Whirlpool's Quest for GlobalLeadership

Table of Contents

Introduction

Strategic Profile and Case Analysis

Situational AnalysisGeneral Environment Analysis Industry AnalysisCompetitive Environment Analysis Internal Analysis

Identification of Environmental Opportunities and Threats and Firm Strengths and Weaknesses (SWOT Analysis)

Strategy FormulationStrategic Alternatives and Evaluation Alternative Choice

Strategic Alternative ImplementationAction Items Action Plans

Epilogue

Conclusion

Works Cited

Charts and GraphsAppliance Industry Market Share Whirlpool's Financial AnalysisBusiness Unit Revenues and Operating ProfitGlobal Home Appliance Industry:

Saturation Level by Region Demand and Market Growth

Introduction

Whirlpool Corporation is a global leader in home appliances. Whirlpool began as

a family company in Michigan making wringer washers. In the past fifty years,

Whirlpool has expanded from a domestic company with operations in the United States

to a global company with operations in Asia, Europe, Latin America and North America.

Whirlpool's great success can largely be attributed to its strategic actions. These strategic

actions are a result of Whirlpool's vision, value creating objectives, shared values, and

worldwide excellence system. Whirlpool Corporation has gradually built itself up

through international expansion to be the leading appliance manufacturer and marketer in

the world. It has gone to great lengths to achieve the successes that have allowed it to be

the appliance industry leader. Whirlpool's stay at the top depends on its strategic actions

and decisions for the future. As a team we will make recommendations about Whirlpool's

future strategy. To do this, we first must analyze Whirlpool's internal and external

environments, its industry and competitors, and its strengths and weaknesses. Once we

have analyzed Whirlpool in these categories, we will look at strategy formulation and

strategic alternative implementation.

Strategic ProfileThe appliance industry has flourished in the last fifty years due to constant

innovation. Through many mergers after World War II, this industry went from about

two hundred and fifty companies down to five companies that truly dominate the

industry. In addition, the United States market has offered little growth for these

appliance companies. Whirlpool, therefore, found it necessary to participate in massive

global expansion to find new market share and to dominate the industry.

Situation Analysis

General Environmental Analysis

Whirlpool's globalization in the appliance industry has been achieved partly

though analysis of the demographic segment. For example, Whirlpool is expanding into

the Chinese market where there is a law limiting the number of children families can

have. However, the population in China is so overwhelming that while it offers a very

attractive market, the standard of living is so low that appliances may be hard to sell

because they will be considered luxury items. On the opposite end of the scale, there is a

trend in the United States where more and more people are working out of their homes.

This provides new opportunities for the appliance industry. For example, people working

out of their homes may want appliances that make absolutely no noise. The analysis of

demographic segment is important to develop the operations by Whirlpool in each

market.

The economic segment is also important. Whirlpool has shown through massive

investments in China and India that they are serious about committing to the Asian

market. The economic environment in this area of the world has proven to be unstable

through currency values changing and the fact that China has threatened to terminate

agreements with U.S. companies that have invested in China. In addition, Whirlpool is

expanding into Brazil where the currency has had major problems. All of these factors

affect Whirlpool and the rest of the appliance industry as they continue to expand

globally.

There are also many political and legal issues surrounding the appliance industry.

After World War II, the government began to become more involved in U.S. companies

and industries. In addition, the government became more concerned with the environment

and as a result raised the standard for appliances. For example, the industry needed to

decrease the amount of CFC's released from appliances. These regulations caused an

increase among competition among the companies. Another factor cause by political

standards is the trend towards free trade. As geographically close countries agree to allow

free trade across borders, such as Europe, firms with foreign investment are going to have

a difficult time competing in these markets. One of Whirlpool's largest competitors,

Electrolux, is based in Europe and will greatly benefit from the formation of the

European Union. Whirlpool must use its joint venture with N.V. Philips to ensure that it will stay competitive in the European market where it is currently in third position.

As globalization increases for this industry, Whirlpool must concern itself with

the different social and cultural values in the foreign countries. In the United States,

women are becoming a dominant factor in the work force and, thus, will have less time to

worry about household appliances. In the less developed countries such as China and

India, men make the majority of the income and may be the crucial decision makers in

purchasing new products. Therefore, Whirlpool may need to market products towards

men in those markets.

Technology is an important factor in the appliance industry. Whirlpool has

become a leader in the industry because of its desire to be innovative and its commitment

to research and development. In July of 1995, "Whirlpool Corporation [invested] $10

million in a research and development center in Singapore." (Singapore News) By

introducing new products to the market and by gaining first mover advantage in many

foreign countries, Whirlpool is establishing itself as a global leader. Technology is also

important in helping to tailor products to have different features for different cultures. For

example, since the windows in Japanese homes are on average very small, Whirlpool has

made small, compact air conditioners that will fit perfectly in their homes. The appliance

industry can also be affected by the infrastructure of a country in terms electrical outlets

and currents. For example, European products may have different outlets while some

Asian and Latin American homes may not have electricity. The most interesting effect of

globalization in the technology segment is that government regulations about CFC's have

encouraged massive innovation. These technological innovations help produce more

environmentally friendly products at a faster rate.

