Clearly if it was not the government bailout, SAA could have existed the market long time ago. Gigaba explains that there have been in the past six years about nine turnaround strategies and it all failed at implementation and the way forward was the increased focus and emphasis on governance and accountability. The new turnaround would also look at mitigating measures to ensure costs would be managed. From this description of a problems facing SAA, their turnaround strategy is a combination of retrenchment and recovery and revenue growth.
Retrenchment is about cost cutting or downsizing and reducing non-core assets. In the SAA case, fuel consumption and staff although essential require a creative cost cutting without interfering with the airline abilities to perform. From the case study, SAA hardly has any operational problems meaning their services are still regarded as world-class but the company is not profitable, like a proverbial white elephant. Part of the strategy should be to sell off non-core assets.
Thompson et. SAA should identify assets that do not add value to the organisation, recovery strategy is also need to nurse the company back to health Louw and Venter The next section puts SAA in turnaround matrix to identify exactly in which quadrant does it belong to and ho to address the turnaround.
Turnaround Matrix of SAA Pretorius identified four quadrants as a result of a combination of two variables to position where the organisation might be in terms of decline. Accordingly he states that only organisation in declined can be rescued and failed organisations do not stand a chance of rescue. The first variable is resource munificence; he explains that this refers to organisation abundance or scarcity of resources. From Resource based view, we understand that organizational resource is not only financial but also include, capital, people, money, processes and intangible.
The second variable is the causality of distress can be internal or operational or external or strategic. With the two variables he Pretorius came up with four preconditions of decline or turnaround situation. Ventures in this cell are not experiencing a need for a turnaround. The venture has abundant resources and minimum causes of distress, and can operate normally, bearing potential invisible inefficiencies. The second precondition is Underperformance which characterized by scarcity of resources and internal or operational problem.
Despite good demand for its products, contribution margin is under pressure, capacity utilization is low, competitive advantage comes under pressure due to inability to respond to demand, productivity is low and the venture is cash strapped. Market share is under pressure, probably due to growing demand for competitive or substitute products.
As we read from the case study, the company is cash trapped and has been bailout in excess of R10 billion and they are still struggling to meet operating profits. And they have been incidence of irregular expenditures of R million rand and the airbuses are fuel inefficient which contributes to negative operating profits. It may choose organic or in organic growth. Louw Venter describe organic growth as market penetration, market development and innovation, in organic is similar if not same as external growth where the organisation looks for diversification and integration.
It must pursue efficiency by such practices as improving capacity utilisation, lowering inventory levels, improving collection processes, restructuring financing, better use of volume discount, improving supply chain activities and more. The focus is mainly on internal operations and doing the business right and better. These firms are well positioned but experience cash-flow problems due to their inefficiencies. Cost to income ratios typically deteriorates Pretorius this is relevant to SAA turnaround activities.
SAA at the moment is behaving like a Bull frog meaning they are spending money they cannot afford in order to maintain the image meanwhile profits are not realized. The government needs to ask serious questions as to whether SAA is worth saving if the biggest chunk of revenue is going to fuel.
In the meantime, cost cutting measures are important. Question 2 Overview of decline and failure Pretorius describes turnaround as a venture that has recovered from decline that threatened its existence to resume normal operations and achieve performance acceptable to stakeholder.
Before turnaround strategies are applied there are manifestations in the business that spells signs of the business being in trouble.
A turnaround strategy can only be applied to an organisation in decline, not the one that has failed. The onus is on management to watch the tell-tell signs of failure before it is too late to rescue the business.
Some of the reasons organisations fail could categorized under four school of thoughts; failure at the top, that has to do with the management and more precisely with the CEO attitude to failure, secondly failure can be attributed to customers and marketing, system and structural failure and financial failure In his Pretorius journal: critical variables of business failure, he postulates that failure aunts both new firms and old firms.
New firms are threatened by two liabilities; liability of newness this refers to firms seeking legitimacy with its suppliers, clients, creditors and other organisation in the industry and secondly by liability of smallness this means the size of the firm may present a limitation and thereby excludes it from competing in an industry for instance it is not easy for a start-up company to have the capacity to create an assembly line for car and build economy of scales instantly.
Old firm face the liability of obsolescence where new technology renders production capacity redundant. Pretorius elaborates on human causes of failure to be caused by decline, entrapment, self- deception, hierarchy orientation, cultural rigidity, desire for acceptance and conformity and too much consensus and compromise.
If these issues are not addressed with an open mind, chances are the organization will fail and therefore not be able to be rescued. The best time to turn an organisation around it when it observed to be in decline. Turnaround strategy Five stages are associated with decline according to Pretorius including: blinded stage, inaction, faulty action, faulty implementation, crisis stage and dissolution.
Louw and Venter , describe turnaround strategy as a first option of defensive strategies which are different from growth strategies. Whether we quote Pretorius or Louw and Venter, turnaround is called on when the organisation accepts that they are in trouble and need a plan to rescue the business activities or be doomed to failure.
From the case study of South African Airways SAA , it is evident from the ministerial report that it is indeed in trouble. The report says the Airline has been bailed out by the government over the past decade from the time of report to the tune of R 11 billion, and as of the financial year ended , SAA made an operating loss of R 1.
Some of the causes are attributed to irregular expenditure which signals management problem and fuel inefficient airbuses.
Clearly if it was not the government bailout, SAA could have existed the market long time ago. Gigaba explains that there have been in the past six years about nine turnaround strategies and it all failed at implementation and the way forward was the increased focus and emphasis on governance and accountability.
