Management SBU (strategic business units) of ARG, Burberry & Experian

SBU (strategic business units) of ARG,
Burberry & Experian

In his book ‘Competitive Strategy’ Michael Porter introduces the concept of core competence and declares that it is important that a company knows and understands what is ‘core’ to the success of it’s business and how to protect this from competitor replication in order to maintain leadership in their market.

However, in today’s fast moving environment uniqueness is hard to preserve and both products and technologies are able to be replicated at a very fast pace, thus leaving the differentiating factor as the quality of service it offers it’s clients over and above it’s competitors. Where multiple products, services or business units are concerned the interrelationships between each strategic business unit is paramount to success (Porter, ‘Competitive Advantage’) and a true test of corporate competency. Prahalad and Hamel take this concept further by introducing three tests for corporate competency.

1. providing access to a wide variety of markets

2. a core competence should make a significant contribution to perceived customer benefits

3. should be difficult for competitors to replicate.

GUS is a retail and business services group (www.gusplc.com) which has been stream-lined from a diverse conglomerate into a group with three clear divisions or strategic business units (SBU) ARG, Experian and Burberry’s (Appendix 1). Each division is clearly defined and cover the mass market (ARG), the quality high end market (Burberry) and customer intelligence (Experian).

It can be seen from the SBU review (Appendix 1) that individually, non of the business units ‘pass’ the three step competency test, however, taken corporately as one, the GUS empire, together they form a unique portfolio and work together for the benefit of the overall group (GUS) and quite possibly unique in having three such distinct, and yet complementary divisions, all necessary to ensure corporate advantage and market growth.

Market Growth/ Market Share (Boston Group Matrix) overview and recommendations.

High

Low

High

Star – Experian

Question Mark – Burberry’s

Low

Cash Cow – ARG

Dog’s disposed of in reorganisation restructure

Taking the information from the SBU overview…

In Appendix 1 and applying each portfolio within the Boston matrix it may be surmised that the Cash Cow is the ARG group. As the UK’s largest merchandising group, ARG has a large market share and a number of loyal customers and a sustainable income stream. It’s strategy is to hold sales and market share and take a defensive position.

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Income from the cash cows can be used to fund and turnaround the question marks, Burberry’s. Burberry’s is in a growth niche market of luxury products for cash rich and image conscious customers and re-establishing the brand could assure a high profit return for the future. The star is Experian, which has a high market share in a growing market and generates large sums of cash for GUS as an entity.

As seen from the SBU analysis, costs relating to the management of this business unit are low in comparison to the returns, compared with ARG and Burberry. Income from this SBU can also be used to fund and develop Burberry.

By pooling the resources of both ARG and Experian, the Burberry brand can be given the emphasis on product design and marketing that it needs to grow to dominate it’s market. Operating in a luxury market, there is potential for high returns. Of course, the GUS group should not loose sight of it’s original and loyal customers, those who frequent the ARG businesses and the new corporate customers who purchase intelligence from Experian.

It, in turn, needs to continue to reinvest in maintaining and increasing it’s position in the market. It is paramount that the needs and wants of these two SBU’s must not be compromised in order to fund Burberry growth. In addition by using information gathered from the Experian database, the group as a whole could use this to their advantage to profile and target existing and potential customers, subject to data protection restrictions, for both the ARG and Burberry business units – thus enabling growth for the GUS business as a whole.

Bibliography

Brassington, F, Pettitt, S (2000) Principles of Marketing (2nd Edition) (Essex, Pearson Education Limited: 2000)

Donaldson, B (1995) Customer Service as a Competitive Strategy Journal of Strategic Marketing, Vol.3 No.2: June 1995

Doyle, P (1998) Marketing Management and Strategy (2nd Edition) (Hemel Hempstead, Prentice Hall: 1998)

Drummond, G, Ensor, J, Ashford, R (2003) Strategic Marketing: Planning and Control (2nd Edition) (Oxford, Butterworth Heinemann: 2003)

Egan, C (1997) Creating Organisational Advantage (3rd Edition) (Oxford, Butterworth Heinemann: 1997)

