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Target Corporation - Strategic Analysis


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This PowerPoint examines the corporate structure of Target in a strategic manor. See how it compares to its competitors and why it is one of the leading retailers in today's society.

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Target Corporation - Strategic Analysis

  1. 1. TARGET By Team C Allison Friedrich, Kyle Brown, Subin Kim, Kelly Lubbers, Jacqueline Skinner, and Kaley Young Corporate Analysis (Part A) of:
  2. 2. QUESTION #1 Assess the overall performance of the firm using the Balanced scorecard.
  3. 3. Balanced Scorecard Financial Customer Learning & Growth Internal Business Processes Business Strategy
  4. 4. Financial Perspective Target Corporation strives to achieve 15% or more for their average earnings per share overtime by demonstrating effective leadership and corporate governance. 2013 • Rev=$73,301(m) • EPS= $4.52 • Div=$1.38 2014 • Rev=$72,596(m) • EPS=$3.07 • Div=$1.65 2015 • Rev=$52,188(m) • EPS=$1.57 • Div=$1.47
  5. 5. Financial Perspective 2011 2012 2013 ROCE Return On Capital Employed 16.5% =5,322,000/ (46,630,000-14,287,000) 15.7% =5,371,000/(48,163,000- 14,031,000) 13.3% =4,229,000/(44,553,000- 12,777,000) Assessment: A higher ROCE indicates more efficient use of capital. Since Target’s ROCE has been declining since 2011, it indicates that Target has not utilized its capital efficiently. In 2012, Earnings has increased, but total assets in 2011 has increased more than the EBIT. It leads to decline of ROCE in 2012. In 2013, all components of ROCE have decreased significantly.
  6. 6. Financial Perspective (Million) 2011 2012 2013 EVA Economic Value Added 1739.5728 =3512.52-(15487*5.75%) 2583.0246 =3491.15-(15821*5.74%) 2622.0175 =2706.56-(16558*5.84%) Assessment: EVA is a performance metric that calculates the creation of shareholder value. Since Target’s EVA has been increasing for the past three years, the firm has more profits remained after the costs of the company’s capital.
  7. 7. Financial Perspective (Million) 2011 2012 2013 FCF Free Cash Flows 1069 =5434-4368 2048 =5325-3277 3067 =6520-3453 Assessment: Cash is the real asset that firms generate. FCF gives a much clearer view of the ability to generate profits. Target’s FCF has been increasing in the trend where cash flows from operating activities is increasing and capital expenditure is decreasing. It could mean that Target started earning profit from its investment in the past.
  8. 8. Consumer Perspective • Strategic Objectives Predicting Customer Needs • Larger Inventory Target is seen as an upscale discount store, because it has many major designers that design a line of products just for Target. Their chic, upscale discounter image is used as their focus in building and enhancing their brand personality, with the ability to better target key customer groups. • High-end Atmosphere Customers prefer to shop in an atmosphere where they are treated well and feel good about the store. This results in a willingness to pay more for items, and individuals who are not as price sensitive.
  9. 9. Consumer Perspective • Strategic Objectives Gaining Customer Loyalty • Occasional Event for targeted loyal customers. According to a study performed by Maritz Research there 20% of Target shoppers are highly loyal to shopping at Target. There are more females than males, 80% are under the age of 40 and are also college educated, and they are in the middle to upper income range. Customers of Target also prefer to shop at a place where there friends and family are likely to shop, and they are not price sensitive.
  10. 10. Consumer Perspective • Strategic Objectives Customer Service • Online Customer Service This hits more of the tech savvy buyers that like to use the internet to search, review and buy products online than going to the store. Other than showing products, it also allows the customer to see where their money is being contributed to by the company.
  11. 11. Learning & Growth Perspective Providing financial assistance Volunteering Social organizations Environmental efforts Education & Arts
  12. 12. Internal Business Process Target encourages the workplace by enhancing the individuality of the staff and employees
  13. 13. THE BALANCED SCORECARD : Learning & Growth Internal Customer Financial Provide Financial Assistance Volunteer, educate, participate Promote Individuality Understand customer segments “Expect More Pay Less” Increase customer confidence Annual EPS Growth Effective Leadership Set personal goals Learning & Growth Business Efficiency Revenue Growth
  14. 14. QUESTION #2 Identify all threats and opportunities associated with all 7 segments of the general environment.
  15. 15. SEGEMENTS OF GENERAL ENVIRONMENT General Environment 7 Segments Demographics Socio- cultural Political Physical Technological Global Economic
  16. 16. Demographic Opportunities • 1,801 stores in the U.S. • 37 Distribution centers • International locations (India and Canada = Ethnic) • Continuously expanding • Over 350,000 team members • Age structure for all ages target towards families Threats • Competitors have larger distribution areas • Larger amount of stores (Walmart)
  17. 17. Economic Opportunities • Continuous economic success during economy hardships • Continuous sales growth • Customers continue to choose target as one of the top retailers Threats • Inflation rates could be higher, lacking due to fall of economy over the years.
  18. 18. Global & Political/Legal Opportunities • Target Citizens Political Action Committee determines decisions for corporate. • Joins organizations and associations to be apart of corporate contributions on state/national level • Expansions outside of U.S. • Education learning strategies such as book donations, field trips, food pantry visits, and cash donations. Threats • Backlash from some donations (Ex. Target protests in Minneanapolis due to support of anti-same sex marriage campaigner.)
  19. 19. Sociocultural & Physical Opportunities • “By fostering an inclusive culture, we enable all of our team members to leverage their unique talents and high performance standards to drive innovation success.” • Variety of services, like online store, Super Target, Target Financial Services (Red Card/Visa Card) • Contributes 5% back to company and is an environment friendly corporation. Threats • Competitors (Walmart) in their prices, but have gone forward to ELIMINATE the negative by offering price matches for identical products.
