Davis Service Group: Strategy Action

Executive summary

The report entails an analysis of the Australian textile maintenance services industry. The objective of the analysis is to determine the strategies to be incorporated in the process of venturing the new market. The competitive challenges facing Davis Service Group are analyzed. The report also identifies the firm’s strategic management framework which consists of the firm’s vision, mission and corporate objectives.

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A comprehensive situational analysis is conducted by considering the firms macroeconomic environment. Industry and market analysis are also conducted. To determine the firm’s strength, an internal analysis is conducted by identifying the firm’s core strengths and competences. Various techniques such as Porters five forces, competitive profile matrix, key success factors and gap analysis are considered. The firms marketing objectives and strategies are also considered. In developing the marketing strategies, various marketing mix variables are considered. These include product, price, place, promotion, people and physical evidence. The budget and control mechanism are also illustrated.

Introduction

Background to the study

Davis Service Group is a public limited company which operates within the miscellaneous industry in United Kingdom. The group’s major activities involve provision of textile maintenance services in UK and other European countries. Some of the service in which the firm deals with includes work wear rental, washroom and laundry services, dust control mart and linen hire. The firm has a human resource base of 17,000 employees with an average annual turnover of approximately £ 820 million.

By 2001, the operations of the firm were divided into three divisions which include textile maintenance, tool hire and building services within UK. During this period, the firm witnessed rampant growth due to increased rate of economic growth. This resulted into an increase in the number of firm’s venturing the industry. However, the UK market became mature due to increased competition in the market. This limited the firm’s expansion opportunities. In the 21st century, the business external environment is becoming very challenging due to increased globalization resulting into increased competition. This has affected the operations of Davis Services Group.

In addition, there are threats which are facing the firm. For example, the occurrence of the global economic recession which began in 2007 affected the operations of the firm especially in the UK mature sector. This is due to the fact that there was a reduction in demand by the customers in an effort to cut down their spending. As a result, there has been increased concern by management of the firm to formulate strategies aimed at attaining a high competitive advantage in the market relative to other firms in the industry.

One of the ways in which management of the firm has considered in undertaking this is through incorporation of the concept of strategic management so as to position themselves more effectively. According to Porter (1980, p.34), attaining a high competitive advantage acts as a defense mechanism for a firm in dealing with the competitive nature of the industry. The management of Davis Service group is considering organic growth strategy by venturing into the Australian market. These economies present a high opportunity of growth for the firm.

Aim

The aim of the report is to conduct an analysis on the Australian textile maintenance services market to determine the strategies to consider in when venturing the market.

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Scope

The report analyzes the firm’s strategic framework by considering the vision, mission and objectives of the firm. A situational analysis is conducted by considering the macroeconomic environment. Industry and market analysis are also conducted in evaluating the external environment. Various techniques such as the key success factors, Porter’s five forces are integrated. In conducting market analysis, the competitive profile matrix and gap analysis are used.

The firm’s internal analysis is also conducted. Marketing objectives and strategies are also analyzed using the Ansoff matrix. In analyzing the market, various marketing mix variables are considered in relation to marketing of services. Various cost items are also considered in the form of a budget. To ensure success in entering the market, various control mechanisms and evaluation strategies are illustrated.

Vision, mission and corporate objectives

In the operation of a firm, it is paramount for the management to formulate a comprehensive strategic management framework. The framework entails the firm’s vision statement, mission and corporate objectives. According to McNamara (2009, Para. 1), the framework acts as an indicator of the firm’s direction to various stakeholders for a given duration of time. Formulation and implementation of strategic management framework enables the firm to survive in the long term considering the competitive nature of the business environment. The vision statement illustrates what a given organization intends to become. The mission statement describes precisely why an organization came into existence.

Vision statement

Davis Services Group is committed towards becoming the best provider of textile maintenance services both in the domestic and foreign market. The management intends to attain this through incorporation of organic expansion strategy.

Mission statement

In its operation, the management team of Davis Services Group is committed towards ensuring that the firm provides diverse textile maintenance services. In addition, the firm is management is committed at ensuring that the services offered to the market are of high quality.

Corporate objectives

Corporate objectives describe the direction which an organization intends to take in an effort to attain the formulated mission. Corporate objectives states the goals that the firm intends to attain. The formulated goals enable the firm to effectively operate in a competitive environment.

Corporate objectives

In its operation, the management of Davis Services Group has incorporated the concept of product innovation through intensive investment in research and development. Through research and development, the firm will be able to attain a high level of operational efficiency. In addition, this will enable the firm to improve on the level of its customer satisfaction. Research and development will enable the firm to effectively add value to its products and services thus attaining a high competitive edge. The firm intends to improve on the level of its customer satisfaction through expanding its product line. This will enable the firm to provide a variety of services. The management team also intends to improve on its operational efficiency by attaining high economies of scale. This will enable the firm to become the market leader.

