Strategic Business Analysis Of The Harvey Norman Management Essay

Harvey Norman Holdings is one of the large retailers in Australia. According to its Company Profile from Hoovers (2010), bargain shoppers “sniff out deals at stores owned or franchised by Harvey Norman Holdings.” It is explained that this discounter of furniture, bedding, consumer electronics and so forth sells its wares through about 265 stores (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010). The firm operates largely in Australia and New Zealand; however, the company has stores in Ireland, Asia and Slovenia as well (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010). Some stores operate under the brand name Harvey Norman but others are Domayne and Joyce Mayne (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010).

Harvey Norman owns the land under about one third of its stores, and it also leases land to franchisees and provides them with advertising and administrative services in exchange for money from the sales that franchise owners accomplish (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010). Gerry Norman is the chairperson of this business for which 30% is owned by the Harvey family (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010).

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2. HARVEY NORMAN KEY FACTS

In 1961, Gerry Harvey and Ian Norman opened their first discount store (Creswell & Trenoweth, 2006, 264). Later, the pair got together to create what is now known as Harvey Norman (Creswell & Trenoweth, 2006,264). That company was founded in 1982 (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010). Harvey Norman Holdings, Ltd. is a public company that is considered to be a franchiser (“Harvey Norman,” 2010). It grants franchise licenses to independent business operators (“Harvey Norman,” 2010). The independent owners retail home and office products in a number of categories inclusive of small appliances, bedding, furniture, computers, communications, home improvements, carpeting, and flooring (“Harvey Norman,” 2010).

The company has well known slogan “Go Harvey, Go Harvey, Go Harvey Norman” (“Harvey Norman,” 2010). The following appears at the firm’s web site: “This company motto, much like the supporting anthem for a favorite sporting team, conveys the enthusiasm and entrepreneurial spirit embedded in the Franchise operators and the Harvey Norman culture” (“Harvey Norman,” 2010).

Harvey Norman has a Code of Conduct that is associated with a high level of integrity. In its Code of Conduct, it is noted that the firm recognizes the importance of having a reputation and one that is largely associated with ethical behavior concerning people who represent the firm (“Harvey Norman,” 2010). The code establishes principles for ethical behavior by all personnel at the firm, inclusive of employees, contractors, directors and consultants (“Harvey Norman,” 2010).

In the company’s annual report, it is noted that in spite of a challenging retail environment, the company’s integrated franchise, retail and property systems have shown resiliency (“Harvey Holdings Limited: Annual Report,” 2009). The company has a unique system of market leadership and has been able to capitalize on a resurgence within the Australian economy (“Harvey Holdings Limited: Annual Report,” 2009). The firm has taken advantage of stabilizing global conditions (“Harvey Holdings Limited: Annual Report,” 2009). While challenges are still present in Australia, the franchising segment has improved during the final six months of the fiscal year (“Harvey Holdings Limited: Annual Report,” 2009).

Figures support the claim that things are going better. The result is $302.95 million for the present year as it relates to $291.41 million for the previous one (“Harvey Holdings Limited: Annual Report,” 2009). This is an increase of 4.0% (“Harvey Holdings Limited: Annual Report,” 2009). The company says that the result is outstanding when considering that the segment had actually contracted to the tune of 12.7% during the same time frame during the prior year (“Harvey Holdings Limited: Annual Report,” 2009).

Harvey Norman’s balance sheet is quite strong and the cash flow is good (“Harvey Holdings Limited: Annual Report,” 2009). Debt to equality ratio is low at 26.56% (“Harvey Holdings Limited: Annual Report,” 2009). It has actually slightly gone down from prior year figures (“Harvey Holdings Limited: Annual Report,” 2009). The following is stated in the annual report:

“If cash and cash equivalents were to be deducted from total borrowings, the debt to equity ratio would be 18.89% for the year ended 30 June 2009 and 23.29% for the year ended 30 June 2008” (“Harvey Holdings Limited: Annual Report,” 2009). It is also noted in the context of the annual report that their prudent financial decisions have assured that their gearing is low (“Harvey Holdings Limited: Annual Report,” 2009).

Important numbers for fiscal year ending June, 2009 show that sales are at $1,959.8 million and the one-year growth rate is 17.8% (“Harvey Norman Holdings Ltd. Information from Answers.com,” 2010). The company reported a net income of $176.5 million in 2009 (“Harvey Norman Holdings Ltd. Information from Answers.com,” 2010). Income growth is at 49.5% (“Harvey Norman Holdings Ltd. Information from Answers.com,” 2010).

3. MICRO AND MACRO ENVIRONMENT FACTORS

A PEST or PESTLE analysis helps to evaluate the macro environment (“The PEST or PESTLE Analysis,” 2009). A PESTLE Analysis for Harvey Norman is as follows;

3.1 Macro Analysis

3.1.1 Political

Senator Joyce made a visit to a bus stop in regards to the Mining tax on a highway that was just across the street from Harvey Norman (Bester, 2010, 6). The idea was that if there were a vote for Labor, one is flushing one’s job down the drain (Bester, 2010, 6). Senator Joyce hoped to persuade the people to vote for the coalition (Bester, 2010, 6). Harvey Norman was inadvertently linked with this campaign as it was widely reported that the political activity took place right near the company’s doors.

Gerry Harvey was criticized for being both the CEO and the board chairman (Bottomley, 2007, 170). To that criticism, Gerry Harvey remarked; “If you reckon I should piss off and get someone who knows nothing about my business, well, don’t think my shareholders will be very impressed” (Bottomley, 2007, 170-171).