  20. 20. Technological Opportunities • Very diverse with technology • Apps through cell phones – Cartwheel – discounts and coupons • exclusive deals • Active through social media such as Facebook and Twitter • Social media is used for customer services as well as marketing of products and promotions. Threats • Security breaches with personal information such as social security and credit card information has been stolen by hackers
  21. 21. Porter’s Five Forces Threat of Entry MODERATE • National and International retail companies • Cut-throat Competiton • Mergers of companies Bargaining Powers of Buyers MODERATE • Diversity of products to be bought. • Arrange of prices to compliment wide range of needs. • Continuously growing positive reputation. • Large distribution of products in store.
  22. 22. Porter’s five forces cont. Bargaining Supply of Suppliers LOW • Suppliers give discounts on products. • Incentives of giving back to the consumers (Red Card) • Special types of product promotions (Donations, BOGO) Industry Rivalry STRONG • Amount of Retailers (Walmart, Kmart, Kohl's, Meijer's, Etc.) • Internet outlets (Amazon, etc) at discounted prices and shipping incentives. • Carrying same type of products Threat of Substitutes MODERATE • Products offered at other retailers. • Similar products being offered at lower prices. • Choosing another retailer based on convenience Most Important! Collectively, we find Target company to be an attractive industry with high profit potential!
  23. 23. Attractiveness of Target Co. • Simple slogan: Expect more, pay less • Recognizable branding with products. • Expanding of stores nationwide. • High end deigns and innovation of products. • Higher end products for everyday, affordable costs. • Distinguish themselves compared to their competitors (Ex. Target has a distinct logo) • Competitive incentives such as price matching, coupons, discounts. • Target has several different types of programs for the customers as well as through corporate. • Continuous growth of consumers and sellers of products.
  24. 24. Industry Attractiveness The attractiveness of the industry… A. Attractive: Economic Opportunity…  Consumers regularly shopping for their needs/wants B. Unattractive: Industry Rivalry…  Many different retailers for consumers to choose from  Heavy competition from successful Walmart Key Success Factors Many buyers and suppliers Recognizable Brand
  25. 25. QUESTION #3 To what extent is the firm’s performance attributable to industry attractiveness and to what extent to competitive advantage?
  26. 26. Target’s Performance – 1. Target vs. Competitors ROCE TGT= 13.3% WMT= 19.93% AMZ= 3.77% Margin SGA Expenses/Sales TGT= 21.18% WMT= 19.18% AMZ= 26.23% COGS/Sales TGT= 70.5% WMT= 75.18% AMZ= 72.77% Profit Margin TGT= 2.7% WMT= 3.36% AMZ= .37% Fixed Assets/Sales TGT= 43.2% WMT= 24.76% AMZ= 14.71% Capital Turnover Inventory Turnover TGT= 8.28 WMT= 10.62 AMZ= 10.05 Fixed Asset Turnover TGT= 2.31 WMT= 4.04 AMZ= 6.80 Receivables Turnover TGT= 12.43 WMT= 71.33 AMZ= 15.62
  27. 27. EBIT TOTAL ASSETS Current Liabilities ROCE Target’s Performance – 1. ROCE Concept • Return on Capital Employed (ROCE) depicts a corporations use of capital. • The higher the ROCE, the more efficient the use of its capital • Let’s utilize this concept to compare Target’s advantages and disadvantages with a competitor…
  28. 28. Target’s Performance – 1. Compared with… Advantage Ratios Why? 1 ROCE TGT = 4,229,000 / (44,553,000 - 12,777,000) = 13.3% AMZ = 647,000 / (40,159,000 - 22,980,000) = 3.77% ROCE = EBIT / (total assets - current liabilities)  Target has a 10% higher ROCE than Amazon.  This high ROCE means Target uses their capital more efficiently. 2 SGA / Sales TGT = 15,375,000 / 72,596,000 = 21.18% AMZ = 19,526,000 / 74,452,000 = 26.23%  Target has a 5% lower SGA to sales ratio than Amazon.  This shows their Selling, General, and Administrative expenses are taking up a smaller percentage of their sales. 3 COGS / Sales TGT = 51,160,000 / 72,596,000 = 70.5% AMZ = 54,181,000 / 74,452,000 = 72.77%  Target’s 2% lower COGS to sales ratio indicates that they don’t have to spend as much money on the goods that they sell. 4 Profit Margin TGT = 1,971,000 / 72,596,000 = 2.7% AMZ = 274,000 / 74,452,000 = .37% Profit Margin = net income / revenues  Target’s profit margin is significantly higher due to its superior net income.  Target’s net income benefits from its lower selling/general/administrative expenses compared with Amazon.
  29. 29. Target’s Performance – 1. Compared with… Disadvantage Ratios Why? 1 Inventory Turnover (Days Sales Inventory) TGT = 72,596,000 / 8,766,000 = 8.28 *days sales inventory = (1 / 8.28) x 365 = 44.08 AMZ = 74,452,000 / 7,411,000 = 10.05 *days sales inventory = (1 / 10.05) x 365 = 36.32 Days Sales Inventory = [1/ (sales/inventory)] x 365  Target’s days sales inventory of 44.08 means that they sell their entire inventory in 44 days. However, Amazon sells their entire inventory within 36 days, which is 8 days faster.  This means Amazon doesn’t have to store inventory as long, giving them lower inventory storage costs and the ability to put new merchandise out their sooner. 2 Fixed Asset Turnover TGT = 72,596,000 / 31,378,000 = 2.31 AMZ = 74,452,000 / 10,949,000 = 6.80 Fixed Asset Turnover = net sales/net property, plant, equipment  Amazon has a significantly higher fixed asset turnover ratio, indicating that they generate more sales from their fixed asset investments. 3 Receivables Turnover TGT = 72,596,000 / 5,841,000 = 12.43 AMZ =74,452,000 / 4,767,000 = 15.62 Receivables Turnover = sales / accounts receivable  Target’s receivables turnover is slightly lower, meaning they should investigate their method of collecting accounts receivable.  They aren’t quite as efficient as Amazon. 4 Fixed Asset / Sales TGT = 31,378,000 / 72,596,000 = 43.2% AMZ = 10,949,000 / 74,452,000 = 14.71%  This ratio shows the percentage of fixed asset dollars per sales dollars.  Target’s percentage is about 30% higher than Amazon’s, concluding that Amazon once again generates mores sales dollars from their fixed assets.
