ELECTROLUX: A Case Study

 ======================================================

Question 1: Explain why the issues facing Electrolux were strategic. Try to find examples of all of the items cited in that section.

The company's strategy consists of a combination of competitive movements and business approaches to compete successfully and to achieve organizational goals. Company’s goals are concerned to profitability, productivity, growth, technological zing, stability, independence, survival, competitiveness, customer service, ability to pay, product quality, diversification, employee satisfaction and well-being and so on. 

It is management’s game plan for growing the business, attracting and pleasing customers, conducting operations, achieving financial and market performance objective and become competitive in the market. 

Electrolux case study is concerned about following strategic issues of the organization:

Long-term strategic direction

Scope

Business environment

Advantage over its competitors

Meeting strategic fit with the business environment

Resource availability and competence of the company

      Long-term strategic direction

The long term goal was the development of Electrolux, to speed up market-oriented company based on understanding the customers’ needs. Some other long term issues those Electrolux has taken as strategic –

Increasing the productivity, procurement, and logistics efficiency

Continuous product and employee development

Strengthening the brands of Electrolux

Building a strong global brand

      Scope

Scopes of Electrolux captured by Hans Straberg from the annual report 2005 are:

• Continue to cut cost and kick out market complexity in all aspects of operations
• Increases the product renewal based on consumer insight

Increasing investments in marketing and building the Electrolux brand as a world leader in electronic industry. It was strategic, because Electrolux had a choice between concentrating on one area, or many outlets all over the world. Electrolux was active in a sector with strong global competition and sustainability.

      Business Environment

• Globalizing products and related services all over the world and there will be more concentration on product development, brand-building, marketing etc.
• Market polarization make changes in consume, strengthening global competition and growth. Thus increasing the demand for both basic and higher-price products.
• Consolidating retailers with more big retail chains and fewer traditional dealers. That helps Electrolux with wide geographical coverage, high purchase volume and to keep prices low.

      Advantage over its competitors

Another aim for Electrolux was gaining advantages over its competitors. So maintaining competitive production costs is a prerequisite for survival in the market. For the achievement of obtaining competitive advantages Electrolux introduced the following:

• Providing quality price by globalization has offered high quality product at affordable prices.
• Shift to low-wage countries to move from the US market after Mexico.
• Low cost Purchase.
• Shifting competitors focus on product development marketing and brand building
• Established talent management to develop future active leadership, international career opportunities and a result oriented corporate culture to build up good human resources.

      Meeting strategic fit with the business environment

Strategic fit was also a strong issue for Electrolux. They are trying to set a strategic positioning differing from its environment through niche market in a particular segment. According to the review of Hans Straberg, Electrolux is expecting the group to report higher profitability again in 2006 by launching some new products in both North America and Europe.

For this purpose, strategic decisions usually are trying to achieve any advantage for the organization. The problem for Electrolux was that it was losing the advantage in the fast-growing economies and this forced them to prioritize building the Electrolux brand globally, as well as in all product categories. The advantage can be achieved in different ways and differently interpreted. Organizations use conclusion it must be strategically improve its cost position through better coordination at the global level. For example, Electrolux designed a project to drastically reduce the number of suppliers.

      Resource availability and competence of the company

By resources, we mean financial, human and the organization’s resources which are more important in the implementation of strategic decisions. Electrolux is attempting to bring out the strategic capabilities of the staff. For example, they established talent management processes and tools to ensure group access to competence in the future. Strategies need to be considered are not only the existing resource–base of the organization which is suited to the environmental opportunities but also in terms of resources those can be obtained and controlled to develop a strategy for the future.

      Electrolux’s consideration about values and expectations of competitors

An organization's strategy will be affected by the values and expectations of those parties who have power in and around the organization. The beliefs and values of these players have a more or less direct impact on the organization.

These players (actors, groups and individuals) provide directions to the company to sharpen the strategy in following manner – 

• Accelerating the development as a market-driven company
• Greater understanding of customer needs and providing low – cost and high quality products to create customer delight
• Creating efficient purchasing and supply-chain management that ensures high quality services than competitors
• Developing leadership skills among employees to keep the company ahead of their competitors

These strategies assist to improve total operation, quality, customer satisfaction and profitability.

======================================================

Question 2: What levels of strategy can you identify at Electrolux? 

Introducing the case study there are three 3 levels of strategy, which could be. These are:

In that case Electrolux have followed 3 different levels of strategies in different segments of the business operations.  

Corporate level strategy

Business level strategy

Operational level strategy

      Corporate level strategy

Corporate strategy level brings the overall game plan for the management of a number of companies. From the case study he was moving and disposals made by Electrolux were done, on the corporate level that emphasizes, the larger restructuring exercise performed with added value for the different parts of the business. The relocation of high cost countries low-income countries launch of new products, outsourcing air conditioners in the United States, China, shutting down not to the core business and product development, as well as the branding of Electrolux products, all decisions were level. A further level the decision accelerated the development of Electrolux as market destination was oriented company based on better understanding of customer needs and finally building strong brands.

