STRATEGIC MANAGEMENT

Strategic Management

Company description - B&O

Bang & Olufsen was founded in 1925 by two engineers Peter Bang and SvendOlufsen.  They shared both the enthusiasm for radio, which was a new phenomenon at that time. Since the late 1960s when competition from Asian countries grew rapidly, the B&O focused on differentiating themselves in terms of idea, design and quality. In the late1980s and early 1990s, B&O was in trouble and had big to face problems with earnings.

This resulted in anything but the core business was sold and a new selective distribution strategy unveiled (B&O, Annual Report 2008/09, p. 9).Today traded B&O's products primarily through B1 Shops and Shop-in-shop stores. B1 shops, mainly dealer B&O's products, while Shop-in-shop are the shops where a large area of the store is decorated and dedicated to the B&O's products (B&O, Annual Report 2008/09, p. 11). In the last financial year came 91% of revenue from exports to over 70 countries worldwide. B&O's vision is:"courage to transcend boundaries to create experiences that surprise and keeps"

This vision is underscored by the B&O's ability to develop and produce unique products.B&O's crisis has led to the introduction of Pole Position, which focuses on product development, enhanced sales effort and cost adjustments (B&O, Annual Report 2008/09, p. 9). This strategy should change with help from a share offering in spring 2009 to help rectify the negative trend.

The Global Financial Crisis

The global financial crisis has had a major impact on both Danish and foreign companies. Many companies have experienced a decline in revenue caused by a failure of marketing. Some industries were adversely hit specially these dealing in the luxury goods.  B&O was one of these companies. The decline in revenue include occurred as a result of a fall in demand for luxury goods (B&O annual report 2008/09, p. 5). The large decline was also expressed through the share price, which was declined from a price of 733 at par 63 in 2007.

The Turnaround Strategy

The goal of a turnaround strategy is to achieve "Sustainable Recovery" (Slater et al. 2006). Sustainable recovery is achieved if a company in the long term can achieve a satisfactory return on invested capital. Sustainable recovery can be obtained only if the company has a competitive advantage, making the return on invested capital exceeds cost of capital (ROIC> WACC) (Mulcaster, 2009, pp. 69). B & O's brand has previously been described as its biggest competitive advantage. Therefore it is important that for B&O to maintain brand equity, as it is expected to be done through the technological advantages of the group.

Strategic Analysis

Focus on the Core Business

The new management of B&O focused on the Pole Position Strategy which was comprised of teamwork, product design, quality, and product innovation. But the product development was limited only to the Audio and Video product categories. The product development in the new categories like i-phone, mp3 players etc were stopped. All the resources were utilized on the Audio and Video products and the technological platforms were developed for the products of similar categories. The reduction of product categories is a very common point of focus. This strategy calls for redefining the core business of B&O. Therefore, it was decided in October, 2008 to drop the development of mp3 players and mobile phones and to mainly focus on the core business of Audio and Video product development.

Well, this was a smart move by the new management because the above mentioned initiative in the current competitive environment will lead towards cost deduction which will further lead towards the reasonable price and maximized profits of the organization.

But there were also some problem within the core business. There was, for instance a few product launches. To achieve the goal of reducing development time and increase the number of product launches, the B&O build a common digital technology platform for all products (B&O rights issue 2009, p. 14).

The focus in turnaround situations put on cost minimization, and it is often seen asa way out of crisis. Cost minimization is also important in the short term, where the company is still in a stabilization phase. In the longer term it is important to focus on sales growth (Moncrieff, 2006, pp. 275)

Economic Downturns

Pole Position entailed particular decrease in all product areas ((Jarman, 2008, pp. 127). One problem for B&O is the high Danish wages compared to other countries. This leads to damage the competitiveness and in the long term it means that B&O will have to either to outsource production or shift production to a country with lower wage levels. B&O has already moved some of their production to the Czech Republic. The core idea of the turnaround situation is that it is in response to the competitive threats arising out from the new competitors coming up with their own latest technology and to cope with the financial crisis that has lead to the decrease in buying power of the customers. Moreover, the focus on too many points may lead to improper implementation of the strategy due to diversified approaches (Slater & Lovett, 1999, p. 214).

In such high wage scenario, it is a great idea to stop the development of new products and to focus ...