global
TRANSCRIPT
Table of Contents Page
Cover page…………………………………………………………….. 1
Table of Contents……………………………………………………… 2
Executive Summary………………………………………………….... 3
Introduction .………………………………………………..………..... 4
Chapter 1: Subject Presentation………………………….………..…... 6
Chapter 2: Company Presentation…………………………………..… 57
Chapter 3: Market Presentation ……….………..………..………… 46
Chapter 4: Data Collection ………………………………..…..……… 69
Chapter 5: External Environment Analysis……………………….… 70
Chapter 6: Internal Environment Analysis …………………….….… 85
Chapter 7: SWOT Analysis and Recommendations……….……..… 95
Conclusion…………………………………………………………….… 97
Conclusion…………………………………………………………….… 98
1
Executive Summary:
The methodology we use to collect our data was through the internet and connecting with
RMS department structure manager, and by asking many questions in many aspects
concerning the Nielsen Company way of works, its problem, department and
organization’s structure and design, everything about its external and internal
environment.
While we were collecting data we detected a problem the Nielsen Company faces which is
outsourcing the primary activities instead of the secondary activities. This is causes losing
Nielsen’s competitive advantages.
Nielsen is a service industry organization. And like any other service organization,
flexibility is a key factor for the success of the company. Nielsen has an organic structure
that allows its employees flexibility in their work and autonomy in order for them to
perform and provide their best.
The company delegates the day to day decision making to its executives and sales people
in terms of accounts to manage. Conflict in Nielsen setting is not healthy as conflict
might lose time for Nielsen and the clients. Nielsen is newly formed conglomerate of
companies that were under the umbrella of VNU group (a venture capital group that
owned many business, one of them was Nielsen)
Nielsen’s overall global strategy is to become partners with their clients. At the current
moment, the company is focusing on delivering on its promises by improving the services
and measuring client satisfaction. This will be an indicator of when they will be
achieving partnership.
The Nielsen Company is currently the leading market research company in the world and
in Saudi Arabia. However, a few changes that happened to its organizational structure
caused a disruption in its performance and an increase in its employee’s turnover. A
SWOT analysis can highlight the issues to narrow down the problem. It’s though that
Nielsen has strong qualities, the threats are high due to the high competitiveness.
2
Introduction:
Our group is going to talk about Nielsen Company; it is the largest research company in
the world. It is No.1 in this field globally. They provide all forms of research studies to
businesses and clients across various industries. Focus of the company in the Middle East
is on the Fast Moving Consumer Goods (FMCG), Telecoms, Governments, Consumer
Electronics and appliances.
The company offers two lines of service:
1 Retail Measurement Service
2 Customized Research Service
This company starts in America in 1923 by Arthur Charlie Nielsen. The company
ownership changed more than once going from private to public listed on the NYSE and
then to private again. Globally, it is currently based in New York, USA with another
managerial office in Haarlem, The Netherlands.
We collect our data through the internet. We make an interview with Mr. Mohamad
Darwish the RMS Research Manager responsible for handling a portfolio of clients both
in FMCG and Telecoms .But we also contact with him through the hotmail, he gave us
most of the information needed in our study.
We are doing this study on this company because it is an important one. Since each
company should have a vision, mission, goals, etc… So without these researches that
Nielsen Company is making, the other companies will face many problems except if they
have already the research information.
Our objective in this study is to analysis the Nielsen SWOT analysis, value chain, and
analysis all its external and internal environment. And know the department and
organization’s structure and design, and some information about the industry and market in
the company. How are important the researches that the Nielsen company is providing to
their clients. The methodology we used to collect our data was through the internet and
connecting with RMS department structure manager, and by asking many questions in
many aspects concerning the Nielsen Company way of works.
3
In conclusion, Nielsen’s overall global strategy is to become partners with their clients. At
the current moment, the company is focusing on delivering on its promises by improving
the services and measuring client satisfaction. This will be an indicator of when they will
be achieving partnership.
4
Chapter One:
The subject and objectives:
The Strategic Planning Process
In today's highly competitive business environment, budget-oriented planning or
forecast-based planning methods are insufficient for a large corporation to survive and
prosper. The firm must engage in strategic planning that clearly defines objectives and
assesses both the internal and external situation to formulate strategy, implement the
strategy, evaluate the progress, and make adjustments as necessary to stay on track.
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A simplified view of the strategic planning process is shown by the following diagram:
The Strategic Planning Process
Mission &
Objectives
Environmental
Scanning
Strategy
Formulation
Strategy
Implementation
Evaluation
& Control
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Mission and Objectives
The mission statement describes the company's business vision, including the unchanging
values and purpose of the firm and forward-looking visionary goals that guide the pursuit
of future opportunities.
Guided by the business vision, the firm's leaders can define measurable financial and
strategic objectives. Financial objectives involve measures such as sales targets and
earnings growth. Strategic objectives are related to the firm's business position, and may
include measures such as market share and reputation.
Environmental Scan (strategic analysis)
The environmental scan includes the following components:
Internal analysis of the firm
Analysis of the firm's industry (task environment)
External macroenvironment (PEST analysis)
The internal analysis can identify the firm's strengths and weaknesses and the external
analysis reveals opportunities and threats. A profile of the strengths, weaknesses,
opportunities, and threats is generated by means of a SWOT analysis
An industry analysis can be performed using a framework developed by Michael Porter
known as Porter's five forces. This framework evaluates entry barriers, suppliers,
customers, substitute products, and industry rivalry.
Strategy Formulation
Given the information from the environmental scan, the firm should match its strengths to
the opportunities that it has identified, while addressing its weaknesses and external
threats.
To attain superior profitability, the firm seeks to develop a competitive advantage over its
rivals. A competitive advantage can be based on cost or differentiation. Michael Porter
identified three industry-independent generic strategies from which the firm can choose.
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Strategy Implementation
The selected strategy is implemented by means of programs, budgets, and procedures.
Implementation involves organization of the firm's resources and motivation of the staff
to achieve objectives.
The way in which the strategy is implemented can have a significant impact on whether it
will be successful. In a large company, those who implement the strategy likely will be
different people from those who formulated it. For this reason, care must be taken to
communicate the strategy and the reasoning behind it. Otherwise, the implementation
might not succeed if the strategy is misunderstood or if lower-level managers resist its
implementation because they do not understand why the particular strategy was selected.
Evaluation & Control
The implementation of the strategy must be monitored and adjustments made as needed.
Evaluation and control consists of the following steps:
1. Define parameters to be measured
2. Define target values for those parameters
3. Perform measurements
4. Compare measured results to the pre-defined standard
5. Make necessary changes
The Business Vision and Company Mission Statement:
While a business must continually adapt to its competitive environment, there are certain
core ideals that remain relatively steady and provide guidance in the process of strategic
decision-making. These unchanging ideals form the business vision and are expressed in
the company mission statement.
In their 1996 article entitled Building Your Company's Vision, James Collins and Jerry
Porras provided a framework for understanding business vision and articulating it in a
mission statement.
The mission statement communicates the firm's core ideology and visionary goals,
generally consisting of the following three components:
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1. Core values to which the firm is committed
2. Core purpose of the firm
3. Visionary goals the firm will pursue to fulfill its mission
The firm's core values and purpose constitute its core ideology and remain relatively
constant. They are independent of industry structure and the product life cycle.
The core ideology is not created in a mission statement; rather, the mission statement is
simply an expression of what already exists. The specific phrasing of the ideology may
change with the times, but the underlying ideology remains constant.
The three components of the business vision can be portrayed as follows:
Core
Values
Core
Purpose
Business
Vision
Visionary
Goals
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Core Values
The core values are a few values (no more than five or so) that are central to the firm.
Core values reflect the deeply held values of the organization and are independent of the
current industry environment and management fads.
One way to determine whether a value is a core value to ask whether it would continue to
be supported if circumstances changed and caused it to be seen as a liability. If the
answer is that it would be kept, then it is core value. Another way to determine which
values are core is to imagine the firm moving into a totally different industry. The values
that would be carried with it into the new industry are the core values of the firm.
Core values will not change even if the industry in which the company operates changes.
If the industry changes such that the core values are not appreciated, then the firm should
seek new markets where its core values are viewed as an asset.
For example, if innovation is a core value but then 10 years down the road innovation is
no longer valued by the current customers, rather than change its values the firm should
seek new markets where innovation is advantageous.
The following are a few examples of values that some firms has chosen to be in their
core:
excellent customer service
pioneering technology
creativity
integrity
social responsibility
Core Purpose
The core purpose is the reason that the firm exists. This core purpose is expressed in a
carefully formulated mission statement. Like the core values, the core purpose is
relatively unchanging and for many firms endures for decades or even centuries. This
purpose sets the firm apart from other firms in its industry and sets the direction in which
the firm will proceed.
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The core purpose is an idealistic reason for being. While firms exist to earn a profit, the
profit motive should not be highlighted in the mission statement since it provides little
direction to the firm's employees. What is more important is how the firm will earn its
profit since the "how" is what defines the firm.
Initial attempts at stating a core purpose often result in too specific of a statement that
focuses on a product or service. To isolate the core purpose, it is useful to ask "why" in
response to first-pass, product-oriented mission statements. For example, if a market
research firm initially states that its purpose is to provide market research data to its
customers, asking "why" leads to the fact that the data is to help customers better
understand their markets. Continuing to ask "why" may lead to the revelation that the
firm's core purpose is to assist its clients in reaching their objectives by helping them to
better understand their markets.
The core purpose and values of the firm are not selected - they are discovered. The stated
ideology should not be a goal or aspiration but rather, it should portray the firm as it
really is. Any attempt to state a value that is not already held by the firm's employees is
likely to not be taken seriously.
Visionary Goals
The visionary goals are the lofty objectives that the firm's management decides to pursue.
This vision describes some milestone that the firm will reach in the future and may
require a decade or more to achieve. In contrast to the core ideology that the firm
discovers, visionary goals are selected.
These visionary goals are longer term and more challenging than strategic or tactical
goals. There may be only a 50% chance of realizing the vision, but the firm must believe
that it can do so. Collins and Porras describe these lofty objectives as "Big, Hairy,
Audacious Goals." These goals should be challenging enough so that people nearly gasp
when they learn of them and realize the effort that will be required to reach them.
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Most visionary goals fall into one of the following categories:
Target - quantitative or qualitative goals such as a sales target or Ford's goal to
"democratize the automobile."
Common enemy - centered on overtaking a specific firm such as the 1950's goal
of Philip-Morris to displace RJR.
Role model - to become like another firm in a different industry or market. For
example, a cycling accessories firm might strive to become "the Nike of the
cycling industry."
Internal transformation - especially appropriate for very large corporations. For
example, GE set the goal of becoming number one or number two in every market
it serves.
While visionary goals may require significant stretching to achieve, many visionary
companies have succeeded in reaching them. Once such a goal is reached, it needs to be
replaced; otherwise, it is unlikely that the organization will continue to be successful. For
example, Ford succeeded in placing the automobile within the reach of everyday people,
but did not replace this goal with a better one and General Motors overtook Ford in the
1930's
Hierarchical Levels of Strategy
Strategy can be formulated on three different levels:
corporate level
business unit level
functional or departmental level.
While strategy may be about competing and surviving as a firm, one can argue that
products, not corporations compete, and products are developed by business units. The
role of the corporation then is to manage its business units and products so that each is
competitive and so that each contributes to corporate purposes.
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Consider Textron, Inc., a successful conglomerate corporation that pursues profits
through a range of businesses in unrelated industries. Textron has four core business
segments:
Aircraft - 32% of revenues
Automotive - 25% of revenues
Industrial - 39% of revenues
Finance - 4% of revenues.
While the corporation must manage its portfolio of businesses to grow and survive, the
success of a diversified firm depends upon its ability to manage each of its product lines.
While there is no single competitor to Textron, we can talk about the competitors and
strategy of each of its business units. In the finance business segment, for example, the
chief rivals are major banks providing commercial financing. Many managers consider
the business level to be the proper focus for strategic planning.
Corporate Level Strategy
Corporate level strategy fundamentally is concerned with the selection of businesses in
which the company should compete and with the development and coordination of that
portfolio of businesses.
Corporate level strategy is concerned with:
Reach - defining the issues that are corporate responsibilities; these might include
identifying the overall goals of the corporation, the types of businesses in which
the corporation should be involved, and the way in which businesses will be
integrated and managed.
Competitive Contact - defining where in the corporation competition is to be
localized. Take the case of insurance: In the mid-1990's, Aetna as a corporation
was clearly identified with its commercial and property casualty insurance
products. The conglomerate Textron was not. For Textron, competition in the
insurance markets took place specifically at the business unit level, through its
subsidiary, Paul Revere. (Textron divested itself of The Paul Revere Corporation
in 1997.)
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Managing Activities and Business Interrelationships - Corporate strategy seeks
to develop synergies by sharing and coordinating staff and other resources across
business units, investing financial resources across business units, and using
business units to complement other corporate business activities. Igor Ansoff
introduced the concept of synergy to corporate strategy.
Management Practices - Corporations decide how business units are to be
governed: through direct corporate intervention (centralization) or through more
or less autonomous government (decentralization) that relies on persuasion and
rewards.
