Adidas Seven step scenario planning method, Evaluation of future strategic options for Adidas, Adidas TOWS matrix, Adidas Value Chain Analysis and VRIO framework of Adidas, Adidas PESTEL Analysis, External Analysis of Adidas using Porters’ five force Model

Adidas Case Study solution using  seven step scenario planning method
Case Study requirement

Based on the analysis on the Annual report of Adidas, 2019, You are now to assume the role of internal/external consultant to Adidas’s senior management team and present your analysis for its consideration. Your report should focus on the set of strategic options in critically evaluating the sources of competitive advantage available to Adidas based upon identifying and evaluating their resources and capabilities. In your report you will be expected to provide information through a seven step scenario planning method

1.      Develop an understanding of the type of company Adidas is and the type of industry it operates in (Company background/profile))
2.      Critically evaluate the trends shaping the sports industry and Adidas’s strategy.  Your evaluation should begin at this stage by undertaking an environmental analysis of Adidas. The external environments involve with several factors, which can dramatically influence business strategy.   (External +Internal Analysis )
3.      The industry analysis concentrates on economic, political and market factors, which can impact the development of industry (TOWS matrix ).
4.      Generate a set of future strategic options which leverage organisational strengths to take opportunities or rectify organisational weaknesses in order to overcome threats. 
5.      Evaluating and choosing between strategic options 
6.      Presenting strategic recommendation. 
7.      Conclusion. 

Adidas Case Study Solution

1. Develop an understanding of the type of company Adidas is andthe type of industry it operates in.

About Adidas	·         Founded in 1949, Adidas AG is the largest sportswear company in Europe and second largest in world. ·         Revenue earned during 2019 was € 23.6 Billion and net profit being € 1.9 Billion, 12 % more than 2018. ·         Company has global presence in all continents of the world through its retail outlets, franchise, wholesale stores and E Commerce website and Adidas App.
Brand Mission	To become best sports brand through design, build up and sale of best sports products with best service and experience to its customers.
Brand Value	·         Create the New through creativity, collaboration and confidence. ·         Operational excellence through One Adidas. ·         Focus on innovation and newness.
Key strategic Pillars	·         Best service, Best product, best experience, Speed, fast Creation for operational excellence. ·         Brand Leadership to provide ‘consumer obsessed’ culture to enact speed, agility and empowerment.

 

2. Critically evaluate the trends shaping the sports industry and Adidas’s strategy. Your evaluation should begin at this stage by undertaking an environmental analysis of Adidas. The external environments involve with several factors, which can dramatically influence business strategy.   

External Analysis of Adidas using Porters’ five force Model in future

Threat of new entrants: Entry barriers	High	Low	Moderate
Attaining Economy of scale by entrants is easy. Entrants can have differentiated products. Low capital requirements to enter industry Switching cost of customers is low. Easy access to distribution and supply chain network by entrants.	√   √	√	√   √
Bargaining Power of suppliers
Availability of large number of suppliers. Substitute products easily available. Less number of buyers to a supplier. Difficult to integrate forward by supplier.		√ √ √	√
Bargaining power of buyer
Buyers’ purchase contribute insignificant portion of total revenue of Adidas. Switching cost of buyers is high. Difficult for buyers to integrate backward in the industry.	√ √	√	√
Threat of substitutes
Switching cost from substitute products to Adidas is high. Quality of substitute products is worse than Adidas.	√		√
Rivalry among existing firms
Growth rate of industry is very high Fixed and storage cost low.                    Huge product differentiation opportunities	√   √		√

