through evaluation and creation of IT artifacts. A technological environment is a problem-solving paradigm that creates innovations that enable efficient and effective accomplishment of the information system.

This is achieved through communication, speed of technology transfer, management, design, and implementation, analysis of products, technical capabilities, practices and ideas (Kroes&Ghosh, 2010). For JB Hi-Fi business to succeed in its management strategy, monitoring its technological environment will assists it in defining the various information perceptions valued within it.

Additionally, its goals, tasks and opportunities will be well defined under technological environment. It is important to note that perceptions in an organization are controlled by the characteristics of people, their capabilities and roles while the assessment and evaluation of the needs within an organization are done within the existing business process, culture and organizational strategies.

A better technological environment will address management strategy requirements within JB Hi-Fi business by providing development capabilities and new discoveries in nanotechnology, communication architectures, applications and the existing technology infrastructure.

Economic environment

Australia, like most nations in the world, has been affected by unstable equilibriums. A shift from short run to long run equilibrium is due to economic forces determined by a slight deviation in wages and prices from the equilibrium. For instance, price decline is induced by excess supply of products services or output supply or demand equilibrium is shifts from the market situation when the quantity supplied is unequal to the quantity demanded(Raisinghani& Meade, 2005).

Being that equilibrium indicates a state of balance, lowering of prices of commodities or services will create a new equilibrium in the market due to the disruption the existing balance. In the same manner, employment and aggregate output causes fluctuations in most economies. The level of employment and unemployment rises and falls during such time.

Unemployment remains high and the labor market becomes slack. In turn, this affects the ability of JB Hi-Fi business to employ more workforce and make better sales. Additionally, in calculating GDP per capita of Australia, the total goods and services produced within a given period of time is summed up then divided by the total population. Although this value is economically impressive in Australia, it does not directly imply that businesses are doing pretty well.

Political environment

Local governments and the states face tough fiscal times due to economic downturns. It has been observed that due to this, the state tightens up its fiscal belt and this leads to the slowing down of the economy due to the potential driving down of consumer demand and increasing unemployment (Kroes&Ghosh, 2010). Economic recovery might be further delayed should the state cut down its budget. In turn, this impacts on the success of the management strategy JB Hi-Fi business has.

Therefore, a countercyclical macroeconomic policy is required as it plays an important role of moderating both busts or poor periods and booms- richer periods that would lead to negative effects thereby stabilizing the economy. Expansionary monetary policies, tax cuts and increased budget on spending are some of the roles the government may have to play during downturns

Legal environment

The legal environment in which JB Hi-Fi industry operates has significant legal changes that affect its operations. The areas affected by the changes include demand for products or services bought by customers and the cost incurred for developing new procedures and systems.

Additionally, on issues related to ethical evaluation and philosophies, research studies have pointed out that there have been gaps between marketing activities and the consumers(Raisinghani& Meade, 2005). Quite often, the marketing ideas and perceptions results into problems and conflicts caused by public perception of the products being marketed and this may cause boycotts, protests and other disapproving behaviours by the public.

Even though to the marketers seeking to gain from the services or products this may be ethical and laudable, the public, though not all may consider it to be unethical, unacceptable and exploitative. On the other hand, marketers basing their concern under the First Amendment may consider it infringement of their legal rights if their freedom to market is restricted.

Competitive analysis

Understanding the competitiveness of the market exchange requires that factors such as market selection, consumer characteristics and nature of the products be understood. Public policy makers and marketers in the company are faced with different market challenges that include threat to entry, rivalry between competitors, bargaining power and threat of entry (Kroes & Ghosh, 2010). The competitors of JB Hi-Fi include Megamart, Target, Kmart, Coles Myer-Myer, Tandy and Harvey Norman among others.

Threat of entry

the market for JB Hi-Fi products is faced with entry barriers such as statutory, strategic and structural barriers that make it less contestable. Some of the barriers include monopoly, sunk costs, international trade restrictions, heavy expenditure on research and development, marketing and advertising, cost advantages, limit pricing and patents (Parker & Russell, 2004). Others include cost disadvantages, access to channels of distribution, switching costs, capital requirements, product differentiation and economies of scale.

These barriers are a hindrance to potential entertainment products from entering profitably in the market. This is evidently seen in the manner in which dominant entertainment companies monopolizes the market with some of their products. In the long run, the incumbent firms in the market fail to make profits as dominant companies use their monopoly power to protect them from getting profits (Raisinghani & Meade, 2005).

Eventually, companies enjoying monopoly power in the market make and maintain supernormal profits. Potential entrants in the entertainment market face exploitation because of the asymmetry in cost existing between them and the incumbent firms. As such, incumbent firms enjoy a cost advantage and economies of scale over other companies that want to enter the market.

Additionally, to block entrance of other new entertainment products suppliers and firms in the market, they use predatory pricing policies to lower or cut down the prices of their commodities. This eventually works to their advantage in securing their market dominance and gaining in cost advantages inasmuch as it lowers their profit margins. At this point, any potential entrant into this market is bound to run at a loss.

Threat of substitutes

In a market where there are many similar entertainment products, consumers are bound to switch or turn to products that offer similar services. Being that JB Hi-Fi is not a sole provider of entertainment products, it is faced with challenges and threats of substitute goods. In this market, businesses are striving to produce diverse goods that meet the needs of consumers at a relatively low cost. Most consumers buy substitute products that sell at a cheaper cost.

Bargaining power of buyers and supplier

In determining the bargaining power of buyers of JB HI-Fi products, it is imperative to look at three reference points that includes aspiration price, market price and reservation price. The latter price is one that buyers feels he cannot meet and due to the indifference, may seek to stop bargaining and seek alternative products from JB Hi-Fi competing suppliers or switch from one brand to another. Many buyers of JB products have a high bargaining power and would go for relatively cheap products after comparing them online.