Corporations are responsible for creating value through their businesses. They do so by
managing their portfolio of businesses, ensuring that the businesses are successful over
the long-term, developing business units, and sometimes ensuring that each business is
compatible with others in the portfolio.
Business Unit Level Strategy
A strategic business unit may be a division, product line, or other profit center that can be
planned independently from the other business units of the firm.
At the business unit level, the strategic issues are less about the coordination of operating
units and more about developing and sustaining a competitive advantage for the goods
and services that are produced. At the business level, the strategy formulation phase deals
with:
positioning the business against rivals
anticipating changes in demand and technologies and adjusting the strategy to
accommodate them
influencing the nature of competition through strategic actions such as vertical
integration and through political actions such as lobbying.
Michael Porter identified three generic strategies (cost leadership, differentiation, and
focus) that can be implemented at the business unit level to create a competitive
advantage and defend against the adverse effects of the five forces.
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Functional Level Strategy
The functional level of the organization is the level of the operating divisions and
departments. The strategic issues at the functional level are related to business processes
and the value chain. Functional level strategies in marketing, finance, operations, human
resources, and R&D involve the development and coordination of resources through
which business unit level strategies can be executed efficiently and effectively.
Functional units of an organization are involved in higher level strategies by providing
input into the business unit level and corporate level strategy, such as providing
information on resources and capabilities on which the higher level strategies can be
based. Once the higher-level strategy is developed, the functional units translate it into
discrete action-plans that each department or division must accomplish for the strategy to
succeed.
PEST Analysis
A scan of the external macro-environment in which the firm operates can be expressed in
terms of the following factors:
Political
Economic
Social
Technological
The acronym PEST (or sometimes rearranged as "STEP") is used to describe a
framework for the analysis of these macroenvironmental factors.
Political Factors
Political factors include government regulations and legal issues and define both formal
and informal rules under which the firm must operate. Some examples include:
tax policy
employment laws
environmental regulations
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trade restrictions and tariffs
political stability
Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost
of capital. The following are examples of factors in the macro economy:
economic growth
interest rates
exchange rates
inflation rate
Social Factors
Social factors include the demographic and cultural aspects of the external
microenvironment. These factors affect customer needs and the size of potential markets.
Some social factors include:
health consciousness
population growth rate
age distribution
career attitudes
emphasis on safety
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Technological Factors
Technological factors can lower barriers to entry, reduce minimum efficient production
levels, and influence outsourcing decisions. Some technological factors include:
R&D activity
automation
technology incentives
rate of technological change
External Opportunities and Threats
The PEST factors combined with external microenvironmental factors can be classified
as opportunities and threats in a SWOT analysis
SWOT Analysis
A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified as
strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). Such an analysis of the strategic environment is referred
to as a SWOT analysis.
The SWOT analysis provides information that is helpful in matching the firm's resources
and capabilities to the competitive environment in which it operates. As such, it is
instrumental in strategy formulation and selection. The following diagram shows how a
SWOT analysis fits into an environmental scan:
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SWOT Analysis Framework
Environmental Scan
/
\
Internal Analysis
External Analysis
/ \
/ \
Strengths Weaknesses
Opportunities Threats
|
SWOT Matrix
Strengths
A firm's strengths are its resources and capabilities that can be used as a basis for
developing a competitive advantage. Examples of such strengths include:
patents
strong brand names
good reputation among customers
cost advantages from proprietary know-how
exclusive access to high grade natural resources
favorable access to distribution networks
Weaknesses
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The absence of certain strengths may be viewed as a weakness. For example, each of the
following may be considered weaknesses:
lack of patent protection
a weak brand name
poor reputation among customers
high cost structure
lack of access to the best natural resources
lack of access to key distribution channels
In some cases, a weakness may be the flip side of a strength. Take the case in which a
firm has a large amount of manufacturing capacity. While this capacity may be
considered a strength that competitors do not share, it also may be a considered a
weakness if the large investment in manufacturing capacity prevents the firm from
reacting quickly to changes in the strategic environment.
Opportunities
The external environmental analysis may reveal certain new opportunities for profit and
growth. Some examples of such opportunities include:
an unfulfilled customer need
arrival of new technologies
loosening of regulations
removal of international trade barriers
Threats
Changes in the external environmental also may present threats to the firm. Some
examples of such threats include:
shifts in consumer tastes away from the firm's products
emergence of substitute products
new regulations
increased trade barriers
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The SWOT Matrix
A firm should not necessarily pursue the more lucrative opportunities. Rather, it may
have a better chance at developing a competitive advantage by identifying a fit between
the firm's strengths and upcoming opportunities. In some cases, the firm can overcome a
weakness in order to prepare itself to pursue a compelling opportunity.
To develop strategies that take into account the SWOT profile, a matrix of these factors
can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:
SWOT / TOWS Matrix
Strengths Weaknesses
Opportunities S-O strategies W-O strategies
Threats S-T strategies W-T strategies
S-O strategies pursue opportunities that are a good fit to the company's strengths.
W-O strategies overcome weaknesses to pursue opportunities.
S-T strategies identify ways that the firm can use its strengths to reduce its
vulnerability to external threats.
W-T strategies establish a defensive plan to prevent the firm's weaknesses from
making it highly susceptible to external threats.
Competitive Advantage
When a firm sustains profits that exceed the average for its industry, the firm is said to
possess a competitive advantage over its rivals. The goal of much of business strategy is
to achieve a sustainable competitive advantage.
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Michael Porter identified two basic types of competitive advantage:
cost advantage
differentiation advantage
A competitive advantage exists when the firm is able to deliver the same benefits as
competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of
competing products (differentiation advantage). Thus, a competitive advantage enables
the firm to create superior value for its customers and superior profits for itself.
Cost and differentiation advantages are known as positional advantages since they
describe the firm's position in the industry as a leader in either cost or differentiation.
A resource-based view emphasizes that a firm utilizes its resources and capabilities to
create a competitive advantage that ultimately results in superior value creation. The
following diagram combines the resource-based and positioning views to illustrate the
concept of competitive advantage:
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A Model of Competitive Advantage
Resources
Distinctive
Competencies
Cost Advantage
or
Differentiation Advantage
Value
Creation
Capabilities
Resources and Capabilities
According to the resource-based view, in order to develop a competitive advantage the
firm must have resources and capabilities that are superior to those of its competitors.
Without this superiority, the competitors simply could replicate what the firm was doing
and any advantage quickly would disappear.
Resources are the firm-specific assets useful for creating a cost or differentiation
advantage and that few competitors can acquire easily. The following are some examples
of such resources:
Patents and trademarks
Proprietary know-how
Installed customer base
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Reputation of the firm
Brand equity
Capabilities refer to the firm's ability to utilize its resources effectively. An example of a
capability is the ability to bring a product to market faster than competitors. Such
capabilities are embedded in the routines of the organization and are not easily
documented as procedures and thus are difficult for competitors to replicate.
The firm's resources and capabilities together form its distinctive competencies. These
competencies enable innovation, efficiency, quality, and customer responsiveness, all of
which can be leveraged to create a cost advantage or a differentiation advantage.
Cost Advantage and Differentiation Advantage
Competitive advantage is created by using resources and capabilities to achieve either a
lower cost structure or a differentiated product. A firm positions itself in its industry
through its choice of low cost or differentiation. This decision is a central component of
the firm's competitive strategy.
Another important decision is how broad or narrow a market segment to target. Porter
formed a matrix using cost advantage, differentiation advantage, and a broad or narrow
focus to identify a set of generic strategies that the firm can pursue to create and sustain a
competitive advantage.
Value Creation
The firm creates value by performing a series of activities that Porter identified as the
value chain. In addition to the firm's own value-creating activities, the firm operates in a
value system of vertical activities including those of upstream suppliers and downstream
channel members.
To achieve a competitive advantage, the firm must perform one or more value creating
activities in a way that creates more overall value than do competitors. Superior value is
created through lower costs or superior benefits to the consumer (differentiation).
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Porter's Five Forces
A MODEL FOR INDUSTRY ANALYSIS
The model of pure competition implies that risk-adjusted rates of return should be
constant across firms and industries. However, numerous economic studies have affirmed
that different industries can sustain different levels of profitability; part of this difference
is explained by industry structure.
Michael Porter provided a framework that models an industry as being influenced by five
forces. The strategic business manager seeking to develop an edge over rival firms can
use this model to better understand the industry context in which the firm operates.
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Diagram of Porter's 5 Forces
SUPPLIER POWER
Supplier concentration
Importance of volume to supplier
Differentiation of inputs
Impact of inputs on cost or
differentiation
Switching costs of firms in the industry
Presence of substitute inputs
Threat of forward integration
Cost relative to total purchases in
industry
BARRIERS
TO ENTRY
Absolute cost advantages
Proprietary learning curve
Access to inputs
Government policy
Economies of scale
Capital requirements
Brand identity
Switching costs
Access to distribution
Expected retaliation
Proprietary products
THREAT OF
SUBSTITUTES
-Switching costs
-Buyer inclination to
substitute
-Price-performance
trade-off of
substitutes
BUYER POWER
Bargaining leverage
Buyer volume
Buyer information
Brand identity
Price sensitivity
DEGREE OF
RIVALRY
-Exit barriers
-Industry
concentration
-Fixed costs/Value
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Threat of backward integration
Product differentiation
Buyer concentration vs. industry
Substitutes available
Buyers' incentives
added
-Industry growth
-Intermittent
overcapacity
-Product differences
-Switching costs
-Brand identity
-Diversity of rivals
-Corporate stakes
I. Rivalry
In the traditional economic model, competition among rival firms drives profits to zero.
But competition is not perfect and firms are not unsophisticated passive price takers.
Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry
among firms varies across industries, and strategic analysts are interested in these
differences.
Economists measure rivalry by indicators of industry concentration. The Concentration
Ratio (CR) is one such measure. The Bureau of Census periodically reports the CR for
major Standard Industrial Classifications (SIC's). The CR indicates the percent of market
share held by the four largest firms (CR's for the largest 8, 25, and 50 firms in an industry
also are available). A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated. With only a few
firms holding a large market share, the competitive landscape is less competitive (closer
to a monopoly). A low concentration ratio indicates that the industry is characterized by
many rivals, none of which has a significant market share. These fragmented markets are
said to be competitive. The concentration ratio is not the only available measure; the
trend is to define industries in terms that convey more information than distribution of
market share.
If rivalry among firms in an industry is low, the industry is considered to be disciplined.
This discipline may result from the industry's history of competition, the role of a leading
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firm, or informal compliance with a generally understood code of conduct. Explicit
collusion generally is illegal and not an option; in low-rivalry industries competitive
moves must be constrained informally. However, a maverick firm seeking a competitive
advantage can displace the otherwise disciplined market.
When a rival acts in a way that elicits a counter-response by other firms, rivalry
intensifies. The intensity of rivalry commonly is referred to as being cutthroat, intense,
moderate, or weak, based on the firms' aggressiveness in attempting to gain an advantage.
In pursuing an advantage over its rivals, a firm can choose from several competitive
moves:
Changing prices - raising or lowering prices to gain a temporary advantage.
Improving product differentiation - improving features, implementing innovations
in the manufacturing process and in the product itself.
Creatively using channels of distribution - using vertical integration or using a
distribution channel that is novel to the industry. For example, with high-end
jewelry stores reluctant to carry its watches, Timex moved into drugstores and
other non-traditional outlets and cornered the low to mid-price watch market.
Exploiting relationships with suppliers - for example, from the 1950's to the
1970's Sears, Roebuck and Co. dominated the retail household appliance market.
Sears set high quality standards and required suppliers to meet its demands for
product specifications and price.
The intensity of rivalry is influenced by the following industry characteristics:
1. A larger number of firms increases rivalry because more firms must compete for
the same customers and resources. The rivalry intensifies if the firms have similar
market share, leading to a struggle for market leadership.
2. Slow market growth causes firms to fight for market share. In a growing market,
firms are able to improve revenues simply because of the expanding market.
3. High fixed costs result in an economy of scale effect that increases rivalry. When
total costs are mostly fixed costs, the firm must produce near capacity to attain the
lowest unit costs. Since the firm must sell this large quantity of product, high
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levels of production lead to a fight for market share and results in increased
rivalry.
4. High storage costs or highly perishable products cause a producer to sell goods
as soon as possible. If other producers are attempting to unload at the same time,
competition for customers intensifies.
5. Low switching costs increases rivalry. When a customer can freely switch from
one product to another there is a greater struggle to capture customers.
6. Low levels of product differentiation are associated with higher levels of
rivalry. Brand identification, on the other hand, tends to constrain rivalry.
7. Strategic stakes are high when a firm is losing market position or has potential
for great gains. This intensifies rivalry.
8. High exit barriers place a high cost on abandoning the product. The firm must
compete. High exit barriers cause a firm to remain in an industry, even when the
venture is not profitable. A common exit barrier is asset specificity. When the
plant and equipment required for manufacturing a product is highly specialized,
these assets cannot easily be sold to other buyers in another industry. Litton
Industries' acquisition of Ingalls Shipbuilding facilities illustrates this concept.
Litton was successful in the 1960's with its contracts to build Navy ships. But
when the Vietnam war ended, defense spending declined and Litton saw a sudden
decline in its earnings. As the firm restructured, divesting from the shipbuilding
plant was not feasible since such a large and highly specialized investment could
not be sold easily, and Litton was forced to stay in a declining shipbuilding
market.