Following actions ensures that Electrolux have Corporate strategy:

• Larger restructuring exercise at different parts of the business for adding value
• The relocation of high-cost countries to low-cost countries
• Brand Management activities to make Electrolux a global brand

      Business level strategy

Electrolux is following business level strategy to strengthen the market position and to build competitive advantage. That will ultimately assist to gain the competitive skills in a particular market. Objectives of Electrolux’s business level strategy are:

• Removing market complexities and cutting cost in all aspects of operations. It can be achieved through efficient purchasing and production systems.
• Increasing the product renewal based on consumer insight. And that will help to capture the portion of investment.
• Increasing investments in marketing and brand building that will place Electrolux as a world leader in the industry.

      Operational level strategy

The third and final level of strategy used by Electrolux is the operational strategy.  Electrolux is dealing the strategy successfully through some following functions:

• Maintaining a more efficient production and logistics systems and also a more efficient purchasing arrangement.
• The systematic development of brands and staff by the intensified product renewals which are implemented at the operational level and strategic decisions.
• The strategy is effectively implemented by everyone in the organization to achieve a common goal.

These 3 strategies are helping Electrolux in its attainment of ultimate objective.

======================================================

Question 3: 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?

Electrolux is the second largest home appliances company after U.S giant Whirlpool. It has structured the environment in such a way so that they can hold their impressive growth and development. They even restructured the operation in different points where needed. From that case study I understand that they are carrying on operations with some important factors -

Environmental factors (The Environment)

Strategic capabilities

Expectations of stakeholders

      Environmental factors

The environment of an organization stands on a framework of Political, Economic, Social, Technological and Legal factors. Accurate management of these factors helps a firm in attaining the preferred success. These factors will furnish the environment to identify the threats in advance would have to be addressed, and also opportunities acted on. This environmental study must be carried on even if the organization is doing well or not. Companies use risk management techniques on its business environment, which will help the organization to identify potential future risks and opportunities.

Political

• Electrolux used the political advantages of World War II. They identified the major growth in demand for domestic appliance and produced different home appliances such as washing machines and dish washers.
• Electrolux also established production outside Sweden in Germany, UK, France, USA and Australia.
• By using political advantages Electrolux also conducted total of 59 acquisitions. Some major acquisitions are Zanussi (Itally), White Consolidated Products (USA), the appliance division of Thorn EMI (UK), the outdoor products company Poullan / Weed Eater (USA) and AEG Hausgerate (Germany). But the biggest acquisition was the Swedish Granges Group.

Economic

According to the annual report 2005 Electrolux is very economical in its overall operations. Some instances those ensured the Economic success of Electrolux – 

• Electrolux become globalized and started its production in those countries where cost of production is low. That helped to achieve economy.
• Electrolux extended 75% of its total sales outside Sweden. That helped them to increase its turnover and economic growth.

Social

Electrolux has enjoyed the advantage of low cost production by emphasizing more on their production plant location and cheaper suppliers. But in most important social segment Electrolux has little weakness in its distribution channels. Electrolux is dependent on its traditional distribution system. But big retail chains benefits from high purchasing volumes and wide geographical coverage. This helps the company with – 

• Low cost of serving large retailers
• Gives the opportunity to lowering the price to attract more customers
• Makes it easy to reach customers in every geographical location

In present days more customers are moving from traditional shops to large chain stores, such as super stores. Electrolux should emphasize on that issue to capitalize the social benefits and convenience of customers like (LG and SAMSUNG).

//Technology

Electrolux is the largest producer especially for kitchen appliances. It has other wide ranges of products.  Not only from that case, but also from the knowledge of customer satisfaction Electrolux’s products are well functioned and durable. That ensures advanced technological specifications of its products. Moreover Electrolux invested heavily on technological development of products.

Legal

Electrolux is holding its productions and distributions in many countries. They are operating successfully as they are fulfilling all regulations of those countries.

      Strategic capabilities

Strategic capability is quite simply the capacity of a business to survive, prosper and deliver future value. It is the process of shaping strategies and putting them into action. It suggests that a company’s competitiveness depends on how it does what it does. There is no single method or universal metric for measuring or noting strategic capability. It comprises a number of distinguishable components. Here for measuring strategic capabilities of Electrolux we are taking – Strength and Weakness into account.

Strength

Some strengths those Electrolux is possessing are very significant for its long term future growth and prosperity - 

• The company is focusing more on sustainability issues
• It has the ability of increasing its operating profit margin with low suppliers and production costs
• It has results-oriented corporate culture, development of human resources and a strong environmental commitment
• Electrolux has a good relationship with its suppliers
• Electrolux runs on market driven strategy that helps to increase sales.

