Analysis, Pages 17 (4138 words)
WHO/WHAT IS WHIRLPOOL?
There are big time players in every industry that people link with the market. Fast food is McDonalds. Coffee shops Starbucks. Carbonated beverages are Coca-Cola. Who is the comparable brand name in the home appliance field? A betting man would have a safe bet if he wagered that Whirlpool was that company. Whirlpool Corporation is the world’s leader in manufacturing major home appliances. With sales in the billions, over 68,000 employees and 66 manufacturing and technology centers around the world, Whirlpool is not only a goliath in their own market but has cemented itself as one of the best preforming firms in the world.
What does Whirlpool do that makes them so successful? It is not just the product and service they produce. Whirlpool studies and is ever vigilant to any external threats and, maybe even more importantly, all internal problems that arise as well. They know there market, competitors and themselves so well that they will be an industry leader for years to come.
Whirlpool was not always a superpower. They did not pop out of some hole in the ground and proclaim “Hey! We have washers and dryers want one?” Whirlpool’s origin story is not what one would call textbook. Through humbling business failure and the vision of one family Lou Upton invested his savings in a dream. In 1908 he set the groundwork for a company that would manufacture household equipment. That ventured went belly up. From the ashes of that failed company, Lou was able to walk away with something.
He was able to attain the patents on a hand washing machine that he thought might be electrified. That small win turned into, after a lot of years and work, into the Whirlpool Corporation we knew to this day.
ANALYSIS OF WHIRLPOOL
As stated before Whirlpool is the best at what they do. However, throughout history there have been companies that have been good if not great. There have been some in that group that no longer are here. Those ones that failed got cocky. They did not keep their eyes on their competitors or stay vigilant on what was happening within their own company. Whirlpool, to stay on top, needs to be constantly analyzing those two fields (external and internal areas) to make sure weaknesses are naturalized then eliminated and strengths are being utilized.
There are many different ways to analyze Whirlpool externally and internally. External analysis includes utilizing PESTEL framework, the 5 forces Model and SCP (Structure-Conduct Performance). The internal analysis tools that are effective are the RBV (Resource-Based) view, the VRIO model and a SWOT analysis.
The PESTEL Framework is a tool used by managers to view their external environment. PESTEL is an acronym for political, economic, socio-culture, technological, ecological and legal. All of these factors, if left unchecked, can lead to major issues for any corporation in the world.
Whirlpool is a complex entity even though they sell straightforward products (major home appliances). Linking a washer, dryer or fridge to being affected by legal action does not seem, at first glance, make a lot of sense. People think of politics normally coming into play in the auto market, trade agreements and other major economic areas in the U.S.A. However there are a lot of potential political problem that could lead to Whirlpool having to readjust and adapt its strategies.
Since Whirlpool is a global company, they not only have to worry about U.S policy, but Whirlpool needs to keep an eye on multiple country policies. Canada has been passing a lot of conservation laws lately and I have family in Canada that has had to deal with those laws for a while now. Water costs in Canada are high and there has been new legislation passed that states that laundry can only be done at certain times of the day (in a machine) or the price would be increased dramatically. The time for that is at night in some areas (7-9 P.M). This raises some problems for Whirlpool.
First they need to make sure that their machines can preserve and be as efficient as possible. If they are not and are seen as a “water waster” people in Canada will not buy their products. Also doing laundry at night is another consideration. If Whirlpool appliances are not time efficient (meaning it take hours to do a load of laundry) then people well want to look for a more convenient brand that would serve their positions. If I have to get up at 6 in the morning to commute and I have to do two hours of laundry versus one hour and have the same quantity done and get the same quality I will buy the brand that is quicker even if the price is a bit more.
Other political issues that could come in play are taxes, trade regulations, tariffs and infrastructure within the country. Taxes in country with social medicine, for example, are unbelievable. In countries like Canada and Great Britain, taxes can range from 15-20% on any purchases. This makes things very expensive and people may not be able to afford buying the top of the line Whirlpool appliances. Trade regulations and tariffs are another concern. Whirlpool does not have a manufacturing plant in every country on the planet. To get their product on shelves they may have to work with more costs going into a certain country. Finally, a countries infrastructure can be a huge issue. Washing machines are not small. So to transport them you need trucks, plane, barges or any other huge mode of transportation. What if Whirlpool wants to expand in South America? There are certain areas of South America that are suicide to drive into. Transporting materials into those areas may be more costly and flat out too dangerous.
