Can
you think of an organization that has implemented a ‘high risk strategy’ that
has resulted in success (why was it high risk at the time and why was it a
success- was it good luck or good judgment)?
High risk strategy: The plan, policy and approach
made by an organization to reach and achieve its main objectives as well as
goals, that involves a significant amount of risk in it but expects a higher
amount of return is called high risk strategy.
An
organization that has implemented a ‘high risk strategy’ that resulted in
success, according to my point of view is, Wal-Mart
Stores, Inc.
Sam
Walton, who used to be a former employee in J.C Penney, bought Ben Franklin
Store’s branch owned by Butler Brothers in 1945. Here, Sam’s main high risk strategy was to sell products at
comparatively lower prices even at lower margins of profit to get high volume
sales. This was a very risky decision that was portrayed as a crusade for
the consumers by Sam. It’s not like he did not face any setbacks because it was
very difficult for him to find lower cost suppliers compared to any other
stores. He continued to pass on the savings to keep the product pricing low and
in the 1st year of ownership, his sales increased like 45% that
later increased to $140,000 next year and so it kept increasing. When the lease
expired for the store, he opened the ‘Walton’s Five and Dime’ it went on, but
in July 1962, he opened his first Wal-Mart Discount City Store and since then
there has been ups and downs but it has been a hit decision that went in favors
of Mr. Sam Walton.
Talking
about its achievements now, it is operating retail stores that are uses
different formats worldwide. It has chains of huge discount departmental stores
as well as the warehouse stores. According to Fortune Global 500 list in 2013,
it has been given the title of world’s second largest public corporation with
over 2 million employees. It is the largest retailer in the world.
It
has three segments and they are:
1. Wal-Mart U.S,
2. Wal-Mart International
3. Sam’s Club
Here
is some of the financial information of Wal-Mart for the recent years:
1. The U.S segment had 59% of the
total net sales and operated retail stores in different formats in all 50
states in U.S and Puerto Rico in the fiscal year that ended on 31st January
2013.
2. Its segment of international
market comprises of range of setups for retail stores, Sam’s Club, online
retail transactions, that operates outside the United States in 26 countries
with 29% of its net sales generated by it in 2013.
3.
Sam’s
Club also entails membership of warehouse clubs that operates in 47 states in
the U.s and Puerto Rico and the segment’s online operations. (Amendola, February 22, 2013, Friday)
It
was a high risk at that time because there was no low cost supplier and all the
other stores had common suppliers that got no comparative advantage to Sam. However,
with good thinking and utilization of good judgment, he used his savings to
keep his costs low and this resulted in a base of success for the company.
Do
the same for an organization which embarked on a high risk strategy that
resulted in some sort of failure (why was it high risk and why did it fail- bad
luck or poor judgment?)
In
my view a recent high risk strategy that has resulted as an epic failure would
be iPhone 5C.
Since,
Apple is under a lot of pressure it has launched two iPhones, i.e. 5S and 5C. The
5C is made out of plastic and when bought outright in, it starts with $549 in
the United States. Even the Brit Designer of Apple, Sir Jonathan said that this
product is “unapologetically plastic”. However the costs are as same as the
iPhone 5 when announced in September 2012.
According
to Guy Potter, director and market researcher at Usurv, “the brand is under
pressure to deliver excitement and innovation at every launch and this time the
initial mood indicates that in that sense it has failed.” (WOOLLASTON, 12 September 2013)
A
research done by We Are Social also concluded that 19% of the consumers on
social media are positive about the new iPhones whereas 45% are negative since
the costs are being criticized. People noted that its high price will act as a very high risk factor that might prevent
it from opening up new markets that was the initial hopes of Apple. The costs
are not cheap even for the Indian market or Chinese market as they want more
product satisfaction with affordable and cheaper prices.
The
investors had a belief that Apple poised for a land grab on China and other
emerging markets, however, the huge price tags on the newest model i.e. 5C had
been expected to be much cheaper than announced that might act as the main
hurdle in reaching out to many Chinese and emerging country consumers and next
billion people around the world who want smartphones. They will all shift to
other reasonable smartphones proposed by other companies.(Garside, Wednesday, 11 September, 2013)
The 5C will start at £469 for 16GB and £549
for 32 GB. The
phone costs over 500 dollars that too without a contract and if a contract is
drawn, it would be 100 dollars with 2 years of contract and this is still a
very high price to sell devices in emerging markets so Apple needs to
concentrate on this particular point before launching these types of products. (MacDailyNews, Wednesday, September 11, 2013 )
However, the bottom line is that until Apple matches its price to
compete with Samsung, they will fall in popularity in terms of consumer markets
as people Apple is targeting for the iPhone 5C will always go for cheapest
options.
