Strategic Management of Better Place - Case Study Example

?Strategic Management Analysis Better Place case study exam s Mission, vision and stakeholders Mission:to decrease and ultimately eradicate the automobile industry’s reliance on oil. Vision: to establish connections between battery firms, automobile manufacturers, customers and utilities in a way that will enable electric vehicles to achieve widespread acceptance and adoption (Etzion & Struben 2011, p. 5). The company is in the business of electric vehicles and it is an electric car service provider. The stakeholders of Better Place include venture capital companies, automobile manufacturers, governments, employees, managers, competitors – such as other electric car service providers like ERGO, Coulomb Technologies and Elektromotive –, battery manufacturers, utility companies, city authorities, potential purchasers of electric vehicles, and company owners. The stakeholders are important to the firm primarily because they check the actions of the company to ensure that the company serves their interest. They can influence decisions or exert control; the level of control or the extent of influence would differ depending on how much the stakeholders are interested or involved in the firm (Besanko 2010, p. 33). Governments could also offer rebates on electric vehicles. For instance, Israel usually taxes internal combustion engine (ICE) vehicles at 70%, but agreed to tax electric vehicles at 10% until the year 2019. The United States, as of the year 2010, offered rebates that ranged from $3,200 - $7,500 depending on the capacity of the battery. In Denmark, rather than the 180% ICE tax, consumers would be able to buy electric vehicles at 0% until the year 2015 (Etzion & Struben, 2011, p. 16). Workers have an influence in that they could take an industrial action to persuade the company to do as they wish; and venture capital companies could vary the credit period and amount of credit to Better Place. Stakeholders can best be influenced through effective communication with them. For instance, clients can be informed about the products and services of Better Place and be persuaded to use them. By judging the company, stakeholders essentially provide valuable suggestions, views and opinions and help in shaping the firm’s project and activities concerning its business of electric vehicles. Threats stakeholders pose: threat of consumers refusing to buy electric vehicles; governments not supporting the project of launching electric vehicles; threat from the competition. Opportunities: huge potential market for electric vehicles; working with key utility firms such as Hawaii Electric Company, Israel Electric Corporation and Toronto’s Bullfrog Power to invest in renewable energy and building recharging networks linked to the grid (Etzion & Struben, 2011, p. 16). Renault-Nissan is committed to provide cars that are compatible with the infrastructure of Better Place. Level of interest Low High Low Power High 2 Industry analysis and scenarios The company committed itself to using clean electrons emanating from renewable sources. Agassi held the belief that the firm would have the capacity to buy electricity inexpensively from renewable sources and the cost of driving an electric car would be less than or equal to that of driving an ICE vehicle powered by gasoline (Etzion & Struben, 2011, p. 8). Scenarios for the future are as follows: Using renewable energy for electric cars Technology failing Technology succeeding Public acceptance Public rejection Porter’s 5 forces; supplier power, buyer power, threat of substitutes, threat of new entrants and rivalry are used as a model for industry analysis. Threat of new entrants: threat of new entrants to the electric vehicle industry will serve to reduce the profitability of Better Place as it operates in the industry. However, the high capital requirements necessary serves as a vital barrier to entry. Supplier power: Powerful suppliers, including the manufacturers of electric vehicle batteries as well as utility companies could greatly erode the profitability out of the industry simply by raising prices of electric vehicle batteries and electricity used to power the vehicles. Companies that provide electric car services such as Better Place have little freedom of raising their prices since they compete fiercely for clients who could easily switch to cheaper alternatives. Power of buyers: it is notable that potent clients could capture more value simply by demanding more service or better quality thus increasing costs and forcing down the prices (Davenport 2008, p. 41). In the electric vehicle industry, customers often look for fuel-efficient, safe and environment friendly cars that are inexpensive. Since they are price sensitive, they utilize their power in pressuring price reductions. Threat of substitutes: In the case study, the substitutes are those vehicles with alternative designs and fuel capabilities, as well as efficiency improvements introduced by several car makers all aimed at