Running Head: STRATEGY, COMPETITION AND SUSTAINABILITY 1

Strategy Competition and Sustainability

Name: Mustapha El Hajj
Professor: Ted Knight
Institution: University of Derby
Course: MBA Online
Module: 7GN040 – Strategy-Competition and Sustainability
UDO number: 100244833
Word count: 3467 (Excluding Reference pages,
Appendices & Introduction
Chapter 1 &2)
STRATEGY COMPETITION AND SUSTAINABILITY 2

Table of Contents
1. Strategy Competition and Sustainability ............................................................................ 4

1.1 Danfoss: an overview ...................................................................................................................... 4

1.2 The person: My role at Danfoss .................................................................................................... 4

1.3 The products: ................................................................................................................................... 5

2. Danfoss Power Electronics A/S: Danfoss an analysis ...................................................... 5

2.1 Danfoss mission statement and key founding values ................................................................ 6

1.We will produce and deliver products to the total satisfaction of our customers in global
markets with a high degree of environmental consciousness. ................................................ 6

2.We are a committed group of people with meaningful working lives .................................. 6

3.We will globally promote the Danfoss culture while supporting and respecting local
values. .............................................................................................................................................. 6

4.We will seek to strengthen the societies in which we play an active role .......................... 6

2.2 Product family: ................................................................................................................................. 7

2.3 Current situation............................................................................................................................... 8

3. Ansoff matrix ........................................................................................................................ 8

3.1 Product development ...................................................................................................................... 8

3.2 Market expansion ............................................................................................................................ 9

3.3 Diversification ................................................................................................................................... 9

4. Strategy, organization and competitiveness .....................................................................10

4.1 Spate of acquisition ....................................................................................................................... 10

4.2 Acquisition....................................................................................................................................... 11

4.3 Danfoss technology pyramid ....................................................................................................... 11

5 Value chain analysis ...........................................................................................................14

5.1 Inbound Logistics ........................................................................................................................... 14

5.2 Operations Management .............................................................................................................. 15

STRATEGY COMPETITION AND SUSTAINABILITY 3

5.3 Outbound Logistics........................................................................................................................ 16

5.4 Marketing and Sales ..................................................................................................................... 17

5.5 Services........................................................................................................................................... 17

6. The BCG Matrix ...................................................................................................................17

6.1 star ................................................................................................................................................... 18

6.2 Dog .................................................................................................................................................. 18

6.3 Cash cow ........................................................................................................................................ 18

7. McKinsey and Co's 7S framework .....................................................................................19

7.1 Hardware......................................................................................................................................... 20

7.2 Structure.......................................................................................................................................... 21

7.3 Systems........................................................................................................................................... 21

7.4 Style ................................................................................................................................................. 21

7.5 Staff.................................................................................................................................................. 21

7.6 Shared values ................................................................................................................................ 21

8. Recommendations ..............................................................................................................23

9. References...........................................................................................................................25

Appendix A: Milestones .........................................................................................................27

Appendix B. Danfoss companies...........................................................................................31

STRATEGY COMPETITION AND SUSTAINABILITY 4

1. Strategy Competition and Sustainability

1.1 Danfoss: an overview

According Njoroge, (2009), the Danfoss Group global is worldwide producer of

components, and solutions for refrigeration, air conditioning, heating, water and motion
controls. Danfoss Power Electronics A/S prides itself as the only global with the longest
years of experience and unparalleled success within the energy-efficient technology
Solutions. It is also one of the companies that have the widest market share in its line of
products. Danfoss Power Electronics A/S boasts of 33,904 m DKK in sales and over
23400 employees on its payroll. Other important statistics includes Danfoss Power
Electronics A/S free cash flow (3, 150m DKK), 12, 579m DKK Equity, and 12.5 %
Earnings before interest and taxes (EBIT). Danfoss Power Electronics A/S operates 58
factories in 18 countries world wide. This makes Danfoss Power Electronics A/S a
global big player in the frequency converters and solar inverters equipment. Currently
Danfoss Power Electronics A/S has over 100 sales outlets in 47 countries worldwide
with the US, Germany and china its key markets.

1.2 The person: My role at Danfoss

I am working as Application Engineer in the Global Hotline and Application Department

in Danfoss Power Electronics A/S a daughter company of the Danfoss A/S Group. My
division is producing mostly frequency converters for controlling motors and Solar
Inverters for Solar panels to convert DC electricity to AC usable electricity. My work as
an application engineer position include supporting customers with complex technical
problems though the global sales offices. The global sales offices take the direct contact
to end-customers. As an application engineer in hotline and application department my
direct contact is our sales companies globally who will only turn back to us when there
is a technical problem which they are not able to solve and require special skills. My
work sometimes includes support projects management on the side (Rui, &, Yip, 2008,
pp.213-26).
STRATEGY COMPETITION AND SUSTAINABILITY 5

1.3 The products:

Within Danfoss Power Electronics A/S, Frequency Converters and Solar inverters falls
within the category for the energy saving products and worldwide standards for
industries are getting more and more in the favor of having energy efficient factories and
industries and therefore the market is growing with time as the demand is getting higher
(Dunning, 1998, pp. 45-66).

