Market Extension or Development of the Company - Case Study Example

DS Norden Table of Contents Introduction 3 DS Norden 3 Ansoff Matrix 4 Product development, market extension and STP 7 Information Technology driven change 8 Conclusion 9 References 10 Bibliography 11 Introduction ‘Strategy’ is one of the most widely used terms in the contemporary business environment. It is believed that developing and implementing effective strategies is the only way to succeed in the present competitive business scenario. Considering its importance, the term is heavily investigated by the researchers. Some of them have come out with specific definitions of the term. For example Mintzberg has defined strategy in the form of five Ps. According to him a strategy can be a plan, a pattern of behaviour, a ploy, a perspective and a position with respect to others (Campbell Stonehouse & Houston, 2002). On the other hand 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) In the real business scenario, while making strategic recommendations it is crucial to identify the strategic options first and this can be done with the help of various strategic tools like Ansoff matrix. This report mainly deals with strategic recommendations in the context of DS Norden. It includes a brief overview of the company (DS Norden). Furthermore the report also includes the relevant theories that are discussed in order to identify various strategic options. DS Norden Dampskibsselskabet Norden A/S is listed on Nasdaq and incorporated in Denmark as an independent shipping company. The company was established long back in 1871 and is one of the oldest shipping companies not only in Denmark but in the entire world. According to the company’s website, it is a worldwide operator of dry cargo and tanker vessels (DS- Norden, n.d.). The company’s main ambition is to position itself as a high quality service provider to its customers. The company is found to be very active in almost all the main vessel, both dry cargo and tanker (DS- Norden-a, n.d.). It has almost 36 tanker vessels and 119 dry cargo vessels. Norden claims that it has some of the most competitive and modern fleets in the shipping industry. The company has its offices all around the world, starting from USA to India, from China to Brazil. Norden is a financially sound organization. However, in the last financial year, the company’s performance in all the segments was terribly bad. According to the current annual report, in 2009 the total revenue of the company was 1675.9 million USD, where as the figure was 4,246.8 million USD (Norden, 2009). Such statistics reveal the extent of fall of the performance of the company. However the company has still managed to make profit as it has successfully reduced its total cost of operation. Norden’s vision is to be “the preferred partner in global tramp shipping.” Ansoff Matrix Ansoff matrix is found to be one of the most useful strategic tools that help the managers and executives to identify the strategic options for their businesses. The matrix is named after its founder, Igor Ansoff. The Russian born Ansoff is a master of corporate planning and strategic management. He first identified that planning process is incomplete without considering the competitive advantages. In its matrix, Ansoff took into consideration two most important factors in marketing, one is product and another one is market; in other words it addresses two questions, what is to be sold and to whom it is to be sold. There are four quadrants in the Ansoff matrix. Each of the quadrants reflects one different strategic option. The four options are market penetration, market extension or development, product development and diversification. The first one i.e. market penetration strategy, is one of the most frequently adopted strategies in the business world. In this strategy the existing product line is sold in the existing market. The main objective of adopting this strategy is to enjoy improved penetration. There are two methods of implementing this strategy. One is by increasing sales to the existing customers and the other one is identifying new customers in the existing market. In case of the first method, customers are needed to be intensively influenced so that the usage rate increases. This can be done by heavily promoting the products to the existing customer base and making them to replace the competitors’ products by the firm’s products. In case of second method the firm directly attacks its competitors and tries to increase both the customer base as well as market share. Product Development Another crucial strategic option that can be identified from the Ansoff matrix is product development. This strategy professes significant modification of the existing offerings of the company. Generally modifications are done in the area of style, quality, performance etc. Firms can also develop new products for the existing base of customers. If any new product or even a new version of the existing product line is to be offered to the customers, it must be heavily promoted in order to create awareness among the customers. Market extension or development Market extension is dependent on the identification of new users for the current offerings of the firm and this can only be done by taking the existing product line into an entirely new market. Firms often move to foreign markets and this is an example of market extension. Promotion plays an important role in this case also, as in the new market customers are not expected to be aware of the firm’s products. Diversification Diversification basically means offering a new product to a new market. This strategy involves more risk as compared to any other strategies. This strategy is mainly adopted by those organizations who no longer find their parent industry attractive. However sometimes it is seen as a positive move since it involves extended application of existing capability (Mercer, 1996). Now, each of the above mentioned strategic options are analysed below in the context of DS Norden. As far as market penetration is concerned, it is not the best strategic option for DS Norden. This is simply because there exists hardly any opportunities in the existing markets for the company to increase its revenue. The company is currently operating in the markets of USA, Brazil, India, Singapore and China. All these markets are highly competitive and almost saturated. As a result choosing market penetration as a strategy