Strategic evaluation documentation of Boots

Abstract

This Strategic evaluation documentation of Boots was put together, so as to give a comprehensive overview of the companies background, financial position, and services provided. The document seeks provide an in-depth SWOT analysis outlining critical decision making practices. Coupled with the SWOT analysis, a Porters Five Force analysis was done, this was to point out the company’s competitive position.

Management Summary

Background

Boots is the United Kingdom’s leading pharmacy-led beauty and health company. It has branches both on the international market spanning as far as China and main land Europe. The company offers a full range of products mainly in its beauty and Pharmacy sections to its customers. Boots has its No.7 brand that is very popular amongst its customers which is a unique product to the company. The company boast a very good working relationship with its manufacturers and pharmacists. Boots entered into a joint venture with Alliance Unichem to form Alliance Boots in 31st July 2006. Their main focus is on pharmacy health, beauty retailing and wholesale pharmaceutical products.

Brief

This project aims to examine Alliance Boots and to give an overall picture of the company’s strategic position. An analysis was done using the SWOT technique, outlining the company’s (Strength, Weaknesses, Opportunities, Threats), it gives a comprehensive overview of the company’s position. The Porter Five Force model was use to determine the company’s competitive advantage. The report also seeks to outline the impact of IT on the organizations operation and the competitive advantage it offers.

Outcome

The finding of this report was a collection of data from a wide range of sources. It is therefore concluded that, Alliance Boots investment in IT/IS have shown significant growth in the company’s performance and revenue. Its ability to outsource its IT and Human Recourse Department gave the company the power to focus on what mattered more, its customers,

The key findings of the report are the following.

Boots is a leading beauty, health care, optical provider and pharmaceutical business not only in the United Kingdom.
By outsourcing it’s IT and Human Resource department, Boots focuses on delivering first class service to all its customers which is the important aspect of it business.
IT/IS has been the driving force behind the success of Alliance Boots, the introduction of trainable touch screens tills were a noticeable addition.
Alliance Boots has rolled out its Customer Advantage Card, allowing it to manage its customers purchasing habits and keeping track of the goods and services and particular group of customer purchases

Report Structure

Management Summary: Describes the report structure and highlights some key findings.

Introduction: Includes the company’s back ground and historic information. Also giving details of the products they offer and their financial position.

Strategic Evaluation: This is an in-depth SWOT (Strength Weakness Opportunities and Threats) analysis.

Competitive Analysis: This chapter gives details of the company’s competitive advantage amongst its rivals using the Ported Five Force model.

Impact of IT/IS: This chapter gives an over view on how IT/IS impacts the overall operation on the company and the competitive advantage it has on its competitors.

Conclusion: Generally summaries the entire report.

References: Sites material that were used in the actually report, to include websites, journals, and other literatures.

Appendix A: Figure 1 shows a chats which displays Britain’s favourite retailers 2007 per category by (TNS World panel)

Introduction

Background

The origin of Boot’s goes as far back as 1849 when it started by John Boot. He opened the British and American Botanic Establishment in Goose Gate in Nottingham United Kingdom. It was form 1871, that John’s son Jesse incorporated the family name, which was traded as M & J Herbalists.

Boots have been a thriving business up until the mid 1990’s, it has however, been faced with mounted competition, several mergers, new investment, and some companies restructuring. Boots success depended on its proactive and reactive methods to the rival competitions it faces in that time of uncertainty. It was for those reason mentions that they (Boots) sorted the assistance of freelance marketing researcher Amy Silverston.

A £7 billion merger was later announced by Boots in October 2005 with its rival Alliance Unichem. This merger formed an alliance called Alliance Boots which was a leading distributer in pharmaceutical and healthcare products. This was a major boost for the boots brand on continental Europe. Boots, at the time of merger had 1,400 pharmacies while Alliance Unichem owned 1,200 with 68,000 and 33,000 employees respectively. Alliance Unichem has stores in Italy, Switzerland, United Kingdom, the Netherlands and Norway.