Industry AnalysisThe industry can best be analyzed by using Michael Porter's Five Forces Model

of Competition. This model examines the industry in light of the following five factors:

threat of new entrants, bargaining power of suppliers, bargaining power of buyers, the

threat of substitute products, and rivalry among competitive firms. The first aspect of

industry analysis involves the threat of new entrants into the industry. In the North

American market, the barriers to entry into the appliance industry are substantial. A new

company would need a significant amount of capital to start a new plant where the

appliances would be manufactured. This is evident by the fact that manufacturing costs

comprise about seventy percent of total costs. In addition, since there are only four major

competitors in the market, these companies are very large and are thus able to experience

economies of scale. Whirlpool and its major competitors have already established brand

loyalty among customers and this increases the difficulty for new entrants to succeed in

the industry. In the European market, the segmentation of the market served as an entry

concern. Firms entering the appliance market had to decide whether or not to tackle one

particular geographic segment with particular customer preferences, or an entire line of

appliances such as dishwashers for many different market segments. Another barrier to

entry in the European market is the European Union and the problems gaining entryassociated with "Fortress Europe."

The industry environment can also be analyzed through the bargaining power of

the suppliers or buyers in the industry. The members of the distribution channel in the

appropriate industry work closely together. Whirlpool wanted to improve quality in their

products and use a JIT delivery system to reduce costs. They succeeded at these goals by

establishing relationships with only a few suppliers. Whirlpool and its major competitors

began to use fewer and fewer suppliers, while expecting more of a relationship from

them. These successful relationships that Whirlpool has with suppliers are difficult for

competitors to imitate. These relationships are mutually beneficial and therefore suppliers

will not to abuse these successful relationships. Buyers need these items since the world

is becoming increasingly fast paced and technologically dependent. Buyers perceived

value will govern the product features, however, they need these appliances, and

therefore won't abuse the buyer-seller relationship.

The industry environment can also be examined in terms of the threat of substitute

products. For each different line of appliances that Whirlpool manufactures, there are

substitutes to the service provided by the product. For example, if a washing machine was

not used in the home, clothes could be taken to a laundry mat or they could be washed at

home in the sink, or perhaps even beaten against a rock in a river. In North America, the

most realistic substitute to having a washer in the house is taking the clothes to the

laundry mat. Most consumers would rather spend $2.00 to wash and dry a load of clothes

than wash them in the sink or in the river. As a result, the threat of substitutes for washers

and dryers in North American is low. In other markets though, these substitutes may pose

more of a threat. In Asia there is limited space for a washer/dryer unit to be stored in the

house. Unlike American homes, the units are rarely hooked up to a permanent water

supply. Rather, they are on wheels and are moved out into the hall way when not in use.

Because of inconveniences associated with having a washer and dryer, the laundry mat

may not be such a bad option. In even more primitive markets, clothes are washed in

rivers with special soap, therefore this could serve as another substitute. In Latin America

where income is more limited, washing clothes at a laundry mat or at home in the sink

would be a viable substitute for having a washer in the home. The threat of substitutes is

greater in Asia and Latin American markets than it is in North American and European

markets.

The industry can also be analyzed using the last of Porter's Five Forces Model of

Competition-rivals within the industry. In the North American market, there have been

many mergers in the past fifty years, which have consolidated the major competitors in

the industry from 250 manufacturers to five major companies including Whirlpool,

General Electric, Raytheon, Electrolux, and Maytag. One of the major areas of

competition among the competitors was cost controlling mechanisms. The competitors

used several different ways to go about reducing costs, such as more efficient

manufacturing achieved by renovating and building more efficient facilities. Competitors

also had to contend with each other on the issues of quality, delivery and innovation. In

the European market, Whirlpool's competition was not only its four major rivals, but

thirty-five other European manufacturers producing limited lines of products directed at

one market segment. Competition in the European market is based on price, features,

performance and quality. In Asia, fifty manufacturers that were widely diversified

dominated the market. Competition in this market is based mainly on product features

such as size and weight, price and quality. The Latin American market contained

approximately sixty-five competitors. Competition is based mainly on product features,

price, quality, performance, warranties, advertising, and service.

Competitive Environment AnalysisMaytag

Maytag's current strategy is to provide convenience to customers by offering a

one-stop place to shop. Maytag guarantees the lowest prices, so it is follows a low-cost

strategy in order to gain market share. Maytag also emphasizes quality service in which

their customers can trust. Maytag's strategic intent is to be a leader in the appliance

industry by finding ways to cut their own costs, so customers can realize these cost

savings. Following the purpose of Maytag's strategic intent, the company's mission is to

become a one-stop shop for all appliance needs while guaranteeing the lowest prices and

exceptional service. Maytag is able to pursue this strategy through its capability of

carrying all the products offered in their industry. Its main focus is not concentrated on

innovation but on carrying a diversified line of products and realizing the decreased costs

associated with a high product volume. In other words, Maytag uses economies of scale

to pursue its strategy. Maytag's core competencies are derived from having products

aimed towards many different price tiers. Maytag reaches highly price sensitive

customers through their guaranteed lowest prices. Maytag built a production facility in

Mexico to take advantage of lower labor costs. In response to global expansion by the

other competitors in the industry, Maytag has expanded into Europe, South America and

China.

Electrolux Electrolux's current strategy is to prove itself "uncommon" in the appliance

industry. Electrolux wants to have unique product and service satisfaction. By

demonstrating products to customers in their homes, Electrolux's strategy is to "build

value and gain [customer's] confidence." (www.electroluxUSA.com). Electrolux's

strategic intent is to provide the best, most innovative products in the industry. From this

intent, Electrolux uses its personalized approach of selling its products directly to

consumers at a fair price and to create increasing customer loyalty. Electrolux has the

capability to produce products that last for an average of twenty-three years as compared

to its competitor's which last for about three years. As a result, construction techniques

and product durability have become a major core competence. In addition, since

Electrolux has no need for distributors, its unique distribution channel becomes a core

competence. This attribute may benefit the company the most when venturing into new

markets. Having the capability to deal with customers directly may help Electrolux get its

products to the market at a faster rate rather than competitors. In addition, Electrolux

would not have to go through dealers in order to distribute its products. Electrolux has the

largest market share in Europe and plans to maintain this status through anticipating

competitor's moves and acquiring many of the smaller European companies that have

small niche markets.

