Bombardier Transportation

Agenda
Problem Statement Symptoms Analysis + Strategies
PESTEEL TOWS Recommendation GE Matrix Porters Five Forces BEAM

Implementation - TOPS Experts

McKinseys 7-S Framework Jick Vision Thing Orlikowski & Hofman Improvisation Spector Inspiring Change

3 Good, 3 Bad Action Plan Summary **

Problem Statement

What strategy will Bombardier implement in order to adapt to an ever-changing competitive environment, technological advancements in Railroad systems, changes to more eco-friendly consumer preferences and privatization within the industry.

Symptoms

1. Adapt to an ever-changing competitive environment

Issue A: The industrys customer-base is changing from Government contracts to privatized sales and financing. Issue B: The industry is changing its preferences from heavyweight cars to light-weight cars and products such as Propulsion Controls and Rail Stock.

Symptoms

2. Technological advancements in Railroad systems

Issue: Rail systems within Europe are changing from heavyweight to light-weight trains and are looking for more product lines that include Propulsions, Controls and Rail Stock.

Symptoms

3. Changes to more eco-friendly consumer preferences

Issue: Rail systems within the industry are looking for more green-efficiency from better fuel types, lighter-weight trains and eco-friendly processes.

Symptoms

4. Privatization within the Railway industry

Issue: Changes to overall financing has changed from Government spending to Commercialized spending. Bargaining power and Customers are changing as leasing is not through Governments but rather through private companies and banks.

Analysis
PESTEEL, TOWS, GE Matrix, PORTERS, BEAM

PESTEEL

Political/Legal
(O1) Tax on fuel heavily impacts demand for public transportation, therefore, an increase in taxation would lead an increase demand for rail transportation systems. (O2) EU transitioning to less pollution, congestion, traffic, and better energy conservation therefore increasing demand for rail transportation systems and encouraging greener technology. (T1) US government is reluctant to transition to an increase in public transportation therefore, reducing foreseeable demand for rolling stock. (T2) Rail transportation regulations differ from US to EU therefore, technology from the US is not transferrable and vice versa. (T3) Trend of privatization in EU would change prices, bargaining power, negotiating. (T4) Projects are allocated based on the lowest bidders.

Economic
(O3) Emerging Economies like India and China are rapidly improving their transportation infrastructure, therefore, increasing demand for rail transportation systems. (O4) Europe as one economy/market place would see an increased necessity for high speed trains. (O5) Increasing price of gas would reduce the use of private transportation, and would increase the demand for public transportation. (O6) Lower priced materials from emerging markets enable companies to source materials from emerging markets. (O7) Lower wages in emerging markets enable companies to outsource manufacturing activities which enable them to focus on core competencies.

Social Demographic
(O8) Increased use of rail systems preferred by Europeans due to government promotion, therefore, increasing demand for rolling stock. (O9) Increased urbanization in Europe and in emerging economies, such as China and India, increase demand for rail systems. (O10) An increase in greening throughout Europe means that technology will have to be developed to reduce energy use and emissions. (T5) Low percentage of Americans are willing to take public transportation systems due to several factors slowing the growth of the US rail industry

Technological
(O11) Asian and South American countries are willing to adopt and trust technology from EU therefore, allowing makers of EU stock to be able to penetrate the Asian and South American market. (O12)Increased demand for high speed trains would create a new market for Bombardier. (T6) US rail stock technology is not easily transferred to Asia and South America, and the EU, therefore not widely adopted anywhere else.

Environment
(O13) Global initiative to reduce pollution is putting increased emphasis on public transportation and more efficient systems, which is encouraging governments to improve their current rail systems. (O14) Governments are looking for more ecofriendly processes and efficiencies throughout rail systems.

(T7) Global initiative to reduce pollution is putting increased emphasis on public transportation and more efficient systems could make Bombardiers current technology obsolete.

Strategies + Recommendation
TOWS

TOWS
STRENGTHS:
(S1) Acquisitions in different countries allow greater geographical range for projects and distribution (S2) Experienced in the process of acquisitions (S3) Expertise in product costing and tendering and product assembly (S4) Expertise in Just-in-time deliveries (Relationship with suppliers) (S5) Strong employee support due to perceived job protection Ability to motivate employees and attract top talent (S6) Ability to collaborate across different functions of the company-transfer of best practices (S7) Expertise in cost control systems (S8) Ability to achieve economies of scale due to merger (S9) Reputation as a quality and efficient company (S10) Major market share in Europe (S11) Expertise in light weight rail cars, highspeed, propulsion systems, and electrical locomotives

WEAKNESSES:
(W1) Aerospace, which is the companys most profitable unit, is becoming more susceptible to cyclical risk. (W2) The merger with Adtranz will cause friction within the organization, structure and culture. (W3) Adtranz have low reputation and quality associated with products. (W4) BBT are not the costleader in an industry where lowest bid obtains the project. (W5) Limited presence in emerging economies.

