report of blue ocean strategy at henkel
TRANSCRIPT
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
1/12
PAGE 8of 10
Syndicate 2 X46
MASTER OF BUSINESS ADMINISTRATION
SCHOOL OF BUSINESS AND MANAGEMENT
INSTITUT TEKNOLOGI BANDUNG
2013
MM 5012
Business Strategy
GROUP SUMMARY ASSIGNMENT
BLUE OCEAN STRATEGY AT HENKEL
Syndicate 2 Executive 46 (Great Leader Syndicate)
29111311 Haidir Afesina
29111328 HendraWinata
29111329 MitaListyatri
29111338 AndekPrabowo
29111344 AprianEkaRahadi
29111384 ChairunnisaMirhelina N
29111387 F X KresnaPaska
29111393 Agung Indri P
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
2/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
1
1. CASE SYNOPSIS
Since its inception 137 years ago, Henkel has been
known as the predominant company in Adhesive
industry. Founded in 1876 as Henkel & Cie in
Aachen by 28-year old merchant Fritz Henkel,
Henkel holds globally leading market positions
both in the consumer and industrial businesses
with well-known brands such as Persil,
Schwarzkopf and Loctite. Focuses on the
innovative strategy of the company, which was
driving force of the company to become a leader
in 1990s German market. Henkel operates worldwide with leading brands and technologies in
three business areas: Laundry & Home Care, Cosmetics/Toiletries and Adhesive Technologies. It
has developed a range of products in 125 countries, from modern consumer ones for everyday use
to complex chemical and technical system solutions for industrial consumers and also unique from
other competitors.Since 2002, Henkel has been its oval corporate logo and the claim A Brand like
a Friend. The tagline intention to foster customer`s trust in Henkel quality and also facilitate the
perception of Henkel as a brand, not corporation. Together, these two components represent an
umbrella brand for the entire company with all of its products and services.
The case deals specifically with the difficult market situation of an overcrowded and stagnating
market. Thus Henkel's resulting consideration to implement the blue ocean strategy. Andreas
Welsch, General Manager of the German department of Henkel Adhesives Technologies for
Consumers and Craftsmen and his marketing executives have to develop a long-term, sustainable
strategy, in order to avoid a continuous fight for market share with competitors in the adhesives
market. They have to introduce changes that would include both tangible financial
and performance targets, and an overhaulofcompanyculture.
2. ISSUES and PROBLEMSThe growth of Henkel`s market has slow down along the increasing price of raw material (energy
prices are increases and unsustainable) that impacted to Henkel margins. In addition there is
competitor that would enter the market with a very low price. Therefore the objectives are to
develop new customer groups to tap new markets.
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
3/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
2
3. ANALYSISTo successfully deal with this uncertainty and to achieve strategic competitiveness and thrive,
firms must be aware of and fully understand the different segments of the external and internal
environment and the relation within (Ireland, Hoskisson and Hitt, 2011).
3.1External Analysis3.1.1 PEST (Politic, Economy, Social and Technology)
It gives the overviewed of macro-environment of the industry that describe the opportunities and
threat (Ireland, Hoskisson and Hitt, 2011).
Politic : The globalization reduces the trade barrier that resulted in reduction production
cost from the IT production. However, it creates tight competition between global
and local product. Thus merger and acquisition are also a strategy to help Henkel
expand its international global brand.
Economy : By focusing on emerging and developing Asian market especially India and
China, Henkel could achieve substantial growth on these high growth markets. In
fact, the market of adhesive product is saturated. Investing on new projects such as
building a warehouse or headquarter also help the company to achieve its long
sustainable growth. On the other side, the economic slowdown of Euro zone and
US, along with the increasing price of raw material and energy are becoming thethreat that cannot be ignore.
Social : In recent years, people are becoming emotional buyers. Means Henkel has to
maintain their customer relationship carefully through its products and services.
Thus there is a potential increasing demand based on the social lifestyle.