  30. 30. Target’s Performance – 2. Compared with… Advantage Ratios Why? 1 COGS / Sales TGT = 51,160,000 / 72,596,000 = 70.5% WMT = 358,069,000 / 476,294,000 = 75.18%  Once again, Target excels at their COGS to sales percentage.  They have a 5 % advantage on Walmart, who is spending significantly more on their goods that they sell. COGS / Sales Target beats both Amazon and Walmart when it comes to this ratio!
  31. 31. Target’s Performance – 2. Compared with… Disadvantage Ratios Why? 1 ROCE TGT = 4,229,000 / (44,553,000 - 12,777,000) = 13.3% WMT = 26,991,000 / (204,751,000 - 69,345,000) = 19.93% ROCE = EBIT / (total assets - current liabilities)  Target’s ROCE is 6.5% lower than Walmart’s, indicating their need to use their capital more efficiently. 2 Inventory Turnover (Days Sales Inventory) TGT = 72,596,000 / 8,766,000 = 8.28 *days sales inventory = (1 / 8.28) x 365 = 44.08 WMT = 476,294,000 / 44,858,000 = 10.62 *days sales inventory = (1 / 10.62) x 365 = 34.37 Inventory Turnover = [1/(sales/inventory)] x 365  Again, Target sells their entire inventory in 44 days, while Walmart sells its entire inventory within 34 days.  Walmart has lower inventory storage costs as a result. 3 Fixed Asset Turnover TGT = 72,596,000 / 31,378,000 = 2.31 WMT = 476,294,000 / 117,907,000 = 4.04 Fixed Asset Turnover = net sales/net property, plant, equipment  Target’s fixed asset turnover ratio is about half of Walmart’s.  This means that Target must work on better using their assets to generate revenue.
  32. 32. Target’s Performance – 2. Disadvantages Cont’d… Disadvantage Ratios Why? 4 Receivables Turnover TGT = 72,596,000 / 5,841,000 = 12.43 WMT = 476,294,000 / 6,677,000 = 71.33 Receivables Turnover = sales / accounts receivable  Walmart’s receivables turnover is nearly 6 times that of Target. Target needs to investigate their method of collecting accounts receivable, in order to become as efficient at it as Walmart. 5 SGA Expenses / Sales TGT = 15,375,000 / 72,596,000 = 21.18% WMT = 91,353,000 / 476,294,000 = 19.18%  Target here has a 2% higher SGA expenses to sales ratio than Walmart.  This shows that Target spends more on their selling, general, and administrative expenses than does Walmart. 6 Fixed Assets / Sales TGT = 31,378,000 / 72,596,000 = 43.2% WMT = 117,907,000 / 476,294,000 = 24.76%  This ratio, similar to the fixed asset turnover ratio, shows the ratio of fixed asset dollars to sales dollars. Again, Target does not use their assets to generate revenue nearly as well as Walmart, whose percentage is 20% lower. 7 Profit Margin TGT = 1,971,000 / 72,596,000 = 2.7% WMT = 16,022,000 / 476,294,000 = 3.36% Profit Margin = net income / revenues  Walmart once again trumps Target in profit margin, by .66%. Target keeps 2.7% of every sales dollar, while Walmart keeps 3.36%.
  33. 33. Target’s Performance – 1. Competitive Advantages Target will continue to succeed in this industry because of its competitive advantages. 1. Low COGS % of sales 2. Strong ROCE % and Profit Margin 3. Recognizable Branding 4. Superior Marketing
  34. 34. QUESTION #4 Draw the firm’s value chain. In which of the firm’s principal functions and activities does the firm competitive advantage lie?
  35. 35. THE VALUE CHAINANALYSIS Finance Global Workforce IT Design Operations ShipSell Use and Reuse Support Functions Primary Functions
  36. 36. Value Chain Analysis A. Primary Functions Inbound Logistics Target Corporation promotes design through imagination, improvement and innovative ideas that enable them to give more. While dreaming up new products and sketching new store sites, Target is building responsibility and sustainability into every brainstorm. This is reflected through Target’s CGS/Sales ratios. They have a lower percentage than Amazon and Wal-Mart. Produce Through Target’s everyday operations, design and raw materials merge to become the products sold. Target collaborates with highly qualified vendors and aim to make production better for the people of the planet. Target’s inventory ratios are disadvantages as compared to Amazon and Wal-Mart in that Target’s products sit on the shelves longer than its competitors. Outbound Logistics Shipping is Target’s outbound logistics process of moving products from the source to the guest. Target has reduced loads they’ve shipped and miles traveled in order to save on fuel, reduce our carbon emissions and lower costs, while, getting products to their guests promptly and efficiently. This is reflected in Target’s fixed asset ratios.
  37. 37. Value Chain Analysis A. Primary Functions Marketing and Sales Target’s main focus in selling is the guests experience. They are focusing mainly on the sustainability and the responsibility of operations from their corporate headquarters in Minneapolis, Minnesota. These ratios are reflected in Target’s CGS/Sales ratios. Customer Service Use and Reuse is the motto that Target uses when it comes to customer service. Guests determine the destiny of the products they buy and Target provides the tools, information and incentives to help them reduce waste and turn their old items into something new. Refer to Target’s Sales ratios for the competitive advantages and disadvangtes.
