Integration of market intelligence into the planning cycle at Luvata
Interviewed for this case was Fredrik Vejgarden, Senior Vice President of Operational Excellence and a member of the Luvata executive team. Prior to Luvata, Vejgarden spent years at McKinsey & Company, working in areas such as LEAN Manufacturing and procurement.
Background on Luvata
Luvata is a world-leader in metal fabrication, component manufacturing and related engineering and design services, partnering with its customers to help them increase their competitiveness. Luvata changed its name from Outokumpu Copper Products after its acquisition from Outokumpu Oyj in May 2006.
Luvata in numbers:
- 65 companies
- 8,500 employees
- 37 production facilities
- Presence in 18 countries
- Annual turnover of approximately 3 Bn EUR (Figure based upon pro rata turnover of ECO and Luvata 2006/2007)
Intelligence and the Strategy Process at Luvata
At Luvata, intelligence activities for the strategy and planning process have been integrated to the company’s turnaround and change management program with the purpose of ensuring effective corporate planning on both strategic and operational level.
Luvata has, during the last couple of years, restructured its strategy process along with the recent changes in the company’s executive management team. Market Intelligence naturally is a critical input to strategic changes, securing the continuity of a structured market understanding at times when a new CEO enters the company and drives reorganisations on management and strategy.
Fredrik Vejgarden describes the MI challenge as providing insight into Luvata’s business: “Luvata operates in many market segments that each include a variety of sub-segments. The challenge therefore to Market Intelligence is to focus the information gathering and analysis on a sufficient level of detail, while at the same time maintaining an overview on the whole business. Subsequently, Luvata is concentrating the most part of its intelligence efforts on identifying specific driving forces in each end-market in order to build foresight into complex market scenarios under different circumstances.”
“For the person managing the intelligence operation, the challenge is obviously to maintain a broad strategic perspective combined with attention to detail. Both are needed in order to take in and interpret market signals in a way that makes sense from the entire company’s perspective”, Vejgarden reflects.
Structured Market Intelligence for Luvata’s Strategy Process ““ Framework
Luvata has a structured MI process in place that follows the company’s “annual planning clock”. The graph below presents an overview of the annual planning cycle, the phases of which have been described in the following, along with the related MI requirements and output.
1. Management Conference
The specific focus in the Management Conference is on growth areas. Luvata’s management discusses the strategic business situation and identifies growth opportunities, a process that will result in a list of issues that need to be researched for a more in-depth understanding.
2. Market Insight Creation
Through the Market Insight Creation process, answers to the above listed MI requirements are provided along with an overview of the likely market developments during the next 12-18 months. A large part of Luvata’s intelligence output is produced at this stage.
3. Divisional Strategy Making
Luvata’s divisions and business units will develop their own strategic plans based on the input received through the Market Insight Creation phase.
4. Risk Map Evaluations
Luvata uses a structured risk management approach through which various categories of risk are analyzed. Three specific risk areas have been identified: Business risks, operational risks and strategic risks. Examples of strategic risk areas are substitute solutions, competitor actions, or commodity vs. special product strategies. All risks are analyzed with regards to their likelihood on the one hand and their potential impact on the industry and the company on the other.
5. Strategic Review
At this point, the company strategy that was confirmed in January will be challenged and either reconfirmed or altered based on the business situation half way through the calendar year.
6. Strategic Workshop Summit
The Strategic Workshop Summit is a 1-2 day yearly conference that involves all senior managers in the company. The updated company strategy is presented and its implications for all divisions are discussed.
The complex nature of Luvata’s business has made it important for the company to find ways of increasing clarity through Market Intelligence (among other methods). In conjunction with the Strategic Workshop Summit, scenario work is a frequently utilized tool to share and improve management’s understanding of the possible futures for Luvata’s different business segments.
Linkage between Scenarios and Regular Market Intelligence
In addition to the Market Insights described above, additional outputs of Market Intelligence at Luvata are:
- Competitor updates on a quarterly basis
- Customer activities with the purpose of identifying new business opportunities and more sales
- Market & industry developments
- Technology development
- Peer group benchmarking
Described in the below graph is an overview of how market signals are being monitored and analyzed at Luvata, and how the analyses will impact strategies on a business unit level.
Case 1. Copper price surge leads to increased competition and substitution effects
One issue that most companies and market analysts recently missed was the rise in the price of copper. In 2005, the copper price fluctuated at around 2.500-3.000 USD/ton. By 2007, it had climbed to the range of 7.000-8.000 USD/ton. This naturally led to a substitution effect in raw materials. The development could have been anticipated to some extent by monitoring the development of other commodity prices. What few players seemed to understand however, was how financial players were influencing and leading the market.
Case 2. Luvata identified the solar energy trend early on
Through systematic market signals monitoring, Luvata has been able to identify the trend towards solar energy early on – the resulting increase in the raw materials demand in the suncell industry therefore didn’t come as a surprise to the company. Having identified this emerging trend early enough, Luvata has been able to intensify its product development in this segment, which has helped the company to get a sizeable market share of the growing business.
Case 3. Trend watch: How to make money based on architectural insight
A trend has emerged, especially in the rapidly developing Eastern European countries, of increasingly using copper for decorative purposes in housing and construction. Increasingly exclusive products are therefore in demand and, responding to this trend in its offering, Luvata has developed an assortment of products and solutions to match the demand.
Case 4. Corrosion in air conditioning in coastal areas ““ Successful trend analysis
Avoiding corrosion is a challenge in many air-conditioning products in coastal areas. The trend of extensive construction in coastal areas such as Shanghai, in combination with an increased usage of air-conditioning equipment, essentially created a market for Luvata’s anti-corrosion materials. Luvata mapped out coastal areas that are expanding or are likely to expand in the future, and approached customers in those regions in a targeted manner.
Summing up the description of how Luvata supports its yearly strategic planning through systematic Market Intelligence, Fredrik Vejgarden lists several key success factors that have been experienced in the company:
1. Investing in sufficient MI resources
It is vital that the profile of the person(s) involved in MI is right. Individuals are needed that have intellectual curiosity mixed with a business perspective. They must also be energetic and have the ability to drive their ideas and projects forward.
2. Managing industry complexity on an appropriate level
A broad map needs to be developed of the industry landscape in order to avoid losing sight of the big picture when concentrating on the details of complexity. Luvata has developed distinct indicators to monitor the factors that influence their end customers in order to build and share an internal understanding their own business drivers.
3. Emphasizing internal communication
It is vital to have both a formal and an informal communication process in place for MI in order to link the strategic analysis with the various divisions and business units. This also applies the other way around, i.e. linking the regular input from the sales force to the MI and strategy process.
Having finally been asked for “the most important advice” for an Intelligence Manager who is about to develop a world-class Strategic Intelligence capability, Vejgarden does not hesitate: “Do not allow MI to become a too “˜fluffy’ or superficial activity.” He explains: “It is important to be extremely clear about what type of conclusions should be drawn based on MI, and through what kind of processes. Also, I would advise intelligence professionals to focus on developing the company’s business by identifying new business opportunities in addition to monitoring the traditional players and the traditional topics and themes.”