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A study of organization strategies, structures, culture dimensions and management control systems of various retail formats.
Abstract:
The environment in which retail organizations are operating is highly competitive as the constituents of environmental factors from the customer's perspectives are highly unpredictable. These environmental factors are customer's tastes, buying habits, their purchasing power, available product varieties and product line etc. To alleviate the environmental pressure, retailers chose their distinct retail format, strategy, structure, work culture and management control systems in response. In this paper we investigate the strategy, structure and culture of different retail-formats like 'department stores', 'hypermarkets', 'specialty stores', 'convenience stores' and 'discount store'. We argue that convenient stores and discount store choose Defenders' Strategy and have high power distance and high uncertainty avoidance and use diagnostic control systems. The speciality stores choose Prospectors class of strategy and have low power distance and low uncertainty avoidance and follow an interactive control system. Strategically Hypermarkets and department stores have strategy similar to that of Analysers and opt for moderate power distance and moderate uncertainty avoidance culture in their organization and their management control system is moderate. On the basis of existing literature, we conceptualize the study propositions, which need empirical verification at a later stage.

Keywords: Organization Strategies, Organization Structure, Retail formats, Organization culture

Article Type:
Report
Subject:
Specialty stores
Discount stores
Associations, institutions, etc.
Convenience stores
Hypermarkets
Superstores
Department stores
Control systems
Authors:
Iqbal, Saba
Sharma, R.R.K.
Pub Date:
04/01/2012
Publication:
Name: International Journal of Business Strategy Publisher: International Academy of Business and Economics Audience: Academic Format: Magazine/Journal Subject: Business Copyright: COPYRIGHT 2012 International Academy of Business and Economics ISSN: 1553-9563
Issue:
Date: April, 2012 Source Volume: 12 Source Issue: 1
Topic:
Event Code: 200 Management dynamics Computer Subject: Company business management
Product:
Product Code: 5331200 Discount Stores; 5411300 Convenience Stores; 5321000 Hypermarkets; 5311000 Department Stores NAICS Code: 445299 All Other Specialty Food Stores; 44512 Convenience Stores; 45291 Warehouse Clubs and Superstores; 45211 Department Stores SIC Code: 5021 Furniture; 5441 Candy, nut, and confectionery stores; 5451 Dairy products stores; 5461 Retail bakeries; 5531 Auto and home supply stores; 5999 Miscellaneous retail stores, not elsewhere classified; 5331 Variety stores; 5411 Grocery stores; 5311 Department stores
Accession Number:
293813027
Full Text:
1. INTRODUCTION

The dynamic environment puts the management in different roles from time to time. The internal interdependencies have to be aligned to the external environment to achieve organizational goals effectively (Miles, Snow, Meyer, & Henry J. Coleman, 1978). Depending on its strategy, an organization establishes a particular structure over a period of time. Some organizations are tight and give limited freedom and scope to the employees, while the others are highly flexible. Structure is basically a follow up of the strategic choice that an organization makes.

Retail is one of the fastest growing businesses in the world today. The progress of the economy and increased disposable income are one of the biggest reasons for their growth. The spending power of the consumers has resulted in aggressive competition among retailers and entry of innovating store concepts in the market (J.Maronick & M.Stiff, 1985). An unlimited number of new and innovative formats are emerging day by day. Retail formats can be classified as Department stores, convenience stores, hypermarkets, supermarkets, discount stores, lifestyle stores, supercentres, specialty stores etc to name a few. These retail formats choose different strategies that result in different organization structures, cultures and the way they do things.

Strategic and structural relationship aspects of organization have been investigated by a lot of researchers especially in the manufacturing sector (R.R.K. Sharma & Abidi, 2006). This study involves retailers categorized into various retail formats.

For the purpose of our study, we have taken five kinds of retailers: department stores, specialty stores, convenience stores, discount stores and hypermarkets. They are further categorized under different strategy typologies proposed by Miles and Snow in 1978. Further the structural relationships are build on the dimensions of formalization, specialization, centralization, standardization, flexibility and complexity of workflow proposed by Pugh et al. in 1968. Later they have been identified on the cultural dimensions; Uncertainty avoidance and power distance proposed by Hofsted in 1980 and finally on Management Control System dimensions; Interactive and Diagnostic Control Systems.

2. LITERATURE REVIEW

2.1 ORGANIZATION STRATEGY

Based on their work "Organizational Strategy, Structure, and Process" Miles and Snow (1978) have proposed four types of organizations 'Defenders', 'Prospectors', 'Analysers' and 'Reactors'.

