Description
-> The company DEVICES operates in the Italian market for consumer electronics, where it has always been aiming at obtaining high profits thanks to the efficient management of distributors and the optimization of production processes.
The company’s core business lies in offering a selected range of products based on technology patents acquired from external suppliers. DEVICES then assembles components bought by Far East suppliers and creates a “no frills” design and packaging; its products are often similar to those of competitors, although positioned on the low-end market.
The products sold are characterized by simple functionalities and a clear focus on reliability and easiness of use; product commercialization is performed by means of a network of multibrand resellers, not directly controlled by DEVICES.
Although DEVICES had been enjoying earnings and profits for years, its performance dramatically dropped in the last two quarters. Worried by this negative result, DEVICES’ Management team gathered unstructured information and data relevant to the company and its business area.
The information collected showed that because of the economic downturn Italian firms are forced to bear high costs to acquire external sources of capital; however, DEVICES possesses high liquidity, which grants it a certain degree of financial flexibility.
The acquisition cost for technology patents is constantly growing, and several competitors decided to internally invest in research & development in order to reduce their dependence from suppliers. Competitors’ expenditures in Marketing and promotion are also quite high, while DEVICES saves a lot on Marketing (considered a not significant activity).
The average customer is growingly showing to appreciate products characteristics like personalization, quality and brand image, and thanks to the globalization of markets is often shifting its preferences toward international suppliers of consumer electronics whose brand is strong. The average customer also shows to appreciate pre/post-sales services and assistance (and because of this, some competitors are developing proprietary distribution networks).
Questions
- On the basis of the information gathered by the Management team, how would you analyze DEVICES’current situation? Which strategic considerations would you draw?
- How would you map DEVICES’ current Business Model?
- How could DEVICES formulate (or reformulate) its Business Strategy consistently with the emerging trends?
- How could DEVICES redesign its Business Model and align it with its reformulated Business Strategy?
Solution
- On the basis of the information gathered by the Management team, how would you analyze DEVICES’current situation? Which strategic considerations would you draw?
-> Performing an external analysis to evaluate … & internal analysis to evalue analysis potential CA (SWOT).
-> SWOT was the right tools to approach this point. “Based on this Business Model….” or “This case is bringin information about the internal analysis and the external analysis, so I’m using SWOT”.
⚠️WE HAVE TO LOOK TO THE OPPORTUNITIES AND THREATS OF COMPANY, BUT WE HAVE TO LOOK AT THE ONE OF THE MARKET.
EXTERNAL ANALYSIS: the POV is froma an average industry player.
-> Internal analysis is very easy, External is difficult.
RED : Error;
Steps for external analysis:
- Define the market;
- Some opportunities may become strengths.
-> They are good cost leader & can continue this strategy. PROBLEM: the market is going somewhere else.
- Change the market or extend (is an incremental decision).
- They have money to invest (improve amount of patents (UPHILL integration) develop internally (the price is growing); or invest in a own suppliers (DOWNHILL integration)).
-> Vision and Mission can help to understand why company are in the position they are today.
3. How could DEVICES formulate (or reformulate) its Business Strategy consistently with the emerging trends?
-> Move towards value.
- CUSTOMER RELATIONSHIP: has B2B market expenseve, they don’t invest a lot on this argoment.
-> Margin higher if use supplier;
- KEY ACTIVITIES: good manage network of suppliers/ Good at manufacturing of packagin/ Resources and competences are good/
- PARTNERS: not too many: supplier and distrributors;
❓Intensive Capital expenses or No Capital Intensive?
-> No Capital Intensive, because they are source distributions, if they go to differentiation they increase capital taxes but even money, increasing the portfolio.
-> SWOT require a change of prospective;
-> Internal Analysis: POV company; External Analysis: POV marketing.
