Part 1 – Analysis and Discussion
Strategic Analysis is “the process of conducting research on the business environment within which an organisation operates and on the organisation itself, in order to formulate strategy”, this according to BNET Business Dictionary.
Strategic Management is the name of an academic field of study; strategy is the main topic of study (Schendel 1994). Chaffee (1985) asserts that strategy is multidimensional and situational, the models are: linear strategy, adaptive strategy, and interpretive strategy. The majority of the research is identified with a linear model which focuses on planning and forecasting. The second mental model is identified as adaptive and this is the location of ‘strategic management’, stated by Toby Harfield, Strategic Management and Michael Porter: a postmodern reading, Vol 4, mngt.waikato.ac.nz.
1.2Company Profile and Information
Adolf DasslerAdidas history dates back to 1920, when the company’s founder – Adi Dassler – made his first shoes with the intention to provide athletes with the best possible equipment, this according to the (Adidas Group, 2010P). Today, adidas has a broad product portfolio spanning from equipment and footwear to premium fashion and aims to be the leading sports brand in the world (adidas group, 2011). Alongside Reebok and Taylor Made, Adidas belongs to the Adidas Group, representing 72% of total group sales in 2010 (adidas group, 2011). The adidas brand offers its products through two divisions, namely Sport Performance and Sport Style. The Sport Performance division represents 75% of sales and develops sports products focused on running, football, basketball, tennis and training. The remaining 25% of sales are accounted for by the Sport Style division, which targets lifestyle consumers with authentic and fashionable sportswear (adidas group, 2011). With adidas biggest market being Europe, followed by North America and Asia, it is a truly global brand with a passion for sports and a sporting lifestyle (Ghauri and Cateora, 2010, p. 561), taken from Anonymous, (2011) strategic management analysis of adidas, conditions in the sports equipment industry Vol 285766.
The student will therefore critically analyse the internal environment using analytic tools such as a FORCE FIELD, LOBSTER POT and VMOST analysis, to arrive at the company’s strategic junction within the internal environment. At the end of examining the internal environment, the various tools will provide insight and highlight the issues and opportunities surrounding the Adidas Group.
To carefully lead an organisation in a highly competitive environment, it requires a desirable amount of leadership and vision coupled with strategy to generate effective results. Richard Lynch in his book Strategic Management p. 535, 7th Ed, postulated that “strategic leadership is the ability to shape the organisation’s decisions and deliver high value over time, not only personally but also by inspiring and managing others in the organisation”.
He further indicated which level of management the responsibility laid with “such leadership begins with the top management team, the chief executive officer and other leading directors; in large companies the leading divisional directors” Lynch, Strategic Management (2015), p. 535. Is it therefore necessary that senior management be prudent in their decisions, crafting strategies that will outplay their competitors; while utilizing the various tools that allow for great efficiency and planning after careful analysis has been done.
2.1.1 The External Environment
This part of the report aims to identify trends and developments in the market environment in which adidas operates; in order to effectively analyse potential impacts on adidas business strategy. Relevant forces outside adidas company environment will be identified with the help of suitable theories, in order to determine those external factors critical for the company’s success.
Since adidas is a globally operating and expanding organisation, all existing and possible future emerging markets worldwide are considered; as its external environment, Alsbiei Omar (2015) a research about ADIDAS GROUP strategy including all strategic management aspects, ADIDAS GROUP Strategy Analysis, 10.13140/RG.2.1.4534.0641.
Adidas operates in the oligopoly competition. Oligopoly defines as a situation in which a particular market is controlled by a small group of firms. In an oligopoly, there are at least two firms controlling the market. Adidas has larger market share of the sport shoes industry, it faces lots of competition from Nike, Admiral and Ambros. The sport shoes industry mainly consist the participation of the two largest company, Nike and Adidas. The main usage of both company are running, jogging but not extreme sports, this according to adidas.com.
To analyse the external environment which is deemed as the macro environment certain considerations must be adhered to, to assist in this regard the use of analytical tools such as the PESTLE, COST BENEFIT ANALYSIS, ANSOF MATRIX and PORTER FIVE FORCES will be used to give an accurate analysis after examining all the external factors that affect the decision making and strategy of the company.