DEFENDERS are organizations that prefer a stable domain. They are the ones that basically try to play safe and avoid competition in the most aggressive manner. They have a myopic view towards developments outside their domains and chose to grow through market penetration and limited product development. Their limited or narrow product-market domain helps them invest a lot of resources and gain high level of efficiency. In contrast to defenders, PROSPECTORS are on the extreme opposite end as compared to defenders. They perform in the most dynamic environment and constantly look for opportunities in the form of new markets and new products. They always look for new markets and opportunities and always add new products to their domain. Their managers are more dynamic in their approach than managers of the Defender organizations. Their technology is contingent and product development is not resticted and goes beyond the organizations present technological capability (Miles et al., 1978). ANALYSERS are the strategy types that inherit the characteristics of both defenders and prospectors. Analyzers try to minimize risk and maximize the profits at the same time. Analysers try to exploit new product and market opportunities and at the same time maintain their core products and customers. Analysers learn to achieve and protect equilibrium between conflicting demands for technological flexibility and for technological stability. REACTORS are organizations that fail to articulate the organization strategy. Their managers maintain the organizations current strategy-structure relationship despite over whelming changes in the environmental conditions and hence fail to align the organization strategy with the organization structure. Reactors are not a part of the current study.

2.2 ORGANIZATION STRUCTURE

Organization structure is the blue print of the relationships that exist in any organization. The structure varies according to the organization strategy and the orientation of the top management. It helps them carry out the strategic decisions well in the organization. A proper strategy-structure alignment in the organization is a must for the success of any organization. The various dimensions of organization structure discussed below are formalization, Specialization, Standardization, Centralization, flexibility and complexity of work flow. These six dimensions were proposed by Pugh et al., (1968) in their research work titled "Dimensions of Organization Structure".

FORMALIZATION is the extent to which the rules, procedures, instructions, and communications are written. Degree of formalization is the extent that roles are independent of specific personal attributes of individuals occupying the roles. It helps the organizations in regulating the behaviour of its employees and brings about a situation of predictability in the organization (Pugh et. al, 1968). SPECIALIZATION basically is the division of tasks and responsibilities in the organization according to the skill sets of the employees. It is an arrangement where a member of any organization is given a task that best suits his or her technical skills, location, or other qualifications (Child, 1973). STANDRDIZATION revolves around defining and specifying a procedure for doing things in any organization. Standardization gives regularity to the occurrence of events that stabilises the organizational activities. CENTRALIZATION is the process by which the activities of an organisation, particularly those regarding planning and decision-making, become concentrated within a particular location and/or group. Centralization has to do with the locus of authority to make decisions affecting the organization (Pugh et. al, 1968). FLEXIBILITY is the willingness and ability of any organization to bring about changes in the work pattern of any organization. It results in the capability to produce customized products during uncertain times. COMPLEXITY OF WORK FLOW is the degree of complexity introduced in the organization structure by the top management. It is a result of increased autonomy and decentralized decision making power of people at the lower level in the organization (Pugh et. al, 1968)

2.3 ORGANIZATION CULTURE

Culture is said to have a high impact on the working of an organization. The figure below shows the influence of national cultural dimensions on organizational culture and competencies.

[ILLUSTRATION OMITTED]

Past research has shown a lot of strong link between organization culture and organization strategy decisions. The various cultural dimensions as proposed by Hofstede are uncertainty avoidance, power distance, masculinity, Individualism and long-term orientation. For the purpose of our study on retail organizations only uncertainty avoidance and power distance are taken up.

UNCERTAINTY AVOIDANCE indicates the level to which the members in any organization feel uncomfortable in unstructured situations. Unstructured situations are known and surprising, organizations that are high on uncertainty avoidance seek to minimise such situation by following tight organization structures. They have very formal business conduct with a lot of rules and regulations. POWER DISTANCE indicates the degree or extent of distribution of power in any organizations. High power distance indicates unequal distribution of power in any organization. It represents inequality from below and not from above. Organizations with high power distance are highly centralized and have strong hierarchies (Hofsted, 1980)

2.4 MANAGEMNET CONTROL SYSTEM

The management Control System (MCS) helps in evaluating the performance of various organizational resources that contribute to the achievement of various organizational objectives. It provides information to the managers that is useful for them in performing their jobs and to organizations in maintaining feasible patterns of behaviour (Smith 1997). There are various kinds of controls identified in the organizational behaviour literature, like formal control system where rules, standard operating procedures and apparent control mechanisms are used and informal controls which are not deliberately designed and comprise of unwritten rules and policies of the organization. For the purpose of research under retail formats two kinds of MCS are taken, Interactive and Diagnostic Control Systems.