PESTEL Analysis

Political	Operations involving shipping and distribution of products and services worldwide. Imposition of US tariffs and restrictions on Chinese goods are concern for Adidas as it will increase prices of its products Level of political stability, integrity of politicians, the laws that the country enforces can impact operations of Adidas.
Implications	Adidas has to extend its international supply chains and follow political procedures when selling products online.
Economic	Rising labour cost in China where Adidas manufactures more than 50 % of its products. Economic slowdown due to Covid 19 pandemic in the whole world.
Implication	Adidas has to transfer its production capacity to low wage rate countries. Since Adidas products are not essential goods hence its demand will be impacted due to covid 19 pandemic.
Socio cultural	Demand of eco friendly products in market. Trend of remaining fit and healthy is increasing. Health standard, Class distribution among society, age and gender is of utmost important.
Implication	Adidas has to rely on niche marketing as its product belongs to premium class. It has to increase consumption of raw materials which is socially sustainable and eco friendly.
Technology	Use of internet to buy and sell products online. Application of technologies to design and develop innovative products. Use of technologies to improvise cost and attain economies of scale.
Implication	Improves global supply chain and distribution network to avoid shortage, lateness and reduction in cost. Continuous development of new and differentiated products to remain unique in market.
Environmental	Weather condition impacts transportation of input and output. Climate changes can make many products useless. Use of inputs and methods that inhibits less pollution.
Implication	·         Delivery dates of the final product in the case of bad weather can be delayed. ·         Sale of winter sports wear can be impacted due to global warming. ·         Adidas has to use raw materials and methods which emit less pollution and less harm to environment.
Legal	·         Intellectual property law, local regulations of the countries, minimum wages acts and other business laws and regulations impact operations of the business.
Implication	·         Adidas has to abide by rules and regulations of countries it operates in to smoothly run its business and remain sustainable in that country.

Internal Analysis using Value Chain Analysis and VRIO framework

Value chain activity	Strategy	Value created	V	R	I	O	S
Inbound Logistics	Increase in suppliers to increase capacity and meet demand. Strong supply chain created out of independent manufacturing partners to cater needs of customers	Reduction in cost of manufacturing. Huge demand meeting capacity in future.	√   √	X   √	X   X	X   X	√   √
Operations	Automation of operations to improve supply chain management. Strong relationship with suppliers considering them strategic partners in their inbound logistics management. Speed factory to test new processes for faster production of athletic footwear and to develop new manufacturing technologies.	Strong relationship with suppliers. Improved and speedy way of manufacturing process. Creating best quality product in the industry	√   √     √	X   X     √	X   X     √	√   √     √	√   √     √
Outbound Logistics	With its more than 2,500 own-retail stores, more than 15,000 mono-branded franchise stores and more than 150,000 wholesale doors around the globe, it caters the need of its consumers worldwide. Its E Commerce website and app which is connected to its website is another focus area of the companies to reach its customers globally.	Strong global presence in market to approach customers and sell its products. Strong product and brand Positioning as E Commerce seller through its own website and App.	√           √	X           X	X           X	X           √	√           √
Marketing & Sales	Centralized and integrated marketplace team to supports the flawless execution and drives operational excellence across the globe. Capturing sales potential on the platforms available to consumers through various initiatives such as regular inventory check at stores, click and collect to order online, ship from store, buy online and return to store etc.	Creation of Brand loyalty. More returned customers. Less lost customers.	√   √ √	X   X X	X   X X	X   √ X	√   √ √
Services	Linking of app with e-commerce store offering personal conversations, option to buy most exclusive products, a frictionless checkout, seamless order tracking as well as personalized content and access to membership program. Creation of B2B order platform ‘Click to allow’ for wholesellers. Inclusion of features such as improved Order book management and web chat to digitalize customer touch points.	Tapping of more and more new customers. Maintenance of strong relationship with whole sellers. Building of trust and long term relationship with customers.	√     √       √	X     X       X	X     X       X	√     √       √	√     √       √
Procurement	Procurement of recycled polyester, Parley materials derived from ocean plastic or PFC-free materials. Procurement of non trade items in future. Follow up of strict procurement quality policy and standards to maintain quality of inputs.	Creation of innovation in new materials. Development of eco friendly products. Reduction in cost of non trade items.	√   √   √	√   √   √	X   X   X	√   √   √	√   √   √
Technology Development	E commerce channel and its app to capture the global market. Inclusion of technology in use of recycled plastic in manufacturing of its products. Continuous research and development to speed up production process and reduce wastage.	Scaling up of productions at low cost. Development of innovative and eco friendly products.	√     √	√     √	√     √	√     √	√     √
HRM	Focus on attraction and retention of the right talents, role model leadership, diversity and inclusion, as well as the creation of a unique corporate culture.   Performance linked compensation system. Support of top management to take initiatives, develop as leaders in future and renders multiple opportunities at work place.	Drives success, sustainability, profitability and strong image of the company in society.   Increased performance at work place.	√           √	√           X	X           X	V           √	√           √
Firm Infrastructure	Presence in more than 40 countries through its retail outlets, wholesale offices and franchise stores. Huge Investment in app and E commerce website being the singles biggest store having presence in over 40 countries. Investment in North America to tap the biggest market in sporting goods Separate management team to supervise different regions of business operations.	Strong distribution network globally. Easy market expansion globally. Collaboration possible at easy terms. Strong borrowing capacity.	√     √   √   √	√     √   √   √	X     X   √   √	√     √   √   √	√     √   √   √