Weaknesses

Electrolux is a pretty successful company. Although it was campaigning with very good strengths, it has some points of weakness – 

• Its traditional distribution system were lag behind in pace comparing to big distribution chains.
• Electrolux purchased 59 other companies including some big companies and those companies were in high cost countries
• Electrolux were dealing with many suppliers which were increasing costs
• It was very costly for them to develop a project to reduce suppliers

      Expectations of stakeholders

Fulfilling the desires of stakeholders will assist Electrolux to be the market-driven company. Stakeholders’ expectations will be fulfilled as they are ensuring - 

•  Electrolux has a better understanding of the customers’ needs and playing role by considering their expectations.
• Increasing wide range of product renewal based on consumer insight. (Expectations of Customers)
• Improving and maintaining quality as a part of competition with main competitors. (Expectations of Customers)
• Continuation of cost-cutting and expelling complexity in all aspects of operations especially in supplies. (Expectations of Suppliers)
• Increasing investments in marketing and building the Electrolux brand as a world leader in domestic and professional appliances industry. (Expectations of Customers)
• Increasing profitability to fulfill shareholders expectations. (Expectations of Shareholders)
• Developing leadership and international career opportunities to develop company’s human resource. (Expectations of Employees)

These expectations of stakeholders were as employees, suppliers, customers and shareholders. Electrolux is pretty successful in fulfilling all stakeholders’ expectations.

      My response to most important factors

The most important factors are - 

• Environmental factors are very crucial, because it helped Electrolux to understand the framework of its operations. Therefore, a PESTEL analysis will be a guideline in designing the framework.
• Expectations of stakeholders are very important. Because their expectations from the organization are put in the vision, mission and values.
• The strategic capabilities of a firm are centered on its resources and competences. Here resources refer to human, financial and the organizations resources. Electrolux successfully managed its strategic capabilities by meliorating all resources and thus Electrolux enjoys some competitive advantages over its competitors.

======================================================

Question 4: Think about strategic choices for the company in relation to the issues raised.

Strategic decisions are concerning the option for the strategy in relation to the direction in which to perform the operation. Thus, this can be seen that from the following five dimensions:

Business level strategy

Corporate level strategy

International strategy

Entrepreneurship

Methods

      Business level strategy

Typically these involve pricing and differentiation strategies and decisions about how to compete or collaborate with competitors such as reducing the number of product platform, increasing productivity, reducing inventory levels and increasing delivery accuracy. Another option which is implemented by Electrolux is the efficient procurement system, to improve cost position due to better coordination at the global level and the drastic reduction in the number of suppliers. This strategy in reflected by Chief Executive Hans Strasberg.

These strategic plans are:

• Continuing to cut cost and kicking out market complexity in all aspects of operations.
• Increasing the product renewal based on consumer insight.
• Increasing investment in marketing and building the Electrolux brand as the global leader in domestic and professional appliances industry.

      Corporate level strategy

Corporate level strategy is concerned with the scope or breadth of an organization. These include diversification decisions about the products portfolio and the spread of markets. Also concerned with the relationship between different parts of the business and how the corporation adds value to these various parts. For following issues Electrolux followed corporate level strategy –

• Larger restructuring practice at different parts of the business for adding value.
• The relocation of high-cost countries to low-cost countries.

      International strategy

International strategy is a form of diversification into new geographical markets. This strategy focuses the right path of entering to a foreign market by exporting, licensing, direct investment or acquisition. From the case study we get clear ideas that Electrolux sold most of their products outside Sweden. In 90s it was 75% of total sales.

      Entrepreneurship

In another word Entrepreneurship is “Innovation”. Every organization passes the march of entrepreneurship especially at the beginning of the operations. Electrolux’s CEO Hans Straberg emphasizes the acceleration of market orientation of the company through following innovations –

• Increases the product renewal based on consumer insight.
• Increasing investment in marketing and building the Electrolux brand as the global leader in the industry.

      Methods

Methods are the fashions of pursuing any new strategy. According to the case study, Electrolux were engaged with some newly promote strategies in its operations. Such as – 

• A series of important new innovations lunched both in North America and Europe.
• Development of new distribution channels for the products of Professional food service and Laundry equipment.

======================================================
 

Question 5: What are the main issues about strategy into action that might determine the success or failure of Electrolux’s strategies?

Strategy into action means whether the strategy is put into action or not. “Strategy Development” processes of an organization are very important. Electrolux’s strategies are the blend of Intended and Emergent strategy. Here formal strategic planning decisions are the Intended and actually pursued decisions are the Emergent. Organizing a company involves organizational structures, processes, relationships and the interaction between these elements. 

As in the case we can see that Electrolux is “Restructuring” the under-performing section (Air Conditioners) in USA, which was not profitable because of high cost. And then it was shifted to china. Also, in the 1930s the company spread its wings by establishing production outside Sweden in Germany, UK, France, USA and Australia. Another restructure is done in 2000s where 85% of sales were in consumer durable products and 15% from products of professional users. 

Electrolux’s strategy in action may take the form of “Resourcing” strategies in separate resource areas such as people, information, finance and technology in order to support the overall strategies. Electrolux attempted to develop its human resource with an active leadership development, international career opportunities and a result-oriented corporate culture.

Managing strategy very often involves “Strategic Change” which is another important area. That means the implementation of new strategies will have some degree of changes. These changes are seen in the distribution channel where Electrolux shifted its traditional retail chains to large distribution chains for the products of Professional food service and Laundry equipment.

All these methodologies, resources, processes, strategic elements are place in the “Practice of Strategy” at Electrolux.

======================================================

Thank You