1 Assessment of Elektrolux's general global strategy *

1.1 SWOT, Core Competencies and Competitive Advantage *

1.2 SBU Portfolio Strategy *

1.3 Strategy and Objectives *

2 Evaluation of the Role of Zanussi in Electrolux's global strategy *

2.1 SWOT Analysis and Strategy *

2.2 Secret of Zanussi's Turnaround *

3 Present Situation *

3.1 Potential Problems and Decisions Made by Electrolux *

3.2 Evaluation of Whirlpool's Threats to Electrolux *

Combining localization of products (incl. brand management) with globalization of product development and manufacturing (global rationalization scale of production).

Acquiring firms in a vulnerable financial position and lead them back into black figures using a straight forward approach.

Highly experienced in manufacturing and marketing of household appliances.

Worlds largest manufacturer of high quality white goods (mainly in Europe and North America). Knowing the customers and their different needs in many countries (being close to the customer).

Electrolux is organized along following five product lines (1984).

1. Household appliances: biggest segment of Electrolux which generates 52 % of sales
2. Forestry and Garden Products
3. Industrial Products: heavy equipment for food services, semi-industrial laundries and commercial cleaning
4. Commercial Services
5. Metal and Mining (Gränges): Second largest segment with 22% of sales.

Nearly 75 per cent of sales is generated by the two biggest segments (Household appliances; Metal and Mining). These two divisions also create the major part of the profit.

Parallel to the divisional organization along product lines exists a legal structure of local subsidiaries. These subsidiaries are managed as profit centers. This may cause problems with dual responsibilities (reporting to product division and subsidiary). Electrolux is trying to establish a one product line - one company strategy. Furthermore they are trying to gain advantage of Zanussi's strong market presence in Italy, Spain, France and Germany, where Electrolux is less established as a supplier of household appliances. Additionally the product portfolios of both companies complete each other with low overlap.

Electrolux was strong where Zanussi was weak and vice versa. Integrating the complementary parts of both companies in marketing as well as in product development creates good opportunity to create synergy effects. Combining the abilities of a highly vertically integrated Zanussi to produce components with Electrolux’s approach to look for external suppliers will give higher capacity utilization and economies of scale. Integration of production and developing specialization in product and brand development creates synergy that can be exploited.

The transposition of Zanussi from a financially struggling company towards a successful Electrolux business was based on a clear definition of a plan (strategy) how to achieve that. Clearly specified objectives and clearly defined milestones helped to complete the first stage of integration within a relatively short period of three to six months to maintain the momentum. Replacement of the board of Zanussi brought the new company closer to its new mission set by Electrolux. Appointing an Italian managing director, who had long experience in working with Swedish business people, as a link between both companies helped to lower barriers between both parties.

To merge both management styles Electrolux appointed several meetings of senior managers of both companies, so that they could bridge different culture and styles of management. Not to mention the effect of personal contact to create an environment without internal barriers that limit communication and information sharing.

The integration of marketing and administrative departments of both companies results in a reduction of the overall costs of the group. Shifting production, e.g. from French loss-making manufacturing, gave immediately higher capacity utilization for Zanussi’s facilities. Additionally the three areas for improvement were chosen: improving production technology, innovations and new product development and enhancing product quality.

The ability of Electrolux to deal with the strong Italian union made it easier to find a solution for the problem of low productivity and necessary work force reduction.

Electrolux is highly dependent on the success of the integration of the Italian company. Therefore the market entry of potential competitors such as Whirlpool might threaten the good position of Electrolux in the European market. Also a change in replacement demand, e.g. caused by an economic decline, might create problems for Electrolux. Therefore being able to adjust production to changing demands, not only in size, but also in structure (design, more price sensitive customers), is essential for Electrolux.

Considering the expected tough competition in a mature market offering a good localized service will be crucial to maintain market share. The highly experienced marketing employees of both companies might help to improve service quality in the consumer market.

Good long lasting relationships with suppliers (e.g. of raw material) might help to face the increasing power of suppliers, which is expected in that industry.

While empowering senior management there might be a problem how to deal with the bypassed middle management. Middle managers lost their faith in the integrity of the system formerly in use by Zanussi. This is expressed by the high number (150) of middle managers feeling less motivated and less secure. They were trying to overcome that by exposing middle managers subsequently to management development workshops.

To overcome the ‘not invented here’ syndrome and also to avoid further escalation of the frictions between engineers of both parties (e.g. no opportunity to prove themselves for Zanussi’s engineers) might be achieved by joint development teams.

On the other hand the absence of a broad base of skilled blue-collar workers needed for the introduction of a highly automated production might be a problem in the near future.

By acquiring Philips’ appliance business Whirlpool also entered the European market and became a global player competing with Electrolux. The one who wins the race for market share has to have the better approach for satisfying the customer using one of the following aspects:

• Low cost – low price
• High quality
• Clearly superior product design
• Better brand management
• Better supplier management to reduce costs (process development)
• Managing changing environment (customers, retailers, suppliers, legal environment, …)

Whirlpool is trying to attain that by:

• Implementation of a Shareholder Value Approach (instead of Electrolux’s RONA)
• Global integration of production (reducing costs, reducing local responsiveness)
• High involvement of acquired company’s employees in integrative process
• Establishing a pay-for-performance compensation system
• Introducing a broad Total Quality Management system
• Developing new products by observing consumer’s functions
• Establishing close relationships to related industries (e.g. Procter & Gamble for detergents)
• Seeing the end consumer as customer, not the retailer

The company, which realizes a real global strategy will have a competitive advantage and therefore will gain market share and become a leader in this industry.