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Grant, R (1992) Contemporary Strategy Analysis (2nd Edition) (Cambridge Massachusetts, Blackwell Publishers: 1992)

Johnson, G. Scholes, K (2002) Exploring Corporate Strategy (6th edition) (Harlow, Financial Times, Prentice Hall: 2002)

Kotler, P (1997) Marketing Management – Analysis, Planning, Implementation and Control) (9th Edition) (New Jersey, Prentice Hall: 1997)

Kotler, P Rath, A (year of journal to be inserted by customer??) Design: A Powerful But Neglected Strategic Tool(???name of journal to be inserted by customer)

Lynch, R (2003) Corporate Strategy 3rd edition. (London, Financial Times Pitman: 2003)

Porter, M (1985) Competitive Advantage: Creating and Sustaining Superior Performance (New York, Free Press: 1985)

Prahalad, C.K. Hamel, G (1990) The Core Competence of the Corporation (Harvard Business Review May – June 1990)

Trueman, M Jobber, D (1998) Competing Through Design (Long range planning, Vol.31, 1998)

Whittington, R (1997) What is Strategy and does it Matter? London, International Thompson Business Press: 1997)

www.bbc.co.uk

www.gusplc.com

Appendix 1

  • ARG – the argos retail group
  • Incorporates the high street stores, home shopping and internet businesses. Most of the brands within the ARG are well known in their own right, such as ARGOS , Kay’s and GUS and each are known for the breadth of products and services it offers clients.
  • Offering multi channel purchasing and distribution options for the mass market customer. Core competence 1.
  • Established for over 100 years this division represents the modern equivalent of the original brand and covers every need for the home. Core competence 2
  • It is very hard in such a market to be unique, with competitors such as Next currently dominating the home shopping market. Does not meet criteria for core competence 3.
  • ARG’s current management team (www.gusplc.com) are concentrating on a growth strategy, recently purchased of 33 index stores, thereby defending their place in the market.
  • In 2002, sales from this division amounted to £4,629m, which translated to £255m of profit before tax, this division was the most profitable in that year and is currently the UK’s leading merchandise retailer (www.gusplc.com).

Burberry’s

  • Burberry’s offers quality designer clothes
  • Operating in a niche market it is currently being further developed to offer luxury accessories and has recently appointed young Italian American designer to broaden the age range appeal of its clothes and to concentrate on attracting younger women, by using both young celebrity (Kate Moss) and young royal (Frederick Windsor) endorsement.
  • Burberry’s has a strong brand image with it’s strength in being known as offering high quality products, whilst it’s weaknesses have been the perception of the age of woman who wears the brand, this is now being addressed.
  • According to Prahalad and Hamel’s first core competence test, Burberry’s were not originally providing access to a wide variety of markets as their core customer was middle/ older aged women. This has now been addressed and access to the products increased by introducing a younger profile and a range of luxury products from watches to jackets for dogs.
  • The Burberry check is synonymous with the brand and one would presume, patented so should be difficult for competitors to replicate. Core competence 3.
  • In 2002 sales amounted to £625m and profit before tax of £64. In 2003 GUS sold shares in Burberry and now holds 66% of shares in the company (www.gusplc.com)
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Experian

  • Experian is a global leader in the information services market place (www.gusplc.com).
  • Experian emerged in the 1990’s and offered customer intelligence information to corporations prepared to pay for such and has grown in strength to offer a wide choice of information services covering a variety of industries. Core competence 1.
  • In today’s market place, knowledge is power and Experian offers a wide variety of up to date services to different markets. Core competence 2.
  • Whilst it should be difficult for competitors to replicate the exact information held by Experian. it is not the only company offering intelligence. Core competence 3 not satisfied.
  • It’s strength is in the brand name and the quality of the information held on it’s database and level of service it offers it’s customers’. In market research fields the name experian is very well known for the databases of information it holds and many credit card companies and the like use their services to perform credit card and financial rating checks
  • In 2002 sales amounted to ?1092m of which ?229m was profit before tax. Experian are the rising stars of the GUS portfolio and are concentrating on a growth strategy, recently announcing the purchase of the company LowerMyBills.com. (www.gusplc.com)

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