The following report evaluates Burberry’s existing strategy, making recommendations to the company’s board of directors on Burberry’s future development of the business strategy. The report uses tools such as the key performance indicators, McKinsey’s 7-S framework and SAF model to show that effective internal marketing can be effective for Burberry to establish an intra-organizational environment that increases the employee engagement. Moreover, the analysis has shown that one reason for alarm at the brand is the declining growth revenue, which should lead to more activities for market development, market penetration, diversification or product development. One recommendation is that to improve its standing in the market, Burberry has to embrace a strategy of market development, where it has to offer its existing products to new markets.
Table of Contents
Executive summary 1
1. Introduction 3
2. Evaluation 3
2.1 The strategic position in terms of key performance indicators (KPIs) 3
2.2 Burberry’s strategic direction using the McKinsey’s 7-S model 5
2.3 SAF framework for analyzing Burberry’s strategy 7
3. Conclusion 8
4. Recommendations 8
Appendix 1: Ansoff matrix 12
The Burberry Plc. (Burberry henceforth) is one luxury fashion brand that is based in London, established in the year 1856. Burberry focuses on the sale and distribution of luxury trench coats, fragrances, accessories and cosmetics (Burberry 2018). As at 21 December 2018, Burberry was ranked at position 54 on the FTSE 100 index, having a market capitalisation of GBP 7 billion (Stock Challenge 2018). The company’s position was tumbling in the early and late 1990s due to poor strategic direction, Notably, in 1998 financial year, the company’s profit reduced significantly from sixty-two million pounds to twenty-five million pounds. This called for a quick strategic redirection to return to its iconic status. The company changed its business model by restructuring its product development, manufacturing, marketing communication and distribution of its products. After this change in restructuring, the company has been able to continuously increase its revenue in addition to its profit (Burberry 2018), although its key competitors include Louis Vuitton, Gucci and Channel (Hoang 2017) This report evaluates Burberry’s existing strategy, making recommendations to the company’s board of directors on Burberry’s future development of the business strategy.
2.1 The strategic position in terms of key performance indicators (KPIs)
Burberry’s KPIs act as quantifiable measures used to determine how well Burberry’s goals are being met. Burberry’s KPIs are both non-financial in addition to financial.
• Employees: An outsourced firm called Mercer-Sirota recently conducted a survey on the Burberry employees using a KPI called employee engagement scores (EES). The survey which was recently done in the 2017/2018 financial year revealed that the EES was 72% (Burberry 2018; Mercer-Sirota 2017), meaning that is the percentage of the employees who were engaged in their work. An implication for Burberry is it needs to establish an intra-organizational environment that increases the employee engagement to 100%, and one way to do this is by effective internal marketing (Mishra et al. 2014).
Community: Number of individuals positively impacted –which is the KPI in this case- was 23,000 individuals against its target of one million individuals by the year 2022 (Burberry 2018). It is desirable for Burberry to achieve the KPI target for Burberry to be effective in marshalling other organisations and stakeholders to tackle inequalities in education, facilitating the access to the creative industries as well. The importance of this is to foster more cohesion in the immediate communities in addition to empowering the communities socially and economically (Dare et al. 2014).
Product: Percentage of Burberry products with more than one positive attribute- which is the KPI in this case of responsibility over products- was that only fourteen per cent of Burberry products had more than one positive attribute in the 2017/2018 financial year, against the 100% target that had been set for the next four years (Burberry 2018). Of importance for Burberry is achieving higher percentage with regards to this attribute, as this would make it easier for the brand to encourage positive changes through enhancing the raw material demand for more sustainable products, supporting its supply chain partners to go beyond just ensuring the environmental and social compliance, to enhancing worker well-being and resource efficiency (Grunig et al. 2015).
Environment: Carbon emissions (CO2e)- which is the KPI in this case of responsibility over the environment- showed that Burberry had 20% less CO2e in the 2017/2018 financial year (at 20,000 tonnes) as compared to the 2016/2017 financial year (Burberry 2018). Responsibility for the environment should be to achieve a carbon-neutral status, and which should be encompassed in the present strategy (Zhang and Xu 2016).
• Growth in profit before taxes (GPBT): GPBT is a key KPI for assessing the performance of the brand, which was +5% in the 2017/2018 period as compared to the 2016/2017 period. This reflects growth in retail sales, lower costs and generally improved business profitability (Burberry 2018). The GPBT is valuable when used as KPI since it offers Burberry’s marketers good information regarding the operating performance of Burberry. In this manner, the Burberry marketers have a better standpoint of making the comparisons of Burberry’s operations (Kaplan and Norton 2001).