  38. 38. Value Chain Analysis B. Supportive Functions Finance A significant portion of Target’s total sales is derived from stores located in just five states; California, Texas, Florida, Minnesota, and Illinois which results in Target being dependent on a strong local economy in these areas. As Target does not own a consumer credit card receivables portfolio, they do share the economic performance of the credit card program with TD(?) Having a deteriorated economic condition, Target could receive lower profit sharing payments. Global and Changing Workforce Target is dependent on their ability to attract, train and retain an appropriate mix of qualified team members, contractors and temporary staff. If they are unable to obtain these appropriate levels of staff then the support functions of Target could suffer. Target has a concentration of support functions in India, however, it is more unstable than the US when taking into consideration financial and environmental issues. Information Technology Target is becoming increasingly reliant on technology investment and the returns on theses investments. They are currently making and will continue to make significant investments to support their multichannel efforts, implement improvements and transform their computer systems to run more efficiently and remain competitive to the guests.
  39. 39. Hypothesis Relationship – PrincipalFunctions and competitive advantages. 1. Target ‘s strongest primary function is Distribution and Marketing & Sales. The company has relatively lower 70.5% as COGS/Sales ratio compared to other companies, which means that it maintains its efficient sales department and distribution management. 2. Target also has strong ROCE and Profit Margin, which proves that the company uses its capital more efficiently. It leads to the fact that Target has been managing its business well and generating profits properly. 3. Target is known for its recognizable Branding, which resulted from its well-designed Marketing & Sales strategy.
  40. 40. Driver of Competitive Disadvantage 1. Inventory Turnover Target has competitive disadvantage as to its Inventory Turnover compared to Amazon’s and Wal-mart’s. Sales have to match inventory purchases otherwise the inventory will not turn effectively. Target’s inventory is 8.48 bigger than the firm’s sales. Bigger number in Inventory Turnover indicates the fact that Target needs to spend more of their budget on managing and storing its inventory and has less choices when it needs to put new goods and merchandises. 2. Fixed Asset Turnover Target’s Fixed Asset Turnover ratio is also inferior to two competitors’. This illustrates that Target is required to create a new strategy to use their fixed assets more efficiently rather than keeping the one they are implementing now. 3. Receivable Turnover The reason for Target’s relatively lower Receivable Turnover is that there might be some problems in their method of collecting accounts receivable. As the higher ratio, the more favorable, Target should investigate what causes its low receivable turnover ratio to improve its account receivable quality.
  41. 41. QUESTION #5 What is the firm’s business strategy? To what extent are the firm’s principal functions sustainable?
  42. 42. Business Strategy BUSINESS STRATEGY MODEL Lowest Cost Distinctiveness Broad Market Cost Leadership Differentiation Narrow Market Segments Focused Cost Leadership Focused Differentiation Integrated Cost Leadership & Differentiation
  43. 43. Target’s Business Strategy Target uses an integrated cost leadership/differentiation strategy with “Expect More, Pay Less”. It has helped the store deliver greater convenience, increased savings and more personalized shopping experience. Target looks to provide the consumers with new ways of convenient retail shopping. A way that Target puts their plan into action is by introducing a new formatting of the store called CityTarget, which is being tested in large urban dwellers such as Chicago, Los Angeles, Seattle, and San Francisco, and is continuously growing. Target is looking at having successful branding and formatting of the stores. Target provides its own branding such as Up and Up, Market Pantry, C9 by Champion and several other brands. Target offers price matching to its competitors and incentives to its consumers with things such as Red Card Rewards. The Target Corporation is always looking to bring value to its guests by finding new ways to shop with innovative products, providing a unique experience for each consumer.
  44. 44. Resources & Capabilities 1. Distribution Logistics Six Sigma data driven methodology to measure performance and improving processes Target Distribution Center and Supply Chain Management
  45. 45. Resources & Capabilities 2. Marketing & Sales Customer Service Social Responsibility Returns and Exchanges, Target Red Card services, Promotions, Baby and wedding registeries Lead the way to sustainable environments, tools for strong and safe communities, volunteering, health & well-being initiatives
  46. 46. Resources & Capabilities 3. Human Resources Employee Relations Acquisitions Retaining employees, Employee Discounts, Education Programs, Motivation DermStore, CHEFS book, Sensa
  47. 47. Core Competencies Valuable? Rare? Costly to Imitate? Non- Substitutable? Advantage Type? Returns ? Distribution Yes Yes Yes No (Different stores and brands) Sustainable Competitive Advantage Above Average Marketing & Sales Yes Yes Yes Yes Sustainable Competitive Advantage Above Average Human Resources Yes Yes Yes No (Other qualified employees) Sustainable Competitive Advantage Above Average
  48. 48. Goals, Strategies, Resources & Capabilities, and the Environment GOALS STRATEGIES RESOURCES & CAPABILITIES ENVIRONMENT To give outstanding customer service • Positive Attitude • Refunds and Exchange Policies • Easy and Ready customer service Marketing & Human Resources • Online access to information • Available in person or phone • Innovation of Target To retain and increase employees well-being (avoid turnover) • Employee Discounts • Employee Benefits • Employee Well- being incentives Human Resources • Diversification in the workforce (Ethnics) • Employee Incentives To produce and put out quality products • Six Sigma Production • Target Distribution Center • Supply Chain Management Marketing Distribution • Innovative Products • Online and In-Store • Growing technology • Cell Phone Apps • Marketing Sales Catalogs
  49. 49. Goals, Strategies, Resources & Capabilities, and the Environment GOALS STRATEGIES RESOURCES & CAPABILITIES ENVIRONMENT To see continuous growth in sales • Positive employees • Customer loyalty • Productive business model • Pricing and branding • Strategic Management skills ALL Marketing Distribution Human Resources • Demographics • Family friendly • Location of store • Incorporation of technology • Innovation of Target Products • Happy and returning consumers To market Target Corporations brand • Team members well-being incentives • Volunteering events • Working with environment and educational programs Marketing • Promotions in- store, online, phone app • Innovation of Target products • Quality products at affordable costs
  50. 50. QUESTION #6 (BONUS) Use the Competitive Rivalry model to illustrate the rivalry between two of the three main competitors in the industry. Predict Competitive Behavior of your firm and that of the competitor’s.
