Question 1
There are three strategy that may explain the strategy levels of Electrolux which are corporate level strategy, business unit level strategy, and functional level strategy. Followings are the how the strategy levels used in Electrolux.
Corporate Level Strategy
Corporate level strategy is concerned with the issues that are corporate responsibilities, these might include identifying the overall goals of the corporation, the types of businesses in which the corporation should be involved, and the way in which businesses will be integrated and managed. And defining where in the corporation competition is to be localized. Take the case of insurance; corporations decide how business units are to be governed, through direct corporate intervention which is also known as centralization or through more or less autonomous government, called as decentralization also, that relies on persuasion and rewards. As the last, corporations are responsible for creating value through their businesses they do so by managing their portfolio of businesses, ensuring that the businesses are successful over the long-term, developing business units, and sometimes ensuring that each business is compatible with others in the portfolio. (Mulcaster, W.R. “Three Strategic Frameworks”, Business Strategy Series, 2009.)
The Electrolux management had their decision during the time of 2005, their decision was to demerge outdoor products division and focus on the company’s goal which is the indoor products. So this new organization was established with better management.
Business Unit Level Strategy
A strategic business unit may be a division, product line, or other profit center that can be planned independently from the other business units of the firm.
At the business unit level, the strategic issues are less about the coordination of operating units and more about developing and sustaining a competitive advantage for the goods and services that are produced. At the business level, the strategy formulation phase deals with positioning the business against rivals, anticipating changes in demand and technologies and adjusting the strategy to accommodate them, and influencing the nature of competition through strategic actions such as vertical integration and through political actions such as lobbying.
As what other corporations do, the Electrolux was established in home country to pursue the strategy in over the other countries. They move from US to Mexico, for the production of refrigerator. So they could cut cost with competitive cost levels. And this affected the Electrolux to have a significant price in the market and give the comprehensive conditions in working.
Functional Level Strategy
The functional level of the organization is the level of the operating divisions and departments. The strategic issues at the functional level are related to business processes and the value chain. Functional level strategies in marketing, finance, operations, human resources, and R&D involve the development and coordination of resources through which business unit level strategies can be executed efficiently and effectively.
Functional units of an organization are involved in higher level strategies by providing input into the business unit level and corporate level strategy, such as providing information on resources and capabilities on which the higher level strategies can be based. Once the higher-level strategy is developed, the functional units translate it into discrete action-plans that each department or division must accomplish for the strategy to succeed.
Sometimes, Electrolux intensified product renewal through the investment in product development and launched the new goods at the high rate. It made the efficient global coordination which gives a number of new global production level.
“Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations”. (Johnson and Scholes)
Question 2
Rivalry
In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences. Of course Electrolux was the largest domestic and professional appliances for the kitchen, cleaning outdoor producer, but the most important factor for a company is rivalry. If rivalry among firms in an industry is low, the industry is considered to be disciplined. This discipline may result from the industry’s history of competition, the role of a leading firm, or informal compliance with a generally understood code of conduct. Explicit collusion generally is illegal and not an option; in low-rivalry industries competitive moves must be constrained informally. However, a maverick firm seeking a competitive advantage can displace the otherwise disciplined market.
Treat of substitutes
In Porter’s model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a product’s demand is affected by the price change of a substitute product. A product’s price elasticity is affected by substitute products, as more substitutes become available the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices. But during 2005, there was no other company that could be able to compete with Electrolux, so that there was only Electrolux could give satisfaction in the production to the customers.
Buyer Power
The power of buyers is the impact that customers have on a producing industry. In general, when buyer power is strong, the relationship to the producing industry is near to what an economist terms a monopsony which means a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure monopsonies exist, but frequently there is some asymmetry between a producing industry and buyers. The following tables outline some factors that determine buyer power. But although other companies were trying harder to satisfy customers to get the power if the buyer, however, only the Electrolux could get the advantage of the buyer power during 2005.
Supplier Power
A producing industry requires raw materials – labor, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry’s profits. The following tables outline some factors that determine supplier power. Electrolux has relatively low supplier power, so that company has launched a project to reduce number of suppliers.
Barriers to Entry
It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market.
As I see the effects of the Porter’s five forces, those five factors are very important thing in any kind of companies. But for the household appliances industry they will face a lot of rivalry in the market. Because the quality of the product are very differ from each other or the price is very differ from each other. For these reasons, a household appliance company needs to get a reputation in any field, something like this company has high priced product but the quality is the best. There are the five factors that are rivalry, treat to substitutes, buyer power, supplier power, and barriers to entry. The company that has all five of these factors will be able to attract customers very well.
Question 3
Strategic capability
The strategic capability is the competencies, knowledge, and skills that an organization can apply to achieve success in a competitive environment. The concept is thought to be derived from the core competencies approach to corporate strategy. It is viewed as one of the main pillars of strategic management and focuses on the ability to provide products that customer’s value or will value in the future. This involves the need to adjust and change in order to “fit” the changing environment and the need to “stretch” to exploit organizational resources in ways that are innovative, or that other organizations will find it hard to match. The reason why an understanding of strategic capability is important is concerned with whether an organization’s strategy continues to fit the environment and the opportunities and threats that exist. However, understanding strategic capability is also important from another perspective. The organization’s capability may be the leading edge of strategic developments, in the sense that new opportunities may be created by stretching and exploiting the organizations capability either in ways which competitors find difficult to match or in genuinely new directions or both. This requires organizations to be innovative in the way they develop and exploit their capability. This has been called the resource-based view of strategy.
For the strategic capability of the Electrolux, in the 1980s, there was the biggest acquisition by the Swedish group, for that reason, 75 percent of Electrolux’s sales were outside of Sweden by 1990s. And this increased in the 1990s, as Leif Johansson expanded into Eastern Europe, Asia, and Central and South America. Then he disposed of many of the noncore industrial activities.