TOWS
OPPORTUNITIES:
(O3) Emerging Economies like India and China are rapidly improving their transportation infrastructure, therefore, increasing demand for rail transportation systems. (O6) Lower priced materials from emerging markets enable companies to source materials from emerging markets. (O7) Lower wages in emerging markets enable companies to outsource manufacturing activities which enable them to focus on core competencies. (O8) Increased use of rail systems preferred by Europeans due to government promotion, therefore, increasing demand for rolling stock. (O9) Increased urbanization in Europe and in emerging economies, such as China and India, increase demand for rail systems. (O14) Governments are looking for more eco-friendly processes and efficiencies throughout rail systems.

THREATS:
(T3) Trend of privatization in EU would change prices, bargaining power, negotiating. (T4) Projects are allocated based on the lowest bidders. (T7) Global initiative to reduce pollution is putting increased emphasis on public transportation and more efficient systems could make Bombardiers current technology outdated.

SO Strategies
1) Differentiate through the development of light-weight trains and integration of hybrid fuel solutions or energy efficiency for all train systems. (O2)(O8)(O10)(O12)(S11) 2) Differentiate by adapting EU technology to create a greater presence in the Asian and South American markets. (O3)(O9)(O11)(S1) 3) Differentiate by producing the most reliable and energy efficient rail cars in the industry through the hiring of top talent. (O2)(O8)(O10)(O12)(S5)(S9)

ST Strategies
1) Differentiate by creating a one-stop shop for all rail road needs.

Allows to provide customers with discounts

Allows to provide customers with separate rail elements that would be tailor made with each other. Would lower the cost of transaction for customers.

(T5)(S11)
2) To be the cost-leader in rail transportation by creating economies of scale, sourcing raw materials from emerging economies, and outsourcing non-core functions. (T4)(S3)(S7)(S8)(S10) 3) To be the cost-leader in rail transportation by attracting and employing top engineers in the industry whose expertise is to develop low cost manufacturing processes. (T4)(S5)

WT Strategies
1) Differentiate through the acquisition of firms in South America and Asia while allocating resources from North America to these new emerging economies. This in turn will create economies of scale and cost reductions. (T1)(T2)(T5)(T6)(W5)

Strategies & Recommendation

Changing Competitive Environment SO1
Tech Advancements

EcoFriendly

Privatization

ST2: To be the cost-leader in rail transportation by creating economies of scale, sourcing raw SO2 materials from emerging economies, and outsourcing non-core functions.
SO3 ST1 ST2 WT1

GE Matrix

3 Key Attractive Areas

1. Light-Weight and Cheaper Train Cars

2. Rolling Stock 3. Propulsions and Controls

Our strategy allows for investment in cheaper and lightweight train cars which will decrease costs for consumers and increase our economies of scale.

GE Matrix Our Strengths (BT)

High Medium Low

High

Light-Weight Train Cars

Market Attractiveness

Fixed Installations

Propulsions & Controls

Medium

Rolling Stock
Heavy-Weight Train Cars Rail Control Systems

Low

Business Unit Strength

GE Matrix Industry Attractiveness

High Medium Low

High

Light-Weight Train Cars Propulsions & Controls Rolling Stock

Market Attractiveness

Medium

Rail Control Systems

Low

Business Unit Strength

Porters Five Forces

Threat of New Entrants

Economies of scale Proprietary; product differences Brand identity 1 3 1 Our strategy of becoming the lowest-cost for all contracts will reduce the threat of a new entrants because this is a cost driven industry Absolute cost advantage and low-cost product design both decrease cost for consumers and increase economies of scale.

Switching costs
Capital requirements Access to distribution Absolute cost advantage Proprietary learning curve Access to necessary inputs Propriety low-cost product design

1
5 4 5 5 5 5

Government policy

Supplier Power
Differentiation of inputs Switching costs of suppliers and firms in the industry 4 3 Becoming lowest-cost strategy will reduce the supplier power because it reduces the threat of forward integration of suppliers and allows for BBD to become the lowest-cost option for contracts.