  51. 51. Competitive Analysis - Market Commonality - Resource Similarity Drivers of Competitive Behavior -Awareness -Motivation -Ability Interfirm Rivalry -Likelihood of Attack -First Mover Incentives -Organizational Size -Quality -Likelihood of Response -Type of Competitive Action -Reputation -Market Dependence Outcomes -Market Position -Financial Performance Feedback Competitive Rivalry Model
  52. 52. Competitive Rivalry Model Firms are mutually interdependent…  Actions/responses affect one another Marketplace success is derived from…  Individual strategies AND their consequences  The model helps…  Understand the competitor  Predict their behavior  Reduce uncertainty of their actions
  53. 53. 1) Competitive Analysis Market Commonality  Associated with the number of markets with which the firm and a competitor are jointly involved and the level of importance of their respective, individual markets  Affects firm’s perceptions and resulting motivation (i.e. more likely to attack low market commonality competitors) As two main players in the retail chain industry, both Target and Walmart share high-levels of market commonality. Although their strategies and target customers differ, they nevertheless offer similar services, such as: discounted products, pharmacy centers, and express outlets. Furthermore, both retailers compete with one another internationally in countries like India and Canada. Resource Similarity  Tangible and intangible resources that are comparable to a competitor’s  Includes both type and amount of resources Despite Walmart’s massive size, Target and Walmart have similar resources (such as equitable brand recognition, similar amounts of human capital, and location.) However, they tend to differ in essence: “Target's employees are proficient in project management and leadership skills while Walmart staff concentrates on developing its sales and retail pharmacy knowledge.” Target also places a large focus on product innovation and quality in comparison to Walmart’s lowest price strategy. In addition, Target has superior advertising practices. Therefore, their resource similarity is of a moderate-level.
  54. 54. 2) Drivers of Competitive Behavior Awareness  Extent competitors recognize the degree of their mutual interdependence that results from market commonality and resource similarity  Greatest when firms have highly similar resources. Target and Walmart have high-levels of market commonality and a moderate-level of resource similarity. Thus, their awareness of one other is moderately-high. The extent of the consequences of competitive actions and responses of one will more than likely have an impact on the other, as experienced when Walmart Express was met with a later rebuttal of City Target. Motivation  Firm’s incentive to take action/respond to a competitor’s attack  Driven by perceived gains and losses Because Walmart and Target have high-levels of market commonality, they will probably be less motivated to engage in rivalry at the stake of their respective market positions. Although it tends to avoid head-to-head combat, Target is not opposed to response. When Walmart moved into urban areas with Walmart Express, the action became Target’s incentive to retaliate with City Target. Ability  Each firm’s resources and flexibility (i.e. financial capital and people)  Similar resources often means similar abilities Target and Walmart have relatively similar resources and are both big-name retail industry players. Thus, they have the ability to attack—even each other, should the need arise, as is the case with Walmart Express and City Target. Clearly, Walmart’s threat is felt globally by all competitors.
  55. 55. 3) Interfirm Rivalry Likelihood of Attack First-Mover Incentives  Firm that takes initial competitive action to build/defend its competitive advantages or improve its market position. Walmart first started defending its competitive advantages by building Walmart Express stores which were much smaller than its supercenters. These are built in more urban areas. Target has since built a few Target Express / City Targets, but these are directly in the city to target city goers. Organizational Size  Small firms will launch competitive actions more readily and more quickly because of their flexibility. Large firms will launch more competitive actions with more strategic actions over a certain period. Target has around 1800 stores in the U.S. and India, with roughly 366,000 employees and net revenues of 72.6 billion. Walmart is much bigger in comparison, with 11,000 stores in 27 countries, 2.2 million employees and revenues of 476.3 billion. With Walmart’s massive size, they are able to do a lot of strategic action like building new stores, without it being a huge deal. Quality  When the company’s goods or services meet or exceed customers’ expectations. Target seems to have the upper hand when it comes to quality. They partner with designers each year to offer high-end products for great prices. Walmart is not known for its quality, but for its low rollback prices.
  56. 56. 3) Interfirm Rivalry Likelihood of Response Type of Competitive Action  Strategic actions usually elicit strategic responses, while tactical actions elicit tactical responses. Walmart opened its first smaller Walmart Express stores in 2011. Target strategically responded by opening its first City Target Stores in 2012, just one year later. In 2014, Target also opened up its Target Express Stores, to further compete with Walmart. Reputation  “The positive or negative attribute ascribed by one rival to another based on past competitive behavior” (147). Walmart and Target both have great reputations. Because of Walmart’s size, it is always being watched. When Walmart met with success by downsizing into Walmart Express stores, Target jumped in this market with its City Target. Market Dependence  The extent of the company’s revenues/profits that come from a certain market. Both Target and Walmart are the main competitors in the retail industry. Any threats to their market position by other retailers will cause them to respond in a strong manner. Threats by convenience stores have caused both Target and Walmart to open their smaller express stores to thwart this competition.
