Atlas Copco Group's Corporate Strategic Audit - Case Study Example

Atlas Copco Groups Corporate Strategic Audit al Affiliation: Table of Contents 0. Introduction......................................................................................................................3 1.1. Industrial Situation...........................................................................................................3-4 2.0. Company Situation............................................................................................................4-5 2.1. History, Development, Problems.........................................................................5-6 2.2. Present Strategic Posture.......................................................................................6 2.2.1. Current Vision/Mission.......................................................................5-6 2.2.2. Current Objective................................................................................6 2.2.3. Current Strategies................................................................................7 2.2.4. Current Corporate Structure/Culture...................................................8 3.0. SWOT Analysis............................................................................................................... 8-9 3.1. External Environmental Analysis.........................................................................9 3.1.1. Societal Environment..........................................................................10 3.1.1.1. Political Factors......................................................................10 3.1.1.2. Economic Factors....................................................................10 3.1.1.3. Social Factors..........................................................................10 3.1.1.4. Technological Factors.............................................................11 3.1.2. Industrial Environment....................................................................... 11 3.1.2.1. Industrial Rivalry Factors........................................................11 3.1.2.2. Buyer’s Bargaining Power.......................................................11 3.1.2.3. Suppliers’ Bargaining Power................................................... 12 3.1.2.4. Threat from Substitute Products...............................................12 3.1.2.5. Threat from Industry’s New Entrants.......................................12 3.2. Internal Environment Analysis...............................................................................12 3.2.1. Corporate management and management team....................................12-13 3.2.2. Corporate structure................................................................................13 3.2.3. Corporate culture...................................................................................13 3.2.4. Corporate resources..............................................................................13-14 4.0. EFAS Table………………………………………………………………………………...14 5.0. IFAS Table…………………………………………………………………………………15 References................................................................................................................................. 16 1.0 Introduction Atlas Copco came into existence in 1873, having been started by Edvard Franckel and financed by Wallenberg. Up from the beginning the company had been founded as private limited (AB Atlas) in 1873 and went through many acquisitions until today to Atlas Copco Group. Since establishment, the company has renowned itself as a leading industrial solution provider of quality air, power saving technologies, and machines’ intelligence control systems. The company’s projection since 2011 is continually to deliver profitable and sustainable product and service development. The audit report explains a short background of the enterprise’s industry together with company mission, goal, vision, and objective. It further describes the internal and external situation for the SWOT analysis. The last section is on the corporate management and management team, organisational structure and culture, and finally the organisation’s corporate resources. 1.1. Industrial Situation The industry deals with industrial equipment or systems that make use of compressed air. Some of the key industrial products include Air Compressors, Industrial Gases Generators (Nitrogen & Oxygen), Compaction Equipments, Drill Rigs and Rock Drills, Underground Ventilation System, and other supplements (p. 4). The industrys history dates to 1200-1000 BC, a period that was accustomed to the advent of Iron mineral hence the name Iron Age. Among the first people to utilise the Iron was Belisarius, who in 500 A.D. made the first Water mills which were known to Vitruvius and Pliny the Elder in the first century B.C. and the 4th century A.D respectively. In 1104, Venice Arsenal founded the first modern factory in the Venice Republic (McNeill, 1986). The transitioning from these periods continued to grow till 1970s that witnessed the introduction of manufacturing robots. Such robots included major computer controlled grippers and welding arms that could attach car doors within 24 hours. Past and Current Problems That the Industry Has Faced: First is the competition, whereby the products’ prices have been very rough for many players in the industry. Despite many players having succeeded to enter and access the global market, the players operate at different a running costs, which in the long run influences the product’s price and quality. With poor environmental policies being barriers to innovation and high energy prices rendering production expensive, inadequate water makes the production process a tussle. Currently, competition, energy prices, and government policies are the factors affect the compresses air industry. In terms of competition, currently the market is open for most of the manufacturers of industry’s products from local the Far East and Middle East packagers who assemble the produced parts locally. The free market allows several entrants; thus competition is inevitable. Energy prices are also on the rise thus heightening the production cost. Finally, some country’s governmental policies are proving hostile to the industry, hence hampering its operations. 