General Electric

General Electric's strategic intent lies in being a highly technological company

and applying its leadership position in the appliance industry by supplying customers in

global markets and building value for shareholders (www.ge.com). GE's strategy focuses

on innovation and customer satisfaction. Its strategic mission evolves out of its strategic

intent to be a global leader. "[GE's] commitment to customer satisfaction continually

drives [the company] to develop, manufacture, and market innovative new appliances

with features and values consumers want most." (www.ge.com) Through investment in

innovation, GE is able to gain first mover advantages in the appliance industry. For

example, in 1963, GE was the first to introduce a self-cleaning oven. This has helped GE

gain loyalty and establish its brand name in the market. "GE is the appliance brand most

often mentioned among the brands rated as offering the best products and services in

America." (1997 Louis Harris Poll) GE prides itself on quality products with service

provided before, during and after the purchase. GE's response to competitors is mainly

focused on global expansion. The five major companies are attacking the Asian and

South American markets and each is responding to the other by finding their own joint

ventures and acquisitions in these markets.

RaytheonThe appliance business is only a small section of Raytheon's primary business

which is aircraft and defense electronics. Raytheon's strategic intent is to be the leader in

supplying defense mechanisms to governments. Recently, Raytheon moved into the

commercial segment by creating products, such as radar detectors, for the commercial

customer. Its appliance business aims to gain market share at the high end of the scale by

marketing to customers who are in the process of replacing, constructing or remodeling

their kitchens. Raytheon also uses its line of heating and air conditioning to target

customers like hotels who will purchase large quantities of its products. Raytheon's core

competencies stem from their company strategy of focusing on innovation. Raytheon has

translated their success in innovation to the appliance market. Since Raytheon is not as

concerned with the appliance industry because it is a very small portion of the company's

revenues, Raytheon does not really feel the need to warrant a response to competitor's

actions.

Overall, Whirlpool's competitors have a strong hold on the market and all aim to

be the industry leader. Through exploiting different core competencies, each has its own

strategy to be successful. Whirlpool must continue to exploit its own core competencies

in order to remain the dominant force in the industry.

Internal Analysis

Through examining Whirlpool's internal environment, we are better able to

understand what it is capable of doing with its given resources. This can best be done

through a value chain analysis.

Primary ActivitiesSince Whirlpool has established relationships with a smaller number of suppliers,

it has been able to ensure the quality of the goods it receives. Whirlpool realizes

economies of scale since their production is satisfying worldwide demand. In addition,

Whirlpool has established itself in broad geographic areas that allows for inventory

control. In other words, since one warehouse serves a large area, inventory is dispersed

quickly resulting in low amounts of inventory.

Whirlpool's global expansion has not yet allowed for a standardized production

method. Since each market requires different features and capabilities, Whirlpool uses a

flexible manufacturing assembly line to develop its products in a timely and cost efficient

manner. However, since labor costs differ across countries, Whirlpool may choose to

build a more automated plant in those areas or may choose to import parts that have

already gone through labor intensive stages.

Instead of continuing to distribute products to independent distributors, Whirlpool

is moving to a distribution system where the products will go directly to retailers. After

Whirlpool's restructuring, it closed ten out of twenty-eight finished goods warehouses.

This allowed for cost reduction by eliminating the additional markup by a wholesaler.

Whirlpool has always been concerned with providing the highest customer service

possible. Whirlpool translated this high level of service into foreign markets. Whirlpool is

concerned not only with providing service before and after the purchase, but also with

supplying replacement parts and conducting maintenance. Whirlpool's strategy is to use

this core competence of customer service in new markets to maintain a competitive

advantage.

Marketing and sales have played a major role in Whirlpool's establishment as the

leading manufacturer and marketer of appliances. Since competition is fierce, Whirlpool

uses reminder advertising to keep its name prevalent in the market. In addition, it uses

this reputation when entering new markets to let its affiliates and customers know that

Whirlpool is a respected brand name with valuable products to offer.

Support Activities

Technological innovation is an important support activity. One of Whirlpool's core

competencies lies in the innovation of its products. This innovation allows for Whirlpool to meet

the needs of its customers and to differentiate itself against competitors. Technological

advancement also allows for Whirlpool to increase the degree of environmental compatibility

of its products Innovation is important to this industry thus requiring significant investment in

research and development. Through devotion to innovation, Whirlpool has constructed products

like its CFC-free refrigerator that won an award for helping the environment

Whirlpool's firm infrastructure is primarily comprised of individually operating

strategic business units based on geographic regions. Whirlpool also has an independent

microwave-oven business unit that performs its own operations. Therefore, Whirlpool

divides its operating function by SBUs and products. Whirlpool decentralizes decision

making to its SBUs and product divisions.

Since Whirlpool's products are mainly comprised of resources that are abundant

in the market, location of resources does not pose a problem for procurement. In other

words, location of resources will not inhibit Whirlpool from locating in foreign markets.

Whirlpool's financial current performance has not reflected what management

had hoped after nearly investing $2 billion towards their global expansion. The return on

stockholders equity has dropped from a high in 1991 of 11.6% to a low of 9.4% in 1994.