There are a number of economic factors that Whirlpool needs to consider. There are 3 distinct factors in this that cover of all Whirlpools operations and strategic actions. The three are 1. Growth Rate- the measure of the change in the amount of goods and services produced by a nation’s economy. 2. Interest Rates- the amount that savers are paid for use of their money and the amount that borrowers pay for that use. 3. Levels of employment- number of people in an economy that are employed in an economy.
Growth rate and analyzing what markets are growing is a key aspect of business. The world is so small in comparisons to what it once was not too long ago. There are only a few areas left in the world that are 3rd world. The rest of the areas in the world are developed or developing. That developing area is where Whirlpool is setting its sights on. China and India are absolutely the two fastest growing areas. In 2013, Whirlpool struck a deal to buy into a Chinese home-appliances maker. This opened the flood gates and Whirlpool was breaking a business norm. Western companies have made a habit of attaining controlling stakes in Chinese firms, but often those firms aren’t market leaders. Whirlpool, the world’s largest appliance maker by sales, whose U.S. brands include Kitchen-Aid, Maytag and Amana, has been struggling in China. An abysmal 0.1% was Whirlpools only share of the country’s consumer-appliances market. That initial move did not add a lot of market share but it has started that trend of Whirlpool pushing into that growing market which will add so much to the company.
After this past financial meltdown, the Great Recession, everyone always seems to be taking about interest rates. This is for good reasons because interest rates have been so low recently. What does this mean for Whirlpool? Well when rates are low people borrow money for cars, houses, computers and even vacations and throw it all on credit. That means that Whirlpool products are going to be considered more affordable for people. During the recession, it is no secret Whirlpool suffered. Yahoo finance kept all the records. There was a time were Whirlpool was not selling and their stock was at around 20 dollars. Now their stock is back up to record highs and these low rates have a big role to play in that.
Levels of employment (unemployment levels) had the same basic effect on Whirlpool as the interest rates. During the recession a lot of people did not have jobs and therefore had no steady income. Those people with jobs then did not want to spend their money at all out of fear that they may lose their job any day. If you do not have the income or are paralyzed with fear of losing a job then spending thousands on home appliances is not an action that that person is going to do.
Socio-culture changes can create opportunities and threats inside an economy and the powers at be inside Whirlpool knows this. A big thing that drives any socio-culture changes are a lot of demographic forces. Forces like age, gender, family size, ethnicity, socioeconomic classes and even sexual orientation can all affect culture. All of those forces do not directly affect Whirlpool but some do and need to be considered. Average age of their consumer is important. The age in this country is getting older. The baby boomers are moving into retirement so that is a new development. Those older consumers may have more income but not want to spend it on washers and dryers but maybe some new appliance (older gentlemen seems to enjoy a cold beer so developing a new kegerator would be a good opportunity). Also in those developing countries family sizes are decreasing and there are more people with money that now are willing to buy these products to upgrade their lives.
As time goes on technology has exploded. 25 years ago there were no smart phones computers were a ¼ of their power and g back another 15 years people were still using washboards to do laundry. That leap in technology is almost impossible but it has happened. Whirlpool, like the majority of industry leaders, has taken advantage of that boom. It is obvious by just using one of their products and I have had the opportunity to experience that Whirlpool boom. My parents own Whirlpool washers and dryers. They had a set of them for a good 5-6 years. Those eventually were going downhill so they upgraded to a newer set. I could not believe the jump in technology! There were so many temperature settings, speed setting, power settings and buttons that I was afraid to push. Whirlpool obviously has capitalized on those advancements and has better products to show for it.
An organization that considers ecological factors means that a business cares about its carbon footprint on the planet. Whirlpool is doing this. They are pushing a new design that was developed in Europe. GREENKITCHEN is a Kitchen Eco-system concept that supports a strategy to develop cutting edge products that offer high energy-efficiency and reduce impact on the environment. This is going to help Whirlpool. First this new push in green technology will sell well. Second this will increase Whirlpool’s public perception which will help their stock price in the end.
Every corporation in the U.S is at the mercy to laws and legal factors that the country imposes. Regulations on quality and safety monitor Whirlpool products. Whirlpool Corporation believes that active participation and engagement in public policy is an important part of being a responsible corporate citizen. Whirlpool has always been committed to engaging in a dialogue with policy makers on a wide range of public policy. These policies included trade, taxes, energy, the environment, affordable housing, and intellectual property. Whirlpool has invested in a U.S. federal and state government affairs team. The team represents the company on important policy issues before Congress, the Administration, regulators, and state and local governments across the United States.
