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Office Depot Case Study
Introduction
The Office Depot case study is designed to measure the skills of success of the well known office supply chain. This study analyzes key strategic issues that are important for Office Depot's sustained growth and success. Office Depot maintains its success as the result of their relentless focus on a simple formula:
To offer the broadest selection of high-quality office products, services and information that their customers need at everyday low prices. Office Depot's mission statement is to be the most successful office products company in the world. Office Depot's simple formula and mission statement has created an industry leader.
Corporate History
Since Office Depot was founded in 1986, they have revolutionized the way office products were sold through warehouse retailing. Warehouse retailing involves buying directly from manufacturers in high volumes, this has been successful due to its low overhead costs and savings to customers. Low overhead trickles down to the consumer, who is able to purchase its every conceivable office needed product at up to 60% off of list prices.
Office Depot had opened 10 stores within its first year, following the immediate success of its first store in Florida. With direction from Office Depot's Chairman and CEO, David I. Fuente, Office Depot opened 16 additional stores in 1987. By 1989, Office Depot had a total of 67 stores. In April, 1991, Office Depot merged with another growing office supply chain, Office Club. This merge put Office Depot on top as the largest office products retailer in North America.
In 1992, Office Depot went international. Office Depot entered the international arena when it acquired the Great Canadian Office Supplies Warehouse chain in Canada. After successful conversion of five Canadian Office Supplies Warehouses to Office Depots in Canada, Office Depot opened additional stores throughout the country. Office Depot continued its expansion when it entered the market in Colombia and Israel in 1993. By 1997, Office Depot had opened locations in Poland, France, Hungary, Japan and Thailand. The company ended 1999 with 825 stores in the U.S. and Canada alone. This expansion is one of the strategies used by Office Depot to lend to its successful growth and plans to continue its expansion in the future.
Business Strategies
In the highly competitive market of office supplies, Office Depot has proved itself to be at the top of its game, holding a strong second place over their biggest competitor, Staples. Competitors, such as Staples, have shown only a 6% increase in sales over the past year while, Office Depot reported sales of $10.3 billion, a 14% increase over the $9.0 billion reported for 1999. They have reached this level of sales and success by achieving major goals and objectives set by the company. Office Depot has developed excellent standards for customer service, successful advertising campaigns and expanded into global markets. Each of these accomplishments have aided Office Depot in gaining a strong foothold in the office supply market and brought them one step closer to becoming number one.
In spite of Office Depot's growth and success, its greatest challenge may be yet to come. In order to surpass Staples and become number one in the industry, Office Depot must carefully and successfully plan and execute two key strategic plans. The first is a continued level of excellent customer service and increased convenience for their customers. Office Depot needs to maintain a knowledgeable and helpful staff, comprised of quality people that can provide an atmosphere in the stores that makes customers feel welcome. A welcome atmosphere with a knowledgeable staff is necessary in order to continue to build a larger customer base for the company.
In a world of technology, customers are constantly looking for ways to receive their merchandise quicker. To maintain its current success, Office Depot must remain on top of the changing technology and expand its already established Internet ordering system. Customers, at the present time, can look through an online catalog, place an order and have it shipped directly to their home or office. Several companies, like the telecommunication company, GTE, have contracted with Office Depot in order to offer discounts of up to forty percent to their employees when they place their orders online. With this service comes the guarantee that the order can be picked up at any store with in two hours.
With technology comes a need for extreme efficiency so that products reach the consumer as quickly as possible. Office Depot currently maintains this demand by operating a national business to business delivery network that includes over 2,000 trucks, 1,000 account managers, 30 customer service centers, more than 60 local sales offices and seven regional call centers. This national business to business delivery network is part of Office Depot's Business Services Group (BSG). This group caters to the needs of the delivery customer. Delivery sales through BSG are Office Depot's second largest contributor of sales and operating profit.
