Part 1
When analysing the macro environment; first we must identify the industry in which it operates. If we look at Superdry’s products and how they are marketed, then we can see that they sell clothing through retail stores and online. This demonstrates they operate in the retail industry. Retail remains the single largest private sector employer in the UK, employing one in every ten people and generating annual sales of £358 billion (Telegraph, 2018).
The STEEPLE framework is one of the most widely used models for analysing an organization’s macro environment. The popularity of this model stems from the fact that it is a powerful yet easy tool for identifying and analysing macro, high-level elements that can affect an organisation.
By conducting a STEEPLE analysis an understanding of the external environment in which Superdry operates can be utilised in applying its business strategy. The importance of this is evident when looking at Blockbuster Video. Blockbuster did not change its business model of renting videos from stores when an ever-evolving macro environment changed particularly in the form of technology. By not adapting it became bankrupt in 2014. Conversely, Netflix, was able to modify its strategy of delivering DVDs and utilise the broadband technology and offer a download service which is still successful today.
To perform a STEEPLE analysis, we can use the STEP approach as inspired by Fahey and Narayanan (1986).
Figure 1: STEEPLE analysis steps
To complete the steps research and information can be gathered from company reports and articles that are readily available. For the STEEPLE analysis below, information has been gathered from a report on the fashion industry from McKinsey & Co 2020 and other media sources.
Figure 2: STEEPLE analysis on Superdry PLC
The focus of change stems across social, technological, and economic factors. These are the areas which have mostly been affected by COVID and have influenced the external environment to the greatest extent in recent years. Consumer demand and product trends have changed with a preference for cheap or luxury goods. Also there has been a spike in sportswear. There are many ways Superdry could capitalise on this such as having a sportswear range and have cheap and/or luxury line.
The technology factor is heavily important for Superdry to get right. With contactless payments, smart payment devices and general consumer preference of zeitgeist real time shopping. Superdry need to anticipate staying current.
Covid has had a massive impact on the economy which has affected supply lines and product sourcing. To combat this Superdry need to have flexible plans in place and adopt a strategy that is resilient to external pressures. One method could be to source “near shore” to minimise the supply line.
Another key point is some of these elements are linked. Trends in the macro environment could be interpreted as technological and societal issues. Technology that enables instant communication and information retrieval, as well as sociological trends that have altered people’s interactions with one another and organisations via social media, have had interrelated effects on lifestyles and consumer choices.
The use of the STEEPLE approach to inform strategic decision-making is crucial. Organizations should be aware that changes in the macro environment may provide opportunity or increase the likelihood of threat or risk, and they should take use of this awareness by developing a strategy, product, or service that anticipates the new opportunity or threat.
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Part 2
An analysis of the industry in which Superdry conducts business begins with defining this industry. To do this we can answer the 2 questions derived by Porter (2008).
- Scope of products or services: which products or services are provided?
- Scope of the industry: is the competition local, national, regional, or global?
Firstly, Superdry products include clothing, shoes, and accessories. Secondly, they have a global reach as stated on their website – 740 branded locations in 61 countries (Superdry.com, 2022).
Superdry does operate in more than one industry. It branches across fashion and sport but its core presence is retail and that is where the analysis will be conducted.
Now that the retail industry is identified for Superdry, the next step is to ascertain the competition. Competitors, according to David Besanko, are firms whose strategic decisions have a direct impact on one another (Besanko et al., 2013).
To classify industries, public agencies such as the European Commission use a variety of classification schemes. NACE v2 classification used in the European Union is consistent with the SIC list used in the UK. Superdry has a 4711 code.
Figure 3: Amadeus report of companies operating within 4711 – Retail sale in non-specialised stores with food, beverages or tobacco predominating – top 20 (Source Amadeus.com, 2022)
Two indexes can be used to assess industry competition through market share: the n-firm concentration ratio and the Herfindahl index.
The global apparel and footwear industry has a CR4 score of 9% (Portal.euromonitor.com, 2022). This CR4 value isn’t very high: in reality, there are a lot of companies that only account for a little portion of the market. This could indicate that the industry is not dominated by a single company, but it could also indicate that the geographic scope of the analysis is too broad.
