Unilever parenting diversification trough forward integration in the car industry

Unilever parenting& Diversification trough forward integration in the car industry Strategy in Work Egon Christopher Westerhausen Summer 2009 Growth share matrix3 Building the growth Share Matrix from the Parenting Matrix given in the case study. Question 15 MARKET SHARE5 Unilever Question(ii)6 Positive and negative bias of a merger. 7 Question (i)Determine other areas of forward integration that car manufactures might consider and explain why? 8 Strategy that may be used by companies to create forward integration in the car industry. 10

Question (ii) Analyze how the resources and competences of a car manufacture differ from the downstream activities they are moving into? 11 Question (iii) Evaluate whether `diversification downstream? is related or unrelated or unrelated diversification, bearing in ming the answers to the question above. 12 What is needed for a successful strategy? 13 Growth share matrix The growth share matrix was developed by a consulting company in Boston called ? Boston Consulting Group? , his creator is Bruce Henderson. By these means corporations are enhanced in the analysis of their product lines or usiness units. Usually this analytical tool is used in diverse areas as brand marketing , strategic management, portfolio analysis and product management. There are two factors that define the matrix: There is a relative market share and of course market growth. Using this matrix by placing individual products from the company portfolio in one of the quadrants and repeating the process for competing products. As a result this will have direct implications in market share and brand positioning. Four Quadrants 1- Stars: A product that has a high growth market and has a good slice of the market share.

Usually a generating strong revenues. As a star product evolves and growth slows down it may become a cash cow if it holds market share or become dogs if not. 2- Cash Cows: This product has a big market share but its market growth is slow. Cash cows have a great return specially when companies invest more in them. This type of product tends to cover a companies overhead. 3- Dogs: This porducts have a low market share in a slow growth market. They usually report profit even as they are cash consumers. 4- Question Marks: This product has a low market share of a high growth market.

This type of product needs big amount of cash due to their growth but at the same time generate small amount of return due to a small market share. For a question mark to become a star is complicated because of the amount of cash needed to acquire market share. At the end they may end up becoming a great business but companies usually fail to develop a leading position in the market, before risking becoming dogs. The basis of the usage of this tool is to clarify situations to balance the product portfolio of a company. In an ideal situation to eliminate dogs, while holding others in a dynamic equilibrium.

Usually a Chairman chief of staff would use the money created by a cash cow and invest in turning question marks into stars, and in their evolution become cash cows. But in reality some of the question marks will end up as dogs. Building the growth Share Matrix from the Parenting Matrix given in the case study. Question 1 Question (i) Present these Strategic Business Units (SBUs) in parenting matrix in a Growth / Share matrix and identify clearly how the results of this parenting matrix exercise might differ from a portfolio exercise. MARKET SHARE High |LOW | |HIGH |Speciality Products |Detergents | |LOW |Food |Tea | | explanation: *Speciality products: `star? , This product has a high growth assured and at the same time have a high market share. ( This product is in maturity, best time). *Food: `cash cow? , This segment may supply funds for a future growth. ( This product is in a state of maturity and it continue to be very rentable). *Detergents: `Problem child? , If funds are added it may be converted into a star. ( This product is in growth because it may become a star and reach maturity, if funds are invested in the product). *Tea: `Dog? This reflects a failure of Unilever of creating a leadership during the product growth cycle, or to eliminate the products and get out to eradicate looses. (This is a product which could never reach a maturity, and one that is not that rentable in the market, in the product life cycle is in introduction or starting growth). * Advantages and disadvantages. Advantages:The speciality product has a big advantages, this are that this product market share is big, in other words this is a good business. The food section being a cash cow, in other words this business may provide the funds to convert other BU like a problem child into a star. Disadvantages: The biggest disadvantage will be the tea due to the fact that is a dog. in other words this will reflect that the failure of Unilever in not getting rid of the product line or not being able to convert this line into a rentable business, by not reaching its maturity. Unilever Question(ii) Question (ii) Investigate the advantages and disadvantages of keeping the two divisions set up in 2000 in one company? Critically analyze whether Unilever should consider a de-merger. Unilever is a multinational consumer product company.

The produce of the company ranges from food to detergent and personal products. This has lead the company to create certain characteristics and skills. These are very effective for the development of some products but fruitless in other business scenarios. Unilever as a parent company has two offspring’s that are: food sector and Home Personal Care (HPC). The food sector has Usually been regional or local business, which has been a beneficiary of having access to worldwide market and product knowledge. On the other hand the HPC also enjoys the benefits of being part of such a big family.

Departing from the strategy they had on the food sector and creating a centralized structure. They have the same products and same brands in different countries. Managers are usually transfered to different countries to enrich work places with multicultural structures and different way of making things(expatriates managers). Unilever has administrates by region or country. As a multinational structure Unilevers has: * Marketing focus. Fulfilling peoples needs. *Big research on technology and a centralized corporate research labs.

