Chicheportiche Raphael

Rasio’s Strategic Diamond Model

before Stanol Ester

Arena

Staging

&

PacingVehicles

Differentiators

ECONOMIC

LOGIC

Q1

Diamond Model - ARENA

Q1

Product Category:

- Grain milling company

(cereals, vegetable oil)

- Animal feeds

- Malt production

- Potato starch

Geographic Area:

- Finland

- Sweden

- Soviet Union

- Estonia.

Core Technologies:

- Considerable entrepreneurial initiative technical ingenuity.

- Plan construction with innovative improvisation.

- Active program of R&D

Arena

Diamond Model - VEHICLES

Q1

Vehicles

Internal development:

- Expand to animal feeds

- Malt production

- Potato starch

- Margarine

- Paper Industry (1960). Joint Ventures:

In 1987 Raisio group (Vehna oy)

merged with oil factor

Oy Kasxioljy-Vaxtoljhe Ab.

Diamond Model - DIFFERENTIATORS:

Q1

Differentiators

Market Leader in flour, pasta and Musli in all area of Russia and Estonia.

Diamond Model - STAGING & PACING:

Q1

Staging

&

Pacing

Speed of expansion:

- From 1987-1991 increase income average 10%.

- R&D extensive research on fat metabolism and plant sterol.

Diamond Model - Conclusion:

Q1

Before the Stanol Ester, Raisio was a company with

good food products and a great potential but it

missed a real differentiation which could help

avoiding threats, its extension, international

exportation and make it a leading branch of its kind.

Financial performance of the Raisio group

in the period 1987-1996

Q2

DuPont Analysis - ROE

1987-1996

Years 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

ROE (%) 15.5 15.3 5.4 0.1 6.9 10.3 10.3 9.4 6.8 5.8

Q2

0

2

4

6

8

10

12

14

16

18

1986 1988 1990 1992 1994 1996 1998

ROE(%)

ROE(%)

DuPont Analysis - Detailed ROE

1987-1996

Q2

ROE =Net _Profit

Equity=

Net _Profit

PreTax_Profit*

PreTax_Profit

EBIT*EBIT

Sales*Sales

Assets*Assets

Equity

YEAR 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

SALES 2011 2184 2487 2557 2315 3070 3549 3518 3224 3928

TOTAL ASSETS 1831 2257 2493 2872 2702 3268 3302 3071 3175 3678

NET INCOME 103.85 152.082 60.642 12.24 85.974 128.338 156.251 147.016 112.064 114.434

EBIT 214 247 232 213 316 431 492 428 383 420

PRETAX PROFIT 97 98 91 64 63 114 185 35 140 162

PRETAX/EBIT 0.453 0.396 0.392 0.30 0.2 0.27 0.37 0.081 0.365 0.385

NET

INCOME/PRETAX 1.07 1.55 0.66 0.19 1.36 1.12 0.84 4.2 0.8 0.7

EBIT/ASSET 0.12 0.11 0.093 0.074 0.12 0.13 0.15 0.14 0.12 0.11

ASSET/EQUITY 2.73 2.27 2.21 2.34 2.16 2.62 2.17 1.96 1.92 1.86

ROE 15.5 15.3 5.4 0.1 6.9 10.3 10.3 9.4 6.8 5.8

Years 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Net income**103.85 152.082 60.642 12.24 85.974 128.338 156.251 147.016 112.064 114.434

ROA(%) * 5.67 6.73 2.43 0.42 3.18 3.92 4.73 4.78 3.52 3.11

* In order to calculate ROA we used balance sheet total as total Asset.

** In order to calculate Net income. We did ROE x Shareholders Equity.

Q2

DuPont Analysis - ROA

1987-1996

0

1

2

3

4

5

6

7

8

1986 1988 1990 1992 1994 1996 1998

ROA(%)

Q2

Dupont Analysis - Net Margin

1987-1996

Years 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Net Margin (%) 5.1 6.9 2.4 0.4 3.7 4.1 4.4 4.2 3.5 2.9

0

1

2

3

4

5

6

7

8

1986 1988 1990 1992 1994 1996 1998

Net Margin

Value chain of the Benecol Business

Unit in years 1997-2000

Q3

Poter’s Value Chain: Support activities

Firm InfrastructureSeparate department for Benecol unit

headed by Jukka Kaitaranta.

Human ressource ManagementScientists employees for the lab.

Technology DevelopmentR&D, laboratories, Patents for protect its

product.

Procurement

Purchasing and construction of new plants

and laboratories

Conducting research

Q3

Poter’s Value chain: Primary activities

Inbound logistics Cooperation with UPM-Kymmene for extraction and

productions of plant sterols.

Operation • Production of stanol ester from plant sterols to

Benecol margarine.

• Conducting Researches in metabolism fat and

cholesterol.

Outbound logistics Special own-label packaging, delivery to countries.

Marketing and sales Marketing cooperation with Johnson & Johnson for

USA. Strategies for different markets.

Services Regular services with distributors costumers.

Q3

* In order to calculate ROA we used balance sheet total as total Asset.

