Business Strategy and Organisational Audit - Electrolux - Case Study Example

Business Strategy Task Stakeholder Analysis Stakeholders are s, agencies and individuals that are affected by and also affect the decisions and operations of a company. The various stakeholder groups are categorised into economic stakeholders, social/political stakeholders, technological stakeholders and community stakeholders. Electrolux’s economic stakeholders are shareholders, business partners, customers and competitors. The social/political stakeholders are policy makers and the various regulatory bodies that govern the consumer durable industry. Technological stakeholders are standards agencies and owners of competitive technology that will possibly act as vendors of Electrolux. The community stakeholders refer to the society and people living around Electrolux’s plants and factories. The manufacturing activities tend to create pollution and therefore the natural environment is also a stakeholder. The interests of stakeholder groups can be diverse and at times conflicting. The shareholders who have invested money in the organisation will be interested in economic gains because of which other payouts like high wages to employees may have to be sacrificed. It is however important that Electrolux caters to the diverse needs of different stakeholders. This can indeed be a challenging task. The attention to be paid to different stakeholders is gauged with the help of the power/interest matrix as described in the ensuing paragraphs. Key Players These stakeholders have high power and high interest. The companies to which Electrolux will outsource the manufacturing function as well as the low cost suppliers located in the developing countries are the key players. Elextrolux should pay maximum heed to these stakeholders as they have a direct impact on the company’s business. Keep Satisfied Electrolux should satisfy the shareholders by providing a decent return on their investment. The other stakeholder that falls in this category is the government. The government will be satisfied if the business operations are carried out ethically and the taxes are paid on time. Keep Informed Electrolux should keep its employees informed of the strategies that the company intends to adopt. This will keep them motivated and encourage them to contribute towards the organisation on a best effort basis. Minimal Effort At this juncture, Electrolux can exert minimal effort on the communities in which it operates. The business is being carried out legally and ethically. Therefore the company should not really be concerned about the media. Task 2: Organisational Audit The SWOT analysis and Porter’s value chain analysis has been carried out as part of the organisational audit. SWOT Analysis Strengths Electrolux has been in business for more than nine decades and has a rich business experience. The company is amenable to change which is evident from the fact that it modifies its strategy according to the changed business environment. Weaknesses The company is heavily dependent on consumer durables which account for 85 percent of the sales. Electrolux diversified its portfolio by acquiring Granges but subsequently sold off this non core business. Opportunities Electrolux can increase its market share by designing and manufacturing innovative products. The company intends to invest 2 percent of sales in product development. Expansion into developing countries like India and China will also boost sales. Threats The market is highly competitive. Other players in the industry have also moved some operations to Eastern countries to take advantage of low cost production. The government may, from time to time, impose regulations especially with regard to energy efficient gadgets. Porter’s Value Chain Primary Activities Inbound Logistics Electrolux is investing time and resources to reduce inventory levels. The company has reduced the number of suppliers in order to ensure better vendor management. Operations The company has changed its business model and moved production to low-cost countries. Plants where manufacturing costs were high have also been shut down. Outbound Logistics The outbound logistics include moving products from place of production to the warehouses for onward movement to the distribution channel. Marketing and Sales Electrolux intends to compete in the marketplace on the plank of differentiation. The company will invest heavily in brand building and has set aside a budget of 2 percent for this activity. Service The service function will strive to repair faulty products, provide spare parts and resolve customer complains. Supporting Activities Firm Infrastructure The firm’s infrastructure includes accounting practices, legal practices and general management that help in the smooth conduct of business. Hans Straberg, the CEO has guided Electrolux successfully since the early 2000s and has formulated appropriate strategies for the future. Procurement Procurement is one of the most important activities if Electrolux intends to successfully implement its strategy. The company has initiated coordination on a global scale and reduced the number of suppliers. At the same time, Electrolux has increased cooperation with existing suppliers to attain