Question 4
Electrolux identified the strategic issues such as managing under performers, moving production to low-cost countries, more efficient production and logistics, more efficient purchasing, intensified product renewal, access to competences and starting to build a strong global brand. I, for the benefit of this exercise and according to me, have identified the three most important strategic issues faced by Electrolux is start to build a strong global brand, move production to low cost countries and Intensified product renewal.
Electrolux have highlighted globalization as being an area which the company would need to examine, and they will need to form some sort of ‘strategic weapon’ to tackle it. Globalization within the economy can also be known as change. Change is an implication when making any strategic decisions in business. Branding is, for me, one of the most important aspects of a company’s success. Once one has established a strong brand it is something that is not easily copied by competitors especially if it is a unique product range. This will go hand in hand with product renewal. The aim of Electrolux’s should be to be the first brand people think about when prompted to purchase a household appliance.
So, for Electrolux, those three factors of start to build a strong global brand move production to low cost countries and intensified production renewal helped the Electrolux itself to strengthen competitive position of Electrolux. If I add up some of my personal opinion although Electrolux itself has a very big market place and competitively high reputations, they are achieving their goal by continuing to cut costs and drive out complexity in all aspects of operations, increasing the rate of production renewal based on consumer insight, and increasing the investment in marketing, and building the Electrolux band as the global leader in the industry, so that it has the strong competitive position.
Question 5
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation or a company is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large. Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders’ welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world.
For the case of corporate governance of Electrolux, The governance of Electrolux is based on the Swedish Companies Act, the regulatory system of NASDAQ OMX Stockholm and the Swedish Code of Corporate Governance, the Code, as well as other relevant Swedish and foreign laws and regulations. In this section you will find information as the example of that, on Electrolux governance structure, composition of the Board of Directors and Group Management, major shareholders, coming and previous General Meetings as well as the Group’s corporate governance reports. Because the corporate governance of Electrolux is comprised of approximately 160 companies with operations in over 50 countries, the parent company of the Group is AB Electrolux, a public Swedish limited liability company. The company’s shares are listed on NASDAQ OMX Stockholm.
Question 6
The Electrolux has a lot of acquisition strategies by running the company until now. As I said Electrolux got three factors of start to build a strong global brand move production to low cost countries and intensified production renewal helped the Electrolux itself to strengthen competitive position of Electrolux. If I add up some of my personal opinion although Electrolux itself has a very big market place and competitively high reputations, they are achieving their goal by continuing to cut costs and drive out complexity in all aspects of operations, increasing the rate of production renewal based on consumer insight, and increasing the investment in marketing, and building the Electrolux band as the global leader in the industry, so that it has the strong competitive position. If I say more detail about those factors, intensified product renewal, they think the future is more depend on how well can combine a continued focus on costs with intensified product renewal, and systematic development of band and personnel. Access to competence has over the few years they have established processes and tools to ensure the group of access to competence in the future. Active leadership development, international career opportunities and a result oriented corporate career opportunities and a result oriented corporate culture enable them to develop successfully.
And the more efficient production and logistics is that they put a good deal of time and effort into making production and logistics more efficient. This will involve reducing more number of production platform, and increasing production, some more, reducing inventory levels and increasing delivery accuracy. The other is more efficient purchasing, similar to the production and logistics, purchasing is another area that they have to implement changes in order to improve their cost position, mainly through better coordination at the global level. They will launch a project designed to drastically reduce the number of supplies, and also intensified their cooperation with suppliers in order to cut the cost of components.
According to what the Electrolux says they will fully integrating sustainability into Group strategy and operations at all levels is a key to maintaining success in the long term. The Electrolux organization is decentralized, which gives business units flexibility in meeting consumer preferences and local market requirements. In order to ensure a holistic approach, group-wide performance is monitored, training is coordinated and targets are aggregated. The Board assesses ethical risks and opportunities annually. Sustainability-related strategies and policies are defined by Group Management. Each business area is responsible for implementation. This helps ensure that learning can be both leveraged across markets and meet local needs. Responsibility covers environmental management, human resources as well as health and safety issues. In addition, the business areas manage the impacts of operations on communities, both during operation and restructuring. Group Sustainability Affairs supports business areas and Group functions with expertise, training, issue identification and monitoring. Sustainability Affairs is part of Group Staff Communications and Branding. Group Purchasing is responsible for compliance with the Code of Conduct along the supply chain. The Responsible Sourcing Program enables the Group to maintain local presence and support purchasers and suppliers with training, audits and development activities. The manager of the program reports to Group Sustainability Affairs.
And they will conduct work place code which defines high employment standards for all Electrolux employees in all countries and business areas as well as for all subcontractors. The Code covers issues such as child and forced labor, health and safety, workers’ rights and environmental compliance. Electrolux applies common management practices for the Workplace Code of Conduct and monitors and reports on progress for all facilities with more than 30 employees. An electronic assessment tool, Awareness-Learning-Feedback-Assessment, supports internal implementation of the Workplace Code of Conduct and monitors Electrolux units regarding compliance.
As the last of my opinion, although Electrolux is not the best and as the Electrolux cannot be the best because every company will have the cycle and all the companies need the rivalry to motivate each of the companies to develop and work better, until they can be one of the best company in customers or consumer’s mind, they will keep change their strategy and management.
Reference
Electrolux, http://www.electrolux.com/node98.aspx [Accessed on: March 12 2010 ]
Mulcaster, W.R. “Three Strategic Frameworks”, Business Strategy Series, 2009.
Porter, M.E. (1980) Competitive Strategy, Free Press, New York, 1980.
Kotler Philip, Marketing Management, Prentice-Hall, Inc. 1997