2. Danfoss Power Electronics A/S: Danfoss an analysis

According to Hugo, Badenhorst-Weiss, &, Van Biljon, 2004), Danfoss’ story is one of
success that echoes the strategies that most Danish manufacturing companies
demonstrate. Since Danfoss Power Electronics A/S was established in 1933, Danfoss
Power Electronics A/S’s financial statements have shown positive profit. Many of
Danfoss Power Electronics A/S’s employees are employed outside Denmark
manufacturing and selling thousand of product stemming from 13 product lines.
Most of Danfoss Power Electronics A/S’s are located in the technical equipment and
systems to control dynamic processes. Danfoss Power Electronics A/S’s global
leadership position within most of its product areas puts it at an advantageous position.

Figure 1: Figure 1: Danfoss' turnover, profits and employment 1981-1998

STRATEGY COMPETITION AND SUSTAINABILITY 6

Figure 2: Danfoss key statistics

2.1 Danfoss mission statement and key founding values

Danfoss Power Electronics A/S’s key founding values are based in the demands of
globalization that places very heavy demands on the employees of Danfoss Power
Electronics A/S to identify with and be a part of Danfoss group. The company’s
founding values are:

1. We will produce and deliver products to the total satisfaction of our customers in
global markets with a high degree of environmental consciousness.
2. We are a committed group of people with meaningful working lives
3. We will globally promote the Danfoss culture while supporting and respecting
local values.
4. We will seek to strengthen the societies in which we play an active role

Danfoss Power Electronics A/S recognizes the facts that the energy markets and
envionmrmental focus is being deregulated all over the world and converging
technologies is becoming the order of the day. This is the assumption upon which
STRATEGY COMPETITION AND SUSTAINABILITY 7

Danfoss Power Electronics A/S’s mission statement is founded (Naylor, Naim. &, Berry,
1999, pp.107 – 118)

Mission statement
“To redefine the lifetime operating cost for the commercial electricity applications”.
Based on the mission statement, Danfoss Power Electronics A/S is focusing on
designing, manufacturing and marketing some of the world’s efficient Frequency
Converters and Solar inverters. Danfoss Power Electronics A/S is amongst the first
ones to have produced frequency converters for controlling motors and Solar Inverters
for Solar panels to convert DC electricity to AC usable electricity (Bain, 1956).

2.2 Product family:

Motion Controls: in this line of product, Danfoss Power Electronics A/S is engaged in
producing motion control components for a range of industries including agricultural,
forestry, and mining and construction operations. Under this the drives division has a
product line of electrical drives and controls that mainly consists of the mostly the
frequency converters that offers variable speed controls of all electric motors (Barreyre,
1988, pp. 507-20).

VLT® is Danfoss’ registered trademark for frequency converters (VLT5) was a market
leader for over 5 years, however, with time, Danfoss Power Electronics A/S realized the
importance of research and developed and has been producing new models every three
years. Danfoss Power Electronics A/S changes its new models based on four key
dimensions (weight, mode of operations adaptability and user friendliness)
 Weight- The VLT® 5 frequency converter weighed 54 kg., whereas the
comparable
Model VLT® 3004 from 1993 weighs 14 kg.
 Mode of operations-The converters were originally analogue, but were digitalized
in 1989.
STRATEGY COMPETITION AND SUSTAINABILITY 8

 Adaptation and user friendliness-Digitalization has made the frequency

converters more user-friendly and they are now automatically adapted to the
motor.
 Scalability-The frequency converters have been developed from being
autonomous controllers to become part of a network of frequency converters in
which every converter communicates with the rest.
.

2.3 Current situation

Danfoss Power Electronics A/S has increased its production range to enable it exploit
its market niche buoyed by declining prices of all the electronic components.
Danfoss Power Electronics A/S has had a number of progresses and won a number of
awards. However, currently Danfoss Power Electronics A/S is focused on improving
their products user interface, digital communication, environment impact as well as their
sizes. Understanding the risks of different options (Also known as the Product/Market
Expansion Grid)

3. Ansoff matrix
Danfoss Power Electronics A/S has a number of options based on its current market
position. For one, it has acquired companies, and consolidated its market position;
however, it is still not a market leader. Danfoss Power Electronics A/S also has a
number of sales outlets in many countries globally, but only one central customer care
office. Additionally Danfoss Power Electronics A/S (division) is specializing in a narrow
range of product (frequency inverters) and has achieved a greater market share. Finally,
Danfoss Power Electronics A/S is enjoying a favorable macro and microeconomic
environment and has tried hard to exploit this market to the fullest.

