Ansoff Matrix for the Most Renowned Shipping Company in the World - Case Study Example

1. Introduction In today’s competitive business environment success of an organisation depends on the adoption of right strategies and proper implementation. Effective strategies are crucial to achieve overall organisational objectives and gain competitive advantages. Strategy and strategic management are two of the most extensively researched topics in the study of business management. Various experts have provided different definitions of these two terms. Firstly, Alfred D. Chandler and according to him “Strategy is the determination of the basic long term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.” (Chandler, 1970) Secondly, Ansoff and McDonnell have defined strategic management as “A systematic approach for managing strategic change which consists of positioning of the firm through strategy and capability planning and real time strategic response through issue management.” (Cole, 2003) Strategic management it is very important to identify various options that can be used as effective strategy in the process of achieving overall business objectives. There are several tools and models that are used by business organisations in order to identify various strategic options. This report deals with the identification of potential strategic options in the context of Norden, in order to find out these options a strategic tool such as Ansoff matrix critical analysis and implementation of theory is used. Moreover, recommendation which is regarding to the technology driven change in the business of the organisation includes the possibilities of such strategic changes driven by a new technology. 2. Dampskibsselskabet Norden DS Norden, one of the oldest shipping companies in the world, was established in the year 1871. It is an independent shipping company that has its presence in different parts of the world. The company’s headquarter is located in Denmark. Apart from Denmark, Norden has its offices in Shanghai, Singapore, Annapolis, Mumbai and Rio de Janeiro. The company mainly deals with tankers and dry cargo and is one of the largest organisations in the dry cargo industry. Moreover, it is one of the biggest operators of Panamax and Handymax bulk carriers. Recently the company has entered the segment of Post-Panamax. In addition to dry cargo, the company is present in the tanker segment and has almost 36 tanker vessels (DS- Norden, n.d.). There are three business departments of the operational activities of Norden which are tanker department, dry cargo and technical department. Technical department operations are in the technical management of crewing, fleet, inspections and purchase, safety and environment (DS- Norden, n.d.) 3. Ansoff Matrix The matrix developed by Ansoff, defines two crucial factors of marketing. These are what to sell and whom to sell (Stone, 2001). It is entirely related to the markets and products. In this matrix there are four quadrants that represent four courses of action that could be considered while making any strategic decisions regarding the growth of the organization. The matrix is shown below. Figure 1: Ansoff Growth Matrix Present Products New Products Present Markets New Markets Source: (Stone, 2001) The four options of growth strategy are market penetration, product development, market development and diversification. 3.1 Market penetration The first strategic option that DS Norden should consider is the option of market penetration where the company can increase its volume of business in its existing markets. This strategic is likely to be useful in increasing then existing market share. Implementation of this strategic option will require better understanding of the needs of existing customer base, new promotional campaign and improved relationship with the customers and vendors. In this growth strategy, existing products of the business are sold in the existing markets and four main objectives that could be achieved by adopting market penetration strategy which are; increasing or maintaining the current market share of the existing products, securing dominance in the growth markets, restructuring a grown-up market and increasing the usage of the existing products by the existing customers. 3.1.1 Increasing or Maintaining the Current Market Share of the Existing Products If Norden adopt the strategy of market penetration then its present market is likely to improve and this objective can be achieved by adopting more competitive strategies concerning to pricing and advertising. In addition, more assets into personal selling might also be helpful in attaining this objective. 3.1.2 Securing Dominance in the Growth Markets Norden can also increase its dominance in the growth markets by implementing this strategy. Growth markets could be dominated by strengthening the customer base and promotion can effectively achieve this objective. 3.1.3 Restructuring a Grown-up Market Grown up market could be restructured by driving out the competitors. Innovative pricing strategies need to be designed to make the market more hostile to the competitors. As mentioned earlier, extensive promotional campaign would work as a catalyst in the process. 3.1.4 Increasing the Usage Usage of the product could be increased by introducing new attractive offers such as loyalty schemes. 3.2 Market Development This strategic option can be an effective one in the context of Norden. The company can start operation in some of the developed European countries such as in UK, Spain and Germany. However this will not be an easy option to execute as Norden has to get into these markets as a new comer. The company is likely to face tough competition from the existing players in these markets. Moreover the company has to create a completely new customer base and this process will be very difficult as the company is expected to face various obstacles from the existing players. Furthermore this involve huge amount of resources. Within the ‘market development’ growth strategy existing products are sold in the new markets. Implementation of this strategy would include selling products in new geographical locations, establishing or finding new distribution channels and designing innovative pricing policies. 