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Attaining financial stability

The management of the firm has the aim of improving the firm’s financial stability. According to The Davis Services Group report (Anon., 2006), the management intends that the firm will experience an annual growth in its profit margin. The growth rate should be higher than that in the market. This will enable the firm to be able to venture into foreign market through internationalization. This is due to the fact that a considerable amount of financial capital is involved in the process of internationalization. Through financial stability, the firm will be able to implement its growth strategies more effectively.

Ethical operation

The management of the firm is committed at ensuring that the firm operates in an ethical manner. The objective of incorporating the concept of social responsibility is to ensure that the firm does not impact the environment negatively. Ethical operation will be attained by considering various stakeholders such as the government, customers, employees, suppliers and the shareholders. As a result the firm will be able to attain a positive public image (The Davis Services Group, 2006, p. 1).

Situational analysis

In developing the growth strategy through venturing into Australian market, the management of Davis Service Group should conduct a comprehensive situational analysis. This analysis will enable the management to be conversant with the external environment in which the firm operates. The result is that the firm’s management team will be able to formulate effective strategies to ensure that the firm attains its long term operational goals.

Macroeconomic analysis

According to The times 100 (2009, p.30), the textile maintenance services industry was affected by the global recession which resulted into a contraction of the industry’s profit potential during 2009. Despite this, the industry was able to survive the economic depression. This results from the fact that the industry provides vital services to other businesses. For instance, there has been increased reliance of textile maintenance services by firms in the healthcare industry through incorporation of the concept of outsourcing. In addition, firms in hospitality industry are increasingly relying on the industry (George, 2009, p. 31).It is forecasted that this trend will be reversed during 2010 upon the global economy recovering. This presents a bright future for the industry.

Over the past decade, there has been increased technological invention and innovation within the technological environment. This has positively impacted the textile maintenance industry. The technological growth has resulted into increased efficiency of operation amongst firms in the industry. In addition, management teams of firms in the industry are considering integrating the new technological innovation in an effort to improve on the firms return on investment. This is due to the fact that these firms will be able to cut on the cost of labor since through automation of most of their services.For example, increased incorporation of RFID systems is resulting into a reduction in the firm’s production labor (George, 2009, p. 34).

Various governments are committed at ensuring that regulations related to health and safety is maintained by various organizations in their operation. The society is increasingly becoming more conscious to health and safety requirements. This presents a bright future for firms in the textile maintenance services. In addition, there has been an increase in demand for a variety of textile maintenance services by both individual and industrial customers. These customers are incorporating the concept of outsourcing in ensuring health and safety.

The intensity of competition in textile maintenance services industry is increased by the fact that the market is monopolistic competitive in nature. This results from the fact that there are a large number of players in the industry which deal with a wide range of differentiated services. In addition, there are limited barriers to entry or exit.

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Industry analysis

Conducting an analysis of the industry is important in the process of venturing into the international market. This is due to the fact that the management will determine the strategies that the firm will use and hence the success of the firm. In order for Davis Services Group to succeed in the Australian market, industry analysis should be conducted by incorporating a number of techniques.

Key Success Factors (KSF)

Technology is an important consideration for the success of firms in laundry and textile maintenance services industry. This is due to the fact that it results into an increase in the firm’s operational efficiency. Firms in the Australian textile maintenance industry have integrated the current technology in their operation (Jason, 2008, Para. 5). To achieve a higher efficiency of operation in the Australian market, the management of Davis Services Group should conduct an environment analysis to identify the best technology to integrate in expanding its services to the new market.

In addition, effective distribution is another factor that determines the success of firms in the industry. Distribution ensures that firms in the industry are able to contact with their customers more effectively. It also ensures that the firm can deliver the services more efficiently. Australia has got well established supply chains. Effective and effective human capital is also paramount for the success of firms in the industry. The industry demands both skilled and unskilled labor. Australia has an effective labor market. This means that the distribution chain have effective human resource to ensure superior customer service (Jason, 2008, Para. 6).

Porter’s five Competitive forces

Buyer power in Australian textile maintenance market is relatively high. This arises from the fact that the buyers are increasingly demanding efficient and effective services. In addition, the buyers are conscious of quality of services. As a result, the consumers are able to bid the price of textile maintenance services down. In addition, the buyers have relatively low switching cost. This arises from the fact that the market has a large number of differentiated services. On the other hand, the bargaining power of suppliers is low. This is due to the fact that the industry is concentrated with a large number of players operating in the industry. To gain a high market share, suppliers in this industry are forced to develop price competitiveness through lowering of prices (Jason, 2008, Para. 6).