“Apple
has made a wrong move- if Apple designed iPhone 5C in order to capture emerging
markets, then they’ve made a wrong turn”, said by Markellos Diorinos (upstream).(WOOLLASTON, 12 September 2013)
A
third of the emerging market consumers are mostly willing to pay only $100 but refusing to give an inch on price is
extremely risky as the next big phase of growth in the market of smartphones
is where people do not like to spend a lot of money and here, Apple has made a
huge mistake keeping the prices high and the product’s material looks not so
high end type.
Similarly,
more than $30 billion was wiped off the value of the company and Apple’s shares
fell 6% just the day after it introduced its 2 brand new models. Minimum of 4
banks downgraded their recommendations marking Apple to neutral on stocks. (Garside, Wednesday, 11 September, 2013)
In
my view, this was a poor judgment supported by lack of any market confirmation
where they should have noted down all the prerequisites of the market demand
factors and they should not have misjudged the emerging market. These emerging
markets are very particular about spending and one needs to be aware of every
aspect before launching it to any emerging market.
Thoughts
on the case study about Social Entrepreneurship in strategic choices context:
Mr.
Kumar while riding an auto rickshaw was overcharged by the driver when he was
coming back to his college from a restaurant and then and there an idea popped
up in his mind. He found out a problem in the auto system of the area and
created a solid and meaning solution. Compared to any other organization, MNCs
would again come and go but persuading something different and creating a brand
image for oneself is very difficult. While one works under someone, their
identity is a bit blurred out but when you are working solo with an initiation,
people tend to recognize you better with your own work. This created Kumar an
opportunity satisfy his self needs of respect, community service and a good
recognition all around the world.
He
created a new idea by managing a “G” Auto where he collected funds and provided
services and benefits to the rickshaw drivers however, he not only provided benefits,
but also fought for the innocent drivers who were harassed by the traffic
police for no reason. Using his strategic thinking he has managed to compensate
the minimum wage with maximum volume with the help of a Call Centre facility. This
Nirmal Foundation has created a different dimension of happiness and
satisfaction with average amount of profits for the underpaid drivers.
Using
their strategic thought process for different creative and innovative ideas, Nirmal
Kumar and Kaushlendra Kumar are selling vegetables in a more systematic with minimum
cost as well as time saving process. By this process people are getting fair
priced vegetables and even the farmers are getting fair price to sell their
veggies. In my view, what Kaushalendra is doing is creating a different image
for agriculture in India that has been sculpting a very modernized version of
what traditional farming used to be. He is portraying a very bright future in
the farming industry by creating a lot of job employment as well as giving opportunities
for the poor farmers and other people.
I
personally loved the idea of him taking charge of something considered not so “Macho”
in terms of the country-wise thinking and turning it into something so
beautiful and profitable for both the buyers and the sellers.
Talking
about strategy, it is almost like a wholesaler where, goods are supplied
directly to the consumers with more reasonable prices for buyers and sellers,
benefitting them both with minimum cost and lesser expenses.
REFERENCES
Amendola, E., February 22, 2013, Friday. New York
Times. [Online] Available at: http://topics.nytimes.com/top/news/business/companies/wal_mart_stores_inc/index.html
[Accessed 27 November 2013].
Garside, J.,
Wednesday, 11 September, 2013. Guardian News and Media Limited.
[Online] Available at: http://www.theguardian.com/business/2013/sep/11/iphone-5-launch-share-price-fall
[Accessed 27 November 2013].
MacDailyNews,
Wednesday, September 11, 2013. MacDailyNews. [Online] Available at: http://macdailynews.com/2013/09/11/doug-kass-apple-is-making-a-strategic-mistake-with-iphone-5c-dud/
[Accessed 27 November 2013].
WOOLLASTON,
V., 12 September 2013. Associated Newspapers Ltd. [Online] Available
at: http://www.dailymail.co.uk/sciencetech/article-2417277/Apple-iPhone-5C-isnt-cheap-upmarket-5S-gimmicky-claim-industry-experts.html
[Accessed 27 November 2013].
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