Presence of substitute inputs 4 or suppliers Importance of volume to supplier 1

Cost relative to total purchases in the industry

Impact of inputs on cost or differentiation Threat of forward integration relative to threat of backward integration by firms in the industry

3
3 5

Competitive Rivalry
Stage of industry growth 3

Fixed (or storage) costs/value added

Intermittent overcapacity and fixed costs of capacity Product/service differences or differentiation Brand identity and reputation Costs of switching brands to the customer Number of competitors and quality of competitive advantages Difficulty of knowing about competitors Diversity of competitors Corporate risk and stakes Exit barriers

4
3 3 1 1 4

The lowest-cost strategy will increase the switching cost of customers It provide competitive advantage for BBD due to lower fixed costs and lower costs for the consumer

4 4 2 3

Bargaining Power of Buyer

Buyer concentration versus firm concentration Buyer volume 4 2

Buyer switching costs relative to firm switching costs

Buyer information Ability to backward integrate Substitute products Pull through marketing

1
1 1 5 1

BBDs buyers are changing due to privatization, so buyers are becoming more price sensitive Becoming lowest bidder will align the buyers concentration with firms concentration and increase buyers switching cost, total purchase, and buyers profit.

Price/total purchases
Product differences Brand identity Impact on quality/performance Buyer profits Decision makers incentives

4
2 1 3 1 1

Substitution Threat
Relative price vs performance of substitutes Switching cost 4

Our strategy of lowest-cost provides better price vs any substitute.

BEAM

BEAM
Government Forces

Trends In
Political Sensitivity Economic and Trade Policy Regulation of Structure and Conduct Industry Support Role as Buyer* 2 4 2 4 4

In the future there will be increased Government spending on public railways due to current trend of urbanization and eco-friendly solutions.

The UK was the first the privatize rail transportation and western Europe is starting to transition from government run to private
The lowest-cost strategy takes advantage of the growing market for low cost trains that is the basis of bidding success.

BEAM
Demand Forces Trends In Market Growth* Buyer Preferences* Buyer Bargaining Power Switching Costs 5 4.5 4 4

Buyer Preferences (4)

European Union standards are widely embraced by governments and customers throughout the world in emerging economies such as China and India.
Puts BT is an advantageous position when expanding outside of Europe with a low price strategy

Market Growth (5)

An overall green movement shift and strong government support, signals long-term growth in the demand for rail transportation in Europe

The lowest cost strategy will capture market share in this growing market.

BEAM
Supply Forces Trends In Product* Processes Technology Supplier Bargaining Power Availability of People and Capital 3 4 4 3 4

Product (3)
Our strategy allows for mass ordering to give discounts to consumers and create economies of scale
Our bidding strategy aligns our prices with our quality giving customers a low cost solution

BEAM
Competitive Forces Trends In Competitive Nature Size of Competition* Industry Profit Models* Ease of Entry Restructuring Potential 4 5 2 4 2

Size of Competition (5)

Three primary Competitors: Alstom (France), Siemens (Germany), and Adtranz.
The low price strategy sets Bombardier apart from its competition, Alstom and Siemens who have higher quality products and prices

Implementation
TOPS

Technology
Concerns R&D Current - Customers are becoming more environment al friendly Required
Developing more efficient,
Environmental

Gap Having an dedicated R&D Department

Tactics
T1) Combining the expertise of BBD and Adtranz T2)Getting government and universities on board to lowering cost of R&D T3)Develop a disruptive technology to lower costs

- Fuel cost increasing

friendly trains allows for costefficiency

Technology
Concerns Operation Current Adtranz loses profit from late delivery, and poor reliability Required
Have an effective project management system to ensure ontime delivery and reliability to reduce associated costs

Gap
- Lack of effective project management process - Lack of effective quality control system

Tactics
T4)Develop a project management training program to improve efficiency and lower costs

T5)Expand BBDs quality control system to Adtranz and create economies of scales

Technology
Concerns Marketing Current BT has good reputation, but not Adtranz Required Increase Adtranz reputation to that of BT. Gap Current perception of Adtranz quality and efficiency Tactics
T6) Publicize the merger through media involvement while promoting the transfer of efficiencies.

Technology
Concerns Procurement Current Supply of raw materials need to be cheaper Required Lowest cost of raw materials Gap Identification of low cost suppliers in emerging economies Tactics
T7) To create a procurement process and criteria that would allow to identify the best supplier for the cost-leadership strategy.