3.1 Product development

The division knows that the market will not stay like this for ever, as there are a number
of companies that are already in the market and are enjoying market leadership in the
STRATEGY COMPETITION AND SUSTAINABILITY 9

line of products such as ABB and Siemens. To compete with this market both locally
and abroad, Danfoss Power Electronics A/S must develop a market strategy geared at
attaining the market leadership position, develop its market and finally consolidate this
market through constant market analysis, customer care, and repair and replacement
clinics in order to increase the switching cost and retain its customer base.

3.2 Market expansion

Danfoss Power Electronics A/S should also aim at increasing its market share by eating
into the competitor’s market share through aggressive sales and promotion, acquisition
and market development (Dunning, 1998, pp. 45-66).

3.3 Diversification

The best strategy for Danfoss Power Electronics A/S based on the above analysis is
either product extension and or limited diversification of its products. For example, in
this strategy, Danfoss Power Electronics A/S is supposed to modify its products as it
has always done and sell them to the existing customers thereby consolidating its
customer base based on reputation or modifying its current product and improving the
features of these products then offering them to the expanded market with caution, in
this way Danfoss Power Electronics A/S will not incur the risk of lack of market as new
markets are full of uncertainties.

Porter’s generic Strategies

STRATEGY COMPETITION AND SUSTAINABILITY 10

4. Strategy, organization and competitiveness

Rodrik, (2006), argues that while Danfoss Power Electronics A/S has been focusing on
continuous growth by launching new product, or improving its existing products every
four years, it is also important to note that Danfoss Power Electronics A/S has also been
expanding its operations in the last decade. This has increased Danfoss Power
Electronics A/S’s geographic market as well as Danfoss Power Electronics A/S
customer segments. Danfoss Power Electronics A/S persistent success can only be
attributed to:
1. Danfoss Power Electronics A/S ability to easily identify and develop strategies to
exploit any new market opportunity through innovative application and by
combining different assets.
2. Danfoss Power Electronics A/S also has the ability to build various new
technological capabilities that fit well together with other existing products.
3. Ability to provide latest commercial opportunities.
4. Sale economies.
5. Effective, efficient and high quality manufacturing.
6. Its concepts of design to manufacturability.

4.1 Spate of acquisition

The first acquisition of another company occurred in 1959, when Danfoss acquired a
large German manufacturer of compressors in order to strengthen Danfoss’ position on
the German Market. In 1974 Danfoss made its second acquisition when it bought a
Swedish company, which until then had manufactured products licensed from Danfoss
and distributed other Danfoss’ Products (Bedier, Vancauwenberghe, &, van Sintern,
2008, pp. 115-25; Blomstrom, &, Kokko, 1998, pp. 247-78).
STRATEGY COMPETITION AND SUSTAINABILITY 11

4.2 Acquisition

Danfoss Power Electronics A/S has always pursued acquisition as a strategy to

strengthen its market position and not to acquire a critical research and development
capability. Danfoss Power Electronics A/S’s strategy is to acquire these companies that
produce goods whose products can supplement its existing product line and can be
marketed through Danfoss Power Electronics A/S’s existing distribution network.

To drive up its continued growth, Danfoss Power Electronics A/S must also

1. Develop and recruit new managers

2. Remove the global trade barriers in countries where Danfoss Power Electronics
A/S has a very large market potential
3. Acquire more companies and form strategic alliance with the aim of lowering its
units cost and develop new improved products based on the current prototypes
4. Globalization and globalization of its operations in order to achieve an efficient
scale. However, it is imperative to note that this does not mean that Danfoss
Power Electronics A/S should stop considering the capabilities of research and
development strategically because the companies that shall be acquired shall be
having their research and development within their fields. it is also important to
note that even though good financial results is important, it is not necessary for
attracting high quality employees (Kokko, 1996, pp. 517-30; Porter, 1980).

