Practise selecting, constructing and applying business tools to case evidence, then interpret their outputs, assumptions and limitations to support strategic recommendations.
Royal Danish Bearings
Royal Danish Bearings ( RDB ) is a successful multinational company operating in the ball bearing industry. RDB was set up in 1915, in Denmark, by a Danish machinist called Henrik Holstein. Henrik was a visionary. He foresaw the expansion of the ball bearing industry in the twentieth century, which was largely due to the growth of the automotive sector. Ball bearing technology contributed to engineering progress throughout the twentieth century, especially in the secondary sector of the economy. Today, the outlook of the ball bearing industry is still promising: its market size is predicted to further expand over the next decades. "High-tech industries" such as computer software and artificial intelligence attract considerable attention and capital; however, most global industrial output continues to be mechanical devices. For example, ball bearings are found in all types of vehicles, such as in gearboxes and wheel suspension; there are even ball bearings in fighter jets and space shuttles. RDB has always operated in the business-to-business (B2B) market. Throughout the twentieth century, it expanded by internal/organic growth. Consistent with business thinking of that era, the company concentrated its manufacturing in three megafactories (very large factories) located in Denmark, northern Germany and Sweden, where the workforce had become highly skilled in operating machinery for industrial production. Benefiting from several economies of scale, RDB created thousands of jobs, supporting the "company towns" where they were the main employer, held in high esteem both locally and regionally. In the 1930s, RDB 's market position was determined by the high quality and high price of its ball bearings. RDB's two main competitors were U A B and F I B; U A B 's ball bearings were medium quality and medium price, and F I B 's ball bearings were low quality and low price. Immediately after the second world war, RDB began to face competition from new Japanese companies, which used their low labour costs to gain entry into the ball bearing market. Thanks to its well-established reputation for high quality, RDB maintained its market share. By the 1970s, the competitive environment changed again. As Japan's economy developed, wages rose substantially. To remain competitive, Japanese companies moved to just-in-time production. Using this method, they could respond faster to specific customer needs. Their flexibility became their unique selling point (USP); it represented an important competitive advantage against other companies such as RDB. They also met international quality standards, making it easier to export to different regional trading blocs. Valdemar Holstein's efficient leadership Valdemar Holstein (the son of RDB founder Henrik Holstein) started working at the company in 1951, when he was only twenty-one. He spent his entire career at RDB, including several years as a machinist. In 1965, he replaced Henrik as Chief Executive Officer (CEO). Under his leadership, RDB kept thriving, as he successfully implemented several changes. Although the company maintained a tall organizational structure, Valdemar empowered his middle managers. He also adopted management techniques that were fashionable at the time, such as total quality management (TQM), benchmarking and Kaizen. RDB remained profitable and maintained brand loyalty. However, financially, gross and net profit margins were lower than previously, which Valdemar thought was unavoidable. Internally, some maintenance and technological upgrades were being delayed - but Valdemar did not pay attention to this. Externally, some environmental campaigners started to put pressure on RDB because of the high pollution levels in the vicinity of RDB factories - but Valdemar ignored their claims. Valdemar was proud of the company's traditions. It remained privately owned by members of the Holstein family. Valdemar, like his father, had a paternalistic leadership style - though he could occasionally be autocratic, especially when the workers' collective bargaining agreements were being renegotiated. Although there were few opportunities for promotion, the employees liked RDB 's corporate culture. They too were proud of working for a well-known, well-established and well-respected company. They were well paid, enjoyed working in a culturally homogeneous environment, and felt that their jobs were secure. Many of the workers' fathers and, in some cases, their grandfathers, had worked for RDB. Work patterns and practices followed the northern European Christian calendar and local traditions. Getting a job at RDB was like "joining a family". The employees all appreciated their job security, their high standard of living and their working environment. A cautious manager, Valdemar always tried to manage risks. He regularly consulted economists and other specialists in order to minimize the impacts of changes in the external environment. Over the years, these efforts proved worthwhile. For example, RDB remained largely unaffected by the 1970s energy crisis. Every year, Valdemar reviewed RDB's contingency plans; this helped him avoid a possible technological disaster in 2000 with the so-called "millennium bug". A crisis that Valdemar had not foreseen was the sudden collapse of Icelandic banks Kaupthing and Landsbanki in 2008; RDB had funds in saving accounts in those two banks. However, it later managed to recover most of these funds. In terms of operations, RDB manufactured standard-sized ball bearings in a flow production process. It sometimes used batch production for deliveries to established customers who used non-standard-sized ball bearings, and sometimes job production for one-off special orders, such as large ball bearing systems for power stations or mines. In all respects, from human resource management to operations, Valdemar felt that RDB was ready for the twenty-first century.