THE SCP (STRUCTURE-CONDUCT-PERFORMANCE) MODEL
The SCP model is designed to explain differences in industry performances. In the SCP model there are underlying industry structures that change how a firm conducts its operations. Some of those underlying structures are perfect competitions, monopolistic competitions, oligopolies and monopolies. In that order (from perfect to monopoly) the markets go from fragmented and low profitability to consolidated and high profitability. Whirlpool, in a lot of ways, is part of an oligopoly in the major appliance market. There are not a lot of companies that have market share in the appliance market. Whirlpool, Electrolux and General Electric are the top three players in the U.S.A. There are a few other firms but their market share is small.
There are of pros and cons in your market being an oligopoly driven market. Oligopoly means “few sellers” in Greek. One pro is there are a small number of players in a market and the firms are interdependent. This means that the actions of one firm greatly affect the strategy of the other. Price fixing in the U.S.A is illegal but raising or lowering prices on the expectations of your competitors is not illegal. It is almost like playing a game of predicting the strategic behaviors of your competitors. Another pro is that there are high entry barriers. For another company to break into Whirlpools market would be very difficult and costly. This has given Whirlpool some added protection from their market being stolen away from them.
One issue in an oligopoly is that even though there is a bit of price freedom price wars can happen. Pricing wars are when one of the companies lowers there prices drastically to try and make money on volume but then the other companies follow suit. Therefore that leads to the market share staying the same but profitability dropping off all of the firms which damages the market’s worth. Whirlpool needs to respect the type of market competition they are in and be wary of falling into the bad practices that can tank a company in an oligopoly.
THE FIVE FORCES MODEL
The SCP model lead to the highly influential five forces model. This model identifies five key competitive forces that managers need to consider when analyzing the industry environment and making strategies. The five forces are…
- Threat of new entry
- Power of suppliers
- Power of Buyers
- Threat of substitutes
- Rivalry among competitors
Threat of entry is something that Whirlpool does not need to focus a lot of time on because there is a very low threat of entry. This is not because of Whirlpool directly. This is an indirect benefit of being a part of an oligopoly market. The few industries in the major appliance market are so dug in and have acquired loyalty that a new product would take a considerable amount of capital and to take even one percent of market may be unprofitable. Whirlpool needs to wary of their suppliers and their supply chain management. If Whirlpool allows their suppliers to gain a lot of leverage over them then Whirlpool will be at a competitive disadvantage. Whirlpool products have a number of diverse products in them ranging from plastics to metals. If let us say Whirlpool is forced into a deal with a wire supplier that corner the company and raises their prices.
Unless Whirlpool raises their price they will lose profit margin and in an oligopoly it can be hard to change prices because it can lead to pricing wars. There are two ways that the power of buyers can affect a company’s revenue. One is demanding lower prices through discounts or by demanding higher quality which will increase production costs. The more power the buyers have the more industry profitability is affected and thus the individual firms are affected. Individuals may not have a lot of buying power to affect the changes of a company. However, if there are companies that are consumers of another company the consuming company would have more power due to the fact that their account is so large in comparison to an individual.
Do Whirlpool consumers, today, have a lot of buying power? I do not believe so. Whirlpool is the standard in the major appliance in the United States and there are not a lot of brands that are comparable when it comes to price vs. quality. However if K-marts, Sears and other companies like them that do sell Whirlpool brands start pressuring Whirlpool for lower prices Whirlpool may be in trouble.
A company providing a substitute for Whirlpool products is very unlikely. There is no true substitute to a washing machine or a refrigerator. Yes, a family can go back to hand washing and hanging their clothes but that is unlikely and they will not have to buy anything. The refrigerators can be replaced with old fashion ice boxes but again let us be realistic. Whirlpool is in a safe industry that has developed into an oligopoly so substitute development is very unlikely. Rivalry among competitors is a big deal in an oligopoly. There past for forces all feed into this final forces. The stronger the forces above are, I theory, the stronger the competition will be in the industry to gain an advantage. Also in the major appliance market exit barriers are very high. There are two things that go into exit barriers.
- Economic factors
- Social factors
Economic factors can include costs can include getting out of contracts, pensions costs, medical costs and other payments or costs that could come up with selling away assets. Social factors include people’s emotional attachment to your products. People are attached to their home appliances. Those appliances give them convenience. When this barrier is high competition is high. Whirlpool is not high in all 5 forces. New entries and substitutes are rare. However power of suppliers and buyers are slightly high and since exit barriers are high, Whirlpool does have a lot of competition to consider and they need to stay on their A-game at all times or they will lose their market share.
