electrolux assignment on strategic management
TRANSCRIPT
BRIEF HISTORY OF ELECTROLUX
The origins of Electrolux can be traced back to the introduction of the vacuum cleaner,
the invention of the absorption refrigerator and a marketing genius named Axel Wenner-
Gren.
Legend has it that Mr Wenner-Gren saw an unwieldy Santo vacuum cleaner in Vienna
and went to work for them. When he had learnt enough, he went home to Stockholm,
worked on his idea with colleagues and staff and presented the Lux 1, the world's first
household vacuum cleaner in 1912.
In 1901, AB Lux, Stockholm, was established. The company launches the Lux lamp - a
kerosene lamp for outdoor use - which proves to be a tremendous sales success. The
lamp was also used in lighthouses all over the world.
On October 30, 1917, Elektron (In which Axel Wenner.Gren owns a large interest)
purchases all the shares of Elektromekaniska. Wenner-Gren was elected member of
the board of Elektromekaniska and likewise, Sven Carlstedt joins the board of Elektron.
On August 1, 1919, an agreement was reached between AB Lux and Svenska Elektron
AB (in which Wenner-Gren was the dominating owner) giving Elektron the sole sales
rights to AB Lux vacuum cleaners. The agreement, which was valid through 1929,
obligates Elektron to buy its vacuum cleaners from Lux and show Lux the manufacturer
on all the vacuum cleaners.
At the Annual General Meeting on August 29, 1919, Elektromekaniska AB (wholly
1 | P a g e
owned by Wenner-Gren-dominated Elektron) changes its name to AB Electrolux. The
new name was a combination of Elektromekaniska and Lux.
In 1925, the first Electrolux absorption refrigerator was launched and Electrolux started
in its quest to be the largest household appliance producer in the world.
Board of Directors
The company have ten member board of Directors and at their Annual General Meeting
held in March 2010, Marcus Wallenberg was re-elected as Chairman of the Board.
Lorna Davis was elected new Board member while Peggy Bruzelius was re-elected
Deputy Chairman of the Board.
Ownership
The share capital of AB Electrolux consists of 308,920,308 shares, of which 9,063,125
are A-shares and 299,857,183 are B-shares.
A-shares carry one vote and B-shares one tenth of a vote. Each share has a quota
value of SEK 5.00. In general, 100% of the shares are considered to be free-floating.
At year-end 2009, approximately 43% of the total share capital was owned by foreign
shareholders.
Shareholding Structure
2 | P a g e
Major shareholders as of March 31, 2010
Number of A-shares Number of B-shares Total number of shares Share capital, % Voting rights, %
Investor 8,270,771 30, 894, 300 39, 165, 071 12.7 29.1
BlackRock Funds 16, 951, 158 16, 951, 158 5.5 4.3
Alecta Pension Insurance 500,000 13, 364, 000 13, 864, 000 4.5 4.7
Swedbank Robur Funds 9, 324, 258 9, 324, 258 3.0 2.4
AMF Pension Insurance 6, 997, 505 6, 997, 505 2.3 1.8
SHB Funds 5, 708, 805 5, 708, 805 1.8 1.5
SEB 5, 660, 004 5, 660, 004 1.8 1.4
Second Swedish National Pension Fund 5, 030, 369 5, 030, 369 1.6 1.3
Fourth Swedish National Pension Fund 3, 079, 934 3, 079, 934 1.0 0.8
SEB Funds 3, 045, 646 3, 045, 646 1.0 0.8
Other shareholders 292,354 175 ,344, 913 175, 637, 267 57.9 52.7
9,063,125 275, 400, 892 284, 464, 017 92.1 100
AB Electrolux 24, 456, 291 24 ,456, 291 7.9 0
Total 9,063,125 299, 857, 183 308, 920, 308 100 100
As of March 31, 2010, approx. 39.3% of the total share capital was owned by foreign investors, approx. 52.7% by Swedish institutions and mutual funds, and approx. 8.1% by private Swedish investors.
Source: http://www.electrolux.com
3 | P a g e
Source: http://www.electrolux.com
4 | P a g e
QUESTION 1
EXPLAIN WHY THE ISSUES FACING ELECTROLUX WERE STRATEGIC.
TRY TO FIND EXAMPLES OF ALL OF THE ITEMS CITED IN THAT
SECTION.