is certainly not the best option for the company. On the other hand if product development is considered, it is likely to be an effective strategy in the context of DS Norden. It is found that the company is operating in two segments only, namely ‘dry cargo’ and ‘tanker’. However another large segment ‘container’ is left untouched by the company. Norden can bank on this opportunity and start providing container services to its existing customer base in US, China, India, Brazil and Singapore. Another strategic option, market extension, is also likely to be effective for the company. As mentioned above the company has its presence in five major markets of the world. Apart from these markets there are several other developed and developing markets in the European and Asian continent where the company can start providing their services. It can construct new customer base in the new geographic areas. The fourth and the last strategic option, diversification, should be the considered at the extreme business situation and executed only when there exists no other way to stay profitable in the current industry. Considering the current situation of DS Norden, it advised that the company should not think of diversification at present. However if the recent fall in performance continues for next two financial years, then the company might have to think of diversifying. From the above analysis it is quite evident that the two options that will be best suited for the company are product development and market extension. Product development, market extension and STP Marketing will play important role in case of both the options. The company needs to segment its target market properly and position its new service as high quality to its target market. In case of product development strategy, the company needs to position its new service, which can be container service, to its existing market. It should position itself as high quality container service provider and properly utilize its existing customer relationships. In case of market extension strategy, existing services (dry cargo and tanker) need to be properly positioned in a new market. Norden should position itself as a one of the oldest, experienced and high quality dry cargo and tanker service provider. It should target small and medium sized organizations and make them its customers and focus on building excellent relationships with them. Internet will play a major role. The company should create a new website for its new customers who are likely to be located in the new geographic areas. Norden should provide all the information pertaining to the location of its fleets in its website. Information Technology driven change In this technology driven business environment, organizations that will be able to best capitalize on technology will be much ahead of its competitors. Proper implementation of information technology enhances the efficiency and effectiveness of business operation. Industries like shipping where large numbers of activities are involved; IT plays a crucial role and improves the co-ordination among these activities which in turn reduces the possibility of operational faults. In case of Norden ‘Master’s Operations Environmental Performance System’ (MOEPS) is likely to be an effective solution in the process of enhancing 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. However it is found that implementation of any new system in the organization often ends up in failure. There are several reasons behind it. Three main reasons are associated cost, lack of support from top management and lack of relevant knowledge (Dorsey, n.d.). In most of the cases, implementation of high capacity information system involves huge amount of costs. Moreover the company might have to bear this cost for a long period of time. As a result most of the company either hesitate to take up such project or cannot complete the entire implementation process. Support from top management is also a major problem. Top management are aware of the fact that this type of projects often fails to be implemented. In spite of knowing this top management should support such projects by providing both financial as well as moral support. Lack of relevant knowledge is another major problem. Companies like Norden should be aware of the fact that implementation is just the first step. In order to get the best result from the newly implemented system, the company needs to know how to utilize the system. In order to utilize a system the company needs to have highly skilled and well trained employees. Without proper expertise no company will be able to make an effective use of the high end technology driven system. Conclusion DS Norden, being one of the most reputed shipping companies in the world should either develop new product for its existing customers or enter into a new market with its existing service offerings. The company should also implement new information systems like ‘Master’s Operations Environmental Performance System’ (MOEPS). However there will be several hurdles while implementing any new strategy. The company should be aware of such situations and take necessary actions. References Cole, G. A. 2003, Strategic Management, Cengage Learning EMEA Campbell, D. Stonehouse, G. & Houston, B. 2002, Business strategy: an introduction, Butterworth-Heinemann 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]. 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]. DS- Norden-a, No Date, Business Model, Who we are, [Online] Available at: http://www.ds-norden.com/profile/whoarewe/businessmodel/ [Accessed on April 20, 2010]. Mercer, D. 1996, Marketing, Wiley-Blackwell Norden, 2009, Annual Report, [Pdf] Available at: http://www.ds-norden.com/public/dokumenter/news_english/NORDENannualreport2009.pdf [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 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]. 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] Chandler, A. D. 1970, Strategy and structure: chapters in the history of the industrial enterprise, MIT Press Lorange, P. 2009, Shipping Strategy: Innovating for Success, Cambridge University Press Proctor, T. 2000, Strategic marketing: an introduction, Routledge Plunkett, J. W. 2008, Plunketts Transportation, Supply Chain and Logistics Industry Almanac 2008: Transportation, Supply Chain and Logistics Industry Market Research, Statistics, Trends and Leading Companies, Plunkett Research, Ltd Read More