Technology : Henkel`s innovation in Adhesive Technology business sector that offered products
for household and office applications help it to be the world leader in its segment.
From the financial perspective on exhibit 5, $5,711 or 43% of Henkel revenues generate from
Adhesive Technology sector, it givessignificant effect to Henkel financial performance.Its sector
increasing Henkel Financial Performance of revenue and market with indicator Compound Annual
Growth Rate(CAGR) as shown inTable 1 below.
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
4/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
3
Table1Compound Annual Growth Rate (CAGR) of Henkel 20062007
2006 2007 CAGR (%)
Revenue
Operating Profit Margin 10.2% 10.3% 0.43%
Net Profit Margin 6.84% 7.20% 2.59%
Operating Expenses to Revenue 89.8% 89.7% -0.05%
Market
Earnings per prefferd share (1) 1.99 2.14 3.68%
Source: Exhibit 2
Above shown that positive growth of the revenue from its CAGR is 2.59% in net profit margin
along with the efficiency in operating expenses for 0.05% from 2006 to 2007.3.68% positive
growth also occurs in earnings per preferred share to show that the financial performance is
successful indicator to the Henkel strategy in 2007. Thus Henkel still considered has a strong
financial position.
3.1.2 Porter Five ForcesAccording to Porter (1980), to make it possible to map the strategic categories in the industry,
identify and classify industry participants according to their competitive strategies. Often, an
industry has a number of firms pursuing several strategies. Therefore, Porter`s five forces
framework explains the industry`s competitiveness.
Table 2Matrix of Porter Five Forces
FORCES ANALYSIS ATTRACTIVENESS
Thereat of New
Entrants
Lots of products are already established with highbrand awareness and generating customer loyaltyso competition focus to cost advantage, distributionchannel economic of scale
Unattractive
Bargaining
Power of Buyer
Brands that compete offer almost the same benefitand almost the same price. However it`s a pricesensitive.
Unattractive
Bargaining
Power of
Supplier
The few suppliersmake it on powerful position thatimpact to higher cost for the company. Meanslowering industry profitability
Attractive
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
5/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
4
FORCES ANALYSIS ATTRACTIVENESS
Threat of
Substitute
Rapid change in ICT (Information Communicationand Technology), make differentiation in theindustry narrower. Customer can shift tomultitasking product.
Unattractive
Rivalry Among
Existing
Competitor
Except innovation, many company in this industrycompete in seeking the way to reduce cost to givethe lowest price to the customer
Unattractive
The objective of strategy is a sustainable competitive advantage, which may come from any part of
the organizations operation. The market is the judge of this advantage. Therefore it needs a careful
brand strategy to ensure company`s position in the consumers mind to produce a perception of
advantage. Based on Porters framework, the Adhesive industry is not an attractive industry to
enter. An established companies in the industries compete fiercely among them prevent other
player to come in. Huge capital and wide distribution is needed to achieve economic scale. Thus
the innovation is needed to differentiate from others and become more profitable.
3.2 Internal Analysis
3.2.1 Value Chain Analysis
Value chain described the sequence activities within an organization that design, produce, sell,
deliver and support its products or service (Ireland, Hoskisson and Hitt, 2011). Therefore to be
effective, value chain analysis needs to recognize and understand the relationship between primary
and support activities.
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
6/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
5
Above is Henkel`s value chain activities. The primary activities are:
(1) Research &Development
(2) Product safety
(3) Raw Materials
(4) Production
(5) Logistics
(6) Use: fostering sustainable consumption
(7) Usage: Industrial business, and
(8) Packages &disposal.
The support activities are procurement, human resources, infrastructure and general support.
Primary activities and support activities are linked to each other. Henkel has to see that the
activities not just a cost, but also a step that has to add some increment value to the finished
product or service. With the sorting activities in the value chain, in order to reduce operating costs
to do the pattern of out sourcing. However, out sourcing can only be done in areas that do not
create value or areas at a substantial disadvantage compared to competitors. Therefore the selective
strategy has to be done as competitive advantage arises from the activities in a company`s value
chain. In order to perform different from competitor, Henkel has to meet different needs and/or
same needs at lower cost as its value. Thus it has advantage to sustainable higher process and/or
lower costs to compete on strategy.
