Group Assignment - Strategic Management

TomTom: New Competition Everywhere!

By

BPMN6023 / Strategic Management

Second Semester 2016/2017 Session DC162
Universiti Utara Malaysia (UUM)
March 2017
Strategic Management: TomTom: New Competition Everywhere!

Table of Contents
1 Factor Analysis Summary........................................................................................................3

1.1 External Factor Analysis Summary (EFAS).....................................................................3

1.1.1 Opportunities.............................................................................................................3

1.1.2 Threats.......................................................................................................................4

1.2 Internal Factor Analysis Summary (IFAS)........................................................................4

1.2.1 Corporate Structure....................................................................................................4

1.2.2 Corporate Culture......................................................................................................5

1.2.3 Corporate Resources..................................................................................................6

1.3 Summary of EFAS and IFAS............................................................................................9

1.3.1 EFAS..........................................................................................................................9

1.3.2 IFAS.........................................................................................................................10

1.4 Strategic Factor Analysis Summary (SFAS)...................................................................12

2 Strategic Alternatives and Recommended Strategy...............................................................15

2.1 Strategic Alternatives......................................................................................................15

2.2 Recommended Strategy..................................................................................................16

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Strategic Management: TomTom: New Competition Everywhere!

1 Factor Analysis Summary

1.1 External Factor Analysis Summary (EFAS)

1.1.1 Opportunities

There are several opportunities can be grabbed by TomTom as of following:

1. First Mover Advantage in Untapped Market especially Developing Countries

2. PDN Lobbying Group which reduce the Legal restriction on PDN usage especially

automotive industry
3. GREEN movement promotes the usability of navigational devices and portrays

technology as a smart and environmental safe tool

4. Strategic acquisitions of key players e.g. Tele Atlas reduce new competition

1.1.2 Threats

1. Intense competition from other competition e.g. Garmin which gained largest market

share in term of navigation device (45% compare 24% of Tom Tom market share)
2. New competition from substitutes products: Cell Phones and Smartphones
Nokia become potential key player in GPS Navigation Industry in mobile phone
3. Government Rules & Regulation Restrictions: Legislative Banning possibility of all

navigation devices from automobile

4. Satellites aging issue which support GPS system which will impact the navigation

performance
5. Maturing stage on US and European market in personal navigation device.
6. The current generation trend changes to have GPS in built in their smartphone
7. Increasing of PND thefts around the country cause the consumer scare to buy the

device

1.2 Internal Factor Analysis Summary (IFAS)

1.2.1 Corporate Structure

Below are some key facts of TomTom corporate structure:

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Strategic Management: TomTom: New Competition Everywhere!

HQ in Amsterdam with 4,700 employees and 57 offices in 35 countries worldwide

Since 2004 sold over 70 million PNDs
Real-time traffic information service is available in 50 countries
This includes Chile, Mexico, Greece, Hungary, Slovakia, Kuwait and Hong Kong, which

all launched in 2015 and Indonesia and Slovenia, which launched in early 2016.
Maps cover 113 countries reaching more than 3 billion people
Regional Covered: Europe, North America, and Rest of the World.

TomTom encompasses four business units as of following: Consumer, Automotive, Licensing &

Business Solutions. These four business units create a lean and agile structure enabling to stay

close to the customers and substantially. These four business units are result of streamlining and

integrating the organisation.

1.2.2 Corporate Culture

The key values of TomTom company: People first, entrepreneurial, accessible, not

standing still, trust and democratisation.

Emphasize on develop the employees competency with various development programs

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Strategic Management: TomTom: New Competition Everywhere!

Diversity: Over 4000 countries in 37 countries which allow the diversification of the

ideas coming into TomTom company. Around 75% of its employees work outside the

Netherlands.

1.2.3 Corporate Resources

1.2.3.1 Human Resource

Key: reliant on the strength of its people and culture through Entrepreneurialism which

allow for its people to make their own choices and thrive.
At the beginning of 2006, TomTom launched a new intranet platform that included

Yammer, an employee social sharing network, as well as a daily news feed to share

employee stories. The intention of the new platform was to build bridges between global

offices and share stories, ideas and projects.

Gender Balance: 29% Female and 71% Male.
Committed to the advancement and career development of its employees. One of the

policies is to first recruit from within the company, which supports 'Achieve More'

proposition.
Continuously improvement in HR Technology e.g. Workday 2017 launching for Brand

New Career Site.

In 2013 TomTom started a support community (or hub) for its employees to connect

with one another, solve problems, share best practices, and provide feedback.

1.2.3.2 Marketing

In 2016, the marketing campaign has shifted more towards Sports products to support the

growth in the Consumer category.

Focus on prominent brand image and diversifying into different market segments to

continue focus on brand name.

Partnership with Renault and Avis to increase existence in the market.
Various product range and price from low range to high range price.

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Strategic Management: TomTom: New Competition Everywhere!

