Office Depot Inc. Case Study

¶ … Office Depot Inc. Case Study

Situational analysis

Promotion

Sales Plan

Distribution channels

PROBLEMS FOUND IN THE SITUATION ANALYSIS

STRATEGIC ALTERNATIVES FOR SOLVING PRIMARY PROBLEMS

SELECTION OF STRATIGIC ALTERNATIVE(S) AND IMPLEMENTATION

In this report, we present a comprehensive analysis, insights and recommendations on various issues that affect the operations of the Office Depot. We begin with a situational analysis which kicks off with the analysis of the environmental factors that affect the company. This begins with a review of the economic conditions and trends, cultural and social values and trends, political and legal issues, summary of environmental opportunities and threats as well as the implication of these environmental factors for strategy development. We then proceed to the analysis of the industry.Under this we present a Classification and definition of industry, analysis of existing competitors, analysis of potential new entrants, analysis of substitute products, analysis of suppliers, analysis of buyers, summary of industry opportunities and threats as well as their Implications for strategy development. Next we deal with issues to do with the analysis of the Objectives and constraints of the firm, financial conditions of the firm, management philosophy of the firm, organizational structure of the firm, Organizational culture of the firm, a Summary of the firm's strengths and weaknesses as well as their Implications for strategy development. We then proceed to the presentation of the marketing strategy. Under this we present the objectives and constraints that faces the firm's marketing aspirations, an analysis of sales, profits, and market share, analysis of target market(s),analysis of marketing mix variables, a Summary of marketing strategy's strengths and weaknesses as well as their Implications for strategy development. The next step is then the identifications of the problems from the situational analysis with evidential support. Strategic alternatives for tackling the primary problems are also presented. A selection of the best strategic alternative is then presented.

Situational analysis

Environment

1. Economic conditions and trends

The housing as well as credit crisis that rocked America has very profound effects on the level of American consumer behaviors. In the U.S., there had been borrowing as well as spending that was backed with the home values. Disposable personal income is regarded as a huge driving force that affects personal consumption. This is because the higher the level of disposable income, the higher their level of spending on products and services that are considered non-essential. An analysis by the Bureau of Economic Analysis in 2008 indicated that was a negative growth in the 3rd and 4th quarters (Figure 1).This signified a considerable decrease in the level of disposable income in the U.S. retail sector.

Figure 1.Changes in disposable income.

The latest figures indicate that there has a been a general increase in the level of retail sales. The retail sales saw an increase of 0.1% from July 2011 and about 7.5% above last year's figure (USCB,2011).

Econoday (2011) also indicated the general improvement in retail sales in the figure below.

This indicates a bright future for Office Depot.

Office Depot is noted by Linzmeier (2008) to be operating in uncertain economic environment. The company is faced with the closure of several of its stores (112 stores). In addition the company was reported to be closing thirty-three distribution locations with a total of 2,200 job cuts (Linzmeier,2008). This figure contributes to close to nine percent of the company's total facilities figures.

The company is a supplier of various office products as well as services. As of December 2009, the company had 41,000 employees. It recorded total revenue of about $12,144.5 million in 2009. This was noted be a reduction of 16.2% as compared to the one for 2008 (Research and Markets,2010).The company had an operating loss of $265 million in the 2009 Financial year. The 2008 Financial year loss was however $1,545 million.The $12.1 billion revenue that the company made in 2009 was a 16% decline from the one it made in 2008. Office Depot attributed this decline in revenue generated to the tough and unpredictable economic conditions in the U.S. In 2009.

Economic factors are of great importance to Office Depot since they have a direct impact on the customer's buying behavior. Even though the global economy especially the U.S. one was officially declared to be in recession, government made substantial reduction in interest rates I places like the U.K in order to minimize the unemployment rate in 2009 as indicated in the Euromonitor (2010). Office Depot indicated $1.5 billion in terms of net loss for its 4th quarter in 2008 (Rosenberg,2010).As a consequence of this, the consumer spending power has over time improved since they have gained more confidence on the current economic condition. There is however still a lot of financial uncertainty as a consequence of the high unemployment rate in Europe and in the United States. The United States for instance in currently experiencing the lowest unemployment rates of all time. BBC (2011) reported that the number of Americans who are living below the poverty line had risen to a record high of 46.2% last year with nearly one in every six people being poor. The data indicated that poverty level rose to 15.1% from the 2009 figure of 14.3%.This no doubt would have an effect on consumer spending. The implications on Office Depot's profitability are obvious.