Anna had big ideas for RDB. A scientific and analytical thinker, she had carefully studied the external environment in which RDB operates. She knew that demand for ball bearings was slowing down in Europe, whereas it was growing substantially in countries such as Brazil, China and India that were going through a phase of strong industrialization. From her research, she also concluded that manufacturing in the twenty-first century would be accomplished in smaller, more flexible factories, instead of the huge modernist structures typical of the late nineteenth and twentieth centuries. Time would be the critical factor; having factories close to customers' locations would reduce response time and improve logistics, including distribution and delivery. This would also shorten the working capital cycle - an important benefit for RDB. Given her international experience, working at RDB made Anna realize that her colleagues in the Engineering Department, and even the entire RDB workforce, needed a better cultural understanding of their customers. The best way to achieve this, she thought, would be through a workforce that resembled RDB 's customers, and increasingly they would be from Asia, India and South America. She was also convinced that RDB had to focus on "green" technologies and its corporate social responsibility. The company would have to significantly increase its spending on research and development (R\&D) and also examine its impact on the environment and on its customers' carbon footprint. The two are linked, Anna reasoned: the ultimate aim of innovation in the ball bearing industry is to save energy, which is fundamentally what ball bearings do by reducing friction. For users, better ball bearings mean less friction and, in turn, less friction means that less energy is wasted. Thus, less energy is needed. Anna's vision for RDB was to make the world's most technologically advanced, energy-efficient ball bearings in small "green" factories located near its customers. This would require selling the two megafactories in northern Germany and Sweden, and significantly downsizing the one in Denmark. RDB's production would be offshored to 12 small factories to be opened around the world, mainly in Brazil, China and India. In terms of workforce planning, each of those new RDB factories would be jointly managed by one experienced RDB senior manager from Europe and one local manager familiar with the language and culture. Some machinists from RDB 's European factories would be offered key positions. Most of the existing jobs in Europe would be made redundant, as most of the new workers would be recruited locally on lower wages. Northern European countries have generous redundancy payments, largely funded by the employers, and these costs would be significant in the short term. In the long term, however, RDB would lower labour costs.
Additional information for question 2(b) and 2(c)
Selected information from RDB's financial accounts (€000 000):
1965 | 1975
Average stock: 29 | 54
Gross profit: 35 | 56
Net profit before interest and tax: 22 | 34
Total capital employed: 121 | 203
Sales revenue: 113 | 194
Using a SWOT analysis framework, identify two weaknesses and two threats to RDB.
"Think locally, grow globally"
To avoid negatively affecting sales, McDonald's senior managers in the United States (US) headquarters realized that they should not apply identical American standards worldwide. McDonald's must now think locally to grow globally.
British-born Steve Easterbrook, head of McDonald's in the United Kingdom (UK), understood the need for strategic change and prepared tactics with two objectives:
- to attract new and different customers
- to enhance the good value of products to appeal to customers during economic recession.
One of the first tactics in the UK was the introduction of "Little Tasters ", which offered new products, in small portions, at low prices. Steve understood that young mothers, when taking their children to McDonald's , would not buy meals for themselves because they felt the portions were too large. Other tactical changes, in response to customer demand, included the introduction of more chicken-based products for health-conscious customers. Moreover, an improved breakfast menu and better quality coffee attracted more price-conscious people on their way to work.
These adaptations to local conditions proved successful in the UK and beyond. McDonald's UK had 13 million more customers in 2010 compared to 2009, resulting in an increase in market share (during the economic recession). In other host countries McDonald's also successfully implemented its "think locally, grow globally" strategy. For example, it successfully launched products made from local produce and suited to local tastes such as the "Maharaja Mac " in India, the "McLobster " in Canada and the "Ebi Filet-O" (a shrimp burger) in Japan.
At the same time McDonald's launched a "global uniform initiative" to redecorate its restaurants with uniform appearance. McDonald's still tries to maintain the global recognition and the quality of its global brand. Local construction material and local labour are used, as well as different colours, comfortable armchairs and free Internet access. Other multinational food and drink companies, such as and Starbucks , are also using a similar strategy to the "think locally, grow globally" strategy used by McDonald's .
Draw the Ansoff matrix and use it to explain two of the growth strategies used by McDonald's .
As demand for kerosene stoves had been declining for many years, in 1993, Adriana decided to add healthcare devices using ergonomic designs to RDM’s product portfolio. The reasoning behind the move to manufacturing medical devices was that, with the baby boomer generation soon to reach retirement age, the demand for goods and services in the healthcare industry would be growing. Though not immune to broader economic trends in Europe, since the Velvet Revolution the Czech economy has fared well. Part of this success stems from the relatively smooth transition to a stable market economy and democracy. Traditionally, educated Czechs speak German in addition to Czech, a situation that has facilitated positive trade relations with Germany, Europe’s largest economy. A small, compact country, the Czech Republic now has an IT infrastructure that ranks among the best in the world. For decades, RDM employed a large unionized labour force, mass produced stoves and sold its product to wholesalers. Because of globalization and fierce competition from Asian manufacturers, which had lower cost structures, in the early 2000s Jan determined that European manufacturers would have to lower costs. Automation, while requiring significant capital expenditures, lowers costs in the long run. In addition, digitized communication between robots allowed RDM to be responsive to customers’ requirements. RDM’s relationship with stakeholders was profoundly changed by the move to automation. In the 1970s, RDM employed roughly 500 workers, making it the largest single employer in Lobjanec. In 2019, the business employs 117 people, only a small number of whom are involved in manufacturing. Further, most of those involved in manufacturing are not skilled manual labourers but highly trained engineers and computer experts who manage the automated process. Their attitudes, aspirations and motivations differ significantly from the workers who survived the Second World War and had worked under the Communist regime. With this reduction in, and transformation of, RDM’s labour force, the company no longer has the level of local influence that it formerly had.
Describe two changes in the external environment that have affected RDM.
