Case 10_office Depot, Inc - 2011

1

UNIVERSITI TEKNOLOGI MALAYSIA

INTERNATIONAL BUSINESS SCHOOL

SKUDAI CAMPUS

MASTER OF BUSINESS ADMINISTRATION

STRATEGIC MANAGEMENT (MRC 2213)

NAME OF LECTURER: DATO’ DR. MOHD. PADZIL HASHIM

STRATEGIC MANAGEMENT (MRC 2213)

NAMES OF STUDENT:

1. Tan Theam Ping (MR 111032)

2. Law Jia Chin (MR 111139)

3. MdJazli Bin MdJohari (MR111130)

NAME OF CASE:

Case 11: Office Depot, Inc – 2011

Marks/ Grade:

COMMENTS:

2

Table of Content Page

1. Introduction & Case Study Objective 3

2. Critical Problem Scenarios 4

3. IFE Matrix 5

4. EFE Matrix 7

5. IE Matrix 9

6. Space Matrix 10

7. CPM Matrix 12

8. Porter Force Analysis 13

9. Forecast Critical Factors 14

10. Implementation Action Plan 15

11. Impact of Action Plan 18

12. Contingency Plan 19

13. Conclusion 20

14. Reference 21

15. Appendix 22

3

1. Introduction & Case Study Objective

Office Depot, Inc is one of the major suppliers in providing office

products and services worldwide. The products and services mix provided

including computers, computer softwares, office furniture, business

machines (e.g. photocopy machine) and stationaries. Currently, there are

more than 1500 Office depot stores (company-owned, alliances and

franchise agreement), with more than 42000 employees worldwide.

However, the company was reported a loss of $15 million in the first

quarter of 2011, compared to a $20 million profit during the first quarter of

2010. In addition, the total revenue has decreased by 3% to $2.97 billion.

The major problem is that the whole world is moving forward into a new era

of paperless transactions, as such the current business model of the

company have to be revised in order to reverse the declining trend in

revenues and profits. In addition, Office Depot has recently co-operated

with 3M and NASCAR stars Tony Stewart in promoting the “Official Small

Business of NASCAR, Courtesy of Office Depot” sweepstakes, offering $1

million to one small business owner, which serves as an marketing strategy

in stimulating their businesses. A clear three-year strategic plan is needed.

4

2. Current Business Scenarios

Nowadays, the world is shifting into a paperless transactions

environment, which has greatly affect the performance of Office Depot

recent years; besides, Office Depot is facing a vigorous competition

brought forward by other major players in the industry such as Staples,

OfficeMax and convenience stores like Wal-Mart.

Critical

Problem Current Situation Future Situation

Logical

Assumptions

Made

Threats arose

from

paperless

transaction

environment

Currently most of the

revenues come from the

sales of paper, office

machines and furniture.

However, the world is

shifting into paperless

environment

Paper and paper

related products will

be eliminated

Revenues and

profit decreased

Threats from

major

competitors

Primary competitors such as

Staples, OfficeMax and

secondary competitors such

as Wal-Mart providing

similar products and

services

Cut-throat price

competition as

foreseen

Revenues and

profit decreased

5

Quality of

service

decreased

Quality of service is low, for

example the errors on Office

Depot website happened

very often, contact number

of customer service

department hardly get

response

Consumer choose

to purchase the

products and

services from other

competitors

Revenues

decreased,

profit decreased

Non-

recurrence

expenses is

high

Non-recurrence expenses

(stocks damaged during

transportation,

compensation to customer

due to damaged and late

delivery etc) related to daily

operations is high

Consumer choose

to purchase the

products and

services from other

competitors

Revenues

decreased,

profit decreased

3. IFE Matrix

The strengths and weaknesses serve as key indicators to reflect internal

affairs. IFE matrix has been carried out to analyze the internal affairs of

Office Depot.

Key Internal Factors Weight Rating Weighted

Score

Strength

1. Strong brand name 0.10 4 0.40

6

2. Strong retail stores network – had over 1500 retail

stores worldwide 0.10 4 0.40

3. Strong distribution channel – online shopping, retail

stores, call centers 0.10 4 0.40

4. Provide large range of products and services 0.10 4 0.40

5. Go green effort been appreciated by the public 0.10 3 0.30

6. Strong customer base 0.10 3 0.30

Key Internal Factors Weight Rating Weighted

Score

Weaknesses

1. Weak financial position – loss money continuously for

few years 0.10 2 0.20

2. Weak competitive performance if compared to major

competitors – Staples, Wal-Mart 0.10 2 0.20

3. Non-recurrence expenses is high 0.10 1 0.10

4. Poor service quality – both online and offline

customer service 0.10 1 0.10

Total 1.0 2.80

Total weighted score are 2.80 which slightly higher than average scores

(2.50), which indicates Office Depot Inc hold strong internal strengths

position.