THE RESORUCE-BASED (RBV) VIEW
Whirlpool, as the other entire huge corporation, has a lot of resources and those resources need to be internally managed. The Resource-based view will break down and look at the two types of resources that a firm has. The two type of resources tangible and intangible resources. Tangible assets are things that are physical. There things can be touched, physical attributes and are visible. Intangible assets are things that lack physical attributes and are invisible but are as important if not more important than their physical counterparts.
Tangible assets can be things like capitol, land and buildings. Whirlpool is huge corporation and therefore they need a lot of physical assets. Whirlpool has dozens and manufacturing factories. They have their capitol when it comes to their headquarters and their actual product distribution centers. I have seen Whirlpool transports on a train and a semi when I was younger. I have seen the Whirlpool logo everywhere. That logo is more recognizable than any other major appliance brand in the world. Whirlpool does have that tangible resource advantage in their industry
Intangible assets are where Whirlpool shines. Culture is a huge part of Whirlpool culture. Whirlpool treats there people very well and because of that Whirlpool gets every employees best. There have been hundreds of testimonials and reviews from employees about their experience at Whirlpool. There are always negative reviews. However, ignoring the massive load of positive reviews is impossible. Other intangible resources are knowledge, reputation and intellectual property. The reputation of Whirlpool products will speak for itself. There commitment to customer service had paid off and now brand loyalty to Whirlpool is huge and people have been using their products for years. The Kitchen-Aid products have made a splash and are widely used as well and the intellectual patent and ideas behind those are intangible.
All of these resources both (tangible and intangible) need to be managed. Their competitors have no control over there resources. It is all on Whirlpools management. That is why internal analysis is important for Whirlpool to keep their goals and resources in line at all times to meet their strategic goals.
The VRIO framework is a 4 step analysis on a company resource. The four steps of this framework are…
- Is the resource valuable?
- Is the resource rare?
- Is the resource costly to imitate?
- Is the resource organized to capture value?
The VRIO framework, in a wider scope, is part of a much larger strategic scheme of a firm. VRIO falls into internal analysis, but it is used as a framework in evaluating just about all resources and capabilities of a firm. Whirlpool has a lot of resources and if any of those resources pass the four VRIO steps then Whirlpool would have a competitive advantage.
Are Whirlpool’s internal resources valuable? Whirlpool’s patents and intellectuals knowledge is key in their development over the years. There employees are fantastic and give a lot to the company. Also Whirlpool’s product is valuable. People pay a high price for a superior product that Whirlpool offers. There are a lot of emotional attachments too appliances so Whirlpool does provide a valuable product as well. This then give them a competitive advantage in the market because if people value Whirlpool over other brands then they will buy Whirlpool first.
Major appliances are not a rare commodity exactly but since the major appliance market is an oligopoly then it is rare to find a different or new player in the industry. That being said Whirlpool is not giving a product that is one of a kind and internally Whirlpool does not do much that can be seen as “rare”. Whirlpool does have a great employee rating when it comes to taking care of them. Therefore, Whirlpool does not provide a truly rare product. This can be a problem because they cannot capture a competitive advantage through the rarity of their products.
Whirlpool’s products are imitable. They do not own all of the rights on appliances. Is this a problem? Not necessarily. It would be better for them if they were the only ones that could produce their product so they could run train on the market and own everything. That being said, getting into the major appliance market is very costly and to take market share from a company like Whirlpool would require more costs like marketing and discounts to try and convince people to buy a new product. Therefore, Whirlpool does have a temporary competitive advantage due to the fact that imitating Whirlpool is very difficult.
Finally is Whirlpool organized to capture value? I believe it is. Whirlpool is an international juggernaut. They are the highest grossing business in their market. There is no way they are not organized to capture value. I wanted to try and find a chart or a description of the hierarchy at Whirlpool. What I found was useful data visualization (http://www.cogmap.com/chart/whirlpool-corporation). The link will take you to a chart that maps out the overall hierarchy of Whirlpool. There are people names and titles. Once you click on them you get contact information and an explanation of their role in the company. There was a lot of time put into that visualization and that just show that Whirlpool is committed to being organized and knowing what its people do and how to make them all more efficient. That commitment gives Whirlpool another competitive advantage over its competitors if their competitors do not push to have a organized culture and hierarchy themselves.
Whirlpool is a company that reputation precedes them. Whirlpool is a major corporation dealing with millions of dollars every day. Whirlpool has a lot of competitive advantage in its own industry. From the external and internal analysis it is apparent that Whirlpool has dominated their market share and has done the correct things to extend its success for many years to come. Whirlpool, however, can never become
complacent. They must keep eyes on the horizon and eyes watching their every move. If they are not vigilant something may come along and put Whirlpool in dire straits like so many companies before them.
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