BRIEF HISTORY OF ELECTROLUX

The origins of Electrolux can be traced back to the introduction of the vacuum cleaner,

the invention of the absorption refrigerator and a marketing genius named Axel Wenner-

Gren.

Legend has it that Mr Wenner-Gren saw an unwieldy Santo vacuum cleaner in Vienna

and went to work for them. When he had learnt enough, he went home to Stockholm,

worked on his idea with colleagues and staff and presented the Lux 1, the world's first

household vacuum cleaner in 1912.

In 1901, AB Lux, Stockholm, was established. The company launches the Lux lamp - a

kerosene lamp for outdoor use - which proves to be a tremendous sales success. The

lamp was also used in lighthouses all over the world.

On October 30, 1917, Elektron (In which Axel Wenner.Gren owns a large interest)

purchases all the shares of Elektromekaniska. Wenner-Gren was elected member of

the board of Elektromekaniska and likewise, Sven Carlstedt joins the board of Elektron.

On August 1, 1919, an agreement was reached between AB Lux and Svenska Elektron

AB (in which Wenner-Gren was the dominating owner) giving Elektron the sole sales

rights to AB Lux vacuum cleaners. The agreement, which was valid through 1929,

obligates Elektron to buy its vacuum cleaners from Lux and show Lux the manufacturer

on all the vacuum cleaners.

At the Annual General Meeting on August 29, 1919, Elektromekaniska AB (wholly

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owned by Wenner-Gren-dominated Elektron) changes its name to AB Electrolux. The

new name was a combination of Elektromekaniska and Lux.

In 1925, the first Electrolux absorption refrigerator was launched and Electrolux started

in its quest to be the largest household appliance producer in the world.

Board of Directors

The company have ten member board of Directors and at their Annual General Meeting

held in March 2010, Marcus Wallenberg was re-elected as Chairman of the Board.

Lorna Davis was elected new Board member while Peggy Bruzelius was re-elected

Deputy Chairman of the Board.

Ownership

The share capital of AB Electrolux consists of 308,920,308 shares, of which 9,063,125

are A-shares and 299,857,183 are B-shares.

A-shares carry one vote and B-shares one tenth of a vote. Each share has a quota

value of SEK 5.00. In general, 100% of the shares are considered to be free-floating.

At year-end 2009, approximately 43% of the total share capital was owned by foreign

shareholders.

Shareholding Structure

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 Major shareholders as of March 31, 2010

Number of A-shares Number of B-shares Total number of shares Share capital, % Voting rights, %

Investor 8,270,771 30, 894, 300 39, 165, 071 12.7 29.1

BlackRock Funds 16, 951, 158 16, 951, 158 5.5 4.3

Alecta Pension
Insurance 500,000 13, 364, 000 13, 864, 000 4.5 4.7

Swedbank Robur Funds 9, 324, 258 9, 324, 258 3.0 2.4

AMF Pension Insurance 6, 997, 505 6, 997, 505 2.3 1.8

SHB Funds 5, 708, 805 5, 708, 805 1.8 1.5

SEB 5, 660, 004 5, 660, 004 1.8 1.4

Second Swedish
National Pension Fund 5, 030, 369 5, 030, 369 1.6 1.3

Fourth Swedish National

Pension Fund 3, 079, 934 3, 079, 934 1.0 0.8

SEB Funds 3, 045, 646 3, 045, 646 1.0 0.8

Other shareholders 292,354 175 ,344, 913 175, 637, 267 57.9 52.7

9,063,125 275, 400, 892 284, 464, 017 92.1 100

AB Electrolux 24, 456, 291 24 ,456, 291 7.9 0

Total 9,063,125 299, 857, 183 308, 920, 308 100 100

As of March 31, 2010, approx. 39.3% of the total share capital was owned by foreign investors, approx.
52.7% by Swedish institutions and mutual funds, and approx. 8.1% by private Swedish investors.

Source: http://www.electrolux.com

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Source: http://www.electrolux.com

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QUESTION 1

EXPLAIN WHY THE ISSUES FACING ELECTROLUX WERE STRATEGIC. TRY

TO FIND EXAMPLES OF ALL OF THE ITEMS CITED IN THAT SECTION.

Businesses are set with so many objectives. Some of these objectives relate to

profitability, productive efficiency, growth, technological dynamism, stability, self-

reliance, survival, competitive strength, customer service, financial solvency, product

quality, diversification, employee satisfaction and welfare, and so on.

