UNIVERSITI TEKNOLOGI MALAYSIA INTERNATIONAL BUSINESS SCHOOL SKUDAI CAMPUS MASTER OF BUSINESS ADMINISTRATION STRATEGIC MANAGEMENT (MRC 2213)

NAME OF LECTURER: DATO DR. MOHD. PADZIL HASHIM

STRATEGIC MANAGEMENT (MRC 2213) NAMES OF STUDENT: 1. Tan Theam Ping (MR 111032) 2. Law Jia Chin (MR 111139) 3. MdJazli Bin MdJohari (MR111130)

NAME OF CASE: Case 11: Office Depot, Inc 2011

Marks/ Grade:

COMMENTS:

Table of Content 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Introduction & Case Study Objective Critical Problem Scenarios IFE Matrix EFE Matrix IE Matrix Space Matrix CPM Matrix Porter Force Analysis Forecast Critical Factors Implementation Action Plan Impact of Action Plan Contingency Plan Conclusion Reference Appendix

Page 3 4 5 7 9 10 12 13 14 15 18 19 20 21 22

1. Introduction & Case Study Objective Office Depot, Inc is one of the major suppliers in providing office products and services worldwide. The products and services mix provided including computers, computer softwares, office furniture, business machines (e.g. photocopy machine) and stationaries. Currently, there are more than 1500 Office depot stores (company-owned, alliances and franchise agreement), with more than 42000 employees worldwide. However, the company was reported a loss of $15 million in the first quarter of 2011, compared to a $20 million profit during the first quarter of 2010. In addition, the total revenue has decreased by 3% to $2.97 billion. The major problem is that the whole world is moving forward into a new era of paperless transactions, as such the current business model of the company have to be revised in order to reverse the declining trend in revenues and profits. In addition, Office Depot has recently co-operated with 3M and NASCAR stars Tony Stewart in promoting the Official Small Business of NASCAR, Courtesy of Office Depot sweepstakes, offering $1 million to one small business owner, which serves as an marketing strategy in stimulating their businesses. A clear three-year strategic plan is needed.

2. Current Business Scenarios Nowadays, the world is shifting into a paperless transactions environment, which has greatly affect the performance of Office Depot recent years; besides, Office Depot is facing a vigorous competition brought forward by other major players in the industry such as Staples, OfficeMax and convenience stores like Wal-Mart. Critical Problem Logical Current Situation Future Situation Assumptions Made Currently most of the Threats arose from paperless transaction environment revenues come from the sales of paper, office machines and furniture. However, the world is shifting into paperless environment Paper and paper related products will be eliminated Revenues and profit decreased

Primary competitors such as Threats from major competitors Staples, OfficeMax and secondary competitors such as Wal-Mart providing similar products and services Cut-throat price competition as foreseen

Revenues and profit decreased

Quality of service is low, for example the errors on Office Quality of service decreased Depot website happened very often, contact number of customer service department hardly get response Non-recurrence expenses Nonrecurrence expenses is high (stocks damaged during transportation, compensation to customer due to damaged and late delivery etc) related to daily operations is high Consumer choose to purchase the products and services from other competitors Revenues decreased, profit decreased Consumer choose to purchase the products and services from other competitors Revenues decreased, profit decreased

3. IFE Matrix The strengths and weaknesses serve as key indicators to reflect internal affairs. IFE matrix has been carried out to analyze the internal affairs of Office Depot.
Weighted Score

Key Internal Factors Strength 1. Strong brand name

Weight

Rating

0.10

0.40

2. Strong retail stores network had over 1500 retail stores worldwide 3. Strong distribution channel online shopping, retail stores, call centers 4. Provide large range of products and services 5. Go green effort been appreciated by the public 6. Strong customer base Key Internal Factors Weaknesses 1. Weak financial position loss money continuously for few years 2. Weak competitive performance if compared to major competitors Staples, Wal-Mart 3. Non-recurrence expenses is high 4. Poor service quality both online and offline customer service Total

0.10

0.40

0.10 0.10 0.10 0.10

Weight

4 4 3 3
Rating

0.40 0.40 0.30 0.30

Weighted Score

0.10

0.20

0.10 0.10 0.10 1.0

2 1 1

0.20 0.10 0.10 2.80

Total weighted score are 2.80 which slightly higher than average scores (2.50), which indicates Office Depot Inc hold strong internal strengths position.