Organization
Concerns Structure Current BT and Adtranz have two completely different corporate structures Required
Restructure Adtranz to complement BT and create economies of scale

Gap Find smoothest way of adaptation to reduce cost

Tactics
O1)Match the structures in order to reduce barrier and increase flow of information

O2) Lay-off overlapped staff within non-core functions to lower admin costs

Organization
Concerns Current Culture Culture that is not striving for cost efficiency. Required To have a culture that strives for cost efficiency. Gap The transition to the new strategy needs to be implement ed. Tactics
O3)Invite Adtranz management to North America for training in achieving economies of scale O4)Design training program for employees to strive for more productivity and thus lower costs

People
Concerns Shareholder Current Low margin industry Required Increase earnings Gap Increase profits by lowering costs Tactics P1)Reduce costs by achieving economies of scale

People
Concerns Customer Current Privatization Required Become lowest bidder Gap - Decrease cost - Increase quality Tactics
P2)Adapt Kaizen P3)Use lean manufacturing tools P4)Work towards standardization of parts in order to achieve economies of scale

People
Concerns
Environmental activism

Current Increasing role of sustainability plays a greater role on people and government decisions

Required

Gap

Tactics
P5)Seek other organizations like universities and government help

To develop Need greener and advanced cheaper rail technology systems. Need finance

Experts
McKinsey, Jick, Orlikowski & Hofman and Spector

McKinseys 7-S Framework

Determining how best to realign an organization to a new strategy or other organization design Examining the current workings and relations an organization exhibits

Organizational alignment or performance improvement Understanding the core and most influential factors in an organizations strategy

Structure

Strategy
Superordinate Goal Skills

Systems

Style

Staff

7-S Framework Hard Ss

1. Strategy
Become cost-leader in rail transportation and create economies of scale through acquisition of Adtranz, sourcing of raw materials and outsourcing non-core functions.

2. Structure
Create a unified organizational structure that allows Adtranz to integrate with Bombardier Transportations SBUs, along with creating new SBUs to oversee Adtranz expertise in Rail Stock.

3. Systems
Create a central hub which allows information systems to pass through for the entire spectrum of SBUs. This allows for centralized R&D and support for all SBUs in one area much like any other Global structural design.

7-S Framework Soft Ss

4. Skills:
Employees have expert knowledge in the manufacturing of traincar systems now with an emphasis on light-weight train cars compared to heavy-weight train cars.

5. Staff:
Staff will not need to be recruited at BBD with all SBUs remaining in tact. However the Adtranz merger may lead to layoffs if overlap is perceived.

6. Style:
Management Preferences are to outsource non-core functions and to create a smooth merger (time abiding) to create synergy between the two companies.

7. Shared Values:
The Evolution of Mobility is our brand promise. A promise to everyone. We take the lead, and we deliver.

Jick The Vision Thing

What is a vision? An attempt to articulate what a desired future for a company would look like. True value of a vision is to guide behaviours Vision statements usually have 4 elements
1. 2. 3. 4. Customer orientation Employee focus Organizational competencies Standards of excellence

Visions are created most typically by:

CEO/leader CEO-senior team Bottom-up developed

Jick The Vision Thing

Vision: The evolution of mobility. A promise to everyone. Mission: To become the low price producer of rail equipment by achieving greater economies of scale, implementing Kaizen and SAP software, outsourcing materials and key functions. Implementing the vision will be the CEO/leader, using the top down approach
Vision

Goal:

1. Become the low price producer of rail equipment

Goal

Rail Stock

Product Market Focus

Competitive Premise

Low cost

Orlikowski & Hofman An improvisation model for change

Recognize two ways to navigate the sea
1. 2. European approach
Navigator begins with a plan, his efforts are to remain on course Must first alter the plan, then respond accordingly

Trukese approach
Begins with an objective rather than a plan, responds to conditions as they arise Utilizes information provided from the wind, tides, current

Three different types of change 1. Anticipated Change 2. Emergent Change 3. Opportunity based Change
Opportunity-Based Change Anticipated Change Emergent Change

Opportunity-Based Change
Emergent Change

Anticipated Change

Orlikowski & Hofman

Enabling Conditions

1.Aligning key dimensions of the change process

2.Dedicating resources to provide on going support
Change Dimensions

Change Model

Organization

Technology

Orlikowski & Hofman Improvisational model for change

OT2) Hire expertise to manage SAP (at least one senior employee) OT1) Implementation of SAP (ERP system)