4.3 Danfoss technology pyramid

Danfoss Power Electronics A/S’s technology pyramid is composed of a selection of

various technologies in which Danfoss Power Electronics A/S can claim world class
expertise or desires to create a world class expertise. Even though these technologies
are valuable to various divisions within Danfoss Power Electronics A/S in different ways,
It is imperative to note that Danfoss Power Electronics A/S’s VLT® frequency converter
values technology more because of the value proposition it has to Danfoss Power
Electronics A/S ’s customers. Danfoss Power Electronics A/S’s technology pyramid
STRATEGY COMPETITION AND SUSTAINABILITY 12

refers to continuous reflection of all the strategic prospects and the only tool for
promoting interdivisional coordination that is used to build integrated competencies
across various parts of the whole division. Danfoss Power Electronics A/S technology is
subject to regular analysis and changes regarding the prevailing technological
advancements in the market. Danfoss Power Electronics A/S places synergy at the top
of the pyramid as it reflects the overall ambitions of Danfoss Power Electronics A/S as
well as the common denominators in Danfoss Power Electronics A/S’s operations.
According to Porter, (1980), Danfoss Power Electronics A/S defines synergy as
“.... a net improvement in output, margins, or some other measure of performance that
can be reliably traced to structured, purposeful collaboration among different units or to
the merging of two or more units.”

Figure 3: Danfoss technology pyramid

Danfoss Power Electronics A/S used synergy to replace the original five key areas such
as management, total marketing management, management of technology, continuous
improvement and time based competition because they were never operationalised
clearly into active organizational programs. Below synergies is the key competencies or
capabilities in which Danfoss Power Electronics A/S seeks to achieve overall global
STRATEGY COMPETITION AND SUSTAINABILITY 13

leadership. Four of these are related primarily to product technology such as control
engineering, mechatronics, product development technology and man to machine
interface .the remaining two competencies are mainly related to process technology
such as methods and management philosophy geared at continues improvement such
as leans six sigma, gamba kaizen, and balance score card and also materials and
process such as SPC, CPC etc. Danfoss Power Electronics A/S key success driver is
design to productivity. It can design only one prototype and modify it to suit the
customer need, then manufacture a large volume based on the single prototype. In this
way Danfoss Power Electronics A/S also reduces waste in the production system and
limited process variations. The use of various process control measures such as
statistical process control is important to design to productivity (Harrigan, 1985, pp. 686-
97).

According to Jacobides, &, winter, (2005, pp. 395-413), the last key competency is the
business concept development. The aim of this strategy is to implement turnkey
solution to all the business process and turn all the key competencies into Danfoss
Power Electronics A/S’s core competencies. These core competencies are what
Danfoss defines as the only complex mesh of skills and knowledge that distinguishes its
products and services from the others produced by other competitors. Then company’s
ability to select, strategize to exploit as well as develop the appropriate core
competencies is what it considers as very crucial to the current and future
competitiveness of the whole company. It is therefore the goals of Danfoss Power
Electronics A/S to develop , maintain and modify its core competencies according to
the prevailing market conditions requires a lot of effort this makes Danfoss Power
Electronics A/S to define only a few of the competencies at a time (Barreyre, 1988),
STRATEGY COMPETITION AND SUSTAINABILITY 14

5 Value chain analysis

Figure 4: Value chain analysis

5.1 Inbound Logistics

The general cost leadership position the Danfoss is currently exhibiting in its lean
inbounds logistics function. However, Danfoss Power Electronics A/S is also operating
an agile function based on Danfoss Power Electronics A/S’s report. Danfoss Power
Electronics A/S has used its market leadership position and its robust economies of
scale as the main bargaining power to realize low cost supplies from its suppliers.
Power Electronics A/S also constantly upgrades its ordering system (VanHoek,
Harrison, &, Christopher, 2001). Power Electronics A/S has acquired a very powerful
ordering system from SAS for strategic purposes such as alignment with the increasing
demand for its products. Some of the key highlights of Power Electronics A/S’s inbound
logistics include improved vendor lists and improved in store processes that increase
the general effectiveness and efficiency of the firm’s logistics processes. The system
also helps Power Electronics A/S to market targeted improvement geared at meeting
the various market standards that Power Electronics A/S serves. This does not only
improve the effectiveness of Power Electronics A/S in its core areas, but also helps
realize the smooth integration of the key markets through the versatile integration layer.
STRATEGY COMPETITION AND SUSTAINABILITY 15

5.2 Operations Management

According to Vinodh, Sundararaj, &, Devadasan, (2009),

“Danfoss works on many different markets, which means that we are to
adjust to many different market standards. We are not always in a position
where we can dictate the technical set-up. So to ensure a flexible, efficient
and quick integration; it is necessary with an efficient and versatile
integration layer. To have SEEBURGER added to our integration layer has
meant a marked increase in our integration ability, “project manager
flemming Lunding, and integration & Development”
This means that Danfoss Power Electronics A/S’s operations management is greatly
hinged on integration of its system with the other system through an ERP. Danfoss
Power Electronics A/S optimizes its ERP system to streamline its operations. This has
not only helped Danfoss Power Electronics A/S to increase its profitability but also
helped in cost cutting by minimizing stock holding within the facilities. Danfoss Power
Electronics A/S operates under a kanban system in which just in time.Company has
global manufacturing facilities spread across three continents, and customers can
benefit from 40 years of experience within the development of converters. The company
has also aligned agile supply chain to realize a competitive advantage.