7

4. EFE Matrix

The major external opportunities and threats of Office Depot have been

identified and analyzed based on EFE matrix.

Key Internal Factors Weight Rating Weighted

Score

Opportunities

1. Expand business into EME markets –

increase total revenues 0.15 3 0.45

2. Online shopping users are increasing 0.15 3 0.45

3. Develop new product mix – to overcome

the effect brought forward by paperless

transaction environment

0.15 3 0.45

4. Provide new business services 0.15 3 0.45

Key Internal Factors

Weight

Rating

Weighted

Score

Threat

1. Paperless transaction environment –

threatened the current business model of

Office Depot

0.15 3 0.45

2. Intensive competition from other major

players in the industry 0.15 3 0.45

3. Rise of hypermarket and giant

wholesaler 0.10 3 0.30

Total 1.0 3.00

8

The EFE matrix indicates how effective the company’s strategies and used

in the capitalization of their opportunities and disclose the point of threat

that are active. The total weighted score gained by Office Depot is 3.00

which is above average.

9

5. IE Factor

Internal-External (IE) Matrix is a strategic management tool that is used to

analyze the strategic position of a business. The IE matrix can be drafted

by applying IFE matrix score as x-axis and EFE matrix as y-axis.

As IFE weighted scores of 2.80 and EFE weighted scores of 3.00, Position

of Office Depot dropped on fifth cell, which indicates the strategy applied

should be “hold and maintain”. As such the strategic planning proposed will

focus on improving market penetration and new product development.

10

6. Space Matrix

The Strategic Position and Action Evaluation (SPACE) Matrix is one of the

management tools that is used to determine the business strategy type that

has been applied.

Financial Stability (FS) Environment Stability (ES)

Return on Investment 3 Economic Crisis -3

Leverage 3 Technology Changes -2

Liquidity 3 Price Elasticity of Demand -2

Working Capital 3 Competitive Pressure -4

Cash Flow 3 Barrier to Entry -1

FS Average 3.0 ES Average -2.4

FS

ES

IS CS

Aggressive

Competitive Defensive

Conservative

11

Competitive Stability (CS) Industry Stability (IS)

Market Share -4 Growth Potential 4

Service Quality -3 Financial Stability 3

Customer Loyalty -2 Ease of Market Entry 2

Competition’s Capacity Utilization-3 Resource Utilization 3

Technology know-how -2 Profit Potential 3

CS Average -2.8 IS Average 3.0

Y-axis: FS + ES = 3.0 + (- 2.4) = 0.60

X-axis: CS + IS = (-2.8) + 3.0 = 0.20

Office Depot Inc dropped on second quadrant, indicates that aggressive

strategies should be applied, so as to fully utilize their competitive

advantages.

12

7. CPM Matrix

The competitive profile matrix (CPM) has been used to analyze Office Depot market position with the

major competitors.

Office

Depot Staples OfficeMax Wal-Mart

Critical Success

Factors Weight Rating

Weighted

Score Rating

Weighted

Score Rating

Weighted

Score Rating

Weighted

Score

Financial Position 0.15 2 0.30 4 0.60 2 0.30 4 0.60

Customer Loyalty 0.10 2 0.20 4 0.40 2 0.20 4 0.40

Market

Share 0.05 2 0.30 4 0.20 2 0.10 3 0.15

Management

0.15 2 0.30 3 0.45 3 0.45 3 0.45

Advertising

0.20 3 0.60 4 0.80 4 0.80 3 0.60

Price

Competitiveness 0.15 4 0.60 4 0.60 4 0.60 4 0.45

Global Penetration 0.15 3 0.60 4 0.60 2 0.30 5 0.75

Product

Quality 0.05 4 0.20 4 0.20 4 0.20 3 0.15

Total

1.00 3.10 3.85 2.95 3.55

13

8. Porter Force Analysis

Office Depot, Inc case can be analyzed using Porter’s Five Forces

model so as to determine the competitive intensity:

Rivalry among competitive firms (HIGH)

There are many existing major players in the industry including

OfficeMax, Staples, as well as secondary rival e.g. Wal-Mart.

Potential Entrants (HIGH)

The numbers of small and medium suppliers providing same

products and services over internet increased dramatically.

Potential Development of Substitutes (HIGH)

There are many other firms running under the same business

model as Office Depot is.

Bargaining Power of Supplier (MEDIUM)

Although there are many firms engaged in this industry, still the

major players holding big portion of the existing market share.

Bargaining Power of Customer (HIGH)

There are many alternative choices for customers to choose with.