Businesses are set with so many objectives. Some of these objectives relate to
profitability, productive efficiency, growth, technological dynamism, stability, self-
reliance, survival, competitive strength, customer service, financial solvency, product
quality, diversification, employee satisfaction and welfare, and so on.
A company’s strategy consists of the combination of competitive moves and business
approaches that managers employ to please customers, compete successfully and
achieve organizational objectives. Strategy they say is the overall plan for developing
resources to establish of gain a competitive advantages over competitors or a favorable
plan in an organization.
According to Johnson G./Scholes K./Whittington R in their book, “Exploring Corporate
Strategy; 8th edition”, strategy is defined as “the direction and scope of an organization
over the long-term, which achieves advantage in a changing environment through its
configuration of resources and competences with the aim of fulfilling stakeholder
expectations”.
5 | P a g e
In the Electrolux case study, the strategic issues facing the organization were;
Long term direction of the organization
Scope of the organization activities
Gaining advantage over its competitors
Strategic fit with the business environment
The organization’s resources and competence
Long term direction of the organization
This must be seen into the future of the organization. The goal was to accelerate the
development of Electrolux as a market driven company based on greater understanding
of customer needs. This issues facing the organization was strategic in nature as shown
in the 2005 annual report of Electrolux
Scope of the organization activities
As stated in the 2005 annual report of Electrolux, the scope was captured under the
goals stated by Hans Straberg. These are:
Continuing to cut costs and drive out complexity in all aspects of operations
Increasing the rate of product renewal based on consumer insight
Increasing our investment in marketing, and building the Electrolux brand as the
global leader in our industry.
It was strategic because Electrolux had a choice of concentrating in one area or should
have many outlets i.e. going globally. Electrolux was operating in an industry with strong
6 | P a g e
global competition and the option of changing the business model for units that could be
considered as non-core operations or in areas where profitability is low.
Gaining advantage over its competitors
Another issue facing Electrolux was gaining advantage over its competitors. Thus
maintaining competitive production costs is a pre-requisite for survival in the market,
and there is the need to relocate production from high –cost to low cost countries. For
the attainment of gaining competitive advantage Electrolux put in place the following;
The provision of quality price through globalization has offered quality product at
low prices.
Relocating to low cost countries thus moving from the US market to Mexico.
Buying components
Shifting of competitors focus to product development marketing and brand
building.
Strategic fit with the business environment
This was also an issue facing Electrolux. They needed strategic positioning in other to
fashion out its environment through market niche in a particular segment. From the case
study, Hans Straberg in reviewing the business operations indicated that the group
reported higher profitability in 2006 in both North America and Europe and will lunch a
number of important new products.
To this end, strategic decisions are normally about trying to achieve some advantage for
the organization. The issue facing Electrolux was that, it was losing the advantages in
7 | P a g e
the fast growing economies and this compelled them to prioritise building of the
Electrolux brand both globally and across all product categories.
The achievement of advantage may be in different ways and interpreted differently. For
organizations to take advantage of completion, it has to improve its cost position
strategically through better coordination at the global level. Example is when Electrolux
launched a project designed to drastically reduce the number of suppliers.
The organization’s resources and competence is also an important feature of
strategy.
The resource-based view of strategy is about exploiting the strategic capabilities of the
firm in terms of its resources and competencies to provide competitive advantage. By
resources, we mean financial, human and the organization’s resources which are more
important in the implementation of strategic decisions. For example, at Electrolux, a
great deal of time and effort were put in place to make production and logistics more
important as captured in their 2005 annual report. Also, Electrolux in their attempt to
exploit the strategic capabilities of the staff, for example, established talent
management processes and tools to ensure group access to competence in the future.
Strategies then need to be considered not only in terms of the extent to which the
existing resource –base of the organization is suited to the environmental opportunities
but also in terms of the extent to which resources can be obtained and controlled to
develop a strategy for the future.
8 | P a g e
Values and expectations of powerful actors in and around the organization are a
key to the characteristics of strategy .
The strategy of an organization will be affected not only by environmental forces and
resource availability, but also by the values and expectations of those who have power
in and around the organization. In some respects, strategy can be thought of as a
reflection of the attitudes and beliefs of those who have the most influence on the
organization. Whether a company is more concerned with consolidation and where the
boundaries are drawn for a company’s activities, may say much about the values and
attitudes of those who influence strategy. i.e. the stakeholders of the organization. The
beliefs and values of these stakeholders will have a more or less direct influence on the
organization. From the case study, one realizes that all CEOs who came pursued it in
terms of expansion. Others did it in terms of merging and acquisitions like Hans
Werthen when he took over in 1967 as the president of Electrolux.
