Strategic approach to corporate sustainability Essay
Strategic approach to corporate sustainability
Woolworths Limited is one of Australia’s largest retailers with a presence in food, liquor, hotels, gaming, general merchandise, hardware, consumer finance and electronics. The company has a 90 year history of growth and innovation and has had a record of social responsibility along the way demonstrated with its support of community and charity organisations. Further to this the company has adopted rigorous environmental standards and recognised its position as one of the largest companies in the Australian market.
It has incorporated a system of environmental checks and balances, and used its powerful market position to ensure suppliers are also adhering to similar rigid environmental checks and balances. All the while the company has made sound and successful financial decisions which have seen it grow from humble beginnings to its place as a top 20 Australian company by capitalisation and top retailer in the Australian and New Zealand market place.
Despite its proactive response to the environmental and social impacts of its business, Woolworths has come under considerable pressure from media and other stakeholder groups over its pressure on growers and suppliers.
The company has also been criticised about its “predatory” industry practices which has seen many smaller local businesses out of business due to the very competitive nature of Woolworths and its rapid expansion. Woolworths has a sound CS policy and strategy in place, however it may benefit from a more focussed brand and reputation management strategy which may address some of these criticisms before decisions are made on the execution of such strategies.
Table of Contents
Woolworths’ Limited – Strategic and Operational Approaches to Corporate Sustainability1 Executive Summary1
Table of Contents2
Woolworths Strategic and Operational Approaches5
Woolworths is one of Australia’s largest retailing groups and one of the largest companies listed on the Australian stock exchange, making up around 4% of the total capitalisation of the ASX (StateStreet Global Investors). Woolworths has a total market capitalisation of approximately $43 billion and is diversified into retail sectors such as groceries and fresh food, electronics and consumer electronics, liquor and gaming, fuel, hardware, general merchandise and financial services.
Woolworths began operations in Sydney in the 1920’s, and through innovative and competitive marketing, pricing and product it grew rapidly to have stores in every state. Woolworths diversified further by opening department stores and acquiring businesses in strategic markets. The company also diversified into hospitality and liquor retailing and furthered its portfolio by acquiring businesses in electronics and hardware, and strategic partnering with financial services and rewards programs in more recent times.
As such, Woolworths claims to serve over 28 million customers each and every week, have more than 3,000 stores and employ over 195,000 people (www.woolworthslimited.com.au).
Given the size and scope of Woolworths on the Australian economy, the organisation attracts a great deal of attention for its corporate, social, environmental and economic activities on a daily basis. As such, Woolworths has a strong charter around its corporate governance, releases statements on its Corporate Social Responsibility and has a strong Corporate Sustainability plan in place, including reputation management. This report will look into these areas and where Woolworths is succeeding, and may still find room for improvement. Corporate Sustainability, Corporate Social
Responsibility and the Triple Bottom Line
Corporate Sustainability (CS) is an approach to business operations, strategy and management that is driven towards the creation of long-term value through economic, environmental and social considerations to decision making (Benn & Bolton, 2011). CS is the delivery of long term success of the business along with consideration of the natural environment in which humans co-habitat and that of the society in which humans interact. There are overlaps between CS and other similar theories such as Corporate Social Responsibility (CSR) and the Triple Bottom Line (TBL). The main difference is that CS involves the strategy and risk management approach of the organisation (Weber, 2008).
Shareholders can no longer be considered the only stakeholder a company needs to consider in their decision making processes, nor the only stakeholder that will hold the company to account (Brooks & Dunn, 2012 p.240). CSR requires, at a minimum, compliance with the law, good corporate citizenship and compliance codes and requirements, but is actually focused on company’s performing at an “elevated level of quality in all they do” (Sarre, 2002, pg 3).
There is also growing expectation of transparency beyond the traditional financial disclosures required of governing authorities. Carroll (in Crane, Matten & Spence,2007) argues that there are four key elements to Corporate Social Responsibility from the business perspective, namely economic, legal, ethical and philanthropic (p.62).
Further to CSR is the concept of the “Triple Bottom Line” (TBL). This theory is concerned with how business operates in managing its economic sustainability, much like CS, however moves further into considerations of both environmental responsibilities and social responsibilities of the operations of the company (Elkington, 1999). Recent studies have linked the influence of TBL on business performance where it has been shown that addressing and working towards improved environmental outcomes can positively affect all three aspects of the TBL and improving social responsibility standards can improve environmental aspects greatly also (Gimenez, Sierra & Rodon, 2012). In economic terms, CS is the long term-term survival and success of the company (Dunphy,D, 2002).
Woolworths produced its first CSR Report in 2005 which focussed on its policies, commitments and CS related performance (Maseeha, Indu, & Purkastha, 2008). The corporate policy is made quite clear in the CEO’s statement where he (Grant O’Brien) outlines the fact the business desires to increase its market share and levels of growth. In taking CS into account he also addresses other related issues which are the enablers of CS, these being innovation, social responsibility and in the CS statement he talks about “earning trust”, “serving our community”, “using resources wisely” and “building the best retail team” (www.woolworthslimited.com.au).
