1. Set out your overall strategy for SmartMart, explaining why you elected to follow this strategy, and how each decision you made contributed to this strategy.
Overall strategy: My overall strategy is to achieve long-term growth of SmartMart in a sustainable way that satisfies the needs of all stakeholders by utilizing the company’s distinctive capabilities to create shared value and capture value. Currently, SmartMart’s mission is to create a product line (and a shopping experience) that highlights organics, minimizes harm to the planet, and strengthens brand loyalty. I made some suggestions in the following scenarios.
Scenario 1: Move to a smaller, more targeted store concept.
Facing the increasing customer needs for organic products as well as growing competition from big players like Big-Box mart, SmartMart must make a choice between differentiation strategy and cost strategy. As the company invests heavily in its brand, 85% customers shop at SmartMart because of its high product quality, expert service, and store environment. SmartMart can take advantage of its core competencies as well as growing local foods movement to move the current business to a niche player mode with customized stores and various offerings. This move can not only fulfill customers’ needs and enhance customer loyalty, but also motivate customers to embrace healthier and environmentally friendly products that create societal benefits (Porter & Kramer, 2011). Profitability wise, the higher margin can offset the potential decrease in volume.
Even though low-cost strategy might bring 10 times higher profit, the huge increase in SKU will result in negative impacts on the environment due to higher usage of packaging and growing cost of gasoline, which further leads to externalities (Porter & Kramer, 2011). Besides, the more workforce is needed to manage a superstore, the harder to maintain the current level of service and expertise. In other words, as “firms moved disparate activities to more locations, they often lost touch with any location” (Porter & Kramer, 2011). The idea of conservatively staying the same is even worse. What makes SmartMart competitive today does not ensure its success in the future because it may not be able to retain 100% of the value in the long run (Barton, 2011; Lepak & Taylor, 2007).
Scenario 2: SmartMart should enter the biofuels market through acquisition.
The optimal blend of biofuels and gasoline will not only save customers’ gas spending by 20% but also increase the company’s profitability and brand perception.
Compared with other choices, acquiring existing bio-fuel producers has many benefits: guaranteed supply, lower production price, quick market potential, and most importantly, more control over production, which is the key factor for top product quality. Investors and analysts may perceive this as a non-strategic acquisition and argue about the high initial/exit cost, but it’s time to switch from short-termism to a long-term horizon (Barton, 2011). Even though the market for biofuels is still in an early stage, SmartMart can grab the opportunity to become the catalyst and the leader in this immerging industry. With this innovation, SmartMart can not only create shared value with producers and customers but also bring benefits to local communities as well as whole society in the future.
Scenario 3: Distribute the next generation of high yield high nutrition seeds to growers.
Customers’ needs are growing, so should standards and innovation. Considering the triple bottom line, Organic 2.0 promotes a more efficient way to minimize CO2 emission, reduce water usage, enhance supply chain transparency. Sustainability is not created by one company, but by the whole value chain (Porter, 1985). These next-generation seeds can help local farmers grow and bear more nutritious fruit in larger yields with less water.
As SmartMart’s core differentiator (organic products) is being diluted by low-cost competitors (Big-Box Mart) and new market entrants (CSAs), distributing these seeds to growers can help the company create an isolating mechanism to re-capture competitive advantages and become the sustainable leader in the industry (Lepak & Taylor, 2007; Porter, 2008). This concept enables the company to drive revenue growth, reduce green-washing activities, push industry improvement, and benefit the whole society.
2. How did you take into account the needs and interests of shareholders and the other stakeholders of SmartMart?
Smart-Mart’s mission is to make people’s lives better and work with others to create a more sustainable future for all stakeholders. For each decision I made, I considered the potential impact on the company, employees, customers, suppliers, local communities, and environment. I tried to find the best possible way to fulfill needs of all stakeholders and to inspire these stakeholders around a healthy lifestyle supported by high-quality organic products (Jensen, 2001).