• Growth in comparable sales (GCS): The GCS KPI measures comparable growth in productivity in the present Burberry stores, showing the annual percentage increase in the sales for stores that have been operating for more than 1 year, adjusting for store closures and store refurbishments, and also encompasses the digital revenue of the online stores. The KPI shows 3% increase for 2017/2018 financial year compared to the 2016/2017 financial year (Burberry 2018). The leader of the GCS were stores in Asia-Pacific markets, then Europe, Middle East, India, Africa (EMEIA) market stores, and lastly the stores in the Americas market. As such, Burberry has to concentrate stronger marketing efforts in the stores belonging to the last two market regions, the Americas and EMEIA (Meyer 2003).
• Growth in revenue (GR): The KPI assesses how Burberry is appealing to the customers, through the brand’s sales channels, showing the capability of the Burberry sales personnel to raise the company’s revenues over a certain period. This KPI shows a decline of 1% in revenues, compared to the 2016/2017 financial year revenues (Burberry 2018). This is indicated in graph 1 below:
Graph 1: Growth in Burberry’s revenues
From Burberry (2018, pp. 25-26)
Without the growth in revenue, Burberry risks becoming stagnant and overtaken by the competing brands like Gucci, Ralph Lauren, Christian Dior or Channel. This declining GR should be a cause for alarm for Burberry and should lead to increased marketing efforts through appropriate strategies such as penetration, diversification, market development or product development (Keiser et al. 2017).
2.2 Burberry’s strategic direction using the McKinsey’s 7-S model
Burberry’s strategic direction is understood in the context of McKinsey’s 7-S model, having implications for shared values, skills, style, systems, staff, strategy and structure:
Shared values: Burberry’s core values are based on three tenets: protect, explore and inspire (Burberry 2018). Burberry’s shared values have been encompassed in the brand vision, that is firmly establishing the position of Burberry in the market of luxury fashion after being unimpressive in its performance in many years particularly in the late 1990s due to the poor strategic direction (Cooper et al. 2015). The shared values of Burberry include the notion that if Burberry sharpens the market position in the luxury fashion market segment, then the brand would achieve a growth that is sustainable with time.
Skills: The brand has increasingly focused on skills of its staff members; the current staff are coached and mentored, whereas apprentices are also coached and mentored in order to have more valuable skills in luxury craftsmanship, retailing and operations (Burberry 2018). Such an approach helps to nurture the core skills needed for the future, where interacting with the customers would be more online and with a reduced need for the physical meet (Cooper et al. 2015). This has meant that Burberry promotes the internal talent that is good, and outsource some third-party expertise.
Style: Burberry’s current leader is the CEO Marco Gobbetti, who has a participative style of leadership for taking in the opinions of various stakeholders in reassuring them of the brand’s return to its prestige market position after years of mismanagement especially in the 1990s and early 2000s (Cooper et al. 2015; Burberry 2018). This style of leadership has featured more teamwork, and encouragement of collaborations rather than competition between the staff.
Systems: Several systems within Burberry work in tandem for the advantage of the brand, such as risk identification/mitigation systems, with an objective of offering platforms to meet the demands from customers; human resource systems to ensure the workforce reflects competency and diversity; the payroll systems to ensure the staff are adequately remunerated for their input; the technology and security systems to ensure there is reduced potential interruptions (Burberry 2018). This is in line with achieving the brand vision.
Staff: At least 10,000 personnel work for Burberry in its various locations spread out internationally. The strategy with regards to the staff is built on establishing skills and capabilities needed now and in the future, through identifying, selecting, recruiting, developing, retaining staff members that have the needed qualities. Aside, the staff members are coached and mentored to ensure they are well adapted to the Burberry organisational context, and given more support (Burberry 2018).
Strategy: The strategy of the brand is built upon some key pillars: digital, distribution, product and communication (Burberry 2018). Enablers of the strategy are operational; excellence and inspired people, as Burberry is presently changing the product offerings to signal the change in addition to attracting the attention of luxury brand consumers. There is an evolving communication that is increasingly featuring digital media strategies like social media, search engine optimisation (SEO), website marketing among others. Through placement of the brand products at the center of its communication, the brand has been leveraging the reach offered by its digital media strategies to convey renewed brand energy (Teece 2010). The distribution network is anticipated to have consistency with the luxury positioning of the brand, which has been made easier by a transformation of the in-store experiences of the customers through refurbishing the walk-in stores, through improving the Burberry customer service in addition to enhancing its customer service (Burberry 2018; Teece 2010).