lowering oil reliance and greenhouse gases. They include hybrid electric vehicles (HEV), plug-in hybrid electric vehicles (PHEV), hydrogen fuel cell vehicles (HFCVs), vehicles powered by compressed natural gas (CNG) and vehicles powered by flex fuels – ethanol or methanol (Etzion & Struben, 2011, p. 9). High threat of substitutes makes the industry profitability to suffer. Substitute services/products limit the profit potential since they place a ceiling on prices. Rivalry amongst the current competitors: rivalry could take several forms such as service improvements, marketing campaigns, new service/product introductions and price discounts (Kaplan 2004, p. 25). In the case of Better Place, the intensity of rivalry is minimal primarily because there are few competitors. The major competitors for Better Place are Coulomb Technologies, ERGO and Elektromotive; these few rivals would not significantly limit the profitability of Better Place in the industry. 3 Resources and capabilities Resources Resources Characteristics Indicators Tangible Financial Capacity to borrow from venture capital companies Net cash flow Debt/Equity ratio Physical Electric vehicle recharging infrastructure Switching stations Charging spots Market value (Valued at $1.25 billion) Intangible Technology Expertise and know-how Technical and scientific personnel Investment of $200 million for launch in Israel Human resources Experience Commitment and loyalty of personnel Employee qualification (Shai Agassi is highly skilled in software development) Tangible resources: Physical - the recharging infrastructure is indispensable; the charging spots are important since they would allow customers to recharge their vehicles at locations which are convenient, when the vehicle was at a stop for some time, for instance at a restaurant, at malls, offices or train stations. Switching stations are important since they will serve vehicles that traverse lengthy distances (Etzion & Struben, 2011, p. 6). The significant amount of financial resources is important because it would enable the company to carry out its projects and activities smoothly devoid of financial constrains. Intangible resources: Technology – with exceptional technology, Better Place was able to create a broad solution based on electric vehicle that was appropriate for all driving profiles and executable with the off-the-shelf, present technology. Human resources: with skilled and committed personnel particular Agassi, the company was able to buy electricity cheaply from renewable sources and thereby improving its profitability. Capabilities: Function Capability Corporate functions Financial control International management Research and development (R&D) Innovative new service development Marketing Responsiveness to market trends Sales and distribution Efficiency and speed of order processing Speed of distribution All the capabilities have relatively the same strength primarily because they are all imperative in achieving the objectives of the company. The following is Porter’s value chain for Better Place Company. Support activities Firm infrastructure: customer-centric approach; risk management Human resource management: training and skills development; Personnel recruitment and retention Technology development: Technology linked electric vehicle services; technology linked recharge of electric cars Procurement: supply chain coordination; IT controlled buying of Electric Vehicle batteries Inbound logistics Supply chain management Purchasing Operations Design and development of switching stations and recharge spots Outbound logistics Distribution, coordination and support Client relationships Sales and marketing Pricing Marketing promotion Service Replacing batteries Primary activities Developing strategy and implications: – the key strengths of Better Place to be exploited include (i) significant financial resources that could be exploited to expand the company globally; (ii) partnership with Renault-Nissan, in which the established car maker will supply the Renault Fluence model compatible with the infrastructure of Better Place (Etzion & Struben, 2011, p. 16). Superfluous strengths include being first mover on the market, geographical strategy and government support. Weaknesses include (i) relying only on one car maker – Renault-Nissan, and this could be managed by engaging with several other car makers; (ii) image still not known by the public, and this could be managed through carrying out extensive brand awareness campaigns regarding the company’s services/products. The company’s competitive advantages are (i) extensive availability of recharging infrastructure across Israel; (ii) having several partners including the Israeli government and utility firms. The key success factors of Better Place are number of new clients annually; successful promotional programs; number of retained customers or lost customers per annum; low cost structure and strong supplier network. 