Free Research Paper on Advance Finance and Strategic Management:
In the contemporary world, it is extremely important to be among the best and use the latest achievements in order to remain competitive and able to development. This statement is true for practically all spheres of life but it is particularly important for the economy. Nowadays, any company that intends to survive in the market should be effective enough and be one step further its main opponents. At this respect there are two dimensions, which may play a key role in the competitive struggle in the market. Quite a remarkable thing is the fact that the more developed the country is the stricter are rules of competitiveness. That is why the problem of the leadership is vital for many companies working in western countries.
Among such companies we may name Morrison, which includes a net of supermarkets and now is one of the biggest companies working in this niche of the market of the UK. More exactly the company obtains the fourth place that, certainly, indicates at the Morrison is a very perspective and successful company. But it was not always so and nobody can say that it will be like this in the future. The recent Morrison’s takeover of Safeway Plc is one of the biggest successes of the company but at the same time it turned to be a big problem for its consequences are not as good as it was expected. Anyway, successful or not but the case of Morrison is worthy to study and analyze, particularly in the context of advance finance and strategic management.
Obviously, the history of the company and the current situation are very interesting for specialists because it permits to understand the causes of Morrison’s successes and at the same time to analyze its mistakes and foresee possible consequences. The latter would certainly permit to better realize the processes, which nowadays take place in the market. This understanding will naturally be extremely important for strategic planning and management of any company.
It is obvious that only due to well worked out strategy and finance management the company such as Morrison is can achieve significant results and fulfill the tasks it aims at. First of all, it is necessary to say a few words about the history of the company and the main principles of its strategic and finance management in order to understand the current situation. It is noteworthy that the company was not an unknown player in the market among supermarket companies but at the same time it was not a prominent or leading company in the UK. Its competitors had quite strong positions and naturally did not intend to give in the struggle for new niches in the national market in the scale of the whole United Kingdom. This fact is particularly important if one takes into consideration what prospects Morrison’s takeover of Safeway Plc. Actually, Safeway Plc was a big chance for Morrison because it provided for the company the possibility to become a nation wide structure. Since it is not a secret that Morrison was quite powerful but still regional company. On the eve of the takeover Morrison’s stores were mainly concentrated in the North of England, and across Yorkshire and the Midlands. Turning to the numbers and statistic data it had to be pointed out that it had 119 stores in January 2003 and an average size of its stores was about 3,300 sq. m. Some specialists (Applebaum) underlined the fact that Morrison was “unusual among the larger UK grocery retailers in that some of its operations, involving the buying and selling the fruit and vegetables, the manufacture and supply of some fresh food products and the processing and supply of some fresh meat product, are vertically integrated” (Applebaum 2004:143). That is probably one of the most important characteristics of the company strategy and management, which significantly helped Morrison to make a great progress in its development and made the company very competitive in comparison to other alike and even provided for the company better and more effective management.
The latter resulted in the sums of the company’s profits and turnover. For instance, if again return to the statistic data, it becomes obvious that the results of such policy are quite impressive. Only the sum of Morrison’s turnover in the five years to January 2003 increased by 87 per cent, in other words from ?2,3 billion to ?4,3 billion, while operating profit increased by 76 per cent, from ?149 million to ?269 million, over the period. Naturally, such data may be regarded as evidence of properly worked out strategic and finance management, particularly its vertical integration.
At the same time, it would be a mistake to think that Morrison was the only company, which could takeover Safeway Plc. By the way the latter, in its turn, was in quite a pitiful situation before the deal and it is even possible to say that it was stagnating and in general the company was in a profound crisis. In order to prove it some statistic data may be taken into consideration. For instance, regardless a 23 per cent increase in turnover from ?7,0 billion to ?8,6 billion in the five years to March 2003, its operating profit decreased by 15 per cent from ?410 million to ?347 million over the period. Logically, other more successful and more powerful company, which used new, more progressive methods of management, including not only Morrison but some others, intended to takeover a stagnating company. Among those companies that take part in the competitive struggle for the takeover of Safeway Plc may be named such giants as Sainsburry’s, Tesco, and Asda. Each of the company named were national ones, they occupied the first three places among all the companies working in this niche of the market, and moreover, they covered the whole national market of the UK. Consequently the acquisition of Safeway Plc by one of these companies but not Morrison was vital for the latter. In other words, the takeover of Safeway Plc either by Sainsburry’s, or Tesco, or Asda meant that Morrison would be a sort of outcast in the national level and it would remain a regional company and could hardly achieve the level of national one. On the other hand, the Morrison’s takeover of Safeway Plc would have provided a significant step ahead for the development of the company because, being quite strong and competitive in its region, namely North, Yorkshire and the Midlands, Morrison could spread its net of stores to the region where Safeway Plc worked. Actually this region was particularly strong in the Southern and South Eastern part of England and Scotland.
Thus, the Morrison’s takeover of Safeway Plc was a strategic point in its plans in order to become more competitive and to start its expansion on new markets throughout the whole country.