  57. 57. 4) Outcomes Market Position Target’s stock price from Feb 2014 to 2015 went from 55.07 to 75.87, while Walmart’s stock price went from 72.82 to 86.19. Although Target increased 6$ more than Walmart’s did this past year, these two companies seem to be doing well and have a great market position. Financial Performance Target’s sales revenues have stayed relatively the same from 2013 to 2014, decreasing by less than 1%. Walmart’s sales revenues have increased by roughly 1.6% from 2013 to 2014. Both are performing well financially it seems. Although it is hard to compare Target to the great retail giant of Walmart, we can see that Target is doing very well for its size, and even beats Walmart when it comes to the COGS to sales ratio.
  58. 58. Competitive Behavior Prediction Target Walmart Target will continue to monitor the success of its City Targets and Target Express stores, since they are relatively new. They will probably continue to open more stores in this smaller scale to cater to consumers in the city demanding this convenience. Target will keep partnering with designers each year, because these high-end goods at great prices are something that differentiates Target from Walmart. Target’s failure in Canada may leave it hesitant to attack Walmart on a global scale. Walmart will work on lowering their COGS, because Target is doing significantly better in this regard. Walmart will try to improve their store image in the eyes of city-dwellers. Since Walmart is downscaling their stores to fit in the urban areas, they will need to change their image to fit this different clientele. Walmart may expand the range of products featured in its Express stores to match the range of products found in City Targets.
  59. 59. QUESTION #7 Define and discuss the three major types of strategic alliances. Review the company’s alliance strategy.
  60. 60. Types of Strategic Alliances • Joint Venture • Equity Strategic Alliance • Non-Equity Strategic Alliance
  61. 61. Types of Strategic Alliances • Joint Venture Is defined as two or more firms that create a legally independent company to share resources and capabilities to develop a competitive advantage. By uniting, they are able to achieve those goals that they could not by themselves. They will begin to see a more rapid and effective growth under a joint venture together. It is legally independent. Ex. Disney owning ABC
  62. 62. Types of Strategic Alliances • Equity Strategic Alliance Is defined by two or more firms that own different percentages of the company they have formed by combining some of their resources and capabilities for the purpose of creating a competitive advantage. They own different percentages of the company Example: Aircel (mobile network operator overseas)
  63. 63. Types of Strategic Alliances • Non-Equity Strategic Alliance Is defined as two or more firms that develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage. Examples: Licensing agreements, distribution agreements, supply contracts, outsourcing commitments
  64. 64. Types of Strategic Alliances • Non-Equity Strategic Alliance Also uses outsourcing as apart of its strategy, which is a non-equity strategic alliance, it is the purchasing of value, creating primary or support activity from another firm.
  65. 65. Strategic Alliances & Target Corp. • Alliance Strategy Target has stated on their website--- “We know we can do more good through partnerships than we ever could on our own, which is why we turn to our stakeholders, and listen to their ideas, concerns and perspectives. We have ongoing relationships with community leaders, government agencies and non- governmental organizations that help us understand the most pressing issues facing our communities. They also help us influence how we support our team members and guests.” Resource:
  66. 66. Strategic Alliances & Target Corp. • Target Alliances Examples • The Heart of America Foundation • To Make US Healthiest • Fish Wise • Federal Emergency Management Agency • Brands: • Michael Graves • Marc Ecko • Todd Oldham • Etc.
  67. 67. Strategic Alliances & Target Corp. • Target Alliances Examples • They have done partnerships to help the alliance of the Target brand through the Heart of America Foundation, which recognizes and encourages youth who are making a difference in their communities and schools. • To Make US Healthiest, which is a company that strives to help U.S. citizens become more physically and emotionally healthy. • Target has also alliances Fish Wise as an environmental partner that they work to reduce the amount of purchased unsustainable resources.
  68. 68. Strategic Alliances & Target Corp. • Target Alliances Examples • Lastly, Target also does work with the Federal Emergency Management Agency in relations for safety and preparedness within its private and public sectors of the company for any type of emergency that may take place in any area of its locations. • By joining all of these alliances it gives Target a competitive advantage over other retailers than do not have these agreements with other organizations.
  69. 69. Strategic Alliances & Target Corp. • Target Alliances Examples • Target has alliances with Michael Graves, Marc Ecko, and Todd Oldham to sell specific types of products and designer items within the store that other stores do not have incorporated into their branding of products. • As target continues to expand, it looks to take this innovative strategies and partnerships to be able to expand globally, creating a workplace that is enjoyable and gives back to communities.
  70. 70. QUESTION #8 What corporate governance mechanisms are available to manage relationships with stakeholders and to influence the strategic direction and performance of the company?