Figure 4: Global market share of companies operating in the clothing and apparel industry
The Herfindahl index for the same industry is 0.0031 (Portal.euromonitor.com, 2022). This is less than 0.2, indicating that it is a globally competitive industry. This signifies that there is a lot of competition among businesses. The H index reveals the type of industry has perfect competition. Perfect competition is a sort of industry in which many companies provide customers similar products or services and information about prices, products, and rivals is easily available. There are no complicated entry procedures, therefore other businesses can quickly enter the field. A company’s profits, on the other hand, are unlikely to exceed the bare minimum required to stay afloat.
Industries are not always steady and evolve over time. The industry life cycle model depicts the development of a business from its inception to its eventual demise.
Figure 5: Industry life cycle
Superdry falls within the maturity stage of the industry life cycle according to its slowing sales. Even though demand is not growing at the same rate as before, rivals continue to expand their capacity, resulting in an excess of capacity. Because of the excess capacity, companies are forced to lower their pricing and compete on price. Exiting inefficient players from the market helps to rebalance the excess capacity. Production tends to transfer to newly industrialised countries and developing countries as they mature, where labour costs are lower.
The industry life cycle is flawed in many respects as it does not consider the dynamic aspects that can affect a business. It has a very linear approach to how a company will grow and eventually decline. In the real-world things are much more complicated with Covid being a good example.
To understand whether an industry is attractive to stay in, the strength of the competitive forces and how these forces interact; we can carry out a 6 forces model analysis as derived by Porter (1980) with an additional force from Grant (2010). One method to complete the 6 steps analysis is to follow Porter’s (2008) steps below.
- Define the industry
- Identify the forces operating in the industry
- Evaluate how the six forces influence the level of profitability of the industry
- Assess the general attractiveness of the industry
- Evaluate possible changes in the six forces and how they might be influenced by competitors, by new entrants or by the analysed company
As we have already defined the industry, the 6 forces model below will address the next steps.
Figure 6: 6 step analysis on retail industry
Porter’s final steps involve assessing and evaluating the industry in terms of attractiveness and changes. When looking at the model above there are 2 strong forces that have great influence. Starting with competitors. There is a high level of competition with only the top 6 companies having more than 1% market share. Potential entrants also are a high influence due to ease of entering the industry. Minimum investment is required to sell online using a supplier.
Suppliers and buyers have a medium strength. Both can influence the industry; suppliers are a necessity to be able to produce the products and pose a logistical challenge. Buyers dictate how the industry operates through trends and demand.
There are interdependencies between the forces via suppliers, buyers, and competitors. All these forces need each other to be able to thrive. Each one’s performance will directly affect the others.
The incumbent companies competing in the industry would need to evaluate their current performance to decide whether it is attractive to stay in the industry, The competition is fierce and margins tight therefore performance is vital to be successful. There are only a handful of companies who dominate with the remainder only having a small piece of the pie. The ease for new entrants to join is also a concern for underperforming companies. For those that are stable or growing then it is an attractive industry with a high concentration of buyers.
The retail industry is attractive for new entrants. The relatively easy to enter combined with low initial start-up costs with the option to grow in a linear fashion is inviting. Compared to, for example, that of the car industry where manufacturing facilities and R&D required; retail is much more achievable for new companies.
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Part 3
A company’s resources and capabilities are internal. When seeking competitive advantage, a resource-based view (RBV) gives a tool to analyse an organization’s performance by focusing on the resources and capabilities that it controls and uses. Supporters of this approach point out that different organisations have varied resources and capabilities. Given the difficulty of developing or acquiring these, this may explain why some organisations outperform others, even if they are all competing in the same industry sector.
It’s critical to comprehend how they relate to strategy. Organisations must determine whether the resources and capabilities they have are genuinely relevant in attaining their strategic goals to be successful.
In the case of Superdry, to analyse whether it’s resources and capabilities give a sustainable competitive advantage; first we must identify their resources which are shown in the diagram below.
Figure 7: Superdry resources
The RBV moves the focus of attention away from the organization’s external environment and onto its internal environment. The primary question in relation to organisational strategy, according to the RBV, is what a corporation can do (Grant, 2016, p. 118).