4 Business and corporation strategies The strategies developed through Porter’s competitive advantage theories are differentiation leadership and differentiation focus. Differentiation leadership strategy covers the following: superior product quality; constant promotional support; branding; and industry-wide distribution throughout every major channel (Lynch 2005, p. 52). With differentiation leadership, the firms will target much bigger markets and will aim to attain competitive advantage throughout the entire industry. Differentiation focus strategy: in this strategy, the firm will aim to differentiate in only 1 or a small number of target market segments (Rothaermel 2013, p. 96). The following diagram illustrates development of technology: knowledge generation to diffusion. First mover advantages typically include reputation, pre-emption of scarce resources, scale benefits, buyer switching costs as well as experience curve benefits. The strategic fit/drift has 4 main phases: phase 1 is the incremental phase; phase 2 is the strategic drift; phase 3 is flux; and phase 4 is the transformational change or death (Johnson, Whittington & Scholes 2011, p. 48). Disaggregating Better Place Company into separate activities 1. The relative importance of different activities with respect to the total cost of the product Firm infrastructure: very important Human resource management: has minimal importance. Technology development: very important Procurement: very important Inbound logistics: minimal importance Operations: has little importance Outbound logistics: has little importance Sales and marketing: very important Service: has minimal importance 2. Cost drivers within the value chain: Process/structural cost drivers: scale, scope, complexity, technology and experience. Linkages: cost improvement programs; transfers of services/goods from one value chain process to another. 3. Opportunities for reducing costs Change in the source of supply to a cheaper supplier; Eliminating transfers of goods/services from one value chain to another decreases costs. Value chain analysis for differentiation advantages: 1. value chain for the firm and the customer Porter’s category Better Place activities Differentiation opportunities and initiatives Firm infrastructure Customer –centred approach Continuous emphasis of a culture of customer service Human resource management Training and skills development The firm invests in skills development to offer high quality services to customers Technology development Technology linked recharge of electric cars Using technology in recharging electric vehicles helps to reduce the time customer spends on the switching station or recharge spot Procurement supply chain coordination and integration Effective supply chain coordination and integration ensured that the firm obtains the best possible supplies Inbound logistics Supply chain management, purchasing Proper management of supply ensures there is no room for error in purchasing Operations Design and development of recharging infrastructure Designed and developed efficient and convenient recharging infrastructures so that customers find them very convenient Outbound logistics Customer relationships has established a good relationship with clients which improves relations with customers Marketing and sales Pricing, marketing and promotion The electric vehicle services are provided cost-effectively and affordably Service Battery replacements Depleted batteries are replaced quickly at convenient locations 2. Drivers of uniqueness in each activity Firm infrastructure: culture of customer service Human resource: skilled personnel, employee loyalty Technology development: exceptional technology Procurement: scale, scope Inbound logistics: scope and scale Operations: efficient and convenient recharging infrastructures Outbound logistics: customer care Marketing and sales: affordability Service: quick services 3. The most promising differentiation variables for the firm: Exceptional technology, affordable services, reliable and quick services 4. Linkages between the value chain of the firm and that of the buyer: Service improvement programs; purchasing enhancing initiatives and workforce skills development programs. References Besanko, D 2010, Economic of Strategy. Crescent City, CA: Free Press. Davenport, TH 2008, Competing on Analytics: The New Science of Winning. Austin, TX: Springer Publishers. Etzion, D & Struben, J 2011, Better Place: Shifting Paradigms in the Automotive Industry. Grant, RM 2013, Contemporary strategy analysis: Text and cases. 8th ed. Chichester: John Wiley and Sons. Johnson, G., Whittington, R., & Scholes, K 2011, Exploring strategy: Text and cases. 9th ed. Harlow: FT Prentice Hall. Kaplan, RS, 2004, The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Albany, NY: Penguin Publishers. Lynch, R 2005, Corporate Strategy (4th ed.). Boston, MA: Prentice Hall. Porter, ME 2000, Competitive Strategy: Techniques for Analyzing Industries and Competitors. Crescent City, CA: Free Press. Rothaermel, FT 2013, Strategic management: Concepts and cases. Irwin: McGraw-Hill. Read More