Acquisition with Tele Atlas allows TomTom become trusted brand in the market and

strengthen its existence

Awarded for Customer Service Satisfaction in 2008 by J.D. Power and Associates.

1.2.3.3 Operations

Operational objective: to channel all resources and core capabilities to create economies

of scale

Supply chain and distribution model outsourced

Decreases CAPEX risks

Competitive advantage

Increases dependency

Increased dependency on network of the connected driving community for products

Cost Cutting Program to reduce operating expenses and strengthen the balance sheet e.g.

staff reduction, restructuring and integration of Tele Atals, reduced discretionary

spending, and reducing of number of contractors and marketing expenditures. This

decision might impact long term objective of being a market leader.

1.2.3.4 Research and Development (R&D)

TomTom invests a high proportion of its revenue in R&D, which covers all product

development, including our map releases, our mapmaking information systems, product-

related online services, device software, and hardware development projects.

In 2016, TomTom spent totalled to 283 million for R&D which increase of 6%

compared with 2015.

There are over 3,100 people working in R&D across 36 countries.
204 Patent in Grants 2016 with a total of 1,055 patents registered

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Strategic Management: TomTom: New Competition Everywhere!

Centralized the R&D to create Economy scale

1.2.3.5 Finance

TomTom objective to diversify and become a broader revenue-based company not only in

terms of geographical expansion but also in product and service offered.

A consistent growth in sales revenue from 2005 2007, but decline in 2008 where the

sales decreased by 3.7%.

Too much funding for Tele Atlas acquisition from both cash assets, release new shares

and debt. It cause long term debt was about 1,006 million.
TomTom experienced steep declines in the last quarter of 208 of 40% and 68%, the

reason might be the compounded effect of the following.

The number of device (PNDs) decreased by a similar amount during both time

periods
The average of selling price of PNDs has also been decreasing consistently.
Reduce operating expenses through: e.g. staff reduction, restructuring and integration of

Tele Atals, reduced discretionary spending, and reducing of number of contractors and

marketing expenditures.
In 2009, Revenue from largest market Europe and North America was on the decline with

a decrease of 22% and 52% respectively.

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Strategic Management: TomTom: New Competition Everywhere!

1.3 Summary of EFAS and IFAS

1.3.1 EFAS

Weight Rating Weighted Comments

Key External Factors Score
Opportunities
O Untapped Market Even though the US and Europe sales decrease, there are still a lot of
1 especially outside US and 0.15 2 0.3 untapped market outside these regions e.g. Asia, Africa, etc.
Europe
O Green Movement The increasing of Go Green awareness allows TomToms take advantage
2 Campaign 0.1 5 0.5 over this campaign where they use it as a marketing tool to promote their
products which portray as smart and environmental safe tool.
O PDN Lobbying Group Like Toys lobbying group, PDN Lobbying Group allows TomTom and
3 0.1 3 0.3 other companies to lobby the government to reduce the law restriction
which might threaten PDN industry.
O Key Players acquisition Strategic acquisitions of key players e.g. Tele Atlas reduce new
0.1 5 0.5
4 competition
Threats
T1 Intense Competition from Garmin has highest market share in PND area. This situation might
rivalry and substitute threaten the current market of TomTom. Besides, The capabilities of
0.15 3 0.45
products mobile phones to embed the GPS function into their product creating new
competition for TomTom
T2 Government Rules & There are some country which banned the PND installation in the vehicles
0.15 4 0.6
Regulation Restrictions e.g. Switzerland,Egypt used to ban GPS usage until 2009.

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Strategic Management: TomTom: New Competition Everywhere!

Weight Rating Weighted Comments

Key External Factors Score
T3 Maturing Stage on PND Declining of PND sales continuously alert TomTom that the product has
0.1 3 0.3
market reached Maturing Stage especially in US and Europe market.
T4 GPS in built on the Mobile The current trend changes where it demands to embed most of the
Phone application inside the mobile phones raising new competition for
0.15 3.5 0.525
TomTom. Nokia, Samsung, IPhone and most of other brand have
integrated this capabilities into their product.
Total Scores 1 3.475 Total Scores
1.3.2 IFAS

Weight Rating Weighted Comments

Key Internal Factors Score
Strengths
S1 Strong Corporate Culture TomTom has strong corporate culture where it does not only emphasize
on the profit but also its employee competency development and
0.05 5 0.25
employees successful. This allows the employees attach to the company
in the long term.
S2 Strong Brand Name/Image As TomTom has been in the market since 1990, it has successfully build
0.15 5 0.75
trusted brand image in PND market.
S3 Emphasize on R&D R&D is become the major focus for TomTom Product. It has various
0.1 3 0.3 different R&D team for each product which allow each product is based
on deep R&D before releasing to its customer.
S4 Outstanding Customer 0.1 4 0.4 In 2008, J.D. Power associates recognized TomTom for providing
Service outstanding customer service experience. This proof that TomTom always

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Strategic Management: TomTom: New Competition Everywhere!