The second major strategic plan that Office Depot must implement is to continue to expand into markets that have not been tapped by other companies in the industry. In August of 1998, Office Depot completed its purchase of Viking Office Products, one of the industry's leading direct mail marketers of office products. This merger has helped Office Depot's total sales for the first quarter of 2000 increase 17% to $3.1 billion from the $2.6 billion reported for the same period in 1999. Through this wholly owned subsidiary, Office Depot now has operations in 19 countries including Australia, Austria, Belgium, Canada, Columbia, France, Germany, Hungary, Ireland, Israel, Italy, Japan, Luxembourg, Mexico, the Netherlands, Poland, Thailand, the United Kingdom as well as the United States. Overall, this increase in its domestic and international store base has been Office Depot's largest driver of their overall sales.
Although it has been a relatively short time since the acquisition, Office Depot has been very careful with the transition and take over of their new company. Instead of sweeping through the company and eliminating employees and leaders from Office Depot personnel, they have simply combined the executives from each company and integrated employees together from each company. This was a smart move for Office Depot because many times when companies merge, there is a great deal of upheaval and profits and some of their customer base may be lost due to disgruntled workers and their families.
In order to expand and gain a dramatic edge on Staples, Office Depot must expand into those industries it has not tapped, such as the manufacturing of office products. Manufacturing of their own products would allow lower costs to consumers due to decreased shipping and receiving costs. This would result in less mark up cost and an ability to sell high quality products while maintaining lower prices.
Growth and Future Expansion
Aside from the profit expanding possibilities of manufacturing of its own products, Office Depot has potential to grow in many areas. Office Depot's continuous growth and expansion lends to its becoming a household name. Store recognition and convenient locations are key to any business's success. This growth includes the company's continuous potential due to its growth in the international market. Office Depot made excellent preparations prior to entering its current international markets, this research and compatibility are necessary in order for concurrent efficiency of smooth and profitable entries into new international markets.
For example, in November of 1998, Office Depot purchased their joint venture partner's interest in their France Office Depot retail stores. This acquisition did not call for the closure of any existing operating facilities. Instead, Office Depot and Viking headquarters were consolidated to offer a more conveniently located headquarters.
Office Depot also was able to integrate the warehousing and delivery of Office Depot and Viking brand merchandise in each of their existing warehouses.
Also, internationally, 53% of total sales increases in Office Depot's International Division resulted from the start-up of their Japanese catalog operations and the consolidation of their Japanese retail operations in April, 1999. Catalog and store sales increased 6% and 20% respectively, however, unfavorable rates of exchange negatively affected these numbers. This is a continuous area of concern for Office Depot to consider as exchange rates and other competitive economic conditions which exist in international markets may impact sales in the future as well.
The establishment of the Euro, the fixed conversion rate between existing European currencies, may affect their ability to price products differently in various European markets. Local taxes, customer preferences and product assortment may reduce the magnitude of price equalization. It is not likely that the Euro will have a material effect on their financial position.
Besides physical store locations, one of the fastest ways to become internationally recognized and accessible is through the Internet. Currently, 20% of consumer transactions are conducted electronically. From a marketing and advertising standpoint, the Internet can offer easy and economical advertising as well as entrance into new markets. Office Depot has a great many opportunities available to them through the Internet. However, there are many similar sites on the Internet so it is vital that Office Depot maintains an upper hand by offering easy browsing and other key points. Consumers are looking for convience in the Web. Consumers want their information presented to them quickly and easily. Office Depot currently is ranked
#1 of the Top 100 Electronic Business Innovators by E-Business 100. Neither Staples nor Office Max make this list.
In order to strengthen their competitive position in pursuing new business domestically and internationally, Office Depot is expanding their highly successful electronic commerce platform. Office Depot's websites, www.officedepot.com and www.vikingop.com, provide individual customers with many convenient and time-saving capabilities. These websites offer real-time inventory, address and payment authorization, access to previous orders, access to status of orders, flexible delivery and returns, special speed features and cross-selling product suggestions.