9. A diversity of rivals with different cultures, histories, and philosophies make an
industry unstable. There is greater possibility for mavericks and for misjudging
rival's moves. Rivalry is volatile and can be intense. The hospital industry, for
example, is populated by hospitals that historically are community or charitable
institutions, by hospitals that are associated with religious organizations or
universities, and by hospitals that are for-profit enterprises. This mix of
philosophies about mission has lead occasionally to fierce local struggles by
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hospitals over who will get expensive diagnostic and therapeutic services. At
other times, local hospitals are highly cooperative with one another on issues such
as community disaster planning.
10. Industry Shakeout. A growing market and the potential for high profits induces
new firms to enter a market and incumbent firms to increase production. A point
is reached where the industry becomes crowded with competitors, and demand
cannot support the new entrants and the resulting increased supply. The industry
may become crowded if its growth rate slows and the market becomes saturated,
creating a situation of excess capacity with too many goods chasing too few
buyers. A shakeout ensues, with intense competition, price wars, and company
failures.
BCG founder Bruce Henderson generalized this observation as the Rule of Three
and Four: a stable market will not have more than three significant competitors,
and the largest competitor will have no more than four times the market share of
the smallest. If this rule is true, it implies that:
o If there is a larger number of competitors, a shakeout is inevitable
o Surviving rivals will have to grow faster than the market
o Eventual losers will have a negative cash flow if they attempt to grow
o All except the two largest rivals will be losers
o The definition of what constitutes the "market" is strategically important.
Whatever the merits of this rule for stable markets, it is clear that market stability
and changes in supply and demand affect rivalry. Cyclical demand tends to create
cutthroat competition. This is true in the disposable diaper industry in which
demand fluctuates with birth rates, and in the greeting card industry in which
there are more predictable business cycles.
29
II. Threat of Substitutes
In Porter's model, substitute products refer to products in other industries. To the
economist, a threat of substitutes exists when a product's demand is affected by the price
change of a substitute product. A product's price elasticity is affected by substitute
products - as more substitutes become available, the demand becomes more elastic since
customers have more alternatives. A close substitute product constrains the ability of
firms in an industry to raise prices.
In the truck tire market, retreating remains a viable substitute industry. In the disposable
diaper industry, cloth diapers are a substitute and their prices constrain the price of
disposables.
While the threat of substitutes typically impacts an industry through price competition,
there can be other concerns in assessing the threat of substitutes. Consider the
substitutability of different types of TV transmission: local station transmission to home
TV antennas via the airways versus transmission via cable, satellite, and telephone lines.
The new technologies available and the changing structure of the entertainment media are
contributing to competition among these substitute means of connecting the home to
entertainment. Except in remote areas it is unlikely that cable TV could compete with
free TV from an aerial without the greater diversity of entertainment that it affords the
customer.
III. Buyer Power
The power of buyers is the impact that customers have on a producing industry. In
general, when buyer power is strong, the relationship to the producing industry is near to
what an economist terms a monophony - a market in which there are many suppliers and
one buyer. Under such market conditions, the buyer sets the price. In reality few pure
monopolies exist, but frequently there is some asymmetry between a producing industry
and buyers. The following tables outline some factors that determine buyer power.
IV. Supplier Power
A producing industry requires raw materials - labor, components, and other supplies. This
requirement leads to buyer-supplier relationships between the industry and the firms that
30
provide it the raw materials used to create products. Suppliers, if powerful, can exert an
influence on the producing industry, such as selling raw materials at a high price to
capture some of the industry's profits. The following tables outline some factors that
determine supplier power.
Suppliers are Powerful if: Example
Credible forward integration threat by
suppliers
Baxter International, manufacturer of hospital
supplies, acquired American Hospital Supply,
a distributor
Suppliers concentrated Drug industry's relationship to hospitals
Significant cost to switch suppliersMicrosoft's relationship with PC
manufacturers
Customers Powerful Boycott of grocery stores selling non-union
picked grapes
Suppliers are Weak if: Example
Many competitive suppliers - product is
standardized
Tire industry relationship to automobile
manufacturers
Purchase commodity products Grocery store brand label products
Credible backward integration threat by
purchasers
Timber producers relationship to paper
companies
Concentrated purchasersGarment industry relationship to major
department stores
Customers Weak Travel agents' relationship to airlines
V. Barriers to Entry / Threat of Entry
It is not only incumbent rivals that pose a threat to firms in an industry; the possibility
that new firms may enter the industry also affects competition. In theory, any firm should
be able to enter and exit a market, and if free entry and exit exists, then profits always
31
should be nominal. In reality, however, industries possess characteristics that protect the
high profit levels of firms in the market and inhibit additional rivals from entering the
market. These are barriers to entry.
Barriers to entry are more than the normal equilibrium adjustments that markets typically
make. For example, when industry profits increase, we would expect additional firms to
enter the market to take advantage of the high profit levels, over time driving down
profits for all firms in the industry. When profits decrease, we would expect some firms
to exit the market thus restoring a market equilibrium. Falling prices, or the expectation
that future prices will fall, deters rivals from entering a market. Firms also may be
reluctant to enter markets that are extremely uncertain, especially if entering involves
expensive start-up costs. These are normal accommodations to market conditions. But if
firms individually (collective action would be illegal collusion) keep prices artificially
low as a strategy to prevent potential entrants from entering the market, such entry-
deterring pricing establishes a barrier.
Barriers to entry are unique industry characteristics that define the industry. Barriers
reduce the rate of entry of new firms, thus maintaining a level of profits for those already
in the industry. From a strategic perspective, barriers can be created or exploited to
enhance a firm's competitive advantage. Barriers to entry arise from several sources:
1. Government creates barriers. Although the principal role of the government in
a market is to preserve competition through anti-trust actions, government also
restricts competition through the granting of monopolies and through regulation.
Industries such as utilities are considered natural monopolies because it has been
more efficient to have one electric company provide power to a locality than to
permit many electric companies to compete in a local market. To restrain utilities
from exploiting this advantage, government permits a monopoly, but regulates the
industry. Illustrative of this kind of barrier to entry is the local cable company.
The franchise to a cable provider may be granted by competitive bidding, but
once the franchise is awarded by a community a monopoly is created. Local
governments were not effective in monitoring price gouging by cable operators,
so the federal government has enacted legislation to review and restrict prices.
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The regulatory authority of the government in restricting competition is
historically evident in the banking industry. Until the 1970's, the markets that
banks could enter were limited by state governments. As a result, most banks
were local commercial and retail banking facilities. Banks competed through
strategies that emphasized simple marketing devices such as awarding toasters to
new customers for opening a checking account. When banks were deregulated,
banks were permitted to cross state boundaries and expand their markets.
Deregulation of banks intensified rivalry and created uncertainty for banks as they
attempted to maintain market share. In the late 1970's, the strategy of banks
shifted from simple marketing tactics to mergers and geographic expansion as
rivals attempted to expand markets.
2. Patents and proprietary knowledge serve to restrict entry into an industry.
Ideas and knowledge that provide competitive advantages are treated as private
property when patented, preventing others from using the knowledge and thus
creating a barrier to entry. Edwin Land introduced the Polaroid camera in 1947
and held a monopoly in the instant photography industry. In 1975, Kodak
attempted to enter the instant camera market and sold a comparable camera.
Polaroid sued for patent infringement and won, keeping Kodak out of the instant
camera industry.
3. Asset specificity inhibits entry into an industry. Asset specificity is the extent
to which the firm's assets can be utilized to produce a different product. When an
industry requires highly specialized technology or plants and equipment, potential
entrants are reluctant to commit to acquiring specialized assets that cannot be sold
or converted into other uses if the venture fails. Asset specificity provides a
barrier to entry for two reasons: First, when firms already hold specialized assets
they fiercely resist efforts by others from taking their market share. New entrants
can anticipate aggressive rivalry. For example, Kodak had much capital invested
in its photographic equipment business and aggressively resisted efforts by Fuji to
intrude in its market. These assets are both large and industry specific. The second
reason is that potential entrants are reluctant to make investments in highly
specialized assets.
33
4. Organizational (Internal) Economies of Scale. The most cost efficient level of
production is termed Minimum Efficient Scale (MES). This is the point at which
unit costs for production are at minimum - i.e., the most cost efficient level of
production. If MES for firms in an industry is known, then we can determine the
amount of market share necessary for low cost entry or cost parity with rivals. For
example, in long distance communications roughly 10% of the market is
necessary for MES. If sales for a long distance operator fail to reach 10% of the
market, the firm is not competitive.
The existence of such an economy of scale creates a barrier to entry. The greater
the difference between industry MES and entry unit costs, the greater the barrier
to entry. So industries with high MES deter entry of small, start-up businesses. To
operate at less than MES there must be a consideration that permits the firm to
sell at a premium price - such as product differentiation or local monopoly.
Barriers to exit work similarly to barriers to entry. Exit barriers limit the ability of a firm
to leave the market and can exacerbate rivalry - unable to leave the industry, a firm must
compete. Some of an industry's entry and exit barriers can be summarized as follows:
Easy to Enter if there is:
Common technology
Little brand franchise
Access to distribution channels
Low scale threshold
Difficult to Enter if there is:
Patented or proprietary know-how
Difficulty in brand switching
Restricted distribution channels
High scale threshold
Easy to Exit if there are:
Salable assets
Low exit costs
Independent businesses
Difficult to Exit if there are:
Specialized assets
High exit costs
Interrelated businesses
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DYNAMIC NATURE OF INDUSTRY RIVALRY
Our descriptive and analytic models of industry tend to examine the industry at a given
state. The nature and fascination of business is that it is not static. While we are prone to
generalize, for example, list GM, Ford, and Chrysler as the "Big 3" and assume their
dominance, we also have seen the automobile industry change. Currently, the
entertainment and communications industries are in flux. Phone companies, computer
firms, and entertainment are merging and forming strategic alliances that re-map the
information terrain. Schumpeter and, more recently, Porter have attempted to move the
understanding of industry competition from a static economic or industry organization
model to an emphasis on the interdependence of forces as dynamic, or punctuated
equilibrium, as Porter terms it.
In Schumpeter's and Porter's view the dynamism of markets is driven by innovation. We
can envision these forces at work as we examine the following changes:
35
Top 10 US Industrial Firms by Sales 1917 - 1988
1917 1945 1966 1983 1988
1 US Steel General Motors General Motors ExxonGeneral
Motors
2 Swift US Steel Ford General Motors Ford
3 ArmourStandard Oil -
NJ
Standard Oil -NJ
(Exxon)Mobil Exxon
4American
SmeltingUS Steel General Electric Texaco IBM
5 Standard Oil -NJBethlehem
SteelChrysler Ford
General
Electric
6 Bethlehem Steel Swift Mobil IBM Mobil
7 Ford Armour Texaco Socal (Oil) Chrysler
8 DuPont Curtiss-Wright US Steel DuPont Texaco
9 American Sugar Chrysler IBM Gulf Oil DuPont
10 General Electric Ford Gulf OilStandard Oil of
IndianaPhilip Morris
36
10 Largest US Firms by Assets, 1909 and 1987
1909 1987
1 US STEEL GM (Not listed in 1909)
2 STANDARD OIL, NJ (Now, EXXON #3) SEARS (1909 = 45)
3 AMERICAN TOBACCO (Now, American Brands #52)EXXON (Standard Oil
trust broken up in 1911)
4
AMERICAN MERCANTILE MARINE (Renamed US Lines;
acquired by Kidde, Inc., 1969; sold to McLean Industries, 1978;
bankruptcy, 1986
IBM (Ranked 68, 1948)
5INTERNATIONAL HARVESTER (Renamed Navistar #182);
divested farm equipmentFORD (Listed in 1919)
6 ANACONDA COPPER (acquired by ARCO in 1977) MOBIL OIL
7 US LEATHER (Liquidated in 1935)GENERAL ELECTRIC
(1909= 16)
8ARMOUR (Merged in 1968 with General Host; in 1969 by
Greyhound; 1983 sold to ConAgra)
CHEVRON (Not listed
in 1909)
9
AMERICAN SUGAR REFINING (Renamed AMSTAR. In
1967 =320)
Leveraged buyout and sold in pieces)
TEXACO (1909= 91)
10PULLMAN, INC (Acquired by Wheelabrator Frye, 1980; spun-
off as Pullman-Peabody, 1981; 1984 sold to Trinity Industries)DU PONT (1909= 29)
37
GENERIC STRATEGIES TO COUNTER THE FIVE FORCES:
Strategy can be formulated on three levels:
corporate level
business unit level
functional or departmental level.
The business unit level is the primary context of industry rivalry. Michael Porter
identified three generic strategies (cost leadership, differentiation, and focus) that can be
implemented at the business unit level to create a competitive advantage. The proper
generic strategy will position the firm to leverage its strengths and defend against the
adverse effects of the five forces.
Porter's Generic Strategies
If the primary determinant of a firm's profitability is the attractiveness of the industry in
which it operates, an important secondary determinant is its position within that industry.
Even though an industry may have below-average profitability, a firm that is optimally
positioned can generate superior returns.
