Report of Blue Ocean Strategy at Henkel

7/23/2019 Report of Blue Ocean Strategy at Henkel

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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


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Syndicate IIMBA ITB X.46 Blue Ocean Strategy at Henkel

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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.


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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.


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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


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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.


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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;


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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


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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.


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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


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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


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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


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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

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