Fortunately, for the company due to a wise and thoroughly worked out planning and naturally due to successful and skillful finance management Morrison succeeded in the takeover of Safeway Plc by suggesting better conditions and persuading Safeway Plc’s shareholders to agree such an operation. But at the same time Morrison was practically the most probable winner of the competition for Safeway Plc because, taking into consideration the positions of Sainsburry, Tesco, and Asda the takeover by any of this companies could reduce competition. As a result all three companies were in fact blocked from the bidding for the group. So the general, and obviously the only possible strategy of Morrison was evident. The company should prevent the possibility of the takeover of Safeway Plc by its main opponents and for this it had to be presented in the proper light, the task the company had fulfilled successfully and that was accompanied by favorable financial conditions of the deal, namely the sum of the takeover is ?3 billion.
Thus, briefly speaking, it is possible to conclude that Morrison successfully took over Safeway Plc and had got the fourth place in the UK in its niche of the market, not in the last turn due to its successful strategic and finance management. Its the most characteristic features are offering a wide range of goods including both branded and own labeled products. The company had declared its aim to provide its customers with the “very best value for money where ever they live” (Daft 2004:309). Naturally, the prices were balanced and remained the same in any large store regardless the area it was situated in. furthermore, the company managed practically all aspects of its commercial operation in house, including fresh fruit and vegetables, fresh food, meat processing and transport. The company also possesses a number of filial companies which provide the effectiveness of the work of the whole company, including Fresh Boy, a fresh food factory producing pizza, pies, cooked meats, etc. and packing cheese, bacon, and other products. Furthermore, the company possesses a meat processing facility where beef, pork and lamb are prepared and supplied directly to the company’s stores by the company’s owned transport.
Now it is necessary to analyze the consequences of the Morrison’s takeover of Safeway Plc for the company in the context of its strategic and finance management. Regardless the fact that the takeover permitted Morrison to occupy the fourth place among the largest grocer retailers companies of the UK, its results turned out to be quite arguable. They are not so optimistic as they were supposed to be. However, such a deal like the Morrison’s takeover of Safeway Plc should be analyzed in two dimensions, namely nearest future perspective and a long terms perspective. Nowadays, the current situation, which is considered to be not very optimistic for Morrison, reveals perspectives of the company in the nearest future while in a longer term the current problems may be solved and depending on the strategy and finance management can provide the development of the company and possible leadership in the market.
So, what are the current results of the Morrison’s takeover of Safeway Plc, which naturally reflects finance and strategic management? First of all, it is necessary to say that to understand the current situation it is necessary to take into consideration statistic data of certain period from the past, for instance last few years and compare it. A very important fact is that Morrison has lost quite a substantial number of shoppers in comparison with the pre-takeover period. During a year the company has lost about 500,000 traditional shoppers, former customers of Safeway Plc, particularly in Southeast England. Basically, these shoppers are those who “preferred the higher-priced gourmet products that the Bradford, England-based retailer is discontinuing” (Daft 2004:194). It means that if not refusing from then reducing significantly such kinds of products that used to be habitual for Safeway Plc customers the company is losing its shoppers, which naturally still have to buy the products they like somewhere, and consequently they choose there competitors among other largest companies such as Sainsburry’s, Tesco, and Asda. Obviously this tendency seems to be quite dangerous and should be assessed as negative but before criticizing the management of the Morrison it is necessary to understand the causes of such a situation and the motives of the company policy. It is particularly important if to take into account the size of the company after the takeover and possible consequences of such losses of clients. It is known that before the takeover Morrison had only 5 per cent of its stores in Southeast England while newly acquired Safeway Plc had 27 per cent of its outlets in this region, and 20 per cent in the North.
Probably, one of the main causes of the decrease of the quantity of shoppers, particularly in Southeastern England, was the Morrison’s price-cutting advertising campaign. However, it is necessary to take into consideration that its aim was to impose its branding on outlets that had served wealthy customers of Southeast England, where basically Safeway stores were situated. It is a noteworthy fact that in this region people normally “earn on average 80 pounds more than those in Yorkshire and the Humber region, where Morrison is based” (Daft 2004:217). So, it is obvious that in this region people can pay more than in traditional regions where Morrison gets used to work. For instance, average gross earnings in Surrey, where Oxted is, are about ?530 per person, meanwhile in West Yorkshire, where Bradford is, these earnings are about ?435. In such circumstances the famous strategic proclamation of the company to balance the prices of all products regardless the region seems to be a bit arguable and in all probability should be overviewed. Anyway, one of the main problems Morrison faces is the problem of retaining quality-sensitive customers in a price-sensitive shop and probably the price-cutting was initially supposed to get new shoppers through the store quickly.