These actors, groups and individuals drive the fundamental issues that sharpen the
direction of the business. From the case study again, the stakeholders were demanding
basic products as a result of changing consumer preference, growth of global retail
chains and greater global competition leading to polarization of the market. The key
stakeholders of Electrolux are Customers, Suppliers, Employees and Shareholders.
With respect to the customers, their preference to low cost product and high quality
product were addressed .That of suppliers has also been captured well as the
coordination with suppliers signifying a supply intimacy relationship. This was well
9 | P a g e
rooted through the more efficient purchasing and more efficient product and logistics.
This generated into a good supply chain management and quality services.
Under employees, this was well resolved through the opportunities for leadership
development and international career .This strategy has been effectively implemented in
recent years by everyone in the organization and is paying off. The shareholders aspect
was also well addressed through increase in profit that has enhanced their operations.
10 | P a g e
QUESTION 2
WHAT LEVELS OF STRATEGY CAN YOU IDENTIFY AT ELECTROLUX?
From the case study there are three (3) levels of strategy that could be envisage. These
are:
Corporate Strategy levels
Business Strategy levels
Operational Strategy levels
Corporate Strategy levels
Corporate level strategy entails the overall game plan for managing a set of business.
From the case study the acquisitions and disposals made by Electrolux were done at
the corporate levels which emphasizes that major restructuring exercise undertaken
was with the view of adding value to the different parts of the business. The relocation
from high cost countries to low cost countries, the lunching of new products , out-
sourcing air –conditioners in US to China, shutting down of non core operations and the
product development and branding of Electrolux products were all corporate level
decisions.
Another corporate level decision taken was the accelerated goal to the development of
Electrolux as a market driven company based on greater understanding of customer
needs and finally, building strong brands .
Business Strategy levels
11 | P a g e
The second strategic level adopted by Electrolux was the business strategy level which
is how to strengthen market position and build competitive advantage and also actions
to build competitive capabilities in a particular markets. This has been captured under
Electrolux strategies in the case study and the goals stated are:
Continuing to cut costs and drive out complexity in all aspects of operations. This
has been achieved through achieving comparative advantage and introducing
more efficient purchasing and efficient production systems.
Increasing the rate of product renewal based on consumer insight. This has been
captured under intensified product renewal and the investment of at least 2% of
sales in product development.
Increasing investment in marketing, and building the Electrolux brand as the
global leader in the industry. This has been captured under starting to build a
strong global brand. In Hans Straberg submission, he re-echoed that “our goal is
for our investment in brand-building to correspond to at least 2% of sales.”
Also of greater importance are strategic business units (SBU) which is a distinct
external market for goods or services that are different from another SBU.
Operational Strategy levels
The third level strategy adopted by Electrolux is the operational strategy. This level
takes into consideration the provision of a game plan for managing a particular activity
in a way that support the overall business and add relevant details to the whole of the
overall business strategy. This operational level strategy has been undertaken under a
more efficient production and logistics systems and also a more efficient purchasing
arrangement. The systematic development of both brands and personnel as
12 | P a g e
combination of continued focus on cost and intensified product renewal are also
strategic decisions been implemented at the operational level. The human resource
capabilities have been attested in the access to competence section of the case study.
For instance, this was depicted or seen in the last paragraph of the 2005 report where
the strategy was effectively implemented by everyone in the organization.
QUESTION 3
13 | P a g e
IDENTIFY THE MAIN FACTORS ABOUT THE STRATEGIC POSITION OF
ELECTROLUX. LIST THESE SEPARATELY UNDER ENVIRONMENT,
CAPABILITY AND EXPECTATIONS. IN YOUR OPINION WHICH ARE THE
MOST IMPORTANT FACTORS?
The strategic position of Electrolux is concerned with identifying the impact of the
external environment, the strategic capability and the expectations of stakeholders on
the organization’s strategy.
The strategy of Electrolux refers to the organization’s overall scope over the long term,
which achieves an advantage in a changing environment through its configuration of
resources and competence with the aim of fulfilling stakeholder expectation. There are
four key factors determining this and it’s explanation is given below:
The environment
The external environment seeks to emphasize the fact that every organization
exist within the context of a complex political, economic, social, technological,
environmental and legal world. Organization’s will have to map up strategies
designed to deal with challenges posed by one or more of these kinds of factors
in other to take advantage of opportunities along the way. This also emphasizes
the need for organizations to scrutinize the environment in order to identify
factors about their environment for which threats might have to be addressed in
advance and as well opportunities will be acted on. This will have to be done
14 | P a g e
even when the organization is performing well, utilizing enterprise risk
management techniques which will assist the organization to identify far in
advance potential future risk and opportunities.