A firm positions itself by leveraging its strengths. Michael Porter has argued that a firm's
strengths ultimately fall into one of two headings: cost advantage and differentiation. By
applying these strengths in either a broad or narrow scope, three generic strategies result:
cost leadership, differentiation, and focus. These strategies are applied at the business
unit level. They are called generic strategies because they are not firm or industry
dependent. The following table illustrates Porter's generic strategies:
38
Porter's Generic Strategies
Advantage
Low Cost Product Uniqueness
Broad
(Industry Wide)
Cost Leadership
Strategy
Differentiation
Strategy
Narrow
(Market Segment)
Focus
Strategy
(low cost)
Focus
Strategy
(differentiation)
Cost Leadership Strategy
This generic strategy calls for being the low cost producer in an industry for a given level
of quality. The firm sells its products either at average industry prices to earn a profit
higher than that of rivals, or below the average industry prices to gain market share. In
the event of a price war, the firm can maintain some profitability while the competition
suffers losses. Even without a price war, as the industry matures and prices decline, the
firms that can produce more cheaply will remain profitable for a longer period of time.
The cost leadership strategy usually targets a broad market.
Some of the ways that firms acquire cost advantages are by improving process
efficiencies, gaining unique access to a large source of lower cost materials, making
optimal outsourcing and vertical integration decisions, or avoiding some costs altogether.
If competing firms are unable to lower their costs by a similar amount, the firm may be
able to sustain a competitive advantage based on cost leadership.
Firms that succeed in cost leadership often have the following internal strengths:
39
Access to the capital required to make a significant investment in production
assets; this investment represents a barrier to entry that many firms may not
overcome.
Skill in designing products for efficient manufacturing, for example, having a
small component count to shorten the assembly process.
High level of expertise in manufacturing process engineering.
Efficient distribution channels.
Each generic strategy has its risks, including the low-cost strategy. For example, other
firms may be able to lower their costs as well. As technology improves, the competition
may be able to leapfrog the production capabilities, thus eliminating the competitive
advantage. Additionally, several firms following a focus strategy and targeting various
narrow markets may be able to achieve an even lower cost within their segments and as a
group gain significant market share.
Differentiation Strategy
A differentiation strategy calls for the development of a product or service that offers
unique attributes that are valued by customers and that customers perceive to be better
than or different from the products of the competition. The value added by the uniqueness
of the product may allow the firm to charge a premium price for it. The firm hopes that
the higher price will more than cover the extra costs incurred in offering the unique
product. Because of the product's unique attributes, if suppliers increase their prices the
firm may be able to pass along the costs to its customers who cannot find substitute
products easily.
Firms that succeed in a differentiation strategy often have the following internal
strengths:
Access to leading scientific research.
Highly skilled and creative product development team.
Strong sales team with the ability to successfully communicate the perceived
strengths of the product.
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Corporate reputation for quality and innovation.
The risks associated with a differentiation strategy include imitation by competitors and
changes in customer tastes. Additionally, various firms pursuing focus strategies may be
able to achieve even greater differentiation in their market segments.
Focus Strategy
The focus strategy concentrates on a narrow segment and within that segment attempts to
achieve either a cost advantage or differentiation. The premise is that the needs of the
group can be better serviced by focusing entirely on it. A firm using a focus strategy
often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages
other firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have lower
volumes and therefore less bargaining power with their suppliers. However, firms
pursuing a differentiation-focused strategy may be able to pass higher costs on to
customers since close substitute products do not exist.
Firms that succeed in a focus strategy are able to tailor a broad range of product
development strengths to a relatively narrow market segment that they know very well.
Some risks of focus strategies include imitation and changes in the target segments.
Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in
order to compete directly. Finally, other focusers may be able to carve out sub-segments
that they can serve even better.
A Combination of Generic Strategies
Generic Strategies and Industry Forces
These generic strategies each have attributes that can serve to defend against competitive
forces. The following table compares some characteristics of the generic strategies in the
context of the Porter's five forces.
41
Generic Strategies and Industry Forces
Generic Strategies
Cost Leadership Differentiation Focus
Entry
Barriers
Ability to cut price
in retaliation deters
potential entrants.
Customer loyalty can
discourage potential
entrants.
Focusing develops core
competencies that can act as an
entry barrier.
Buyer
Power
Ability to offer
lower price to
powerful buyers.
Large buyers have less
power to negotiate
because of few close
alternatives.
Large buyers have less power to
negotiate because of few
alternatives.
Supplier
Power
Better insulated
from powerful
suppliers.
Better able to pass on
supplier price increases to
customers.
Suppliers have power because
of low volumes, but a
differentiation-focused firm is
better able to pass on supplier
price increases.
Threat of
Substitutes
Can use low price
to defend against
substitutes.
Customer's become
attached to differentiating
attributes, reducing threat
of substitutes.
Specialized products & core
competency protect against
substitutes.
RivalryBetter able to
compete on price.
Brand loyalty to keep
customers from rivals.
Rivals cannot meet
differentiation-focused customer
needs.
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The Value ChainTo better understand the activities through which a firm develops a competitive advantage and creates shareholder value, it is useful to separate the business system into a series of value-generating activities referred to as the value chain. In his 1985 book Competitive Advantage, Michael Porter introduced a generic value chain model that comprises a sequence of activities found to be common to a wide range of firms
The goal of these activities is to offer the customer a level of value that exceeds the cost
of the activities, thereby resulting in a profit margin
The primary value chain activities are:
Inbound Logistics: the receiving and warehousing of raw materials, and their
distribution to manufacturing as they are required.
Operations: the processes of transforming inputs into finished products and
services.
Outbound Logistics: the warehousing and distribution of finished goods.
Marketing & Sales: the identification of customer needs and the generation of
sales.
Service: the support of customers after the products and services are sold to them.
These primary activities are supported by:
The infrastructure of the firm: organizational structure, control systems, company
culture, etc.
Human resource management: employee recruiting, hiring, training, development,
and compensation.
Technology development: technologies to support value-creating activities.
Procurement: purchasing inputs such as materials, supplies, and equipment.
The firm's margin or profit then depends on its effectiveness in performing these
activities efficiently, so that the amount that the customer is willing to pay for the
products exceeds the cost of the activities in the value chain. It is in these activities that a
firm has the opportunity to generate superior value. A competitive advantage may be
achieved by reconfiguring the value chain to provide lower cost or better differentiation.
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The value chain model is a useful analysis tool for defining a firm's core competencies
and the activities in which it can pursue a competitive advantage as follows:
Cost advantage: by better understanding costs and squeezing them out of the
value-adding activities.
Differentiation: by focusing on those activities associated with core
competencies and capabilities in order to perform them better than do
competitors.
Cost Advantage and the Value Chain
A firm may create a cost advantage either by reducing the cost of individual value chain
activities or by reconfiguring the value chain.
Once the value chain is defined, a cost analysis can be performed by assigning costs to
the value chain activities. The costs obtained from the accounting report may need to be
modified in order to allocate them properly to the value creating activities.
Porter identified 10 cost drivers related to value chain activities:
Economies of scale
Learning
Capacity utilization
Linkages among activities
Interrelationships among business units
Degree of vertical integration
Timing of market entry
Firm's policy of cost or differentiation
Geographic location
Institutional factors (regulation, union activity, taxes, etc.)
A firm develops a cost advantage by controlling these drivers better than do the
competitors.
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A cost advantage also can be pursued by reconfiguring the value chain. Reconfiguration
means structural changes such a new production process, new distribution channels, or a
different sales approach. For example, FedEx structurally redefined express freight
service by acquiring its own planes and implementing a hub and spoke system.
Differentiation and the Value Chain
A differentiation advantage can arise from any part of the value chain. For example,
procurement of inputs that are unique and not widely available to competitors can create
differentiation, as can distribution channels that offer high service levels.
Differentiation stems from uniqueness. A differentiation advantage may be achieved
either by changing individual value chain activities to increase uniqueness in the final
product or by reconfiguring the value chain.
Porter identified several drivers of uniqueness:
Policies and decisions
Linkages among activities
Timing
Location
Interrelationships
Learning
Integration
Scale (e.g. better service as a result of large scale)
Institutional factors
Many of these also serve as cost drivers. Differentiation often results in greater costs,
resulting in tradeoffs between cost and differentiation.
There are several ways in which a firm can reconfigure its value chain in order to create
uniqueness. It can forward integrate in order to perform functions that once were
performed by its customers. It can backward integrate in order to have more control over
its inputs. It may implement new process technologies or utilize new distribution
45
channels. Ultimately, the firm may need to be creative in order to develop a novel value
chain configuration that increases product differentiation.
Technology and the Value Chain
Because technology is employed to some degree in every value creating activity, changes
in technology can impact competitive advantage by incrementally changing the activities
themselves or by making possible new configurations of the value chain.
Various technologies are used in both primary value activities and support activities:
Inbound Logistics Technologies
o Transportation
o Material handling
o Material storage
o Communications
o Testing
o Information systems
Operations Technologies
o Process
o Materials
o Machine tools
o Material handling
o Packaging
o Maintenance
o Testing
o Building design & operation
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o Information systems
Outbound Logistics Technologies
o Transportation
o Material handling
o Packaging
o Communications
o Information systems
Marketing & Sales Technologies
o Media
o Audio/video
o Communications
o Information systems
Service Technologies
o Testing
o Communications
o Information systems
Note that many of these technologies are used across the value chain. For example,
information systems are seen in every activity. Similar technologies are used in support
activities. In addition, technologies related to training, computer-aided design, and
software development frequently are employed in support activities.
To the extent that these technologies affect cost drivers or uniqueness, they can lead to a
competitive advantage.
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Linkages between Value Chain Activities
Value chain activities are not isolated from one another. Rather, one value chain activity
often affects the cost or performance of other ones. Linkages may exist between primary
activities and also between primary and support activities.
Consider the case in which the design of a product is changed in order to reduce
manufacturing costs. Suppose that inadvertantly the new product design results in
increased service costs; the cost reduction could be less than anticipated and even worse,
there could be a net cost increase.
Sometimes however, the firm may be able to reduce cost in one activity and consequently
enjoy a cost reduction in another, such as when a design change simultaneously reduces
manufacturing costs and improves reliability so that the service costs also are reduced.
Through such improvements the firm has the potential to develop a competitive
advantage.
Analyzing Business Unit Interrelationships
Interrelationships among business units form the basis for a horizontal strategy. Such
business unit interrelationships can be identified by a value chain analysis.
Tangible interrelationships offer direct opportunities to create a synergy among business
units. For example, if multiple business units require a particular raw material, the
procurement of that material can be shared among the business units. This sharing of the
procurement activity can result in cost reduction. Such interrelationships may exist
simultaneously in multiple value chain activities.
Unfortunately, attempts to achieve synergy from the interrelationships among different
business units often fall short of expectations due to unanticipated drawbacks. The cost of
coordination, the cost of reduced flexibility, and organizational practicalities should be
analyzed when devising a strategy to reap the benefits of the synergies.
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Outsourcing Value Chain Activities
A firm may specialize in one or more value chain activities and outsource the rest. The
extent to which a firm performs upstream and downstream activities is described by its
degree of vertical integration.
A thorough value chain analysis can illuminate the business system to facilitate
outsourcing decisions. To decide which activities to outsource, managers must
understand the firm's strengths and weaknesses in each activity, both in terms of cost and
ability to differentiate. Managers may consider the following when selecting activities to
outsource:
Whether the activity can be performed cheaper or better by suppliers.
Whether the activity is one of the firm's core competencies from which stems a
cost advantage or product differentiation.
The risk of performing the activity in-house. If the activity relies on fast-changing
technology or the product is sold in a rapidly-changing market, it may be
advantageous to outsource the activity in order to maintain flexibility and avoid
the risk of investing in specialized assets.
Whether the outsourcing of an activity can result in business process
improvements such as reduced lead time, higher flexibility, reduced inventory,
etc.
The Value Chain System
A firm's value chain is part of a larger system that includes the value chains of upstream
suppliers and downstream channels and customers. Porter calls this series of value chains
the value system, shown conceptually below:
The Value System
... > SupplierValue Chain > Firm
Value Chain > ChannelValue Chain > Buyer
Value Chain
Linkages exist not only in a firm's value chain, but also between value chains. While a
firm exhibiting a high degree of vertical integration is poised to better coordinate
49
upstream and downstream activities, a firm having a lesser degree of vertical integration
nonetheless can forge agreements with suppliers and channel partners to achieve better
coordination. For example, an auto manufacturer may have its suppliers set up facilities
in close proximity in order to minimize transport costs and reduce parts inventories.
Clearly, a firm's success in developing and sustaining a competitive advantage depends
not only on its own value chain, but on its ability to manage the value system of which it
is a part.
Global Strategic Management
During the last half of the twentieth century, many barriers to international trade fell and
a wave of firms began pursuing global strategies to gain a competitive advantage.
However, some industries benefit more from globalization than do others, and some
nations have a comparative advantage over other nations in certain industries. To create a
successful global strategy, managers first must understand the nature of global industries
and the dynamics of global competition.