A study by the Office Depot Small Business Index indicated that this year (2011), there is a great expectation for business growth.

The study indicated that both small and medium sized businesses have a positive view of the economy. There is also an expectation of profits to improve (by 67%) (Home Depot,2011).

The current currency crisis has also affected interest rates, inflation rates as well as exchange rates therefore leading to a general rise in the price of food ad other essential commodities. The effect of this is that less people will buy from Office Depot

2. Cultural and social values and trends

An analysis of the Office Depot customers reveals that most of its consumers are not very young and internet savvy. Even though the rate of internet literacy has been indicated to drop over the age of sixty-five, it was predicted that the elderly population may find it convenient to place their orders online (Turban et al.,2001). The company also tales part in-person email acquisition. In this exercise, it collects customer emails at the Point of Sales, a sign that they value them (Mullen, Daniels and Gilmour,2008)

3. Political and legal issues

The most significant political and legal issue affecting the operations of Office Depot include the rules and regulations that govern the establishment and running of large retail establishments. The best example of political and legal interference that affected the proposed Office Depot-Staple merger, a merger which was opposed and subsequently rejected by the FTC (Boulton and Dalkin,1998).The other legal matter is international contract laws and labor laws. This is because the company operates is several countries which all have different laws and regulations.

4. Summary of environmental opportunities and threats

A review of the environmental opportunities and threats reveals that the company is negatively affected by business laws as well as other political factors. The company can however tap into the latest trends in consumer monitoring and e-commerce in order to boost its sales

5. Implications for strategy development

Office Depot should embrace e-commerce as well as an integrated marketing approach in order to ensure that its products are well marketed and sold.

Industry

1. Classification and definition of industry

Market Research (2011) indicated that the office supply industry is made up of revenue that is generated from the retailing of various office supplies in departmental stores that basically operate in the sale of these products. The items that are sold in the office supply market are; paper, business forms, pens and pencils, general stationary, file storage equipment, computers and accessories as well as other specialized forms of office equipment. The office services and supply market sector is made up of revenue that is generated from both the manufacture and sale of storage equipment, paper, pens and pencils, stationary, business forms as well as other office services such as photocopying, scanning, printing, laminating and binding.It is worth noting that other sector excludes the sale of furniture. The global office services and supplies market generated a revenue of $190.7 billion in the year 2010 a figure which represented a compound annual growth rate of 1.9% in the period running from 2006 to 2010 (Market and Research,2011).

2. Analysis of existing competitors

A competitor analysis reveals that Office Depot has several competitors. The main competitors are Staples Inc. And Officemax. The three when combined form10% of the close to $300 billion office supplies and services market (Shetty,2011). The remaining market share is controlled by supermarkets, discount stores, wholesale retailers as well as other independent companies. The main advantage that the company possesses over its closes rival Staples is in its international market sector. Office Depot leads in international sales as well as operating margins. An economic downturn in North America would therefore not affect Office Depot's performance since it's international divisions would support it in such a time. The other competitors of the company are Corporate Express, Inc.,IKON Office Solutions, Inc., Wal-Mart Stores, Inc. And United Stationers Inc.

3. Analysis of potential new entrants

Threat of new entrants (Source: Datamonitor,2007)

The threats of new entrants into new entrants in this industry are noted to be very string. This is because most of the supplies are in the form of commoditized products that never benefit greatly from the brand loyalty. This when coupled with the low end-user switching costs as well as easy access to the suppliers and distribution channels makes it very conducive for new players to come into the market. The market is however very stagnant at the moment and this reduces its attractiveness to the potential new players.

4. Analysis of substitute products

Substitute products (Datmonitor,2007)

An analysis of threat of substitutes within this sector is moderate. This is because most of the modern companies are involved in strategies that minimize cost as well as reduce environmental impact of their operations. The strategy they mostly adopt is paperless office. The switching costs are not too much since most of the companies have already put in place appropriate information technology (IT) systems. The revenue generated from paper-based office products is threatened by this shift in operational strategies.

5. Analysis of suppliers

The firms within the office equipment supplies & services sector deal in a diverse variety of products and services and this means that they must source their materials from various suppliers. The main materials that are used in the manufacture of office supplies are plastic resins, pulp and paper and metals. The general lack of raw material differentiation leads to a detraction from the supplier power. The importance of the quality of raw materials as well as cost when coupled with the lack of a targeted and specific importance of the office services and supplies industry to the suppliers adds to the already existing supplier power. The key suppliers are paper mills. These integrate forwards for the purpose of providing paper-based office supplies. The supplier power within this industry is therefore moderate. The supplier power of technology-based solutions and equipment such as printers is also moderate.