The merger also saw new ventures by the alliance between Boots and Alliance Unichem. Boots ventures in to fields such as laser eye surgery, Chiropody and dentistry. It was reported that move like these caused a worry to analysis and investors as they try to fend off competition from grocery retailers and niche operators in key markets. In the end they were not very successful.

In spite of all the difficulties, Boots have impressed both the market and its customers. Its brands solely equates to quality and always keeping its customers at the heart of their business.

Main Products sold

Health or pharmacy products

These equates to a quarter of the company’s total sales.

Beauty and Toiletries

Boots is the leading UK retailer in a number of selective cosmetic brands.

Baby Products, Food and Photography

Baby related products are good for increasing ‘football’ ( this is a term used in the retail industry for the number of person entering the store)
Items of food for persons with special dietary needs
Offers a range digital cameras and print capabilities from memory cards

Opticians, Dental products and Well Being Services

Dental care is an increasingly growing service offered by boots
The Boots Wellbeing beauty treatment centres were shut down in 2003
Offering a series of eye care across the UK

Main Brands

The boots brand is highly associated with health and beauty. Its No.7 brand was launched in 1935. And to date is the leading cosmetic brand in the UK.
Over the counter customer health products owned by Boots Healthcare International. Boots offers services such as Nurofen, E45 and Strepsils.

Boots Financial performance

Boots Alliance Boots have performed very well despite rival competition. Below is a synopsis
of Boots financial period ending March, 31st 2009.

Over all Profits for 2008 financial year

Boots revenue including share of associates and joint ventures , was up by 15% to over £20billion
Trading profits, which includes share associates and joint ventures went up 11.6% to £95million
£100 million merger cost synergy target achieved 18 months ahead of schedule

Health and beauty

Revenue up by 4.4%
Trading profit up 11.6%
Boots UK up 3.2%

Pharmacy

This is a challenging market as it has rival competition from outside
Revenue up 17.8%
Training up 4.4%
There were some key acquisitions in France and Germany

Joint venture

Pre tax profit shears earnings of associates and joint ventures up 25.0% to £75 million

Strategic Evaluation

SWOT Analysis on BOOT’s current position

Strengths

Continuous training from the staff
Customer purchasing habit software
Boots competitive advantages is it ongoing investment in its IT system mostly concentrating on customer satisfaction and holding a lion share of the market it operates in.
Boots USP’s (unique selling points) is by the issuance of its advantage card so customers may have special saving.
Joint merger Alliance Unichem with have strengthen is marketing and Pharmaceutical distribution capability, 65,000 staff across all its stores.
Operation since 1849, dominated the UK Pharmaceutical market.
2009 half year report an 11.6% increase in sales 9,006 million.
Has a very strong marketing and advertising scheme
Very efficient database system which allows for very quick querying system
Boots geographical location has put it in a very strong position to compete in the market it operates in, it has 1,400 stores across Britain
Always competitive price to meets its competitors range, boots traditionally continue to promote its 3 for 1 special on it health and pharmacy range, pride its self in offering continued quality to its customers
Boots is a registered member of the Royal Pharmaceutical Society.
Boots has a state of the art internal communication system that is used in their huge ware house, a significant investment in their IT system which is out sources to IBM
Boots has an aggressive temperament towards making its customers and staff at the fore front of their everyday business
Excellent management structure mainly concentrating on delivering on excellent customer service.
Identifying who is its more valuable are

Weaknesses

Competition from outside rivals
No identifiable campaign management system

Opportunities

Continuous development of the Advantage card system
Seeking the best technology to provide the best service
Continually looking for new and thriving markets
Developing a broader customer base
Expanding their existing global target
Improving their UPS
Boots continues to undertake market research seeking new ways to develop their products
A growing customer production, economies?
Cold season influences the sale of cold and flu medicine