Figure 5:Agile supply chain to realize a competitive advantage

STRATEGY COMPETITION AND SUSTAINABILITY 16

Some of the main attributes of Power Electronics A/S’s lean supply are tabulated
bellow:

5.3 Outbound Logistics

Danfoss Power Electronics A/S uses a range of systems that includes Kanban, 5S,
Lean Manufacturing Supply Chain Management, and Implementation of AEO
certification. All these improve Danfoss Power Electronics A/S’s leanness in terms of
both in bound and out bound logistics. Danfoss Power Electronics A/S also uses
contract transport for all its outbound logistics thereby concentrating on its core areas of
competitiveness. Danfoss Power Electronics A/S is also using a lean system to reach
the critical masses. For example, Danfoss Power Electronics A/S has strategic stores in
a number of countries that are strategically placed to achieve good customer exposure.
This includes a number of segment specific product outlets and depots. The division
has supply chain, research and development centres in China, Denmark, United States
and Germany and a global network of sales offices offering customers high-quality
energy-efficient power electronics solutions.
STRATEGY COMPETITION AND SUSTAINABILITY 17

5.4 Marketing and Sales

The company offers solutions for generating, distributing and adjusting heat for optimum
indoor comfort and energy savings in residential heating all over the world through
anumber of sales agents and strategic sales companies (strategic business units) This
increases the cost of switching to Danfoss A/S competitors all over the world and they
have to invest up to the grassroots in order to serve this group of customers
The company also has a strategy for sustainability by embracing the green
manufacturing technologies as well as ensuring that their technologies are
environmentally friendly. Danfoss A/S’s manufacturing footprints is visible all over the
world thanks to its elaborate supply chain (Deng, 2009, pp. 74-84).

5.5 Services

Currently Danfoss Power Electronics A/S is pursuing a dual strategy in which

differentiation is implemented together will cost strategy. Danfoss Power Electronics A/S
is offering the highest discount on its products which are considered relatively cheap as
compared to the same products manufacturing by competitors such as ABB and
Siemens. This strategy has enabled Power Electronics A/S to encroach into the market
that was served by general electronic such as those customers in the North America.

6. The BCG Matrix

The BCG (named after the Boston Consulting Group) Matrix, is a strategy analysis
tool which helps to understand the different strategic contexts of different parts of a
business portfolio. That is, it recognizes that not all parts of the business are
strategically equal, and in so doing helps to facilitate more nuance strategic analysis.

Product Market share

Natural refrigerants 1%

Pressure-independant control valves 65%

STRATEGY COMPETITION AND SUSTAINABILITY 18

Electronic motor control 20%

Figure 6: The BCG Matrix

6.1 star

According to the BCG matrix above, it is quite open that the main source of revenue for
the division is the frequency converter products. For example, currently the only star
that Danfoss Power Electronics A/S has is the frequency converter. As it is the only
product that Power Electronics A/S has that is currently dominating the market. It is the
only product that has a larger market share and is currently undergoing a high market
growth.

6.2 Dog

To the BCG Danfoss Power Electronics A/S’s solar inverters product is a dog as it
commands a very low market share and low market growth.

6.3 Cash cow

Some frequency converters on the other hand are a cash cow as it commands a very
large market share but low market growth. Based on the above, the best
STRATEGY COMPETITION AND SUSTAINABILITY 19

recommendation for Danfoss Power Electronics A/S is to invest more in the frequency
converters as it has a very high growth potential. The product is favored by the
increasing uptake of the frequency converters by the current environmental interest and
regulation. The only product offered by Danfoss Power Electronics A/S that currently
holds a lot of potential is the frequency converters product. Solar Inverter is product
whose market is currently being dominated by a number of companies, in other
countries; Danfoss Power Electronics A/S is currently enjoying a field day in Europe, but
might soon lose it to its competitors unless proper strategies are in place apart from
market leadership. Danfoss Power Electronics A/S can implement radical measures that
increase its switching cost thereby locking in its customers. On the other hand,
electronic motor control still have a lot of potential, but Power Electronics A/S seems to
be impressed by the its current market share and performance that it is forgetting that
other companies are also looking for ways to increase their market share. A number of
small companies are coming up with vigor’s and might soon own the market share
currently commanded by the solar inverters (Charitou, &, Markides, 2003, pp. 54-63).