14

9. Forecast Critical Factors

The factors to be considered during the development of strategic

planning are summarized into the table as attached:

Critical Factor Current Situation Future Situation Logical

Assumptions Made

To be adaptive

in paperless

transaction

environment

Whole world is moving

into paperless

transaction stage, sales

of paper related

products (A4 paper,

photocopy machine etc)

dropped

Efforts have to be

made in

transforming current

business model to

adapt with the new

trend

Revenues increased;

market share

increased

Maintaining

key

competitive

advantages

Nowadays, Office

Depot facing vigorous

competition, revenues

and market share

dropped sharply

Efforts have to be

made in improving

competitive

advantages so as to

survive in new era

Revenues increased;

market share

increased,

sustainability

increased

Explore new

market

Currently there are only

100 over stores outside

America, however the

revenues increasing,

potential new market is

there

Explore into EME

markets e.g. China,

India, and South

East Asia countries

Global market share

increased; revenues

increased

15

Improve

product mix

Current product mix

focus mainly on office

furniture, IT hardware,

office machines and

stationary, low profit

margin high competition

Develop new

product and

promotional mix

Revenues increased,

market share

increased

Define existing

issues related

to operation

and service

Consumers lost faith

towards the company

Resolved the issues

and improve service

quality

Regained customers

faith; Revenues

increased; increased

sustainability

10. Implementation Action Plan

The main objective of this 3 years strategic planning is to increase the

profit and the sustainability of Office Depot in the future. After analyzing the

results obtained from SPACE Matrix, we proposed to focus on exploring

and penetration of new market base, revised on current operation and

service issues, and improve current product mix.

Implementation

Actions 1. Explore and penetrate into new market base

What to be

implemented?

Explore EME market

especially China, India and

South East Asia countries

Approach internet-based

media for promotion and

advertising

Why? Increased market share

globally, increased total

Promote the presence of

Office Depot further through

16

revenues internet, low cost high

efficiency, take Malaysia as

example, 60% of the citizens

online daily, provide maximum

exposure to the public

How? - Locate potential EME market;

- Carry out survey on customer

needs;

- Set up Office Depot stores

and warehouse in the target

market;

- Joint Venture, alliance or

work together with local firms,

so as to grab the market share

rapidly

- Make use of social media

such as Facebook, Twitter in

promoting the presence of

Office Depot;

- Advertise on famous

websites, search engines,

forums to gather more

attention, low cost high

efficiency than conventional

media channels

Where? Potential EME market Globally

When? Immediately Immediately

Who? International Division,

Marketing and Sales

department, Retail partners,

Surveyor

Marketing and Sales

department, IT Support

department, Public Relation

department, Social media and

online advertisement platforms

17

Implementation

Actions 2. Improvised on current operating and servicing issues

What to be

implemented?

Define and resolve the

issues related to non-

recurrence expenses

Improve quality of service,

both online and offline

Why? To reduce losses due to

transport failure, transport

delay, stocks damaged

To retain customer’s faith and

loyalty

How? - Develop complete standard

operating protocol (SOP) for

warehouse and logistic

department;

- Make everything, every

incident, every single

movement of stocks traceable;

- Reorganize the layout of

warehouses, follow “First In

First Out” concept, stocks that

have to be send out place at

front;

- Revise on the efficiency and

capability of current logistic

partners, change if necessary

- Improve on current online

shopping cart system;

- Update Office Depot official

website regularly with news

and promotion;

- Decrease server and service

center down time;

- Organize training program for

all the employees, especially

front line staffs, and all the

retail partners, so as to

improve the overall service

quality;

- Carry out customer service

evaluation and survey every

quarter

Where? Office Depot stores globally Globally

When? Immediately Immediately

18

Who? Warehouse department,

Logistic department, Human

Resource department, Finance

department, IT Support

department, Logistic partners

Basically all the employees of

Office Depot Inc are involved

19

Implementation

Actions 3. Revised and improvised on current product mix

What to be

implemented?

Develop new computer

software and systems

Introduce new services e.g.

business card, banner and

wallpaper

Reorganize existing office

furniture and IT hardware

product segment

Why?

To diversify current product

mix, so as to grab market

share in this coming

paperless working

environment era

To diversify current product mix,

explore new market and industry,

increase revenues

Profit margin for furniture

and IT hardware products

are low if compared to

others software and related

services, and the risk of

getting damaged is high;

How?