6. Analysis of buyers

An analysis of the buyer power in the office supplies and services market segment reveals that it is moderate. This is because the office supplies and services market sector serves a very diverse number of clients in the business community. This effectively limits the buying power of individual clients. There is however low customer switching costs as well as low customer loyalty which helps in providing the customer with degree of choice that therefore enhances the buyer power. The degree of buyer power in this market segment is however dependent on the size of the customer. Most office supplies firms require tendering for contracts with large organizations and businesses that can result in high purchasing power. Smaller businesses also practice group purchasing of office supplies in order for them to realize discounts associated with bulk purchasing.

Buyer power (Datamonitor,2007).

7. Summary of industry opportunities and threats

The industry opportunities include engaging in products that are eco-friendly such as paper-less office equipment. This trend can be captured by this industry by investing in marketing strategies to support eco-friendliness. The benefits of cost reduction and efficiency associated with paper-less office must also be promoted by these companies as it is the current trend on office technologies.

The threats that the traditional office supplies and services industry faces is associated with technology. The paperless technology is both a threat and an opportunity in this market segment. This is because it posses a threat to the traditional office supplies and services industry while offering a future in the same market segment.

8. Implications for strategy development

This therefore has implications in the formulation of current and future strategies. The company must come up with ways of marketing its traditional products while offering a smooth transition towards paper-less technologies and office automation.

c. Firm

1. Objectives and constraints

Office Depot has several objectives and constraints. The company has sales and marketing objectives, training objectives as well as customer service objectives.

Sales objectives

In regards to sales, the company aims at having all of its transactions processed in a timely an orderly manner. This is important because a smooth interaction between the sales function and the finance function is crucial in all companies since a communication breakdown between the company and its customers in regard to payments would result in an unpleasant experience. The company's financial department must be asked for the customer's credit rating in order to evaluate their credit worthiness (will they pay for their products and service?).Items must also be prepared according to the preferences of the customer. The aims are to manage all sales in a manner which is customer-friendly, to increase the transaction's success rate, and to use compatible methods of payment. The objective would be to increase sales by 8% within 6 months.

In regard to training objectives, the company aims to make their customer service more efficient, training employees who are sufficient as well as train them in high standards. The objective is tom have them all trained within 6 months and come up with a system that interacts with the company's recruitment arm on a daily basis.

In regard to the customer service objectives, the company aims at monitoring its sales function and then use customer service in driving up sales. The customer service function is crucial for the customers, sales as well as marketing function to work well. The aim of the customer function is to increase the number of recurring and happy customers, to help the customers to solve their problems in a quick manner and to ensure a friendly and professional experience for all customers. The objectives of the sales function are to give unsatisfied customers about 500 vouchers on a daily basis, to have an average of 3 calls per problem within the 6 coming months as to run customer satisfaction surveys every month.

2. Financial conditions

The Company recorded total revenue of about $12,144.5 million in 2009. This was noted be a reduction of 16.2% as compared to the one for 2008 (Research and Markets,2010).The company had an operating loss of $265 million in the 2009 Financial year. The 2008 Financial year loss was however $1,545 million. The $12.1 billion revenue that the company made in 2009 was a 16% decline from the one it made in 2008. Office Depot attributed this decline in revenue generated to the tough and unpredictable economic conditions in the U.S. In 2009.

3. Management philosophy

Office Depot's management philosophy is guided by the mandate to have customer satisfaction being inherent in all that it deals in (Cisco,2001). The management does this by fostering an environment in which recognition, communication, innovation as well as the employee entrepreneurial spirit are encouraged and handsomely rewarded. The management is committed strongly to ethical leadership.

4. Organizational structure

Organizational structure is defined by Mullins (1993) as well as Mabey, Salaman & Storey (2001) as the patterns of relationships that exists between the roles in a given organization as well as its various parts, The purpose of organization structure is to help in the allocation of work as well as responsibilities so as to effectively direct the activities and achieve the goals of an organization. Organizational structure enables the management in the planning, directing, organizing and controlling all of the activities within the given organization.

The Office Depots organizational structure is as follows;

The organization structure at Office Depot has bee subjected to change continually over the yeas. This change in the organizational structure has been inspired by the dynamic forces of their operating environment. The last time Office Depot conducted a major change in its organizational structure was in 2003 when it made several changes. These changes were as follows;

The company created a totally new position of President, North America. This role has been responsible for the consolidation of the North American operations. Another position called Executive Vice President, Delivery Sales was also created with the responsibility of overseeing all the delivery sales in the North American region. Executive Vice President, supply chain was also created to be responsible for all the warehouses, replenishment and crossdocks activity. Also created was the position of Executive Vice President, Delivery Sales.