This downward trend has shareholders concerned about Whirlpool's global strategy to

become a world leader.

No information was found concerning the human resource management aspect of

Whirlpool's value chain. This aspect is of course important, however no information was

found.Identification of Environmental Opportunities and Threats and Firm Strengths and Weaknesses

Whirlpool's success thus far is no accident The corporation has taken steps to

secure its position in the world, but is this success to continue? Whirlpool's environment

offers several opportunities yet to be exploited. Because of the globalization of the

corporation, Whirlpool is making a varied line of products in several geographical

markets, which also possess separate segments. While this degree of variation could

be seen as an obstacle, it also gives Whirlpool the opportunity to make its manufacturing

systems more efficient. In each of Whirlpool's markets there are variations which don't

necessarily allow Whirlpool to manufacture and market the same appliances to many

different markets. While Whirlpool must vary its products to some degree, it does have

the opportunity in some instances to integrate some of its functions. With a basic frame

work for a standard design Whirlpool could use standard parts on some of its models. The

basic components of hoses, pumps, bearings and compressors will be the same on some

of its models for different regions. Where these components are not the same, Whirlpool

has the opportunity to transfer technology that would be applicable in the manufacturing

of varied models. For example, washers in North America will vary from washers in Asia

somewhat due to customer preferences. While the same parts may not be able to be used

in both models, the technology for making these parts can be transferred from one

manufacturing system to another. Whirlpool also has the opportunity to create a new

competitive advantage for itself by staying one step ahead of its competitors. Since it is in

such varied markets with such varied requirements, it has first hand knowledge of the

customer requirements of each market. Whirlpool currently manufactures its appliances

in accordance with local customs and preferences that are sensitive to customer

preferences, as well as imposed regulations. In some markets Whirlpool may need to

make a model that conserves on energy, in other markets, water conservation may be a

must, still in other markets noise reduction is important. Whirlpool has the opportunity to

take the best features from each of its markets and make them standard. This may not be

possible with all product features because some features specifically respond to local

customs. With issues such as noise reduction and resource reduction, the markets do not

vary in what they demand; however, they would vary with the colors, or finishes on the

appliances. Whirlpool also has several other opportunities. With the advent of the

European common market the requirements for many of the appliances will be

standardized across the once varied European countries. Another opportunity for

Whirlpool is global economic growth. Countries that once could not afford home

appliances, such as Western European and Latin American countries are now enjoying a

higher standard of living. These unsaturated markets are growing strong outside of North

America, whose own market is at the point of saturation.

Whirlpool also faces several threats. While the European Union may provide

some opportunities for Whirlpool, it also poses some threats, such as restrictions that

would protect its own industry competitors. Environmental regulatory controls on energy

and water are also threats to Whirlpool's current manufacturing processes for appliances.

It these regulations were to be changed, Whirlpool would have to embark on the creation

of a new design to meet the new standards, as well as revise its manufacturing processes. Of course, Whirlpool also faces the threats of competitors in any market that it enters.

Like any corporation, Whirlpool has its strengths and weaknesses. Whirlpool's

global strategy and presence are at the top of it its strengths. It has a strong presence in

each of the markets it has entered, with a dominating presence in North America, Europe

and Latin America. While its market share in Asia is lower than it is in other markets, it is

at least in position, which is steps ahead of competitors who do not even recognize Asia as

a valuable market in which to enter. Another of Whirlpool's strengths is that it is

competing on several different levels in different markets. Its product line contains

dishwashers, clothes washers and clothes dryers, cooking appliances and refrigeration

appliances. Whirlpool is recognized as a company that specializes in home appliances,

not just refrigerators or ovens. When people build a house or furnish a kitchen with

appliances, they have the option of going with Whirlpool appliances for everything.

Another key strength is that Whirlpool has a respectable image of superior quality that is

globally recognized.

Among Whirlpool's weaknesses are its lack of market share in the Asian market.

While it is in position, it is not capitalizing on the potential of the market with its current

activities. Another weakness is Whirlpool's lack of diversification. General Electric, one

of Whirlpool's major competitors competes in the home appliance industry. Home

appliances however are only one of General Electric's many single business units.

Whirlpool's entire corporation is home appliances. Whirlpool's lack of diversification,

whether it be related or unrelated, although related would be preferred is a major

weakness. Essentially, Whirlpool is "putting all of its eggs in one basket" so to speak. If

the appliance industry takes a major hit, it will suffer greatly. If Whirlpool were more

diversified, it would be able to diversify away some of the risk involved with being in

only one industry. However, greater levels of diversification do not always equal greater

levels of return. In fact Whirlpool's recent low levels of return could be due to its rapid

geographic diversification. Therefore, it is hard to decipher the most appropriate and

optimal level of diversification. Albeit the home appliance industry is stable, there are

still some risks. Another of Whirlpool's major weaknesses is its capital generation.

Whirlpool is very dependent, in fact too dependent on the cash generated from the

profitable North American market to finance the other global markets.

To take advantage of Whirlpool's opportunities while reducing its threats,

Whirlpool will need to continue itself as a global leader in the four major markets of

North America, Europe, Latin America, and Asia. To be successful, Whirlpool will have

to maximize its opportunities and reduce its risks.

Strategy Formulation

Strategy Alternatives and Evaluation

The fon ̀strategy alternatives that Whirlpool should consider are the following:

1.Implement a low cost strategy in Europe and Asia, implement a differentiation strategy

in North America and follow the current strategy in Latin America, 2. Maintain the

current amount of product and geographic diversification, 3. Increase the amount of

diversification by offering more products globally. These strategies match Whirlpool's

strengths, weaknesses, and core competencies and are feasible to implement given the

environment. The following is an evaluation and discussion of the three alternatives.