- Established new Software

& System Development

department;

- Invest in R&D of new office

software, or related systems,

especially web-based

systems (e.g. email systems,

online shopping cart, POS

system, P2P systems);

- Introduce printing of business cards,

banners, and wallpaper services to

the market;

- Cost is low if printing is in large

amount; high margin;

- Offer customize or design services

related to business cards, banners

and wallpaper printing;

- Decrease the varieties of

furniture and IT hardware

products offered now;

- Clear off existing stocks

through special promotion

prices;

- Closed down existing

product line or services

related to furniture and IT

20

- Promote the new office

software and systems to the

clients;

- Offer customize service for

clients, in developing

software or systems (e.g.

email systems, online

shopping cart, POS system,

P2P systems) that suits

them best

- Approach those agencies with huge

demand on these services, for

example Bank, Financial institutes, or

sales companies

hardware product slowly

Where? US Globally Globally

When? Immediately Immediately Immediately

Who?

IT Support department,

Software & System

Development department,

Marketing & Sales

department, Retail partners

Printing department, Marketing &

Sales department, Retail partners

Warehouse department,

Logistic department,

Marketing & Sales

department, Retail partners

21

11. Impact of Action Plan

Impact

Impact of action plan

Maintain

competitive

advantage

Improve

market share Revenues Sustainability

1. Exploring and penetrate into new market base

Explore EME market Yes Yes Yes Yes

Online promotion and

advertising effort Yes Yes Yes Yes

2. Improvised on current operating and servicing issues

Resolve non-recurrence

expenses issues No No Yes Yes

Improve service quality Yes Yes Yes Yes

3. Revised and improvised on current product mix

Develop new computer

software and systems Yes Yes Yes Yes

Introduce new services Yes Yes Yes Yes

Reorganize existing

office furniture and IT

hardware product

segment

No No Yes Yes

22

12. Contingency Plan

Contingency plans are proposed as below so as to minimize the possible negative impact brought

up by the plan.

Action Plan

Strategic Decision Made

1. Exploring and penetrate into

new market base

2. Improvised on current

operating and servicing issues

3. Revised and improvised on

current product mix

Potential

Problem

Entering wrong market at wrong

timing

- Service quality provided by

individual dealers/ distributors

may be inconsistent;

- Existing dealers/ distributors

refused to changed

- Time and expenses involved

are huge;

- Lost existing market share

and customer in office furniture

and IT hardware segments

Contingency

Plan

Detailed survey and planning are

needed before taking any action

Carry out worldwide mentoring

program for every employees

Detailed survey, budgeting and

planning in beforehand;

Why?

- To avoid potential losses that

may arise;

- To decrease the overall costs

and time consumed

To ensure the service quality

provided by employees

worldwide are consistent.

- To decrease the overall costs

and time consumed;

- To retain existing customers

How?

- Convey customer needs and

rival survey;

- Do detailed survey on culture,

- Develop a systematic training

program, which is to be

implemented globally;

- Make use of existing customer

base, approach them to

engage in new products and

23

rules and regulation, legislation,

politics, geographical and other

related information of targeted

market before entering

- Conduct performance

evaluation worldwide once in a

half year

services;

- Convey detailed budgeting

and planning before setting up

R&D team

Where Targeted EME markets Globally Globally

When? Immediately Immediately. Immediately.

Who?

International Division, Marketing

and Sales department, Finance

department, Retail partners,

Surveyor

Basically all the employees of

Office Depot Inc are involved

Warehouse department,

Logistic department, Marketing

& Sales department, Finance

department, Retail partners,

Surveyor

24

13. Conclusion

The world is shifting into paperless transaction environment.

Office Depot has to revise on current business model in order to survive

in this new era. The strategic planning as proposed will definitely assist

Office Depot in achieving the objectives as mentioned.

25

14. References

[1] Office Depot Case Study - Increase Workplace Safety by Motivating

Employees. Available online at www.cashort.com

<Retrieved on 6-Nov-12>

[2] Office Depot – Company profile and SWOT analysis, 2011. Available

online at http://www.freeswotanalysis.com/retailing-swot/463-office-

depot-swot-analysis.html

<Retrieved on 6-Nov-12>

[3] Shaun Bevan. (2012), Office Depot to downsize, relocate stores to save

$20M. South Florida Business Journal Nov-2012.

<Retrieved on 7-Nov-12>

[4] Marc Gunther. (2011), Office Depot's Three-Pronged Strategy for

Corporate Sustainability. The Gunther Report Dec.

Available online at http://www.greenbiz.com/blog/2011/12/16/office-

depots-three-pronged-strategy-corporate-sustainability

<Retrieved on 7-Nov-12>

26

15. Appendix

Exhibit 1 (Source: STEILLA SERVICE, 2011):

Exhibit 2 (Source: Internet World Stats, 2009) [3]:

27

Exhibit 3 Internet User in Malaysia (Source: World Bank, 2011):