3.3 Product Development As far as Norden is concerned, this strategic option should be a useful one. The company can start providing container service. This new service is recommended to be provided in the existing market to the existing customer base. One of the most effective growth strategies is to introduce new products in the existing markets where the business has its presence. The organization needs to be more competent in order to adopt this strategy. Businesses can either develop entirely new products or simply modify the existing products in order to draw the attention of the customers in the existing markets. 3.4 Diversification Norden should not get into an entirely new business model rather the company should try to strengthen its presence in the current industry. As far as Norden is concerned, it is recommended that the company should either offer new service in the existing market or enter a market within the existing offerings. This strategy is within, which businesses develop new products which are marketed in the new markets. A lot of risk is associated with such strategy since it requires an entry into an unknown realm with no prior experience. Organisation must have clear understanding concerning its objectives and good assessment of risks is very important before adopting this strategy and this option should be considered as an extreme option. Currently, Norden is in the dry cargo and tanker segment. The company is one of largest and oldest players in these two. However, in order to stay ahead of the competitors for a long time the Norden requires offering a new service to the existing customers that are present in the existing markets. It is recommended that the company should start offering container services. New Product – Container Service With significant increase in international trade container shipping industry is also expected to grow. The supply chains that are spread throughout different continents in the world are mainly dependent on the global network of container shipping. In 2007 approximately 600 billion FEU-Kms of products were transported through this network. In such a network it becomes very difficult to stay ahead of competitors without having container operations. Norden currently only involved in dry cargo and container service providing. It has no presence in container service sector. Thereby the company should get into this operation immediately in order to gain competitive advantages. Maersk, one of the competitors of Norden is found to be the largest player in this market and it has retained its dominating position due to excellent container services. If Norden decides to get into container business, it has to market its service effectively in order to gain market share. Norden needs to position itself properly to its target customers. Before getting into the container business, Norden must identify its target customers through proper segmentation and segmentation can be done on the basis of geography. As far as, developing economies are concerned Norden is present in China, Brazil and India. In China, automobile industry is found to be one of the largest industries. As a result, for the sea routes that connect China with other trade centres, Norden should target the companies that deal with automobile and automobile parts. On the other hand for the sea routes that connect Mumbai (India) with various trade centres of the other continents, the company should focus on consumer goods companies. This is mainly because in Indian market demand of fast moving consumer goods is continuously increasing. Norden should position itself as an excellent service provider at a reasonable cost. Moreover, it is found that customers of container shipping companies often dictate terms regarding the routes for servicing their needs. Some of these routes might not be as profitable as desired by the shipping companies. This is a critical problem since many shipping companies might not be willing to give in to this pressure from the customers. Such type of situation is likely to arise when customers are big players such as Nike, Nestle or Wal-Mart (Lorange, 2009). Norden should see this situation as an opportunity and capitalize on it. The company should negotiate on the rate with the customers. It should be ready to take any route dictated by the customers if the customer is ready to pay the amount of Norden’s choice. Relationship with the customers is very important as the company will step in the container market for the first time and it is expected of the customers to have strong bargaining power. Norden initially should give the best possible service at the lowest possible rate. However, as mentioned earlier customers often force shipping companies to ply in some specific routes. For that purpose Norden should charge higher price and should also consider its competitor’s strategy before taking any final decisions regarding routes and rates. Among its competitors A.P. Mollar - Maersk needs to given more consideration than any other company. Maersk is found to be dominating the industry with almost 19% market share (Lorange, 2009). However, Norden is currently facing huge problems and it is struggling to remain profitable. According to Nils Smedegaard Andersen, Chief Executive of the company "The main problem is still rates." (Acher, J. & Jensen, 2009). Norden should be aware of such situation and decide its rate policies accordingly. Apart from rate, the company should also focus on customer service and reliability. The latter one can be achieved by giving more focus on the first one. Norden should try to make its billing process as accurate as possible and should create single point of contact so that customers can access all the required information conveniently. Internet is likely to play an important role especially in the process of making a single point of contact. Norden should create a new website for its containers. This website will be the interface between the customers and the company. Customers should get all the information regarding the current status of their containers from this website. 