The first alternative considers implementing a low cost strategy in Europe

and Asia, establishing a differentiation strategy in North America, and following the

current strategy in Latin America. Europe's business unit revenue only

increased by $129,000,00 in 1995 (in 1994 Europe's revenue equaled

$2,225,000,000 and in 1995 Europe's revenue equaled $2,502,000,000) and Europe's

operating profit in 1995 equaled $92,000,000 which was a decrease from the 1994 figure

of $163,000,000 (Ullmann, 629). These figures are results from "rising material costs,

fierce competition, and a shift by consumers to cheaper brands and models (which)

reduced Whirlpool's shipments by 2 percent while the industry grew by 1 percent"

(Ullmann, 627). Since Whirlpool is being replaced by cheaper brands and models,

Whirlpool should respond to this and apply a low cost strategy. This low cost strategy

should aim to produce products at the lowest cost relative to competitors while still

having features that are acceptable to customers. Due to the rising material costs,

Whirlpool should seek to purchase these materials from other parts of the world in which

the combined cost of the materials and the

transportation of these materials would be cheaper than the current cost of materials. The

case claimed the following: "When benchmarking the European industry's performance

against best-in-class in North America and Asian companies, managers found that

European producers experienced significantly lower levels of customer satisfaction.

Also, Europeans paid more for their appliances than did their U.S. counterparts"

(Ullmann, 622). This description certainly clarifies that Whirlpool should reduce their

prices of appliances sold in Europe. Europeans are obviously favoring appliances that

cost less. Whirlpool is the third market leader in Europe and it should implement a low-

cost strategy in Europe in order to be the number one market leader.

In Asia, a low cost strategy should also be implemented. Asia's business unit operating

profit had an increasing loss, since in 1994 the loss in profit equaled $22,000,000 while in 1995 the

loss equaled $50,000,000. Although, Asia's business unit in 1995 had an increase in revenues equal to

$171,000,000 (since in 1994 their revenue was $205,000,000 while in 1995 their revenue was

$376,000,000). These figures declare that operating in Asia is expensive, since the business unit's

revenue is increasing while their profit is decreasing. This operating loss is primarily due to "

Whirlpool's continued expansion" in Asia. A low cost strategy should be pursued in Asia in order to

keep costs down while still producing products that create value for the customer. One

of Whirlpool's competitors, Electrolux, is pursuing a strategy similar to a low cost

strategy in Asia. "Electrolux has traditionally gone for the higher end of the market, but its

Asian sales strategy involves lower-price volume products suited to local needs — with

such features as anti-rat and anti-cockroach paint on hoses and cables" ("Home

Appliance Giant," 1). According to the information provided in the case, Whirlpool is the

number one market leader in Asia, and in order to keep this position Whirlpool should

aim to keep costs low in this market.

In the North American market, a differentiation strategy should be implemented

in order to properly meet the needs of this mature industry. The revenue for the North

American business unit had an increase of only $45,000,000 (in 1994 the revenue

equaled $5,048,000,000 while in 1995 revenues equaled $5,093,000,000). The operating

profit for this market had a decrease in 1995 of $77,000,000 (in 1994 profit equaled

$522,000,000 while in 1995 profit equaled $445,000,000). "In North America, product

shipments had declined by 1.4 percent while operating profits dropped by 16 percent"

(Ullmann, 627). The appliance industry is certainly a mature industry in North America

with declining demand. To differentiate itself against its competitors Whirlpool should

expand on its strengths. Innovation of products, innovation of manufacturing processes

and producing products that are environmentally friendly are three of Whirlpool's core

competencies. Whirlpool should expand on these strengths and differentiate their

products in terms of these competencies in order to successfully compete. One way of

furthering their differentiation is by continually following their SERP (Super Efficient

Refrigerator Program) strategy, which makes refrigerators more compatible with the

environment. The saturation levels (Exhibit 2) for the North American market are

extremely high in every appliance, therefore differentiation is needed in order to

successfully compete. Also, Whirlpool is the number one market leader in the North

American market and in order to maintain this position, Whirlpool should differentiate its

products from the rest of the competition.

In Latin America, Whirlpool's current strategy should be pursued. Latin

America's business unit revenue decreased in 1995 by $58,000,000 (in 1994 revenue

equaled $329,000,000 while in 1995 revenue equaled $271,000,000). Latin America's

operating profit had a loss of $29,000,000 in 1995 (in 1994 operating profit equaled

$49,000,000 while in 1995 operating profit equaled $26,000,000). Latin America's

economy is extremely volatile which is reflected in the above figures, since some parts of

the region are experiencing economic growth while other parts are experiencing a

depression. "Volume in Latin America was up because of robust growth in Brazil; in

contrast, in Argentina industry shipments plummeted by as much as 50 percent fueled by

the Mexican economic collapse" (Ullmann, 627). Due to the uncertainty in this market,

no resources should be spent on changing the strategy in this market. A careful eye

should be kept on Argentina since this environment is in such turmoil, and if it progresses

into further collapse exit of this market should be considered. Brazil is a successful

market and Whirlpool should consider concentrating on this segment of Latin America.

Since Latin America is so volatile, no changes are suggested except for a careful watch on

Argentina. Also, Whirlpool is the number one market leader in this market, so they

should keep this position by pursuing a similar strategy.