Analysis of Adidas macro-environment
According to Kotler; the micro environment is defined as “the actors close to a company that affects the company’s ability to serve its customers (Kotler et al., 2013). He further postulated that the macro environment is also defined as “the societal forces that affect the macro environment” (Kotler et al., 2013). The PESTEL framework is an analytical tool which provides detailed analysis; which helps to categorise external key drivers which potentially impact on adidas’ business operations. While the following paragraphs will focus on trends, innovations, culture and developments that are most relevant to adidas, an overview of all the identified external forces is summarised Alsbiei Omar (2015) a research about ADIDAS GROUP strategy including all strategic management aspects, ADIDAS GROUP Strategy Analysis, 10.13140/RG.2.1.4534.0641.
In recent years, the importance of emerging countries like India, Brazil and Russia has increased, with China being forecasted to overtake the US as the world’s largest economy (Jorgenson and Vu, 2011). These countries do not only offer immense expansion and cost-saving opportunities, they also bare risks. Since companies outsourced a high amount of manufacturing plants especially to Asia (Jorgenson and Vu, 2011), it’s possible that they will have to face increasing labour costs in the future resulting from a growing economy and improved living standards. Another positive is that emerging countries also provide promising new target markets and increased market share.
As the lifestyle of the population will change gradually with a growing economy, companies need to closely monitor these changes in order to be able to quickly adapt and respond to new trends.
Raw materials costs have increased significantly and the probability that they will continue to increase in price is therefore very high. Hainer 2011 postulated that “the price of cotton, for example, has more than doubled over the past twelve months” (Hainer, 2011). Other materials, such as rubber, polyester and those materials which closely relate to the already volatile oil price are also subjected to the risk of increased price changes (adidas Group, 2011). This risk is not unique to adidas, however all sports equipment companies have to consider it when they are calculating their procurement and sourcing costs, as it is very likely to reflect on overall performance since raw materials account for a huge percentage of overall production costs.
The increasing popularity of major sports events (FESI, 2011) offers incredible sales and brand building opportunities for all companies in the industry. It allows them to reach out to customers all over the world at the same time. Furthermore, such events provide a good platform to introduce new equipment and make people familiar with new technologies.
Over the past few years a wider practice of sports has been evident worldwide with the running and fitness segments particularly increasing in popularity (Mintel, 2005). But sports generally finds its way into people’s lives with sporting goods being used for leisure activities and boundaries between sports and casual wear becoming indistinct (Ghauri and Cateora 2010, p.561).
These trends provide interesting growth prospects for sports equipment companies and allow them to target a whole new customer segment. Additionally, the general decline in physical health (WFSGI, 2011) combined with governments urges for prevention activities, provides marketing opportunities addressed to health consciousness consumers.
Consumers are increasingly concerned with environmental issues and expect companies to act in an environmental friendly way. The use of natural, sustainable, Free Trade and Fair Trade fibres seems to have gained a foothold with general consumer awareness. Consumers interest in natural and recycled fabrics has already made a difference in what materials manufacturers offer and will continue to have an impact on all company’s business operations (Princhard Bouchard, 2009), this according to Alsbiei Omar (2015) a research about ADIDAS GROUP strategy including all strategic management aspects, ADIDAS GROUP Strategy Analysis, 10.13140/RG.2.1.4534.0641.
“Adidas believe that consumers want choice. Therefore, the group implemented a multi-brand strategy, which allows them to capitalise on opportunities from several perspectives, as both a mass and a niche player. According to that, the brand is able to keep a unique identity and focus on its core competencies, whilst simultaneously providing the group with a broad spectrum of products. International marketing is crucial for the group in its quest to generate substantial profits; as survival depends on their established presence on the global world market. What is more, the group is following the “Route 2015”; a strategic business plan incorporating all brands, sales channels and group functions globally. This is done in order to grow the revenues of the Adidas group to 50% currency neutral to 2015.