A company’s strategy consists of the combination of competitive moves and business

approaches that managers employ to please customers, compete successfully and

achieve organizational objectives. Strategy they say is the overall plan for developing

resources to establish of gain a competitive advantages over competitors or a favorable

plan in an organization.

According to Johnson G./Scholes K./Whittington R in their book, “Exploring Corporate

Strategy; 8th edition”, strategy is defined as “the direction and scope of an organization

over the long-term, which achieves advantage in a changing environment through its

configuration of resources and competences with the aim of fulfilling stakeholder

expectations”.

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In the Electrolux case study, the strategic issues facing the organization were;

• Long term direction of the organization

• Scope of the organization activities

• Gaining advantage over its competitors

• Strategic fit with the business environment

• The organization’s resources and competence

Long term direction of the organization

This must be seen into the future of the organization. The goal was to accelerate the

development of Electrolux as a market driven company based on greater understanding

of customer needs. This issues facing the organization was strategic in nature as shown

in the 2005 annual report of Electrolux

Scope of the organization activities

As stated in the 2005 annual report of Electrolux, the scope was captured under the

goals stated by Hans Straberg. These are:

• Continuing to cut costs and drive out complexity in all aspects of operations

• Increasing the rate of product renewal based on consumer insight

• Increasing our investment in marketing, and building the Electrolux brand as the

global leader in our industry.

It was strategic because Electrolux had a choice of concentrating in one area or should

have many outlets i.e. going globally. Electrolux was operating in an industry with strong

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global competition and the option of changing the business model for units that could be

considered as non-core operations or in areas where profitability is low.

Gaining advantage over its competitors

Another issue facing Electrolux was gaining advantage over its competitors. Thus

maintaining competitive production costs is a pre-requisite for survival in the market,

and there is the need to relocate production from high –cost to low cost countries. For

the attainment of gaining competitive advantage Electrolux put in place the following;

• The provision of quality price through globalization has offered quality product at

low prices.

• Relocating to low cost countries thus moving from the US market to Mexico.

• Buying components

• Shifting of competitors focus to product development marketing and brand

building.

Strategic fit with the business environment

This was also an issue facing Electrolux. They needed strategic positioning in other to

fashion out its environment through market niche in a particular segment. From the case

study, Hans Straberg in reviewing the business operations indicated that the group

reported higher profitability in 2006 in both North America and Europe and will lunch a

number of important new products.

To this end, strategic decisions are normally about trying to achieve some advantage for

the organization. The issue facing Electrolux was that, it was losing the advantages in

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the fast growing economies and this compelled them to prioritise building of the

Electrolux brand both globally and across all product categories.

The achievement of advantage may be in different ways and interpreted differently. For

organizations to take advantage of completion, it has to improve its cost position

strategically through better coordination at the global level. Example is when Electrolux

launched a project designed to drastically reduce the number of suppliers.

The organization’s resources and competence is also an important feature of

strategy.

The resource-based view of strategy is about exploiting the strategic capabilities of the

firm in terms of its resources and competencies to provide competitive advantage. By

resources, we mean financial, human and the organization’s resources which are more

important in the implementation of strategic decisions. For example, at Electrolux, a

great deal of time and effort were put in place to make production and logistics more

important as captured in their 2005 annual report. Also, Electrolux in their attempt to

exploit the strategic capabilities of the staff, for example, established talent

management processes and tools to ensure group access to competence in the future.

Strategies then need to be considered not only in terms of the extent to which the

existing resource –base of the organization is suited to the environmental opportunities

but also in terms of the extent to which resources can be obtained and controlled to

develop a strategy for the future.

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Values and expectations of powerful actors in and around the organization are a

key to the characteristics of strategy.

The strategy of an organization will be affected not only by environmental forces and

resource availability, but also by the values and expectations of those who have power

in and around the organization. In some respects, strategy can be thought of as a

reflection of the attitudes and beliefs of those who have the most influence on the

organization. Whether a company is more concerned with consolidation and where the

boundaries are drawn for a company’s activities, may say much about the values and

attitudes of those who influence strategy. i.e. the stakeholders of the organization. The

beliefs and values of these stakeholders will have a more or less direct influence on the

organization. From the case study, one realizes that all CEOs who came pursued it in

terms of expansion. Others did it in terms of merging and acquisitions like Hans

Werthen when he took over in 1967 as the president of Electrolux.