The second strategy is maintaining the current amount of product and

geographic diversification. Whirlpool currently follows a related constrained

diversification level for products since "all of the businesses share product, technological,

and distribution linkages" (Hitt, 205). In terms of geographic diversification, Whirlpool

currently follows a related constrained diversification level since each region has a

strategic business unit in which "there are only limited links between businesses" (Hitt,

205). These levels of diversification, for both product and geography, should be

maintained. Whirlpool currently offers about "800 different appliance models"

("Whirlpool Expanding Globally," 1) and are operating in operating in four major

geographic regions. "A major lesson learned by firms is that firms performing well in

their dominant business may not want to diversify" (Hitt, 209). Currently Whirlpool is

the number one market leader in North America and Latin America, the third market

leader in Europe, and the largest Western appliance company in Asia. This performance

is certainly admirable; however it could be lost with increased product and geographic

diversification. Also, "researchers have found that low level of returns are related to

greater levels of diversification" (Hitt, 223). As mentioned previously and shown in

Exhibit 11 of the case, every business unit has experienced lower operating profit in 1995

than in 1994. This decrease in operating profit could be due to the current level of

diversification and could be a signal to Whirlpool not to pursue a greater level of

diversification. If Whirlpool continued to increase diversification, this pursuit could lead

to divestiture. By limiting the amount of current diversification, Whirlpool could

concentrate on leveraging its core competencies of innovation of product, innovation of

manufacturing processes and producing products that are environmentally friendly.

Whirlpool could improve on these competencies and attempt to offer these competencies

globally. Also, Whirlpool is pursuing a global management outlook and this would be

difficult to achieve if they increased global expansion. As Whirlpool's CEO claimed

"'On an operating basis, and compared to our own very high expectations, the year was

disappointing — for me, our global team and for you, our shareholders" (Ullmann, 609).

In order to improve the operating basis in years to come, Whirlpool should maintain its

current level of product and geographic diversification.

The third alternative involves increasing the level of product diversification by

offering a greater variety of products globally. Whirlpool should consider expanding into

related linked levels of product diversification. Through this increased diversification,

Whirlpool would realize the following benefits: economies of scope, market power and

financial economies. Economies of scope would be reached since Whirlpool could

transfer its core competencies, including product and manufacturing innovation and

environmentally compatible product features, to new businesses without significant cost

increases. Whirlpool's managerial and technological knowledge, experience and

expertise of the current products it produces would be transferred into new product lines

such as water purifiers or vacuum cleaners. Electrolux's "$100 million investment in

China included joint ventures to manufacture water purifiers, compressors, and a vacuum

cleaner plant" (Ullmann, 627). Electrolux is one of Whirlpool's major competitors, and

Whirlpool could practice multipoint competition with Electrolux in these diversified

product lines. If Whirlpool is able to sell these new diversified products above the

existing competitive level or reduce the costs of its primary and support activities below

the competitor, then Whirlpool will achieve a greater degree of market power. This

multipoint competition between Whirlpool and Electrolux would help to increase

Whirlpool's market power; however, this competition could evolve into mutual

forbearance in which the level of competition between these two competitors becomes

excessive and self-destructive. Financial economies could also be realized by achieving

cost savings through improved allocations of financial resources based on investment

inside or outside the fum. Whirlpool would efficiently allocate resources to the current

and more diversified business units which would hopefully achieve higher future cash

flow values. Whirlpool should only invest in businesses with high growth prospects, so as

to improve the value of investment for Whirlpool's shareholders. Whirlpool should gain

information on Electrolux's diversified products, such as water purifiers and vacuum

cleaners, in order to only enter profitable product lines. Through increased levels of

product diversification, Whirlpool could increase the profitability of the company and the

value for Whirlpool's shareholders.

Alternative ChoiceThe alternative that best matches Whirlpool's core competencies is a mixture of

both alternative one and two. Therefore, the best alternative strategy for Whirlpool

includes implementing a low cost strategy in Europe and Asia, a differentiation strategy

in North America and following the current strategy in Latin America, while maintaining

the current amount of product and geographic diversification. As mentioned previously,

these strategies have many advantages. Whirlpool could best meet the needs of the

European market by using a lost cost strategy, in which their appliances are sold at lower

costs. Europeans are favoring appliances that cost less, and in order to gain a stronger

position in the European market a low cost strategy should be implemented. In Asia, a

low cost strategy should also be pursued since this market favors lower costs. Electrolux,

one of Whirlpool's competitors, has also implemented a low cost strategy in Asia in order

to meet the needs of this market. The North American market is mature and highly

saturated, therefore this market requires a differentiation strategy. Whirlpool's core

competencies include product and manufacturing innovation and environmentally

friendly product features. These core competencies can be leveraged in order to

successfully compete against competitors in this market. The Latin American market is

experiencing economic turmoil in some regions, while other regions have had economic

growth. This environment is very volatile and uncertain, and in order to compete

successfully in this market no strategic changes should be made. Careful watch over

Latin America's economy is necessary and in the near future some changes will be

essential. The second part of the strategy involves maintaining the current level of

product and geographic diversification. Researchers have found that low levels of returns

are related to greater levels of diversification (Hitt, 223). By expanding their

diversification, Whirlpool could experience lower levels of returns and weaken their

operating basis. Whirlpool should concentrate on leveraging and improving its core

competencies and offering these competencies in every product sold in every region.

By implementing a mix of these strategies, Whirlpool will properly leverage its

core competencies of product and manufacturing innovation and environmentally

friendly product features. These strategies will also match Whirlpool's strengths of

properly identifying the needs of markets and satisfying these needs in the products they

offer. By not diversifying into any other businesses or geographic regions, Whirlpool

will be able to concentrate on their current markets and properly satisfy the needs of the

markets. This strategy will enable Whirlpool to meet the high expectations of the

shareholders and the CEO for 1996. This strategy will improve the company's operating

basis and increase the value for Whirlpool's shareholders.