further cost advantage. Technology Development Technology development is also one of the key activities for Electrolux as it will assist the company’s aim of rolling out new product variants. Electrolux has already increased its product development outlay by SEK 500 million during the last three years. Human Resource Development Electrolux recognises the importance of human resources and therefore lays a lot of focus on leadership development and a result-oriented corporate culture. The company provides international career opportunities to lure the requisite talent. Recommendations Electrolux should continue to outsource production and non core business activities to countries like India and China. It should focus on R&D and develop new products keeping in mind the customer requirements. The primary function of operations and the secondary function of procurement add a lot of value by reducing costs. Electrolux will benefit further if it identifies suppliers in the same region where its outsourced manufacturing plants are located. Task 3: Environmental Audit PESTEL Analysis Political Factors Political environment has a bearing on all industries. Political stability tends to enhance business activity. Good diplomatic relations tend to enhance global trade. Electrolux has business operations in numerous countries and therefore the political environment of all these countries has a bearing on the company’s operations. Economic Factors The economic environment will play a key role in determining the demand for Electrolux’s products. During periods of boom, consumer sentiment is high and there is a spike in demand for most goods and services. On the other hand, during periods of recession, consumers may postpone their purchases of consumer durables. Easy availability of credit will also give a boost to the sales of Electrolux’s products. Social Factors Electrolux’s products are especially useful in developed societies where there is dearth of domestic help. In some societies people may buy such gadgets only for ostentation purposes. Technological Factors The technological environment plays a monumental role in the consumer durable industry. A ground-breaking revolution can render existing products obsolete. Consumers tend to spend on technologically advanced products that provide maximum benefit. It is for this reason companies invest substantial time and financial resources on research and development activities. Environmental Factors In the wake of growing awareness about the ill effects of global warming, companies have resorted to designing and manufacturing eco-friendly products. Companies also strive to adopt ‘green’ manufacturing processes so as to reduce their carbon footprint. The environmental factors thus play a pivotal role in this industry. Legal Factors Electrolux operates as a responsible corporate citizen and abides by the law of the land. The company has to fulfill all the legal regulations pertaining to product safety, product efficiency, working conditions as well as the environment. Porter’s 5 Forces Framework Rivalry amongst Existing Players The market is fiercely competitive. The advent and rise of globalisation has led Electrolux to compete with domestic and international brands. Bargaining Power of Buyers The bargaining power of consumers is high due to multiple options available to them. The market is polarised. On one side, rich and affluent consumers do not mind paying a premium price for additional features in the product. On the other end of the spectrum, price conscious consumers happily accept the basic models. Bargaining Power of Suppliers The bargaining power of suppliers located in the low-cost countries has increased since most companies have moved their production and procurement to that part of the world. Threat of Substitutes The probability of manual labor doing the work that is being done by gadgets like washing machines, dish washers is unlikely. The threat of substitutes is therefore low. Entry Barriers The entry barriers are low. The government regulation on this industry is minimal. Companies can enter and compete by achieving economies of scale or by creating differentiated products. Task 4: Ansoff Growth Strategies According to Igor Ansoff, a company can achieve growth by adopting one or more of the following strategies; market penetration, market development, product development and diversification. Electrolux used a judicious blend of these strategies and grew considerably between 1967 and 2005. The company went on an acquisition spree in the 1970s whereby it acquired 59 companies and changed the structure of the European domestic appliances industry. Electrolux resorted to market development by acquiring Zanussi in Italy, White Consolidated Products in United States and the appliance division of UK based Thorn EMI. The company also acquired U.S. based Poulan/Weed Eater, an outdoor products company and thus achieved growth through product development. In the 1980s, Electrolux diversified into the metals business by acquiring the Swedish Granges Group. The company continued its strategy of market development by venturing into countries like India, Thailand, Mexico and Brazil. By entering newer markets, Electrolux reduced its reliance on the Swedish market. Post