2. Company Situation 2.1. History, development, and problems: Edvard Franckel as AB Atlas started the company in 1973 with financial help of A.O. Wallenberg. As its first investment, AB Atlas acquired Ekenbergs Sooner, which was railway car manufacturing firm. Amid fierce competition from smaller companies and more efficient firms in 1890s, AB Atlas was liquidated. After settling some of its debts, AB Atlas came back in 1898 and subsequently manufactured Rudolf Diesel’s Engine under an auxiliary corporation AB Diesels Motored. Later on, a pneumatic tool was added to the production line (1901) which was then followed by the manufacture of the first portable compressor (1905). These additions to the production line, laid down a precedent for more initiatives that led to the company changing from the railway car manufacturing to production of compressor and machines driven by the compressors where the there was less competition (1911). One major drawback to AB Atlas in 1920 was the First World War that affected its business models significantly due to severe recession and depression that led to the demand for its products drop significantly. In response, the company sold some of its properties to increase its liquidity and afterwards relocated to Sickla and Nacka (1924). With the returns, the AB Atlas acquired three production lines, the Atlas Copco’s Construction and Mining Technique (CMT), Atlas Copco Airpower and Atlas Copco Tools. This year the company acquired Edwards Group Ltd and afterwards made Hans Straberg the company’s new chair (Abshire, 2009). Up from the establishment, the company had been founded as private limited (AB Atlas) in 1873 and went through many acquisitions to what it is today, Atlas Copco Group. The company humbly started as a small workshop in Sweden and has grown to have ended up with production line facilities in 90 countries and resultant customers in 178 countries. Currently, Atlas Copco covers a vast geographical area throughout the world, a factor that has contributed to it increasing sales and profits each year. Current Company Problems: Atlas Copco as the rest of the industry is continually facing adverse political reactions in some countries it has branches. Such political interference continues to limit the extent of its operations. Another challenge is the global economic slowdown in the mining sector that has led the fuel price fluctuations. Nonetheless, the main challenge remains to be competition particularly due to opening up of the market, leading to significant entry of many manufacturers. Such competition is apparent with competitors of the company such as Ingersoll Rand, Sandvic Kaeser, and Compair. 2.2. Present strategic posture The company’s performance in the last three years can be can be appraised in terms of Market performance, financial performance and the company’s response to the changing external factors. As with the market, the company has had an excellent performance due to its reach and entry into new markets for low-pressure applications, industrial gases, and PET (Positron Emission Tomography) bottling. Consequently, the company has performed well financially over the last three years; it had a growth of 8% in total revenue. The company has been in its high performance and has generated maximum profit than its peers. As with its response to fluctuating external forces, Atlas has invested in the R&D to lower the production cost and increase the product competitiveness compares to the new market players. 2.2.1. Current vision/mission Atlas Copco’s vision is to grow and sustain its First in Choice and First in Mind for its customers and other principal stakeholders. Atlas Copco’s believes is that in valuing customers, they can do the impossible to make them happy. In the same regard, its mission is to achieve progressive, profitable and sustainable development. Sustainability plays a significant role in Atlas Copco’s dream, and it is an essential aspect of the Group’s undertaking. Therefore, an incorporated sustainability strategy, supported by determined goals, helps the corporation to deliver greater value to all stakeholders in an environmentally, economically, and collectively responsible way. 2.2.2. Current Goals/Objectives Atlas Copco’s goals are anchored in the 2011 blueprint. Through the blueprint, the company aims at continuously delivering sustainable, profitable development. By integrating sustainability into Atlas Copco’s customer-focused and functioning goals, the company can mitigate risks, reduce costs, and create more business opportunities. Atlas Copco has also positively influenced the society’s environment, which in turn positively contributes to Atlas Copco’s financial stamina– thus, crafting a shared value. The company’s strategy is a win-win concept to increase sales, make reasonable investments, and generate economic value. The company has endeavoured to motivate its employees, with the focus being on employee management, ecological achievements, ethics and integrity, and on health and safety business. As with the objectives, the companies envisage on developing of competence to obtain a good result and appraisal for all employees. This is to be achievable through increased diversity, both nationality and gender and to encourage internal mobility. It also endeavours working with committed business partners who are determined to maintain high environmental, ethical and social standards. This will enhance the development of novel services and products. 2.2.3. Current strategies Over the past years, Atlas Copco has focused all it recourses in strengthening its position in key market areas like India, China and Brazil. Such determination by the company to hold high in its market region has been a drive to its excellent performance. It has a flexible business model, as strong market position and the companies focus on innovation provides a perfect environment for the company to outperform its peers and capturing business opportunities. Atlas’ corporate strategy is to establish a strong business position in various industries and markets. As with its business strategy, Atlas Copco is based on decentralised authourity and responsibilities. The operation of Atlas Copco’s is comprised of 22 divisions and is structured in four business areas. Each service unit consists of a company board which reflects the group operational structure. In response, the Corporation has put in place a governance model to make sure that responsibility strategy is corporate in the groups and sustainable profit is successfully created (Chile: Mineral, mining sector investment and business guide,2012). Finally, the functional strategy of Atlas Copco is to sustain a perfect supply chain management. The information about current strategies is a result of supplementary research to sustain study requirements. 