Strategic Alternative Implementation

Action Items

In order for Whirlpool to effectively implement its new strategic plan of mixing a

low cost strategy in Europe and Asia, a differentiation strategy in North American, and

following the current strategy in Latin America, while maintaining the current amount of

product and geographic diversification, Whirlpool must take the proper steps to make this

strategic move a success.

The first of these steps involves analyzing the overall effectiveness of the

company as a whole. Obviously, Whirlpool does realize its global potential and has

taken the first steps in making that endeavor a success. By striving harder for its current

vision,

"We create the world's best home appliances that make life a little easier and more enjoyable for all people. Our goal is a Whirlpool product in every home, everywhere. We will achieve this by creating:

Pride... in our work and each other

Passion... for creating unmatched customer loyalty for our brands Performance... results that excite and reward global investors with superior returns

We bring this dream to life through the power of our unique global enterprise and our outstanding people... working together... everywhere"

(www.whirlpool.com)

Whirlpool can be in every household in the world and use its' brand recognition to

increase the purchase of all its home appliances like dishwashers and washing machines.

The next step to making this strategic plan possible is the analysis of the

companies' current processes. In 1992, Whirlpool decided to reorganize its operations in

North America and created the strategy of the dominant consumer franchise (DCF). The

DCF existed when

"Consumers insist on our brands for reasons other than price, when they view our products as clearly superior to other appliances, [and] when they demonstrate strong loyalty in their future purchase decisions" (C-618).

To achieve this standard of excellence, Whirlpool reorganized its core processes. The

organization of Whirlpool's core processes involved logistics, trade partner management,

brand management and product management. The focus of the organization turned

towards cross-functional employee teams and a more customer-focused workforce. This

step will hopefully allow Whirlpool to meet the needs of every global customer and the

chosen strategy.

A third course of action for Whirlpool will be to identify where the capital for this

new endeavor will come from. In examining the financial statements available,

Whirlpool's operating profits in 1995 come to $366,000,000. Working capital is -

$288,000,000. Obviously, Whirlpool is hoping for a turn-around in profits in the next

few years, so a negative working capital may not drastically affect overall profits. The

low cost strategy that will be implemented in Europe and Asia will hopefully bring the

working capital to a positive level. Increased profitability of Whirlpool through this new strategy should offset any negative working capital utilized

The fourth action item is to restructure Whirlpool's workforce. In 1994 as a result

of the declining profits, Whirlpool reduced its' workforce in an effort to reduce costs in

North America. Due to this reduced workforce, Whirlpool must be sure that they have

enough of a motivated workforce who are able to implement the new strategies

successfully. If Whirlpool does not have an energetic and capable workforce, the

products will not make it through production with a high quality customer-basedstandard. This reduction in the work force may also be copied in Europe and Asia in order to meet the needs of the low cost strategy.

The fifth action item necessary for a successful future strategy is a reorganization

of Whirlpool's facilities. After the downsizing of the workforce in North America,

Whirlpool must recognize which of its facilities, whether they be subsidiaries or global

manufacturing plants are capable of this type of production for the increased North

American differentiation or whether new facilities must be built to incorporate this new

strategy. Also,

Recognition of proper technology is also an action item that should be completed

in order to develop product innovation and manufacturing process innovation. These

processes should help implement the low cost strategy in Europe and Asia by reducing

costs in production. Just as with its current products, Whirlpool will have to recognize

technological advances in production of future appliances. Whirlpool should question

whether the processes should be automated and what degree of computer and/or robotic

equipment will be necessary before any current appliances are redesigned.

The last point of action will be the proper advertising of the new products.

Whirlpool will obtain a good start with its current brand recognition, but it will slowly

have to gain attention of other consumers who may use Maytag or General Electric.

Repeated purchase may take place years later, as with a dishwasher or washing machine,

so Whirlpool will have to focus the reliability of their past products and focus intensely

on Whirlpool's brand name. Also, advertising will be different in the different global

areas. In Asia and Europe, Whirlpool should advertise their low cost strategy, while in

North America advertisements should stress their environmentally friendly and

innovative products.

Action Plan

Proper planning and implementation will aid in the success of Whirlpool's new

strategy. The production of products and distribution schedule will be determined by the

demand for the products.

1995 Recognition for a new strategy to further Whirlpool's success in globalization Build cross-functional teams for effective management of new strategy

Test market ideas for necessary customer-based standards for North American

region

Forum to rewrite Whirlpool's vision statement to include quest for new ideas and for technological advancement of all products

Research and benchmark current operations and types of products in current market

Research need for new types of technological resources

Analyze current production processes for availability of production areas Initiate plans for development of new plants if necessary

Decide on what facilities should be responsible for increased development of products

Monitor logistics and product management to see how much percentage of growth can be handled by current work force

Monitor sales growth in North America, Asia, Europe and Latin America Analyze reduction of costs in Europe and Asia and differentiation in North America

Upgrade innovation of products and manufacturing processes and continue finding ways to increase the environmental friendliness of products

1996 Send sales employees out to major stores that stock Whirlpool appliances, i.e. Sears, Montgomery Ward

Innovate products according to quality requirements and environmental standards Build new plants and facilities for increased production

Monitor sales growth in North America, Asia, Europe and Latin America Analyze reduction of costs in Europe and Asia and differentiation in North America