Consequently, the group’s investments are focused on the highest-potential markets and channels. Hence, Adidas is investing in markets with the best medium to long-term growth and profitability opportunities. Top priority is placed on emerging markets, particularly China and Russia; also building market share in underpenetrated markets such as the US. Several factors such as economic, fiscal, technological developments, legal requirements and the business environment are taken into account. Consequently, attention to existing and potential competitors in the business is paid. Especially, in the three identified “attack” markets of Adidas: North America, Greater China, Russia/CIS; which report directly to Adidas group CEO Herbret Hainer, in order to ensure that these markets receive the focus needed to achieve their goals” Business Development Strategies, Adidas- A Global Sports Strategy, Sebastian S. Vlasich (2012).
Kotler defines the Pestle analysis as an “analytical tool which was first introduced by Harvard Professor, Frances Aguilar, to identify macro-environmental factors that impact business strategy” (Kotler, et al., 2013).
Political factors: Many systems
Adidas supplies, ships, and distributes their products worldwide. This requires them to extend international supply chains and follow political procedures when selling products online. The company also uses political forces as a method of intervention of counterfeit products.
Each country abides by their own taxation system. Adidas is required to abide by these rules for each sale and each product distributed overseas. The company tends to outsource the development of their product to third world countries. Most likely because it reduces manufacturing costs. But communities don’t condone this type of business. Additionally, Adidas must follow these laws:
International trade agreements
Product safety laws
Consumer safety product regulations Economic
Economic factors: Counterfeit issues
The sports good industry is concentrated. The 50 largest companies contribute to roughly 70% of the industry’s revenue. Adidas is one of these organizations.
The products Adidas creates are deemed “leisure items”. They’re not a necessity. Sales are driven by sports buyer trends and preferences.
Leisure products of different categories must compete against each other. Sports products are competing against the gaming industry and music industry. The global economy fluctuates. Manufacturers shift to accommodate this. Adidas must research where to sell and distribute products. This ensures company growth and opportunities.
Adidas manufactures products in China because they’re labour intensive with low cost for creation. Especially compared to North American countries. Adidas must play smart with the price of materials. But they face continuous challenges when importing/exporting goods. And the rise of counterfeit products dampers Adidas’ sales.
Social Factors: Health conscious shoppers
Adidas changes designs of their products. Designs match the interest of consumers. Products are often available for any age, gender or lifestyle. But their core focus group are health-conscious buyers with a love for sports. They must keep up with health trends and preferences to cater to their audience.
They also offer corporate volunteer programs. They support communities and foster the health of individuals. Adidas also supports the Olympics, which allows them to leverage marketing opportunities and catch the eye of new audiences around the world. Technological
Technological factors: Smart sportswear opportunities
Adidas tests their products under varying conditions. It’s because they cater to athletes. They are trying to optimize performance for coaches and professionals in the sports industry. For durable solutions to athletic problems, they use natural material replacements.
They support online sales through their website and with social media. Now, they’re studying the smart sportswear industry. Technology, like the Fitbit, is quite popular in the health communities. Adidas can use these technological advancements to dive into new industries and develop an edge over the competition.
Legal factors: Patents and more patents
Adidas has ownership of intellectual properties and IP systems. They also have design patents, defending their right against copiers and infringement. The patents also serve as legal protection to end counterfeit businesses. As a big company, they naturally have trademark production.
Because if their connection to the sports world, Adidas endorses celebrity sponsorships as a form of marketing. And follow full compliance with national and local laws. Environmental
Adidas decreases environmental impact. It’s their duty to monitor hazardous substances and eliminate them. This may be why they offer natural materials in their products.
They follow ethical business practices by committing to ensure supplies are following regulations in every country their products are manufactured in.
Adidas faces controversy for endorsing low wages in third world countries. But this reduces the cost for materials — so, they won’t slow this down. They also face issues with businesses trying to copy and sell Adidas’ products as their own. Luckily Adidas have design patents that will prevent exact copies by being sold.