These actors, groups and individuals drive the fundamental issues that sharpen the

direction of the business. From the case study again, the stakeholders were demanding

basic products as a result of changing consumer preference, growth of global retail

chains and greater global competition leading to polarization of the market. The key

stakeholders of Electrolux are Customers, Suppliers, Employees and Shareholders.

With respect to the customers, their preference to low cost product and high quality

product were addressed .That of suppliers has also been captured well as the

coordination with suppliers signifying a supply intimacy relationship. This was well

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rooted through the more efficient purchasing and more efficient product and logistics.

This generated into a good supply chain management and quality services.

Under employees, this was well resolved through the opportunities for leadership

development and international career .This strategy has been effectively implemented in

recent years by everyone in the organization and is paying off. The shareholders aspect

was also well addressed through increase in profit that has enhanced their operations.

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QUESTION 2

WHAT LEVELS OF STRATEGY CAN YOU IDENTIFY AT ELECTROLUX?

From the case study there are three (3) levels of strategy that could be envisage. These

are:

• Corporate Strategy levels

• Business Strategy levels

• Operational Strategy levels

Corporate Strategy levels

Corporate level strategy entails the overall game plan for managing a set of business.

From the case study the acquisitions and disposals made by Electrolux were done at

the corporate levels which emphasizes that major restructuring exercise undertaken

was with the view of adding value to the different parts of the business. The relocation

from high cost countries to low cost countries, the lunching of new products , out-

sourcing air –conditioners in US to China, shutting down of non core operations and the

product development and branding of Electrolux products were all corporate level

decisions.

Another corporate level decision taken was the accelerated goal to the development of

Electrolux as a market driven company based on greater understanding of customer

needs and finally, building strong brands .

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Business Strategy levels

The second strategic level adopted by Electrolux was the business strategy level which

is how to strengthen market position and build competitive advantage and also actions

to build competitive capabilities in a particular markets. This has been captured under

Electrolux strategies in the case study and the goals stated are:

• Continuing to cut costs and drive out complexity in all aspects of operations. This

has been achieved through achieving comparative advantage and introducing

more efficient purchasing and efficient production systems.

• Increasing the rate of product renewal based on consumer insight. This has been

captured under intensified product renewal and the investment of at least 2% of

sales in product development.

• Increasing investment in marketing, and building the Electrolux brand as the

global leader in the industry. This has been captured under starting to build a

strong global brand. In Hans Straberg submission, he re-echoed that “our goal is

for our investment in brand-building to correspond to at least 2% of sales.”

• Also of greater importance are strategic business units (SBU) which is a distinct

external market for goods or services that are different from another SBU.

Operational Strategy levels

The third level strategy adopted by Electrolux is the operational strategy. This level

takes into consideration the provision of a game plan for managing a particular activity

in a way that support the overall business and add relevant details to the whole of the

overall business strategy. This operational level strategy has been undertaken under a

more efficient production and logistics systems and also a more efficient purchasing

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arrangement. The systematic development of both brands and personnel as

combination of continued focus on cost and intensified product renewal are also

strategic decisions been implemented at the operational level. The human resource

capabilities have been attested in the access to competence section of the case study.

For instance, this was depicted or seen in the last paragraph of the 2005 report where

the strategy was effectively implemented by everyone in the organization.

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QUESTION 3

IDENTIFY THE MAIN FACTORS ABOUT THE STRATEGIC POSITION OF

ELECTROLUX. LIST THESE SEPARATELY UNDER ENVIRONMENT,

CAPABILITY AND EXPECTATIONS. IN YOUR OPINION WHICH ARE THE

MOST IMPORTANT FACTORS?

The strategic position of Electrolux is concerned with identifying the impact of the

external environment, the strategic capability and the expectations of stakeholders on

the organization’s strategy.

The strategy of Electrolux refers to the organization’s overall scope over the long term,

which achieves an advantage in a changing environment through its configuration of

resources and competence with the aim of fulfilling stakeholder expectation. There are

four key factors determining this and it’s explanation is given below:

The environment

• The external environment seeks to emphasize the fact that every organization

exist within the context of a complex political, economic, social, technological,

environmental and legal world. Organization’s will have to map up strategies

designed to deal with challenges posed by one or more of these kinds of factors

in other to take advantage of opportunities along the way. This also emphasizes

the need for organizations to scrutinize the environment in order to identify

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 factors about their environment for which threats might have to be addressed in

advance and as well opportunities will be acted on. This will have to be done

even when the organization is performing well, utilizing enterprise risk

management techniques which will assist the organization to identify far in

advance potential future risk and opportunities.

