Case Study & Strategic Management Of EBAY - Free Sample

Question: Critically examine the relationship and the need for compatibility between corporate strategic and functional management policies. Analyse the internal and external influences on corporate objectives and strategy. Demonstrate the need for flexibility in strategic management and the practical limits of quantifying corporate strategy. Percentage Of Marks Awarded For Module 50% of the total marks for the module Assessment Criteria Explanatory comments on the assessment criteria. Answer: Introduction The business environment of the retail company eBay is evaluated in the report. Strategic purpose includes the business mission and vision of EBAY. To operate in the retail industry in UK, the company follows some values, which are discussed here. Strategic statement of EBAY presents a clear view on value proposition of the company (EBAYinc.com, 2016). As per the second quarter-2016, financial report of eBay the volume of merchandise is worth 20.9 billion dollar. The revenue that is earned is 2.2 billion dollars. In the second quarter of 2015, the net revenue was 2110 dollars and 2230 dollars in the second quarter of 2016. A strategy statement of a company consists of objective of the company and scope in the retail market. It also shows whether the company enjoys any competitive advantage in the market or not. The analysis of Macroeconomic environment of the company includes several political, economic, social factors and their impact on the company. These factors are external factors, which affect the strategy of the company (Ho 2014). There are internal factors such as business functioning, operation management, human resource, which affect companys strategic management. Future growth prospects of the company are discussed and presented through Ansoffs matrix. This is tool of strategic management, which helps the management to take approach for future growth of the company. Several aspects of the Ansoff matrix are analysed to assess the potential of the EBAY in product diversification or ability to develop new product in the retail market. Strategic purpose Assessment of strategic purpose of the organization Mission: Our purpose is to pioneer new communities around the world built on commerce, sustained by trust and inspired by opportunity. Vision: We seek to create a global platform that provides individuals and business of all types and sizes with the access to broad markets (EBAYinc.com, 2016). Values: The values that is followed by the company includes as follows: We believe people are basically good We recognize and respect everyone as unique individual We believe everyone has something to contribute We encourage people to treat others the way they want to be treated themselves We believe that an honest, open environment can bring out best in people. Critical analysis on relationship of strategic statement and functional objective EBay needs to have a well defined objectives for which they can strive. The objectives in connection with the mission and vision provide eBay and employees a goal for focusing the activities. The objectives would help in growing and improve the different aspects in the future. The company is trying to focus their work in extending lead in payments, delivering of better experience to customers of eBay, expanding of capabilities, connecting of sellers and buyers, driving sustainable ecommerce, operating efficiently and reducing cost. The objective of the company is to set a standard for maintaining quality of a product (Hill et al. 2014). Achievement of monthly target, how to achieve cost and price advantage, identification of companys strength and weaknesses are included in the strategic statement. In contrast, the functional objective states overall corporate objectives of the company. The corporate objectives include financial strategy, targeted sales volume per customer, budget, pl anning etc. The company eBay meets the environmental needs. The company is into conserving and recycling of energy, an objective that is linked to vision. Strategic statement shows long-term objectives of company and functional objective shows short-term objectives of the company. However, strategic statement is closely related to functional objectives. In order to achieve strategic objective, fulfillment of functional objective is essential (Lasserre 2012). External analysis Analysis of macroeconomic environment of the company PESTLE analysis Political factors: As per market review, there is a chance of depreciation of Sterling due to exit of UK from EU. Therefore, online shopping can be affected as import may become costly. Moreover, UK may loss the opportunity to trade in Free Trade Area in European Union. There is a fear for EBAY to lose both supplier and customer in European Zone. Political turmoil can affect EBAY business (Priem et al. 20120). The company eBay has been providing localized version of PayPal in the different countries. In the United States, the company has operated as transmitter of money. There are restrictions on the investment of customers funds, reporting and bonding requirements there is regulatory agencies in each state. Economic factors: Economic slowdown in UK affects the business operation of EBAY. Global recession decreases the sales volume of products supplied by EBAY across world and thus operating profit may fall significantly. On the other hand, with growth in ecommerce