S t r a t e g y O p e r a t i o n s E x c e l l e n c e P r o j e c t M a n a g e m e n t O r g a n...

S t r a t e g y O p e r a t i o n s E x c e l l e n c e P r o j e c t M a n a g e m e n t O r g a n i z a t i o n a l D e v e l o p m e n t

Changing Strategy in a Turbulent Market

Israel’s Business Conference 2008

Dr. Heiko Frank, MD Tefen Germany

22

Agenda

1.1. Introduction

2.2. Case 1: SWU - an utility company faced with the liberalization

3.3. Case 2: IFC - an innovative product in the FMCG sector

4.4. Key Messages for „Take Away“

Introduction I Case 1 I Case 2 I Key Messages for „Take Away“

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What does it take to survive and manage in this volatile environment?

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

make it“

We will present two examples of how companies have succeeded to We will present two examples of how companies have succeeded to adapt to market turbulencesadapt to market turbulences..

We will present two examples of how companies have succeeded to We will present two examples of how companies have succeeded to adapt to market turbulencesadapt to market turbulences..


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Agenda

1.1. Introduction

2.2. Case 1: SWU - a utility company faced with the liberalization




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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.

The SWU – a Utility Company faced with the liberalization


66

The SWU was active in multi dimensional areas….

Grids

Production(Electricity, Water)

Electricity GasWater

Local Customers(private, small businesses, industry, public authorities)


…… resulting in the fact that after the liberalization, there were also options for resulting in the fact that after the liberalization, there were also options formany different strategiesmany different strategies..

……resulting in the fact that after the liberalization, there were also options for resulting in the fact that after the liberalization, there were also options for many different strategiesmany different strategies..

external

Heat

external

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The liberalization was followed by new challenges which required appropriate strategies of the utility companies


Situation before the Situation before the LiberalizationLiberalization

Aims of the LiberalizationAims of the Liberalization Situation right after the Situation right after the LiberalizationLiberalization

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

88

Although the change started slowly, SWU had to deal with growing uncertainty

Product portfolio

"Full assortment"

"Niche supply"

Additional products

Renewable Energies Services

Consequences

No sale

Being Being AdaptiveAdaptive

Speed of action

Additional information

sources

Creativity

Scenario management

Dynamism Low profile changes – sometimes begin as marginal changes, but their impact gains force and may eventually lead to a revolution

Slow changes that “sneak up”


Time

Ma

gn

itu

de

99

Also, the situation on the German Energy was offering various options…

…depending on whether the companies wanted to focus on the upstream or the downstream market.

…depending on whether the companies wanted to focus on the upstream or the downstream market.


Energy GridEnergy GridEnergy ProductionEnergy Production Energy TradeEnergy Trade

Realization of "Economies of Scale“ within

Corporations

Fast development of alternative energy

sources

Portfolio ManagementService Branding

Still monopolistic structures

Unbundling Reduction of the grid

usage is expected Selective expansion of

the grid (competition for new concessions)

Increasing demand of energy

Increasing production of alternative energies

Increasing prices expected (until demand can be satisfied)

Dependence on 4 large suppliers

End customer market stagnates

Low switching rates Prices increase

Area

situation

To Do’s

1010

We have developed a “Trend Book" that represented the expected changes with regard to the current framework conditions ...

Trends and Trends and frameframe

conditionsconditions

“Trend book”

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.

... influencing the company‘s strategy both within the sector and the macro economic environment on a long-term perspective.

... influencing the company‘s strategy both within the sector and the macro economic environment on a long-term perspective.


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1111

In the workshops, trends and frameworks were filtered with regard to relevance and consequences…

Development Development

Company Company VisionVision

StrategicTrends

Analysis Prioritization Choice

Drivers of the change

AnalysisValidationConfirmation

"Mega-trends”Effects on SWU

VisionStrategic

framework

Demographic trendsLifestyle trends

Technology trends

Social trends

Consumers trends

Industry trends

Framework conditions

... and yield the base for the vision and the strategic framework for the corporate ... and yield the base for the vision and the strategic framework for the corporate divisions. divisions.

... and yield the base for the vision and the strategic framework for the corporate ... and yield the base for the vision and the strategic framework for the corporate divisions. divisions.