In Scenario 1, as 83% customers want more customized stores and product offerings, with niche strategy, the company can earn a higher profit margin while fulfilling customers’ needs for satisfying shopping experience and product variety. Besides, smaller stores provide more opportunities to interact with customers. With this advantage, employees are more motivated to work at SmartMart with higher job satisfaction and lower turnover.
In Scenario 2, the company can become the market leader with the lowest level of knowledge barrier by utilizing external resources acquired from producers. Lots of benefits are created for different stakeholders: less gas spending by customers, long-term capital gain realized by investors, more financing support for producers, less pollution on the environment, and more job opportunities in the market.
In Scenario 3, SmartMart can improve company’s image by addressing customers’ concern about seasonality, and build a long-term sustainable relationship with farmers who can benefit from water saving and higher yield. The whole industry can also progress to higher standards.
3. What is the difference between value creation and value capture? What role did each play in your decision-making?
Value creation brings questions like what is value, how is value created, and who values what, while value capture is more about how to retain value (Lepak & Taylor, 2007). Creating value is a never-ending task for any organization, but it is more important to capture and retain value afterwards. Both concepts play critical roles during my decision-making process, but their weights differ under different situations.
In scenario 1, I put more focus on how to capture value in a competitive industry. SmartMart has already built its core competency and created high exchange value with high quality of products and services (Lepak & Taylor, 2007). What it needs to do, is to strengthen its differentiation strategy to create an isolating mechanism that captures the existing value (customers’ growing acceptance and needs for organic products) in this competitive market (Lepak & Taylor, 2007). Therefore, moving to a smaller, more targeted store concept can help.
In scenario 2, I considered more about value creation because SmartMart developed a new way of doing things using new methods, new technologies, and new materials (Lepak & Taylor, 2007). By leveraging special and hard-replicated knowledge acquired from producers, SmartMart can take the initiative to reform the system, gain first-mover advantages, and capture values at the right time in this field (Barton, 2011). As an innovation promoter, SmartMart can enhance its competitiveness while advancing social progress simultaneously (Porter & Kramer, 2011). Therefore, SmartMart should enter the biofuels market through acquisition. In other words, it’s an efficient way to created shared value by embedding a social mission in the corporate culture and channeling resources to develop innovations that can help solve social problems (Pfitzer, 2013).
In scenario 3, I focused on creating shared value. Distribution of next-generation seeds can create shared value for the customers, suppliers, and society by building a supportive environment that develops local clusters, creates more job opportunities, and improves people’s standard of living (Lepak & Taylor, 2007, Porter & Kramer, 2011). It is, however, just a beginning. In the future, SmartMart can expand its R&D not only on fruits, but also on vegetables, grains, and other foods that can bring revolutionary change to people’s lives. It is smart to enlist external stakeholders like growers to understand the social needs and to execute the company’s strategy to meet social needs (Pfitzer, 2013). Instead of fairly distributing a pie, this new approach makes the pie bigger by creating a virtuous cycle.
4. Which decision was the most difficult for you to take and why?
Choosing between Alliance and Acquisition is difficult. As a person who has a solid finance background, I subconsciously put more focus on the business risk, cash flow projections, as well as financial performance, which made Alliance attractive at first glance. Recall what I have learned and read in this class, I changed my perception because I need to think out of the box.
When facing tough decisions, it is more important to think like a business leader and a social entrepreneur to consider the big picture and overall goal of the company. “Business and finance must jettison their short-term orientation and revamp incentives and structures to focus their organizations on the long term” (Barton, 2011). Yes, SmartMart could have lower cost as well as entrance/exit risk by entering an alliance position. There is, however, some trade-offs like a lower level of control, potential competitions, higher end-price for customers, and people’s uncertainty about the company’s determination.
As long-term thinking is essential for long-term success, an extended time frame should be allowed when evaluating the performance of strategic decisions, especially when the decisions can bring environmental, social, and governance (ESG) benefits to all stakeholders.