Opportunity-Based Change
Emergent Change and Screening Mechanisms

OT3) Roll out to all business units Ineffective use of delivered SAP functionality due to lack of knowledge

Change Model
SAP (improve supplier relations, improve outsourcing efficiencies, that will lowers costs) Technology

Lower costs in rail business unit Organization

In align

Inspiring Organizational Change: Diffusing Dissatisfaction

Massive organizational change is inevitable given the volatile nature of our competitive environment Adaptive flexible organizations will enjoy a distinct competitive advantage over rigid, static ones. How to inspire organizational change? Dissatisfied leader vs. Diffusing Dissatisfaction

Spector

Spector Strategies for Diffusing Dissatisfaction

1) Sharing competitive information

SP1: Share financial information to a specific function within BT. For example, if lowest cost is not being attained, show employees quantitative information regarding the wastes incurred in production.
2) Pointing to shortcomings in individuals, on-the-job behaviors

SP2: Conduct surveys regarding performance of managers.

3) Offering models that identify goals and how far they are from it

SP3: Compare cost-efficiencies between two different plants within BT. The lesser plant will most likely react by striving for better cost efficiencies.
4) Mandating Dissatisfaction

SP4: Threat
Investments will only occur in plants that are innovative towards cost reduction and those that are not will receive minimal investment

Cases
Three Good, Three Bad

Three Good
1. Yinscape and Yangsearch have the largest market share in the industry when the acquisition completes. TB1: Bombardier will acquire Adtranz to provide propulsion and control systems that Bombardier was originally weak in and provide economies of scale to lower overall costs. 2. Motorola developed the Participative Management Program (PMP) as a means to enhance productivity and employee involvement in the firm. TB2: Bombardier will implement ERP software to increase efficiencies across the supply chain to lower costs. 3. Continental White Cap was too fat and terminating non essential jobs would cut costs to stay competitive in the global economy. TB3: Bombardier will cut jobs in Adtranz that overlap with Bombardier to lower costs

Three Bad
1) Reactive approach to effects brought by natural changes to organization structure during period of growth. (Motorola)

TB1: Due to the increased competency and resources brought about by the merger a period of growth will be expected for BT. BT senior managers must monitor changes in in the structure and ensure that different functions within BT stay aligned, and guided towards its strategy.
2) Do not acquire/merge with a company with a completely different structure and culture because the chances of success is significantly lowered. (Yingscape and Yangsearch) TB2: Evaluate merging companys corporate structure and culture thoroughly prior to decision. 3) Lack of changes to structure and culture during a change in the competitive environment. (Browning) TB3: To continually evaluate changes in the competitive industry, and adjust the company structure and influence in the culture accordingly.

Action Plan
ST2 Strategy

6 Months, 1 Year, Benchmark steps

Step 1: Integration 1-6 months

Urgency: Anticipatory BT will begin the transition period to slowly integrate Adtranz into its structure and culture. Tactics:
T4)Develop a project management training program to improve efficiency and lower costs. O1)Match the structures in order to reduce barrier and increase flow if information O3)Invite Adtranz management to North America for training in achieving economies of scale TB1): Managers must monitor changes in the structure and ensure that different functions within BT stay aligned, and guided towards its strategy during this period of growth.

Step 2:Integrate Best Practices 6-12 months

Urgency: Anticipatory BT will integrate practices that will lead to a cost-leadership position within the industry. Tactics:
T3)Develop a disruptive technology to lower costs T7) To create a procurement process and criteria that would allow to identify the best supplier P1)Reduce costs by achieving economies of scale through standardization of parts P2)Adapt Kaizen P3)Use lean manufacturing tools T2)Getting government and universities on board to lowering cost of R&D O+H2) SAP (improve supplier relations, improve outsourcing efficiencies and lower costs )

Step 3: Benchmark End of Year

Urgency: Reactive 1. Review end-of-year revenues to continue profitability 2. Bombardier should not fall into the red with the merger and should see continued profits even with the purchase of Adtranz

3. Compare Balance Sheet compared to the industry and past performances and analyze strategy to maintain competitiveness.
4. Benchmark each SBUs performance to their percentage of total revenue.

Summary
Symptoms:
1. Adapt to an everchanging competitive environment 2. Technological advancements in Railroad systems 3. Changes to more ecofriendly consumer preferences 4. Privatization within the Railway industry

Our Strategy:
ST2: To be the cost-leader in rail transportation by creating economies of scale, sourcing raw materials from emerging economies, and outsourcing non-core functions.

Questions ?