The four main types of CS Strategies as defined by Baumgartner and Ebner (2010, p. 78),are Extroverted, Introverted, Visionary and Conservative. Woolworths has elements of each in its strategy, which will be discussed in this paper, while looking at how these help the company meet its four goals of: extend leadership in food and liquor;
maximise shareholder value in our portfolio;
maintain our record of building new growth businesses; and
put in place the enablers for a new era of growth.
The blending of CS with CSR and TBL can be seen as the evolution of sustainable management principles and practices, and ultimately the goal is not of just economic growth, but that of a sustainable business which engages stakeholders and meets their needs through effective communication, action and results over time (Ricart, JE, Rodríguez, MÁ & Sánchez, P, 2005). Strategy, Business Models and Risk Management
The Business Model and the Strategy of the business are terms that are often used interchangeably, however there is a distinct difference between the two. Osterwalder, Pigneur and Tucci (2005) describe the differences and relationship between the two concepts as related by the model being the blueprint for how the firm does business, the strategy the way it operates and brings the model to life. Business models can be further defined as the representation the core logic and strategic choices made to capture value along a value chain, but the model is not strategy (Shafer, SM, Smith, HJ & Linder, JC, 2005). Strategy is further defined as the execution of the model and bringing the plans to life (Linder, JC & Cantrell, S, 2001).
The business model concept provides the basis for the management of the firm to analyse, implement and communicate strategic choices (Shafer, SM, Smith, HJ & Linder, JC, 2005). A business model is an important tool in defining the actions of the firm, the mission and goals of its very core existence and how it delivers value for stakeholders through delivery of the TBL. The model defines the value proposition of the firm, the stakeholders involved and how they are engaged, the resources utilised and how they are used, the value chain and suppliers, human capital and how all these various aspects relate, along with external influences upon them, to deliver a sustainable business.
Strategy is the implementation of the business model, it is how the plans and ideas are brought to life. The business strategy is often referred to as the way the model is brought to life and delivers value. It must be stated, however, that strategy is not the actual execution of the plans (Martin, R, 2010). Execution and strategy are different in that strategy is the intellectual concept and execution is the physical delivery of the plans to achieve goals (Martin, R, 2010). Where strategy is often seen to fail is that senior management may deliver the ideas without consultation and integration of front-line staff who are closer to stakeholders, customers, suppliers etc. (Martin, R, 2010).
Risk Management overlays the concepts of both business model and strategy in that it is how the business anticipates, adapts and reacts to change. Risk is defined as an essential feature of decision making and accountability (Benn & Bolton, 2011). McShane, Nair and Rustambekov (2011) state the reasons risk management is important include “value-increasing benefits of reduction in expected costs related to the following: tax payments, financial distress, underinvestment, asymmetric information, and diversifiable stakeholders” (pp 643). As such, the authors state that risk management is important in increasing the value of the firm.
Newer theories on risk management have evolved into Enterprise Risk Management (ERM), and may be said to include eight elements essential for achieving strategic, operational, reporting and compliance goals (Arena, M, Arnaboldi, M, & Azzone, G, 2010). These eight elements are 1. Internal environment and how risks are seen by the firm; 2. Objective setting; 3. Event identification; 4. Risk assessment; 5. Risk response; 6. Control activities; 7. Information and communication; 8. Monitoring and ongoing management.
More recently risk management has also begun to look at the importance of reputation management as a part of the risk management framework (Dowling, G, 2006). In the past risk management frameworks have only identified reputation management at the point of crisis and have often made it the responsibility of PR to address any events. Dowling (2006) states that an effective risk management framework should also incorporate the ongoing recognition of the importance of reputation management and this should be addressed by the board and included in the formal agenda of the board.
Woolworths has identified its strategy in its annual reports and also has a defined risk management strategy. Woolworths also has a rigid business model across the wider group as well as individual business units. The remainder of this report will identify key areas where Woolworths sets out a strategy to obtain its CSR obligations to its stakeholders as well as obtain its financial goals. The discussion will also discuss how Woolworths may further its CSR and CS strategies towards reaching all goals and managing key risks along the way.
Woolworths Strategic and Operational Approaches
Woolworths sets out a four point strategy in its 2012 Annual Report, these being: 1. Extend our lead in food and liquor
2. Act on our promise to maximise shareholder value
3. Maintain our record of building new growth
4. Put in place enablers of a new era of growth
The following analysis of Woolworths will discuss key areas of the business along with the strength and opportunity, along with a discussion on how the CS of Woolworths may be further enhanced for each area.
Woolworths has set out an ambitious plan to not only be the biggest retailer of food and liquor in the Australian market, but also to continue to increase its market share. This is done by an expansion in the number of outlets it has, and in 2012 alone, 126 new outlets were opened throughout Australia across the various brands the organisation operates (www.woolworthslimited.com.au).
This growth is one of the quickest expansions Woolworths has reported, and is partly driven by the firm’s recent strategic move into hardware retailing. Woolworths plans to rapidly increase its presence in the hardware market with 150 new stores in the pipeline over the next five years. Supply Chain Control and Environmental Responsibility
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SMH, Heinz Cans Coles, Woolies, as viewed on 15 May 2013 at
StateStreet Global Investors viewed 18 April 2013: http://www.spdrs.com.au/etf/fund/fund_holdings_SFY.html
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