Political

• Politically, Electrolux took advantage of the Second World War and produced

domestic appliances such as washing machines and dish washers since there

was a great growth in the demand for these appliances.

Social

• Socially, the industry had become polarized as a result of changing consumer

preference hence the growth of global retail chains and greater global

competition. This led to companies not to only focus on production elements

such as the location of production plants but also purchasing from cheaper

suppliers. Another issue that emerged was on distribution channels in the form of

the retail chains. Unfortunately, this was one of the weaknesses of Electrolux.

Firms only focused on location of production plant and purchasing were likely to

be outperformed by others who paid attention to this. Customers shifted from

buying from traditional shops to big chain shops like the super markets and so

on.

Economical

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 • Economically, according to the 2005 annual report, there were three critical

important aspects of Electrolux’s market that strategy had to address. The first

among them was the issue of Globalization. Electrolux operated in a market with

strong global competitions and the strategy adopted by most firms in the industry

was to locate their production plants in countries where production cost was low.

They also expanded their markets outside Sweden which contributed to 75% of

their sales.

Technology

• Technologically, Electrolux also invested in product development as they opened

state of the art production unit for serving the entire North American market.

Legal

• Legally, all internal and external regulations were met since it would not be

possible to operate in a country whose regulations are not been adhered to.

Strategic Capabilities

The strategic capabilities of a firm are centered on its resources and competences. The

resources here refer to human, financial, the organizations resources and the ability to

meet the stakeholder’s expectations. In considering the strategic capabilities, we look at

the strengths and weaknesses of the organizations, ie, whether the organization enjoys

competitive advantage or not over its competitors.

Strength

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 The strength of Electrolux was well rooted in result oriented corporate culture,

development of its human resource and a strong environmental commitment.

The organization also built very good relationship with its suppliers. Also, in the

course of cutting down cost was able to capture the market share of the

traditional dealer to retail chains.

Weaknesses

After a successful performance following its entry into the industry, Electrolux

found itself embarking on a crusade of acquisitions in Europe. In total, 59

companies were acquired in 1967. This strategy turned out to be unwise. These

were countries in which cost of production was high.

Besides producing at a higher cost of production, Electrolux had issues when it

came to purchasing. First, its suppliers were many and therefore a project had to

be developed under which the number was drastically reduced.

Expectations

On stakeholders expectations, the goals was to accelerate development of Electrolux as

a market–driven company based on the greater understanding of customers needs

through;

• Continuing cutting costs and drive out complexity in all aspects of operations.

• Increasing the rate of product renewal based on consumer insight.

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 • Increasing our investment in marketing and building the Electrolux brand as the

global leader in our industry.

These expectations of stakeholders have been identified as employees, suppliers,

customers and shareholders. From the case study employees expectations have been

well catered for through international career opportunities, equipping them with talent

management skills and tools to enhance efficiency. Under suppliers, the company

envisaged a solid supply intimacy which has sustained a good relationship with

suppliers and a sound supply chain management. This has been captured under more

efficient purchasing system that has been implemented in order to change and improve

cost position and reducing the number of suppliers.

On the other hand, customer preference which is the reason for their existence has

been well catered. Thus knowing your customer is a key to the success that Electrolux

has achieved .Meeting the demands of its customers through quality services and given

them products at competitive prices that meet their needs.

Finally, the shareholders expectations have been well met through the success story

from the acquisitions.

Opinion on the Factors

The most important factors are;

 Stakeholders Expectations – this is because the influence of stakeholders

expectations on an organization encapsulate the vision, mission and values.

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 The issue of corporate governance is the guiding principle in shaping

managers in their daily activities in other to attain goals of the organization.

 Environmental factors are important because it helped Electrolux to

understand the framework that it operates within. Thus a pestel framework

analysis will be a guide in shaping the industrial dynamics.

 Strategic Capabilities – Every organization strives well on the human capital

of the business to survive. From the case study the competence level of the

personnel was well rooted through a solid talent management process and an

international career opportunity given to them to meet the needs of the

organization.

