Strategic management is a continuous process of planning, analysing, assessing and monitoring every necessary activity that is required for an organisation to achieve its goals and objectives (Hitt, Ireland and Hoskisson, 2012). In such dynamic business environment, for a business to sustain its position and competitive edge, it is crucial to implement strategic plans and take strategic decisions. Strategic management helps the firm to assess its present situation, plan out strategies, implement them and effectively analyse its effectiveness. The following report is based on strategic management of Adidas which is a German multinational firm headquartered in Herzogenaurach , Bavaria. The report focuses on a detailed case study of the firm, analysis of its strategic position, company's strategic direction and recommendation for
Adidas AG is a global corporations that deals in designing and manufacturing of sport shoes, clothing and sport accessories. It is the second largest sportswear manufacturer in the world, after Nike. The products developed by Adidas are accepted and worn by people all around the world. The company focuses on developing high quality products that could sustain even in the worst situations.
Adidas (now Adidas AG), was founded by Adolph (Adi) Dassler in 1920. By 1924, he and his brother Rudolph Dassler started working together. The name by which they sell their products was Gebruder Dassler Schuhfabrik which is translated to Dassler Brothers Shoe Factory). The firm equipped its first athletes at the 1928 Olympics in Amsterdam. The quality of the company's products at that time was so outstanding, that athletes wearing Adidas foot wears won more than 800 medals and world records.
Vision And Mission Statement
Vision: The vision of the company is to be a global leader in the sports industry and emphasizes on building brands with passion for sports and sporting lifestyles. The company is committed towards strengthening its products and brands to improve its competitive position.
Mission: The mission statement of the company states, “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 organisational structures to match and exceed consumer expectations and to provide them with the highest value.”
Strategic Choices Of The Company
Business plan of Adidas is based on three strategic choices with emphasis on expanding its customer base (Grunig, 2013).
These choices are described below:
- Speed: Adidas focuses on providing the customers the best possible products where and whenever they desire. The aim of the company is to become first true fast sports company of the world.
- Cities: With rise in urbanisation, the company wants to implement its strategies towards attracting more customers living in urban areas of the world. The firm wants to over-proportionally grow its share of market in selected cities of United Kingdom, Japan and many other countries.
- Open Source: The firm leaves its gates open for consumers, athletes and partners to co-create sport culture along with the company. The firm through collaboration and innovation aim to develop the culture of sports throughout the world.
Adidas is formulating its plans to successfully implement these strategies and taking new initiatives to effectively execute these new plans (Eden and Ackermann, 2013).
These initiatives are as follows:
- Portfolio: The company is working towards sharpening the emphasis of its brand portfolio to achieve less complexities and more focus. Concentration of the company would be completely on Reebok and other core competencies of the firm in apparels and foot wears.
- Digital: With ongoing technological advancements and innovations, Adidas is planning to strengthen its online image with its relatively young workforce. The aim would not just be limited to establishing a direct relationship with the customers, but to enhance the overall performance of the firm.
- ONE Adidas: The company aims to achieve overall operational excellence. The initiatives encompassed in ONE Adidas would allow the firm to work more efficiently and aligned manner. The mission of the company from this initiative is to create one global firm.
Swot Analysis Of Adidas
SWOT Analysis refers to a effective analysis of company's strengths, weaknesses, opportunities and threats. This analysis is conducted by the company to determine its competitive position in the market (Hitt and Duane Ireland, 2017). This analysis would help Adidas to critically analyse its core strengths and weaknesses and would allow the firm to reconsider its strategies with an aim to accelerate its global operations. The SWOT Analysis of Adidas is briefly mentioned below:
Adidas is one of the finest manufacturers of sportswear and shoes. Its core strengths are as follows:
- Legacy: The core company was established in 1949, and since then the firm has built a strong legacy. It has successfully established itself as a youthful brand.
- Diversification: The firm deals in diverse product lines and multiple product portfolios. With its mid range firms like Reebok, it has established a wide range of sport shoes and apparels.
- Financial Position: With a revenue of 21.2 Billion Euros in 2017 (Annual Financials For Adidas AG,2018), the firm maintains a strong financial position in the market. Moreover, the firm is planning to increase this figure in the coming years too, by expanding its market in different cities and enhancing its online performance.
The firm is the largest manufacturer in New York, yet it has some weaknesses which are as follows:
- Price Range: Adidas adopts innovative production methods and technology to produce and distribute its products. This has resulted in high prices of its products which only attracts limited customers in developing countries.
- Outsourced Manufacturing: The firm is over dependent on outsources in various markets, especially in Asia. This is one of the biggest weaknesses of the firm.
- Limited Product Line: The company has got just 2 brands under its name. There is still a wide scope for its product line expansion. Limited product lines would only attract limited customers who have been loyal to the firm (Hair and et. al., 2012).
There are many opportunities for the company to strengthen and expand its market. These opportunities are mentioned below:
- Change in Lifestyles: People are starting to adopt athletic lifestyles and this can be a big opportunity for Adidas to attract more customers towards buying its products.
- Market Development: The company must enter new markets to sustain heavy competition and to gain a competitive edge in the global market.
- Demand for premium products: With changing lifestyles and improvement in standard of living, premium products have witnessed an increasing demand recently.
A big firm like Adidas also possess various threats which are discussed below:
- Competition: Adidas is still on the second place when it comes to being the largest manufacturer of sports products. It still faces a tough competition from Nike and other multinational sports companies.
- Supplier Dominance: Suppliers have more bargaining power in case of Adidas as its production is majorly dependant on outsourcing.