Recently, the changes in Office Depot's management targeted its e-commerce function (Brohan,2011). The current organizational structure is depicted in figure 7 (See Appendix).

5. Organizational culture

The organizational culture at Office Depot is guided by a commitment to professionalism and diversity. The company is guided by corporate ethics and this is evident in their recruitment as well as retention practice the community while reflecting on its progress. The organization culture at Office Depot incorporates a level of mutual respect that is rarely seen in other organizations. Acceptance as well as teamwork also form part of the company's organizational structure.

Changes to the organizational culture have been prompted by the creation as well as elimination of certain aspects of the organizational structure. The company has succeeded in creating a successful corporate culture (Troy,2003)

6. Summary of the firm's strengths and weaknesses

A review of the firm's strengths and weaknesses indicate that its strengths lies in the consolidation of its regional functions like the North American one. This has more than once prompted the company to make major changes in its management and organizational structure. The ability to adapt therefore is one of the strengths that the company possesses. The weakness the company has that lacks a viable marketing strategy to beat the incessant competition that has seen it lose a lot of its market share to other companies.

7. Implications for strategy development

The company should therefore come up with an integrated marketing strategy aimed at addressing the stiff competition and the rapid changes in the organizational culture.

D.Market strategy

1. Objectives and constraints

In an effort to continue its market growth, Office Depot has put in place several marketing strategies. For instance, it has developed a SAS-based customer contact strategy that is based on various individualized offers, selective promotions as well as customized pricing. As pointed out by Sabine Zwinscher, Mail Order Europe's Vice President "We have achieved virtually one-to-one customer contacts through the use of consistent pan-European processes and procedures, supported by SAS. We have reduced our advertising spend enormously" (SAS,2011).This is an indication that gathering of customer intelligence makes a major part of its Office Depot's business strategy. The company also uses online channels as a strategy to reach a wider audience in regards to the sales function. The company therefore employs effective marketing strategies that are executed via multiple sales channels. Cox (n.d) also explained that the company used MicroStrategy Web Office Depot, a software tool that is employed by the sales force in seeing the performance of sales mat any point in time.

The constraint in the marketing strategy is the lack of an elaborate integrated marketing plan that focus on various marketing channels such as online means.

2. Analysis of sales, profits, and market share

The company has annual sales of close to $13.5 billion. The latest figures however indicate that the company made a lose in the second quarter as compared to the one for last year. The sales were reported to be $2.7 billion with a loss of 11% per share (Roach,2011).

Market share

Shim (2011) indicated that Office Depot controls a23.3% market share of the Office Supply Stores Industry. The trend in 2010 indicated that the company opened several new shops that sell foods and services accounting for close to 93% of the ones in bog-stores (Shim,2011).

Michaud (2011) pointed out that the company has been losing market share since its total revenue of about $2,973 million conspicuously fell short of $2,979 million, Zacks Consensus Estimate as well as dropped by close to 3.2% from the previous year quarter.

3. Analysis of target market(s)

An analysis of the company's target market shows that the company target market is wide. This is because it serves SMEs, individuals and blue chip companies. It operates through retail, contract as well as wholesale channels.

4. Analysis of marketing mix variables

Product marketing

Office Depot's product marketing has an emphasis on the unique integration of technology, expertise, fine craftsmanship as well as ergonomics. The products are also marketed as 'green' in regard to sustainability. The company therefore concentrates on selling pride of sustainability, ownership as well as workmanship. This is expresses through packaging, product finishing, collaterals and shipping.

Promotion

The promotion strategy at Office Depot is based on the concept of making the right information readily available to the target consumer. The marketing has to convey a sense of quality in each and every picture for the promotion on every publication. The company can never afford to appear in catalogs that are second-rate and having poor illustrations. The company leverages its presence using very high-quality catalogues. This is coupled with specialty distributors.

Sales Plan

The sales strategy at Office depot has a focus on the maintenance of a perfect identity with the customers from all walks of life using the best quality. The company uses several software solutions to spearhead its sales function. It uses direct mail catalogues as well as direct sales to the customers and distributors. The company is the second largest in regard to e-retailing. The transformation never occurred suddenly but was planned and based on evolutionary forces with a resource-based approach. The company has successfully implemented an online Business-to-Consumer (B2C)strategy