Organisational resources come together to form organisational capabilities, which can generate long-term competitive advantage.
The diagram below depicts the three types of resources and their relationships with organisational competencies, sustainable competitive advantage, and organisational strategy and where Superdry’s resources fit within.
Resources can be categorised into three types according to Grant (2016):
- Tangible resources (e.g., cash, equipment, estates, and land)
- Intangible resources (e.g., reputation, culture, property rights and patents)
- Human resources (e.g., skills, competencies, and motivation)
Figure 8: Resources, capabilities, and their relationship with competitive advantage in Superdry
Typically, resources and capabilities are linked. While resources are essential, how an organisation employs and deploys those resources is equally vital. It would be pointless to have cutting-edge technology if it was not put to good use. The diagram below demonstrates how Superdry’s resources are connected to its capabilities.
Figure 9: Resources and Capabilities connected for Superdry
We have now looked at the first steps of Superdry’s resources and capabilities relating to strategy as shown in figure 9 above. The next step is strategy. According to Grant (2016), an organisation’s strategy should aid in achieving a competitive advantage. The strategy’s ability to provide a competitive advantage, on the other hand, is dependent on resources and capabilities. Specifically, if an organization’s capabilities are lacking, it will have a tough time establishing a competitive advantage.
The fundamental resources and capabilities for an organization’s success can shift over time. This is especially true in circumstances that are fast-paced or turbulent. This is since most organisations have invested a significant amount of time and attention into developing these resources, and as a result, they are no longer unique. A VRIO study is a model for assessing an organization’s resources and capabilities. The diagram below illustrates how this assessment fits into the larger picture of resources, capabilities, and competitive advantage.
Figure 10: Evaluation of resources and capabilities in organisations
When assessing an organization’s resources and capabilities, the VRIO framework is widely employed. It is used to determine whether a resource or capability is valuable, scarce, difficult to duplicate, and supported by appropriate organisational frameworks. Only resources and capabilities that match these criteria are regarded unique and hence provide a solid foundation for long-term competitive advantage. The table below shows a VRIO analysis on Superdry.
Figure 11: VRIO analysis for Superdry
By replying yes or no to each VRIO factor, we can analyse an organization’s competitive position. To establish the strength of a company’s competitive advantage, the VRIO questions should be applied to both resources and capabilities (Dyer et al., 2018).
When looking at the table above it is clear that Superdry has valuable resources and capabilities, but most are not rare, inimitable, and organised. This demonstrates competitive parity and average returns plus they support value for stakeholders but are also possessed by competitors.
Superdry’s 8 routes to market and strategic vision are unique and rare thus allow a temporary advantage and average to above average returns.
Julian Dunkerton has recently returned to Superdry as CEO. As founder, he will bring a passion to the company he started, he brings a rare, inimitable, and organised quality. The brand of Superdry also falls into this category. This enables a sustained competitive advantage. However, almost any competitive advantage based on a specific set of resources and competencies, can only be sustained for a limited time. Even those resources that are rare, difficult to copy directly, and supported by solid organisational structures may lose value due to changes in the external environment.
Companies can leverage the evolution of capabilities over time to achieve a competitive edge. Capabilities grow throughout time because of a steady learning process that can be represented by a learning curve. The activity of a certain type of capability – a dynamic capability – can sometimes affect a company’s present collection of resources and capabilities.
Capabilities aren’t static, and they shouldn’t be either. They will organically evolve over time as organisations invest in the growth of their resources and skills. If organisations do not invest in expanding their resources and capabilities, both are likely to deteriorate over time, and, while they may have been a source of competitive advantage in the past, they are unlikely to be so in the future.
There are two approaches to capability development. The first is the gradual enhancement of abilities through learning. The second point to consider is dynamic capacities. These are abilities that are supposed to aid organisations in developing their resources and basic capacities, allowing them to adapt their activities in highly or moderately dynamic contexts. The resources and capabilities in organisations, the role of incremental learning and dynamic capacities is depicted in the image below.