Political
Politically, Electrolux took advantage of the Second World War and produced
domestic appliances such as washing machines and dish washers since there
was a great growth in the demand for these appliances.
Social
Socially, the industry had become polarized as a result of changing consumer
preference hence the growth of global retail chains and greater global
competition. This led to companies not to only focus on production elements
such as the location of production plants but also purchasing from cheaper
suppliers. Another issue that emerged was on distribution channels in the form of
the retail chains. Unfortunately, this was one of the weaknesses of Electrolux.
Firms only focused on location of production plant and purchasing were likely to
be outperformed by others who paid attention to this. Customers shifted from
buying from traditional shops to big chain shops like the super markets and so
on.
Economical
Economically, according to the 2005 annual report, there were three critical
important aspects of Electrolux’s market that strategy had to address. The first
15 | P a g e
among them was the issue of Globalization. Electrolux operated in a market with
strong global competitions and the strategy adopted by most firms in the industry
was to locate their production plants in countries where production cost was low.
They also expanded their markets outside Sweden which contributed to 75% of
their sales.
Technology
Technologically, Electrolux also invested in product development as they opened
state of the art production unit for serving the entire North American market.
Legal
Legally, all internal and external regulations were met since it would not be
possible to operate in a country whose regulations are not been adhered to.
Strategic Capabilities
The strategic capabilities of a firm are centered on its resources and competences. The
resources here refer to human, financial, the organizations resources and the ability to
meet the stakeholder’s expectations. In considering the strategic capabilities, we look at
the strengths and weaknesses of the organizations, ie, whether the organization enjoys
competitive advantage or not over its competitors.
Strength
The strength of Electrolux was well rooted in result oriented corporate culture,
development of its human resource and a strong environmental commitment.
16 | P a g e
The organization also built very good relationship with its suppliers. Also, in the
course of cutting down cost was able to capture the market share of the
traditional dealer to retail chains.
Weaknesses
After a successful performance following its entry into the industry, Electrolux
found itself embarking on a crusade of acquisitions in Europe. In total, 59
companies were acquired in 1967. This strategy turned out to be unwise. These
were countries in which cost of production was high.
Besides producing at a higher cost of production, Electrolux had issues when it
came to purchasing. First, its suppliers were many and therefore a project had to
be developed under which the number was drastically reduced.
Expectations
On stakeholders expectations, the goals was to accelerate development of Electrolux as
a market–driven company based on the greater understanding of customers needs
through;
Continuing cutting costs and drive out complexity in all aspects of operations.
Increasing the rate of product renewal based on consumer insight.
Increasing our investment in marketing and building the Electrolux brand as the
global leader in our industry.
17 | P a g e
These expectations of stakeholders have been identified as employees, suppliers,
customers and shareholders. From the case study employees expectations have been
well catered for through international career opportunities, equipping them with talent
management skills and tools to enhance efficiency. Under suppliers, the company
envisaged a solid supply intimacy which has sustained a good relationship with
suppliers and a sound supply chain management. This has been captured under more
efficient purchasing system that has been implemented in order to change and improve
cost position and reducing the number of suppliers.
On the other hand, customer preference which is the reason for their existence has
been well catered. Thus knowing your customer is a key to the success that Electrolux
has achieved .Meeting the demands of its customers through quality services and given
them products at competitive prices that meet their needs.
Finally, the shareholders expectations have been well met through the success story
from the acquisitions.
Opinion on the Factors
The most important factors are;
Stakeholders Expectations – this is because the influence of stakeholders
expectations on an organization encapsulate the vision, mission and values.
The issue of corporate governance is the guiding principle in shaping
managers in their daily activities in other to attain goals of the organization.
18 | P a g e
Environmental factors are important because it helped Electrolux to
understand the framework that it operates within. Thus a pestel framework
analysis will be a guide in shaping the industrial dynamics.
Strategic Capabilities – Every organization strives well on the human capital
of the business to survive. From the case study the competence level of the
personnel was well rooted through a solid talent management process and an
international career opportunity given to them to meet the needs of the
organization.