Workshop 1 Workshop 2 Workshop 3

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The new strategy had a major impact on the organizational structure of the SWU targeting for a long-lasting performance

Production nat./int.(Electricity, Heat, Water)

ElectricityGas Heat WaterTele-

commu-nication

Public Transport

Other Services

National Customers(Private, Business, Industry, etc.)

Energy trade

External Customers


Establishment of Market Requirements - Multi Channel Management - Establishment of Market Requirements - Multi Channel Management - Different Product Portfolio - Branding - Profit Centers - StandardizationDifferent Product Portfolio - Branding - Profit Centers - Standardization..Establishment of Market Requirements - Multi Channel Management - Establishment of Market Requirements - Multi Channel Management - Different Product Portfolio - Branding - Profit Centers - StandardizationDifferent Product Portfolio - Branding - Profit Centers - Standardization..

Grids(Gas, Electricity, Heat, Water, TK)

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The success of the SWU strategy was obvious within the financial performance of the company

Other1%

T rans port4%

E lec tric ity51%

Gas27%

Water5%Heat

2%

G rid9%

T K1%

As a result of the new strategy, SWU’s revenues increased by 250% - from 136 to 340 Million EURO in 2007.

As a result of the new strategy, SWU’s revenues increased by 250% - from 136 to 340 Million EURO in 2007.

Revenue distribution within the SWU The SWU has become one of the

TOP 10% out of 950 Energy Providers in

Germany


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Agenda

1.1. Introduction





1515

The International Food Cooperation Europe (IFC)The International Food Cooperation Europe (IFC)

Rich is the subsidiary of IFC with the highest expected return on revenue within the IFC Group focusing on foreign markets from 2007

The main revenue of the company is related to innovative products in the beverages and sweets industry.

The main revenue of the company is related to innovative products in the beverages and sweets industry.


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.

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

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


However, a dramatic change was approaching rapidly.However, a dramatic change was approaching rapidly.However, a dramatic change was approaching rapidly.However, a dramatic change was approaching rapidly.

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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

FABS = Flavored Alcoholic Beverage

The pressure for a new strategic orientation of IFC was extremely high, as the uncertainty in 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.the market based on the tax couldn‘t be replaced by certainty in the short perspective.

The pressure for a new strategic orientation of IFC was extremely high, as the uncertainty in 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.the market based on the tax couldn‘t be replaced by certainty in the short perspective.

Changes with significant external manifestations from the outset Easy to identify Strike hard

Rapid and dramatic changes


Being Being AdaptiveAdaptive

Speed of action

Additional information

sources

Creativity

Scenario management

Dynamism

Time

Ma

gn

itu

de

1818

Under these changing conditions, innovations in content and packaging with regard to the current lifestyle trends are the engine for profitable growth

Best Vino Frizzante from Italy No deposit charged No quality loss in light Trendsetter and lifestyle drink Large product portfolio

(Mixed with Cassis etc.)

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

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.

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.


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Alcohol consumption still high

Lifestyle PositioningReady to Goand Convenience

Innovation in content and packaging

The positioning of „Rich Prosecco“ was definded according to the current trends in the market…

……and also according to legal regulations.and also according to legal regulations.……and also according to legal regulations.and also according to legal regulations.


2020

…and emphasized by a strong marketing strategy with a “lighthouse effect” represented by Paris Hilton

Rich

Pretty

Famous…

Trendy

Party

Jet Set


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The entire marketing campaign was summarized to a „Push-Pull Marketing Strategy“

PULLPUSH

Events

TestimonialParis Hilton

Media-presence

Promotion

PR

...

Gastronomie Großhandel

...

Gastronomie Großhandel

RetailerGas

Stations

Airlines

Shops

Discotheques

Nightclubs


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The key success driver of the “Rich Prosecco Strategy” was an innovative and fast market development by …

… 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


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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. €.

The “First Mover Advantage” Strategy of IFC created advertising costs of around 6 Mio. € and an advertising pressure of 90 Mio. €.


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Agenda

1.1. Introduction





2525

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


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Tefen AGVilla II im martini-Park

Provinostraße 52D-86153 Augsburg

Tel.: +49 (0)821 50241-0Fax: +49 (0)821 50241-21

E-Mail: [email protected]

StrategyOperations Excellence

Project Management

Organizational Development

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