  71. 71. Corporate Governance Definition: “The set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of organizations” (pg. 294)  Makes sure decisions are effective and help the company achieve strategic competitiveness 3 Internal Governance Mechanisms 1) Ownership Concentration 2) Board of Directors 3) Executive Compensation Ownership Concentration Board of Directors Executive Compensation
  72. 72. Ownership Concentration Target’s Ownership Concentration = Low  Have 0 large-block holders that own at least 5% of their shares  Institutional owners are becoming large- block holders, instead of individuals Result = Diffuse Ownership  This can cause manager’s decisions to be weakly monitored Target’s Major Shareholders % of Shares Held by All Insider and 5% Owners: 0% % of Shares Held by Institutional & Mutual Fund Owners: 85% % of Float Held by Institutional & Mutual Fund Owners: 86% Number of Institutions Holding Shares: 1063
  73. 73. Ownership Concentration Top Institutional Holders Shares % State Street Corporation 59,878,459 9.40 Vanguard Group, Inc. (The) 37,945,527 5.96 Franklin Resources, Inc 32,992,866 5.18 FMR, LLC 27,135,556 4.26 Barrow, Hanley Mewhinney & Strauss, Inc. 25,096,966 3.94 Massachusetts Financial Services Co. 22,455,289 3.53 Dodge & Cox Inc 17,758,389 2.79 BlackRock Institutional Trust Company, N.A. 16,895,093 2.65 Invesco Ltd. 15,496,858 2.43 Brown Brothers Harriman & Co 12,593,685 1.98 Total 268,248,688 42.12 %
  74. 74. Ownership Concentration Top Mutual Fund Holders Shares % Franklin Custodian Funds-Income Fund 20,000,000 3.14 Vanguard/Windsor II 13,316,400 2.09 Vanguard Total Stock Market Index Fund 10,355,738 1.63 Dodge & Cox Stock Fund 10,337,647 1.62 MFS Series Trust I-MFS Value Fund 7,693,133 1.21 SPDR S&P 500 ETF Trust 6,847,075 1.07 Vanguard 500 Index Fund 6,579,093 1.03 Vanguard Institutional Index Fund-Institutional Index Fund 6,420,001 1.01 Franklin Managed Trust - Rising Dividends Fund 5,706,920 0.90 Vanguard Specialized-Dividend Appreciation Index Fund 4,469,104 0.70 Total 91,725,111 14.40 %
  75. 75. Ownership Concentration As institutions gain more control over corporations like Target….  Institutional activism may occur  Large institutional owners might affect the firm’s decisions in regards to innovation and diversification  This activism can also discipline managers and promote shareholder’s interests
  76. 76. Board of Directors Definition: “A group of elected individuals whose primary responsibility is to act in the owners’ best interests by formally monitoring and controlling the firm’s top-level managers” (pg. 302)  Individual shareholders with small ownership percentages are highly dependent on the board of directors to represent them.  Board members are expected to provide resources  i.e. Personal knowledge and expertise  Members include: Insiders, Outsiders, and Related Outsiders Related Outsiders (Some relationship) Insiders (Top-level managers) Outsiders (Independent counsel)
  77. 77. Board of Directors: Target Name Position Company Type Roxanne S. Austin President Austin Investment Advisors Outsider Douglas M. Baker, Jr. Chairman and CEO Ecolab Inc. Outsider Brian C. Cornell Chairman of Board and CEO Target Corp. Insider Calvin Darden Chairman Darden Development Group Outsider Henrique De Castro Former CEO Yahoo! Inc. Outsider James A. Johnson Founder and Principal of Johnson Capital Partners Johnson Capital Partners Outsider Mary E. Minnick Partner of Lion Capital Lion Capital Outsider Anne M. Mulcahy Chairman of Board of Trustees Save the Children Federation, Inc. Outsider Derica W. Rice EVP, CFO Global Services, Eli Lilly & Co. Outsider Kenneth L. Salazar Partner WilmerHale (legal) Outsider John G. Stumpf Chairman of Board, President, and CEO Wells Fargo & Co. Outsider
  78. 78. Board of Directors: Target’s Guidelines Target’s Board of Directors… The Chair of the Board… Effectively communicates with Stakeholders (Directors must attend annual shareholder meetings) “…Facilitate(s) constructive interaction between the Board and management of the Corporation.” Form or disband board committees as needed The CEO and Chair of the Board can be the same person, but it isn’t required “…Have broad perspective, experience, knowledge and independence of judgment, and business backgrounds.” Brian C. Cornell is both Chairman of the Board and CEO of Target, so he holds CEO duality. Ranges between 10-15 members Formerly Gregg Steinhafel before the security breach debacle Evaluates CEO and Chair of Board Annually reviews its performance
  79. 79. Risk & Responsibility Board Committees The board’s 5 committees, include 1 Chair + Members:  Finance:  Oversees financial policies, risks, and conditions  Audit:  Oversees integrity of financial statements, performance of the independent auditor, collaborates with Corp. Risk and Responsibility Committee  Compensation:  Oversees the review and recommendation of compensation plans  Nominating & Governance:  “…Reviews and recommends the composition, organization and responsibilities of the Board and its committees.”  Corp. Risk & Responsibility:  Identifies strategic, business etc. risks. Oversees ethics and compliance programs, provides oversight on reputation and social responsibility Finance Audit Nominating & Governance Compensation
  80. 80. Executive Compensation Executive compensation is a very important thing to consider when evaluating an investment opportunity. Executive compensation is a governance mechanism that tries to align the interests of top managers and owners through salaries, bonuses, and long-term incentive compensation, such as stock awards and stock options
  81. 81. Executive Compensation Breakdown of the total annual pay for the top executives at Target Corp. as reported in their proxy statements (2013).
  82. 82. Executive Compensation Breakdown of the total annual pay for the top executives at Target Corp. as reported in their proxy statements (2013).
  83. 83. Executive Compensation •Total Cash Compensation is comprised of yearly Base Pay and Bonuses. •Total Equity aggregates grant date fair value of stock and option awards and long term incentives granted during the fiscal year. •Other Compensation covers all compensation-like awards that don't fit in any of these other standard categories. Numbers reported do not include change in pension value and non-qualified deferred compensation earnings.
  84. 84. Ethical Behavior Target Corporation is committed to conducting business lawfully and ethically. Every team member is obligated to act at all times with honesty and integrity based on their Code of Conduct.
  85. 85. Ethical Behavior According to Tim Baer, executive vice president, general counsel and corporate secretary. “More than six decades ago our company founders established an unwavering commitment to ethical business practices and generous community support. We expect every one of our 350,000 team members to demonstrate sound, ethical business practices that bring good judgment and integrity to every business decision.” Consequently, it will strengthens competitive advantage and supports the superior experience guests expect.
  86. 86. QUESTION #9 Please discuss the firm’s structure and strategic leadership responsibilities of the firm’s CEO.