Figure 12: The processes of capability development
To understand the evolution of capabilities, Helfat and Peteraf (2003) recommend using the concept of capability lifecycles. When an organisation is considered to have a given competence, it usually means that it has attained a minimal level of that capability, allowing it to repeat and reliably do certain tasks. It does not imply that the organisation has reached its maximum capability level or that a high-performing organisation cannot develop its capabilities further.
Figure 13: Stages of the initial capability development cycle
The graph above depicts a specific capability or group of capabilities linked to a specific type of activity. The concept is that as a team or organisation obtains more experience performing that task, a capability develops and improves. Performing more of the activity, on the other hand, will not generally raise the level of capability without some intervention that leads to additional development.
Capabilities may evolve along six different paths in response to internal or external selection processes. In a paper by Helfat and Peteraf (2003), these are referred to as the “six Rs”: retirement, retrenchment, replication, renewal, redeployment, and recombination. Figure 14 below depicts the evolution of Superdry’s capabilities along these six branches graphically. They could be the consequence of selection events that threaten to render a capability outdated, or they could be the result of selection events that present new prospects for capability expansion or modification.
Figure 14: Branches of the capability lifecycle with capabilities of Superdry
Superdry demonstrates replication in some of its capabilities. This is most likely due to them having success in this strategy and continue to build on it. They have also responded to Covid and the economic result of it by trying to renew, replicate or redeploy other existing capabilities.
Much of what has been discussed thus far in terms of capability development can be linked to the concept of learning curves. In the lifecycle model, capabilities evolve over time because of the organization’s experience gained through doing certain actions. Routines are streamlined in an organisational context when they are repeated. Learning curves or experience curves are based on this principle. The key aspect of learning curves from a strategic standpoint is that an organization’s cumulative experience for each unit of output results in a lower unit cost (Johnson et al., 2011, p. 231). Superdry was founded in 2003 and in that time, it will have learned how to be more efficient in all its business operations.
Figure 15: Experience curve
Dynamic capabilities are targeted at modifying an organization’s current set of resources and capabilities to fit the needs of changing environments, triggering their evolution in terms of renewal, redeployment, or recombination. Dynamic capacities, according to Teece et al. (2007), are a combination of three processes: perceiving, seizing, and transforming.
Figure 16: A representation of a dynamic capability through Teece’s tripod
Superdry has demonstrated dynamic capabilities through its sustainability projects. It has adapted to the ever-changing environment and global issues to continue to provide sustainability.
A final step for Superdry to be able to achieve sustainable competitive advantage is through functional strategy. According to Hill et al. (2017), there are four key functional-level tactics that support an organization’s efforts to gain a competitive advantage:
- superior efficiency
- superior quality
- superior innovation
- superior responsiveness to customers
Overall, Superdry can achieve sustainable competitive advantage in the industry in which it operates. However, this will be difficult due to the small market shares available and the dynamic marketplace. Superdry will need to constantly analyse its resources and capabilities and respond accordingly. The VRIO framework identifies a strong brand, leadership and successful 8 routes to market model. The capability lifecycle highlights the importance for Superdry to renew and redeploy their capabilities. This will allow them to stay ahead of their competitors. Superdry should adopt incremental learning as this imperative for efficiency and functional strategy.
1,527 words
Part 4
If I were to pick out one skill that I felt had developed further after studying the strategic management theories and frameworks needed to carry out external and internal analyses, it would be my analytical skills. This is the first time I’ve ever studied or analysed an organization’s resources and capabilities to this degree.
Using the VRIO framework helped me better grasp how these factors interact, to allow me to analyse what is deemed and required for long-term competitive advantage. If one or more of the conditions are not met, there may be negative repercussions for competitive advantage.
This allowed me to have a better understanding and evaluation of an organisation, as well as analyse external environmental elements, which assisted me in identifying and solving difficult issues. While I believe I now have a better ability to critically evaluate and analyse situations, I believe my other soft skills have also improved, giving me greater confidence when dealing with complex challenges.
Being able to better understand how to define objectives, analyse the competitive environment, analyse internal organisation, and evaluate organisational strategies has instilled in me the importance of strategic management in a business environment. It has also increased my interest in the discipline, and I look forward to learning more as the module progresses.
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