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Changing Strategy in a Turbulent Market

Changing Strategy in a Turbulent Market. Israel’s Business Conference 2008 Dr. Heiko Frank, MD Tefen Germany. Agenda. 1. Introduction. 2. Case 1: SWU - an utility company faced with the liberalization. 3. Case 2: IFC - an innovative product in the FMCG sector. 4.

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Changing Strategy in a Turbulent Market

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  1. Changing Strategy in a Turbulent Market Israel’s Business Conference 2008 Dr. Heiko Frank, MD Tefen Germany

  2. Agenda 1. Introduction 2. Case 1: SWU - an utility company faced with the liberalization 3. Case 2: IFC - an innovative product in the FMCG sector 4. Key Messages for „Take Away“ Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  3. What does it take to survive and manage in this volatile environment? „We will make it“ When enterprises fail, it is often expelled to an operational failure. However, this is a mistake. Provided that external events lead to the crises, the management may have chosen the wrong strategy. We will present two examples of how companies have succeeded to adapt to market turbulences. Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  4. Agenda 1. Introduction 2. Case 1: SWU - a utility company faced with the liberalization 3. Case 2: IFC - an innovative product in the FMCG sector 4. Key Messages for „Take Away“ Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  5. The SWU – a Utility Company faced with the liberalization The “Stadtwerke Ulm” (SWU) is a multi utility company that offers attractive solutions all around energy, water, mobility and telecommunications to their customers. Due to the liberalization of the energy market and the restrictions of a “low commodity product”, the cards were “re-shuffled” for the company. Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  6. The SWU was active in multi dimensional areas…. Production (Electricity, Water) Heat Electricity Water Gas Grids external external Local Customers(private, small businesses, industry, public authorities) …resulting in the fact that after the liberalization, there were also options for many different strategies. Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  7. The liberalization was followed by new challenges which required appropriate strategies of the utility companies Aims of the Liberalization Situation right after the Liberalization Situation before the Liberalization • Local / regional monopolies • Fixed client base • Regional exclusivity • Fixed prices • Complete the single market • Increase efficiency and lower prices • Ensure a security of supply • Ensure supply to all the customers in affordable (transparency) prices • Promote healthy competition (to make an equal access for all the companies to explore...) • “You just can loose” situation • Declining margins (~5%) • Strong competition (also from other neighboring sectors) • Low customer switching rates (~1-3%) • Changing customer requirements • Distinctive service orientation of the enterprises • New retail channels and in-transparent service offering Fixed market conditions for all competitors Definition of a new European Energy Market High market complexity / in-transparency “Rules of the Game” have changed Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  8. Although the change started slowly, SWU had to deal with growing uncertainty Magnitude Time Speed of action Dynamism Being Adaptive Additional information sources Scenario management Creativity Slow changes that “sneak up” Low profile changes – sometimes begin as marginal changes, but their impact gains force and may eventually lead to a revolution "Niche supply" Product portfolio "Full assortment" Consequences Additional products No sale Renewable Energies Services Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  9. Also, the situation on the German Energy was offering various options… Area Energy Production Energy Grid Energy Trade • Still monopolistic structures • Unbundling • Reduction of the grid usage is expected • Selective expansion of the grid (competition for new concessions) • End customer market stagnates • Low switching rates • Prices increase • Increasing demand of energy • Increasing production of alternative energies • Increasing prices expected (until demand can be satisfied) • Dependence on 4 large suppliers situation To Do’s Realization of "Economies of Scale“ within Corporations Portfolio Management Service Branding Fast development of alternative energy sources • …depending on whether the companies wanted to focus on the upstream or the downstream market. Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  10. We have developed a “Trend Book" that represented the expected changes with regard to the current framework conditions ... Trends and frame conditions • Trends • Consumer behavior • Demographic developments • Consumption development • Technology development • Industry development • Investment developments • Regulation-/ Deregulation developments • Etc. • Frame conditions • Regulatory and situational environment of the SWU • Existing (and lasting) structures • Legal framework conditions • Public requirements • Etc. “Trend book” ... influencing the company‘s strategy both within the sector and the macro economic environment on a long-term perspective. Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  11. In the workshops, trends and frameworks were filtered with regard to relevance and consequences… Development Company Vision Workshop 1 Workshop 2 Workshop 3 Analysis Validation Confirmation Analysis Prioritization Choice Demographic trends • "Mega-trends” • Effects on SWU • Vision • Strategic framework Lifestyle trends Strategic Trends Technology trends Drivers of the change Social trends Consumers trends Industry trends Framework conditions ... and yield the base for the vision and the strategic framework for the corporate divisions. Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  12. The new strategy had a major impact on the organizational structure of the SWU targeting for a long-lasting performance External Customers Production nat./int. (Electricity, Heat, Water) Grids(Gas, Electricity, Heat, Water, TK) Public Transport Gas Electricity Heat Water Tele- commu-nication Other Services Energy trade National Customers(Private, Business, Industry, etc.) Establishment of Market Requirements - Multi Channel Management - Different Product Portfolio - Branding - Profit Centers - Standardization. Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  13. The success of the SWU strategy was obvious within the financial performance of the company Revenue distribution within the SWU The SWU has become one of the TOP 10% out of 950 Energy Providers in Germany As a result of the new strategy, SWU’s revenues increased by 250% - from 136 to 340 Million EURO in 2007. Introduction I Case 1I Case 2 I Key Messages for „Take Away“