INTERACTIVE CONTROL SYSTEMS are information systems that help managers involve themselves in the decisions taken at the subordinate level. These systems stimulate search and learning, allowing new strategies to emerge throughout the organization and to respond to perceived opportunities and threats. It helps in routine information gathering. Supervisors are continuously involved in the decision making process. This is very helpful in dealing with the uncertain environment. DIAGNOSTIC CONTROL SYSTEMS are formal information systems that help managers monitor the organizational outcomes and correct deviations from present standard of performance. Their main characteristics are their ability to measure the outputs of a process, the existence of predetermined standards against actual results and the ability to correct deviations from standards.

2.5 RETAIL FORMATS

Retail organizations can be classified in a number of formats depending majorly on the kind of merchandise they store. Sometimes they are also classified on the floor space they occupy. The various retail formats chosen for our study are described as under.

CONVENIENCE STORES can be as small as a kiosk of a size of around 800 sq ft or as big as 4000 to 5000 sq ft. Their prime attraction is the easy location and convenience that they provide to the customers. The items stocked by convenience stores are the daily use products. Most of the sales of convenience stores come from refrigerated goods (Kirby, 1986). Along with convenience of location, these stores also offer extended working hours to the public (NACS online, 2011) The product categories range from beverages, snacks, and confectioneries, groceries, gasoline, fresh or frozen food and limited use items.

HYPERMARKETS are large establishments combining the characteristics of a supercentre and a department store. These establishments are generally larger in size and cover 1, 00,000 sq ft or more floor space in a retail outlet. Their business model focuses on high volume and low margin sales. They stock around 35, 000 to 60, 000 Stock Keeping Units (SKU). Food items constitute around 60 to 70 percent of the sales of hypermarkets (Castrillo, Mira, & Gurdjian, 1998). Their basic concept is providing all the products to the customers under a single roof. Of the total, around 10 to 15 percent of their products are private labels.

SPECIALTY STORES provide a variety of goods under the single category. They generally cater to high-end as well as mass-consumer segment (Datamonitor, Global--Hypermarkets & Supercentres, March 2009). A traditional specialty store concentrates on a limited number of complementary merchandise categories and provides a high level of service. They are smaller in size. A speciality store can vary in size from large to small depending on the type or category of product.

DEPARTMENT STORES are general merchandise retailers offering various kinds of quality products and services. Rather than having a full service category, they stock some limited speciality products. The goods are separated in the form of departments for the purpose of selling. Department stores usually sell products including apparel, furniture, home appliances, and electronics. They stock high quality assortment with a good focus on the length and breadth of the assortment. (Berman & Evans, 2007)

DISCOUNT STORES are characterized by extremely Low prices, no frill services, simple product displays, limited stock- keeping units and own manufactured brands etc. They have the minimum operating cost as compared with the other retailers in the sector. Their basic operations revolve around minimizing cost and delivering goods at low prices. Price is the key to their success. (Berman & Evans, 2007)

2.5.1 RETAIL FORMATS AND STRATEGIES

There has been a transformation in the retail sector with the advancement of time and change in consumer preferences. The consumers have been on a lookout for variety and quality. Different retail formats have different priorities for different elements, a factor highly important for one format may be the least important factor for the other retail format. Thus it's a play of various strategies and priorities that differentiate one format from the other.

Retail formats evolved as a process of the development of the retail sector. A retail format is determined by the strategic choice of a retailer. The kind of retail format run is dependent on the competitive plan of the retailer. There are various retail formats, department stores, specialty stores, hypermarkets, discount stores and convenience stores having different strategic parameters with different level of importance assigned to them. A list of 22 parameters have been identified and the review of literature. It has been observed that different parameters hold different level of importance for various retail formats. These parameters are Quality of Assortment, Length of Assortment, Width of Assortment, Accessibility, Competitiveness, Product Display, Product Availability, After Sales Services, Product Performance, Profitability, Sales Volume, Product Pricing, Freshness of Stock, Personnel Management, On time delivery, Operational excellence, Product Promotion, Floor Space, Location, Ambiance, Loyalty Programs and In-store service.