2.2.3a. Corporate strategy: Atlas Copco follows a growth strategy that is part of directional strategy that is characterised by mergers and acquisition. Moreover, the company also ensures there is evaluation and monitoring of all business functional areas while formulating the corporate strategy. 2.2.3b. Business strategy: Atlas Copco’s pursues the cost strategy, which is based on decentralisation of authourity. The strategy enables the company to manage its costs and consequently, offer competitive product prices that are neither too low nor high. However, this idea was not part of the interview, but from supplementary research done to support this audit. 2.2.3c. Functional strategy: The Company’s functional strategy is to uphold an ideal supply chain management that checks on growth opportunities for enhancing income. This is attainable through effective functional strategies. Even though this information was also not brought up in the interview; further research was done to support it. 2.2.4. Current corporate structure/culture Atlas Copco’s corporate structure is extensive as it ranges from council committees, Directors, CEO, departmental heads and group’s internal Audit and Assurance. Starting with committees, Atlas, the company’s Safety, Health and Environmental (SHE) Council a committee that is a multidisciplinary representing both the operation and the Group, and report to the group manager twice every year. Another rank with the panel is the Board of Directors: it officially approves the business code of practice for the group. Environmental risk, social and legal evaluation are reported to the board meeting. Following the group’s President and CEO, whose responsibility for sustainability and reporting to the board of directors. Others include the Business Area President, responsible for following up on the strategy and objectives, developing and implementing, including social and environmental performance. There are also Business Control and Accounting with responsibility of Checking the sustainability quality of the data being measured and reported on operations. Final category is the Group Internal Audit and Assurance with responsibility for checking the internal control practice (Jannesson et al., 2014). The aforementioned information is not part of the interview but was obtained from further research expedited to sustain information. 3.0. SWOT Analysis Like all business, Atlas Copco has both strengths and weaknesses together with threats and opportunities. Whereas weaknesses and strengths are internal factors, threats and opportunities are external factors that influence company’s operations. The analysis of Atlas Copco is based on identifying its weaknesses, strengths, threats and opportunities. In terms of external factors, the study focuses on political and legal, economic, social environment based on PEST analysis, and technological factors. Within the SWOT analysis, there will be an assessment of the industrial environment based on Porters Five-Force Analysis; focuses on industrial rivalry factors, consumer’s negotiating power, and suppliers bargaining power, auxiliary products’ threat, and new players’ threat in the market. Finally, the SWOT analyse corporate culture and structure, management teams, and corporate resources. 3.1a. External Environment Analysis External factors influence Atlas Copco’s operations from the outside. They include societal, environmental factors such as legal, technological, and political factors, for example, changing laws, tariffs, and taxes. Other factors incorporate economic ones such as exchange rates, interest rates, and demands. 3.1a.1. Societal Environment A Political, Social, Economic, and Technological factor (PEST) is four all-purpose environment factors that play a significant role in the Atlas Copco’s decision-making process. With the comprehension of the business processes, the study provides commendations necessary for more efficient and proficient business operations. As a result, this section elucidate these four universal societal factors that have posed an impact on Atlas Copco’s business model and also approaches to handle challenges caused by these PEST factors. 3.1a.2. Political Factors Opportunity: Atlas Copco has continued to benefit from the high political stability in many countries where it has operations and production lines. This has in turn enabled the company to improve its efficiency in all destinations globally. Threat: Atlas Copco’s major decisions are influenced by political situation of countries. Sometimes new costly regulations can cause turbulence for the company; however the company is experiencing little interference by such regulations. Such low level of threats has enabled the efficiency in managing the company. 3.1a.3. Economic Factors Opportunity: The Company has a high capacity for expansion into new geographic areas/markets. This capability entails the availability of enough capital enables it to exploit new market regions. Consequently, it has a high scope for adding new products to current production line and considerable scope for expansion in the current market. As held by interviewees, being leader in the primary segment of compressed air has pushed the firm to discover all the related fields like nitrogen, vacuum, waste treatment. Moderately, the company has been able to acquire merger rivals, for this has been made possible due to the firm’s significant financial stamina and market share. Threats: Economically, the threats have not been so adverse, since the company has experienced moderate economic changes that affect it negatively. For instance, drastic fluctuation of oil prices affects developments and projects. Adversely too, it has faced a highly slowing market growth particularly because the company is associated with universal industry. 