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QUESTION 4

THINK ABOUT THE STRATEGIC CHOICE FOR THE COMPANY IN RELATION

TO THE ISSUES RAISED

Strategic choices involve the option for strategy in terms of the direction in which to

operate. Thus, this can be looked at from the following five dimensions namely;

• Business Strategy Level

• Corporate Strategy Level

• International Strategy Level

• Entrepreneurship

• Organizations

Business Strategy Level

The business strategy level deals more on efficient production and logistics with the

view of reducing the number of product platform, increasing productivity, reducing

inventory levels and increasing delivery accuracy.

Another choice is the efficient purchasing system been implemented in order to improve

cost positioning mainly through better coordination at the global level and the drastic

reduction of numbers of suppliers. All these are well rooted through the strategic goals

outline in the strategic plan reported by Hans Straberg.

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These strategic plans are:

• Continuing to cut costs and drive out complexity in all aspects of operations

• Increasing the rate of product renewal based on consumer insight

• Increasing our investment in marketing, and building the Electrolux brand as the

global leader in our industry.

Corporate Strategy Level

This deals with moving production to low-cost countries. It’s important to continue

relocating production from high-cost to low cost countries. Shutting down plants where

costs are high and build new ones in countries with competitive cost–levels.

International Strategy Level

From the case study, acquisitions made from the 70’s to the 90’s that generated 75% of

Electrolux sales coming from outside Sweden and the expansion drive together with the

disposal of non-core industrial activities.

Major restructuring in the late 90’s to 2000 contributed to about 85% of sales in

consumer durables and 15% in related products.

Entrepreneurship

Hans Straberg (CEO) goal to accelerate the development of Electrolux as a market-

driven company based on greater understanding of customer needs through the

underlying goals;

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 • Continuing to cut costs and drive out complexity in all aspects of operations.

• Increasing the rate of product renewal based on consumer insight.

• Increasing our investment in marketing and building the Electrolux brand as the

global leader in our industry

Organization

These are methods to pursue strategy; this has been captured under looking ahead to

the near future in the case study. The following points are worth noting;

• Both North America and Europe lunching of a number of important new products.

• Improvement in professional indoor products

• Development of new distribution channels for food service equipment.

QUESTION 5
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WHAT ARE THE MAIN ISSUES ABOUT STRATEGY INTO ACTION THAT

MIGHT DETERMINE THE SUCCESS OR FAILURE OF ELECTROLUX’S

STRATEGIES?

Strategy in action looks at whether the strategies chosen are actually put into action. It

is important to look at the strategic development processes of Electrolux. The strategies

that Electrolux actually pursued were combination of intended and the emergent.

Formal strategic planning decisions are the intended ones and what is actually pursued

are the emergent including responses to unanticipated opportunities and so on.

Structuring an organization to support successful performance; these involve

organizational structures, processes and relationships and the interaction between

these elements. At Electrolux, they saw that the company was restructured to manage

the under-performers. Those none-core business and low profit brands’ business

models were all divested and changed. Also, in the 1930s, the company spread its

wings by establishing production outside Sweden. This was done to create the leading

products in refrigeration and vacuum cleaning.

Strategy in action may take form of resourcing strategies in separate resource areas

such as people, information, finance and technology in order to support overall

strategies.

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Electrolux took a number of steps in this direction; one form this took was the

construction of the distribution channels for food services distribution. Again Electrolux

sought to develop its human resource, ie, the people through an active leadership

development, international career opportunities, and a result-oriented corporate culture.

Another important area is how to manage change; all because implementing new

strategies will certainly involve some degree of change. The consideration needs to be

given to the different aspects of the organization and their possible impact on strategy.

For instance how will employees react to strategy, are they just going to comply or be

committed or resist. This point further raises the issue of the strategy development

process and the issues pertaining to consultation. Due to the changes inherent in

strategy at times, that is why emphasis is placed on consultation with all stakeholders.

A major restructuring was undertaken by Electrolux in the late 1990s which created the

shape of the organization in the early 2000s. This saw the organization making 85% of

its sales in the consumer durables and 15% in the professional products. This clearly

shows that in pursuing some of its strategies, there might be the need for structuring the

organization to support successful performance. The structuring might affect the

structures, the processes and relationships. For success to be achieved in the

development of new product, consumer concern should be included in the process.

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