Australian textile maintenance industry is characterized by increased threat of entry due to the high profit potential. High profit potential of the industry results from a high rate of economic growth in Australia over the past decades. This has culminated into an increase in industrial and individual consumer purchasing power. The industry is characterized by minimum barriers to entry. There has been an increase in the number of foreign firms in textile maintenance industry considering Australia as a feasible investment destination. Amongst the strategies that these firms have incorporated include acquisition of other firms. As a result, the degree of competition has increased culminating into increased rivalry within the industry.

Despite increase in the rate of competition, the industry is expected to witness a growth. The table below illustrates the industry outlook from 2008 to 2013.

Year Revenue in $A (million) % growth
2008 3391 3.1
2009 3493 3.0
2010 3563 2.0
2011 3680 3.3
2012 3805 3.4
2013 3942 3.6

Market analysis

Australian market presents a feasible investment destination. This is due to the fact that the cleaning industry is supported by the strong textile production industry in Australia. For instance, Australia has a large scale production of wool which supports the laundry industry.

Competitive Profile Matrix

Australian market is very competitive. The table below illustrates a comparison of Davis Services group with the major players within the Australian textile maintenance industry.

Davis Services Group Rentolkil Pan Pacific Corporation
Key success factor Weight Rating Score Rating Score Rating Score
Advertising 0.1 3 0.3 3 0.3 4 0.4
Product quality 0.3 4 1.2 2 0.6 3 1.2
Customer loyalty 0.2 3 0.6 2 0.4 2 0.4
Global expansion 0.1 2 0.2 2 0.2 1 0.1
Financial position 0.2 3 0.6 2 0.4 4 0.8
Market share 0.1 3 0.3 2 0.2 2 0.2
Total 1.00 3.2 2.1 3.1

Rating: 1=major weakness; 4= Major strength

From the competitive profile matrix above, it is evident that there is a high probability of Davis Services Group succeeding in the Australian market. This is due to the fact that the firm has a high competitive edge compared to Rentokil l and Pan Pacific Corporation.

Gap analysis

The Australian textile and laundry services market is not saturated compared to the UK market. According to Jason (2008, Para. 4), Australian textile maintenance services industry represents only 3% of the total global market. This shows that usage of textile maintenance services is low. However, the trend is changing with an increase in the number of individual and industrial customers such as restaurants, hospitals and educational institutions incorporating outsourcing of these services. This shows that there is a high market potential within the industry (George, 2009, p. 35).

In addition, the market potential in Australia is high due to the fact that the market is in its growth stage. Over the past few decades, there has been an increase in population within Australia. According to George, 2009, p. 38), laundries perform well in countries which are densely populated. The firms which are already operating in the market have not been able to penetrate effectively to the entire market. This shows that there is a high probability of the firm succeeding in the market.

Internal analysis

Davis Services Group has been in operation in various European countries for a number of years. In its operation, the management of the firm has integrated the concept of cost leadership through geographical expansion strategy. This has enabled the firm to attain economies of scale in its operation. This makes it possible for the firm to price its products and services more competitively. In addition, the firm has incorporated superior technology in an effort to attain operational efficiency.

Considering its global scale of operation, the firm has been able to develop a high level of financial stability. For instance, during the financial year which ended in August 2009, the firm’s revenue increased with a margin of 3% from 467.1 million pounds to 481.5 million pounds. In addition, the firm’s cash flow doubled from 12.1 million pounds to 25.8 million pounds (Rogers, Kevin & Andrew, 2009, p.1).

Summary of current situation

From the market and industry analysis it is evident that there is a high probability of the firm succeeding in the new market. One of the factors contributing this is that Australian textile maintenance services market is in its growth stage. In addition, individual and industrial customers are integrating the concept of outsourcing cleaning services. The SWOT analysis below illustrates the strengths, weaknesses, opportunities and threats of the new market.

Strengths Weaknesses Opportunities Threats
Australian textile industry is well established. The firm is not well conversant with Australian supply chain. Well developed hospitality and healthcare industries which are major industrial consumers of textile maintenance services. Increased competition from domestic and foreign firms.
Increased incorporation of outsourcing of cleaning services Well established infrastructure Technological environment is very dynamic which presents a threat to firms in the industry.
The firm has a strong financial base Low barrier to entry into the market.
Well trained personnel which enables the firm to offer high quality services The Australian market is not saturated. This presents a high potential of growth for firms in the industry
High probability of success due to political stability.