business the firm may contribute notably to countrys GDP, which further enhances economic growth rate. Inflation, tariff rate imposed by different importing country raise the price of the product and shipping charge, which may reduce the demand of consumers. Imposition of high rate of corporation tax by government affects the business (Ho 2014). For example, eBay is second fastest exporter as per the Asian Exporters Index. Indias eBay exports have be growing at 85% year on year. This trend will help in increasing demand that developed nations for country specific items. Social factors: Decrease in sales reduces net profit, which creates chances for job cut. If business profit of EBAY decreases due to economic disturbance, number of unemployment may rise if the management takes cost reduction policy by job cut. Increase in unemployment rate lead to decrease in the standard of living of people, which has social cost. Age is an important aspect affecting business. For example, the survey has shown 34% of the online shoppers of the age group of 18 to 24 years uses PayPal and similarly in the past for 12 months. Technological factors: Operating online business at international market, use of latest and user-friendly technology is required. Easily accessible website of the company can give the company competitive advantage. Using improved technology, the company can display the products in a more attractive way to the customers. Besides this, management can use an extensive database to manage information regarding supplies and customer, which can help in daily business operation (Ho 2014). There is always a risk of security for eBay as most of the products are put in the internet. The proprietary information would be at risk with security breach on our sites. There can be a severe breach of the information. The information if compromised will make the people believe that they are not capable of maintaining the site and will stop using our service. For example, eBay is expanding their role in platforms and mobile payments. Mobile technologies is a field they eBay is trying to explore. Environmental factors: The business operation of EBAY is performed by transaction of goods between sellers and buyers through this online platform. Packaging, distribution is part of the business. Therefore, the company needs to maintain Environment safety law in packaging, importing and shipping the goods. Use of bio degradable and recyclable products in packaging keeps environment safe. Environmental factors such as changing regulation for energy use can affect the business. The company is seen to achieve the objective of selling green products. There will be more consumption leads to carbon dioxide emission and thus a more polluted environment is created. There are more benefits achieved by people rather than spending. Legal factors: Environmental safety law, Sales of Goods Act 1979, Work and Safety Act 1974 are required to be maintained by EBAY to operate business in UK. Apart from these acts, company needs to abide by Electrical Equipment Safety regulation 1994, Gas appliances Safety regulation 1995 in business transaction (legislation.gov.uk 2016). There are legal issues that is put upon t is that there are people selling product in the website who do not deliver the products but hold peoples case and flies away. Threats: The online business is becoming popular in present decade. With the increasing demand and expansion of the market, three is possibility for new firm to enter into the market. New entry may reduce share of market of EBAY Company, as there will be increased competition in the market. There is also threat of illegal use of website by some deceitful people (Piotrowicz and Cuthbertson 2014). There are threats from existing business such as Amazon, Bonanza, e-Bid etc. Opportunities: With the increase in demand for online purchase, there are many opportunities for EBAY to expand its business globally. The company will come up with more number of inline stores in other countries, through increased portfolio through acquisition. The company is able to control illegal activities, its business performance may increase in future. Analysis of market potentiality of the company using porters five forces Competitive rival: Rivalry in this industry is high. There are strong competitors of EBAY such as Amazon, Etsy, Bonanza etc exist in the market. Competition comes from small firm such as e-bid in UK. When doing business at international market, the firm has to compete with local business operators of that country (Lee et al. 2012). Bargaining power of Customers: Customers have strong ability to bargain for the price of the product. If EBAY charge higher price for a similar product, customer may switch over to another online marketer. Bargaining power of suppliers: There are large numbers of sellers offering products in EBAY platform. Bargaining power of suppliers is thus comparatively low. Sellers may also switch over to another e-commerce business, if they do not accept the terms and condition set by EBAY. Threat of substitute products: This threat is very low as EBAY offers a wide range of products to the customers. In short run it may lose business if it fails to provide latest developed goods in market. In long run this threat is low. Threats of new entry: There are medium threats of new entry. It is easy to enter into this market. However, operate in his market requires huge potential. Existing