7. McKinsey and Co's 7S framework

Strategy, structure and systems are the hardware of success of any organization. On
the other hand, style, skill and staff form the software. Danfoss has both the software
and the hardware; therefore it is likely to be successful, competitive, reliable and
sustainable. The sustainability of Danfoss Power Electronics A/S relies on all the 7S.
This makes it very important for the management to determine how it is best to invest in
these elements. It is also important to note that those companies with very high level of
the soft skills are likely to be successful in implementing strategies because they know
how to manage all the elements of change (D’Aveni, &, Ilinitch, 1992, pp. 596-625).
STRATEGY COMPETITION AND SUSTAINABILITY 20

Figure 7: McKinsey and Co's 7S framework

7.1 Hardware

Danfoss Power Electronics A/S has a very clear strategy and their strategy is logical
and easy to understand as the connection of their strategy, their weaknesses and
strengths Power Electronics A/S’s target is also linked to its strategic intent, business
plans, environmental context and globalizations. This is a family business that has been
internationalized; therefore it still adheres to strong ethos, vigor and efforts to maintain
the market leadership position. On the other hand, the strategy is known by the staff of
Danfoss Power Electronics A/S. One of the factors that underlies Power Electronics
A/S’s success is its form of communication as strategy is communicated to everyone in
a manner they accords it the right amount of attention. It is also worth noting that
everyone is aligned to the organizations strategy from the top management to the lone
manager and their sales outlet spread across the globe. Most of the organization
strategies are for sustainability, reliability and competitiveness. It is therefore healthy to
say that the organization’s strategy is transformative because they form part of the
structural changes of the firm.
STRATEGY COMPETITION AND SUSTAINABILITY 21

7.2 Structure

Danfoss Power Electronics A/S’s structure constitutes committees, governance, depth,

breadth, collaboration, centralized structure that are optimal for efficient allocation of
capital and resources. Communication is hierarchical and decision making is
decentralized but authority comes from above. This gives people the freedom to make
decisions in their areas of expertise.

7.3 Systems

The decision making systems within the organization is based on manual policies,
procedures and artificial intelligence. This increases the precision of the most of the
decisions made. The level of rigor of systems within Danfoss Power Electronics A/S is
very rigid.

7.4 Style

The culture of the organization is not deeply embedded on strict rules, but decisions are
analyzed based on situations as long as it is within the best interest of the organization.

7.5 Staff

The method of sectioning Danfoss Power Electronics A/S’s staff is very strict and
rigorous, while the rewards scheme is excellent for achievers. Most of the employees
are empowered to think independently. Job enrichment is a very important factor within
the organization as Danfoss Power Electronics A/S can easily transfer employees from
one department to another

7.6 Shared values

While Danfoss Power Electronics A/S has a history of informal but centralized
managements in which Mads Clausen had to supervise all activities alone, the
involvement of the first consultancy firm has proven that forma; management with very
STRATEGY COMPETITION AND SUSTAINABILITY 22

separate responsibilities is the way to go. This is followed by the benefits of

divisionalization in the early 1971 as was recommended by the McKinsey & Company.
Strategic Themes
Increase Customer Achieve Operational Be a Good Corporate
Build the Franchise Value Excellence Citizen
Expand, Deepen or
Grow Existing Business Redefine Relationships Reduce Delay Public Trust

Create value Value-added Solutions Reduce Defects Safety

Expand into new
products and services Reduce Variation Environment
Expand into new
markets and customers Service Excellence Reduce Costs

Manage Suppliers

BALANCED SCORECARD DASHBOARD

FINANCIAL
Month YTD
Metric Description Month YTD
Target Target Yellow Target %
Average Sale Sales$ / #Sales $61 $61 $61 $61 90%
$43 $36 $43 $36 90%
CUSTOMER
Month YTD
Output Metric Description Month YTD
Target Target
61% 59% 61% 46% 90%
30 35 30 35 30%
PROCESS
Month YTD
Output Metric Description Month YTD
Target Target
Scrap 1% 2.0% 1% 2.0% 90%
13.0% 14.0% 13.0% 22.0% 110%
PEOPLE
Month YTD
Output Metric Description Month YTD
Target Target
2.5% 0.0% 2.5% 0.0% 90%
2.5% 0.0% 2.5% 0.0% 90%

Key:
Green: At or above target
Yellow: Missing target, but within sight
Red: Missing target by substantial margin
STRATEGY COMPETITION AND SUSTAINABILITY 23

8. Recommendations
Danfoss Power Electronics A/S can acquire companies outside Denmark in order to
increase its capacity to distribute its products and increase the level of credibility by
offering after sales service and inverter repair clinics, in this way, many more
consumers will be willing to purchase Danfoss products assured that the guarantees are
real. Also this will make Danfoss Power Electronics A/S less reliant on its current target
market.

Danfoss Power Electronics A/S can increase its sales force, by reorganizing its sales
subsidiaries onto a set of autonomous profit centers in this way Danfoss Power
Electronics A/S will increase its sales volume per employee by a 3-6%.