Weight Rating Weighted Comments

Key Internal Factors Score
focus in its customer satisfaction
S5 Acquire several patents for By having these patents, the company protected itself against its
its many different 0.1 3 0.3 competition and other companies trying to enter the market.
technologies
Weaknesses
W Losing market share from As new competition raised from substitute product e.g. cell phone/mobile
0.15 3 0.45
1 core product i.e. PND phones, PNDs lose the market very significant.
W Marketing and R&D Cost TomTom reduce the operating expenses by Marketing an R&D Expenses
0.15 3 0.45
2 reduction which will impact the company image and product in the long term.
W Continuous loss in the As the core product has lost the market share by new competition, it
3 financial balance sheet for 0.05 2 0.1 impacts the balance sheet significantly where the sales declines steeply.
few years
W Lack of response from Current trend changes very fast especially in the mobile phones
4 current trend changes 0.1 2 0.2 technology. TomTom should not only focusing on its PND, but should
also look at on the other alternatives which can reduce the competition.
W Lack of B2C Approach on Previously, TomTom was more focusing on B2B advertisement. TomTom
5 its Marketing Campaign 0.05 3 0.15 discounted on the opportunity both to attract first-tier non customers and
glean an insight of needs of second-tier noncustomers.
Total Scores 1 3.35

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Strategic Management: TomTom: New Competition Everywhere!

1.4 Strategic Factor Analysis Summary (SFAS)

Strategic Factors Weight Rating Weighted Shor Interme Long Comments

Score t - Term
Term diate
O1 Market Development TomTom's acquisition of Tele Atlas provides the
necessary technological knowledge to expand to
0.15 2 0.3 international markets. Increasing international
revenues allows the company to invest in
developing countries.
O2 Promote Green Increased environmental concerns promote the
Campaign usability of navigational devices. The GREEN
Movement depicts navigational technology as a
0.1 5 0.5 smart and environmental safe tool. TomTom has
advantages on this where its product fulfill Go
Green criteria in term of usage and the material
used.
T1 Intense Competition Threated the TomToms current market share
from rivalry and 0.15 3 0.45
substitute products
T2 Government Rules & Restrict/reduce the opportunities of the market
Regulation 0.15 4 0.6 development for PNDs
Restrictions
S2 Strong Brand 0.15 5 0.75 As TomTom has been in the market since 1990, it

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Strategic Management: TomTom: New Competition Everywhere!

Strategic Factors Weight Rating Weighted Shor Interme Long Comments

Score t - Term
Term diate
Name/Image has successfully build trusted brand image in PND
market.
S3 Emphasize on R&D R&D is become the major focus for TomTom
Product. It has various different R&D team for
0.1 3 0.3
each product which allow each product is based on
deep R&D before releasing to its customer.
W Losing market share As new competition raised from substitute product
1 from core product i.e. 0.1 3 0.3 e.g. cell phone/mobile phones, PNDs lose the
PND market very significant.
W Lack of B2C Previously, TomTom was more focusing on B2B
5 Approach on its advertisement. TomTom discounted on the
Marketing Campaign 0.1 3 0.3 opportunity both to attract first-tier non customers
and glean an insight of needs of second-tier
noncustomers.
Total Scores 1 3.5

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Strategic Management: TomTom: New Competition Everywhere!

2 Strategic Alternatives and Recommended Strategy

2.1 Strategic Alternatives

Based on EFAS, IFAS, and SFAS analysis above, the current strategy that implemented by

TomTom is not very distinction as the score is only about 3.5 (The total weighted score for the

average firm in the industry is always 3.0). Some alternatives strategies might be considered for

TomTom, as of following:

1. Develop New Market Outside US and North America.

This strategy can be one of the alternatives to expand the market and gain more market

share outside current market e.g. Asia, Africa, etc. However, this strategy will take time

to implement as there will be some limitations on the new market in term of satellite

coverage, government rules and regulations, people culture, etc.

2. Focusing on R&D
R&D is heart of Technologys product development. TomTom must prioritize the R&D to

allow them to produce products which has higher value proposition compare its

competitors. The R&D will also allow TomTom to response to market changes faster.
3. Increase the B2C marketing campaign
As currently TomTom is more focusing on B2B approach, B2C might be one of the area

that need to be covered to gain more market share.

4. Increase Built-in Car Navigation Devices Strategic Alliances
As B2B also promises high market share, TomTom might consider to build strategic

partnership with automotive industry.

2.2 Recommended Strategy

Based on strategies proposed above, focusing R&D can be prioritized as highest priority. Strong

R&D allows company to penetrate into existing market and develop new market with new

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innovation which cater the current trend changes. Without good R&D, the products might be

obsolete in the current trend e.g. PND.

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