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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

Changing Strategy in a Turbulent Market

Israel’s Business Conference 2008

Dr. Heiko Frank, MD Tefen Germany

agenda
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“

what does it take to survive and manage in this volatile environment
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“

slide4

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“

the swu a utility company faced with the liberalization
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“

the swu was active in multi dimensional areas
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“

slide7
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“

although the change started slowly swu had to deal with growing uncertainty
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“

also the situation on the german energy was offering various options
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“

slide10
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“

in the workshops trends and frameworks were filtered with regard to relevance and consequences
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“

slide12
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“

the success of the swu strategy was obvious within the financial performance of the company
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“

slide14

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“

slide15

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“

initially the market for life style drinks has reported significant increase in sales
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

slide17
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“

slide18

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“

slide19

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“

and emphasized by a strong marketing strategy with a lighthouse effect represented by paris hilton
…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“

the entire marketing campaign was summarized to a push pull marketing strategy
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“

slide22
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

slide23
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“

slide24

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“

some key messages for take away
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“

slide26

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

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