3.2.2 Resources Based Analysis
Categorized as tangible or intangible,
resources can be defined as inputs into a
firms production process, such as capital
equipment, the skills of individual
employees, patents, finances, and
talented managers (Ireland, Hoskisson
and Hitt, 2011).Capability is the capacity
for a set of resources to perform a task or an activity in an integrative manner(Ireland, Hoskisson
and Hitt, 2011). As core competencies are resources and capabilities that serve as a source of
competitive advantage for a firm over its rivals, it should be met the four criteria;
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
7/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
6
a)Rare (capabilities that are not possessed by competitors)b)Valuable (capabilities that help a firm neutralize threats or opportunities)c)Costly to imitate capabilities (capabilities that other firms cannot easily develop)d)Non-substitutable capabilities (capabilities that do not have strategic equivalents)
Although the market condition of adhesive product is saturated in adhesive market describe in
previous section, resource based view emphasizes building competitive advantage through
capturing superior profits, stemming from fundamental firm-level resources and capabilities.
Henkel has some unique resources, which integrated to be unique capability and finally lead to
core competency to gain competitive advantage. The table below depicts the tangible and
intangible resources which already presence in the Henkel environment. From integrated bundling
of the tangible and intangible resources, the capability to perform outstanding activity within
Henkel can be catch up.
Table4 Criteria for Sustainable Competitive Advantage
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
8/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
7
If we combine the resources and the capability of Henkel, the core competency of Henkel located
in both aspect (Table 5):
1. Tangiblea. Organization. Henkel has large product portfolio. Although different competitors existed in
each market from its huge products (Exhibit 6), each competitor often only served a special
niche and sector. In addition, only few companies were active in as many segments as Henkel
did. Therefore this is the reason Henkel was almost triple the size of its next best competitor.
Furthermore, with its international expansion strategy, Henkel can rapidly grow its brand
image. Henkels diverse product range and strengths ranged from modern consumer product
for everyday use to complex chemical and technical system solution for industrial customer.
2. Intangiblea. InnovationHenkel invest in R&D in big portion as shown inExhibit 2, compare to capital expenditure, R&D
expenses is around 78.8% in 2006 and in 74.4% in
2007. From this data we can understandably why
Henkel being the first self-acting laundry detergent in
1907.
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
9/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
8
b. ReputationFrom reputation view, customer care of Henkel gives optimum support product enhancement,
technical advice, addressing complaint and warranty support. Thus it makes Henkel receive
positive image from their customer. Thus it fits to its tagline i.e.
A brand like a friend. Although Henkel brand is not really
familiar to customer, as not all sub-brand Henkel invested to
that. However customer familiar to its sub-brand likes Pritt,
Patex, and Ponal. This is because their sub-brand strategy
applied to product managers to develop their own marketing
strategy.
Table5Combination Criteria for Sustainable Competitive Advantage
3.2.3 Brand Management
Brand is an offer and designed for customer experience with 80% focusing internally and 20%
externally (Keller, 2008). With the statement ofA brand like a friendand its graphic depiction,
the task has been successfully solved. The company is no longer a faraway factory, but a friend,
a familiar person. This describes a new identity. An offer is always a commitment, too. Not only
must the products and services satisfy this claim, but the employees as well. In creating a corporate
brand, Henkel was breaking new ground in an industry that had traditionally been dominated by
product-oriented marketing. The company name had stayed in the background, since it was already
very well known in the German domestic market. The situation was different in the international
environment, in which Henkel, with its broad range of products, naturally found it more difficult tomake its name known. Thus it decided to introduce Henkel as corporate brand.
The corporate brand is an increasingly vital strategic element in corporate management, especially
for Henkel that operate worldwide. At the same time, in a more competitive environment, a
corporate brand is an additional value creator and a driver of corporate success. The value
contributed by the corporate brand takes many forms, as its effect is internal as well as external.