The review of literature reveals that these parameters hold different levels of importance for different retail formats. For example for specialty stores quality of assortment, Length of Assortment, Competitiveness, Product Display, Product Availability, After Sales Services, Product Performance, Freshness of Stock, Personnel Management, On time delivery, Loyalty Programs and In-store service are highly important parameters that cannot be compromised with, while Accessibility, Product Pricing, Operational excellence, Product Promotion, Floor Space and location etc are parameters that have limited importance. For Hypermarkets, Quality of Assortment, Length of Assortment, Width of Assortment, Product Display, Sales Volume, Product Pricing, Personnel Management, Operational excellence, Floor Space and Location are highly important parameters, while Accessibility, After Sales Services, on time delivery, Ambiance and Loyalty Programs are not so important parameters.

Factors like Accessibility, Competitiveness, sales volume, operational excellence, location and product pricing are highly important for discount stores while length and width of assortment, product display, after sales services, promotion and ambiance etc hold very low importance for discount retailers.

3. THEORITICAL FRAMEWORK

When the retail formats are observed in the light of strategy typologies of Miles and Snow and Structure dimensions by Pugh et al. a pattern evolves among the various retail formats. This pattern forms the basis of the theoretical framework discussed further.

3.1 ORGANIZATION STRATEGY ACROSS RETAIL FORMATS

Not all retail formats are equal and neither do they follow similar strategies. As already mentioned earlier every retail format has different parameters of importance for them. When the organization typologies of Miles and Snow is applied to the retail formats mentioned above it is found that some are defenders, while the others are prospectors and analyzers.

CONVENIENCE STORES are retail formats whose characteristics resemble a lot with that of Defenders. They are stores with a limited line of product that caters specifically to a limited set of customer segment with a high emphasis on service quality. Their basis strategy is to service a niche segment that is defined by the geographical area that they serve. A chain of convenience stores have limited incentive to enter into new products and new markets. They try to achieve competitive advantage by offering the best bargain to the customer that it is difficult for the competitors to enter. Their service strategy equips them to prevent competitors.

HYPERMARKETS in a sense have characteristics of both Defenders and Prospectors. They can be categorised as Analysers based on the evidence about their characteristics. Hypermarkets have large product line in terms of the length and width of the products (Cataluna, Franco, & Ramos, 2005) (Johnson, 1994). Apart from variety, their focus on quality is also very high (Zentes, Morschett, & Schramm-Klein, 2007). They prefer to operate in a dynamic environment and change themselves quickly as the external environment changes. Their focus on customer is high but they don't ignore the market opportunities waiting for them, all such characteristics makes it a true prospector. However, apart from the above, they focus a lot on operational excellence and along with high service they provide the best bargain to the customers in terms of price offerings. Their concern for improving the efficiency of their operations lands them in highly competitive positions. All these factors make them Defenders. Thus Hypermarkets have the best of both the Defenders and Prospectors.

SPECIALTY STORES are pure Prospectors. They have a large variety of width in its product length (Skallerud, Korneliussen, & Olsen, 2009); (Gagliano & Hathcote, 1994), that provides the customers with a large variety of products to choose from. They have a broad product-market domain and always look for new opportunities in terms of new markets as well as new products. They are in a continuous state of development. They have a high degree of fluidity or flexibility that helps it to adapt quickly to the changing environment. Specialty stores have been creators of change in their specific domain that brought about a revolution in the retail sector. They not only focus on their current range of product categories but at the same time observe trends and changes in the consumer behaviour and adapt themselves accordingly. They have decentralized operations that take care of each single geographical unit.

DISCOUNTERS are retail organizations that can be characterised as 'Defenders'. Like Defenders, they achieve stability by trying to seal off a portion of their total market by trying to target on a fixed group of price conscious customers. They pursue this by producing only a limited number of products and Stock Keeping Units. This way they are able to put competitors away to a large extent by offering the most competitive prices to its customers. They follow a very safe strategy and restrict themselves to a limited domain only. They ignore new market developments and find it difficult for themselves to adapt with the change in the external environment. Like true Defenders they employ the best technology restricted to their product domain and try to achieve operational excellence and achieve a high competitive advantage in terms of the lowest prices in the Industry that it is very difficult for the competitors to enter.

DEPARTMENT STORES are Analysers; they combine the qualities of both Defenders and Prospectors. They have a medium product lines in terms of both length and width. They cater to a specific set of customers on the basis of high quality of services and loyalty programs. At the same time they are always on a look out for an extended market and new product categories that would attract new customers segment to their stores. They have a blend of both existing and new technologies and have medium degree of flexibility in the organization structure.