Threats

Environmental effects that is to say weather may disrupt transformation and delivery
New business developing offering similar services
Market demand may fall as a failing economy job loses
Rising cost of new technologies
Competitors lowing prices
Like business offering the same service
Weak economy may cause consequent layoff
Fallen stock market and the cost of training
A weakening economy
The treat that the office of fair trade may not approve all their application for new pharmacies
Government legislations on price control

Discussion

Strengths:

Operation since 1849, dominated the UK Pharmaceutical market: This is a very valid point as having this dominance in the market from the inception gave boots the flexibility of the market until today. By having such dominance boots was able to make their mark.
Its leading brand: Boots has its leading “No.7 brand”, including “Soltan”, and their “almos” brand which is used for its generics medicines.
Leading Pharmaceutical and distributing wholesale: Boots has distribution and wholesale businesses in several countries including its main stores in Europe and in addition boots also distribute through associates in four different other countries. By doing this Boots controls a very large portion of Europe’s pharmaceutical distributions business making it a leading edge in front of its competitors.
Customer focus: Boots pride itself on developing experience retail and wholesale teams which manages their respective areas. By doing this, boots creates an internal management system, managing customers purchasing habits.
Marketing and advertising strategies: Boots boast a very effective and rewarding Marketing and advertising campaign.
Boots operation of its advantage card system has revolutionized the industry, by the introduction of this system, boots have been able to capture customer buyer’s habits.

Weakness:

Boots has to deal with its problem of it contact center employees, as case study done

Threats:

The threat of government’s price on medicine is a real problem that Boots Alliance and other retailers must deal with. The problem lies with when the government charges for its medications, this is particularly bad when this price has to be passed on to its consumers.
A weak economy can have very catastrophic effect on any business, Boots Alliance been a market leader can be affected by such changes. Case in study, the 2008-2009 Rescission has seen many businesses close and even massive layoffs.
Boots faces ongoing threats from rivals such as Tesco’s who have been drastically increasing the amount of stores they currently have, which consequently put pressure on boots to up their game as it relates to keeping ahead of the Pharmaceutical and health care business . This has caused Boots to subsequently cut prices with will decrease their profit margin in the long run.
The rising cost of new technologies will always be a challenge for business seeking to expand and to meet the rapid change of technology. Boots faces the threat of rival business employing the same technologies for a cheaper and similar efficient way of operation.
Factors such as economy, affecting inflation and interest rates is an outside threat for Boots, as in 2009 the interest rate drops to an all time low as 0.5%, which affects the spending power of customers.

Opportunities:

One major opportunity that Alliance boots have capitalised on is rapid expansion of its pharmacies making it a rapid growing business; by doing this it allows them to reach a wider customer base allowing then to improve revenue.
The aspect of revenue generation may an opportunity for Alliance Boots, as in the winter and fall seasons, Alliance Boots have seen increased sales of it cold and flu drugs.
Alliance Boots have the opportunity to recruit the best minds in the pharmaceutical as it has one of the most respected pharmaceutical businesses in the county.
The merger with Unichem and more recently the merger with Dollond and Aitchison to form the second largest optical provider in the United Kingdom.

Competitive Analysis on Porters Five Force

Supplier Power

Boots has always been a strong business as it relates to the influence that is suppliers have.

Importance of the volume of suppliers: The number of suppliers one has can greatly increase you bargaining power with these suppliers. Case in study, in 2007 Boots had talks in with it’s over 80 suppliers to lower price for over the counter drugs sold to its customers. A spokesman for the company went on record as saying that they would not back down from their position. As a consequence of such action, one of its suppliers wrote to the Sunday times saying, “they would not supply the company if they do not retract their offer”. Boots eventually was consistently supplied by all its suppliers with reduced price even though some had threatened to stop.