Danfoss Power Electronics A/S can also expand and create new products through high
degree of systematic acquisition. In this way reducing its time to market as new
products have a very long time to market while than cost of instructing new products is
comparably as high as then development cost. Therefore, expansion through
acquisition can provide Danfoss Power Electronics A/S with a faster way to place the
products into the market. This strategy is also less demanding as compared to others.

Danfoss Power Electronics A/S also needs to integrate higher sales synergy as
opposed to technological synergies; this will help Danfoss Power Electronics A/S focus
on its existing customers and thereby meeting their needs seamlessly.

Danfoss Power Electronics A/S also needs to be market leaders in order for it to exploit
the current trend towards closer interaction between the users and the producers that is
not currently the case in most of the countries it is servicing. Danfoss Power Electronics
A/S can only achieve this through a series of acquisition and the establishment of
several strategic business units. Once Danfoss Power Electronics A/S achieves the
position of a market leader, it can start increasing its profits through complete
exploitation of its leadership position. The comp can easily become any the market
leader in one product area ( just the frequency inverters) or in an area of related
STRATEGY COMPETITION AND SUSTAINABILITY 24

products due to its reputation effects than in many products that it does not have an
established business model and may take long to establish market leadership and
exploit (Caves, 1996).
STRATEGY COMPETITION AND SUSTAINABILITY 25

9. References

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MA.
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vertical
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Bedier, C., Vancauwenberghe, M. and van Sintern, W. (2008), “The growing role of
emerging
markets in aerospace”, The McKinsey Quarterly, No. 2, pp. 115-25.
Blomstrom, M. and Kokko, A. (1998), “Multinational corporations and spillovers”, Journal
of
Economic Surveys, Vol. 12 No. 3, pp. 247-78.
Caves, R.E. (1996), Multinational Enterprises and Economic Analysis, Cambridge
University
Press, Cambridge.
Charitou, C.D. and Markides, C.C. (2003), “Responses to disruptive strategic
innovation”, MIT
Sloan Management Review, Vol. 44 No. 2, pp. 54-63.
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Harrigan, K.R. (1985), “Exit barriers and vertical integration”, Academy of Management
Journal, Vol. 28 No. 3, pp. 686-97.
STRATEGY COMPETITION AND SUSTAINABILITY 26

Jacobides, M.G. and Winter, S.G. (2005), “The co-evolution of capabilities and
transaction costs: explaining the institutional structure of production”, Strategic
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via literature exploration. Industrial management and data system, 109: 4, pp. 570-588.
STRATEGY COMPETITION AND SUSTAINABILITY 27

Appendix A: Milestones
1997 - A new Sales Organization structure based on regionalisation is announced.
*New factories in Poland
and Ukraine. * Acquisitions: Danfoss Esco, Norway, and RICO Group, South Africa. *
Strategic alliance between
Danfoss Drives and Brook Hansen, Great Britain. * Danfoss Drives takes over 50% of
shares in EUROTEC,
Germany. * Danfoss Drives A/S gains the EMAS registration.
1996 - Danfoss issues its first environmental account. * Henry Petersen retires and is
succeeded by Jørgen M.
Clausen as President and CEO. * Danfoss Drives gains environmental certification (BS
7750). * Agreement on
European Information & Consulting Forum. * Acquisitions: Nielsen Hydraulic Services, ,
Australia; Pilmet
S.A. (hydraulics factory), Poland; Danvalve, Denmark, and OREG Group, France. *
Factory established in
Tianjin, China.
1995 - Acquisitions: Concordia Fluidtechnik, Stuttgart and Hausham, Germany; Trata,
Ljubljana, Slovenia;
W.F.Refrigeration & W.F.Airconditionining, Great Britain; Climatic, Turin, Italy; Graham
Company, Milwaukee,
Wisconsin; Danfoss Compressors, Monterrey, Mexico; Nordisk Marine Hydraulik,
Næstved, Denmark,
and Videk, Rochester, New York. * Textbook on Water Hydraulics. * Turnover: 11,000
mio DKK, number of
employees: 17,000.
1994 - Acquisitions: Sordella e Oleodinamica Italy, and Transventor AB, Sweden. *
Nessie Water Hydraulics.
* Factory established in Moscow, Russia.
STRATEGY COMPETITION AND SUSTAINABILITY 28