On my opinion the company has a big competitive advantage in their division. This is that they are able to concentrate in different areas of business. On the other hand the company needs to be more flexible to take advantage of the experience gained in two different experiences. For this they should empower meetings and share share the two ways of working to create a more flexible structure that answers the real needs of the company. Yes this means to continue like two entities but to share experiences and look for things in common in which they can learn from each other.

The company should be able to enter a new stage in which they are able to create a flexible strategy that incorporates the advantages that a de-merged company would give them with the advantages that a merged company gives them. Positive and negative bias of a merger. *Merger: ( according to the definition of Business dictionary). Voluntary amalgamation of two firms on roughly equal terms into one new legal entity. Mergers are effected by exchange of the pre-merger stock (shares) for the stock of the new firm.

Owners of each pre-merger firm continue as owners, and the resources of the merging entities are pooled for the benefit of the new entity. If the merged entities were competitors, the merger is called horizontal integration, if they were supplier or customer of one another, it is called vertical integration. *De-merger:( definition of Business dictionary). The act of splitting off a part of an existing company to become a new company, which operates completely separate from the original company. Shareholders of the original company are usually given an equivalent stake of ownership in the new company.

A demerger is often done to help each of the segments operate more smoothly, as they can now focus on a more specific task. opposite of merger. *Company: ( definition of Business Dictionary). Voluntary association formed and organized to carry on a business in the legal name of the association (see company name). Types of companies include sole-proprietorship, partnership, limited liability, etc. In Australia, Canada, and the US, the term ‘corporation’ is preferred instead. The company has a multinational structure that should consider a bigger synergy in the company. As said before the company products have two major trends.

The HPC sector is a more a global than a central organization. In this case the companies strategy towards de-centralization does not matches completely with the business. On the other hand Unilever process of sharing knowledge and past experience leaves in evidence that some benefits of a centralized organization are missed in the food sector. Which in turn leave the company vulnerable to answer the question of having a de-merger or a centralized company. # There are clear indications that the two systems are beneficial for the company. For this I would not stay in the common dichotomy of black and white or good or bad.

But rather in a mixture of systems that will give the company a competing edge, by taking into consideration all the benefits of a centralized company and a decentralized company. By these means the company will be able to make a rejoinder. My opinion is that the company should create a different system that would make the company more flexible. This system should be able to interpret information and solve the problem by taking the best of both worlds. Learning from each others experiences. Question (i)Determine other areas of forward integration that car manufactures might consider and explain why?

Integration:8 definition by Business dictionary). Process of attaining close and seamless coordination between several departments, groups, organizations, systems, etc. Forward integration, definition by Business dictionary is: Type of vertical integration where a manufacturer acquires the channels of distribution of its outputs to achieve greater economies of scale or higher market share. [pic] Forward integration, definition by Investopedia:A business strategy that involves a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products.

As car manufactures start exploring new ways in which they are able to compensate for looses in their car sales, forward integrating their business has helped them make more numbers. At the moment companies like Ford have followed forward integration by redefining itself as one of the worlds leading consumer company for automobile products and services and not only as a vehicle manufacture. At this time the company has made some steps to redefine itself. Ford : Ford Credit * e business * others not mentioned in the

Hertz *Rapid Fix case study. direct sales * Buying Dealerships GM: Vauxhall MasterFit *ON Star buying dealerships Other not mentioned in the case study. This are some of the steps taken by the two biggest American car manufacturers in Detroit. One of the most important aspects of forward integration is that they are able to collect information for marketing purposes and rearrange production in that area. On a marketing perspective this means they are able to interact with clients and product users in a bigger scale.

On the other hand this enables them to create analysis of consumers needs and therefore translate these needs of consumers into structural changes in the way they manufacture their cars. The end point is that manufactures want to have a bigger say in the business but at the same time they are eager to maintain a good relationship with the consumer( creating a customer relationship strategy), not only when they acquire a product but for a much longer time. This way they can help the vehicle owner to capture the most of their vehicle life. At the same time they also want to to continue with friendship with second hand car buyers.

Their objective is not only to have a better marketing analysis but to help them get the most out of the products but at the same time influence the customer base to cross sell and promote other products and services which include repair, mortgages and credit. Strategy that may be used by companies to create forward integration in the car industry. In the search for new ways to create forward integration, I will suggest sever ways in which the automotive manufactures may pursue different types of forward integration to stay in touch with their clients.

As said before this may bring several benefits to the companies. A software that create a comprehensive dealership and customer handling guidance in operation to create a comprehensive solution that automate, merge and streamline every sector in a dealership with the car manufactures and other dealerships. Single Customer and Vehicle Database This program will enable the factory, other dealerships and affiliated workshops to share all the information of the client. This will enable the company and partners to share the same important information on the customer and its vehicle.