4. EFE Matrix The major external opportunities and threats of Office Depot have been identified and analyzed based on EFE matrix. Weighted Score

Key Internal Factors Opportunities 1. Expand business into EME markets increase total revenues 2. Online shopping users are increasing 3. Develop new product mix to overcome the effect brought forward by paperless transaction environment 4. Provide new business services

Weight Rating

0.15 0.15

3 3

0.45 0.45

0.15

0.45

0.15

0.45

Key Internal Factors Threat 1. Paperless transaction environment threatened the current business model of Office Depot 2. Intensive competition from other major players in the industry 3. Rise of hypermarket and giant wholesaler Total

Weight Rating

Weighted Score

0.15

0.45

0.15

0.45

0.10 1.0

0.30 3.00
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The EFE matrix indicates how effective the companys strategies and used in the capitalization of their opportunities and disclose the point of threat that are active. The total weighted score gained by Office Depot is 3.00 which is above average.

5. IE Factor Internal-External (IE) Matrix is a strategic management tool that is used to analyze the strategic position of a business. The IE matrix can be drafted by applying IFE matrix score as x-axis and EFE matrix as y-axis.

As IFE weighted scores of 2.80 and EFE weighted scores of 3.00, Position of Office Depot dropped on fifth cell, which indicates the strategy applied should be hold and maintain. As such the strategic planning proposed will focus on improving market penetration and new product development.

6. Space Matrix The Strategic Position and Action Evaluation (SPACE) Matrix is one of the management tools that is used to determine the business strategy type that has been applied.

Conservative

FS

Aggressive

CS

IS

Defensive

ES

Competitive

Financial Stability (FS) Return on Investment Leverage Liquidity Working Capital Cash Flow FS Average 3 3 3 3 3 3.0

Environment Stability (ES) Economic Crisis Technology Changes Price Elasticity of Demand Competitive Pressure Barrier to Entry ES Average -3 -2 -2 -4 -1 -2.4

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Competitive Stability (CS) Market Share Service Quality Customer Loyalty -4 -3 -2

Industry Stability (IS) Growth Potential Financial Stability Ease of Market Entry Resource Utilization Profit Potential IS Average 4 3 2 3 3 3.0

Competitions Capacity Utilization-3 Technology know-how CS Average -2 -2.8

Y-axis: X-axis:

FS + ES = 3.0 + (- 2.4) = 0.60 CS + IS = (-2.8) + 3.0 = 0.20

Office Depot Inc dropped on second quadrant, indicates that aggressive strategies should be applied, so as to fully utilize their competitive advantages.

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7. CPM Matrix The competitive profile matrix (CPM) has been used to analyze Office Depot market position with the major competitors.
Office Depot Critical Success Factors Financial Position Customer Loyalty Market Share Management Advertising Price Competitiveness Global Penetration Product Quality Total Weight 0.15 0.10 0.05 0.15 0.20 0.15 0.15 0.05 1.00 Rating 2 2 2 2 3 4 3 4 Weighted Score 0.30 0.20 0.30 0.30 0.60 0.60 0.60 0.20 3.10

Staples Rating 4 4 4 3 4 4 4 4 Weighted Score 0.60 0.40 0.20 0.45 0.80 0.60 0.60 0.20 3.85

OfficeMax Rating 2 2 2 3 4 4 2 4 Weighted Score 0.30 0.20 0.10 0.45 0.80 0.60 0.30 0.20 2.95

Wal-Mart Rating 4 4 3 3 3 4 5 3 Weighted Score 0.60 0.40 0.15 0.45 0.60 0.45 0.75 0.15 3.55

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8. Porter Force Analysis

Office Depot, Inc case can be analyzed using Porters Five Forces model so as to determine the competitive intensity: Rivalry among competitive firms (HIGH) There are many existing major players in the industry including OfficeMax, Staples, as well as secondary rival e.g. Wal-Mart. Potential Entrants (HIGH) The numbers of small and medium suppliers providing same products and services over internet increased dramatically. Potential Development of Substitutes (HIGH) There are many other firms running under the same business model as Office Depot is. Bargaining Power of Supplier (MEDIUM) Although there are many firms engaged in this industry, still the major players holding big portion of the existing market share. Bargaining Power of Customer (HIGH) There are many alternative choices for customers to choose with.