expansion, the company generated three quarters of its revenue from international markets. Access to new products also meant that consumer durables accounted for 85 percent of the sales and the products for professional users accounted for the rest of the revenue. The company eventually divested Granges and focused on the appliances business. Electrolux’s growth has been fuelled by numerous acquisitions. While such inorganic growth provides instant access to production capacities, distribution channels and market share, this strategy involves huge financial commitment. Electrolux should henceforth rely on organic growth. While organic growth may be slower than inorganic growth, it will allow Electrolux to carefully add new products in its portfolio and take a prudent decision on which markets to enter in the future. Task 5: Future Strategy for Electrolux It is proposed that Electrolux should compete in the market place on the plank of differentiation. The company should provide feature loaded products and command a premium price. The company intends to increase its marketing and promotion budget which will help in brand building. Electrolux has taken numerous initiatives to cut costs which will reduce the pressure on profitability. The production of new products will continue to remain outsourced to low-cost countries. These initiatives meet the Suitability, Acceptability and Feasibility (SAFe) criteria as they enable the company to avail of opportunities that have low level of risk and attain profitability. Therefore, these strategic initiatives will get a go-ahead from the shareholders. Task 6: Mission, Vision, Objectives, Goals and Core Competencies Mission The mission of an organisation is the reason for its existence. The mission statement will help answer the following question; what does the company stand for? Google’s mission is to ‘organise the worlds information and make it universally accessible and useful.’ Thus all the services rendered by Google aim to assimilate information of different types and put forth the same for the benefit of the users. The company’s services including Google Maps, Google Translate, Google News and Google+ are in line with its mission statement. Thus the mission provides the overriding purpose of the organisation. Needless to say, it is in sync with the values of the organisation and seeks to fulfill the expectations of the shareholders. Vision The vision, also referred to as the strategic intent, refers to the desired future state of the oragnisation. The vision statement is futuristic in nature and serves to fulfill the aspirations of the organisation. For example the vision of Infosys is to be a ‘globally respected corporation.’ Goals Goals are the general statements of aim or purpose. These goals may pertain to market share, profitability or even environmental protection. For example the goal of a company may be to attain leadership position in all markets where it does business. Objectives When goals are quantified, they become objectives. Good objectives are specific, measurable, achievable, relevant and time bound (SMART). For example a company may want to increase its market share by 10 percent in North America by the end of 2015. Core Competency Core competency is something that the organisation does exceedingly well. The core competencies are a source of competitive advantage. For example the core competency of Wal-Mart is cost cutting. The retail chain is adept at cutting costs across functional areas. It uses the state of the art technology to reduce cost in warehousing and in-store operations. The bulk purchases result in low cost of procurement. This core competence is a definite source of competitive advantage to Wal-Mart. The company passes on this cost benefit to the consumer by way of lower prices and thus achieves its mission of ‘help people save money so that they live better.’ Task 7: Issues in Strategic Planning Strategic planning charts out the long term direction for an organisation. The gamut of strategic planning includes identifying opportunities and threats in the external environment and then using resources and building competencies for cashing in on the opportunities and warding off the threats. The fundamental goal of strategic planning is to gain competitive advantage. While defining the scope of business, strategic planners encounter various issues. Strategic decisions are complex in nature and they also affect the operational decisions of the company. These decisions are made in situations of uncertainity. Implementation of these decisions may warrant considerable change within the organisation which may be a challenge in itself. The Yahoo case study establishes that a company doing pretty well may run into rough weather. In the mid 2000s, the erstwhile Yahoo found itself lacking in strategic direction. It had lost considerable market share to Google and had become a company that lacked vision. To compound to the problem, Yahoo was bureaucratic and overstaffed. Important decisions were procrastinated and the management was busy pointing fingers at each other. The need of the hour at that juncture was adept strategic planning that would help Yahoo tide over the crisis and again become a force to reckon with. Task 8: Planning