3. The industry analysis concentrates on economic, political and market factors, which can impact the development of industry (TOWS matrix ).

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	Strengths Strong Distribution network . Low-cost structure with strong hold on suppliers. Strong financial position with strong profit and asset base. Highly qualified, skilled and innovative employee workforce. Strong presence on internet through its E Commerce, App and social media coverage. Strong brand image.  New product innovation.	Weaknesses Fixed rental cost on outlets and offices taken on rent. Liquidity issue. Dependency on local workers. Over dependence on outsourcing leading to compromise in quality and mismanagement in supply chain.
Opportunities Rapid growth in internet users and online buyers. Preference of environmental friendly products. Increase in size of population Demand increase in premium sportswear products.	SO Strategies Penetration and tapping of new market through application of E commerce and social media presence. Design and development of eco friendly innovative products to cater increase in demand of sportswear products.	WO Strategies Increase investment in R & D to develop eco friendly products. Integrate R & D with technology to develop products at low cost. Over dependence on suppliers can be reduced through set up of its own factories in less developed countries.
Threats Intense competition Exchange rate fluctuations Global economic slowdown due to Covid 19.	ST Strategies Make use of distribution network to fight against intense competition and reach to customers in new markets and reduce losses due to exchange rate fluctuation. Use of strong asset base and financial position to create inventory to meet future demand after end of pandemic caused due to Covid 19.	WT Strategies Increase in R & D investment to cope up with competitors. Acquisition of property for retail outlets and offices to reduce fixed cost and reduce impact of Covid 19 in terms of revenue losses till pandemic continues.

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4. Generate a set of future strategic options which leverage organisational strengths to take opportunities or rectify organisational weaknesses in order to overcomethreats. 

5.      Evaluating and choosing between strategic options 

List of future strategic options and Evaluation of investment opportunity has been done using following factors. 1, 2, 3, 4, 5 and 6 indicates its position in table