3.1a.4. Social factors Threats: They include reduced buyer demands for product and social-demographic changes that affect the company negatively. In response, the Company is focused on producing high-quality products and of affordable price. Further strategy is to diversify company products to satisfy various customers need. 3.1a.4. Technological Factors Opportunities: High openings to exploit new technologies. This is achievable due to the tech-proficient employees in the company. Has average capacity to extend the brand, however it has plans to acquire reputable brands. It also has high scope for transferring skills to new products. The company is always innovative, making it to be in a position to learn a new technology. Threats: There is hardly any risk of new technologies. This is because the company is up to date in terms of technology. 3.1b. Industry environment In the analysis of these factors, Porters five forces’ tool is used to determine the extent of competition in the industry and the evaluation of growth and development. There is the five forces’ analysis, which influences in the industry environment. 3.1b.1. Industry Rivalry factors Threats: A high threat due to increasing competitive pressures from rivals. Such is a consequence of globalisation and supply chain challenging opened through pressure for competition rather than quality 3.1b.2. Buyer’s Bargaining Power Opportunities: A high Growing leverage of customers. Such is due to the market slowdown and pressure from other competitors that drive customers’ negotiating power accordingly. 3.1b.3. Suppliers bargaining power Opportunities: An average growing leverage or bargaining power of suppliers particularly attributable to pressure from the competitors thus turning suppliers bargaining power 3.1b.4. Threat from Substitute Products Opportunities: sustainably little loss of sales to substitutes since the company is the largest among its peers. 3.1b.5. Threat from Industry’s New Entrants Threats: Experiences level Threat from entry of probable new competitors. Such is because the company is well established with adequate finances. 3.2. Internal Environment: As with the internal environment, it is a very sensitive aspect especially because it is from it that the corporation attains stability. Favourable internal factors give the company necessary stamina to provide products that meet customers’ demands. The internal environment factors include; corporate management and structure, the management team, corporate culture, and corporate resources. 3.2.1. Corporate Management and management team Strength: Atlas Copco has a highly robust corporate/business Strategy, capable management team, and sound management practices. Such has been facilitated by the firm’s largest product portfolio in the market. It also composed of skilled highly qualified personnel. There are good organisation structure and the efficiency of the flow of the information from the employees to the board of the directors. Weaknesses: One weakness of the company is lack clear strategic direction. However, with good management practices, the company can encourage clear strategic direction. 3.2.2. Corporate structure Strength: High strength in initiating fruitful alliances or cooperative ventures with capable partners, which in turn has given the company more power internally. 3.2.3. Corporate Culture Strength: Good organisational culture to due multinational presence of the company. 3.2.4. Corporate resources Strength: As with corporate resources, the company has an extremely Strong brand name, high Market leadership position, an active advertising model, and an extremely competent customer service. This is made possible due to Innovation and sustainability of the products placed the brand as market leader and standard. Similarly, unlike all the other competitors Atlas Copco is the one supporting after sales directly not via distributors. Weaknesses: They include Weak marketing skills since company has exploited various demographics areas. It also has a narrow production line due to internal competition of some products sometimes affecting the business growth. Another weakness is the higher overall costs than rivals, for in some regions cost is more effective than the quality that can’t beat the small competitors with low overhead costs. 4.0 EFAS Table Within the audit report is an EFAS Table which gives Atlas Copco’s weighted score of 4.23. The weighted score is an indication that the company is tackling the threats and opportunity of the company effectively. The Interpretation of Rating 4 is Superior Response. Therefore, Atlas Copco’s rating 4.23 is a superior response. The key opportunity contributors to this score are the scope for transferring skills to new products and Scope for adding more products to current product line, with rating score 4.6 and 6 respectively. 5.0 IFAS Table Another table exploited by the report is an IFAS that comprehensively shows Atlas Copco’s internal audit status. An IFAS Table is a tool that helps in strategic management of strengths and weakness. The company’s IFAS table generated weighted score of 4.19, an indication that the Atlas Copco company has an effective overall strategy. Primary strength contributors to this score are the Powerful corporate Strategy and good organizational culture, each with a rating score of 5. The score is also a result of large product portfolio in the market and the multinational presence of the company. Referencing Abshire, R. (2009). Garland: A contemporary history. San Antonio, Tex: Historical Pub. Network. Page 78 Apollo. (1925). London: Apollo, etc. Page 66. Atlas Copco MCT AB. (2000). USA mining & construction. Commerce City, CO: Atlas Copco CMT USA Inc. Page 54. Chile: Mineral, mining sector investment and business guide. (2012). Washington, DC: International Business Publications. Page 78 Jannesson, E., Nilsson, F., & Rapp, B. (2014). Strategy, Control and Competitive Advantage: Case Study Evidence. Berlin, Heidelberg: Imprint: Springer. Page 65. McNeill, W. H. (1986). Venice: The hinge of Europe 1081 -1797. Chicago [u.a.: Univ. of Chicago Press. Page 6. New York (State). (1883). Annual report. Albany. Page 463. Read More