Sources of Competitive Advantage from a Global Strategy
A well-designed global strategy can help a firm to gain a competitive advantage. This
advantage can arise from the following sources:
Efficiency
o Economies of scale from access to more customers and markets
o Exploit another country's resources - labor, raw materials
o Extend the product life cycle - older products can be sold in lesser
developed countries
o Operational flexibility - shift production as costs, exchange rates, etc.
change over time
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Strategic
o First mover advantage and only provider of a product to a market
o Cross subsidization between countries
o Transfer price
1 Risk
o Diversify macroeconomic risks (business cycles not perfectly correlated
among countries)
o Diversify operational risks (labor problems, earthquakes, wars)
2 Learning
o Broaden learning opportunities due to diversity of operating environments
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Reputation
o Crossover customers between markets - reputation and brand
identification
Sumantra Ghoshal of INSEAD proposed a framework comprising three categories of
strategic objectives and three sources of advantage that can be used to achieve them.
Assembling these into a matrix results in the following framework:
Sources of Competitive Advantage
National Differences Scale Economies Scope Economies
Efficiency in
Operations
Exploit factor cost
differencesScale in each activity
Sharing investments
and costs
FlexibilityMarket or policy-induced
changes
Balancing scale with
strategic & operational
risks
Portfolio
diversification
Innovation and
Learning
Societal differences in
management and
organization
Experience - cost
reduction and
innovation
Shared learning
across activities
The Nature of Competitive Advantage in Global Industries
A global industry can be defined as:
An industry in which firms must compete in all world markets of that product in
order to survive.
An industry in which a firm's competitive advantage depends on economies of
scale and economies of scope gained across markets.
Some industries are more suited for globalization than are others. The following drivers
determine an industry's globalization potential.
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1. Cost Drivers
o Location of strategic resources
o Differences in country costs
o Potential for economies of scale (production, R&D, etc.) Flat experience
curves in an industry inhibit globalization. One reason that the facsimile
industry had more global potential than the furniture industry is that for
fax machines, the production costs drop 30%-40% with each doubling of
volume; the curve is much flatter for the furniture industry and many
service industries. Industries for which the larger expenses are in R&D,
such as the aircraft industry, exhibit more economies of scale than those
industries for which the larger expenses are rent and labor, such as the dry
cleaning industry. Industries in which costs drop by at least 20% for each
doubling of volume tend to be good candidates for globalization.
o Transportation costs (value/bulk or value/weight ratio) => Diamonds and
semiconductors are more global than ice.
2. Customer Drivers
o Common customer needs favor globalization. For example, the facsimile
industry's customers have more homogeneous needs than those of the
furniture industry, whose needs are defined by local tastes, culture, etc.
o Global customers: if a firm's customers are other global businesses,
globalization may be required to reach these customers in all their
markets. Furthermore, global customers often require globally
standardized products.
o Global channels require a globally coordinated marketing program. Strong
established local distribution channels inhibits globalization.
o Transferable marketing: whether marketing elements such as brand names
and advertising require little local adaptation. World brands with non-
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dictionary names may be developed in order to benefit from a single
global advertising campaign.
2. Competitive Drivers
o Global competitors: The existence of many global competitors indicates
that an industry is ripe for globalization. Global competitors will have a
cost advantage over local competitors.
o When competitors begin leveraging their global positions through cross-
subsidization, an industry is ripe for globalization.
3. Government Drivers
o Trade policies
o Technical standards
o Regulations
Country Comparative Advantages
Competitive advantage is a firm's ability to transform inputs into goods and services at a
maximum profit on a sustained basis, better than competitors. Comparative advantage
resides in the factor endowments and created endowments of particular regions. Factor
endowments include land, natural resources, labor, and the size of the local population.
In the 1920's, Swedish economists Eli Hecksher and Bertil Ohlin developed the factor-
proportions theory, according to which a country enjoys a comparative advantage in
those goods that make intensive use of factors that the country has in relative abundance.
Michael E. Porter argued that a nation can create its own endowments to gain a
comparative advantage. Created endowments include skilled labor, the technology and
knowledge base, government support, and culture. Porter's Diamond of National
Advantage is a framework that illustrates the determinants of national advantage. This
diamond represents the national playing field that countries establish for their industries.
Global Cost Structure Analysis
54
In 1986, Whirlpool Corporation was considering expanding into Europe by acquiring
Philips' Major Domestic Appliance Division. From the framework of customers, costs,
competitors, and government, there were several pros and cons to this proposed strategy.
Pros
Internal components of the appliances could be the same, offering economies of
scale.
The cost to customize the outer structure of the appliances was relatively low.
The appliance industry was mature with low growth. The acquisition would offer
an avenue to continue growing.
Cons
Fragmented distribution network in Europe.
Different consumer needs and preferences. For example, in Europe refrigerators
tend to be smaller than in the U.S., have only one outside door, and have standard
sizes so they can be built into the kitchen cabinet. In Japan, refrigerators tend to
have several doors in order to keep different compartments at different
temperatures and to isolate odors. Also, because houses are smaller in Japan,
consumers desire quieter appliances.
Whirlpool already was the dominant player in a fragmented industry.
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Chapter 2: Company Presentation
The Company Name: The Nielsen Company
Company Mission, Vision, and core Value:
The Nielsen Mission Statement:
“…To provide clients with the most complete understanding of consumers markets
worldwide”
The Nielsen Vision Statement:
“…In times of relentless change, we offer you clarity…”
The Nielsen Values:
“…To be trustworthy, unbiased, collaborative, insightful, and passionate in everything
we do…To serve clients by providing simple, open and integrated solutions…”
Company Business including product(s) and/or service(s):
The Nielsen Company is the largest research company in the world. It is No.1 in this field
globally. They provide all forms of research studies to businesses and clients across
various industries. Focus of the company in the Middle East is on the Fast Moving
Consumer Goods (FMCG), Telecoms, Governments, Consumer Electronics and
appliances.
The company offers two lines of service:
Retail Measurement Service
Customized Research Service
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Retail Measurement Service (RMS): is mainly focused on the FMCG and currently on
Telecoms. The service and products offered are: Retail Audit, Scanned Data, Census, Ad
Hoc Tracking studies, and Market Consulting and Advisory.
The mode of the service in general is reporting on trends in the market. RMS can report
the performance of companies and manufacturers, their brands and SKUs (Stock Keeping
Units), flavors, sizes, types, pack types and any other traceable characteristics of products
in the market. RMS reports sales volumes, sales values, shares in volume and value,
numeric and weighted distribution, market prices and other facts that are beneficial for
the corporation to measure their performance in the market relative to their competitors
or to the market as a whole. This service is mainly reporting periodically on
Hypermarkets/Supermarkets. Self Service outlets or Mini Markets, Large Groceries, and
Small Groceries. It can include also in some cases: petrol station groceries, catering,
pharmacies, photo labs/shops, cigarette shops.
Customized Research Service: is focused on all the industries mentioned above. This
service offers specific studies on a specific issue. These studies usually are about the
consumer or the end user of the products and not on their markets. This service helps
define the consumer profile (who? what? where? How? when? why?). It also defines the
usage of the product itself and the attitude towards similar products. When corporations
have this information, it is easier for them to set a market and a marketing strategy in
order to target the market and have successful performance.
Founders and/or owners, location and year of establishment:
The company was founded in America in 1923 by Arthur Charlie Nielsen. The company
ownership changed more than once going from private to public listed on the NYSE and
then to private again. Globally, it is currently based in New York, USA with another
managerial office in Haarlem, The Netherlands.
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Actual Situation of the Company and problems faced by the organization:
We have contacted Mr. Mohamad Darwish in Nielsen Saudi Arabia based in Jeddah who
has over 4 years experience with Nielsen. Mr. Mohamad Darwish is an RMS Research
Manager responsible for handling a portfolio of clients both in FMCG and Telecoms.
Briefly, he described that they have a problem in retaining talented people to work at
Nielsen. Most employees work for a maximum of 2 years and then leave after they
receive an offer usually from a client. He would like to know of any strategies he could
use to encourage people to stay with Nielsen and have a long and prosperous career with
the company.
Company Organization (departments and branches) including organizational chart
for each branch, number of employees and organization culture:
Nielsen operates in more than 100 countries with a global team dedicated to helping
clients compete more effectively and discover opportunity with more clarity than ever
before.
The structure of the company is a multinational. The Nielsen Company in this region has
its headquarters based in Cyprus serving all the region of Central and Eastern Europe,
Africa, Middle East and Pakistan.
Nielsen Cyprus has a direct relation with all the countries in terms of conducting the field
work and reporting it to the clients. Their four other service offices in this region:
o Nielsen Kingdom of Saudi Arabia(this is the subject of study)
o Nielsen United Arab Emirates
o Nielsen Egypt
o Nielsen Pakistan
All of the above offices are full service offices in which they manage their own portfolio
of clients. Nielsen UAE is the regional office for the GCC countries. Nielsen Egypt is the
58
regional office for the North Africa region. Nielsen Saudi Arabia and that of Pakistan do
not serve other countries and only manage their own business as they are considered large
by themselves. All of these office and countries fall under the name of Emerging
Markets.
The Nielsen Company is a family company. It encourages a corporate culture of being
part of a family. Employees are very friendly with their peers and with the clients. They
strive to provide the best service.
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Saudi Arabia Branch:
The size of the company as well as the branch we are diagnosed is count
175 employees.
CCS (Client Service and Sales) is the profit center of the company.
Operations and administration are cost centers.
The diagnosis of the RMS CSS is to introduce efficiency to the department
and increase revenue per executive to generate more profit.
Organizational Structure
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Saudi Arabia Managing
Director
RMSClient Sales & Service Head
CR Client Sales & Service Head
CR Operations Manager
RMS Operations
ManagerIT ManagerFinance
ManagerHR Manager
Client Sales AdministrationOperations
RMS Department:
The number of employees in the RMS department is six. The industry is market
research services.
RMS CSS (Client Service and Sales) head is the business unit head with profit
and loss responsibility and data quality control.
RMS research manager is responsible for managing the executives and handling
large accounts, training of clients and executives and addressing issues.
RMS research executive is who manage the day to day requirements and queries
of the assigned clients in research studies and sales needs.
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RMS Department Structure
RMS CSS Head
Mohamad DarwishRMS
Research Manager
RMS Research Executive
RMS Research Executive RMS
Research ExecutiveRMS
Research Executive Trainee
The Manager interviewed, position, title, and reporting information(to whom and
who?)
Mohamad Darwish is an RMS Research Manager in the Client Sales & Service
department reporting to Nizar Kasaballi, RMS Head. He manages his own team of
trained RMS executives. Please refer to organizational chart2.
The functions of the manager interviewed and available resources
The objective of his job is to (as defined in the job description manual):
o To independently manage relationships with assigned and prospective clients
resulting in achieved revenue target and customer satisfaction.
o To ensure development of strong relationships in the client organization, customer
satisfaction, and revenue target achievement and a strong teamwork approach.
o The account manager can handle any size of business and typically manages the
large or multiple accounts.
o Responsible for development of CSS team assigned to his and supervising their
deliverables.
The principal accountabilities of his job (as defined in the job description manual):
o Add insights to client business, be involved in clients’ key business issues and
contribute to decision-making and deliver effective presentations
o Build strong relationship with client organizations (including senior marketing
and sales function)
o Develop Client Briefing Documents for all handled accounts
o Successfully implement the needs assessment process in key client organizations
o Develop and update an achievable and measurable account plan for key clients
and follow through the value addition process.
o Increase client business and achieve revenue target
o Proactively provide solutions to client issues
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o Successfully promote new products and services for further business development
o Expand business through client switches
o Effectively communicate and negotiate
o Develop effectively working relationships within the team, other departments and
clients
o Train and develop team members to enable transfer of knowledge and skills
o Effectively manage the team assigned to him/her
o Deliver advanced product training to clients
The skills required for his job are strong leadership and team development skills, a strong
analytical skills, excellent presentation skills, effective organizational skills, excellent
verbal and written communication skills mainly in English, competence in negotiations
with good influencing skills, business acumen and good knowledge of the market
dynamics, a "can do" attitude, and the eagerness to learn.
With all the above, soft skills and computer literacy are a must.
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Chapter 3: Market Presentation:
General Environmental Analysis (6 segments):
Market Segmentation: The market research services industry is a very advanced and
complex industry in which it has been available since the late 1800s when service
companies started capturing market information through market surveys and research on
the market and customers or consumers to have better clarity on what drives these
markets and its consumers.
Historical background: Nielsen started its operation for the first time in 1923 when
Arthur Charlie Nielsen Senior initiated the first retail audit tracking tool in the US in his
hometown and started capturing information on the retail level to understand the trends of
consumption of the US Fast Moving Consumer Goods industry. This proved to be
beneficial and useful to the companies who had the products and wanted to know more
about the markets they sell too in order to have better planning and better knowledge of
their position.
As the industry evolved, so did the product offering of the market research industry, in
which sophisticated market research and statistical techniques were used to capture new
information by analyzing the raw data that was collected such as price, sales volume and
value on the retail market side; and consumer information and aspirations on the
consumer side through consumer surveys. Statistical techniques such as multivariate
regression conjoint analysis, Chi Squared Analysis, time series and developed models for
forecasting, extrapolation for estimation, and normal distribution curves for predictions of
future trends.
