Strategic Management - Zeiss Group - Case Study Example

Strategic Management: Zeiss Group Student’s Name Institution Date STRАTЕGIС MАNАGЕMЕNT: ZЕISS GRОUР Corporate strategy is the creation of value across different businesses by a company for it to remain competitive and profitable in the industry. Value addition over and above the value which an individual unit of a business independently creates on its own is one of the goals of a corporate strategy and this may involve the investment of resources and the design or alteration of a company’s system and structure with the aim of skill transfer in the businesses and sharing of activities. The Zeiss Group is one such company that has adopted a corporate strategy that may see its business growing depending on the success of the strategy (Johnson et al., 2008). Concentration on a single industry This is a strategy that involves the focussing of resources by a company for it to compete effectively within a product market which ought to be particular in manner. This has quite a few advantages because it allows a company to concentrate most of its resources thus leading to a strong competitive position in the market. The organisation also enjoys economies of scale that present themselves due to specialization and also the expertise that comes with such a strategy that allows the company to maintain a leadership position or otherwise a competitive position. This strategy was used by Zeiss when in 2005, they acquired SOLA International Incorporation, merging with the Eyeglass lens Division and thereby creating Carl Zeiss Vision International GmbH. The company then solidified the move via obtaining the whole business five years later as it was previously owned by EQT private equity fund and Carl Zeiss, both controlling a 50% stake. An advantage of acquiring such a competitor include lower costs of operations as witnessed by the company, an increase in bargaining power since the merger led to the increase of the market share by the company and also gave rise to product differentiation in the organisation (Johnston & Bate, 2013). The company however discarded this strategy in favour of diversification. Diversification This is the process through which a company has operations in more than one industry, and this can be done due to the availability of resources. Value creation through diversification is achieved through the transfer of competencies across businesses, sharing of resources and building superior internal governance in the new venture (Wit & Meyer, 2010). Zeiss company has diversified into products that not only increase value in their eyecare products but also increase the value of the company as a whole. Related diversification involves expanding into territories with similar technology and products thus benefitting from the synergy created. Transfer of Competencies Zeiss has been able to use related diversification through its involvement in sports optics, medical technology, and camera lenses. This has enabled the company to boost its vision care business through the transfer of competencies in manufacturing, research and development and even materials to and from new business. The organisation transfers competencies in the field of R&D since most of the lenses use the same or similar technologies developed by the company’s team and sharing of such creates and builds value not only in the eyecare industry but also the other industries such as sports optics. Cost Sharing The company also effectively uses the distribution channels in place for the distribution of its sports optics as the eyecare products and the same almost the same marketing for the products thus ensuring brand recognition and quality maintenance. This diversification also allows the company to share valuable R&D and manufacturing costs. This is because the technology required for Vision Care and Sports optics is more or less the same and hence costs in the research and manufacturing required for specific products is cut. Since the same distribution channels are also used and hence costs are lowered. Internal Governance The organisations effective internal governance and policies also allow the company to manage new ventures with the professionalism of management required in a decentralized way thus effectively running separate businesses within one organisation profitably (Hill & Jones, 2009). In an attempt to create a niche market for its products and also acquire a leadership in the technology realm, Zeiss has partnered with the largest technology company, Apple, to bring to reality AR vision for the public. Virtual reality (VR) plus augmented reality (AR) are on different planes, and the move to provide such technology will ensure that the company’s strategy of acquiring a larger market share is achieved through incorporating Apple customers to its base once the technology is realised. This event gives the company an edge in its corporate strategy of diversification due to emergence of new products from both companies and even though the cost of such a venture is high, the future benefits can recoup the present costs. The rest of the company does not however benefit from this venture since it is in its infant stages. Technological Advancement The company has also taken the reins in technology via collaborating with Deutsche Telekom for the providence of smart