·         Improve profitability = 1

·         Increase sales, market shares, return on investments = 2

·         Customer satisfaction = 3

·         Brand image = 4

·         Corporate mission, vision and strategy = 5

·         Resources and capabilities = 6

		Evaluation Criteria
Integration strategies		1	2	3	4	5	6
Forward integration	·         Use of financial strength to set up its own retail outlets worldwide than operating through franchising mode.	a	a	×	a	×	a
Backward integration	·         Set up its own manufacturing segments to reduce over dependence on suppliers and attend economies of scale in order to develop products for emerging markets at lower price to beat competition and keep strong hold in new markets. ·         Centralization of supply chain capabilities to service all European markets to reduce cost and make availability of products without any lag in terms of supply chain shortages.	a	×	a	a	×	a
Horizontal integration	·         Acquisition of suppliers to remain cost competitive in new market and developing products of standard and quality in alignment with new market customers. ·         Acquisition of small rivalries companies to dominate its presence worldwide as it did in case of Reebok.	a	×	a	a	×	a
Intensive Strategies
Market penetration	·         Lower cost of products through economies of scale ·         Differentiation of products through product innovation and advance technological upgradation in development of products. ·         Developing aggressive and dynamic market campaigns and multiple sports sponsorship. ·         Offer discounts and other benefits to customers to keep them associated with brand.	a	a	a	a	a	a
Market development	·         Development of new distribution network to reach to new and emerging market. ·         Use of E Commerce and social media network to create touch points for customers worldwide. ·         Exploring new market and selling products at varying price. ·         Diversification of products as per the specification and needs of customers of new market explored.	a	a	a	a	a	a
Product development	·         Investment in R & D above than its competitors to develop innovative and distinct products matching customers’ satisfaction. ·         Development of products to cater needs of new and emerging markets.	a	a	a	a	a	a
Diversification Strategies
Unrelated diversification	·         Adidas can enter into sports equipment business. ·         It can develop casual wears for youths.	×	×	×	a	×	a
Related Diversification	·         Product development for other sports. ·         It can acquire T 20 cricket teams and other sports teams and associate itself with them.	×	×	×	a	×	a
Defensive Strategies
Retrenchment	·         Instead of retrenchment company has started Muscle up strategy for Reebok  has increased its investment in North America to eliminate supply chain shortage that took place earlier.	×	×	×	×	×	×
Divestiture	·         In order to remain competitive and focused on its core strength areas of athletic footwear and apparel sold off Taylor Made, Adams Golf and Ashworth brands as well as CCM Hockey business in 2017.	×	×	×	×	a	×
Liquidation	---	×	×	×	×	×	×

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6. Presenting strategic recommendation

Major problems company focuses currently relates to supply chain shortage in North America, high priced products, intense competition from its rivalries and high cost structure in product development. Keeping above scenario in mind, the best strategy recommended for Adidas would be intensive strategy in which company must focus on market penetration, market development and product development using its resources and capabilities and strengths to lead future of sportswear industry and become best in the world. Intensive strategy will help company to boost its sales through exploration of new market, development of products as per the demand of new market and lower cost of products through economies of scale and achieve its goal of becoming number one company in the world.

7.Conclusion

Keeping in view the problems associated with Adidas, in future, it needs to focus on taking advantage of its strong supply chain management, distribution network and brand image and enter into new market using E Commerce and social media channel, retail outlets and franchise to increase its revenue and profitability, thus establishing itself as the market leader and attaining number one position in Sportswear and accessories industry in the world. In order to achieve its mission and vision of becoming best brand and sport wear company in the world, it has to develop innovative and price competitive products that matches the need perspectives of customers and create high value for them through continuous research and development and expanding its distribution and supply chain network in new market, the way it is doing currently in North America. Adidas needs to invest huge chunk of funds in R&D to cut cost on product development and get competitive advantage in market over its rivalries.

References

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·         Adidas Group. (2019). Adidas Annual Report 2019. Retrieved from https://report.adidas-group.com/2019/en/group-management-report-our-company/corporate-strategy/sales-and-distribution-strategy.html

·         Adidas Group. (2018). Adidas Annual Report 2018. Retrieved from https://www.adidas-group.com/en/investors/financial-reports/#/2018/.

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·         Adidas. (2019). History. Retrieved from https://www.adidas-group.com/en/group/history/

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·         (“Adidas Value Chain Analysis Research Paper Example | Topics and Well Written Essays - 750 words”, n.d.) Retrieved de https://studentshare.org/business/1496571-adidas-yproute-to

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·         Adidas. (2019). Adidas continues push for equality in sports, increasing visibility for female

·         athletes. Retrieved from https://news.adidas.com/action-sports/adidas-continues-push-forequality- in-sports--increasing-visibility-for-female-athletes/s/2a1bbd18-8a81-4e19-811d- 81905304f564

·         Birch, Rebekah, "Adidas: A Strategic Audit" (2019). Honors Theses, University of Nebraska-Lincoln. 166. https://digitalcommons.unl.edu/honorstheses/166