At the current day, the market research industry in Saudi Arabia in particular, is
developed as much as its US and European counterparts. It is estimated today at over
$USD 100 million of annual research spend. Predominantly the KSA market has a lot of
MR tools to offer but clientele mainly focus on the basic studies of the following
segments:
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1 Retail Measurement Service (RMS)
2 Customized Research Service (CR)
3 Ad hocs services
RMS Segment: The RMS segment mainly focuses on the market for FMCGs and
traceable Non FMCGs(such as pharmaceuticals, telecoms, automobiles, etc) if it is
structured properly and can be tracked through available or collectable information.
Mainly all retail industries that have a full “supplier to customer/ consumer” chain that is
clearly defined can be tracked at the consumer/ customer side will have useful and
reliable information.
The RMS segment is very popular in KSA and has been available since the early 1980s in
which companies subscribed for this tracking information to monitor their market
performance and benchmark against the category market or competition to assure they
are in line with market growth.
Nielsen, for instance, tracks over 110 FMCG and non FMCG categories in KSA alone,
and 140 categories including the Gulf. These categories cover a wide range of food,
beverages, tobacco, home care, personal care, pharmaceuticals, and automobile
categories for the FMCG and non FMCG industries in which clients in these industries
subscribe to the information on a periodic or annual basis as needed.
RMS is mainly concerned as mentioned earlier with measuring consumer off take and the
tin market performance of the companies in the retail market.
There are currently only two companies capturing retail measurement information:
The Nielsen Company which is the largest, and No.1 Company in the world for, and a
competing regional company Middle East Market Research Bureau (MEMRB) affiliated
to International Research Institute (IRI).
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These two companies are the only sources of reliable market sizes and information on the
manufacturers and their products.
Customized Research (CR) Segment: The CR segment is another very developed
segment were clientele companies request MR companies to capture information at the
consumer level. This is done through consumer surveys and questionnaires with
questionnaires varying from very simple to very advanced depending on the complexity
of the study.
The most popular types of study in KSA are: Qualitative studies, Quantitative studies,
concept testing, product testing (inclusive of sniff tests), consumer tracker, consumer
panels, Usage & Attitude, Need scope, Advertising testing (Previews and Post views) and
many other possible exploratory research such as in depth interviews or clustered focus
groups.
More advanced studies that Nielsen has exclusivity on would be BASES™ for example
that helps evaluate whether a product/ brand launch will be successful or not in which it
can estimate the market size, type of consumer groups, market performance, etc based on
he marketing plans and spends for this brand for the coming two years in addition to
estimation of market share. This mainly helps companies do a smart investment in their
potential product launches instead of spending too much to support them but not getting
the return on investment on it.
Major companies operating in the CR segment are:
- International: Nielsen, TNS, Ipsos Stat, MEMRB, Millward Brown. GfK
- Local: DNA, United Consultants & Researchers, MERAC, PARC.
Furthermore, the MR marker is highly split equally between these two segments and
clientele companies’ balance their MR spends between these two as required.
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Ad hocks services (unknown type): would include exploratory research or very large
new research studies such as population census, retail market census, business census,
and other large studies that usually take up to 6 to 12 months to complete. These studies
are large and complex from the logistical point of view and yield a wealth of information
to the clientele company in which this info can be used for years to come and benefit
from it significantly by helping design the clientele companies’ strategy and operations
for the coming years.
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Chapter 4: Data Collection:
Frame of the study:
We are a consulting company in Lebanon, Beirut. In May 2009, we made a study analysis
for Nielsen Company in Saudi Arabia in Jeddah for finding their external and internal
environmental analysis, and solve their problem.
Objectives of the case study:
1 Analysis the SWOT analysis
2 Compare the findings in Nielsen with the course theories.
3 Finding Nielsen’s problem and recommend them how to solve it.
4 Knowing Nielsen’s position in the market.
5 Nielsen’s important for the other company.
The choice of Nielsen:
1 For its important in the market
2 Important with respect to other companies
3 Its reputation and success
4 It is No.1 in this field globally.
5 The largest research company in the world.
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Chapter 5: External Environment Analysis
Analyzing the external environment of the MR industry, yields many factors that signify
it as a unique type though it is part of the services type of industries.
In order to assess the attractiveness of the MR industry, we can apply Porter’s five forces
model to study the relationships between these forces and determine the industry’s
attractiveness.
General Environmental Analysis
General: Environmental scanning, Monitoring, competitive intelligence, and
forecasting:
Nielsen is business to business company so it make forecasting, because it can collect
data. Nielsen’s client will not give it any data or information about any future plan.
General Environment Analysis (Six segments) :
Demographics:
Saudi Arabia's population as of July 2006 is estimated to be about 27,019,731, including
an estimated 5.5 million resident foreigners. Until the 1960s, a majority of the population
was nomadic; but presently more than 95% of the population is settled, due to rapid
economic and urban growth. As recently as the 1950s, the Saudi Arabia’s slave
population was estimated at 450,000 — about 20% of the population. Slavery was
officially abolished in 1962.The birth rate is 29.56 births per 1,000 people. The death rate
is 2.62 deaths per 1,000 people. Some cities and oases have densities of more than 1,000
people per square kilometres (2,600/sq mi).
About 23% of the population is made up of foreign nationals living in Saudi Arabia,
although the actual percentage is not measured in state censes. Approximately 12% of the
population is South Asian or of South Asian ancestry, including Indians, Pakistanis, and
Bangladeshis. In addition, there are some citizens of Asian, Northeast African, and Sub-
69
Saharan ancestry. Many Arabs from nearby countries are employed in the kingdom.
There are over eight million migrants from countries all around the world, (including
non-Muslims): Indian: 1.4 million, Bangladeshi: 1 million, Filipino: 950,000, Pakistani:
900,000, Egyptian: 900,000, Yemeni: 800,000, Indonesian: 500,000, Sri Lankan:
350,000, Sudanese: 250,000, Syrian: 100,000 and Turkish: 80,000. There are around
100,000 Westerners in Saudi Arabia, most of who live in compounds or gated
communities.
Saudi Arabia expelled 800,000 Yemenis in 1990 and 1991 to punish Yemen for its
opposition to the Gulf War against Iraq. An estimated 240,000 Palestinians are living in
Saudi Arabia. They are not allowed to hold or even apply for Saudi citizenship, because
of Arab League instructions barring the Arab states from granting them citizenship in
order "to avoid dissolution of their identity and protect their right to return to their
homeland". Palestinians are the sole foreign group that cannot benefit from a 2004 law
passed by Saudi Arabia's Council of Ministers, which entitles expatriates of all
nationalities who have resided in the kingdom for ten years to apply for citizenship with
priority being given to holders of degrees in various scientific fields. The Articles 12.4
and 14.1 of the Executive Regulation of Saudi Citizenship System can be interpreted as
requiring applicants to be Muslim.
The majority of the population adheres to a theological interpretation within Islam most
commonly known as Salafism or Wahhabism. Writing in 2006 for the Council on Foreign
Relations Lionel Beehner estimated the Shia population of the country at 15 percent.[44]
Shia in Saudi Arabia reside primarily in the eastern provinces on the Gulf, southwestern
provinces bordering Yemen, Mecca and particularly, Medina, as well as other larger
cities in the kingdom.
The Saudi government does not recognize any religions other than Islam, and does not
grant non-Muslims the right to practice their faith. Though the government officially
claims to guarantee the right of private worship of non-Muslims, this right is not always
respected in practice and is not defined in law. Comprehensive statistics for the
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denominations of foreigners are not available, but they include Muslims from the various
branches and schools of Islam, Christians, Hindus, Buddhists, and Jews. An estimated 90
percent of the Filipino community is Christian, and private Christian religious gatherings
reportedly take place throughout the country.
Socio cultural:
Saudi Arabian culture mainly revolves around the religion of Islam. Islam's two holiest
sites, Mecca and Medina, are located in the country. Five times every day, Muslims are
called to prayer from the minarets of mosques which are scattered around the country.
The weekend begins on Thursday due to Friday being the holiest day for Muslims. All
Muslim countries have a Thursday-Friday or Friday-Saturday weekend. The public
practice of any religion other than Islam, including Christianity and Judaism, the presence
of churches, and possession of non-Islamic religious materials is not allowed except in
Aramco compounds in which many expatriates attend church services.[citation needed]
Saudi Arabia's cultural heritage is celebrated at the annual Jenadriyah cultural festival.
However, secret negotiations are rumored to be taking place between the Vatican and
Saudi Arabia regarding authorization to build Catholic Churches in the Kingdom.
Music and dance: One of Saudi Arabia's most compelling folk rituals is the Al Ardha, the
country's national dance. This sword dance is based on ancient Bedouin traditions:
drummers beat out a rhythm and a poet chants verses while sword-carrying men dance
shoulder to shoulder. Al-sihba folk music, from the Hejaz, has its origins in al-Andalus.
In Mecca, Medina and Jeddah, dance and song incorporate the sound of the mizmar, an
oboe-like woodwind instrument in the performance of the mizmar dance. The drum is
also an important instrument according to traditional and tribal customs. Samri is a
popular traditional form of music and dance in which poetry is sung.
Dress: Saudi Arabian dress follows strictly the principles of hijab (the Islamic principle
of modesty, especially in dress). The predominantly loose and flowing but covering
garments are helpful in Saudi Arabia's desert climate. Traditionally, men usually wear an
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ankle-length shirt woven from wool or cotton (known as a thawb), with a keffiyeh (a
large checkered square of cotton held in place by a cord coil) or a ghutra (a plain white
square made of finer cotton, also held in place by a cord coil) worn on the head. For rare
chilly days, Saudi men wear a camel-hair cloak (bisht) over the top. Women's clothes are
decorated with tribal motifs, coins, sequins, metallic thread, and appliques. Women are
required to wear an abaya or modest clothing when in public.
Food: Islamic dietary laws forbid the eating of pork and the drinking of alcohol, and this
law is enforced strictly throughout Saudi Arabia. Arabic unleavened bread, or khobz, is
eaten with almost all meals. Other staples include lamb, grilled chicken, falafel (deep-
fried chickpea balls), shawarma (spit-cooked sliced lamb), and Ful medames (a paste of
fava beans, garlic and lemon). Traditional coffeehouses used to be ubiquitous, but are
now being displaced by food-hall style cafes. Arabic tea is also a famous custom, which
is used in both casual and formal meetings between friends, family and even strangers.
The tea is black (without milk) and has herbal flavoring that comes in many variations.
Film and theatre: Public theatres and cinemas are prohibited, as Wahhabi tradition deems
those institutions to be incompatible with Islam. However, an IMAX theatre is available,
and in private compounds such as Dhahran and Ras Tanura public theaters can be found,
but often are more popular for local music, arts, and theatre productions rather than the
exhibition of motion pictures. DVDs, including American and British movies, are legal
and widely available.
Literature: Some Saudi novelists have had their books published in Beirut, Lebanon,
because of censorship in Saudi Arabia. Despite signs of increasing openness, Saudi
novelists and artists in film, theatre, and the visual arts face greater restrictions on their
freedom of expression than in the West. Contemporary Saudi novelists include:
Abdul Rahman Munif (exiled, now deceased)
Yousef Al-Mohaimeed
Abdu Khal
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Turki al-Hamad (subject of a fatwā and death threats)
Ali al-Domaini (in jail)
Ahmed Abodehman (now writes in French)
Raja'a Alem
Abdullah Al-Qasemi
Rajaa Al Sanie, author of best-selling novel Girls of Riyadh
Religion: Due to the legal framework of the country, which does not provide legal
protection for freedom of religion, the public practice of non-Muslim religions is
prohibited. Indeed, the Government enforces a strict and conservative version of Sunni
Islam. Muslims who do not follow the official interpretation, can face severe
repercussions at the hands of Mutawwa'in (religious police).
For this reason, Saudi culture lacks the diversity of religious expression, buildings,
annual festivals and public events that is seen in countries where religious freedom is
permitted. Christianity in Saudi Arabia faces persecution.
Economy:
Saudi Arabia’s economy is petroleum-based; roughly 75% of budget revenues and 90%
of export earnings come from the oil industry. The oil industry comprises about 45% of
Saudi Arabia’s gross domestic product, compared with 40% from the private sector (see
below). Saudi Arabia officially has about 260 billion barrels (4.1×1010 m3) of oil
reserves, comprising about 24% of the world’s proven total petroleum reserves.
The government is attempting to promote growth in the private sector by privatizing
industries such as power and telecom. Saudi Arabia announced plans to begin privatizing
the electricity companies in 1999, which followed the ongoing privatization of the
telecommunications company. Shortages of water and rapid population growth may
constrain government efforts to increase self-sufficiency in agricultural products.
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In the 1990s, Saudi Arabia experienced a significant contraction of oil revenues
combined with a high rate of population growth. Per capita income fell from a high of
$11,700 at the height of the oil boom in 1981 to $6,300 in 1998.[27] Recent[when?] oil
price increases have helped boost per capita GDP to $17,000 in 2007 dollars, or about
$7,400 adjusted for inflation.
Recent oil price increases have triggered a second oil boom, pushing Saudi Arabia’s
budget surplus to $28 billion (110SR billion) in 2005. Tadawul (the Saudi stock market
index) finished 2004 with a massive 76.23% to close at 4437.58 points. Market
capitalization was up 110.14% from a year earlier to stand at $157.3 billion (589.93SR
billion), which makes it the biggest stock market in the Middle East.