Marketing objectives

In venturing the Australian market, the management of Davis Services Group should ensure that it formulates marketing objectives to guide the operations of the firm in the new market.

  • Davis Services Group intends to increase its sales revenue with a margin of 25% within the first year of entry into Australia market.
  • The firm also intends to gain a market share of 20% in Australian market within a period of one year.
  • To increase the firm’s products and services awareness within the market within a margin of 30% within a duration of one year.

Marketing strategies

It is important for the management of Davis Group Services to organize its resources optimally in an effort of attaining growth through expansion. This can be achieved through effective formulation of marketing strategies. Ansoff Matrix can be considered in the process of formulating the growth strategies (Ansoff market matrix, 2009, Para. 2).

Existing markets

New markets

Existing products New products
Market penetration Product development
Market development Diversification

In penetrating the Australian market, the management should formulate competitive strategies aimed at attaining a high competitive advantage in the market. This will enable the firm to drive out competitors.

Considering the fact that the market is already in existence, the management should restructure the market by incorporating price competitive strategy. The firm should also increase usage of its products and services by the consumers through integration of loyalty schemes. In an effort to develop the market, the management should ensure that its operations are geographically distributed in the entire Australian market. The firm should also incorporate product development by introducing new products and services in the already existing market. In addition, the management should also consider diversification strategy by introducing new products and services into new market segments.

Implementation

In marketing its products and services, the management should consider key marketing variables. These include price, product, promotion, people and place.

Price

Considering the fact that consumers are price sensitive, the management should conduct a comprehensive consumer market research. This will enable them determine the degree of price sensitivity. In the new market, the management should integrate penetration pricing strategy. This means that the firm should set the price of its products and services at a lower price compared to other firms in the industry.

Product

From a continuous market research, the management should be able to identify the consumer’s product and services demand. This means that the firm will be able to supply products and services that appeal the market. In addition, the management should ensure that it integrates product innovation resulting into high quality products and services. The result is that there will be an increase in consumer level of satisfaction.

Place

The management of the firm should establish outlets in various geographical locations in Australia. Through these outlets, the firm will be able to access the customer more efficiently.

Promotion

In an effort to create market awareness, the firms marketing department should incorporate diverse product and services awareness mechanism.

Some of the mechanisms that the management should incorporate include sales promotion, personal selling and advertising. Various mediums such as print media, social networking tools, and radio, television and print mediums should be incorporated.

People

To ensure that the firm has a high competitive advantage in terms of human capital, the firm’s management should conduct a comprehensive recruitment process. The recruitment should consider both internal and external sources of human resource. In addition, the management of the firm should ensure that its personnel are well trained. This will ensure effective service delivery to the customers. On job training should be incorporated to ensure that the firm’s personnel acquire the necessary skills.

Physical presence

In delivering the services to industrial and individual customers, the management of the firm should ensure that the customer see their services. This is through ensuring that there is thorough cleanliness to the firm’s customers. This will ensure that the customers develop a positive image towards the organization.

Budgetary requirement

The management of the firm should allocate cost to ensure effective penetration into the new market. The table below illustrates some cost items that the firm will incur.

Cost item Cost in $ (million)
Cost of competitor market research 4,000,000
Cost of consumer market research 3,000,000
Advertising
Television
Print media
Social networking tools
Radio
5,000,000
7,000,000
4,000,000
2,000,000
6,000,000
Cost of training the staff in the new market. 1,000,000
Total estimated cost 35,000,000

Control, Milestones and collective actions

The management of the firm should ensure that it entry process is effectively controlled. This will ensure that there the possible deviations are eliminated thus enabling the firm to effectively attain its marketing objectives. To attain this, the management should set comprehensive milestones entailing various variables. Some of the variables that the management should consider include setting deadlines and allocating responsibilities. The management should also continuously evaluate the performance of the firm in the new market through consideration of the firm’s market share and profit margin.

The Gantt chart below illustrates the estimated time duration for various activities.

The Gantt chart

Reference list

George, F. 2009. 2009 strategic analysis of the textile services industry. Web.

Jason, B. 2008. Cleaning up Australia. (On-line). Smart Company. Web.

McNamara, C. 2009. Developing your strategic plan. Web.

Porter, M. 1980. Industry structure and competitive strategy: keys to profitability. (On-line). Financial analyst journal. New York: The Free Press. Web.

Rogers, D, Kevin, Q & Andrew, L. 2009. The Davis Services Group plc: interim results announcement for the six months ended 2009. Web.

The Davis Service Group. 2006. Report and accounts. London: Oxford Publishers.

The 100 Times. 2009. Davis managing firms throughout the business cycle. Web.

Tutor2u. 2009. Ansoff product/ market matrix. Web.

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