Structure: Burberry has a matrix organisational structure, in which several cross-business and cross-functional unit groups exist. Often, the employees in the matrix report to more than one manager, based on the reason that the work responsibilities at Burberry are no longer linear. For instance, the Burberry role of ‘department manager’ shows responsibilities over customer service, employee coaching and feedback, scheduling, merchant relationships, advertising and marketing campaigns, communicating the company culture among others (Burberry 2018). Instead of the traditional organisational hierarchy, the employee relationships in the form of the matrix means there are multiple operating relationships, with an objective of drawing the employees possessing a certain range of traits together. Whereas this gives an advantage of ensuring the employees in all the locations have contact with the senior management, it also means that there is an easier communication of employees’ innovative ideas to the senior management. The disadvantage, however, is that it may lead to some ambiguity in organisational structure, compared to the clear lines of authority in the traditional hierarchy structure (Ashkenas et al. 2015).
2.3 SAF framework for analysing Burberry’s strategy
Evaluating Burberry’s strategy can effectively be achieved by applying the Suitability, Acceptability, and Feasibility (SAF) model. The Burberry strategies have to meet the SAF threshold for them to be said to be successful:
Suitability: Suitability is concerned with the rationale of the strategy and how the strategy overall fits with the Burberry core values, mission and vision. Since Burberry is mature in its market segment after more than160 years of operations, and in line with the concept of industry’s life cycle (d’Avolio et al. 2015), it is important for Burberry to have more sustainability efforts for the brand if the strategy is to pass the suitability threshold. Whereas it has not fared badly in this regard (Burberry 2018), there is more work to be done in embracing complementary products, and it would be desirable for the brand to embrace a market penetration strategy for present products, enabling the brand to avoid being susceptible to environmental changes.
Acceptability: In the context of acceptability, a point of concern is expected outcomes once the strategy is implemented, aside from the expectations from shareholders. Increased sustainability/responsibility, in addition to the (non) financial strategies, would enable Burberry to reach sustainability in its entire product value chain, thus making it possible to have competitive advantages in markets such as EMEIA and Americas (Teece 2010). The issue of sustainability in the value chain is a trending topic that is discussed and embraced globally (Keiser et al. 2017), and since Burberry has to some extent demonstrated this, then the acceptability criteria have been easily passed. Furthermore, Burberry now finds it easier to have additional stakeholder revenues and secure the shareholders’ interests, improving the Burberry shareholder value.
Feasibility: The issue in feasibility is Burberry’s capacity in implementing its strategies, in the context of availability of resources. The positioning of Burberry in luxury fashion, in addition to the present organisational, capital and human resources means that fortifying Burberry’s vision- with regards to the core values that are shared- has to be prioritised by the brand (Teece 2010). Through exploitation of the Burberry brand name at market level in addition to positive organisational growth and improved finances, the same is easily used in realising the Burberry vision, exemplified by its shared values. For sustaining the brand’s strategic position at the market, the brand needs to make sure that the shared values, skills, style, systems, staff, strategy and structure have been aligned to the vision and mission of Burberry (Burberry 2018).
Effective internal marketing can be effective for Burberry to establish an intra-organizational environment that increases employee engagement. Moreover, the analysis has shown that one reason for alarm at the brand is the declining growth revenue, which should lead to more activities for market development, market penetration, diversification or product development. Responsibility over environment should be to achieve a carbon-neutral status, and which should be encompassed in the present strategy and at the same time Burberry has to concentrate stronger marketing efforts within the stores belonging to the last two market regions, the Americas and EMEIA. The disadvantage of its matrix organisational structure is that it may lead to some ambiguity in organisational structure, to which solutions have to be found.
To improve its standing in the market- and with regards to the Ansoff matrix shown in appendix 1- Burberry has to embrace a strategy of market development, where it has to offer its existing products to new markets. Having been present in the market for more than 160 years, it is logical to expect that Burberry would have been a market leader in its niche luxury market by now, which is unfortunately not the case. Adopting the strategy of market development is appealing as Burberry would still offer the same products, albeit to new, different markets that it is not present in – mostly in the developing markets that Burberry is not present in. This market development can be achieved by having different sales channels and by using more market segmentation. For example, Burberry can opt for different pricing policies for creating new market segments; the significant attribute of such an approach is whether the present users find it easy to alter purchases in order to take advantage of the newer market pricing, or not. With regards to having different sales channels, Burberry would have to train the employees for them to acquire skills for fulfilling the requirements for the new sales channels. For example, Burberry would have to train its employees to have skills of fulfilling internet requests, and would have to demonstrate that it understands the operational changes which the organization would likely face in this new way of doing things, such as having centralized warehouses instead of local depots.
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Appendix 1: Ansoff matrix
Adapted from MindTools (2018)