OPEC limits its members’ oil production based on their “proven reserves.” The higher
their reserves, the more OPEC allows them to produce. Saudi Arabia’s published reserves
have shown little change since 1980, with the main exception being an increase of about
100 billion barrels (1.6×1010 m3) between 1987 and 1988. Matthew Simmons has
suggested that Saudi Arabia is greatly exaggerating its reserves and may soon show
production declines (see peak oil). To diversify the economy, Saudi Arabia launched a
new city on the western coast with investments exceeding $26.6 billion. The city, which
is named “King Abdullah Economic City”, will be built near al-Rabegh industrial city
north to Jeddah. The new city, where construction work started in December 2005,
includes a port which is the largest port of the kingdom. Extending along a coastline of
35 km, the city will also include petrochemical, pharmaceutical, tourism, finance and
education and research areas. Saudi Arabia officially became a World Trade Organization
member in December 2005.
Development: Saudi Arabia is one of the few fastest growing countries in the world with
a high per capita income of $20,700 (2007), Saudi Arabia will be launching six economic
cities (King Abdullah Economic City) which will be completed by the year 2020. These
six new industrialized cities will diversify the economy of Saudi Arabia, and will also
increase the per capita income to a high level. The King of Saudi Arabia has announced
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that the per capita income is forecast, to rise from $15,000 in 2006 to $33,500 in 2020.
The cities will be spread around Saudi Arabia to promote diversification for each region
and their economy, and the cities will contribute $150 billion to the GDP.
However the urban areas of Riyadh and Jeddah will contribute $287 billion dollars by the
year 2020.
Foreign labour: Despite the government’s efforts to promote Saudization, the country
draws a significant portion of its labour force from foreign countries, especially from
South and Southeast Asia (notably India, Pakistan, Bangladesh, Indonesia, the
Philippines, Nepal, Sri Lanka), East Asia, East Africa and from other Middle Eastern
countries. There are also some people from North America, South America, and Europe.
Hundreds of thousands of low-skilled workers and skilled workers from regions of the
developing world migrate to Saudi Arabia, sometimes only for a short period of time, to
work. Although exact figures are not known, skilled experts in the banking and services
professions seek work in the Kingdom.
The central institution of the Saudi Arabian government is the Saudi monarchy. The
Basic Law of Government adopted in 1992 declared that Saudi Arabia is a monarchy
ruled by the sons and grandsons of the first king, Abd Al Aziz Al Saud. It also claims that
the Qur'an is the constitution of the country, which is governed on the basis of the Sharia
(Islamic Law). According to The Economist's Democracy Index, the Saudi government is
the ninth most authoritarian regime in the world.
There are no recognized political parties or national elections, except the local elections
which were held in the year 2005 when participation was reserved for male citizens only.
The king's powers are theoretically limited within the bounds of Shari'a and other Saudi
traditions. He also must retain a consensus of the Saudi royal family, religious leaders
(ulema), and other important elements in Saudi society. The Saudi government spreads
Islam by funding construction of mosques and Qur'an schools around the world. The
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leading members of the royal family choose the king from among themselves with the
subsequent approval of the ulema.
Saudi kings have gradually developed a central government. Since 1953, the Council of
Ministers, appointed by the king, has advised on the formulation of general policy and
directed the activities of the growing bureaucracy. This council consists of a prime
minister, the first prime minister and twenty ministers.
Legislation is by resolution of the Council of Ministers, ratified by royal decree, and must
be compatible with the Shari'a. A 150-member Consultative Assembly, appointed by the
King, has limited legislative rights. Justice is administered according to the Shari'a by a
system of religious courts whose judges are appointed by the king on the
recommendation of the Supreme Judicial Council, composed of twelve senior jurists.
Independence of the judiciary is protected by law. The king acts as the highest court of
appeal and has the power to pardon. Access to high officials (usually at a majlis; a public
audience) and the right to petition them directly are well-established traditions.
The combination of relatively high oil prices and exports led to a revenues windfall for
Saudi Arabia during 2004 and early 2005. For 2004 as a whole, Saudi Arabia earned
about $116 billion in net oil export revenues, up 35 percent from 2003 revenue levels.
Saudi net oil export revenues are forecast to increase in 2005 and 2006, to $150 billion
and $154 billion, respectively, mainly due to higher oil prices. Increased oil prices and
consequent revenues since the price collapse of 1998 have significantly improved Saudi
Arabia's economic situation, with real GDP growth of 5.2 percent in 2004, and forecasts
of 5.7% and 4.8% growth for 2005 and 2006, respectively.
For fiscal year 2004, Saudi Arabia originally had been expecting a budget deficit.
However, this was based on an extremely conservative price assumption of $19 per barrel
for Saudi oil and an assumed production of 7.7 Mbbl/d (1,220,000 m³/d). Both of these
estimates turned out to be far below actual levels. As a result, as of mid-December 2004,
the Saudi Finance Ministry was expecting a huge budget surplus of $26.1 billion, on
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budget revenues of $104.8 billion (nearly double the country's original estimate) and
expenditures of $78.6 billion (28 percent above the approved budget levels). This surplus
is being used for several purposes, including: paying down the Kingdom's public debt (to
$164 billion from $176 billion at the start of 2004); extra spending on education and
development projects; increased security expenditures (possibly an additional $2.5 billion
dollars in 2004; see below) due to threats from terrorists; and higher payments to Saudi
citizens through subsidies (for housing, education, health care, etc.). For 2005, Saudi
Arabia is assuming a balanced budget, with revenues and expenditures of $74.6 billion
each.
In spite of the recent surge in its oil income, Saudi Arabia continues to face serious long-
term economic challenges, including high rates of unemployment (12 percent of Saudi
nationals), one of the world's fastest population growth rates, and the consequent need for
increased government spending. All of these place pressures on Saudi oil revenues. The
Kingdom also is facing serious security threats, including a number of terrorist attacks
(on foreign workers, primarily) in 2003 and 2004. In response, the Saudis reportedly have
ramped up spending in the security area (reportedly by 50 percent in 2004, from $5.5
billion in 2003). Saudi Arabia's per capita oil export revenues remain far below high
levels reached during the 1970s and early 1980s. In 2007, Saudi Arabia's citizens earned
around $20,700 per person, versus $22,589 in 1980, but it is catching up. This 80 percent
decline in real per capita oil export revenues since 1980 is in large part because Saudi
Arabia's young population has nearly tripled since 1980, while oil export revenues in real
terms have fallen by over 40 percent (despite recent increases). Meanwhile, Saudi Arabia
has faced nearly two decades of heavy budget and trade deficits, the expensive 1990-
1991 war with Iraq, and total public debt of around $175 billion. On the other hand,
Saudi Arabia does have extensive foreign assets (around $110 billion) which provide a
substantial fiscal "cushion."
Saudi municipal elections took place in 2005 and some commentators saw this as a first
tentative step towards the introduction of democratic processes in the Kingdom, including
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the legalization of political parties. Other analysts of the Saudi political scene were more
skeptical.
Saudi Arabia has been the subject of widespread allegations of corruption, for example
that BAE Systems bribed government officials and the Saudi Royal Family in order to
win the Al Yamamah arms contract.
Law: The Basic Law, in 1992, declared that Saudi Arabia is a monarchy ruled by the
progeny of King Abd Al Aziz Al Saud. It also declared the Qur'an as the constitution of
the country, governed on the basis of Islamic law.
Criminal cases are tried under Sharia courts in the country. These courts exercise
authority over the entire population including foreigners (regardless of religion). Cases
involving small penalties are tried in Shari'a summary courts. More serious crimes are
adjudicated in Shari'a courts of common pleas. Courts of appeal handle appeals from
Shari'a courts.
Civil cases may also be tried under Sharia courts with one exception: Shia may try such
cases in their own courts. Other civil proceedings, including those involving claims
against the Government and enforcement of foreign judgments, are held before
specialized administrative tribunals, such as the Commission for the Settlement of Labor
Disputes and the Board of Grievances.
Main sources of Saudi law are Hanbali fiqh as set out in a number of specified scholarly
treatises by authoritative jurists, other schools of law, state regulations and royal decrees
(where these are relevant), and custom and practice.
The Saudi legal system prescribes capital punishment or corporal punishment, including
amputations of hands and feet for certain crimes such as murder, robbery, rape, drug
smuggling, homosexual activity, and adultery. The courts may impose less severe
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punishments, such as floggings, for less serious crimes against public morality such as
drunkenness. Murder, accidental death and bodily harm are open to punishment from the
victim's family. Retribution may be sought in kind or through blood money. The blood
money payable for a woman's accidental death is half as much as that for a man. The
main reason for this is that, according to Islamic law, men are expected to be providers
for their families and therefore are expected to earn more money in their lifetimes. The
blood money from a man would be expected to sustain his family, for at least a short
time. Honor killings are also not punished as severely as murder. This generally stems
from the fact that honor killings are within a family, and done to compensate for some
dishonorable act committed. Slavery was abolished in 1962.
Human rights: Several international human rights organizations, such as Human Rights
Watch, Amnesty International and the United Nations Human Rights Committee have
issued reports critical of the Saudi legal system and its human rights record in various
political, legal, and social areas, especially its severe limitations on the rights of women.
The Saudi government typically dismisses such reports as being outright lies or asserts
that its actions are based on its adherence to Islamic law.
In 2002, the United Nations Committee against Torture criticized Saudi Arabia over the
amputations and floggings it carries out under the Shari'a. The Saudi delegation
responded defending its legal traditions held since the inception of Islam in the region
1300 years ago and rejected "interference" in its legal system.
Saudi Arabia is also the only country in the world where women are banned from driving
on public roads. Women may drive off-road and in private housing compounds - some of
which extend to many square miles. The ban may be lifted soon, although with certain
conditions.
The Government views its interpretation of Islamic law as its sole source of guidance on
human rights. In 2000, the Government approved the October legislation, which the
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Government claimed would address some of its obligations under the Convention
Against Torture or Other Cruel, Inhuman, or Degrading Treatment or Punishment.
"The state protects human rights in accordance with the Islamic Shari'ah."
The first independent human rights organization, the National Society for Human Rights
was established in 2004. The Saudi Government is an active censor of Internet reception
within its borders. A Saudi blogger, Fouad al-Farhan, was jailed for five months in
solitary confinement in December, 2007, without charges, after criticizing Saudi
religious, business and media figures.
External Environment Analysis: Synthesis
In review of the above analysis, Saudi Arabia poses a challenging environment for
companies and in particular for the MR industry in which it is linked to the development
of the KSA economy. KSA is most attractive market in the Arabian Peninsula with least
inflation and high income levels thus encouraging economic development.
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Competitive Environment : Porter’s Model(5 forces):
Michael Porter, born in 1947, said to be the father of the modern strategy theory, is a
professor of strategy at Harvard Business School, defined the main forces that
characterizes an industry’s attractiveness with five distinct forces that play a major role
for companies that operate in these industries. These forces are as follows:
Suppliers: were supply chain of which is part of the value chain of an organization is a
key driver and continuation of the business. Suppliers provide the initial material and
contents to build value to the organization and the end user.
Supplier can play a key role in contracting/ expanding the supply to their customers/
companies involved in the value chain. This exercise of power on providing their
products/ services can affect the entire industry. However, it is mainly governed by the
market laws of supply and demand.
BUYERS
Threat ofnew entrants
MARKETCOMPETITOR
S
Bargaining powerof customers
SUPPLIERS
SUBSTITUTESRivalry amongexisting firms
Bargaining powerof suppliers
Threat of substituteproducts or services
POTENTIALENTRANTS
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Buyers: were this signifies the end user, are the last entity in the value chain who usually
get the accumulation of all the efforts and services that flow into the value chain to create
the end user value. Buyers can exercise power in a similar way as suppliers, again
governed by the laws of supply and demand.
Market Competitors: the model also analyzes existing established companies that all have
similar business model and compete with each other to capture market share. This rivalry
has its own competitive power in which disadvantaged companies will go bankrupt
especially if they don’t have a competitive advantage.
Substitutes: focus on whether the services or products that are offered have any substitute
items that can be of value to the buyers. These are a threat if the target consumer/
customer can easily replace the current products/ services.
Potential Entrants: the potential entrants similar to substitutes are companies with very
similar business models that operate in different industries that can easily adopt and go to
the MR industry.
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Applying Porter’s 5 forces model to analyze the attractiveness of the MR industry yields the following:
From the above analysis, we can see that the MR industry is attractive to enter as barriers
to entry are low and supply of information is abundant and not easily available. However,
market competitiveness and buyer power is high due to the fact that the current
companies are competing with only differentiations are quality and price. Buyers take
advantage of the companies’ competitiveness and thus ask for price reductions.
The MR industry with the above analysis reveals that the industry is at advanced stages
with little motivations for new companies to enter unless a new business model that
offers a unique proposition and competitive advantage.
Suppliers: Who are the suppliers of market/ consumer information?Suppliers: Retail Industry, consumers, households various channels of distribution, governmental, businesses, online etc.
The relative power of this section varies among sources of information however the ability to collect information is not an obstacle and can be sourced either free of charge or for a cost. Power measure is +/- ve
Buyers: Who are the buyers of the MR info?Buyers: Clientele industries such as FMCG & Non FMCG( Tobacco, pharma, telecom, automobile, etc).