Techniques A multi-business organisation needs to gauge the appropriateness, viability and profitability of its various businesses. The company has to decide whether to invest in a particular business/brand, take money out of it, or simply divest it. Such decisions fall under the ambit of portfolio analysis. Two major techniques of portfolio analysis are BCG Matrix and GE-McKinsey Matrix. The BCG Matrix takes into consideration the industry growth rate and the relative market share of the company. The 2X2 matrix divides the company’s portfolio into the following quadrants; Cash Cows (high relative market share, low industry growth rate), Dogs (low relative market share, low industry growth rate), Stars (high relative market share, high industry growth rate) and Question Marks (low relative market share, high industry growth rate). For example, Coca-Cola, the flagship brand of The Coca-Cola Company is a cash cow. Powerade is a star, Vanilla Coke is a dog while Fresca is a question mark for the company. Task 9: Roles and Responsibilities for Strategic Implementation Strategy operates at three levels; corporate level, business level and functional level. The corporate level strategy is formulated by the top level and sets the direction for the organisation. The business level strategy is formulated by the middle management while the lower level management formulates the functional level strategy. The chief executive officer, top management, strategic planners, middle managers and strategic consultants play a role in the implementation of the strategy. The chief executive officer is the ‘chief strategist’ and sets the tone for strategy implementation. Evidence suggests that modest and long-serving CEOs prove to be a vital resource for the organisation. The top management team plays a pivotal role by engaging in healthy discussion with the CEO and debating issues so that the strategy does not merely become a manifestation of personal opinion. The non-executive directors provide an objective, third-party opinion. The task of coordinating the strategy process is entrusted to the strategic planners. They analyse and use evidence in strategic thinking and are adept at people management and project management. The strategy consultants generate and prioritise options. They are instrumental in transferring knowledge from which the organisation can benefit. The middle management is a key source of information as they are closer to the real marketplace. They also act as a relevance bridge between top management and lower level management. The middle level and functional level management have the high execution responsibility. Task 10: Resource Allocation The organisation needs physical resources, financial resources, human resources, and intangible resources to implement the strategy. A resource audit specifically tests the resources for sufficiency, adequacy and availability. Resource allocation is one of the key aspects for successful implementation of the strategy. The top management divides the available resources amongst various divisions so that the mission and vision of the organisation can be achieved. More often than not, the demand for funds is more than the available funds. The organisation thus has to judiciously use the available funds and also scout for other sources for raising funds. The BCG Matrix can also be used to determine the divisions that need more funds and the divisions from where funds can be withdrawn. Money is normally taken out of ‘Cash Cows’ and invested in ‘Stars’ so that they become future cash cows. Likewise, money may be invested in ‘Question Marks’ if the organisation believes that it has the competence to convert the ‘Question Mark’ into a ‘Star’. Ryanair moved from a luxury airline to a low cost airline. Michael O’Leary, the CEO of Ryanair, took all possible steps to implement this change and convert Ryanair into a cost leader. The airline maintained the same fleet to ensure streamlining of operations, fuelling, maintenance and on-board service. The airline avoided the regular airports to cut costs. It even shunned operating from Manchester as the airport did not reduce passenger handling charges. Task 11: Implementation of Strategy The implementation of strategy entails identification of general strategic objectives, formulation of specific plans, resource allocation, budgeting and monitoring and control procedures. The general objectives are the results expected from the strategic initiatives. These objectives should ideally be quantifiable. Formulation of plans entails defining tasks, setting deadlines and fixing responsibilities. The requisite resources are provided to the divisions to ensure that the plans can be carried out. Finally, monitoring and control procedures are required to ascertain that the organisation is moving in the right direction. The Canon case study demonstrates that an organsation can successfully compete in the marketplace by formulating and implementing an appropriate strategy. Canon differentiated its products and catered to the small photocopier niche markets. The company adopted a customer-centric, collaborative approach to strategy where different divisions and the head quarters were jointly involved in the strategic planning process. Read More