** In order to calculate Net income. We did ROE x Shareholders Equity.

Q4

DuPont Analysis - ROA

1996-2000

Years 1996 1997 1998 1999 2000

ROA(%) 2.11 3.6 4.2 0.16 -5.1

Net Income 13.095 23.244 29.167 1.216 - 38.74

-6

-4

-2

0

2

4

6

1995 1996 1997 1998 1999 2000 2001

ROA(%)

Q4

Dupont Analysis - Net Margin

1996-2000

Years 1996 1997 1998 1999 2000

Margin profit 1.98 2.7 3.5 0.15 - 4,8

-6

-5

-4

-3

-2

-1

0

1

2

3

4

1995 1996 1997 1998 1999 2000 2001Margin profit

DuPont Analysis - ROE

1996-2000

Q4

-20

-15

-10

-5

0

5

10

15

1995 1996 1997 1998 1999 2000 2001 ROE(%)

Years 1996 1997 1998 1999 2000

ROE(%) 4.5 7.8 9.2 0.4 - 14.90

DuPont Analysis - Detailed ROE

1996 - 2000 (inEm)

ROE =Net _Profit

Equity=

Net _Profit

PreTax_Profit*

PreTax_Profit

EBIT*EBIT

Sales*Sales

Assets*Assets

Equity

YEAR 1996 1997 1998 1999 2000

SALES 661 858 833 763 800

TOTAL ASSETS 619 643 690 744 750

NET INCOME 13.095 23.244 29.167 1.216 - 38.74

EBIT 33 41 52 16 -32

PRETAX PROFIT 27 20 39 -2 -47

PRETAX/EBIT 0.818 0.487 0.75 -0.125 1.468

NET

INCOME/PRETAX 0.485 1.162 0.747 -0.608 -0.824

EBIT/ASSET 0.053 0.063 0.075 0.021 -0.0426

ASSET/EQUITY 2.127 2.157 2.17 2.44 2.88

ROE(%) 4.5 7.8 9.2 0.4 (-14.90)

Q4

Q5

Resources Importance Relative Strength

R1 8 8

R2 8 7

R3 8 5

R4 8 3

R5 9 9

R6 8 8

R7 7 7

CAPABILITIES Importance Relative Strength

C1 9 8

C2 6 7

C3 8 7

C4 8 9

C5 9 8

C6 8 9

C7 9 4

Benecol’s resources and capabilities

1997-2001

Q5

Rela

tive S

trength

Strategic Importance

Superfluous Strengths Key Strengths

Zone of Irrelevance Key Weaknesses

1

1

5

5

10

R1R2

R3

R4

R5

C1

C2 C3

C4

C5 C6

C7

R6

10

Map of

strategic importance vs. relative strength

Q6

Dynamic capabilities Raisio’s Capabilities

Sensing• being aware of new developments in

technology

• identifying customers needs

• Organizational learning

• Raisio Group aimed at studying the effect of rapeseed

oil on blood cholesterol level and came up with the

new cholesterol lowering margarine.

Seizing• determining your business model

• understanding resource needs

• making decisions

• pertaining to investing in technology and other

resources

• leading others to make the appropriate changes

• Signing partnership contracts with the leading firm-

J&J

• An agreement for achieving a major increase in its

sterol production supply, with a French company

• Joint venture

• Following the J& J deal, Raisio began construction of

a Stanol Ester plant at Charleston, South Carolina.

• Benecol was introduced as a dietary supplement,

which was rejected.

Reconfiguration:• Maintain competitiveness

• reconfiguring the business enterprise’s

intangible and tangible assets

• J&J shifted the emphasis of its marketing strategy

from consumer advertising

• Raisio made safeguarding long term availability of

sterol.

• Replacing CEOs

• Making a new contract of new relationship with J&J

• Benecol acquired global rights to sell and market

sterol ester

Dynamic capabilities:

Q6

• Although having timing advantage compared to the other companies, the

opportunity wasn’t seized as expected.

• Making the agreement with J&J was Raisio’s main problem

• Replacing the CEO and a new contractual relationship with J&J helped

Raisio to re enter the market.

• Benecol acquiring of global rights helped them with saving the potential of

the firm

Raisio’s Groups dynamic capabilities we’re not enough to manage its

innovative products at first when they had the opportunity, but after the year of

2000, they had better chances to succeed world wide.

Conclusion:

Q7Q7

Reasons for Raisio’s failure after the year 2000:

Dynamic capabilities of the Raisio’s group:

• Making the wrong contractual deals with inexperienced companies.

• Inability to adapt fast to changes and reconfigure competencies.

• Inability to get ahead of competition although the advantages.

• Difficulty to move fast due to delay of supply and problems of

coordination.

• Inability to sense the market:

limited themselves to a unique product- margarine and ineffective

partnership with J&J.

Q7Q7

• The unavoidable competition

• The communication was minor about the future of their key

ingredient, the sterol and what to do about it in the market.

• The limited resource of its ingredient and the poorness of

the brand equity

Additional Reasons to Raisio’s failure: