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Galbraith_IrwinVillarreal MSOD 613 Assignment #1
Strategy and Environment
La Michoacana Meat Market Inc. (LMMM) is the largest carniceria grocery chain in the
USA with 130 locations. LMMM specializes in the fresh items (meat, produce, tortillas) that its
customers typically purchase and consume on a daily basis as well as grocery and prepared foods
served by its taqueria. LMMM was founded in 1986 in Houston, Texas (Pinto America Growth
Fund, n.d.), as a small mom-and-pop convenience meat market. The founders, without realizing
it, imported a big tradition of Mexico, Central and South Americafull-service meat markets.
They started with one store and 20 years later, with over 70 stores opened, they partnered with a
growth fund, created Progreso, and centralized operations as part of formalizing the organization.
This is when the pattern of action, (Mintzberg 1987) the pattern of behavior, and the
blueprint of providing an authentic Hispanic experience were realized as an emergent,
competitive and successful strategy.
LMMM, for many years, found itself in a privileged position. The emergent strategy was
successful in serving a niche. However, as the social and economic environments have changed,
LMMM needs to reposition in order to maintain profit and retain its stand as a leader in Hispanic
retail. As Progreso brings LMMMs operations up to date, they have developed an intended
strategy. This vision not only includes the emergent strategy, but also five sister companies and
a plan to standardize all 130 stores in preparation for an eventual establishment of a public
company in the next few years. LMMMs position in the marketplace is influenced by the five
competitive forces, which Porter (2008) presented as: threats of new entrants, power of suppliers,
power of buyers, threats of substitutes, and rivalry among existing competitors.
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Threat of new entrants. In the grocery chain industry, there is a high threat of new
entrants due to low barriers to entry. LMMM threats include family-run businesses that can
create a similar type of cultural experience in a niche market and large supermarket chains trying
to enter the market with smaller store formats to compete with products and cultural experience.
Power of suppliers. LMMM distribution system is supplied mainly by five sister
companies that provide LMMM with most of the products for resale (meat, produce, groceries,
spices, bulk items, and corn products). Primarily utilizing these five companies has its
advantages and disadvantages. On one hand, LMMM has direct access and better prices to
culturally differentiating products. On the other hand, LMMM has limited access to new
products. The five sister companies that are the principal distributors to LMMM have relatively
high power because of the organizations business model to primarily utilize products from these
distributing companies.
Power of buyers. LMMMs marketplace attracts buyers who are price sensitive,
Hispanic, and who traditionally purchase in small volume, just enough to make it for the day.
Some of the buyers include new Hispanic immigrants in the USA, Hispanic clients, and a smaller
percentage of non-Hispanic Americans. The customers believe they are getting undifferentiated
products that they might get cheaper elsewhere but are attracted to the familiar cultural feel of
the LMMM stores. The customers would have no added cost on changing where they buy their
groceries but are loyal customers of LMMM because of other unique experiences that simply
cannot be bought elsewhere. LMMM earns low profits, and impacts from frequent economy
fluctuations, personal financial ups and downs, and changes to government aid impact their
lower income buyers.
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The threats of substitutes. There are threats of substitutes such as other grocery stores.
These might include family-run meat markets, large super market chains, or community market
chains (i.e., organic foods). Beyond grocery stores, other substitutes might include Hispanic
families doing their own farming, Mexican restaurants offering sales of specialty meats, and
other Hispanic businesses that create a market stream for offering specialty meats.
Rivalry among existing competitors. Retail is known for being a tough battlefield
because competitors react to one another with price reductions, aggressive sales, and strong
marketing campaigns. Rivalry exists among all sizes of supermarkets, specialty supermarkets,
and other distributors of meat, grocery, produce, and corn products and food services. LMMM
competes heavily in the marketplace to gain high volumes of customers who make small grocery
transactions several times per week.
Design of an Organization
The design of LMMM, according to Galbraiths (2002) star model, includes five key
design policies: strategy, structure, people, process, and rewards. LMMM is a decentralized
organization with hybrid structures and has a strong emphasis on organization shapers such as
buyer power, variety, and solutions.