The new turnaround would also look at mitigating measures to ensure costs would be managed. From this description of a problems facing SAA, their turnaround strategy is a combination of retrenchment and recovery and revenue growth. Retrenchment is about cost cutting or downsizing and reducing non-core assets. In the SAA case, fuel consumption and staff although essential require a creative cost cutting without interfering with the airline abilities to perform. From the case study, SAA hardly has any operational problems meaning their services are still regarded as world-class but the company is not profitable, like a proverbial white elephant.
Part of the strategy should be to sell off non-core assets. Thompson et. SAA should identify assets that do not add value to the organisation, recovery strategy is also need to nurse the company back to health Louw and Venter The next section puts SAA in turnaround matrix to identify exactly in which quadrant does it belong to and ho to address the turnaround. Turnaround Matrix of SAA Pretorius identified four quadrants as a result of a combination of two variables to position where the organisation might be in terms of decline.
Accordingly he states that only organisation in declined can be rescued and failed organisations do not stand a chance of rescue. The first variable is resource munificence; he explains that this refers to organisation abundance or scarcity of resources.
From Resource based view, we understand that organizational resource is not only financial but also include, capital, people, money, processes and intangible.
The second variable is the causality of distress can be internal or operational or external or strategic. The NVO was created to develop new business opportunities that fell outside of the current focus of Nokias core businesses. The NVO sought to develop both internally generated projects as well as external projects. Once ideas were developed, either they were moved into one of Nokias business units or they were sold. Competence of using its experience from one country in another for various business functions.
Nokia dominates the biggest markets a very deep engineering competence, Ability to manage the capital in a profitable manners Manufacturing globally acceptable quality handsets. Financial stability and good capital structure Qualified staff Providing good quality service to customers Patents portfolio.
Extensive presence in Global telecoms networks Competence of using its experience from one country in another for various business functions. Nokia Research Center NRC is chartered with exploring new frontiers for mobility and solving scientific challenges in order for Nokia to deliver irresistible mobile experiences in the future. This year NRC celebrates 25 years of innovations that have transformed the lives of billions of people around the world. Now with 13 locations worldwide, Nokia Research Center is a truly global organization.
This worldwide presence enables NRC to engage with the foremost minds and partners in the mobile field to conduct leading-edge research. By bridging this wide variety of cultures, environments and skill-sets across these diverse geographies, NRC empowers Nokia to develop products and services that meet the needs of our customers. End of year Nokia had total work force of , employees.
Technology Development During the last two decades, Nokia have invested more than EUR 45 billion in research and development and built one of the wireless industrys strongest and broadest IPR portfolios, with over 10, patent families. Nokia is a world leader in the development of mobile device and mobile communications technologies, which is also demonstrated by Nokias strong patent position.
Partnership with Microsoft to give Nokia resources and benefits of cloud computing that are essential for devices of future. Procurement Nokia source components, materials and services from suppliers all over the world and expecting them to meet Nokias high standards of environmental and social responsibility Nokia is focusing on Feature phone production in locations closest to suppliers.
Nokia has built strong relations with their suppliers by working with them for a long time. Supplier assessments are conducting to assess and understand a suppliers performance level and compliance to Nokia requirements. Capacity building - Helping suppliers do better by engaged with suppliers and providing support. Value Chain Analysis Inbound Logistics As a major global company, our supply chain is long and complex Inbound supply chain is diverse with Danzas being its main Logistics Supplier, offering logistics services and responsibility for Nokias specified drop off points, logistics centre and hubs.
Marketing: Nokia is trying to revive their brand with their partnership with Microsoft while trying to maintain their identity and removing OVI from their brand to be Nokia Services. SWOT Analysis Strength Nokia has advanced technology over the competitors in the mobile phone industry The market leadership in the mobile phone industry. Strong brand value and image in the global market Number one manufacture of mobile handsets Strong Supply chain network.
Weakness Complications in technology Few customized, operator-specific handset with less features Few alliances, company sticks to its standing in the market, do not want to cooperate with the operators.
Lack of capability to align innovation with changing consumer preferences. Opportunity The emerging market of smart phones in developing countries, such as China, India The emerging global market for high-end mobile phone such as business user phone. The growth stage market for smart phones with integration of music and other media applications. High growth US market for smartphones. Threat Facing more new competitors, especially from Asia Stronger buyer power from the network operators.
Lost market share Strong competition in mobile industry The market becomes saturated. Concentrating on core functionalities Option 2 Differentiation. Product Development Alliances Differentiation in terms of market segment focusing on Smart Phones Provide benefits for customer Lock in strategy.
Capitalize on alliance with Windows for operating system and application development capabilities. Alliances with regional mobile operators for customized phones. Start with moderate pricing strategy differentiation without price premium Once market share is achieved slowly move towards focused differentiation Evaluation of Strategic Options Suitability Option 1 Cost Leadership The industry is in growth phase and Nokia being in strong position as number 1 manufacturer of mobile handset should grow with the industry.
Cost leadership will help in regain market share, reduce competition and increase entry barriers. Option 2 Differentiation The industry is in growth phase and Nokia being in strong position as number 1 manufacturer of mobile handset should grow with the industry by differentiation. Being differentiated products it will not be able to target mass market of customers, thus it will take more time for Nokia to achieve its Next Billion customers.
Differentiation will help Nokia regain leadership in the smart phone. Increase in production will increase purchasing power with respect to suppliers. Cost leadership will help in achieving Nokia s target next Billion customers.
Increasing Return on Capital employed by economies of scale. Your email address will not be published. Comments Useful. Leave a Reply Cancel reply Your email address will not be published.
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