Analysis of External Environment of Ducati (Answer of Q.

2) In classical strategy literature, competitive advantage of a company is generally attributed to the managements ability to position the companys assets against some external context (Mintzberg et al, 2005 & Juga, 1999). This external context is referred (Porter, 2004) as external environment for a particular company. According to Johnson et al (2008:54), the environment is what gives organisations their means of survival. So, it is important to a great extent that most of companies be aware of the environment in which they are operating. In Authors view, Ducati was aware to a certain extent what is the external environment surrounding it. This answer will attempt to analyse the external environment as it appears to author from the analysis of case study (Wit & Meyer, 2004:854). This answer will look first macro environment of Ducati using PESTEL framework, then Industrial environment, and after that Competitors and Markets (Johnson et al, 2008) mainly using Porters five forces model (Porter, 2004:6). Macro environment of Ducati Macro is remote environment of a company comprising economic, social, political, technological and ecological factors (Pearce & Robinson, 2005). One way of looking at remote environment is PESTEL framework (Johnson et al, 2008).

Political
Not clear from the case but most of countries like USA, UK, Japan, Italy, France, Germany is quite stable and company mainly operated in developed countries.

Economic
Not comes explicitly from the case but most of the economies that company was mainly operating in low growth mature markets and

open economies.

Legal Free markets, not much restriction from the governments except safety standards (In authors view)

Technological
Fuel efficient and high performance engines Improvement in Paint, Trim, Chrome, Exhaust pipe shaping (Wit & Meyer, 2004:857). Electronic Components CAD & CNC

Environmental Not explicit in the case Green issues (in authors view)

Social
Women becoming oriented towards biking Different tastes and lifestyle , and changing at faster rate

Industrial Environment PESTEL analysis helps a company analyse remote environment but more important is the immediate environment of the company or industry in which the company is operating in (Johnson et al, 2008). Five forces framework is one of tools to analyse the immediate environment of a company. According to Porter (2004:7), The five forces framework allows a firm to see through the complexity and pinpoint those factors that are critical to competition in its industry, as well as to identify those strategic innovations that would most improve the industrys and its own profitability.

Applying five forces framework to Ducati

Threat of New Entrants Number of motorcycles manufactures decreasing (pg. 858) Threat not significant as already many established players in the market and required a significant initial network, resources and investment

Suppliers Majority supplier belongs to Emilian District (pp.866) Two sources available for each part and alternative available (pp. 867) Mostly short term contracts except few long term suppliers of strategic importance (867)
Industry Competitors :Harley, BMW, Honda, Yamaha, Suzuki, Kawasaki Handful of players but all quite well established and all vying for customers based on their capabilities Strong brand identity for Harley models Agreement between Honda and Yamaha about parts transport AgA

Buyers Wide variety of individuals with equally different tastes and reasons for buying (pg. 856). Knee down, Fast, Urban, Weekend, Highway, Easy and Undecided riders. Each buyer differed by age, income, education, gender Women new customer base

BB

Substitutes In sports sub segment Naked, Harley Buell model was a threat. BMW also competed in sport sub segment Naked (pg. 859) Japanese companies Honda, Kawasaki, Suzuki, and Yamaha had substitutable products (figure 3, pg. 859)