Another important result of the Morrison’s takeover of Safeway Plc is the fact that shares of the company had slumped 29 per cent recently since Morrison bought Safeway Plc. And it would be a mistake to explain this fact by some common trends of the market. On the contrary, for the same period of time shares of one of the main competitors of Morrison, Tesco had risen 3.8 per cent respectively. Furthermore, during the year the shares of the company, despite all optimistic forecast “had fallen 22 per cent, wiping 1.31 billion pounds of the company’s value” (Applebaum 2004:179). Naturally, such a shift may be explained by the takeover itself because the company needs to make some transformation during certain period of time. It is caused by differences in the policy and finance and strategic management within two companies, which have been united into one. Thus, financial situation deteriorated but, in all probability, the company needs more time for transformation and further development.
Returning to the problem of the decrease of customers it is necessary to say that the number of customers visiting the company’s stores at the beginning dropped to ?9 million and even in spite of the fact that later it has increased to ?10 million it still has not achieved the level of ?10,5 million customers Morrison had visiting its stores a year ago. At the same time competitors of the company did not remain inert. On the contrary, only Tesco has picked up 138 million of the Safeway business in the past year. As for other competitors working in the market the tendency is alike. For instance, Asda has gained ?91,9 million and Sainsburry ?54,4 million while the total sum is over ?450 million. Consequently, if Morrison continues to lose customers, particularly that of Safeway Plc then it will be hard to compete with other companies and probably the company may remain on the fourth place for quite a long time. However, recent trend to increase the number of customers is quite optimistic for Morrison.
However, customers are not the only who suffered from the takeover and consequently from the following strategic and finance management change. The workers suffered too. It is not a secret that one may find at the entrance of the Oxted store posters “posters advertising as many as eight job vacancies, including the delicatessen supervisor and two bakery packers”( Kessler 2004: 304). Furthermore, Morrison pays its cashiers 5,94 pounds an hour, while its competitors such as Tesco pays its cashiers 6,67 pound an hour. So, it seems that finance and strategic management of Morrison is oriented on the expansion of newly acquired markets through the price-cutting that, however, is made partially because of lower earnings of workers and its positive effect has not been achieved yet in its full measure.
It is also important to say that Morrison is not alone in its price-cutting policy. Furthermore, it has to cut prices in Safeway even earlier than it was anticipated because their competitors have already started to do it. For instance, Tesco and Asda had to undertake price-cutting in order “to protect their own market share after Morrison had joined national grocer business” (Paton 2004:197). It is obvious that initially it would be better for Morrison to have spent a few months reorganizing and making price cuts gradually. It means that mainly competitors forced the company to launch this price-cutting campaign, which in fact did not bring very positive results as managers of the company might have expected.
Finally, when analyzing the results of the Morrison’s takeover of Safeway in the context of strategic and finance management of the company, it would be very useful to find principle differences in approaches of these two companies which obviously led to purchase of Safeway by Morrison. Certainly it is possible to say that the consumption culture is different in the regions both company worked but still it does not obligatory mean that Safeway, being situated in a wealthier region, had to be in such a position that the Morrison’s takeover seemed to be a logical way out of the crisis. Particularly, if the Morrison’s customers, which earned less, is taken into account. But there is one more factor that is much more important in the current situation. What is meant here is the policy of demanding upfront payments from the suppliers practiced by Safeway Plc. Such a policy has been rejected by Morrison and as a result the new strategy shaves “130 million pounds from Safeway’s first-half income, including change in accounting methods, the company estimates” (Paton 2004:263). Actually, the upfront demand of payment from the suppliers led to Safeway’s higher purchasing costs compared to those of Morrison. The latter traditionally negotiated supplier rebates and the company is now implementing this strategy for the whole of the group buying now 32,6 per cent lower than Safeway Plc did. Thus, Morrison suggested more effective way of management than Safeway used to. Consequently, the more progressive methods substitute ineffective and, thus, useless ones.
Thus, taking into account all above mentioned, it is possible to conclude that Morrison uses quite effective and progressive methods of finance and strategic management. The Morrison’s takeover of Safeway Plc is an evidence of the effectiveness of the work of the company. It is extremely important to be among the leaders in the current conditions when the market is strictly divided and misbalance or ineffectiveness could lead to the catastrophe and bankruptcy. As a result finance and strategic management are nowadays at the first place. However, one may oppose and say that Morrison’s methods are not effective enough if to take into consideration the recent results of the takeover. They are really not very impressing but it is necessary to keep in mind that the company needs some time for reorganization and structural change in all stores throughout the country. Naturally, it is impossible to profit from the takeover and do not lose anything because the company that used to be in a profound crisis as Safeway did needs time for recovery. Furthermore, no one should expect a miracle because its impossible to reorganize such a complicated structure as Safeway was. At the same time in terms of a long perspective the future of Morrison does not seem to be so pessimistic as some one may think now. The current problems of the loss of clients, shares slide, and others may be solved with time and then it would be possible to speak about real perspectives of the company. On the other hand there is no guarantees that the methods Morrison currently uses will remain more or at least as effective as methods used by its bigger and stronger competitors such as Tesco, Asda, or Sainsburry. Thus, there is a long way to the leadership but Morrison has already got a basis for the further development and the value of the company is now higher, regardless all the problems, than it was before the takeover.
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