One feature of the website is the Office Solutions section which currently offers articles on topics which are particularly important to small businesses. These articles provide ideas in areas such as getting organized and tax time. By grasping what the consumer wants, Office Depot enhances its opportunity for growth by offering these special services for small businesses. As small business is such a large, growing part of the business world and as more of these businesses gain international access through the Internet, there is a growing need for these types of services.
In the future, Office Depot plans to improve and expand its Internet capabilities to offer assistance to a broader customer base. The range of services and products available through their Internet sites will be expanded greatly in the future.
Another possible area for growth on the Internet would be for Office Depot to team up with universities or student prone sites in order to offer special discounts and or promotions. There are many sites specifically targeted at college students. These sites often are linked with all sorts of merchandise which is ideal for the college student. This is an area of opportunity as college students are always looking for ways to save time and money.
Additionally, Office Depot currently has a five year agreement with AOL to develop a small business site, offering business-related content and programming specifically addressing the needs of a small office consumer. This small business site will offer buying guides and directories as well as a quick checkout tool. The site will provide millions of small businesses with streamlined access to the tools and resources they need to remain competitive, while offering a broad array of Office Depot merchandise.
The small business proves promising however, Office Depot may be losing out on a potential profit maker by overlooking resources already available to them. Office Depot could gain substantially by offering special services within its stores and by out sourcing employees to help small businesses. While the Internet is widely used and recognized, there is still a need for in store service in the area of small business which Office Depot cannot let fall to the wayside. Letting the Internet be the sole focus on small business would be detrimental.
Another area of expansion that Office Depot should consider would be the possible merger with a computer or software company. As computers are used in nearly every aspect of the business and personal world today, a merger with a computer superstore such as CompUSA could prove to be powerful and profit worthy step. This merger would open a new consumer base and much sales capability.
Office Depot has already proven its ability to merge with another company successfully and profitably when it merged with Viking Office Products. The only foreseeable problem could be the mammoth company a merger of this sort would create. It may be difficult to maintain its strong customer service while it continues to grow and expand.
Ethical Scenario
We have seen problems when large companies join in such instances as the Microsoft upheaval. It is necessary that Office Depot maintain high ethical standards in
all situations. Part of Office Depot's mission statement: to be the most successful office products company in the world involves conducting their business with uncompromising honesty and integrity. As an example of this integrity and honesty we will review an ethical scenario.
Tom Jones, a newly appointed Sales Assistant, enjoys working at Office Depot and is hoping to have a successful career at this company. His boss, Eric Smith, has given him the assignment of strengthening Office Depot's relationship with local elementary schools. Smith asked Jones to convince local area school teachers to buy their supplies exclusively through Office Depot. Smith has strongly suggested that Jones meet with teachers and offer them substantial incentives if they will agree to require their students to purchase a particular set of school supplies that are available primarily through Office Depot. Meanwhile, the local media is focusing on this issue and the local paper has recently published a letter from a school teacher about similar pressure adopted by other retailers.
The ethical dilemma Jones is facing is one that no new employee wants to encounter. He is facing a decision that will either get him into a costly lawsuit and into the public criticism, or the possibility of getting demoted in his company. Jones has to decide whether to be a civil worker for society, or a supporting father at home where they need his job as a means of living. The situation can be viewed from various perspectives, depending on which ethical theory one believes in. Other factors may also apply, varying in the geographic location, cultural background, and time.
Through relativism, the theory states that ethically correct conducts are determined by the people, one may deem that it is plausible to say that Tom's act was ethical. Relativism is based on what the majority favors; whatever the majority feels is right, then it shall be for the rest of the people. It is similar to the modern concept of Democracy, for which the majority rules.
Utilitarianism, is the theory that maximizes utility of any actions. In Utilitarianism, ethical issues are determined as those which maximize happiness upon all individuals. An act is deemed to be ethical if it has the maximum utility and happiness in comparison with other available options. In this case, it is foreseeable that Tom's act may maximize utility while satisfying the maximum number of people affected. By offering dedicated office supply to the students of the local schools, Tom would help the community while also helping his company grow.