Data will be accessed in all departments and this will create a 360° view of the customer, which is a click away. To put it in another way different departments will have the information need of the customer. This system also shares information with the vehicle manufacture. This way the manufacture may access comments and complaints directly from the customer and will transfer this to the manufacture plant to implement changes in the company. This will enable them to have a bigger relationship with the end client without having to be out there in the dealers. Advanced integration in a Comprehensive System. Work flow and integration design should be the core of their design. Combined with communication between departments and Vertical integration with the factory. This system is suitable to substitute the traditional individual modules software currently used which is not able to share information in integration. This system should be constructed as one integrated system with overall business process which should be able to process the workflow of several departments functions.

As part of the integration a customer relationship management process should be included. Familiar technology For these reason the software should be compatible with Windows, Mac and Linux. And should have invoices to analyze the experience of several people to create support teams and create innovations and changes all the time. Question (ii) Analyze how the resources and competences of a car manufacture differ from the downstream activities they are moving into? There are several ways in which a manufacturer may may differ from their core activities.

This integration comes with movies, like James Bond driving a BMW or a Aston Martin. Movies that inspire and create initiatives. At the same times there are arcade games simulators in which people drive different car models. Talking about games there are also computer games and of course Play station and X box, Sega ect. This games will spark comments and ideas to manufactures to take into consideration. This is not only publicity and creating a bigger market. But at since car sales have drooped car manufactures must change strategies to overcome looses in sales.

To make up for loses automotive manufactures are starting a incursion into different markets. Their activities in selling games and papering on movies creates trends which become fashionable. For example Porsche has started to sell cloths and other articles with the brand Porsche design. Most of the articles that porsche Design are making differ greatly from the core business. But the diversification that is need is underway to exploit brands and make up for losses in the automotive sales. In the Porsche example we are able to determine several core competences.

In the first place Porsche design company is uses their creativity in drawing and at the same time they exploit their brand. On the other hand the Adidas company who core competence is the manufacturing of the product and its distribution serves well to the business decision. On Porsche side they are able to use their name and create new products, on the other hand Adidas has a new market to open with this introduction. This joint venture leaves Porsche free from investing in manufaturing facilities and its distribution due to the fact that they will use Adidas. Question (iii) Evaluate whether `diversification downstream? is related or unrelated or unrelated diversification, bearing in ming the answers to the question above. Related diversification: Is when a company diversify in an area that fits the competitive advantage that the company poseses. Unrelated Diversification: Unrelated diversification takes place when the products are very different from each other, for example a automotive manufacture that also manufactures leather footwear. ( R. S. Khemani and D. M. Sharpiro,1993). Diversification Related xisting product, in a new market existing market with a new product. Unrelated This is an entry in to enchanted territory. By entering in a new market. with a new product. The selling of different products like shoes or watches for Porsche which is not a related product with their traditional business which is after all the manufacture of sport cars. They had to invest in investigation new way in which they entered the market. In fact their shoes are made in partnership with Adidas. Other products come in partnership with different companies. Critics

There are several critics to diversification. usually in undeveloped countries a businessman diversifies and invests in an business opportunity. Instead of making a diversification that may enhance their current business, by using the means that are already in place. Forward integration is criticized by entering new markets and entering in conflict with some of your stakeholders. What is needed for a successful strategy? People: The human element is the most important asset that most companies have. They are the dynamic force that makes the company evolve.

Success depends on the people that work with the company. The effort which is put up by the workforce and their quality of work makes all the difference being successful in a company. Their experience, criteria, and will power are what actually makes things happen in the company. Most of the times managers want people with experience to stay in the company. But there are times when the company needs re invent itself and the change, in what new people are able to bring when traditional employees have become fossils. The dynamic element which is badly needed in the company for a long time.

Which traditional employees are not able to re invent themeless and transform the company into a successful one. Finance All companies and business strategy must have finance to be able to develop any project. Now in recession we are able to see the lack of financing that most of the companies, have and how much of them are not able to continue. Finance is a main steam, the company may use their own resources or collect them in different ways. The most common of them is to ask the bank for money. But there are other ways like raising money throw investors or the stock market.

Every comprehensive strategy must be aware of the finance and the money available must be fundamental in the creation of a business strategy. Reference15 Technology Technology is one of the most important assets, a company may posses. Technology changes the way a company works by improving process. By investing in new technology companies make business more efficient, cheaper and most important things that where thought impossible become possible. At the same time new technology is created when problems arise. The strategy with technology is one that will build, maintain and exploit a a firms technological assets.

An important role is played by the union of the companies strategy and the technology strategy. Product and technology mapping are united. The mapping will create a path for short and long term technology development. By creating technological road maps the companies may identify new business opportunities, at the same time the company is able to communicate ideas and authenticate knowledge. Successful companies will usually have roadmaps which define the technologies that will be per sue and how and when will they be using them. This technologic roadmaps must be done in co-ordination with product roadmaps.

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