Switching Cost of Firm in the industry: by outsourcing its IT/IS department, boots have been able bargain as IBM has not been its only contractor, though it’s main supplier of its IT/IS infrastructure was IBM.

Though boots is the leading pharmaceutical provider in the UK, it faces threats of it suppliers having the option to sell directly to customers and addition to other rivals who may offer the same or similar service.

Understanding Suppliers: Boots must be in a position to understand its suppliers market it price and also its market demand. By understanding it suppliers Boots will be in a better position around the bargaining table, as was seen in the above situation.

Reducing the power of Supplier: This can be achieved by forming an alliance with your supplier. Boots, as it relates, is in a very strong position, as it has numerous suppliers. By doing this, it creates an even playing field as it relates to distribution of power.

Buyer Power

Bargaining leverage: Boots customers have been rewarded by the company as means of their customer Advantage card. Doing this allows the buyer to save considerably and at the same time allow boots to capture much needed data/information to allow them to monitor consumers purchasing habits. Additionally, allowing customers to purchase more. So increasing customer loyalty is the main way of reducing the power of the buyer.

Brand identity: Boots is the UK leading pharmaceutical provider of health care needs. By doing this, it offers a uniqueness to the brands that boots provides.

Price Sensitivity: Study shows that customers normally go towards the cheaper product when purchasing. Consequently boots has always offered a competitive price range and at the same time offered distinctive brands, which always keep the customers returning.

Buyer Information: Boots marketing strategy is one that is very powerful and attractive. This allows its customers to be always informed, reducing the risk of customers going elsewhere to seek the same products.

Threats of New entrants

Threats of entry comprise of two main factors though not limited to others. Cost and legal implications are they. Boots has been bombarded with new entrants.

An article, THE TIMES, (‘Tesco plans massive superstore surge’, 2009, 3) reported it in a nutshell it states that “Tesco is planning scores of new supermarket across Britain before a proposed clampdown that would restrict its ability to expand”. This can be a problem for boots as it relates to more competition from the supermarket Tesco.

Though Tesco is a supermarket chain it offers a lot of the products that boots provides in addition to a pharmacy which boots pride its self in. However, the competition watchdog has recommended a test making it very difficult for businesses that have a dominant present in an area. This may be good news for Boots as in the event that Tesco does enter the market with more super stores,it simply means that because of the competition Boots will have to revisit it marketing strategy and may even have to reduce prices through advertising.

However, brand loyalty is what Boots uses as it strong point. If that was not so, Boots customers would then seek other alternative seeking better brands and lower prices.

Starting up Price: Start up price will be a main factor for other businesses entering the market. However, according to analysis, boots is the most establishes pharmaceutical provider in the UK. With boots continuous and rewarding advertising champagne it makes it very difficult for new Pharmaceutical businesses to enter the market. Thought Boots offers other products, the most profitable part of the business is Pharmacy and drug department.

New companies will have to invest vast amount of money in order give Alliance Boots significant competition, which leave Boots in a strong market position.

Joint Venture: Boots have formed a most profitable alliance with Alliance Unichem this new venture have seen the profits of Boots sky rocketed as a result of the joint alliance. This alliance actually improved the new company’s brand, and enhanced its marketing strategy.

Customer loyalty is another way that has help Boots reduced the threats of new entrants. Boots have a few identifiable brands which are unique to the company such as Nurofen, E45 and Strepsils. It would be difficult for new companies to enter the market and attempt to provide the same service.

Threat if substitute:

Boots have made one noticeable substitution according to Porters Five Force it was a generic change. This was noticeable in its IT department when that substituted their traditional till machines to touch screens capability.

Though customers have the option to switch, Boots offers a wide range of products allowing customers to choose in store limiting them the opportunity to switch from a product they actually offer as oppose to going to another store.

There are two main factors that affect a customer’s decision to go for a substitute product

Customer’s loyalty is it little or great this is very prevalent if customers are motivated by price.
How beneficial are the products that are sold compared to other products.

