Business Analysis Of Ocado – Operations, Value Creation And Soft System Methodology

Part 1 – Effective Business Operations Management

Business process are arranged within corporations in a manner such that they can give rise to operational efficiency to performance (Brown S. B., 2013). More the orientation of business processes towards customer demand frameworks better the functional and performance efficiency of a business. The scope and performance of retailers are primarily depended on ways and means they adopt to rearrange their business operational processes to gain functional efficiency. The scope of this report concerns the business operations and analysis pertaining to Ocado (Heizer, 2016). Ocado is one of the leading British online supermarket retailer that has only virtual existence. The Company delivers all products from its warehouses, it was established in the year 2000 by its founding members as Jonathan Faiman, Jason Gissing and Time Steiner. The headquarters of the Company is based in Hatfield in Hertfordshire in the UK and it serves various areas in England. the current CEO of the Company is Tim Steiner and Stuart Rose is the Chairman. The Company deals in consumer goods and groceries which includes distribution of other brands along with own branded products. Thus, the report analyses the business scope and value creation of the Company towards its customers along with its various business processes (Talk, 2016). The Company’s business processes and operations are organized in a way that can render it efficiency in all its processes. the business processes and operations are organized in a manner such that they can render efficiency to the business and create value for customers.

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Figure 1: Ocado’s Vision

Source: (www.ocadogroup.com, Retrieved on 11th June 2017)

Ocada’s team is motivated and focused on continuous improvisation as well as development of platform that can provide maximum customer benefits (Barratt, 2011). They integrate all their capabilities such that they can allow a smart platform for best online grocery experience. They single-mindedly focus on developing of markets with leading logistics as well as infrastructural solutions that is driven by enable proprietary innovation and technology usage.

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Figure 2: Ocada’s Focus

Source: (results13.ocadogroup, Retrieved on 11th June 20174)

The platform where customer shops at Ocada offers fully integrated managed services that has scaled business for sales growth for attractive economy and customer proposition (Jeston J. &., 2014). They are providing cost effective drivers in grocery retailing with people, property, energy and waste. As its performance requires less amounts of inputs as compared to brick and mortar supermarket model it is able to offer customer lower prices compared to its competitors. The technological infrastructure provided by the Company have evolved over a period of time through a dynamic retail environment that allow customer benefits as against primary rigors of existing online grocery businesses. Ocada is totally focused on delivering of quality, cost, dependability, flexibility and speed for creation of value for its customers which other online retailers find difficult to compete with.

Soft System Methodology

  

Figure 3: Ocada’s Order Fulfillment

Source: (results16.ocadogroup, Retrieved on 11th June 2017)

Above is a diagrammatic representation of the functionalities of Ocada that are integrated to deliver cost effective solution that offers value creation for the Company (Hill, 2012). Primarily customers gain through shorter and effective ordering cycles and cost effectiveness along with cost effective rates of products.

Current Business Model: Ocado is a well-known Company in the online retail store sector as it delivers in-time products to customers who orders online. Customers also get goods at cost effective rates sitting at the comfort of their homes or office and not having to go to purchase the product at a particular destination (Slack N. C., 2010). Customer make repeated purchases at Ocado for their timely deliveries and effective price rates. The Company has also been able to maintain stable quality over the period in time and has not deteriorated in the same, which is why when shopping groceries or any other consumer goods, they prefer Ocado as compared to any other stores or online retailers (Sousa, 2008). The time length duration involved from purchase till the delivery of the products is highly shortened at Ocado as against any other companies as a product purchased immediately gets triggered at their inventory and packaged to be shipped in their personal vans to reach out to customers located at different places in England.  

New Business Proposition: In case Ocado decides to introduce hybrid facilities that allows their delivery of their goods online to customers along with opening new stores for competing in the marketplace similar to Morison joining of Amazon (Bendoly, 2006). Ocado has gained a firm foothold on its current business space with a clearly defined market space. In case the Company wants to adopt a hybrid business model to compete with other competitors in similar sphere a Soft system Methodology can be included to explaining of the same. A SSM is an approach of process modeling for solving problems of change that an organization faces. The SSM model previously a process engineering is now widely accepted across a wide variety of challenges across organizations to solve their complex problems (Anupindi, 2008). As in case of Ocado a solution to the problem can be got by means of a 7-stage representation of SSM as given below;

Stage 1 Problem Description: Concerns description of the problems situation as in this case it is entering of the hybrid business model. Ocado already has a firm business which is established in its current forms and wants to expand into store businesses as well (Jung, 2007).

Critical Analysis using Models

Stage 2 Expressing Situation: In this current situation the core problem is the situation or marketplace that offers wide variety of competition. As Ocado never had a physical store presence setting up and running of the store might present a lot of difficulty.  

