Strategic Management Analysis of DeBeers - Case Study Example

?Strategic Management Analysis of DeBeers Introduction DeBeers is one of the most renowned diamond producers in the world which specializes in the diamond manufacturing of diamond hops, rings, trading and industrial manufacturing sectors. DeBeers is an active producer of diamond and is an active in diamond mining in open pit, large scale, underground, alluvial, coastal and deep sea (DeBeers, 2013c). The company was originally formed by Cecil Rhodes and financed by Alfred Beit and Rothschild. The company was established in the year 1888 and is regarded as the world’s leading company which specializes in mining and attending to diamond marketing demands. DeBeers provides employment to more than 23000 employees worldwide and the main objective of the company is to make high quality diamonds and make a lasting contribution on the community (DeBeers, 2013h). The company has two major shareholders Anglo American with 85 percent holding and Government of the Republic of Botswana with 15 percent holding (DeBeers, 2013k). The DeBeers group of companies constitute of wholly owned subsidiaries, investment and partnerships in diamond making. The major tasks of DeBeers include exploration of diamonds and mining activities in three major diamond producing countries like Botswana, Namibia and South Africa. The company also specializes in sorting, valuation and sale of rough diamonds and the development of synthetic diamonds for major industrial applications (DeBeers, 2013e).The study will deal with the strategic analysis of DeBeers and its outcome during the tenure 2008 to 2009. The author of the study will also conduct a PESTLE analysis which will highlight the impact of the external and internal forces on the business activities of De Beers. Finally, the study will also conclude with an analysis which would help in identifying the internal and external resources of the company. Analysis of Business Environment & Success factors of DeBeers The business environment analysis also helps the company in adapting a particular marketing environment and also the way it responds to certain environmental circumstances (Shaikh, 2010). The Porter’s Five Forces Model will be a significant macro environment analysis which will help in understanding the impact of the external and internal forces in a direct and indirect manner. Bargaining Power of Buyers: Diamond is regarded as one of the most precious and valuable jewellery item in UK and is also the most coveted jewellery in the world. As per a survey conducted by the Bain and Company it was analyzed that diamond was the most coveted jewellery among women in UK in the year 2008 (Bain and Company, 2011). In the same survey conducted in the year 2008 it was also observed that that at least 65 percent of the UK household owned at least one diamond jewellery in the household (Bain and Company, 2011). This reflects that in spite of recession in the UK the common people preferred investing in valuable jewellery like diamond and also regard it as a valuable gifting item. Since, diamond is one of the most valuable and requires extensive maintenance, the price of diamond is quite high and seldom there is any bargaining while purchasing the product. The bargaining power of the buyers is not very high in this industry. Bargaining Power of Suppliers: The supplier forms an integral part in the diamond industry because they helped the diamond companies in 2008 to maintain timely delivery of the jewellery for industrial and consumer applications. The suppliers are responsible for supply of crude diamond to the warehouses for cutting purposes and also for the supply of the polished diamond in the retail shops. The bargaining power of suppliers in this industry is high. Threat of Substitutes: Although, compared to the other jewellery items diamond is regarded as one of the most valuable items in the world jewellery items like platinum and silver cannot be replacement for diamond. However, preference is given to diamonds and the threat of substitutes was very low in the industry. Due to recession the jewellery industry witnessed an increase in the sales of the imitation and silver goods during the tenure 2008 to 2009 because people preferred buying jewellery items at affordable prices. Threat of New Entrants: As mentioned before that diamond is one of the most precious items which have been the most coveted jewellery item among the customer since ages. There is no question of its importance to come down because customers will not prefer silver, gold or imitation to the diamond. Hence, the threat for new entrants was low in the industry during the tenure 2008 to 2009. In the year 2008 the UK diamond market saw the emergence of very few companies. The existing diamond companies were yielding fewer amounts of profits and could not attract potential customers. Intensity of Rivalry among Competitors: Some of the most