Henkel with a strong brand presence that essentially means a good reputation and high awareness,are more valuable and more attractive to shareholders. Not only that but also have better qualified
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
10/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
9
employees, more loyal customers, and better suppliers. In addition it is more crisis-proof, and find
it much easier to impose their general operating conditions. The success of corporate brand
management is based not least on the corporate culture shared by the employees (Keller, 2008).
This brand understanding, lived within the Company, makes external target groups trust Henkel
and makes customers prefer Henkel products. Therefore, Henkel is manifested in an increase in
brand and corporate value. Here corporate design is turned into real corporate management, with
concrete effects on employee motivation and market penetration.
4. CONCLUSIONS and RECOMMENDATIONS
4.1 Conclusions
It concluded that Henkel as a leading manufacturer and supplier of consumer and industrial goods,
lead position worldwide in laundry and home care, cosmetics and toiletries, and consumer and
craftsmen adhesives segments. A strong market position in most of its operating segments
enhances the brand image of the company. However competition from large players and private
labels could be a threat for companys market position and could also lose its market share.
Strengths : Strong financial position, product innovation, broad product portfolio, strong
R&D, intelligent brand management
Weaknesses : Weak presence in Asia compare with competitors such as P&G, Unilever
Opportunities : Focus on developing and emerging countries (Asia), invest on new projects,
positive market outlook for home care and laundry segments
Threats : Increasing competitive pressure, economic slowdown in US and Eurozone,
inflation impact to operating cost
Both Porters five forces model and Resource basedview may appear to be different, but they are
actually complementary when integrated. From Porter`s five forces that define the industry
structure and position approach helps a firm to understand its competitive environment while the
resource-based view helps it to evaluate its ability to exploit strengths andrespond to identified
weaknesses.
4.2. Recommendation
From analysis above, the authors give the recommendation for its Blue Ocean Strategy. The
strategy will focus on value innovation and value pioneering in order to gain market share. Blue
Ocean Strategy is creating uncontested market space to make the competition irrelevant by
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
11/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
10
pursuing of differentiation and low cost in capturing untapped demand (Kim and Mauborgne,
2005). However to implement the strategy, it depends on the company environment itself.
Moreover, Henkel created a long-term strategy through its brand management;
1. Brand DevelopmentThis team is focusing on creating and developing a long-term strategy. It brings the brand
evolving to the future by creating the innovation in order to build the image. Thus it
centralized in globe scope.
2. Brand BuildingThis team is bringing the brand live in the marketplace. It is decentralized in major
geographic region. In other words, it is a short-term strategy.
5. LESSONS LEARNED
The lessons learned that could be taken from the case are;1. Firms has to be able to identify its resources in order to figure the strength and weaknesses
with competitors by analyzing both of external and internal environment
2. Firms has to determine its capabilities so that allow them to do better to create the opportunityto face its threat
3. Firms has to select the strategy that best allow it to utilize its resources and capabilities toachieve sustainable competitive advantage
ELIMINATE RAISE
Eliminate total number if its brand and createa focus "Masterbrand"
Personal care (Hair & body),Innovation based on customer oriented
Green product
REDUCE CREATE
Carbon foot printTechnically terms
DIY segment (easy to use)
Product for womenGreen Products
-
7/23/2019 Report of Blue Ocean Strategy at Henkel
12/12
Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel
11
REFERENCES
Ireland, R.D, Hoskisson, R.E, and Hitt, M.A (2011), The Management of Strategy; Concept &
Cases, 9th Edition, South-WesternCengage Learning
Keller, Kevin Lane (2008) Strategic Brand Management, 3rd Edition, Pearson: Prentice Hall
Kim, W Chan and Mauborgne, Renee (2005), Blue Ocean Strategy, Harvard
Porter, Michael E (1980), Competitive Strategy, Techniques for Analyzing Industries and
Competitors, Free Press/Simon &Chuster