QUESTION 4
19 | P a g e
THINK ABOUT THE STRATEGIC CHOICE FOR THE COMPANY IN
RELATION TO THE ISSUES RAISED
Strategic choices involve the option for strategy in terms of the direction in which to
operate. Thus, this can be looked at from the following five dimensions namely;
Business Strategy Level
Corporate Strategy Level
International Strategy Level
Entrepreneurship
Organizations
Business Strategy Level
The business strategy level deals more on efficient production and logistics with the
view of reducing the number of product platform, increasing productivity, reducing
inventory levels and increasing delivery accuracy.
Another choice is the efficient purchasing system been implemented in order to improve
cost positioning mainly through better coordination at the global level and the drastic
reduction of numbers of suppliers. All these are well rooted through the strategic goals
outline in the strategic plan reported by Hans Straberg.
These strategic plans are:
Continuing to cut costs and drive out complexity in all aspects of operations
Increasing the rate of product renewal based on consumer insight
20 | P a g e
Increasing our investment in marketing, and building the Electrolux brand as the
global leader in our industry.
Corporate Strategy Level
This deals with moving production to low-cost countries. It’s important to continue
relocating production from high-cost to low cost countries. Shutting down plants where
costs are high and build new ones in countries with competitive cost–levels.
International Strategy Level
From the case study, acquisitions made from the 70’s to the 90’s that generated 75% of
Electrolux sales coming from outside Sweden and the expansion drive together with the
disposal of non-core industrial activities.
Major restructuring in the late 90’s to 2000 contributed to about 85% of sales in
consumer durables and 15% in related products.
Entrepreneurship
Hans Straberg (CEO) goal to accelerate the development of Electrolux as a market-
driven company based on greater understanding of customer needs through the
underlying goals;
Continuing to cut costs and drive out complexity in all aspects of operations.
Increasing the rate of product renewal based on consumer insight.
21 | P a g e
Increasing our investment in marketing and building the Electrolux brand as the
global leader in our industry
Organization
These are methods to pursue strategy; this has been captured under looking ahead to
the near future in the case study. The following points are worth noting;
Both North America and Europe lunching of a number of important new products.
Improvement in professional indoor products
Development of new distribution channels for food service equipment.
QUESTION 5
22 | P a g e
WHAT ARE THE MAIN ISSUES ABOUT STRATEGY INTO ACTION THAT
MIGHT DETERMINE THE SUCCESS OR FAILURE OF ELECTROLUX’S
STRATEGIES?
Strategy in action looks at whether the strategies chosen are actually put into action. It
is important to look at the strategic development processes of Electrolux. The strategies
that Electrolux actually pursued were combination of intended and the emergent.
Formal strategic planning decisions are the intended ones and what is actually pursued
are the emergent including responses to unanticipated opportunities and so on.
Structuring an organization to support successful performance; these involve
organizational structures, processes and relationships and the interaction between
these elements. At Electrolux, they saw that the company was restructured to manage
the under-performers. Those none-core business and low profit brands’ business
models were all divested and changed. Also, in the 1930s, the company spread its
wings by establishing production outside Sweden. This was done to create the leading
products in refrigeration and vacuum cleaning.
Strategy in action may take form of resourcing strategies in separate resource areas
such as people, information, finance and technology in order to support overall
strategies.
Electrolux took a number of steps in this direction; one form this took was the
construction of the distribution channels for food services distribution. Again Electrolux
23 | P a g e
sought to develop its human resource, ie, the people through an active leadership
development, international career opportunities, and a result-oriented corporate culture.
Another important area is how to manage change; all because implementing new
strategies will certainly involve some degree of change. The consideration needs to be
given to the different aspects of the organization and their possible impact on strategy.
For instance how will employees react to strategy, are they just going to comply or be
committed or resist. This point further raises the issue of the strategy development
process and the issues pertaining to consultation. Due to the changes inherent in
strategy at times, that is why emphasis is placed on consultation with all stakeholders.
A major restructuring was undertaken by Electrolux in the late 1990s which created the
shape of the organization in the early 2000s. This saw the organization making 85% of
its sales in the consumer durables and 15% in the professional products. This clearly
shows that in pursuing some of its strategies, there might be the need for structuring the
organization to support successful performance. The structuring might affect the
structures, the processes and relationships. For success to be achieved in the
development of new product, consumer concern should be included in the process.
24 | P a g e