1993 - Danfoss Fluid Power is established with headquarters in Racine, Wisconsin and
factory in Easley, South
Carolina. * Production of evaporator thermostats in Slovenia (joint venture). *
Acquisition: MANEUROP,
Trevoux Cedex, France.
1992 - The Nordborg factories achieves a voluntary Total Environmental Approval.*
Step Systems is sold.*
Factory is established in Warsaw, Poland. * Acquisitions: SOCLA, Chalon-sur-Saône,
France, and Danfoss
Compressors, Crnomelj, Slovenia.
1991 - Acquisitions: Randall Electronics, Bedford, Great Britain; Webster, Racine,
Wisconsin, and Fluid
Power, Easley, South Carolina.
1990 - Acquisitions: EMC, Fort Myers, Florida, and Dukes Fluid Power, St. Charles ,
Illinois.
1989 - Acquisitions: Forêt Systems, Massachusetts Step Systems, and PROCOS’ EMS
Division (merged into
Danfoss System Controls, Herlev, Denmark).
1988 - Harald Agerley retires and is succeeded by Henry Petersen as President and
CEO.
1987 - The Flensburg Factory is announced Headquarters of the Compressor Division. *
Danfoss gains an Environmental
Award (Environmental Management & Administration)
1986 - Acquisitions: Werner Kuster AG, Switzerland and Russel Armstrong, Australia.
1985 - The turnover exceeds 5,000 mio.DKK
1984 - Acquisitions: Danfoss System Hydraulik, Næstved, Denmark, and Flowmetering
Instruments, Stonehouse,
Great Britain. * Wage conflict provokes a major strike
1983 - Andreas Jepsen retires and is succeeded as President & CEO by Harald
Agerley.
STRATEGY COMPETITION AND SUSTAINABILITY 29

1982 - Acquisition: Hampton Products Inc., Rockford, Illinois (now Danfoss Electronic
Drives).
1981 - Acquisition: ITHO bv., Schiedam, Netherlands (distributor since 1939).
1979 - Factory in Silkeborg, Denmark. * Acquisition: Dean & Wood Ltd., London, Great
Britain.
1977 - Acquisition: H. Søndergaard Hydraulik A/S, Ganløse, Denmark, (former
distributor).
1974 - Factory in Kolding, Denmark. * KAF in Mjölby, Sweden, becomes a subsidiary
(sales and production).
1971 - The "Bitten and Mads Clausen Foundation" is established. * The McKinsey Co.
introduces a new division-
based organisation with three product groups.
1970 - Two new factories in Denmark: Viby and Gråsten.
1969 - The Norwegian distributor becomes a sales subsidiary.
1968 - VLT Frequency Converters marks the breakthrough of electronics.
1966 - Mads Clausen dies at the age of 60. Danfoss Power Electronics A/S continues
with Andreas Jepsen as Managing Director
and Mrs. Bitten Clausen as Chairman of the Board.
1965 - Mads Clausen’s 60th birthday the subject of 160,000 column-mm, i.e. 46 pages,
in the national Danish
newspapers.
1961 - Liquidity crisis. Danfoss becomes a limited company.* Factories in Tinglev,
Denmark, and in Japan are
erected. * Licence on production of hydraulic components from Char-Lynn, USA.
1956 - The first factory outside Nordborg is erected in Flensburg, Germany.
1954 - Employee no. 2000, is engaged
1953 - At the same day employee no. 1,000 and no. 1,001 arrives.
1952 - A 5,000 m² permanent factory building is inaugurated. * Thermostatic radiator
valves are launched.
1951 - Licence production of household compressors begins.
STRATEGY COMPETITION AND SUSTAINABILITY 30

1950 - Mads Clausen’s USA study tour. * Distributors from 21 countries meet in
Nordborg for "The Danfoss
Convention".
1949 - The first foreign sales subsidiary is established: Danfoss Argentina in Buenos
Aires.
1946 - Danfoss Power Electronics A/S name is changed from "Dansk Køleautomatik &
Apparatfabrik" to "Danfoss".
1943 - "The Danfoss Journal" is published. * The product range comprises 37 types of
products. *179 employees.
1942 - In Mjölby, Sweden, Svend Hoffmann a friend of Mads Clausen establishes
Kontrol Automatik Fabrik AB (KAF), which manufactures Danfoss valves under license.
1939 - The first contract with a foreign distributor: Itho-Schiedam, the Netherlands.
1937 - RT types of thermostats and pressure controls are launched.* Result of an Audit:
Mads Clausen is assessedgood for a loan of DKK 10,000.
1935 - A second-hand lathe is installed, and during the year the first four employees are
hired. * A building of60 m² is erected.
1933 - Mads Clausen returns to his birthplace to start his own business. Product
concept: two automatic refrigerationvalves. First year sales: DKK 12,770.
STRATEGY COMPETITION AND SUSTAINABILITY 31

Appendix B. Danfoss companies

Figure 8:Danfoss companies

STRATEGY COMPETITION AND SUSTAINABILITY 32
STRATEGY COMPETITION AND SUSTAINABILITY 33