They cater to the health conscious shopper. They change designs often to appeal to this audience. And with consumers moving towards smart tech in fitness, Adidas can expand into new markets. The organization follows ethical practices, national and local laws. Source
PESTLE Analysis of Adidas, Kiesha Frue (2017) pestleanalysis.com
Vmost, this acronym represents a company’s Vision, Mission, Objectives, Strategy and Tactics and it gives an overview of their strategic plans and direction Lynch (2015). Adidas vision, mission and core values are related in the table below; as it was taken from Karyth Cara. “What is Adidas’ mission statement and what are its core values” enotes, 4 Apr. 2014, https://www.enotes.com/homework-help/what-adidas-mission-statement-core-values-include-467913. Accessed 26 Mar. 2018.Vision and Mission
Statement What Company is doing? Achieved/ Not Achieved
Adidas group’s vision statement is graphic, feasible, forward looking, directional and focused. Adidas vision is to enhance social and environmental performance in the company and supply chain, thereby improving the lives of people making their product; it strives to be global leader in sporting goods industry. Mission
The Adidas Group strives to be the global leader in the sporting goods industry with brands built on a passion for sports and a sporting lifestyle.
We are committed to continuously strengthening our brands and products to improve our competitive position.
We are innovation and design leaders who seek to help athletes of all skill levels achieve peak performance with every product we bring to market.We are consumer focused and therefore we continuously improve the quality, look, feel, and image of our products and our organizational structures to match and exceed consumer expectations and to provide them with the highest value.We are a global organization that is socially and environmentally responsible, that embraces creativity and diversity, and is financially rewarding for our employees and shareholders.We are dedicated to consistently delivering outstanding financial results. Achieved.
Financially, Adidas is solid as well. Forbes lists it as #61 on its list of the world’s most valuable brands (Forbes.com).
While its revenue has declined in recent years (reflecting an international economic decline) it has still retained respectable profits.
For these reasons, Adidas fulfils its aim of “delivering outstanding financial results.”
Observed Strategies Alignment to Vision and Mission
“We’re all ‘Creating the New’ because we believe that through sport, we have the power to change lives”
“sporting goods industry with brands built on a passion for sports and a sporting lifestyle.”
It identifies adidas’ industry and competitive position in the marketplace: “sporting goods industry” “global leader.
It identifies its method of competing: “continuously strengthening our brands and products.”
It identifies its intended customers, “athletes of all skill levels,” and its customer relationship: “achieve peak performance with every product … match and exceed consumer expectations and to provide them with the highest value.”
It identifies adidas’ marketing strategy, “continuously improve the quality, look, feel, and image of our products,” and adds “continuously improve … corporate structure.”
It identifies the nature of its relationships with the community at large, its employees and its shareholders: “global organization that is socially and environmentally responsible, “embraces creativity and diversity,” “financially rewarding for our employees,” and financially rewarding for “shareholders.” Adidas has an increased focus on sustainable business and innovation that they hope to integrate across all of their business strategies.
Adidas believes that sustainability is the key to growth and innovation.
Adidas strategy is to build a more lean, green, empowered and equitable supply chain.
Observed Tactics Alignment to Vision and Mission
Company logo, Adidas company Trefoil logo was born in August 1971. For the first time this logo was used on product in 1972 and become the company corporate symbol later on.
After the merge of Adidas and Salomon in August 1988, they introduced a new corporate logo. The two colours of the previous group, blue for adidas, red for Salomon was combined to form the logo. The space between the shapes forms a shape of a person raising the hand for victories. The lesson from Adidas to new and old companies is very simple-“Adidas is all in”.
This logo only applies on all Adidas-Salomon corporate documents only.
“Impossible is Nothing” was the previous mainstream marketing slogan for Adidas. This campaign was developed by 180/TBWA based in Amsterdam.
“Adidas is all in” is the current global marketing strategy for Adidas. The slogan aims to tie all brands and labels together, presenting a unified image to consumers interested in sports, fashion, street, music and pop culture.
Hiring famous Athletes as brand Ambassador, commercials and infomercials on print and electronic media; using social networking sites i.e. Facebook and Twitter advertisement.