While Tom may have much support from the prior two theories, according to the Duty Theory, it is unethical for Tom to do what his employer told him to do. Duty theory, as the name may suggest, is derived from duties that one much abide to. The general rule is that one has a duty to choose the optimal choice. In addition, one must also not receive personal benefits from doing his duty. In such context, Tom surely has committed an unethical act.
Divine Command and Virtue Ethics are the remaining major ethical beliefs we may apply to this dilemma. Both theories are very demanding of individuals and their already limited possibilities. Divine Command is based on the Ten Commandments of the Bible, for any act that does not violate any of the Ten Commandments is deemed as ethical. Virtue ethics ask only that the intent of any act be for the good of all things living. In both cases, Tom's act can be said to be ethical.
The best decision may be for Jones to inform his superior of the current situation that may deem harmful to the company if the request by the manager is taken. Jones could explain that the time to implement that strategy may not be now, but could be a plan of action at a more beneficial time. Perhaps, at a time when this sort of strategy is not under the public's scrutiny. If the superiors are unwilling to hear his pleads then, Jones, would have no choice but to comply with the request made by his superiors and do as told or face the consequences. It is Jones' obligation to his superiors to do as he is told for the best interest of the company. If they are willing to take the ethical risk, Jones would have to comply with their decision. Since it is not an illegal action, Jones would have no obligation to report the unethical act to a regulatory agency; unless an illegal act has been committed. In this scenario, Office Depot has maintained its high ethical standards. We will now take a closer look at articles comparing Office Depot's competition in some areas.
Evaluation of Articles Concerning Competitors
In order to evaluate the competition, we carefully reviewed numerous articles provided for the case study. We came to the conclusion that the article which was most unbiased was, Discount Captures Lion's Share of Back-To-School Sales in '98 by Mike Troy for Discount Store news. This particular article discusses the strong sales increase at discount stores over the months of August and September. This increase was primarily due to the large number of parents and students shopping for back to school supplies. This time of year is second only to Christmas in sales for stores like Wal-Mart, KMart and Target. Dollar stores also tend to do well at this time of the year, according to the article.
The U.S. Department of Education projects that by the year 2006, there will be approximately 54.3 million students in the United States. This would impact the amount of increased sales significantly in the coming years. Enrollments for college and high school students are growing the most quickly. This area has particular sales potential as more money is generally spent on the purchase of products for college and high school students than lower grade levels. Office supplies superstores such as Office Max and Staples are providing competition for Office Depot in this area.
Office Max, Staples and Office Depot all attract alot of back to school shoppers because of their low price guarantees and a greater selection of products than at discount stores such as Walmart and Target.
We found that all of the information contained in this article was presented in a very factual and equally representative manner. The author was unbiased in his writing as he gave several facts and statistics. The author gave information regarding the behaviors of the consumers and the market as a whole, not just one store chain in particular. Discount stores as well as dollar stores and office superstores were mentioned in the article. The article did not promote Office Depot over any other store. For these reasons, the article seemed most unbiased.
On the contrary, the most biased article we found was entitled, Web Presence Key Strategy for Office Depot, from Discount Store News, October 26, 1998. This article discussed how the office superstore started selling products over the Internet in January 1998. This was beneficial to both its small and large business clients. Office Depot's larger business customers can access a private website where they can gain access to 10,000 products. This website saves time for the consumer as it eliminates having to drive to the store and purchase from the location. Because the site is open 24 hours a day, people can order whenever they would like to. This is a quick and efficient way to purchase office supplies. The article went on to explain how the Internet ordering is proving to be very successful for Office Depot and that it is expected to continue to grow.
This article seemed particularly biased due to the fact that the author only provided promotion for Office Depot. The author even went so far as to state the Office Depot credo. At the end of the article, the author stated that the Internet is unknown for other retailers, but not for Office Depot. That statement seems extremely bias as well as unfounded. The author also included prices for Office Depot products and the website address. The article seemed like more of an advertisement than a piece of news, particularly as no comparison was made to similar office products stores which have websites as well.