important diamond manufacturers in UK are Haton Garden, Tobi Gem, Savvy Sands, Htaon Jewels, Jade jewellers. These jewellers have a strong market presence in the UK market and were facing intense competition among themselves during the tenure 2008 to 2009. The intensity of rivalry among the competitors was very high in this industry. From the above Porter’s Five Forces Model it is observed that the economic and social situation of the UK diamond market in the year 2008 was not favourable and suitable for the established diamond manufacturers to penetrate further into the markets and also expand onto the other regions. Figure 1: Porter’s Five Forces Model Analysis of DeBeers Strategy Value chain is regarded as a structure of activities which the company utilizes to implement its business level strategies. The management of the company utilizes the value chain analysis to analyze its resources which contribute significantly to the creation of value for the customers. A value chain analysis will be conducted to understand the resources which can be the strength and the weakness of DeBeers. It will be divided into primary and secondary activities. (Source: Hitt, Hoskisson and Ireland, 2010) Primary Activities Inbound Logistics: The Company owns some of its mining regions in Botswana, Namibia, Canada and South African regions. In Botswana the company conducts a joint venture program with the government for republic and operates in Jwaneng mine which is regarded as the world’s richest diamond mine. During the tenure 2008 to 2009 DeBeers operated in most of mining regions in Canada which took around 6 to 8 weeks for the crude diamond to be delivered by road to the warehouses for polishing purposes. The company mostly utilizes road transport to deliver the crude diamond to the warehouses for cutting and polishing purposes. Being one of the most renowned diamonds manufacturing company it owns a majority of the leading mining exploration areas in the world (DeBeers, 2013f). Operations: The Company specializes in control and distribution of activities through important, wide distribution networks and providing important value graded services. The company also specializes in stock piling activities of diamond and manages the supply to the distributors. Outbound Logistics: The Company specializes in setting infrequent inventory levels in limited locations. DeBeers has an extended contract with Nuna Logistics since 2008 to provide exclusive logistic services like warehousing, picking up, and transportation to its manufacturing centres where the diamonds are cut and polished. Special software has been developed by Nuna logistics to track the diamond which have been secured from their mining regions. Nuna Logistics stood firmly by the company’s side even during the tenure 2008 to 2009 and helped the timely and fast delivery of diamond to warehouses and retail shops. Sales and Marketing: The Company is renowned for promoting the brand through a proper advertising technique and varied other promotional tools. The company promotes its brand through effective advertising means like online advertising, billboards, magazines, television and varied other promotion tools. To create a profound impact on the women customers the management tries to promote the brand through women fashion and housekeeping magazines. Customer Service: Purchasing diamonds is considered as an art and requires thorough and accurate knowledge. The management of DeBeers tries to disseminate information about the quality and cut of the product through their catalogues and official websites. This is necessity as most of the customers have partial knowledge about the diamond jewellery itself and how to purchase it. DeBeers also publishes details about its diamond jewellery making and other related information through the official websites and also publishes it in its catalogue. Secondary Activities Infrastructure: The Company performed some of its mining activities in leading mining regions and the diamond distributing centre focuses on the distribution of diamond jewellery items. Diamond Trading Centre helps in the distribution of crude diamonds for consumer and industrial applications. The company has earned goodwill of becoming the world’s leading supplier of crude diamonds. The company also owns several leading mining locations along with the collaboration Central Sales of Organization with minimal presence. Human Resource Management: The Company boasts of a diversified workforce belonging to varied nations. The company believes in recruiting talented and diversified workforce which would help in creating a congenial organizational climate. Nearly, 90 percent of the employees in Botswana are the local citizens who are aware about the diamond producing areas and training is imparted to them to improve their craftsmanship in diamond cutting (DeBeers, 2013h). The employees of the company support the Kimberley process since 2008 which