Boots have had customer loyalty from the beginning as with their loyalty card; this has grown significantly over the years.

Additionally, to reduce these treats Boots have improved and invested in their IT/IS system, making it possible to keep track of customers purchasing habits.

Degree of Rivalry

Of all the five forces degree of rivalry is considered to be the most competitive. It affects the bushiness in several ways price competition and brand/products identification.

The intensity of rivalry with relates to Boots is quite high, with the likes of Superdrug, Lloyds Pharmacy, and Tesco’s pending massive expansion. Will, more than likely put the market analysis to the drawing board?

Thought it has been repeatedly said, Boots is the leading pharmaceutical provider in the UK. This fact has put the company in the leading edge on the market however it has continually made improvement in its stores and in marketing it products and most importantly continue to provide excellent customer service.

Impact of IS

Boots new IT/IS system

Boots has indeed come a long way as it relates to the implementation of top of the line information systems. The culture of boots also has significantly changed over the years. In the early years boots had its own its structure which basically dealt with all IT needs. Consequently, boots has realised that over the years it can improve on its IT infrastructure, granted that the company boost it pride on consumer satisfaction.

Before the implementation of the outsourcing operation with IBM, Boots was originally spending in excess of £100 million a year for three consecutive years, which when tallied totalled to £350 million. This money was spent in overhauling of the IT infrastructure to improve efficiently and more importantly the give it customer’s value for money.

IT Director Rob Fraser was quoted saying “we invest about £100 million a year in the past three years and now want to drop down that to £25 million or £30 million, but this includes building on the foundations we have put in place”

He mentioned that they touched every aspect possible in their IT sector to include the outsourcing of its data centre, in store and network systems.

One of the biggest moves for the company was the conversion from the old central Legacy system to the new (enterprise resource planning) with is the back bone of the IT operational System.

The culture of Boots IT systems has changed dramatically, by doing so Boots was able to install new PC’s on all its back offices and overhaul of its networks system and introduced touch screen tills across all its stores across the UK.

“This renewal took our IT infrastructure to industry leaving level. Now we need to get it to work for us and derive the value from our systems” Fraser explained.

Having said that, it was necessary for Boots to restructure their ongoing out sourcing deal with IBM. The company’s main aim for the improvement in its IT sector, is to focus on how it can improve its customer relationship, decreasing its IT operational cost, and improve on it delivery capabilities.

Boots had additional plans when it employed Tata Consulting Services out of India as an additional outsource client. It was of the view that by having more than one client is increases competition and at the same time looked to cut cost and getting value for money for all its customers.

A report written by David Friedlos he pointed out that “one of the biggest areas of spending in the coming year will be development of IT for healthcare along site the NHS, including E-prescription and a new scheme launched in Scotland”.

Another area where Boots IT sector has been effective on the culture on the organisation is by the implementation of IT/IS software to work alongside the NHS national database. By doing so, boots is being able to register patients online from the national database. Additionally, it allows patients to be accepted if they have minor ailment which can be dealt with at any Boots pharmacy, thus easing the pressure on local GP offices. This has also seen significant benefits, as the patients at the point of visit will more than likely purchase their drugs from the store. It is a very good way that the IT/IS has impacted the way customers shop at boots.

Additionally, the implementation of their customer advantage card launched in 1997 which have seen tremendous benefits to include having 10 million registered card customers 2 million more that originally forecasted for.

All this investment was to the tune of £25 millions including the database which was used to hold the customers data.

It is quite clear that Boots have radically changed its culture as it relates to IS/IT systems. In implementing their state of the art IT system boots have leap frog in front competition. Such advantages were the implementation of a fraud detection system and the increased benefits from their SAP applications (Systems Applications and Products).

Listing a few cultural changes, these would include

Leading analysis recognise the massive IT improvement that Boots have made.
The integration of their IS with the NHS database giving customers the ease of prescription filling at any Boots pharmacy.
The ability to use CRM (Customer Relation Management) to monitor consumer shopping habits.