Stage 3 Root Definition of relevant systems of purposeful activity: root definition for the challenge at Ocada can be represented as purchasing stores and setting it up hence diverting of capabilities to arrange the same (Ko, 2009).  

Stage 4 Building of Conceptual Models: Conceptual models for the root definition includes sharing or setting up of integrated supply chain management systems that can handle complex performances of operational structures.

Figure 4: Soft System Methodology

Stage 5 Model comparison with real world: In real world retail chain and grocery networks models are quite complex that offers a variety of challenges. An integrated supply chain system is in reality exposes a number of threats that needs be handled to manage complex operations and meet customer expectations (Johnson, 2008).

Stage 6 Possible Changes: Ocada will need to include a series of changes in order that it can build capacities for tackling deliveries of products to its stores. In also needs to accommodate products in a larger warehouse that can include products for stores as well as for retailers (Holt, 2009).     

The change in Ocada from being an online retailer to being a store can be possible by means of adopting various operations model. Such dynamic operations model can allow for inclusion of factors into businesses that can extend current capabilities and cater to extended capabilities (Brennan, 2011).

  1. Operation strategy performance (priorities) Model:

An operations strategy is meant to be a bridge an organizations resources as against market requirements along with strategic reconciliations. It includes decisions that has capabilities to shape long-term capacities of company operations such that it can be contributed to overall strategy of the firm (Brown S. B., 2013). Such a strategy arises from corporate business level strategy matching it against operational experience over time. an operations strategy for Ocada can be developed by use of analysis of strength, weaknesses of competitors with scope of new entrants. Ocada in case launching with physical store will experience wide range of competition from Sainsbury’s, Tesco, Waitrose and various other retail companies that already have a market presence and customer loyalty. While the Company already has experience in handling retail products it does not capabilities in store operations hence lags resources. Thus, it needs to broaden its market reach and accommodate human resources as well as other resources for generating competence. It needs to open store in a best possible suited location as well to attract customers. Changes in environment that can be analyzed as present with technological, economic and legal issues, analysis of product life cycles and by best utilization of resources that are already available to Ocada (Jeston J. &., 2008). All these are considered against tangible and intangible resources that are available in the market, operational capabilities and operations processes. Such understanding of Ocada’s resources will allow development of an Operations strategic Decision.

  1. Customer value Model:

A model of this nature is primarily data driven that depicts a Company’s performance towards its customers. It is entirely dependent on B2B markets where products or services are determined by way of customer perceived values (Simchi-Levi, 2007). In case of Ocada the prices of products are competitive and fixed in accordance benefits that customers derived from the same in monetary terms.

Figure 5: Customer Value Model

A service gap is based on determining gap or difference between customer perception as against expectations. Service gaps can be of several types as first gap in ase organization does not knows what customer expects, this can arise for Ocada as it will be catering to store level customers for the first time. The second type of gap exists in case organization cannot provide right type of standards or designs, it is clear from case analysis of Ocada that it is not the case (Slack N. e., 2008). In the third kind of gap the organization might not be able to deliver according to service standards as provided, this will also not be challenge for Ocada as it maintains significant quality check in all its operational processes. In the fourth level gap there might be difference in promised and performance levels in standards, this might arise in first time entrance for Ocada.

Figure 6: Gap Model of Service

  1. Four v’s profile:

The four V’s model of operations management is focused on ways in which an organization provides its services. The integral four V’s of operations management are volume, variety, variation and visibility dimension. Ocada conducts its business in large volumes in online retail domain which reflects that it is greatly organized however, in case of establishing its physical store its volume dimension might be challenged. Variety is not present in Ocada as compared to other physical stores that has prolonged existence. Variation dimension refers to the difference in experience caused due to creating a genuinely separate experience for clients, which is not so important for Ocada as it can adopt the physical store model that companies generally have. Visibility dimension depicts customer experience to track orders through operations processes which is not an important value in physical store.

Figure 7: Four “V”s Model

All operational models are in one way or either focused on generating a positive experience for its customers. All processes aim at increasing effectiveness and efficiency in current systems of operations. Operations strategy model helps to ascertain operational plan by means of available resources hence Ocada cannot plan for physical store expansion. Only post acquisition of a space can the Company plan according to operations strategy model, however this model will allow competitiveness and establishing of proper strategies for operating. Customer value model will help Ocada determine effective costs for each product at its physical store. Service model will allow to integrate any existing levels of gaps in its services. While four V’s model will allow to integrate a volume vis-à-vis a variation approach to the business (Simha, 2009). 