3.1.2 Economic

In July of 2010 it was reported that there were flat sales for the year because consumers cut back on spending (“Consumer spending cuts hit Harvey Norman,” 2010, 19). In 2009, the firm reported a net income of $176.5 million (“Harvey Norman Holdings Ltd. Information from Answers.com,” 2010). In 2009, Harvey Norman’s balance sheet was very strong (“Harvey Holdings Limited: Annual Report,” 2009). In 2010, sales have been negatively affected due to a downturn in foreign currency (“Consumer spending cuts hit Harvey Norman,” 2010, 19).

Specifically, in 2010, electrical and computer sales had become weaker (“Consumer spending cuts hit Harvey Norman,” 2010, 19). Bedding and furniture did take the market share (“Consumer spending cuts hit Harvey Norman,” 2010, 19).

3.1.3 Sociological

Harvey Norman has a decided impact on the Australian society at large as an employer and player in respect to consumer products.

Harvey Norman is a large enterprise and therefore affects the lives and lifestyles of the people in Australia and wherever its stores are found.

3.1.4 Technological

The U.S. economy influences business spending for software products and the success of programming firms depend strongly on technology and technical expertise (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010).

3.1.5 Legal

Between January 2007 and July of 2008, a number of mobile phones, memory sticks and cameras were stolen from Office works, a Harvey Norman store (Fogarty, 2010). Glen Waverley, the thief, avoided prison time (Fogarty, 2010). The thefts were in part attributable to a feeling of unfairness, but Waverley contended that the franchiser treated him unfairly and this might have accounted for the motivation to steal from his employer (Fogarty, 2010). He agreed to pay full restitution to the store (Fogarty, 2010). The legal issue concerning theft also influences public relations.

3.1.6 Environmental

As have many companies, Harvey Norman has been criticized for not being kind to the environment. One story suggests that in a Harvey Norman parking lot, trees were removed, and even though the workers took proper care, several birds fell out of nests and one baby bird had to be euthanized (“Harvey Norman axing car park trees,” 2010).

3.2 Micro Environment with Porter’s Five Forces Model

To examine the microenvironment, Porter’s Five Forces Model will be used as follows;

3.2.1 Rivalry

Harvey Norman is a competitor to David Jones Limited, Woolworths Limited and Myer Holdings Ltd. (“Harvey Norman Limited Company Profile — Yahoo Finance,” 2010). There seems to be a semblance of balance because competitive firms are also of a relatively large size.

3.2.2 Supplier Power

Suppliers have a great deal of power in today’s market. They are able to compete and negotiate good deals due to a reduced amount of competition.

3.2.3 Threat of New Entrants

The threat of new entrants is low today due to the lagging economy. There are few companies that can grow rapidly to compete in the various market niche to which Harvey Norman is attached.

The threat of new entrants in a better economy is great in this market as consumer household and electronic goods are in demand.

3.2.4 Threat of Substitutes

Threat of substitutes is low for this market niche only due to the relevance of technology today. If society moves away from technology in the future, substitutes could pose a threat. For example in a highly unlikely scenario, people might start using board games again and this would hinder the electric gaming market.

3.2.5 Buyer Power

Customers have little bargaining power in this particular market. With a reduction in competition, there seems to be some price setting and a reduction in inventory that puts consumers in a poor bargaining position.

4. CHANGING INDUSTRY CONDITIONS

The lagging economy is responsible for a change in industry conditions, at least to an extent. It seems that consumers are less likely to purchase electronic and household goods when they lose their employment or are low on cash. Credit is also on squeeze so even if consumers want to spend, they may not be able to do so. It could be due to the influence of high interest rates as well. The industry shows slow sign towards recovery until the economy improves. Of course, while that is the case, the industry has also been moderately affected by the economy. The products sold in this sector are certainly needed by consumers. The changing conditions could appear to be temporary but as the GFC continue to affect the rest of the world in comparison to the Australian economy it would be hard to comment.

5. RESOURCES, CAPABILITIES AND STRATEGIC POSITIONING

The strategic position of Harvey Norman is positive in that the company is able to leverage market share in certain areas, while holding tight to others, the latter of which are expected to improve with the economy. The firm has a great deal of assets and financial resources, and is capable of a positive future performance. Its 2009 performance had been quite good considering the negative economy, but in 2010, less than stellar results were reported. The company seems optimistic about the future as it should be. It seems as if the economy is in recovery and Harvey Norman has a number of good products to promote.

6. COMPETITIVE FORCES

The Competitive forces for Harvey Norman Holdings Limited include a number of different firms (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010). It should be noted that the United States poses a large threat. Packaged software firms are related to technical expertise as well as savvy marketing practices. The U.S. economy influences business spending for software products and the success of programming firms depends strongly on technology and technical expertise (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010). Small software firms compete largely through the development of packaged goods in small niche areas or produce custom products for individuals (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010). Some small firms form alliances with larger business in order to market their wares (“Harvey Norman Holdings Ltd. Company Profile from Hoovers,” 2010). While Harvey Norman competes in this sector, it also competes in many other sectors as well.

While it is true that Harvey Norman competes in the software niche, which is simply a small part of its activity. Generally, Harvey Norman’s key competitors are Myer Holdings Ltd., David Jones Limited, and Woolworths Limited (“Harvey Norman Limited Company Profile — Yahoo Finance,” 2010).

7. CONCLUSION

Harvey Norman has experienced some decline in 2010. This is in part attributable to a struggling economy. Recovery is coming about in dribs and drabs and it is just a matter of time before the company improves. Positive signs were seen in 2009 and Harvey Norman has done well in key areas. The only recommendation that this company should seriously consider is to maintain proper public relations. The company was featured in an unfavorable political ad, and a story about the company harming birds while cutting down trees was not good either. Similarly, the firm is attached to a legal issue concerning an employee of one of its franchises. Improved public relations will go a long way to effect a positive situation for this firm. Otherwise, as the economy rebounds, Harvey Norman will enjoy greater success.