Additionally, since JB Hi-Fi has its product reservation price, buyers who seek to establish suppliers cost structure research the market and come up with their aspiration price. However, in most cases, JB Hi-Fi market price information and its opening offers affect buyers’ aspiration price. On the issue of market price, buyers gather fundamental information on products in the market and retailing industry.

As such, their buying power increases especially when there are

Suppliers

Using the same reference points of market price, reservation price and aspiration price, it is important to note that the bargaining power of supplies of JB Hi-Fi is low. This is advantageous to the retailers of JB Hi Fi as their products are further strengthened and negotiations are positive. This ensures that they receive at lowest possible price from the suppliers. To suppliers, the lowest possible selling price is the reservation price. At this point, if it is high, buyers in JB Hi-Fi will walk away.

To sum up, the bargaining power of buyers and suppliers affects the profitability and viability entertainment product firms. These firms register low profit margins due to demand shocks and contractions that appear in wide scale (Garcia-Morales, Llorens-Montes & Verdu-Jover, 2007).

Rivalry between competitors

Rivalry and competition is considered as the strongest among all other forces in the model. The strength of rivalry is determined if rivals are aggressively employing various means of overcoming competition as well as means of acquiring bigger sales and stronger market position.

In the case of JB Hi Fi, competition is intense. All of these competitors produce similar products as well as offer same service to consumers. In the entertainment industry, producing and selling of similar products by different companies creates rivalry and competition. Rivalry increases when differentiation is low, barriers for entry is high, fixed costs are high and when a market is declining or becoming mature. Other reasons include when competitors seeking leadership are aggressive and of equal size.

Resources and competences of the firm

Core competencies are vital elements of strategic management since firms such as JB Hi-Fi use them to delight customers with services and products, exploit emerging markets and invent new ones. Competence can be defined as a process whereby individuals or organizations coordinate and mobilize resources.

Capabilities that businesses need as part of gaining competitive advantage over other competitors are referred to as core competencies (Johnson, Whittington, & Scholes, 2011). Core competencies of a corporation can be built. This is achievable through forging strategic alliances, ensuring that business units are infused with resources and investing in technologies that are needed.

Due to globalization, marketplace is going through intense competition. As such, JB Hi-Fi business resources are mobilized in order to improve, sustain and support organizational performance. It efficiently uses the concept of RBV per unit of applied value to obtain optimum amount of benefit (Kroes & Ghosh, 2010). Additionally, it ensures that its streams of technologies are integrated, diverse production skills are coordinated and collective learning is practiced within the company.

The business strategy the firm implements

As a business, JB Hi-Fi has put in place strategic initiatives that targets its growth through the sale of its large range of entertainment products. To achieve this, it attracts price sensitive customers and enthusiasts through discounted prices (Hunt & Davis, 2008). Low prices aid the business in underpinning competitive prices. Its strategy in the home entertainment market is to target segments of high growth, open more new stores while improving profitability and efficiency of the existing ones.

Suitability of the firm’s current business strategy

The firm’s business strategy is suitable in the sense that it increases its competitive advantage by developing and building focus on core competencies. Due to the intensive competition and increasing uncertainty in home entertainment market, JB Hi-Fi has a sustainable advantage and makes tremendous gains because it has an articulate strategic intent, competencies and resources that are non-substitutable and unique (Garcia-Morales, Llorens-Montes & Verdu-Jover, 2007).

Additionally, its business strategy has been witnessed in the manner in which it has managed to combine organizational knowledge, integrated technology and coordinated production skills. It is vital to observe that its strategic capabilities transcend both operations which are geographically dispersed and areas of traditional functions through creation of supportive infrastructure via investments.

Conclusion

In summing up, it is vital to reiterate that better management strategies creates room for core competencies such as customer responsiveness, influence and communication that are generic and prudent in managing organizations to successful end.

Looking at management strategy in a focused and coherent fashion may be cumbersome, but where sustainability is an issue, it keeps companies alive. Most importantly, it has yielded significant success in JB Hi-Fi business giving it a competitive edge. In this business, critical catalysts giving it significant competitive edge include vibrant and dynamic leadership in addition to well enhanced core competencies.

Reference List

Garcia-Morales V.J., Llorens-Montes F.J. & Verdu-Jover A.J. (2007). Influence of personal mastery on organizational performance through organizational learning and innovation in large firms and SMEs. Technovation. 27(9), 547-568.

Helfat, C.E. &Peteraf, M.A. (2003). The dynamic resource-based View: capability lifecycles. Strategic Management Journal. 24(10), 997-1010.

Hunt, S.D. &Davis, D.F. (2008). Grounding Supply Chain Management in Resource- Advantage Theory. Journal of Supply Chain Management. 44 (1), 10-21.

Johnson, G., Whittington, R., & Scholes, K. (2011). Exploring Strategy: Text & Cases (9th ed.) Sydney: Prentice Hall.

Kroes, J.R. &Ghosh, S. (2010). Outsourcing congruence with competitive priorities: impact on supply chain and firm performance.Journal of Operations Management, 28(2), 124-143.

Parker, D.W. & Russell K.A. (2004). Outsourcing and inter/Intra supply chain dynamics: strategic management issues. Journal of Supply Chain Management, 40(4), 56- 68.

Raisinghani, M.S. & Meade, L.L. (2005). Strategic decisions in supply-chain intelligence using knowledge management: an analytic-network-process framework. Journal of Supply Chain Management. (10:2),114-121.

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