International Management
As Office Depot has entered many international markets, it is important to review a scenario for which international management is necessary. For this purpose, we will assume that a successful store manager in one of the United States stores has recently been assigned to another country where Office Depot has operations. This manager has just arrived in the foreign country yesterday and has just visited the store
location there. The manager has spent several hours talking to the store managers and employees and has observed its customers. The manager has observed that several customers in the store have spent much time using the computers for personal use even printing out memos and spreadsheets. This practice seems very different to the manager than what has been observed in the U.S. stores.
In this situation the manager would go about dealing with this situation by letting people continue to work on the computers and observe what occurs. Video cameras could also be set up for continuous observations. Perhaps, the more time spent on the computers will result in increased appeal to purchase one of their own, or perhaps the software they are using. Additional information would have to be accumulated to find out how other stores in the area might handle the same situation. The manager could also talk to the customers using the computers and ask them what they think of this service.
A survey could be posted, regarding the content, convience and quality of the store. The survey would be placed throughout the store, because the opinion of the consumers is of high value to Office Depot Management when making decisions. After consideration, it may be in the best interest of Office Depot to continue to run things as usual with some slight changes. Since it is a different country in which the customs are different, and are not always easily changed.
Management may recommend that a clerk be present in the computer section at all times. The clerk would be ready to help customers and constantly ask people if they would like assistance. This might also discourage people from using the computers to do their personal work, because many people do not enjoy others looking over their shoulders. Also if there is someone there to constantly offer help with purchasing a computer or software, the customers might feel more comfortable buying the merchandise after they have used it.
A sign could be posted that says, Try it then BUY it with a emphasis on the word ‘buy'. If the sign were not successful, management would recommend that another sign be posted next to the computers that states, Limit 20 Minutes. If people still continued to use the computers and supplies excessively, to the extent that it would hinder others from looking at the computers, the spreadsheet programs could be replaced with demo versions. Demo versions do not have the ability to print. The printers could also be reconfigured so that people could not print from any application other than demo applications.
Finally, part of the store could be made into a work area where customers could come and use the computers, printers and software at an hourly rate. A work area would keep those not interested in the purchase of a computer in an area set up particularly for that purpose. This would keep others away from those computers that
are on display for the sole purpose of sale. The work area would provide an area for customers looking for a place to do their personal work while providing another source of income for the store.
Conclusion
Effective management and decision making are necessary for dealing with obstacles such as those of international management. In fact, for any obstacle to be handled the most efficiently and effectively, management is key. Time and again throughout this case study, we have seen examples of Office Depots success in management as well as many other areas. Office Depot's management focuses on encouragement and reward of its associates. Innovation, communication and entrepreneurial spirit are valued in Office Depot's most valued asset, its associates.
Office Depot's associate-oriented environment is the type of very basic standard, towards which Office Depot owes its success. Superior customer satisfaction is another standard which Office Depot defines as a company-wide attitude that recognizes that customer satisfaction is everything. Office Depot's pledge to offer only the highest-quality merchandise available at everyday low prices, while providing customers with an outstanding balance of value, selection and services is continually met. This type of pledge coincides with Office Depot's ethical view on it being their responsibility to conduct business with uncompromising honesty and integrity. Shareholder Value is yet another standard met to provide Office Depot shareholders with superior Return-On-Investment. Shareholder value create continuous shareholder commitment and satisfaction.
It is clear Office Depot succeeds in the many areas vital to its sustained growth and success. Office Depot sets a business standard serving their customers through multiple channels. As the business standard, Office Depot, Inc., together with its subsidiaries, is the largest supplier of office products and services in the world. This was achieved through its success in selling to consumers and businesses of all sizes through stores, business service groups and internationally. It is definitely clear that in many aspects under many points of view, the company realizes its mission statement in the most successful office products company in the world.
Word Count: 4427
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