e-commerce businesses operate in the market at wide scale. They have economies of scale and hence, offering product at low price is easier ((Lee et al. 2012). For a new firm operating at large scale initial is difficult with high startup cost. Some of the established players can influence the strong share of eBay. The established positions are for Amazon, Apple, Alibaba who has a potential to dent the position of eBay. There effect will be high on eBay. Internal analysis of strategic capabilities Strategic capabilities of the company Development of online auction model has helped the business to operate at low cost in the market. The pricing policy is mainly demand driven and customer oriented. Following this model, the company started to show description of product and attractive visualisation, which motivated customers to buy product from EBAY site. This strategy influence marketing and sale of product (Morris et al. 2015). During 2014, the company decided to cut job in order to reduce costs. However, during 2nd quarter of 2016, the company has been able to increase revenue by 6% compared to previous year. To increase the business at global level, the company has decided to acquire some small companies and increase in market share (investors.EBAYinc.com 2016). Information management technology and supply chain management is very strong of EBAY. During recession period, EBAY has taken strategies such as acquisition of Skype Internet telephony to raise share by 30% during 2009. During 2008, the company changes its business strategy regarding incentives to seller, fee structure and quality standard to reduce risk of global financial crisis (www.mirror.co.uk, 2016). Basic Resources Unique Resources Employees Funds Assets Physical Resource Online Store Network Brand Intellectual Property Patents Trade mark Figure: Unique Feature of eBay Source: (Created by Author) Basic resources of EBAY are human resource such as employees, financial resource such as funds, assets, physical resources. Unique resources are online store, network, brand and intellectual property such as patent, trademarks etc. Companys internal strategic capabilities depend on managing these resources (Shaw 2012). Discussion on the business function of the company Business function of EBAY includes providing a convenient platform to the customers and seller for transaction. This is an online retail business, which offers a wide range of consumer goods to the customers at a cheap rate. Overtime EBAY has improved the functioning of website. This company follows Business to Customer business model. Products are classified into different segments. This company values customer satisfaction criteria. It follows E-auction in setting competitive rice for the product. In the financial statement, this company includes Gross Merchandise volume, which analyses total closed transaction. Company follows GAAP measures for some element in financial statement and use non GAAP measures for some other elements. To analyse companys current financial performance, non GAAP measures are used (EBAYinc.com 2016). Figure: Organizational Structure of eBay (Source: Sahney 2015) Core Competencies of eBay: As per the core competencies eBay educates the sellers in finding and negotiating the best price for selling of the product in the market place this would be help in benefiting the sellers and buyers equally. There are wide ranges of products like electronics to furniture available for the customers which they are able to purchase easily through online at a much lower price. The company is brilliant in terms of promotion. There are more number of people who are visiting the online store of eBay as it promotes itself through magazines, online sites and the even through word of mouth. Basis of competitive strategy Competitive strategy is creation of better value chain in business. The competitive strategy of eBay includes same day delivery routing in which eBay tends to coordinate deliveries between the shoppers , couriers , stores on a 24*7 schedule. It takes hardly two hours for the dispatching from the point of sale, handling service logistics and delivery based on the preferences of the consumers. EBAY offers some unique features to the seller, which enables them to display branded and non standard goods unlike other competitors. E-bay sells products on auction basis, which gives it competitive advantage. EBAY gives priority to improvement in technology. Hence, it developed a program to facilitate both business and customers. EBAY has been successfully able to overcome all the previous difficulties faced initially by taking customer oriented business policy (EBAYinc.com, 2016). Strategic choice and strategic evaluation Key directions for future growth of the company using Ansoffs Matrix Using Ansoff matrix, management of EBAY can formulate future growth strategy based on four components. These four aspects of a business can help to evaluate long term growth prospects of this company (Hussain et al. 2013). The four components are discussed below. Market penetration Market penetration is a strategy to sell existing products in current market. Penetration in online retail market depends on creation of portfolio of product. Bundling strategy can be utilised. Increment in sale depends on aggressive market promotion strategy. Company can discount on sale of a product portfolio (Sahney 2015). New product development EBAY has opportunity