Assessing the extent to which Strategy of Ducati was market driven: Approach of this school of strategy (Mintzberg et al, 2005) is analysis of external environmental and using this analysis as the main reference framework for strategy development. It is a very much a step by step approach (Porter, 2004). Strategy development is primarily seen as seeking attractive opportunities in the market (Johnson et al, 2008) According to Porter (2004:231), Crucial strategic questions facing a firm are where in an industry a firm competes and in what segments will focus strategies be sustainable. In authors view to a certain extent Ducati adopted this philosophy when it tried to position itself in the motorcycle industry during the turnaround period from 1996 to 2001 and further, to what extent it can be said that strategy of Ducati was Market Driven. According to Porter (2004:233),an industry is an array of similar or closely related products and Buyers. Ducati did not try to go beyond motorcycle, related accessories and services as it comes out from the case. It seemed to have followed porters definition (2004) what an industry is and identified which industry it operates in. Ducati appears to have focused its attention under the leadership of Minoli on differences in customer needs i.e. market segmentation (Porter,2004; Wit & Meyer, 2004; Johnson et al, 2008) as depicted in the figure 2, map of market (Wit & Meyer, 2004:857). It appears that Ducati identified Users needs and preferences for product characteristics (Johnson et al, 2008:77). Ducati identified customers as knee down riders, fast riders, urban riders, weekend cruisers, highway lovers, easy riders and undecided bikers. Ducati saw these customers as strategic customers (Johnson et al, 2008:78) and differentiated these different users based on four broad categories i.e. Function, Life Style, Performance and Comfort. After industry segmentation, Porter (2004:255) mentions that next question for companies are where in the industry a firm should compete and how its strategy should reflect in this segment. With a good understanding of industry and market Ducati is operating in, Minoli and his team tried to identify unique features of Ducati. As Porter (2004:257) puts it, A firms resources and skills, reflected in its value chain, will usually be better suited to some segments than others, influencing the attractiveness of a segment for a particular firm. It was ascertained that Ducati has a good product, its products were unique, beautiful and performance bikes though less efficient and reliable than Japanese bikes (Wit & Meyer, 2004:857). Based on industry and market analysis and after that looking at firms resources and skills, a competitive scope i.e. a broader conception of the scope of firms activities encompassing industry segment coverage, integration, geographic markets served and co-ordinated competition in related industries (Porter, 2004:53) was decided by strategists at Ducati. Though case study does not mention that Value-chain tool (Porter, 2004:36) was used at Ducati but in authors view it appears from the case that Minoli was quite aware of collection of activities that was being performed at Ducati to deliver the final product to its customers. Competitive Scope has four dimensions namely Segment, Vertical, Geographical and Industry (Porter, 2004:54). Ducati decided mainly to produced Sports bikes and serve the knee down, fast and urban bikers. In authors view, this is what Porter (2004:14) refers to Differentiation generic strategy. Ducati and its competitors position in the market can be represented on the following diagram.

Differentiation and Positioning strategy of Ducati Performance Urban Riders

Knee down Riders Riders Ducati Fast Riders

Japanese Companies Function High way lovers Easy Riders Harley Comfort Davidson Life Style

Source: Adapted from Figure 2 (Wit & Meyer, 2004:857) and Figure 3 (Wit & Meyer, 2004:859). (This diagram does not represent any scale but only the positioning of Ducati, Harley Davidson and Japanese Motorcycle companies.) It also appears from the case that Ducati was aware of its environment and Minoli and his team did value chain analysis to understand where in the companies lie value and try to match that value in a particular market segment. Based on the above analysis from the perspective of market driven strategy, author will attempt to answer to what extent the strategy of Ducati turnaround was market driven. But, before that, author will look into role of capabilities played in the growth of Ducati and consider the extent to which Ducatis strategy was resource driven. Role of capabilities played in the growth of Ducati and analysing the extent to which the strategy of Ducati is Resource Driven (Answer Q. 1) According to Barney (1991) analysis of the impact of a firms environment on its competitive position or market driven strategy is based on two assumptions. First, firms within an industry or a strategic group are identical in terms of strategic relevant sources they control and the strategies they pursue. Second, these models assume that should resources heterogeneity develop in an industry or group will be very short lived because the resources that firms use to implement their strategies are highly mobile i.e. they can be bought or sold in factor markets (Barney, 1991). However, in resource based view, it is suggested that organisations are not identical and at least some resources and

capabilities of an organisation are inimitable by other organisations (Johnson et al, 2008:94 & Barney, 1991). For the analysis of the case and answering of this question, author would consider the Daft (1983) definition of firm resources. According to Daft (1983), firm resources include all assets, capabilities, organisational processes, firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to conceive of and implement strategies that improve its efficiency and effectiveness. As it appears from the case, Minoli and his team put a significant emphasis on identifying unique resources that have potential attributes for sustainable competitive advantage. Top management identified resources and culture of Ducati that was difficult for competitors to imitate. Resources, culture, methods used to diagnosis of resources and how knowledge, culture was managed can be summarised in following matrix.

