The major problems that are faced by Electrolux are as follows:
- The company was incurring spiraling costs and was losing out in competition to cheaper products from Asia and Eastern Europe.
- The company was facing fierce competition in the US from where it got its major profits till now.
- Electrolux was facing an innovation crisis as most of its products were considered old-fashioned and untrendy.
The realistic assumptions that can be made about the case are that Electrolux is the second largest home appliances manufacturer in the world and recently had been facing major challenges. After facing problems due to tough competition and substitute products Electrolux started to change its product strategy and introduce new ways of designing products. It ordered employees from different departments such as engineers, marketers and designers to come up with new ideas for innovative designs. To support this innovation drive, Chief Executive Straberg raised spending on R&D form 0.8 percent to 1.2 per cent and 2 per cent eventually. Electrolux started to believe that consumers would pay even higher prices for innovative and easy to operate products rather than complicated ones. The results were almost immediate.
The causes of problem for Electrolux were the availability of cheaper substitutes in some regions of stronghold and higher costs being incurred. There was immense competition amongst the home appliances manufacturers in the US which was the strongest base for Electrolux. As a result, their profits were sliding down (Case Study: Stockholm Partnerships for Smart Living, 2011).
The most significant solution to the problem of Electrolux was to develop newer technologically advanced products that would be easier to operate. Consumers were shifting to substitutes as these were easier to handle and also very attractive in looks. Electrolux should also manufacture such products that would appeal to the consumer’s eye and would eventually buy them.
Electrolux should order its employees of the marketing, designing and engineering departments to work cohesively to help build more innovative products. This move has already been implemented by the Chief Executive of Electrolux. There have been positive outcomes of this strategy as Electrolux has not only regained its lost share of profits but bettered them as well over the past couple of years (Our World Our Approach: Sustainability Report 2005, 2006).
Finally, to safeguard long-term competitiveness, Electrolux should implement an all-inclusive agenda for cost-cutting in purchasing and production. This agenda involves moving production to and escalating purchases from low-cost countries particularly in Asia (Our World Our Approach: Sustainability Report 2005, 2006).
The advantages of these solutions can be that they would assist Electrolux in achieving its long-term objectives.
The disadvantages can be that Electrolux may have to pay higher salaries to its employees for their extra effort and time. Electrolux may lose out on competition and lag further behind in the international markets such as the US due to low demand. The implications of such moves could result in environmental degradation in certain countries that may hurt the social responsibility stance of the company.
The solution that I have chosen is that Electrolux should reduce its operating and production costs by moving its plants and warehouses outside of Europe and America, particularly in Asian countries. Electrolux first of all needs to perform a thorough feasibility study of the environment where its plants would be located. This is to ensure that no serious hazards are created. Then it must study and analyze the suppliers and retailers to check if they comply with code of conduct and clear the auditing process. Electrolux must analyze and study its competitors which have pre-existed in those countries and try to build smarter designs. Lastly, Electrolux must conduct its SWOT analysis in the region where it wishes to install its plants and then take the final decision as regards to commencing manufacturing.
Answers to case Questions
Answer 1. The Chief Executive Hans Straberg of Electrolux immediately after taking command wanted to do something drastic to curb the slipping profits of the company. Straberg urged his employees especially engineers, designers and marketers to work in unison to develop new products. Straberg even recruited new employees from various successful firms like PepsiCo. and P&G to speed up the cause. He wanted to manufacture such products that are attractive in looks and easy to operate at the same time being high on quality (Case Study: Stockholm Partnerships for Smart Living, 2011).
Answer 2. The Sweden based home appliances giant Electrolux was suffering severely in America and Western Europe due to cheaper entrants and higher costs incurred. The biggest advantage of individuals from different departments having to work together to build new designs for the company is cost efficiency and time saved. Since today’s consumers are very aware and picky about the products they choose, a newer and more attractive design is required to boost sales. Hence, Electrolux has ordered its employees from all factions to unite and prepare new designs.
Answer 3. There is no doubt that in present times the customer is very aware and smart about the products he buys. Therefore there is immense competition amongst the rival firms to constantly improve and innovate products. The situation gets tense when cheaper substitutes enter the competition and push back the top players. Electrolux is the second largest home appliances manufacturer in the world.
In the recent past even Electrolux had to do a major makeover of its strategy to promote its sales. Electrolux handed over the crucial position of Chief Executive to Hans Straberg in 2002. Soon, it was decided that it would be in their best interest to make employees of different departments work together as a team. The main reason behind this makeover was to build new innovative product designs in a cost effective and time saving way (Electrolux, 2013).
This new strategy of Electrolux almost immediately gave the results the firm needed. The net sales rose 8 percent to $16.5 billion in 2005, after dropping for two consecutive years.
Electrolux. IISD’s Business and Sustainable Develoment Guide, 2013. Retrieved online on September 25, 2013 from http://www.iisd.org/business/viewcasestudy.aspx?id=65.
Our World Our Approach: Sustainability Report 2005, 2006. Retrieved online on September 25, 2013 from http://group.electrolux.com/en/wp-content/uploads/2010/03/Electrolux-Sustainability-Report-2005-English.pdf.