Strategy Context Report For Bang & Olufsen

Strategy Context Report For Bang & Olufsen Strategy Context Report For Bang Olufsen Introduction Peter Bang and Svend Olufsen founded Bang Olufsen A/S in 1925 in Jutland (Karjalainen 2011). Initially, Bang Olufsen (BO) was based in a manor that belonged to the parents of Svend Olufsen; at the time, the company benefited from the hardworking nature of the local community. The culture in which the two men grew up was one of the lasting factors that assisted the company to go through various crises. The company launched BO Eliminator as its first product. It could connect the battery receiver to the mains. Later, BO had a big break through when they launched the Five Lamper, which was a mains radio in an elegant cabinet of walnut. Presently, the company still focuses on the audio industry and it has engaged in the manufacture of visual devices (Alessandri Alessandri 2004). This makes BO one of the most successful audio/visual companies in the world. Their present main product line includes televisions, audio devices, loudspeakers, audio devices, home integration, and digital medi a. In addition, BO equips exclusive projects with audio/visual devices via their enterprise departments and develops Car-Hi-Fi for such companies as Aston Martin, Audi, Mercedes, etc. The company also benefits from patents in certain technology it developed. One example of such technologies is the compact digital amplifiers managed in the ICEpower subsidiary. This analysis will focus on the audiovisual part of the business of BO. Industry Overview According to Altshuler and Tarnovskaya (2010), the consumer electronics industry has undergone considerable changes and it is still highly turbulent. The implementation of Common Market due to the Rome Treaty, to begin with, forecasted the decline of Bang Olufsen due to the competing German companies. The entry of Asian technology into the worldwide market increased the pressure on all the electronic firms in North America and Europe. Small European companies like Bang Olufsen, with their main consumer base in Denmark, were not obvious survivors in the turbulent environment. Nevertheless, Bang Olufsen maintained their focus on quality production, which was their prerogative from the very establishment of the company. In addition, European electronic companies, including BO, placed more emphasis on modern technology. For instance, BO deployed a wide use of modern technology in manufacturing of its products due to the rising criticism of their traditional wooden design (Balmer Gray 2003). During the few recent years, the financial crisis affected the business worldwide (Bang Olufsen Group 2008). Various industries were experiencing recession. Private investors as well as companies and consumers had to deal with adverse economic conditions. Hence, various world markets were overheated in the recent years. In addition, industries also experienced growth rates that were far beyond the normal levels. According to Bloom and Williamson (1999), consumers had a large disposable income and were willing to spend it. However, this abruptly ended as the financial crisis began. The financial crisis crippled the manufacturing and production of goods. One the major markets affected was the electronics market (Bloom Williamson 1999). The electronics market has been experiencing sky-scraping rates of growth in the previous decade. According to Gabrielsson (2005), the consumer electronics market has faced growth rates of about 10 per cent in the last few years. Bang Olufsen, among other electronics companies, has also been experiencing success in the recent past and has had its share of growth stemming from the growth of the consumer electronics market. Nevertheless, the effect of financial crisis was substantial for the company. Given that Bang Olufsen is selling what can be categorized as luxury electronic commodities, the impact of financial crisis was very significant because consumers shunned away from luxury products as the crisis aggravated. The figure below shows the trend in growth of the electronics consumer industry. As Kalafaties, Tsogas, and Blankson (2000) pointed out, one outstanding aspect determining the consumer behaviour is an ever-declining trend in prices of electronic products. This has been driven by lower costs of labour, manufacturing efficiency, and automations. This is, perhaps, because manufacturing has shifted to lower-wage countries and there has been an improvement in semiconductor design. Despite consumer electronics market facing upward trends, consumers of electronics continue showing diverse buying decisions. According to Karjalainen (2011), there is a constant need to maintain the product information updated and comparable for electronics consumers to make informed decisions. Price, style, performance, and other specifications seem relevant in the audio/visual industry. Macro Environmental Analysis (PESTEL) When evaluating the external environment, there are various aspects to consider. This makes it problematic to reduce the focus of the analysis to the external environment evaluation that is actually affecting the Bang Olufsen. In order to solve this problem, PESTEL analysis can be deployed, which will help to focus attention on political, economic, socio-cultural, technological, environmental and legal (PESTEL) characteristics of the B Os macro environment (Knight Cavusgil 2004). Nevertheless, PESTEL analysis needs only to be viewed as a checklist; therefore, there might be other factors to consider in the analysis. In addition, some of the aspects of the macro environments might have insignificant effects on the company in question. For Bang Olufsen, this study concentrated on the political, economic, socio-cultural, and technological aspects of the macro environment. Political Environment International and national political decisions frequently influence companies because the results of these decisions control the laws and conditions under which companies must operate. According to VanRiel and Balmer (1997), such effects are evident in the signing of the Rome Treaty and the introduction of Common Market, which led to a decline of Bang Olufsen. Additionally, the works and policies of the World Trade Organization (WTO) focused on reducing trade barriers have created a more laissez-faire trade environment, which has