to capture more market share by introducing new product in business. Giving priority to all types of customers, the company can follow current market trends for major consumer goods. Investment in research and development helps significantly in product development. Product development also includes packaging, labeling and use of latest technology (Fernie et al. 2014). New market development The company can divide total own market share into segments. It can open business in a new country, where online retail business is not so popular. Through market promotion strategy it can increase the awareness of people about online shopping. If the customers can be convinced that purchase through online retail store would give them cost benefit, this business may be popular in long run. If market can be segmented according to local preference, companys growth strategy increases (Wamba et al. 2015). Mixing local culture and flavour in business helps in market promotion. Company can divide market based on marginal revenue. Different products have different level of demand in the market. Therefore, in the product market, where demand elasticity is less, company can charge higher price compared to a market with low elasticity (Hu et al. 2012). Diversification Market diversification includes expansion of business in some other ways such as entering into new market and creating new products. Developing new products by maintaining environment standard increases interest of customer to avail the product (Johnson et al. 2014). Product diversification is important in long growth of the business. Horizontal diversification is required for loyal customers. As explained by Ansoffs matrix, diversification has risk of entering into unknown market. Operate into new market requires new skill and strategy (Boons et al. 2013). Additional training is required for existing employees to increase efficiency and productivity. Figure: Financial Data of eBay and it performance in USA (Source: Gong et al. 2013) Assessment of new market development Suitability Demand for online shopping increases overtime both in developed and developing countries. Therefore, it is suitable for EBAY to expand business in another country. Its suitability depends on understanding psychology of new customers (Gong et al. 2013) During 2004, EBAY took decision to expand business in China market. However, it failed to compete with local company Alibaba in China due aggressive market strategy (www.forbes.com, 2010). Hence, doing business in new market requires understanding local market deeply. Acceptability Acceptability of the company depends on customer choice. If the company fails to meet local needs, business cannot be successful. Maintenance of corporate social responsibilities in business process helps an organization to grow up in the industry. It can engage itself into some social work in target market to influence the customers. Incorporation local culture and language in system increases acceptability to the new customers (Chen 2012). Feasibility Feasibility depends on start up cost and financial performance of the company. Competition in local market influences Companys strategy. In order to acquire market, the company needs to have economies of scale. If the start up cost is very high to set up business in new geographical area, the company may not get competitive advantage in pricing, which may be detrimental for business operation (Johnson et al. 2014). Hence, keeping average cost at low level increases feasibility and opportunity of the company to develop new market. Life cycle Phase Requirement of funding Cost of Capital Business Risk Likely finding sources Dividends Launch High High High Equity Zero Growth High Medium High Growth investors Nominal Maturity Medium Medium Medium Retained earnings High Decline Low Medium low Debt High Figure: Feasibility Chart of ebay (Source: Created by Author) Conclusion and recommendations EBAY is multinational online retail company, which has good market share in UK and US. It has been successful in many areas to meet companys vision. It is very important for the company to diagnosis the strategic problem as the company has been a follower of innovation rather than becoming an innovation leader. There is high degree of competition that is faced by the company in the present and who are likely to witness in the future as well. There is a need for the company to formulate strategies. The strategies need to address the key aspects of the organization. To address a valid set of strategies there is a need to complete a SWOT matrix. There is a need for a course of action that suits better for the current position of the company. Nevertheless, the company has been successfully able to capture a significant share in online retail market despite having several challenges. Main strength of this company is having economies of scale, easy payment process, and high brand value. Inventory management nf information management system are strong in this company. Main weakness of the company is charging high price to the customers compared to other competitors. Strategy for development of new market has not been so effective. Long term growth strategy of the company is not so strong. However, during 2015-16 company has taken decision to change strategy to reduce the threat of new entry. Amazon is growing rapidly to overtake EBAY in terms of profit. 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