Resources and competencies Identified

Desmodromic Distribution System L-Twin Engine Tubular Trestle Frame Unique Sound Beautiful, sophisticated powerful bikes Culture supporting sports bike attributes In explicit and implicit knowledge

Culture
Passion for Races Unique Beautiful Performance Bikes,Stress on Asthetics Top Notch Engineering Purists Passion for speed, performance, innovation

Resources of Ducati
Diagnosis of Resources
Bench Marking Harley Davidson Business and Model of distribution and value chain analysis Mapping various activites and value delivered

Managing Knowledge, building culture and building competencies

Museum building Ducati Stores, 'History Wall' (pp. 867) Coordination among R&D, Product development, Racing division and Marketing department Ducati Owners club, Events, Ducati.com

Source: Adapted from the case study

The core of Ducatis branding strategy was soon crystallized into what was dubbed as the world of Ducati. (Wit & Meyer, 2004:863). In authors view, this was to a certain extent an attempt to harness organisations knowledge lying at different co-ordinates of Ducati. The world of Ducati and various steps taken by management team at Ducati can be identified with knowledge building using the knowledge spiral model (Nonaka and Takeuchi, 1995:71). Spiral in the model suggests that four modes of knowledge creation are interrelated and movement from one mode to another is happening continuously (Mintzberg et al, 2005:211).

Tacit knowledge

to

explicit knowledge

Dialogue Externalization (converts implicit to explicit)(Ducati owners club, close coordination of various departments)

Socialisation (implicit sharing of tacit knowledge)

Linking Explicit Knowledge Internalisation Operational knowledge (learning by doing) (Racing division, marketing, R&D, Product development working in close coordination) Combination (combines and passes formally codified knowledge) (History wall, Museum)

Field Building

Learning by doing Source: Adapted from Nonaka and Takeuchi (1995:71)

Building museum can be seen to some extent trying to make implicit knowledge to explicit. Marketing and R & D department working closely with each other. It was probably an attempt to understand and share implicit and explicit knowledge. Ducati Owners club and Ducati.com can be seen as communities of practice. Management was making a consistent effort to improve

organisational capabilities to outperform the competition and this can be seen along the five dimensions: the speed i.e. ability to respond quickly, consistency in what management was doing, acuity i.e. the ability to see the competitive environment, agility i.e. the way organisation was adapting itself and innovativeness ( Stalk et al, 1992). From the case and based on the above models and analysis, it can be said to a certain extent that top management during the turnaround phase of Ducati put lot of effort and money (for example, spending money on museum rather fixing the leaking roof). Minolis first few moves can be viewed as identifying company capabilities, resources and core competencies. He tried to understand what the company culture is and made an attempt to understand tacit knowledge, implicit assumptions, the way of doing things, passion of Ducati employees for sports bike and racing, and their stress on aesthetics and performance of bikes. Role played by development of capabilities and organisational knowledge was quite significant in Ducatis turnaround in authors view. As mentioned in the case in 1998, Ducati developed the new 900SSie in 15 months compared to over 36 months for previous model development and In 2001, Ducatis engineering team was reputed as one of the most expert and skilled in the industry (Wit & Meyer, 2004:868). In authors view to a great extent, it would have been very difficult to achieve this efficiency and skill improvements unless management at Ducati had not identified the capabilities and used them for the turnaround of the organisation from a state of bankruptcy. Whether Ducati Strategy was Market or Resource Driven ( Answer 1 and Answer 2) and to what extent: As discussed and represented in various models and diagrams in the answers of questions 1 and 2, in authors views, it can be seen there are links to thoughts of both the schools i.e. market and resource driven strategies. Author will argue that it was a mix of both the approaches towards strategy formulation, development and implementation. It was to a great extent the ability of Minoli and top management of Ducati to analysis the environment, market, buyer preferences, Ducati resources, capabilities, core competencies etc. made this turnaround successful. And, author will further argue that strategy development during the period of turnaround was more resource based driven than market driven as a large part of market driven strategy was even being implemented even before Minoli joined and same was to a certain extent during the turnaround phase. In Minolis words, I left with the clear impression (when he came first time) that it was almost by chance and not by strategic choice that Ducati had a product that the public loved. (Wit & Meyer, 2004:862).

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