increased competition to Bang Olufsen. According to Tuckwell (2007), the political decisions which will affect Bang Olufsen considerably in the near future would be economic rescue plans, which policy makers worldwide are providing. The rescue plans Bank package 1 and 2, as Simes and Dibb (2001) noted, will influence the ease with which Bang Olufsen can receive funding. It is most likely that Bang Olufsen require funds in the near future, particularly i f the financial crisis proves very difficult to avert. Rescue plans can also affect Bang Olufsen on a general level. This is because the overall reason of devising these plans is to turn around the economy of world. The US policies will significantly affect BO since the US and other key players in the international market are an integral component of the world economy. This implies that the rates of success of these Danish rescue plans will have a direct impact on the BO as the improvement of the world economy will lead to an increase in the sales of the company. Economic Environment As it was mentioned above, the economic crisis affected Bang Olufsen negatively. A significant portion of the effect of economic crisis stems from the decline in consumers purchasing ability because of the economic downturn. Most affected countries are those selling high-end commodities. Due to the fact that about 88 per cent of Bang Olufsens turnover comes from foreign trade, the present economic trends have considerably affected the companys cash flows via fluctuations in the exchange rates. BO deals with the Euro as its foreign currency. Nevertheless, since the Danish Krone is attached to the Euro, fluctuations of the Danish Krone have little effect on the Euro (Porter 2008). Other important currencies include the Swiss Franc and British Pound, which have a net cash inflow, and the US dollar, which has a net cash outflow. The decline in the value of the British Pound affects the Cash inflow of Bang Olufsen. On the contrary, the fall in the value of the US Dollar has assisted BO by increasing the cash outflow. In general, the fluctuations in the currency value have negatively affected the BOs turnover. The British Pound is continuing to fall in its value in relation to the Danish currency and the US dollar is becoming stronger (Porter 2008). Socio-Cultural Environment The boom experienced in the world market prior to the economic crisis increased consumers purchasing ability and increased the focus on the status symbol and luxury design. According to Alessandri and Alessandri (2004), this ensured a favourable environment for the company. Nevertheless, this also compelled many competitors of BO to concentrate on design, as exemplified by Samsungs flat Televisions and Apples iPod. The styles adopted by these competitors are progressively communicating the status symbol of style consumers have been demanding, though at a fraction of the price of Bang Olufsens commodities (Balmer Gray 2003). Increased environmental awareness and green production is another social-cultural factor that affects the company in a positive manner. With regard to this factor, the company has continuously been channelling efforts towards enhancing the performance of the products. It attempts to achieve this by changing the packaging, reducing the stand-by electric consumption, and working on their corporate social responsibility (Knight Cavusgil 2004). The problem is whether the company is conveying this clearly to consumers to make them see that it is an environment friendly company. Technological Environment As it was mentioned, the electronics industry is an extremely volatile industry with fast developments. During the days of radio, Bang Olufsen was among the companies using the most recent technologies in production. Nevertheless, today, Asian electronic companies are way ahead in the development of technologies. For instance, the fact that the company has not developed its Full HD TV shows that it lags behind. Bang Olufsen has never been capable of launching this new technology. On the contrary, the company owns profitable patents and is still one of the frontrunners (Al-Rousan Qawasmeh 2009). Evaluation of Resources, Capabilities Sustainability of Competitive Advantage According to Al-Rousan and Qawasmeh (2009), core competencies have three different characteristics. The first characteristic is that they are a source of competitive advantage, which contributes to perceived consumer benefits. The second characteristic is that they are applicable in various markets. Thirdly, competencies are extremely difficult for competitors to copy. As such, companies need core competencies in order to have a competitive advantage over its competitors. According to Kalafaties, Tsogas, and Blankson (2000), the core competencies of Bang Olufsen are directed towards improving the experience of users of their electronic products. This statement suitably matches with their focus on design and quality that provides the consumers of their products with unique experience when their products are turned off and on. The first core competency of BO is the unmatched quality of their products, which as mentioned above, offer consumers superior experience. According to Gabrielsson (2005), quality has been an important aspect since the establishment of Bang Olufsen. It is a necessity for the company in order to be capable of charging high prices as they do. In addition, quality provides consumers with an extra value by increasing the lifespan of their products. Special design has also been one of the strengths of BO. In fact, the classical aluminium design introduced by Jacob Jensen emerged as a clear differentiator of BOs products. For some time, this simple design distinguished BO from Asian electronic companies. Nevertheless, companies such as Samsung, Sony and Apple are presently challenging this core competency. As Alessandri and Alessandri (2004) noted, the strength lying in their design might to be their market qualifier. Another competency of BO lies in their value of brand. By manufacturing well designed electronic products of high quality and at a high price, the company has established a brand that functions as a status symbol. VanRiel and Balmer (1997) considered this competency as an immaterial asset that might enable the company to charge still considerably higher prices than other key players in the market.