Electrolux Case Study
The case study highlights the fact that in 2005 Electrolux was the world’s biggest producer of domestic and professional appliances for kitchen, cleaning and outdoor use. There were three important issues in the companies target markets that their strategies had to address, namely globalisation, market polarisation and the consolidation of retailers. The strategies adopted by Electrolux to deal with these issues are covered in detail in the answers to the questions that follow.
1. Explain why issues facing Electrolux were Strategic
● Long Term direction of an organisation – The definition of grand strategy (http://www.businessdictionary.com/definition/grand-strategy.html) being a long term plan of essential actions to achieve it’s major objectives, may include organisational development through acquisition, divestiture or strategic alliances Electrolux’s demerger in outdoor products (Husqvarna) division shaped and focused the remaining units on indoor products to contribute to the overall success of the company well into the future. ● Scope of the organisation’s activities – Business units that were considered non-core operations for Electrolux were divested (examples of this were the operations in motors and compressors). Similarly business units where profitability was too low were outsourced (Examples of this was where the production of air conditioners in the USA, deemed not to be profitable, were outsourced to China) ● Advantage for the organisation over competition – Electrolux identified that low production costs were vital to survival in the market place. They realised that they had to divest in production plants where production costs were too high and to invest in building new plants in countries where production costs were low. An example of this was where they moved the production of refrigerators from Greenville in the US (High Production costs) to Juarez in Mexico (Low production costs). ● Strategic fit with business environment – Electrolux has identified the need for renewed product development based on consumer insight. Investment into new product development was specified at 2% of sales to meet this requirement. ● The organisations resources and competencies – The CEO prioritised the building of the Electrolux brand across all its products worldwide. This afforded them a significant price premium on their product sales and therefore increased their sales margins. ● The values and expectations of powerful actors in the organisation – Electrolux identified that staff are also stakeholders in the business and they needed to develop their staffing resources by giving training in leadership and result orientated corporate culture to enable staff to act fast in resolving problems and seizing opportunities and do things differently.
2. What levels of strategy can be identified at Electrolux ● Corporate level strategies
● Electrolux made the decision to demerge their outdoor products division as Husqvarna. This was a major corporate level strategy allowing the company to narrow its focus on indoor products for both the home and professional cooking and cleaning organisations. ● Divesting in business units where profits were too low, such as the operations in motors and compressors. Units that were not profitable in the US were outsourced to manufacturers in low cost countries, such as the production of air conditioners in the US, which were outsourced to manufacturers in China. ● Focusing on and strengthening the Electrolux brand to enable sales price premiums and better margins.
● Business-level strategies
● In Michael Porter’s (1998, p.35-40) view of generic strategies, a firms strengths fall into three main areas – cost advantage ,differentiation (Product uniqueness) and focus, which are applied at the business unit level. Electrolux has adopted...
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