Out Sourcing

The out sourcing of Boots payroll and human resources systems to Northgate HR in 2006 in a deal worth £16 million over a seven year period.

This includes its 65,000 employees who work in the health and beauty department

Boots HR head of operations concluded that they have done detail analysis of the HR department and have concluded the best way was to out source

Man power planning and labour scheduling was contracted out to Torex Retail

In 2006, boots announced a £350 million upgrade of it point of sale system which will enable E-learning for its 60,000 plus staff. The new touch screen will be use for training staff making them more efficient during period of not much activity in stores. The very smart thing about this was that the tills had smart switching software’s, which allows cashiers to do training while working. When a customer approaches a touch of a screen switches it back to the check out system.

“The training department at Boots realised that these computerized training could not replace person to person training but it compliments it said” Michael DeSalles.

Training

The influence on IT/IS has caused the culture of the organisation to change, this was evident when boots rolled out their touch screen tills a change from the old regular push buttons tills. By doing so, individual training was more personalised.

Additionally, by outsourcing its IT/IS department, it can be assumed that the company would have had to redistribute it workers to other departments.

Competitive advantage

A competitive edge is what boots wanted and by its sizable financial injection into their IT/IS upgrade. By studying several documents including the case study given, there are several that can be clearly brought to light.

The new IT/IS system has more than given Boots the competitive edge against it competitors. And there are various reasons to support this decision.

K. Laudon in his Publication stated that “Information systems promotes better management of firm’s assets and cash flows that can increase revenues and reduce operational cost, thereby enhancing its competitive position”.

Boots have position themselves on the marked form the onset where, their investments in IS systems they have proven much dividends in return. Their competitive advantage has been visible in several areas.

Human resource

Boots has been able to improve on its human resource, been able to implement on its tills a training software enabling staff to be trained on the job whilst working at the same time. Because of boots continuous drive to improve their IS system; from their 2006 annual report is stated that 65% of all Pharmacy graduates applied to Boots for employment, which in turn will optimise their human resource department to be quite competitive.

Business process

Boots business process has given them much advantage as it relates to product differentiation, Boots out sourcing deal with IBM has given them more time to concentrate on what matters most to them, their customers. Therefore having done that, they were able to specify exactly what they would love to do.

Identifying Customers needs

Boots has received favourable response from its customers and have also been able to use IT/IS to monitor customers purchasing patterns.

Communication

Boots chemist has transformed its analogue system to an up to date digital and more effective system, this was done to maximise better communication between staff in their 800,000 distribution ware house. This will allow for a swifter processing of product processing throughout the ware house.

Conclusion

Alliance Boots is undoubtedly a leader in pharmaceutical, health care, beauty and optical service in the United Kingdom.

The report provided two forms analysis one which points out the company’s position in the form of a SWOT analysis and the other in Porters FIVE force.

Having gone through a comprehensive and detailed analysis of Alliance Boots, the following can be said:

Having moved from a single entity to merging with different business such as Unichem this has greatly expanded, Boots market share and its ability to reach a broader customer base.
The out sourcing of Boots IT Department was an intelligent move, as it was out sourced to a reputable Company (IBM).
Alliance Boots prides its self on customer satisfaction, this means that the company examines means and ways of making sure that they deliver the best products, the best prices, and the best services
The investments that Alliance Boots have made over the years have seen them move from a single entity to a multi-million pound per-annum business.

References

http://www.bized.co.uk/compfact/boots/boots1.htm [analysis]
http://www.allianceboots.com/news/preliminary_results_year_ended_31_march_2009.aspx Revenue [financial report]
http://www.docstoc.com/docs/4781327/Porters-5–forces-Template [five force template]
http://www.allianceboots.com/news/alliance_boots_pre_year_end_close_period.aspx

Order Now