- Government Regulations: Import regulations and tariff duties in places like Asia have a vast impact on the company's pricing and its success.
Pestle Analysis Of Adidas
PESTLE analysis refers to a thorough examination of the firm's external environment. It includes all the potential factors of the external environment of a firm that could affect its overall business operations (Keupp, Palmié and Gassmann, 2012). PESTLE analysis of Adidas is discussed below:
These factors takes political aspects into consideration. It considers all the tariffs, tax barriers, price controls, labour unions, etc. The firm will be profitable in areas where there is a stable work environment like Germany and USA. These countries provide the firm with stable tariffs and political support to run its business operations. However, the company is experiencing various problems in regions with unstable political environment, like United Kingdom and Sudan. Irregular political regulations and instability have seriously affected the business.
All the overall economic performance of countries are included in economical factors (Meyer, Neck and Meeks, 2017). Inflation rates of the country, taxation, per capita income, etc. have affected the profitability of Adidas in different countries. For instance, reduction in the value of pound and demonetisation affected the company's business in UK and India, respectively. However, the company has performed extremely well in Germany, USA, Singapore, etc.
These factors include all those social and cultural aspects that influence the behaviour of buyers. Adidas is a success in countries that have adopted a healthy culture like Japan. Moreover, the company keeps formulating its designs to match the preferences of the people in different countries. The firm considers and respects the religious and cultural values of its customers. Thus, Adidas is a brand that is socially accepted by the customers.
These are the factors which considers technological advancements in the countries. Many countries like UK, India and Germany are inclined towards use of latest technologies in their production and manufacturing purposes. Even the customers of these countries prefer products which tend to use latest technological methods in their products (Priem, Li and Carr, 2012). Adidas has always emphasized on using technologically advanced products. Moreover, the strategic goal of the company is to enhance its online presence. To improve its technological facet, the company is working on development of electronic watches and Fitbits. The firm is also working on developing Virtual Reality devices and apps which would allow its customers to choose and design their own shoes. Such initiatives would definitely contribute towards achievement of strategic goals of the company.
All the legal aspects that influences the operations of the firm are included in these factors. The legal framework of the company is very strong with ownership of IP systems and intellectual properties. It has designed various design patents, which would help the firm defend its right against infringements. In addition to this, with full compliance with local and national laws, the firm also endorses celebrity sponsorships.
These factors concerns environmental aspects which affects the production of the firm. There are nations where initiatives are being taken by the government to improve the state of environment. They have imposed various laws which encourage healthy environment practices in the company. Moreover, these laws have forced many multinational companies to formulate their production methods to support environmental improvements. Adidas does not produce any product that is restricted by governments. Along with this, they use methods and technologies which help to reduce the omission of waste and produce high quality product that is environment friendly.
Porter's Five Forces Model
Michael E. Porter developed five forces model which first published in 1979 in Harvard Business Review. This model was developed to help firms in enhancing its capability to serve its customers and increase its profit share (Lasserre, 2017). Through this analysis, Adidas would be able to identify forces that could be an opportunity to the firm in achieving its strategic objectives. These forces are as follows:
Bargaining Power Of Suppliers
Suppliers play a prominent role in Adidas' business. Still the bargaining power of supplier is weak. This is due to the large number of suppliers associated with the firm. Only some of these suppliers are large in size and hold some power, but not all of them. Moreover, it is easy for the company to switch its suppliers. The production in Adidas is majorly dependant on outsourcing. And with such vast scale, Adidas regulates the suppliers in terms of labour and product quality standards.
Bargaining Power Of Buyers
Bargaining power of buyers is moderate in case of Adidas. Individual buyers do not influence firm's pricing. However, there are significant competitors like Nike and Under Armour which influence the bargaining power of Adidas' customers. Even after this, the high quality standard of its products and effective marketing help the firm in sustaining its customer base.
Threat Of Substitutes
In case of Adidas, threat of substitutes in the market is significantly low. This is because only few brands in this industry serve the needs of customers. Moreover, it is hard to produce a a specific substitute as preferences of customers keep on switching as per their changing needs.
Threat Of New Entrants
Threat of new entrants is low. It requires heavy investment to build a firm that could compete with a well established firm like Adidas. Moreover, with competent firms such as Nike and Under Armour, establishment of a new firm to fulfil customers' demand seems very complex.
Threat of competitive rivalry is high. Adidas is yet to defeat Nike in terms of manufacturing and number of customers. Both the firms compete heavily to establish their market share globally. Another smaller firms like Puma and Under Armour create smaller force on the firm but can be a potential threat at some regions of the world.
Adidas is one of the major firms in the sports industry. However, it is yet to conquer various markets. The firm must focus on providing more diversification in its product lines to successfully penetrate various markets. In order to enhance its customer base and give tough competition to firms like Nike and Puma, the firm must produce standard quality products for customers in developing countries. These strategies would allow the firm to increase its profitability and enhance its customer base by a drastic range.
It is thus concluded by the above report, that strategic management is crucial for companies that want to expand their market share and increase their customers. SWOT analysis could be an effective tool for companies to evaluate its core competencies and weaknesses. PESTLE analysis enable firms to analyse their strategic position in the market. These analysis could be contributing to develop effective and competent strategies to serve the business purpose. Moreover, to analyse the industry and to attain improvisation in strategic direction, Porter's five force model is an appropriate strategy that could be adopted by the firms. These measures would help the company to sustain tough competition and it could be potential factors to even overtake toughest of competitors in the market.
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