glasses. These are glasses that project data and information to the field of view of the one wearing them, and such is a step toward creating a new market and dominating in it (Johnston & Bate, 2013). This collaboration brings together a leading data connectivity firm with an innovative and smart glass optics company to combine the elements crucial to the success of such an endeavour. Although this is a long shot, since the development to the point of marketability has not yet been achieved, it is still a step in the right direction for the company for eyewear products. Research for Diversification The organisation has also collaborated with the Swiss Federal Institute of Technology, a university, in a long-term research collaboration thus ensuring the drop in price for R&D through supporting education at varsity levels. This collaboration is aimed at funding research by students in the varsity and also undertaking joint research ventures with the institution. Such collaboration brings in innovations from the students and allows for the advancement of technology in optics (Wit & Meyer, 2010). SWOT Strengths Weaknesses Opportunities Threats Lower Manufacturing costs Access to Distribution channels Sharing of R&D costs across businesses Economies of scale Improvement of learning Quality protection Investments in assets that are specialized Expertise that cannot be imitated Integration difficulties in diversification Company can be tied to obsolete technology through integration An increase in the cost of raw materials may be observed Problems associated with merging on leadership and operations Growth of the Sports optics Industry Expansion into new markets for their sports products Competitive advantage in terms of design and technology in eyecare Generating products through R&D that can be used across the board Technology development for leadership in the optics industry Imitation by large corporations Management problems Threat of regulation due to astronomic growth Actions by large players in an attempt to control the market Profitability ratio: Gross Margin= Gross Profit/ Net Sales * 100 2015 GM=€2347050/ €4880839 * 100 GM=0.48 * 100 GM=48% 2014 GM=€2079615/ €4510862 * 100 GM=0.46 * 100 GM=46% 2013 GM=€488373/ €909255 * 100 GM=0.54 * 100 GM=54% Market Value Ratio: Dividend yield= Annual Dividends/ Current Stock Price 2015 Dividend Yield= €120000k/€12500k = 9.6 2014 Dividend Yield= €120000k/€6400k =18.75 2013 Dividend Yield=€81309610/€32523844 =0.40 This shows the return on investment for shares bought at the current price. In the fiscal year 2014/2015, the organisations equity amounted to one million three hundred and fifty-seven euros which represents an increase from one million two hundred and forty-nine million euros in the previous year thus generating a two hundred and eight million euros profit. This showed an improvement of the equity ratio to 25.1% from 24.7% but such an improvement is important, but it remains at the previous year’s level. The company also recorded an equity amounting to one million four hundred and sixteen euros in the year two thousand and fifteen thus generating a consolidated profit of four hundred and four million euros. This is an increase from the recorded equity in the previous fiscal year at a million and three hundred euros, but the equity level remained at the same level with that of the previous years at 25%. This shows that the company is operating optimally since its equity ratios remain at par in successive years with the addition of plans for the benefit of the company eating into the equity. Revenue for Vision Care increased during the fiscal year 205/2016 by 8% from €1,007m to €1,089m and this was mainly due to product innovation and brand loyalty by clients. Such growth is also significant and was brought about by growth in growing economies such as China. The eyecare industry has dominant and large players that are performing excellently such as Luxottica which controls the largest market share in volume. However, it is an industry worth venturing into once the right conditions are in place and as such the corporate strategy adopted by Zeiss is one which delivers well as observed in the financial reports of the company. Since the company has been a player in the industry for quite some time, there are no costs of entry that may bar them, but for newer entrants, the market seems unpleasant due to the presence of large players with developed and effective strategies coupled with large market shares (Johnson et al., 2008). References Hill, C. W. L., & Jones, G. R. (2009). Essentials of strategic management. Mason, OH: South-Western/Cengage Learning. Bottom of Form Top of Form Johnston, R. E., & Bate, J. D. (2013). The power of strategy innovation: A new way of linking creativity and strategicplanning to discover great business opportunities. New York: American Management Association. Top of Form Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring corporate strategy: text & cases. Pearson Education. Bottom of Form Top of Form Bottom of Form Wit, B., & Meyer, R. (2010). Strategy: Process, content, context ; an international perspective. Andover, Hampshire: Cengage Learning. Top of Form Wit, B., & Meyer, R. (2010). Strategy synthesis: Resolving strategy paradoxes to create competitive advantage. Andover: Cengage Learning. Bottom of Form Read More