  14. Agenda 1. Introduction 2. Case 1: SWU - an utility company faced with the liberalization 3. Case 2: IFC - an innovative product in the FMCG sector 4. Key Messages for „Take Away“ Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  15. Rich is the subsidiary of IFC with the highest expected return on revenue within the IFC Group focusing on foreign markets from 2007 The International Food Cooperation Europe (IFC) • Headquartered in Kehlheim, Germany • Consists of 9 subsidiaries • All of the subsidiaries are active in the food sector (retailers / importers & producers) • In 2004/2005, IFC entered the FABS market (such as Vodka-Orange) etc. The main revenue of the company is related to innovative products in the beverages and sweets industry. Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  16. Initially, the market for life style drinks has reported significant increase in sales However, a dramatic change was approaching rapidly. Introduction I Case 1 I Case 2 I Key Messages for „Take Away“ Beer mixing drinks achieved an increase in turnover of approx. 31% The market volume for alcoholic drinks is almost constant > 10 Billion € since 1996 The Ready-to-Drink“ (RTD) products credited a market growth of over 42% since 2001 Flavoured water recorded an increase in turnover of 51 Million € in 2006 in comparison to 2005

  17. Before the introduction of the tax , the market volume for FABS amounted to 36 million litres In 2005, this resulted in a reduction in demand by 24 million litres down to 12 million litres A special tax led to the crash of the market of FABS* in 2005, destroyed a growing market, but also opened new opportunities for alternative products Speed of action Dynamism Being Adaptive Additional information sources Scenario management Creativity Magnitude Time Rapid and dramatic changes Changes with significant external manifestations from the outset • Easy to identify • Strike hard The pressure for a new strategic orientation of IFC was extremely high, as the uncertainty in the market based on the tax couldn‘t be replaced by certainty in the short perspective. FABS = Flavored Alcoholic Beverage Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  18. Under these changing conditions, innovations in content and packaging with regard to the current lifestyle trends are the engine for profitable growth • A high quality and innovative product in a 200 ml can • Excellent protection against oxidation • Excellent handling and usability • Small, easy & handy! • Optimal consumption possibilities • Best Vino Frizzante from Italy • No deposit charged • No quality loss in light • Trendsetter and lifestyle drink • Large product portfolio • (Mixed with Cassis etc.) The „Survival Strategy“ of IFC’s canned „Rich Prosecco“ was developed by „Brainstorming“ of the management taking into consideration all stakeholders requirements and market trends. Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  19. The positioning of „Rich Prosecco“ was definded according to the current trends in the market… Ready to Goand Convenience Lifestyle Positioning Alcohol consumption still high Innovation in content and packaging …and also according to legal regulations. Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  20. …and emphasized by a strong marketing strategy with a “lighthouse effect” represented by Paris Hilton Jet Set Party Rich Trendy Pretty … Famous Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  21. The entire marketing campaign was summarized to a „Push-Pull Marketing Strategy“ PUSH PULL Shops Events Retailer Gas Stations TestimonialParis Hilton Airlines Media-presence Discotheques Promotion Nightclubs PR Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  22. The key success driver of the “Rich Prosecco Strategy” was an innovative and fast market development by … Introduction I Case 1 I Case 2 I Key Messages for „Take Away“ … an innovative design and packaging … an aggressive advertising strategy including a “Lighthouse Effect” … a focus on the management team with a high “Execution Spirit” … the integration of customer and supplier requirements … the extension of the geographic focus … the precise selection of the distribution channels in accordance with the product and customer requirements

  23. The impacts of the marketing strategy were enormous, resulting in a revenue of 100 Mio. € for the product The “First Mover Advantage” Strategy of IFC created advertising costs of around 6 Mio. € and an advertising pressure of 90 Mio. €. Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  24. Agenda 1. Introduction 2. Case 1: SWU - an utility company faced with the liberalization 3. Case 2: IFC - an innovative product in the FMCG sector 4. Key Messages for „Take Away“ Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  25. Some key messages for “TAKE AWAY” • There exists no „ONE FITS ALL“ strategy for all companies • Each company has to decide on its strategy individually according to the trends and frame conditions in the market • Even though not everything can be handled in a proactive manner, by being adaptive, the management can lead the company to a successful growth path Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

  26. Operations Excellence Strategy Project Management Organizational Development Tefen AGVilla II im martini-ParkProvinostraße 52D-86153 AugsburgTel.: +49 (0)821 50241-0Fax: +49 (0)821 50241-21E-Mail: germany@tefen.comwww.tefen.com 26 26

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