The relative power of the buyers is high due to the fact that though the MR industry is advanced; quality of MR produced still needs improvement and competitive pricing is transferring power from the suppliers (market competitors in this case) to the buyers (demand) yielding to harder negotiation and demanding clientele. Power Measure is - ve.
Market Competitors: Who are your current competitors? Competitors: TNS, MEMRB, MB, GfK, UCR, etc.
The relative power of competition is strong as more competitors become more competitive and use price reduction and eroding of margins to attract clientele companies. Power Measure is -ve -ve
Potential Entrants: Who would be potential entrants to this industry?
Entrants: Marketing Service industries such as advertising agencies, consultancies, below/ above the line agencies, etc
The relative power of this is weak as getting knowledge and expertise in this industry is very complex and difficult and would need years of experience to gain. Power Measure is +/- ve
Substitutes: what are the substitutes for information needs?
Substitutes: Desk Research.
The relative power for desk research is getting the info from secondary resources or thru own research work which is ultimately non useful or reliable when info needs are complex. Power Measure is ++ve.
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Chapter 6 :Internal Environment Analysis:
Value Chain Analysis:
After focusing on the external environment and analyzing the different facets that can
affect the industry and the Nielsen Company in Saudi Arabia; now we look inward to
analyze its internal functions to look for advantages of successful business model, and
what needs to be done to give the Nielsen Company an agile business model without
losing its advantage.
One very important tool that can help highlight the internal functions of a successful
business model is the Value Chain Analysis.
The Value Chain is an objective method to dissect an organization’s functions and
categorize it according to importance and according to support and primary activities.
Support activities are all activities that are necessary but are not considered as a must
need functions of the company. They contribute to the value process with minimal
importance. On the other hand, primary activities are at the core of the business. They
directly contribute to the competitiveness of the company and losing this activity would
cause the company to fail.
A closer look at a standard value chain model would be as such:
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As mentioned above, secondary functions can be as Information Technology, Human
Resource Management, Organization Structure and Administration, and Procurement. All
the other functions are primary functions.
It is worth noting that these internal functions that are classified as secondary can be
primary in a different company or industry. Depending on the business model and the
industry structure, the firm’s functions are classified.
The Nielsen Company’s value chain classifies its functions as such:
Primary Functions:
Client Sales and Service
Field Operations
Data Processing
Secondary Operations:
Human Resources
Finance and Accounting
Information Technology
Applied in the model:
PRIMARY ACTIVITIES
SUPPORT ACTIVITIES
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENTPROCUREMENT
INBOUND OPERATIONS OUTBOUND MARKETING SERVICELOGISTICS LOGISTICS & SALES
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The core activities of The Nielsen Company are its client sales and service department,
data processing and statistics, and the field operations. The CSS dept. is responsible for
securing business, maintaining the accounts, and building the relationship and service
levels with the clients. This is a very important activity since the company cannot manage
to survive without a sales dept. moreover the company cannot keep sales if they do not
maintain a level of quality service to the clientele.
This is a core activity and in many ways can be highlighted as an advantage. We will
discuss further on the advantage. Account executives build and maintain existing
accounts and have a sales target that they need to achieve. The sales dept can be
outsourced to a third party due t the fact the company will not be in control of its sales
and quality in service can be jeopardized easily.
Data processing & Statistics is also a core activity in which the Nielsen Company has its
own unique and proprietary tools to analyze the data. This is directly linked to the quality
of products and services that the company has to offer to its customers and clientele.
Field operations are also a core activity to the Nielsen Company in which Nielsen’s field
force learn and become experienced. They become more efficient and are capable on
executing a project with top speed.
PRIMARY ACTIVITIES
SUPPORT ACTIVITIES
HUMAN RESOURCESINFORMATION TECHNOLOGYFINANCE & ACCOUNTING
FIELD OPERATIONS
DATA PROCESSING & STATISTICS
CLIENT SALES & SERVICE
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Outsourcing any of the activities above can easily disadvantage Nielsen and devalue its
brand equity. As the business model become more viable and value created at the end of
the model, the value chain highlights that these 3 core activities are very important to
Nielsen. Nielsen’s competitive advantage is all 3 activities in comparison to other
companies that have similar models. However, the only difference is the differentiation
advantage and not the cost advantage. Nielsen’s prices are higher than other similar
companies but they provide its proprietary tools and service for it. Thus, this is its
competitive advantage.
Discussing the other activities, those are secondary support services to the overall
organization that assists in the overall value creation. However, if they are to be provided
by third parties for a lower cost to increase profitability, no changes will affect the
company. The learning curve will still be the same for the company.
Competitive advantages:
Referring to the SWOT Analysis at the beginning of this report, the company outsourced
the field operations and the data processing departments to cut costs drastically.
Nielsen today lost its advantage. Its quality dropped and its service was slower which
created a lot of frustration to the customers and clientele. Unfortunately, they didn’t
outsource the secondary activities. Nielsen wanted to focus on the CSS activity but did
not notice that those two functions are very important to support the CSS.
In order to measure how important was the Operations and the Statistics to Nielsen from
the strategic point of view, we will use a Value Curve to compare between Nielsen and
its next competitor.
The value curve is a very useful tool to cross check and compare what are the distinct
differentiations between one company and the other, and how value is transferred to the
end user, the clientele.
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Key elements in a value curve would include the key characteristics of its primary
activities only in addition to intangible transferable value such as franchises, experience,
and brand equity.
Key differentiators for the MR industry are:
Quality of research
Experience and in-depth of insight
Speed of service
Price
Cost efficiency of operations
Technical abilities (statistics and data processing dept.)
International affiliation
All of these qualities are important for a company to be successful and to build credible
business model. Companies in the MR industry would not be able t differentiate
themselves from the other companies if they try to be experts in all the above instead of
some of them. If they are strong at some of them, they would have a differentiating
competitive advantage. This competitive advantage would be what the company need to
survive in this tough industry as analyzed in porter’s five forces.
Nielsen was able to master quality of research, experience and in-depth of insight, and
technical abilities. While MEMRB, its closest competitor in RMS, has Price, Cost
efficiency, and Speed of service are its key elements.
The below represents both value curves plotted to highlight their positions:
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From the above, we can see what drives each of the companies. Currently, Nielsen has
about 60% market share of the RMS market. Nielsen started to gain share in the last few
years since it first started when the got a full service office available and built CSS team.
Immediately, the competing company MEMRB dropped its prices and sacrificed its
quality to adjust to the new situation. Thus, strategically repositioning itself to survive.
The industry is affected by the importance of each of the differentiators to the clientele.
For example, the more quality of data is important to the clientele the higher the expert
will gain from this quality. In the last few years, these differentiators increased in
importance gaining more share for Nielsen and momentum.
In conclusion, Nielsen once focused on the market was capable to create for itself a
competitive advantage that led to this industry shift and captured market share.
However, in revision of the above outsourcing of the core values of the value chain,
Nielsen gave up on its speed of service, cost efficiency, and technical abilities which
cause the curve to change to the following:
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With these changes, it is clearly Nielsen has lost the advantage to compete in the market
place which would benefit MEMRB in the prospective years as they gain market share
back. Ideally, improving their value curve. Further to this, Nielsen would lose also its
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advantages to quality research and experience as they don’t have the input elements
(primary activities) from operations and technical abilities.
Resource Based View:
Nielsen don’t have a tangible resources, it has intangible resources because it is service
organization.
A service organization is not usually formalize Nielsen applies formalization as much as
possible across all levels of the company to create better coordination and organization
among the departments for better communication and control. No decentralization is
allowed without the responsibility with it. Decentralization of major decisions is at high
levels only.
In terms of employee pool of skills, most employees are of degree holders from good
universities. With some exceptions in administration department and operations who
have good experience but no degree. Client service people for example are all degree
holders and must have a second language of conversation since they handle clients from
different countries.
Human Resource:
Careers at Nielsen
Explore career opportunities with The Nielsen Company. With nearly 40,000 employees
in 100+ countries around the world, diverse talent is the cornerstone of Nielsen's success
and our future.
Through leading services spanning media and consumer information, online intelligence,
mobile measurement, trade shows and business publications, our global clients demand
and receive products and services built on quality and innovation. Whether it's retail and
consumer packaged goods analysis, media audience measurement, or business
information online, in print, or face-to-face - Nielsen's products and services offer
invaluable insight and perspective that our clients rely on to make informed business
decisions.
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If you're looking for a dynamic career within a culture of excellence and integrity,
consider Nielsen. As part of Nielsen, you have the opportunity to contribute and grow,
creating a wide career path across our many services and geographies.
Social Capital:
Type of relations in Nielsen company departments is bridging one member is central to
communication flows in a group. And like any other service organization, flexibility is a
key factor for the success of the company. Nielsen has an organic structure that allows its
employees flexibility in their work and autonomy in order for them to perform and
provide their best. The departments at Nielsen are completely independent of each other
however complement the bigger picture and work as one team to provide the service to
the customers.
The number of employees in the RMS department is six. The industry is market
research services.
RMS CSS (Client Service and Sales) head is the business unit head with profit
and loss responsibility and data quality control.
RMS research manager is responsible for managing the executives and handling
large accounts, training of clients and executives and addressing issues.
RMS research executive is who manage the day to day requirements and queries
of the assigned clients in research studies and sales needs.
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For ma l iza t ionMany Rules 1 2 3 4 5 6 7 8 9 10 Few Rules
Separated tasks and rules 1 2 3 4 5 6 7 8 9 10 Overlapping tasks and rulesTall Hierarchy of Authority 1 2 3 4 5 6 7 8 9 10 Flat Hierarchy of Authority
Technol ogyProduct 1 2 3 4 5 6 7 8 9 10 Services
Envir onmentStable 1 2 3 4 5 6 7 8 9 10 Unstable
Clear norms and values 1 2 3 4 5 6 7 8 9 10 Ambiguous norms and valuesHigh prof. training 1 2 3 4 5 6 7 8 9 10 Low prof. training
St r a t .Well-defined goals 1 2 3 4 5 6 7 8 9 10 Goals not defined
Size1 2 3 4 5 6 7 8 9 10
Small LargeOver a l l
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Chapter 7: SWOT Analysis and Recommendations:
SWOT Analysis:
The Nielsen Company is currently the leading market research company in the world and
in Saudi Arabia. However, a few changes that happened to its organizational structure
caused a disruption in its performance and an increase in its employee’s turnover. To
narrow down the problem, a SWOT analysis can highlight the issues. Then we can be
able to analyze the situation for a recommendation and solution.
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Recommendations:
Give employees additional financial and non financial compensations to retain them.
Building a strong social culture inside the company to change the relation between
the company and their employees from material relationship only to an affiliation
and loyalty relationship.
Outsourcing the secondary activities rather than outsourcing the primary activities.
Promoting the Innovation inside the company by giving big bonuses for the
employees who innovate new unique service or product that can give a competitive
advantage for Nielsen.
Reducing costs by opening the virtual offices rather than headquarter one.
Reducing costs by dividing the employees into groups specialist in a special category
of research.
Increasing the market share by entering new markets.
Buying a new IT system that store and save all the information that was collected in
the previous researches to benefit from it in the future and to make it available for
all Nielsen branches over the world.
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Conclusion:
Nielsen does not have assets or machinery. Nielsen is a marketing and market research
company. Its main core advantage is its skilled people. Thus if they leave, the company
will lose all this experience and knowledge. Knowing this, Nielsen should consider
stronger measures to secure people’s continuity with Nielsen by offering higher pays,
career progression, better communication between employees and top management,
continuous training and education on their tasks and jobs, and finally build loyalty and
Nielsen nationality to make people feel they are part of the success and of Nielsen’s
value.
Nielsen has a serious problem that it should be taken more seriously. Nielsen has
outsourcing the primary activities instead of the secondary activities. That thing makes
Nielsen to lose its competitive advantage. So the decision that must be taken is restoring
the primary activities and outsourcing the secondary activities.
In short, through its flexibility, non routine jobs and coordination between the different
levels of the company, employees are always motivated and will help Nielson maintain
better results and gain more profits. But, besides the few positive points Nielson
Company has, it also has several negative issues that should be taken more seriously or
else the company would face serious problems on the longer run. When it comes to the
formalization, rules and tasks should be clearer and more organized instead of the
overlapping of tasks and the few rules. Another issue is about the company’s general
environment. There should be an environment of stability and the values have to be
clearer and the search for highly professional training should be spread. As for the
strategies, the company should have well-defined goals set and make it clear for the
employees to work on achieving these goals.
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References:
Web Addresses:
http://au.nielsen.com/company
http://www.nielsen.com
www.nielsenmedia.com
www.cartage.org.lb/en/themes/biographies/mainbiographies/N/NielsenN/Nielsen.htm
www.useit.com
www.acnielsen.com
http://en.wikipedia.org/wiki/Nielsen_Ratings
http://blog.nielsen.com/nielsenwire/media_entertainment/for-mccain-a-start-of-the-week-swing-state-ad-surge
http://www.gap-system.org/~history/Biographies/Nielsen.html
http://www.webpronews.com/tag/nielsen
Global Strategic Management Book
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