  87. 87. Strategic Leadership Responsibilities Leadership Strategic Direction Managing Firm Resources and Portfolios Balanced Organization Controls Ethical PracticesOrganizational Culture
  88. 88. Strategic Leadership Responsibilities • Leadership: The Target Brand. CEO Brian Cornell • Strategic Direction: Strategic responsibilities, as noted in mission and value statements ‘Our mission and values work together to foster connections and conversations both inside and outside our doors.’ • Balanced Organizational Controls: The balanced score card, which describes learning and growth for financial assistance, volunteering, educating, participating, setting goals. Internally through promoting, understanding consumer segments and efficiency. Customers through confidence. Financially through EPS and revenue growth, as well ass effective leadership skills. • Managing the Firm’s Resources and Portfolio: All relates to the innovations and efficiency of the technology that target maintains through its retail establishments, online website, social media and apps. Also in programs for consumers and employees. • Organizational Culture: Previously discussed in the strategic partnerships with Target, such as The Heart of America Foundation, To Make US Healthiest, Fish Wise and Federal Emergency Management Agency • Ethical Practices: Including all types of relationships, including any types of minorities, sex, vendors, suppliers, etc. This allows the company to become industry leaders.
  89. 89. Strategic Leadership Responsibilities CEO of Target: Brian C. Cornell Addressed Mission Statement “Our mission is to make Target your preferred shopping destination in all channels by delivering outstanding value, continuous innovation and exceptional guest experiences by consistently fulfilling our Expect More. Pay Less.® brand promise.”
  90. 90. Strategic Leadership Responsibilities • Target CEO Brian C. Cornell believes in social responsibility for the branding. There are specific types of integrated areas that the target brand focuses in the direction of its mission statement and value to its consumer. • Design for all • Great guest services • More for your money • A fun and rewarding workplace • Celebrating diversity and inclusion • A legacy of giving and service • This is the background of the ever popular company slogan----- ‘Expect more. Pay less.’
  91. 91. QUESTION #10 Please make recommendation for the firm. Help the firm improve its competitive strategy, corporate strategy, corporate governance and strategic leadership.
  92. 92. Recommendations •Keep higher quality and innovative products. •Bond with exclusive partnerships with designers. •Appeal the firm’s original atmosphere and appearance. •Increase locations the nation. •Decrease high stock-out rate. •Change customers’ pricing perception. •Set the firm’s own style among the increasing rivalry in retail market. •Predict the change in economy and governmental policy. •Expand in international markets. •Diversify its grocery department. •Engage more in exclusive design partnerships. •Increase advertising for private brands. •Enhance efforts to be environmentally firendly. Strengths Weaknesses Opportunities Threats
  93. 93. Competitive Strategy Competitive strategy is a long-term action plan devised to help a company gain a competitive advantage over its rival. To improve its competitive strategy Target should: • Implement a better re-stocking system for inventory management: • Point-of-sale stocking system. • Remove the potential for human error and would be extremely fast and cost efficient. • Focus on design and innovation to develop a competitive advantage through value-creating diversification • Maintain quality difference in comparison to Walmart • Incorporate employee incentive plans to decrease employee turnover and retain valuable human capital • Identify improvements for employee hiring and training standards • Continue finding ways to enhance the customer’s shopping experience: • Offer free food sample. • Install store mannequins displaying the latest fashion trends.
  94. 94. Corporate Strategy Idea Suggestion Expand into South America  Large rising middle- class.  American companies are perceived as having better quality products.  Existing infrastructure Vertical Integration  Engage in vertical integration  Continue offering private-label brands (i.e. Archer Farms) focusing on quality and cost  Explore Pharmaceutical expansion
  95. 95. Corporate Strategy Idea Suggestion CityTarget Outreach  Pursue further market development in urban areas with CityTarget  Create value with its large selection targeted at urbanites  Explore shopping experience enhancement
  96. 96. Corporate Strategy What Went Wrong Better Suggestion Rushed Market Entry  Target bought cheap leases and opened 124 stores in a timespan of 10 months. Target should slowly enter the market with a few stores, first introducing to new customers and developing hype among fans of the US branch, like J. Crew who successfully entered the market with this strategy. Inconvenience  Target stores were located in out-of-the-way locations  Stores were smaller than their US counterparts and often has smaller isles—proving difficult to navigate in Canada’s cold winters when everyone is bundled up! While entering the market little by little, choose locations convenient for customers and help the Target brand become visible in the public eye. Identify aspects of Canadian lifestyle despite similarity to the US. Assumption leads to faulty judgment, as with the size of the isles becoming troublesome in winter. Lacked in comparison to competitors  Walmart has already infiltrated the Canadian Market  Target seemed to provide less at higher prices in comparison Target offered less selection than that in the US, which disappointed those already familiar with the Target brand. If Target is going to charge a higher price, it needs to prove its diversification. REVALUATE INTERNATIONAL STRATEGY  Implementing a transnational strategy may aid Target’s international expansion into Latin or Canadian markets to combine global integration and local responsiveness  Target had lasted less than two years in the Canadian market—its first global outreach—closing 133 stores
  97. 97. Corporate Governance Increase the diversity of the backgrounds of board members… About half of their backgrounds are financial or investment related; look for someone with academic background for example Look into hiring more women (3 women vs. 8 men) & more ethnic individuals (8 white vs. 3 non-white) Modify executive compensation… Reduce stock options, which sometimes cause problems such as option backdating
  98. 98. Strategic Leadership Maintain core competencies… Including: Distribution, Marketing, and Human Resources Keep building and improving human capital… Provide effective training and learning opportunities for team members, and offering incentives Knowledgeable and happy employees help the firm’s strategic success! Improve the balanced scorecard framework… Scrutinize the security process to ensure that data breach doesn't happen again Improve customer satisfaction and ensure customers are fully satisfied with their Target experience
  99. 99. Woof.(shop at Target) The End