issue 1 - Roland Berger

DOSSIER #01 The formula for growth
nSAMSUNG ELECTRONICS
The South Korean manufacturer of
mobile phones and TFT displays
shines with a strong brand name and
continuous innovation.
31% Between
2001 and 2003, operational
profits rose
31 percent annually.
SOURCE: BLOOMBERG
»Our margins are
visibly better since
we began relying on
high-end products.«
YUN JONG-YONG, CEO, SAMSUNG ELECTRONICS
STOCK MARKET PERFORMANCE
Samsung Electronics
170
132
212
133
303
Kospi
171
307
187
2001 2002 2003 Oct. 04
Between 2001 and 2004, shares in
Samsung Electronics performed better
than the Korean Kospi index, despite the
fact that the group had to struggle with
fluctuating results figures. Samsung’s
strong position in China is one of the
reasons for its high market valuation.
IBM’s vice president of corporate strategy, adding,
“Innovation is the application of an invention for a concrete
problem.” IBM therefore continuously sends its
developers out of their labs to interact with users.
IN THE AIRPLANE INDUSTRY, on the other hand, a
young challenger beat the defending champion: In
2003, Airbus replaced its US competitor Boeing in the
past year as market leader in the civil-aircraft sector
and is now heading for the stars. Under CEO Noel
Forgeard’s leadership, Airbus delivered a total of 161
airplanes in the first half of 2004—12 more than in the
same time period of the previous year. Behind this success
story is an innovative product range, with highlights
such as the successful long-distance model
A330-200. The most recent example of European engineering
might is the new super-sized A380 that from
2006 on will carry 555 passengers over a distance of
14,800 km on one fuel-load. The company already has
150 orders for this plane. At the same time the EADS
subsidiary, which delivers two-thirds of the group’s
sales, is also driving process innovation forward.
Accordingly, an increasing number of tasks are to be
outsourced, including some core ones, such as
research and development. To meet the demands of a
“risk partner,” the company plans to reduce the number
of suppliers to 400, according to Gustav Humbert, head
of production at Airbus. This way, the pressure will be
kept on Airbus’s own subsidiary companies that serve
as suppliers. Through the tough selection process,
Airbus is hoping not only to generate more innovation
power but also to achieve cost savings of €1.5 billion
by 2006.
COST CUTTING ALWAYS carries the danger of saving
cost at the wrong place. For political reasons, often cuts
are made across the board, instead of identifying
money-losers and sparing profitable growth drivers
from the cost-reducing measures. The consequences
can be devastating. “If a company’s source of innovation
is shut down, the source of growth is also lost,”
warns management guru Gary Hamel. Without doubt,
sustained, negative balance sheet figures for individual
divisions should be a sign that core competencies are
overextended or overloaded and that desired reciprocal
relationships with other business units do not exist.
Companies gain a better understanding of this issue
through using a “balanced scorecard of scale and
scope,” with which they can steer and control growth.
The scorecard reveals not only the positive but also the
negative effects of scale and scope. The analysis takes
into account finance-based reference figures measuring
process efficiency and effectiveness, as well as
customer opinions and employee perspectives. If all
key performance indicators are turning up negative, the
consequence is usually to let go of the corresponding
business sector. The strategy of “profitable trimming”
pursued by 18 percent of the companies analyzed by
Roland Berger Strategy Consultants does promise a
positive outcome in times of crisis. However, sometimes
the elation is only short-lived. When thrift turns to
stinginess and restructuring turns to random clipping,
and when there is no money left for research, innovation
or acquisitions, the result is a hollowed-out company
that can’t survive in the long term. If a business sector
fails to attain the size needed, rather than shedding
it, suitable acquisitions could also provide a solution.
AN EXAMPLE OF A COMPANY that is following a consistent
acquisition strategy is Amgen, which, on taking
over its competitor Immunex in July 2002, became the
world’s largest biotech company. Back then, Amgen
wanted to gain access to the new arthritis drug Enbrel,
which combats joint inflammation through regulating
immunological processes. “The merger will strengthen
our financial power, increase the diversification of our
product portfolio and accelerate our long-term growth,”
said CEO Kevin Sharer in justification of the $10 billion
deal. The financial markets shared this assessment. In
terms of market capitalization, Amgen has already overtaken
pharmaceutical giants like Eli Lilly and Bristol-
Myers Squibb. With the high market value in its pocket
as acquisition equity, the company is continuing with
its buying spree. In early 2004 it absorbed Tularik, a
company that is experimenting with promising medications
that could be used in the treatment of cancer, diabetes,
obesity and heart disease. Sharer knows of only
one barrier to growth: human resources. “Not everyone
can or wants to increase their capabilities and commitment
to the degree required by the company’s expansion.”
Perhaps he should have as much faith in his
employees as does Canon CEO Mitarai.
28
think: act