Developing a comprehensive corporate strategy

Alfa Laval is identified as lacking a comprehensive corporate strategy that permeates the entire organization and is identified as being of utter importance for the success of a company to produce value in both The value creation framework as well as The five major elements of strategy. This perception was realized and affirmed by employees‟ actions as well their declarations. When gathering empirical data, it was discovered that the responses to certain critical as well as minor questions widely varied. For example, when employees were asked which customer segments Alfa Laval targets, or in other words, from which arena, either local competitors or international competitors, does the company attempt to capture more market share (See 4.3), there was little agreement. This observation was concerning for the authors considering the wide spectrum between targeting market share from local competitors compared to international competitors. Understandably, different priorities and goals are necessary for targeting the two segments, which is perceived as being counter-productive.

When employees were subsequently asked if any guidelines or a corporate strategy existed to guide them as to which direction their energy and resources should be focused, they replied

that no corporate strategy was currently being followed. Maritz (n.d.) states that having a corporate strategy is essential for successful business operations and that no self-respecting business organization would function without one. Further, according to Fredrickson &

Hambrick (2001), outlining the arena in which a company operates is the most fundamental decision taken when developing a strategy. This is due to the fact that if the market segment that a company serves is not well-defined, the result is often wasted time and company resources as employees likely pursue their own incompatible objectives.

The former managing director, however, asserted that a corporate strategy does exist. The authors conclude that although a corporate strategy exists, it is incomplete and has failed to permeate the entire organization. Generally accepted theory argues that a complete corporate strategy is composed of five integrated elements; arenas, vehicles, differentiation, staging and economic logic. These elements together confirm the critical strategic decision of where the company will be active, how it will get there, how the company will win in the marketplace, what will be the company‟s sequence of action and how will the company obtain returns.

(Fredrickson & Hambrick, 2001) In The value creation framework by Sharma et al., the management decision is only found to highlight the arena and differentiator as factors that affect the value creation process. Another factor such as the economic logic is postponed until later in the process while vehicles and staging are completely neglected. This is recognized as a short-coming of Sharma et al.‟s framework and also presents an opportunity for further elaboration. The authors prefer Fredrickson and Hambrick‟s illustration of a corporate strategy compared to The value creation framework due to the former‟s all-encompassing character which emphasizes that everything relies on and should be guided by the corporate strategy. Due to the role the corporate strategy plays in shaping all activities within an organization, it should also define what aspects and factors of value should be emphasized more than others as identified by the staging process of The five major of strategy thereby directing the company‟s resources appropriately. Incomplete strategies may inevitably lead to confusion among customers as there is a risk that their image of the supplier‟s brand may become diluted. Due to the varying motivations of employees within the same market segments, it is presumed that Alfa Laval‟s strategy is missing a clearly defined arena. The reason Alfa Laval may be neglectful in terms of strategy formulation may be due to the fact that its long history operations in India have generally been successful. In the words of Dew et al. (2006), strategy formulation is extremely challenging, particularly for those companies

performing rather well. The authors suspect that due to Alfa Laval‟s past success, the company has become somewhat complacent in assuming that things will continue to go well and have thus failed to properly plan. Sooner or later, however, Alfa Laval may realize that a coherent corporate strategy is vital for a company‟s profitability and its ability to survive in competitive environments (Anderson, 1982).

6.2.2 Innovation

A number of researchers have recognized innovation and product leadership as being one of the most important means of differentiating a company‟s products from competitors in the market. The five major elements of strategy describes the importance of having predetermined differentiators such as innovation when compiling a corporate strategy. Kotler & Armstrong (2008 pp. 491-493) highlight that market leaders, in particular, should focus on continuous innovation in order to maintain their leadership position. Innovation or technology delivery is also recognized as an important aspect for value creation by Sharma et al. (2001) in The value creation framework. In addition, the importance of innovation as a means to maintain a company‟s market leadership in India was also emphasized by one of the interviewed consultants. Although Alfa Laval is currently the market leader in VOT and one of the leading suppliers to the milk powder industry, it has been observed that innovation is not among the company‟s top priorities. According to employee interviews, very little, if any, innovation has occurred over the past decade within VOT and milk powder, which leaves Alfa Laval‟s market leadership vulnerable to its competition. Employees do at Alfa Laval, however, acknowledge innovation as being a step in the path towards capturing more market share from both local and international customers.

It was gathered from interviews with customers that aspects such as high quality and innovation are recognized as being amongst the most influential factors of value when making a purchasing decision, which further highlights the importance of continuous product development for maintaining Alfa Laval‟s present and future competitive edge. When employees at Alfa Laval were questioned concerning the company‟s innovation capabilities, mixed responses were given. A few employees were convinced that Alfa Laval‟s technology is better than all of its customers and believe customers perceive Alfa Laval as being a trendsetter in the industry. Some employees within VOT specifically, however, specified that no new innovation has been introduced since 1998; something which seriously may impede on the company‟s competitive edge and stated preferred supplier status. Customers confirmed

the VOT employee‟s reservations as innovation was a common source of criticism among Alfa Laval‟s customers. Customers repeatedly mentioned that they perceive Alfa Laval as not emphasizing innovation and design improvements enough resulting in unmet demands, which has induced some customers to inquire or purchase from competitors. Thus, a discrepancy was found to exist between Alfa Laval‟s perception of its own innovative capabilities and the perception of its innovative capabilities among its customers.

Theory states that the ability to differentiate a company‟s products from competitors through innovation is believed to allow a firm to act with strategies different from sheer pricing approaches which consequently will enable them to leverage other factors of value (Hooley &

Jobber, 1986). The value creation framework sufficiently illustrates technology delivery‟s importance and the role of innovation in a company‟s corporate strategy by identifying the firm‟s current knowledge resources in order to subsequently maximize its output given those resources. The framework, however, does not specify the weight of innovation in relation to the other factors of value. The authors gather that Alfa Laval will have to focus on innovation and provide customers with better innovation in order to capture more of India‟s market share within VOT and milk powder. Furthermore, long-term prosperity is defined as being achieved by not only meeting the demands of customers today but also by continuously innovating to satisfy the needs and wants of current and potential customers tomorrow (Walley, 1998;

Drucker, 2002; Berthon et al., 1999; Srivastava, 2005). Innovation will be an imperial part of Alfa Laval‟s ability to remain competitive and attract potential customers in the future.

According to VOT customers, Alfa Laval is lagging behind its main competitor DeSmet in terms of product innovation and development. DeSmet is in many cases appreciated over Alfa Laval for offering new technologically advanced products. Alfa Laval‟s lack of innovation was also noticeable in the milk powder industry where a number of customers mentioned that the company is second to its largest competitor Gea Niro in terms of technology and the provision of total solutions.

Innovation will not only provide Alfa Laval with the foundation for offering a high-quality product, which was found to be the top most prioritized factor by customers when making a purchasing decision but also enable the company to leverage their superior value and technological advancement over competitors, thereby allowing for a value-based rather than cost-based pricing strategy (See 6.2.4). Both consultant concede with this statement and

further stress that if Alfa Laval‟s technology is at par with competitors, customers will invariably pick the company offering the lowest price.

Successful innovation by Alfa Laval will, however, require a strong market orientation in the sense that it requires integration of both internal and external actors that possess different skills and knowledge about the market. It is believed that since Alfa Laval should be more customer-centric, they should aim at providing customers with the products and solutions according to their needs and wants. Theory confirms that customers are the ultimate drivers of innovations and provide the parameters that are needed for product development. This, therefore, requires a close contact and relationship with customers during the entire product development process.