4. Information Technology driven change In the present technology driven age, it is very important to adopt proper strategies regarding the implementation of information technology in order to have sustainable competitive advantage. Successful implementation of IT can make the entire business operation more effective and efficient. In case of container shipping industry, IT has a crucial role to play. Large amount of activities, starting from loading of container to the delivery of goods, are involved in this industry. Information technology can help the shipping companies in making these activities more convenient both for itself as well as customers. However, implementation of any new system into the existing system of company’s operation might create several problems and often it is found that the management struggle to implement properly any new system. In case of Norden it is found that ‘Master’s Operations Environmental Performance System’ (MOEPS) will be effective as it is expected to help the company to enhance the efficiency and effectiveness of the routing process of the ships. It can also be expected that after the system is properly implemented, charterers and ship owners will get all the required data regarding the delays. Moreover if the company gets into the container service providing business it has to implement advanced Container Tracing and Tracking Systems in order to have better container management in place and to serve customers in more effective way. Reasons of Failure It is mentioned earlier that this type of initiatives often fail to give the expected results. The main reasons behind such failure are associated cost, lack of support from top management and lack relevant knowledge (Dorsey, n.d.). Cost is a crucial factor as proper implementation of any new system might require restructuring of the entire system. Moreover some process requires huge time to be implemented successfully and organisations might not be able to bear the cost for such a long time. Furthermore, support from top management is another important factor. Top management of the company must be aware of the fact that some critical problems are likely to arise in the process. It is significant for the top management to remain vocally and visibly behind the project in spite of various problems; otherwise chances of failure of the project will increase (Dorsey, n.d.). In addition to the support from top management, relevant technical expertise is also crucial for the success of the project. Lack of experience and expertise will make the situation more complicated for the company. Experience will be important in order to use the system in the best possible way and get the best possible result. 5. Conclusion DS Norden is one of the most renowned shipping companies in the world. The Denmark based company is involved within the business of tankers and dry cargo. However, the company yet to make its mark in the container segment which is dominated by one of its largest competitors, A.P. Mollar - Maersk. Ansoff matrix is used in this report in order to find out various strategic options for the company, offering new service or operating in new markets is found to be most effective strategic options for Norden can get into container segment in order to strengthen its position in the industry. Nevertheless, this service needs to be heavily marketed to the target customers. Furthermore, implementing new technology is concerned, Norden might face several problems in the form of lack of support from such as top management and cost. References Ansoff Associates International, No Date, Igor Ansoff, Founder Chairman Igor Ansoff [Online] Available at: http://www.ansoff.com/founder.html [Accessed on February 6, 2010] Cole, G. A. 2003, Strategic Management, Cengage Learning EMEA Chandler, A. D. 1970, Strategy and structure: chapters in the history of the industrial enterprise, MIT Press DS- Norden, No Date, Business Departments, Organisation Overview, [Online] Available at: http://www.ds-norden.com/profile/organisation/overview/ [Accessed on April 20, 2010]. DS- Norden, No Date, Norden in brief, Who we are, [Online] Available at: http://www.ds-norden.com/profile/whoarewe/nordeninbrief/ [Accessed on April 20, 2010]. Dorsey, P. No Date, Top 10 Reasons Why Systems Projects Fail, [pdf] Available at: http://www.hks.harvard.edu/m-rcbg/ethiopia/Publications/Top%2010%20Reasons%20Why%20Systems%20Projects%20Fail.pdf [Accessed on April 20, 2010]. Lorange, P. 2009, Shipping Strategy: Innovating for Success, Cambridge University Press Acher, J. and Jensen, K. 2009, Update 4-Maersk Sees $1 Bln Fy Loss On Poor Freight Rates, Reuters, [Online] Available at: http://www.reuters.com/article/idUSLB22163020091112 [Accessed on April 20, 2010]. Stone, P. 2001, Make marketing work for you: boost your profits with proven marketing techniques, How To Books Ltd Bibliography Bryson, J. R. & Daniels, P. W. 2007, The handbook of service industries, Edward Elgar Publishing IBM, No Date, Setting a new course in the container shipping industry, IBM Business Consulting Services, [pdf] Available at: http://www-935.ibm.com/services/us/imc/pdf/ge510-6171-setting-new-course.pdf Lorange, P. 2005, Shipping company strategies: global management under turbulent conditions, Emerald Group Publishing Organisation for Economic Co-operation and Development, European Conference of Ministers of Transport & Organisation for Economic Co-operation and Development. 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