3.2 ORGANIZATION STRUCTURE AND RETAIL FORMATS

As discussed above, different organization strategy results in different structures in organizations. A defender will have a different organization structure as compared to a prospector. The strategy and structure dimensions of Miles and Snow and Pugh et al have been researched from time to time (Sharma & Abidi). It has been observed that defenders are high on centralization, formalization, specialization and standardization while they are low on complexity of work flow and flexibility. The reverse is found true for Prospectors. They are high on flexibility and complexity of work flow while low on centralization, formalization, specialization and standardization. The table below summarises the strategy-structure relationship among the various retail formats.

Thus, based on the strategy structure relationships it can be observed that C-stores and discounters being defenders, follow an organization structure that has high formalization, centralization, specialization and standardization and low complexity of workflow and flexibility. Specialty stores are Prospectors and have high complexity of workflow and flexibility. Hypermarkets and Department stores are Analyzers and have medium or average formalization, centralization, specialization and standardization and high complexity of workflow and flexibility.

3.3 ORGANIZATION CULTURE AND RETAIL FORMATS

Culture plays an important role in demining the strategic choices made by an organization. Especially new businesses are affected by the national cultural values. The acceptability of a new retailer or any business is highly dependent on the national cultural traits. The failure of Wal-Mart in Germany is the best example of unacceptability of retail formats because of the failure to understand the culture of a nation (Knorr & Arndt, 2003). Organization culture to a great extent is a function of organization strategy. An attempt has been made here to link the organization strategy typologies by Miles and Snow to Hofstede's culture dimensions. Defenders are organizations that stabilize their external environment to the maximum extent possible. They are highly careful about taking decisions and reduce the uncertainty in their environment. Defenders have high uncertainty avoidance and power distance. While Prospectors and Analysers have low high uncertainty avoidance and power distance, as they operate in an uncertain environment. They pay little focus on bringing about stability and are highly dynamic in nature. They are more risk taking and are highly entrepreneurial in nature. Ambiguous situations are not at all perceived as a threat to these organizations.

Hence it can be concluded that C-stores and discounters are defenders and have high uncertainty avoidance and power distance in their organizations. While department stores, specialty stores and hypermarkets being prospectors and analyzers are low on uncertainty avoidance and power distance.

3.4 MANAGEMENT CONTROL SYSTEM AND RETAIL FORMATS

Strategy and Management control systems have an effect on each other (Simons, 1990). Similarly the strategy followed by retail organizations determines and indicates the type of MCS it follows. As it can be explained that Defender strategies requires a conservative and strict control over the situations and hence a Diagnostic control system is the solution to such an organization while prospector firms are entrepreneurial organizations that operate in an uncertain environmental situations and thus require an Interactive control system.

Similarly in context to the retail formats, Convenience Stores and Discount Stores need a conservative and careful approach (as they are associated with Defender type manufacturing organizations) and hence they follow Diagnostic control system. Specialty stores are associated with prospector type of manufacturing organizations and hence they follow an interactive control system. On the other hand Hypermarkets and Department stores are associated with Analyzer type of manufacturing organizations and need neither a very strict nor a very loose control in their organizations; hence they follow a control system that is a combination of the Interactive and Diagnostic control systems.

4. CONCLUSION

The paper holds good scope for conducting future research. These parameters can be further verified through empirical data. This has good potential for accessing and building up a strong conceptual background for further literature on organization strategies, structure and culture dimensions across retail formats.

REFERENCES:

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(15.) mindtools. Hofstede's Cultural Dimensions: Understanding workplace values around the world. July 2011.

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Saba Iqbal, Indian Institute of Technology, Kanpur, India

R.R.K.Sharma, Indian Institute of Technology, Kanpur, India

AUTHOR PROFILES:

Ms. Saba Iqbal is a Research Scholar in the Department of industrial and Management Engineering, Indian Institute of Technology, Kanpur, India.

Dr. RRK Sharma is professor in the Department of industrial and Management Engineering, Indian Institute of Technology, Kanpur, India. He has published more than 85 articles of international repute.
DIMENSION OF       C-STORES     HYPER     SPECIALTY
ORGANIZATION                   MARKETS      STORES
STRUCTURE

Formalization        High       Medium       Low
Centralization       High       Medium       Low
Specialization       High       Medium       Low
Complexity of
  work flow           Low        High        High
Flexibility           Low        High        High
Standardization      High       Medium       Low

DIMENSION OF       DISCOUNTERS    DEPARTMENT
ORGANIZATION                        STORES
STRUCTURE

Formalization          High         Medium
Centralization         High         Medium
Specialization         High         Medium
Complexity of
  work flow            Low           High
Flexibility            Low           High
Standardization        High         Medium
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