Upgrade innovation of products and manufacturing processes and continue finding ways to increase the environmental friendliness of products Assess current level of production and geographic diversification

1997 Purchase and install new equipment i.e. computers and robotics Hire new workforce for increased production factors if necessary

Begin advertisement of new product innovations, especially in North America Monitor sales growth in North America, Asia, Europe and Latin America Assess current level of production and geographic diversification

1998 Monitor logistics as innovated products are delivered

Monitor sales growth in North America, Asia, Europe and Latin America Redesign products for other global areas

Assess current level of production and geographic diversification

1999 Redesign any needed changes in current products

Recognize and reward achievement of production and logistics workforce Monitor sales growth in North America, Asia, Europe and Latin America Assess current level of production and geographic diversification

Epilogue

The strategy our team has created encompasses the creation of a new product line

and introducing it in the global market. There are other areas of improvement that

Whirlpool accomplished after the end of the 1995 case study. Some of the major areas

are:

1996 Whirlpool Europe opened sales subsidiaries in Romania and Bulgaria A new plant in Ohio began production on KitchenAid small appliances Whirlpool Asia has an employee total of more than 12,000 people

1997 In the 1997 Report of Corporate Citizenship, Whirlpool affirms its' social responsibility to "give back to the very communities that have helped to make the company successful."

Create value for it's three major stockholders: customers, employees and stakeholders

Fortune 500 ranking of 182/500Net sales for the year increased to a record $8.6Net earnings, exclusive of non-recurring charges, totaled $238 million, increasing

from $175 million the previous year

Change focus from global to firming Whirlpool network of North America, Latin America, Europe and Asia

Remain market leader in North AmericaHigh Performance Culture (HPC) to all employees

Five shared values: respect, integrity, teamwork, leadership, winning spirit 1997 Good Housekeeping Good Buy Award

1998 Announces 36% improvement for 1997

Energy saving Whirlpool Resource Saver WasherReceives EPA awards for climate and ozone protectionIntroduce new products in Asia, along with widening distribution Improve customer satisfaction through quality productivity and speed New global product development organization

Ranked in top 20% of companies listed in American Satisfaction Index

1999 Announces share repurchase

Thirty-seven percent improvement in 1998 resultsYear 2000 Readiness DisclosureWorldwide Excellence System (WES) - quality, customer and continuous

improvement

Conclusion

The Whirlpool Corporation is a strong company with a solid strategy as its base.

For many years Whirlpool has been a leading manufacturer and marketer of home

appliances, at home as well as abroad. With the ever increasing globalization of our

economy, Whirlpool will need to treat each of its foreign markets as a separate market

with its own separate needs and identity. To grow and to remain successful and capitalize

on the many growing world markets, Whirlpool has, and must continue to expand

globally. While expanding, Whirlpool must continuously evaluate and assess its

performance and direction so that it may continue as a global market leader in the

appliance industry.

Works Cited"Home Appliance Giant Electrolux Raises Asian Sales Target" Business Times

(1995). [Lexis-Nexis]

"Whirlpool Expanding Globally." Sacramento Be e(1995): D [Lexis-Nexis]

"Whirlpool Plans $1Om R&D Center to Cater to Asian Market." Singapore News(1995).

[Lexis-Nexis]

www.eletroluxUSA.com www.whirlpool.com

www.ge.com www.whirlpoo.corp.com

www.maytag.com www.raytheon.com

Appendix

Appliance Industry Market

Share Raytheon

General Electric

Whirlpool's Financial AnalysisRatios 1995 1994 1993 1992 1991 1990Operating Profit Margin

4.80% 4.90% 6.50% 6.60% 6.00% 5.30%

Return on Stockholer's Equity

1.11% 9.10% 3.90% 1.28% 1.12% 5.10%

Return on Assets

2.60% 2.30% 0.80% 3.30% 2.60% 1.40%

Current Ratio 0.92% 1.00% 0.98% 0.90% 0.94% 1.10%

Whirlpool's operating profit margin decreased over the last five years from 6.6% in 1992 to 4.8% in 1995. Whirlpool's revenue increased from $6,757 in 1991 to $8347 in 1995. This increase in due to massive

into global markets. This indicates that their operating expenses have reamined less than their sales profits. Whirlpool is maintaining a good relationship between the amount of assets that it acquires relative tothe amount of liabilities it acquires. This shows that through the global expansion, Whirlpool has managed it finances properly.

Business Unit Revenues and Operating Profit (Millions of Dollars)

Revenues 1995 1994 1993

North America 5093 5048 4559Europe 2502 2373 2225Latin America 271 329 303Asia 376 205 151Other -5 -6 130Total Appliance Business 8163 7949 7368

Operating ProfitNorth America 445 522 474Europe 92 163 139Latin America 26 49 43Asia -50 -22 -5Restructuring 0 -248 -23Business Dispositions 0 60 -8Other -147 -154 -116Total Appliance Business 366 370 504

Global Home Appliance Industry: Saturation Levels by Region Demand and Market Growth, 1994-2004

Home Appliances North America Europe Latin America Asia

Refrigerators 100 100 70 30Cooking Equipment 100 96 90 0Clothes Washers 74 82 40 20Clothes Dryers 70 18 0 0Dishwashers 51 30 0 0Microwave Ovens 80 40 5 8Room Air Conditioners 41 0 10 8Compactors 5 0 0 0Freezers 40 40 0 0

Population (million) 380 1100 380 2900Annual Demand (million units) 46 75 17 56EM. Annual Growth Rate 3% 3% 6-8% 8_9%