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9. Forecast Critical Factors The factors to be considered during the development of strategic planning are summarized into the table as attached: Critical Factor Current Situation Whole world is moving To be adaptive in paperless transaction environment into paperless transaction stage, sales of paper related products (A4 paper, photocopy machine etc) dropped Maintaining key competitive advantages Nowadays, Office Depot facing vigorous competition, revenues and market share dropped sharply Currently there are only 100 over stores outside Explore new market America, however the revenues increasing, potential new market is there Explore into EME markets e.g. China, India, and South East Asia countries Global market share increased; revenues increased Future Situation Logical Assumptions Made

Efforts have to be made in transforming current business model to adapt with the new trend Efforts have to be made in improving competitive advantages so as to survive in new era Revenues increased; market share increased, sustainability increased Revenues increased; market share increased

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Current product mix focus mainly on office Improve product mix furniture, IT hardware, office machines and stationary, low profit margin high competition Define existing issues related to operation and service Consumers lost faith towards the company Resolved the issues and improve service quality Regained customers faith; Revenues increased; increased sustainability Develop new product and promotional mix Revenues increased, market share increased

10.

Implementation Action Plan The main objective of this 3 years strategic planning is to increase the

profit and the sustainability of Office Depot in the future. After analyzing the results obtained from SPACE Matrix, we proposed to focus on exploring and penetration of new market base, revised on current operation and service issues, and improve current product mix. Implementation Actions What to be implemented?

1. Explore and penetrate into new market base Explore EME market especially China, India and South East Asia countries Approach internet-based media for promotion and advertising Promote the presence of Office Depot further through
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Why?

Increased market share globally, increased total

revenues

internet, low cost high efficiency, take Malaysia as example, 60% of the citizens online daily, provide maximum exposure to the public

How?

- Locate potential EME market; - Carry out survey on customer needs; - Set up Office Depot stores and warehouse in the target market; - Joint Venture, alliance or work together with local firms, so as to grab the market share rapidly

- Make use of social media such as Facebook, Twitter in promoting the presence of Office Depot; - Advertise on famous websites, search engines, forums to gather more attention, low cost high efficiency than conventional media channels Globally Immediately Marketing and Sales department, IT Support department, Public Relation department, Social media and online advertisement platforms

Where? When? Who?

Potential EME market Immediately International Division, Marketing and Sales department, Retail partners, Surveyor

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Implementation Actions What to be implemented?

2. Improvised on current operating and servicing issues Define and resolve the issues related to nonrecurrence expenses Improve quality of service, both online and offline To retain customers faith and loyalty

Why?

To reduce losses due to transport failure, transport delay, stocks damaged

How?

- Develop complete standard operating protocol (SOP) for warehouse and logistic department; - Make everything, every incident, every single movement of stocks traceable; - Reorganize the layout of warehouses, follow First In First Out concept, stocks that have to be send out place at front; - Revise on the efficiency and capability of current logistic partners, change if necessary

- Improve on current online shopping cart system; - Update Office Depot official website regularly with news and promotion; - Decrease server and service center down time; - Organize training program for all the employees, especially front line staffs, and all the retail partners, so as to improve the overall service quality; - Carry out customer service evaluation and survey every quarter

Where? When?

Office Depot stores globally Immediately

Globally Immediately

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Who?

Warehouse department, Logistic department, Human Resource department, Finance department, IT Support department, Logistic partners Basically all the employees of Office Depot Inc are involved

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Implementation Actions What to be implemented?

3. Revised and improvised on current product mix Introduce new services e.g. business card, banner and wallpaper Reorganize existing office furniture and IT hardware product segment Profit margin for furniture To diversify current product mix, explore new market and industry, increase revenues and IT hardware products are low if compared to others software and related services, and the risk of getting damaged is high; - Introduce printing of business cards, banners, and wallpaper services to the market; - Cost is low if printing is in large amount; high margin; - Offer customize or design services related to business cards, banners and wallpaper printing; - Decrease the varieties of furniture and IT hardware products offered now; - Clear off existing stocks through special promotion prices; - Closed down existing product line or services related to furniture and IT
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Develop new computer software and systems