Adidas IT infrastructure was based on the IBM AS/400 at the time. Taylor Made in the US was operating on the HP 3000. Meanwhile the global website was operating based on IBM Netfinity.
According to the adidas-group, “we’re all “Creating the New” because we believe that through sport, we have the power to change lives” Kasper Rorsted (2018) Adidas-Group.com. He continues to say that “by ‘Creating the New’ is the headline for our next five-year strategic business plan. ‘Creating the New’ is the attitude that leads us into the future, an exciting future; because our industry is growing in size and scope and will continue to do so. In fact, the sporting goods industry is growing faster than most other industries, including consumer electronics. This trend will continue Kasper Rorsted (2018) Adidas-Group.com.
Adidas CEO further postulated that “all of this is very good news to us because our core competency is sport. Through sport, we have the power to change lives. We work every day to inspire and enable people to harness the power of sport in their lives. We also translate our competence in sports into street wear and fashion because sport is an attitude and a lifestyle. Everything we do is rooted in sports” Kasper Rorsted (2018), CEO Adidas-Group.com.
The company has also embarked upon three avenues in which they choose to develop and are considered to be their main focus based on their strategy.
Speed: We will become the first true fast sports company: Fast in satisfying consumer needs, fast in internal decision-making.
Cities: We have identified six key cities in which we want to grow share of mind, share of market and share of trend.
Open source: We will be the first sports brand that invites athletes, consumers and partners to be part of our brands.
Adidas CEO continues to postulate that “Our 2016 results and our positive outlook for 2017 are proof that our strategy is paying off. After the first full year of ‘Creating the New’, we have exceeded our original plan” Kasper Rorsted (2018), CEO adidas-group.com
According to Bowman (1996), the strategy clock identifies exactly where a company is positioned and what strategy they are pursuing. Adidas is currently the Differentiation with its “Energy Boost” sneaker, a cushioning technology that provides the highest energy return in the running industry, adidas.com.
It was first used in running but has now been applied in basketball, baseball, skating and golf, among others. Boost is also in the Yeezy Boost shoes that came out in February 2013. Boost uses a sole of fused plastic pellets to absorb energy. First launched in 2013, Adidas advanced the line this year with “Ultra Boost”. The Ultra Boost foam packs in 3,000 energy capsules, 50% more than the 2,000 found in its standard Boost shoes. Another form of Boost shoes, “Pure Boost,” was Complex’s best sneaker of 2014., this according to Fortune.com.
With their luxury golf brand Taylor Made, adidas uses the Hybrid and Focused Differentiation strategies; this is based on the different segments of the market in which they operate in. According to free management ebooks.com, they have postulated Differentiation as “this part of the market is all about standing out from the crowd despite selling something that plenty of other businesses have to offer. The key to being differentiated in your market is branding – you have to make an impression with your target audience, to the point that they will choose your product over other options even if you are selling at a higher price”. For the Hybrid segment, “when a company takes a hybrid approach, it means that they are competing both on the quality of their products as well as the price. If you can manage to build a reputation for selling quality goods while also being among the low cost leaders in the segment, you will have a chance to grow customer loyalty and gain market share” free management ebooks.com.
DEFINITION BCG MATRIX
Pearce (2013) postulates that the “BCG Matrix is an approach pioneered by the Boston Consulting Group that attempted to help managers “balance” the flow of cash resources among their various businesses while also identifying their basic strategic purpose within the overall portfolio. “Portfolio Techniques” is another common name it is called”.
Also it has been said by David (2012), “BCG Matrix graphically portrays differences among divisions in terms of relative market share position and industry growth rate. It allows a multidivisional organization to manage its portfolio of businesses by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organization” Adidas BCG 2010/business/scridb.com
According to Ansoff (1957), the Ansoff matrix is a tool used to analyse a company’s strategic position in the market, where their product enters or operates in four quadrants such as Market Penetration, Market Development, Product Development and Diversification.
Industry Life Cycle
The Industry Life Cycle is a tool that illustrates ‘the course of a product’s sales and profit over its lifetime’ (Kotler et al., 2013, pp. 287).