Application of the Framework
Strategy. The LMMM strategy was realized as the desire to grow evolved. Founding
partners became conscious of it as they were identifying the common denominators among
independent stores. Since the beginning of the company, the strategy had been to sell high
quality products with good service in a controlled environment that creates nostalgia.
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Structure. LMMM has a strong departmentalization, divided work by functions, and
specialized workers on specific tasks, thereby creating subject matter experts. Under each
department, the company has either product or geographical structures.
People. People are the critical element for LMMM maintaining a profitable management
and administration within each store. Talent is also vital in showcasing culture, service, and
engaging the customer. People have been one of the biggest challenges for company growth,
especially when it comes to attracting and retaining talent. Several factors have an effect on this,
starting with the fact that retail, by definition, is a high-turnover industry. That is why LMMM is
continuously making efforts to ensure their stores are an attractive place to work.
Process. Specific processes are embedded within the organization to create a certain
cultural environment, which maintains the uniqueness of LMMM. However, these processes
have all emerged as a reaction to company or market needs. The lack of structured, well-
planned, and documented processes has been a challenge in standardizing the customer
experience within all 130 stores.
Rewards. As each single store is independently owned and is a family-run business,
financial rewards agreed with founding partners have been individually arranged and contracted
per store. The biggest implication is the lack of consistency among stores. The Progreso owned
and managed stores have a variable pay structure based on profitability and sales growth of the
stores. Other stores have a great variety of pay structures; however, all of them have a variable
structure and are linked to either sales or profitability.
An Analysis of the Organizations Effectiveness
An emergent and powerful strategy, the right people, and having appropriate
reinforcement and reward systems in place have been key drivers for effectiveness at LMMM.
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Since the strategy has been emergent, people have had ownership of it and they embraced it
through their actions and decision-making processes. People are valued as the greatest assets at
LMMM. As such, programs with a variety of rewards systems have been put in place and
LMMM has been effective in creating a Hispanic culture and a niche market. Compensation has
been divided into fixed compensation, variable compensation, employee benefits, and emotional
compensation. LMMM has been exceptional at rewarding employees with emotional
compensation.
They key drivers of ineffectiveness at LMMM are non-integrated processes and policies
and a lack of standardization in its structure. Processes have not been well developed to
significantly contribute towards the companys goals and are inconsistent at multiple levels.
This is compounded by the fact that the structure of the organization and the roles within the
stores are also inconsistent. In LMMMs infancy, it evolved without looking enterprise wide at
all of its processes and policies. This created an environment in which some policies are
counterintuitive and create conflicting messages, making it difficult for employees to adhere to
and achieve reliable results. Additionally, a lack of consistent structure across the decentralized
stores is negatively impacting the ability of the organization to standardize processes that impact
the customer experience. This in turn negatively impacts profitability levels across the stores.
Independent ownership gives stores some liberty on decision making, creating a problem with
corporate authority to implement processes and standards enterprise wide. The lack of structure
on the partnering contracts with independent owners impedes meeting the enterprise goals.
Since both process and structure have also been emergent to company needs, new administration,
such as Progreso, have been dealing with old organization structures to try to make them
effective, efficient, and aligned to company goals.
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Conclusion
If LMMM focuses efforts on the ineffective drivers it might be more successful in
increasing predictable profitability levels, attracting investors, and reducing investment risk. By
making enterprise-wide processes more integrated and effective, it will lead to more consistent
growth with access to a broader range of resources. By considering the strengths and weakness
of the five competitive forces (Porter, 2008) of LMMMs position in the market place and
exploring Galbraiths (2002) star model as it applies to LMMM, new opportunities will arise to
help the organization be more fruitful. The analysis presented in this report will form part of a
discussion with LMMM senior directors on potential plans to assist the organization in going
public.
References
Galbraith, J. (2002). Designing organizations. San Francisco, CA: Jossey-Bass.
Mintzberg, H. (1987). The strategy concept I: five Ps for strategy. California Management
Review, 30(1), 1124.
Pinto America Growth Fund. (n.d.). PAGF: A fund for the US Hispanic market. Retrieved from
http://www.Pintoamerica.com
Porter, M. (2008). The five competitive forces that shape strategy. Harvard Business Review,
86(1), 7893.