To diversify current product mix, so as to grab market Why? share in this coming paperless working environment era - Established new Software & System Development department; - Invest in R&D of new office How? software, or related systems, especially web-based systems (e.g. email systems, online shopping cart, POS system, P2P systems);

- Promote the new office software and systems to the clients; - Offer customize service for clients, in developing software or systems (e.g. email systems, online shopping cart, POS system, P2P systems) that suits them best Where? When? US Immediately IT Support department, Software & System Who? Development department, Marketing & Sales department, Retail partners

- Approach those agencies with huge demand on these services, for example Bank, Financial institutes, or sales companies

hardware product slowly

Globally Immediately

Globally Immediately Warehouse department,

Printing department, Marketing & Sales department, Retail partners

Logistic department, Marketing & Sales department, Retail partners

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11.

Impact of Action Plan Impact of action plan Impact Maintain competitive advantage Improve market share

Revenues

Sustainability

1. Exploring and penetrate into new market base Explore EME market Online promotion and advertising effort Yes Yes Yes Yes Yes Yes Yes Yes

2. Improvised on current operating and servicing issues Resolve non-recurrence expenses issues Improve service quality No No Yes Yes

Yes

Yes

Yes

Yes

3. Revised and improvised on current product mix Develop new computer software and systems Introduce new services Reorganize existing office furniture and IT hardware product segment
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Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

No

No

Yes

Yes

12.

Contingency Plan Contingency plans are proposed as below so as to minimize the possible negative impact brought

up by the plan. Strategic Decision Made Action Plan 1. Exploring and penetrate into new market base 2. Improvised on current operating and servicing issues - Service quality provided by Potential Problem Entering wrong market at wrong timing individual dealers/ distributors may be inconsistent; - Existing dealers/ distributors refused to changed Contingency Plan Detailed survey and planning are needed before taking any action - To avoid potential losses that Why? may arise; - To decrease the overall costs and time consumed - Convey customer needs and How? rival survey; - Do detailed survey on culture, Carry out worldwide mentoring program for every employees To ensure the service quality provided by employees worldwide are consistent. - Develop a systematic training program, which is to be implemented globally; 3. Revised and improvised on current product mix - Time and expenses involved are huge; - Lost existing market share and customer in office furniture and IT hardware segments Detailed survey, budgeting and planning in beforehand; - To decrease the overall costs and time consumed; - To retain existing customers - Make use of existing customer base, approach them to engage in new products and
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rules and regulation, legislation, politics, geographical and other related information of targeted market before entering Where When? Targeted EME markets Immediately International Division, Marketing Who? and Sales department, Finance department, Retail partners, Surveyor

- Conduct performance evaluation worldwide once in a half year

services; - Convey detailed budgeting and planning before setting up R&D team

Globally Immediately.

Globally Immediately. Warehouse department,

Basically all the employees of Office Depot Inc are involved

Logistic department, Marketing & Sales department, Finance department, Retail partners, Surveyor

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13.

Conclusion The world is shifting into paperless transaction environment. Office Depot has to revise on current business model in order to survive in this new era. The strategic planning as proposed will definitely assist Office Depot in achieving the objectives as mentioned.

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14. [1]

References Office Depot Case Study - Increase Workplace Safety by Motivating Employees. Available online at www.cashort.com <Retrieved on 6-Nov-12> Office Depot Company profile and SWOT analysis, 2011. Available online at http://www.freeswotanalysis.com/retailing-swot/463-office-

[2]

depot-swot-analysis.html <Retrieved on 6-Nov-12> [3] Shaun Bevan. (2012), Office Depot to downsize, relocate stores to save $20M. South Florida Business Journal Nov-2012. <Retrieved on 7-Nov-12>

[4]

Marc Gunther. (2011), Office Depot's Three-Pronged Strategy for Corporate Sustainability. The Gunther Report Dec. Available online at http://www.greenbiz.com/blog/2011/12/16/officedepots-three-pronged-strategy-corporate-sustainability <Retrieved on 7-Nov-12>

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15.

Appendix

Exhibit 1 (Source: STEILLA SERVICE, 2011):

Exhibit 2 (Source: Internet World Stats, 2009) [3]:

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Exhibit 3 Internet User in Malaysia (Source: World Bank, 2011):

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