Office Depot Financial and Strategic Analysis Essay

Strategic and Financial Analysis of Office Depot

Company Overview

Office Depot Strategic Analysis

Porter 5 Analysis

Office Depot Strategies

Office Depot Profitability

Annotated Bibliography

In a contemporary business environment, a strategic planning is one of the effective tools that an organization employs to achieve competitive market advantages. This paper carries out a strategic analysis of Office Depot, and identifies Office Depot as one of the Fortune 500. While Office Depot has recorded a consistent increase in total revenues, however, the company has recorded a net income loss in the last three years. The findings of the SWOT analysis and Porter 5 analysis reveal that Office Depot lacks distinct competencies to differentiate itself in the market. Typically, product differentiation, cost leaderships, and resources capabilities are the effective tools to achieve strategic market advantages. Although, Office Depot has resources, however, the company lacks effective strategic planning to achieve competitive market advantages. The paper suggests that Office Depot needs to redesign its business portfolios. The company needs to use the latest IT tools to offer virtual products and services. The company should offer paperless office products to businesses to enjoy market advantages. The annotated bibliography carried out supports that employee alignment to decision making, IT alignment and effective planning are the tools that organizations can employ to achieve competitive market advantages.

Company Overview

Office Depot specializes in office product and services. Incorporated in 1986, the company was the first retail store to operate in Fort Lauderdale, Florida. The Office Depot sells its product and services to customers of all sizes through multiple channels that include internet sites, contract sales forces, direct marketing, catalogs, and office supply stores. Currently, Office Depot operates under OfficeMax brands, and Office Depot. The company also operates globally and supply its products through:

"North American Retail division,"

"North American Business Solutions division," and International division. Through these divisions." (Annual Repot, 2014 p 5).

Through these divisions, the Office Depot supplies office furniture, business machines, stationaries and computer software through different retail channels. At present, the Office Depot carries out its business operations through 1,602 stores. Operating across 60 countries, Office Depot is one of the Fortune 500 companies, and at the end of the 2014 fiscal years, the Office Depot recorded sales of more than $16 billion. Presently, Office Depot operates through the joint ventures, alliance partners, franchisees, and licenses partners. Moreover, Office Depot operates through different banner brands that include OfficeMax, Office Depot, Reliable and Viking.

Despite the success of the Office Depot in the last few years, the recession has affected the company financial performances. In 2012, the sales Office Depot declined by 7%, and all the sales of the business segments fell by average of 6.3%. Although, the Office Depot has recorded an increase in sales within past 5 years, however, the net profits have declined since 2010 except 2011 where the company has recorded $96 Million net profits. Office Depot needs to redesign its strategic map to record positive performances in sales and net profits.

Objective of this paper is to carry out the strategic analysis of Office Depot, the company's profitability and competitive advantages.

Office Depot Strategic Analysis

The paper carries out the SWOT analysis of Office Depot to enhance a greater understanding of the strength, weakness, opportunity and threats that the company is facing in a business environment.

SWOT Analysis

Strength: A consistence in revenues is one of the strengths that Office Depot is enjoying within the last 10 years. Between 2010 and 2012, the company total revenue increased from $10.69 Billion to approximately $16.1 Billion. Its total revenue and market capitalization have made Office Depot to become one of the Fortune 500 companies. The company ranked 194th in the 2015 Fortune 500 making it to be 194th richest company in the world. Moreover, Office Depot has an efficient distribution network supply chain that assists the company to reach its customer across the globe.

Weakness: A consistence decline in the net profits is one of the major problems facing Office Depot. Since 2008, the company has recorded a consistence net income loss. At the end of the 2014 fiscal years, Office Depot recorded a net income loss of $354 Million. Major challenges facing the company is that the business world is changing to the paperless transactions leading to a decline in market shares.

Opportunity: Office Depot still maintains large number of customer base domestically and internationally. The increase in the yearly revenue can make the company to develop a strategic alliance with different companies across the world.

Threats: Office Depot is currently facing a stiff competition from major players such as Wal-Mart; Amazon Inc. Best Buy Co, CDW Corporation, Staple Inc., and Systemax Inc. Moreover, the company is facing a stiff competition with many companies that offer paperless transactions for businesses. Essentially, bulk of the revenue of Office Depot comes from stationary, fax machine, Office furniture, Office supplies, and software. However, the current business scenario is gradually changing from paper to paperless business transactions making the Office Depot to face challenges in recording a positive net income over the years.

Porter 5 Analysis

The study uses the Porter 5 Analysis to carry out the competitive analysis of Office Depot. The Porter 5 is a strategic tool to determine a competitive intensity that a company faces in the industry.

Rivalry among Firms (High): The Office Depot is facing high competition among existing firms both from companies operating traditional brick and block business such as Staple and online retailers such as Wal- Mart and Amazon Inc. Moreover, the company competes with organizations implementing the paperless transactions.

Potential Entrants (High): The potential entrants in the industry that Office Depot is operating is high. Recent development of online business has increased the number of companies offered the same products through the internet.

Threat of Substitutes (High): Several firms are offering similar products and services that Office Depot is offering. However, latest development of information technology has made different companies globally to offer substitute products. For example, an office product such as fax machine is becoming obsolete because it is now possible to send or receive fax using laptop or desktop computer.

Power of Supplier (Medium):

Office Depot sources for suppliers across the world making its bargaining of suppliers be at a medium level.

Power of Customer (High): Increasing number of firms offering similar products and services make customer's bargaining's power to be high. Added with large number of substitute in the industry, customers can easily switch to another firms that offer similar products and services.

Office Depot Strategies

The findings of the SWOT and Porter 5 analysis reveal that a strong distribution network is one of the strategies that the Office Depot employs to achieve competitive market advantages because the company has over 1,500 retail stores globally. Moreover, the Office Depot uses its strong brand to increase its customer base in the United States and outside the United States. The company also uses the online retail network as a strategy method to enhance competitive market advantages. The online retailing business has assisted Office Depot to cut costs of maintaining physical catalog and storage.

The Office Depot has also made an increasing effort to boost its profitability by integrating the copy and print services in commercial and retail businesses. The company also uses direct sourcing to boost its revenue. The strategy is by purchasing bulk of goods directly from suppliers thereby cut out the middlemen. More importantly, the direct sourcing makes the company to record higher margins than branded goods.

Despite the performances of Office Depot over the years, the company has not been able to increase profitability. Hill, Jones, & Schilling (2015) argue that distinct competencies are the effective tools that organizations employ to achieve competitive market advantages. Typically, Office Depot lacks effective strategy to achieve competencies to differentiate itself from other companies. Increase number of new entrants in the industry reveals that Office Depot lacks differentiation strategy to achieve competencies within the market.

Office Depot Competitive Advantages

The interpretation of the of Porter 5 Forces and SWOT Analysis reveal that Office Depot has used a superior technology in offering online retail stores to enhance competitive market advantages in the industry. The company has also used to a direct sourcing from major suppliers. Moreover, the company has used the merger and acquisitions to achieve competitive market advantages. For example, Office Depot has been able to realize approximately $17 billion annual sales by acquiring the Office Max at the end of fiscal year 2014. The company hopes to save between $300 million and $600 million reduction in the cost of operation due to the merger.

The geographic reach has been one of the strategies that Office Depot employs to achieve competitive market advantages using the United States to sell more than 70% of its products. The company also sells its product to customers in 60 countries such as South Korea, Sweden and France. Through a joint venture, Office Depot has operated 250 stores in Mexico, Panama, Costa Rica,…