actively supports that trading of diamond is conflict and problem free (DeBeers, 2013i). Research and development: The research and development team of DeBeers was constantly focused on producing high quality diamonds which adhere with the international standards. The research and development team has proposed several business models like Benediction which serves as a guide to the employees. Procurement: As mentioned before that the company procures high quality rough diamonds from leading mining exploration areas situated in Botswana, Namibi and other South African regions (DeBeers, 2013j). Critical Appraisal of Strategy Valuable, Rare, Imperfectly Imitable and Non Substitutable Resources (VRIN Framework) The VRIN framework was developed by Braney in the year 1991 which helps in defining the characteristics of the resources that the company needs to posses in order to gain competitive advantage over its competitors. Core Competencies Mining Resources &Process: Apart from the valuable and plentiful mining resources owned by the company it is observed that the diamond processing techniques like crushing and concentration helps in producing high quality diamonds (DeBeers, 2013d). The crushing and concentration process helps in reducing the diamond particles into polished forms through automated facilities. Diamonds and Communities: The community programs developed by DeBeers have helped several South African communities by the establishment of several schools, hospitals and other public infrastructure (DeBeers, 2013a).These diamond communities have been developed in collaboration with the government and various other associations. The main focus of these programs is to train the local citizens for the manufacture and polishing of diamonds. Resource & Capabilities Research & Development: Apart from developing several unique business models the research and development team has developed several unique innovative mining processes which have helped in the smooth and successful mining activities (DeBeers, 2013g). Operations: DeBeers in the only diamond producing company to utilize advanced technologies for open pit, underground, alluvial and marine mining under varied geological conditions. These technologies help in crushing and concentration of the crude diamonds into polished ones. Conclusion It is observed that in spite of recession the diamond market has been prospering and has helped DeBeers in yielding profits (DeBeers, 2013b). The company utilizes its strength and resources effectively to the optimum level for producing high quality diamonds and becoming one of the leading diamond producers of the world. Thus, the above analysis has helped us in understanding the strategic position of DeBeers in the market during the tenure 2008 to 2009. The conducted analysis not helped us in understanding the strategic position of the company at that moment but also helped us in understanding the strategies undertaken by the company to maintain its position in the diamond industry. Reference List Bain and Company, 2011. The Global Diamond Industry. [online] Available at: http://www.bain.com/Images/PR_BAIN_REPORT_The_global_diamond_industry.pdf > [Accessed 07 August 2013 ]. DeBeers, 2013a. Diamonds and Communities. [online] Available at: [Accessed 07 August 2013 ]. DeBeers, 2013b. Performance Library. [online] Available at: < http://www.debeersgroup.com/en/Performance/Performance-Library/ > [Accessed 07 August 2013]. DeBeers, 2013c. Mining Methods. [online] Available at: < http://www.debeersgroup.com/en/Operations/Mining/mining-methods/ > [Accessed 07 August 2013]. DeBeers, 2013d. Diamond Processing. [online] Available at: < http://www.debeersgroup.com/en/Operations/Mining/diamond-processing/ > [Accessed 07 August 2013]. DeBeers, 2013e. Mining Operations. [online] Available at: < http://www.debeersgroup.com/en/Operations/Mining/Mining-Operations/ > [Accessed 07 August 2013 ]. DeBeers, 2013f. Diamonds. [online] Available at: < http://www.debeersgroup.com/en/Diamonds/ > [Accessed 07 August 2013 ]. DeBeers, 2013g. Our Approach. [online] Available at: < http://www.debeersgroup.com/en/About-Us/Our-approach/ > [Accessed 07 August 2013 ]. DeBeers, 2013h. Employees. [online] Available at: http://www.debeersgroup.com/en/Sustainability/Employees/ > [Accessed 07 August 2013 ]. DeBeers, 2013i. Ethics. [online] Available at: http://www.debeersgroup.com/en/Sustainability/ethics/ > [Accessed 07 August 2013 ]. DeBeers, 2013j. Exploration. [online] Available at: http://www.debeersgroup.com/en/Operations/Exploration/ > [Accessed 07 August 2013 ]. DeBeers, 2013k. De Beers Group of Companies. [online] Available at: http://www.debeersgroup.com/en/About-Us/The-Group-of-Companies/ > [Accessed 07 August 2013 ]. Shaikh, S., 2010. Business environment. New Delhi: Pearson Education India. Hitt, M. A., Hoskisson, R.E. and Ireland, R.D., 2010. Understanding business strategy concepts. Connecticut: Cengage Learning. Read More