Ocada in order to be competitive in the markets in England needs to consider a few recommendations such that customers are able to select and purchase products easily. It can initially function in a centralized inventory model that delivers products for online customers as well as to the physical store. Initially it can adopt its already established supply chain for deliveries to customers with proper planning such as not to strain them. Customer value chain can be enhanced by providing similar cost effective products and then later adding to product basket. This will impend reduced cost implications on the organization by selecting similar model and also create sustainability for the same.

Customer’s digital experience in Ocada has risen significantly in the past leading to customer satisfaction. In response to the Conundrum the Company can devise innovative tactics that can reduce number of repeated deliveries thus making less impact on the environment hence reducing fuel costs. The newly integrated store model will further enhance the experience as customers will have readily available products at various stores leading to customer loyalty (Ravi, 2008). The Company can devise more innovative ways to be able to serve their customers in a better way by means of loyalty points and other additional features. Services that add unique benefits to Ocada are cost effectiveness, enhanced quality, flexibility, speed of deliveries, dependability and so on. Customer experiences can be contrasted by way of physical store as against online stores. Though online stores saves time but physical store allows customer physical verification of products. This is driving the current business model which makes Ocada to establish a physical store as against its successful online store. The costing of an online store can be contrasted against a physical store as they have relatively lower costs. In case of a physical store costs of renting, inventory and selling of products are quite high. Whereas in case on online store models they are highly efficient in cost structures. In online store Company has to undertake online marketing and digital securitization to enable performance and drive sales (M., 2007). In case of physical store there are costs related to advertisements as banners and pamphlets and so on.    

Figure 8: Rich Picture for Process Change

Root Definition: The root definition from the chosen solution includes a change or shift to include in processes that can allow such sifts. Increase in warehouse space and purchase of subsequent stores and studying competing space and sphere in the market to devise suitable solution can allow such action plans.

CATWOE Elements

Definition

Customer

Walk-ins, online orders and other customers

Actors

Salesman, operators, delivery men, drivers of trucks

Transformation process

Physical store presence, presence of software and ERP system

Weltanschauung

Worldview is to compete with other physical stores

Owners

Internal Stakeholders

Environmental Constraints

Reduce CO2 by integrating supply chain

Figure 9: CATWOE Table

It includes online store presence and its conducts to cater deliveries to customers who places order through Apps from mobiles and tablets. Process plan include requisition from retailers for customer demanded orders. 

A process plan that will include the desired levels of achievement of changed system such that the company can cater to further value proposition to its existing customers.

Managers will be able to turn performance objectives into operational priorities such that customer satisfaction can be enhanced. Resources and operations priorities that are necessary for effective implementation of new process includes financial resources, physical store, human resource needed for maintenance of store and extending of facilities (Krajewski, 2013). The new process implementation will further require a change management leader who will hand hold the process of change. Kotter’s change model can be used and implemented for handling the process of change where initially the gap between the desired and existing process is visualized. Then step by step implementation into the said procedure is conducted. Performance model for change will also encompass various metrics that will be set according to competitors in the market and aims will be to achieve the same.  

A Balanced Scorecard helps reveal business performance as measured through implementation (Slack N. C., 2010). A balanced scorecard reflects existing measures as against targeted performance measures. Though a specific targeted measure is established such aims are to be achieved over a period of five years in time. Though there are three relevant measures that have been selected for the purpose of measuring it is estimated that the newly incorporated change processes will have an impact on other parameters as well. There will be significant rise in number of employees, EPS that are paid to its shareholders, reducing debt ratios. The increase in profitability can be enhanced for greater expansion in the area to achieve the said measure.

Sl. No.

Balanced Scorecards Heads

Current Performances

Desired Performances (Targeted)

1

Operating Income

GBP 21.6 million

GBP 40.0 million

2

Revenues

GBP 1271.0 million

GBP 2500 million

3

Net Income

GBP 12.0 million

GBP 25 million

Table 1: Balanced ScoreCard

Operating Income: The operating income post accommodation of performance objectives are said to double over a period of time. The operating income will be tracked over a period to 5 years as it is expected to double with current goals.

Revenues: The aim of the Company will be to double revenue over a period of 5 years. With accomplishment of new stores and extension of financial resources the revenues are said to double in a 5 year time with competitive strategies in place for the same.

Net Income: Overall net income is also expected to increase with inclusion of retail physical store. The net income will be targeted at doubling the said amount for achieving results.

Conclusion

Analysis of operations model and frameworks to allow for transition from an existing system into a new framework requires capabilities. Ocada being a highly successful company in the field of online retailing can expand into physical stores however there will be a large number of operational challenges that needs to be overcome. The business process plans can allow to overcome the existing situations easily by accommodating to be processes. The Company will be able to handle transition easily in case it follows the CATWOE and process plans for the same.

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