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Saudi Electronic University Homework Help

Management Question

Description

Solve a task in the strategy management course, which is a case study, following all written instructions carefully and without any similarity or plagiarism.

‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية اإللكترونية‬

Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University

College of Administrative and Financial Sciences

Assignment 2
Strategic Management (MGT 401)
Due Date: 22/03/2025 @ 23:59
Course Name: Strategic Management

Student’s Name:

Course Code: MGT 401

Student’s ID Number:

Semester: Second

CRN:
Academic Year:2024-25-2nd

For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
/10

Level of Marks: High/Middle/Low

General Instructions – PLEASE READ THEM CAREFULLY
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•
•
•
•
•
•
•

Restricted – ‫مقيد‬

The Assignment must be submitted on Blackboard (WORD format only) via the
allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced
for poor presentation. This includes filling your information on the cover page.
Students must mention the question number clearly in their answers.
Late submissions will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other
resources without proper referencing will result in ZERO marks. No exceptions.
All answers must be typed using Times New Roman (size 12, double-spaced) font. No
pictures containing text will be accepted and will be considered plagiarism).
Submissions without this cover page will NOT be accepted.

Learning Outcomes:
CLO1

CLO4

Recognize the basic concepts and terminology used in Strategic Management.
Describe the different issues related to environmental scanning, strategy formulation, and strategy
implementation in diversified organizations.
Explain the contribution of functional, business, and corporate strategies to the organization’s competitive
advantage.
Distinguish between different types and levels of strategy and strategy implementation.

CLO5

Demonstrate how executive leadership is an integral part of strategic management.

CLO6

Communicate issues, results, and recommendations coherently, and effectively regarding appropriate strategies
for different situations.

CLO2
CLO3

Case study: TomTom Company

Assignment Question(s):
Read carefully case study No. 21 from your textbook (entitled ‘TomTom: New Competition
Everywhere! By Alan N. Hoffman) and briefly answer the following questions: (1 mark for each question)

1. What competitive strategy does TomTom company use?
2. Apply the five forces of M. Porter’s framework to analyze the industry to which TomTom company

belongs.
Detail the different functional strategies employed by this company.
Explain TomTom company’s relationship with its primary stakeholders.
Outline TomTom’s market position.
Identify the core competencies of this company
Discuss at least TWO strategic alliances (such as acquisitions, outsourcing, joint ventures, etc.)
utilized by this company Were they successful? Justify your answer.
8. What main challenges has TomTom company faced?
9. Evaluate the competitive advantage of TomTom in its market.
10. Suggest recommendations for TomTom company to enhance its competitive advantage.
3.
4.
5.
6.
7.

Notes.
▪
▪
▪
▪

Be brief while answering the questions.
Please do not copy/paste sentences from the case study text.
It is highly recommended to use the vocabulary/terminology used in your course of MGT401.
You do not need to use other references to answer the questions in this case; limit your answers to what is provided
in the studied case.

Good Luck

Restricted – ‫مقيد‬

Student’s Answers

1.
2.
…

Restricted – ‫مقيد‬

Case

TomTom

NEW COMPETITION EVERYWHERE!
Alan N. Hoffman
Bentley University

Tomtom was one of the largest producers of satellite navigation systemsin the
world. Its products were comprised of both stand-alone devices and applications.
TomTom led the navigation systems market in Europe and was second in the
United States. TomTom attributed its position as a market leader to the following
factors: the size of its customer and technology base, its distribution power, and
its prominent brand image and recognition.1
With the acquisition of Tele Atlas, TomTom became vertically integrated and
also controlled the map creation process. This helped TomTom establish itself as
an integrated content, service, and technology business. The company was Dutch by
origin and had its headquarters based in Amsterdam, The Netherlands. In terms of
geography, the company’s operations spanned from Europe to Asia Pacific, covering
North America, the Middle East, and Africa.2
TomTom was supported by a workforce of 3300 employees from 40 countries. The
company’s revenues had grown from €8 million in 2002 to €1.674 billion in 2008. (See
Exhibits 1 and 2.)

This case was prepared by Professor Alan N. Hoffman, Bentley University and Erasmus University. Copyright © 2015 by Alan N. Hoffman. The copyright holder is solely responsible for the case content. Reprint
permission is solely granted to the publisher, Prentice Hall, for Strategic Management and Business Policy,
14th Edition (and the international and electronic versions of this book) by the copyright holder, Alan N.
Hoffman. Any other publication of the case (translation, any form of electronics or other media) or sale (any
form of partnership) to another publisher will be in violation of copyright law, unless Alan N. Hoffman has
granted an additional written permission. The author would like to thank Will Hoffman, Mansi Asthana,
Aakashi Ganveer, Hing Lin, and Che Yii for their research. Please address all correspondence to: Professor
Alan N. Hoffman, Bentley University, 175 Forest Street, Waltham, MA 02452 or [email protected].
Printed by permission of Dr. Alan N. Hoffman.
RSM Case Development Centre prepared this case to provide material for class discussion rather than
to illustrate either effective or ineffective handling of a management situation. Copyright © 2010, RSM Case
Development Centre, Erasmus University. No part of this publication may be copied, stored, transmitted,
reproduced, or distributed in any form or medium whatsoever without the permission of the copyright owner,
Alan N. Hoffman.

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C as e 3 1 TomTom
EXHIBIT 1

2,000,000

Sales Revenue and
Net Income (€):
TomTom (Amount in
millions of €)

Sales
Net income

1,500,000
1,000,000
500,000
0

2005

2006

2007

2008

–500,000
–1,000,000
–1,500,000

EXHIBIT 2

800

Quarterly Sales:
TomTom (Amount
in millions of €)

700
600

2009
2008
2007

500
400
300
200
100
0

However, because of the Tele Atlas acquisition and the current economic downturn,
the company has recently become a cause of concern for investors. On July 22, 2009,
TomTom reported a decline in its net income at the end of the second quarter of 2009.
TomTom was in the business of navigation-based information services and devices.
The company had been investing structurally and strategically in research and development to bring new and better products and services to its customers. The company’s
belief in radical innovation helped it remain at the cutting edge of innovation within
the navigation industry.
The vision of TomTom’s management was to improve people’s lives by transforming navigation from a “don’t-get-lost solution” into a true travel companion that gets
people from one place to another safer, faster, cheaper, and better informed. This vision
helped the company become a market leader in every marketplace in the satellite navigation information services market.3
The company’s goals focused around radical advances in three key areas:
■■

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Better maps: This goal was achieved by maintaining TomTom’s high-quality map
database, which was continuously kept up to date by a large community of active
users who provided corrections, verifications, and updates to TomTom. This was
supplemented by inputs from TomTom’s extensive fleet of surveying vehicles.4

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Better routing: TomTom had the world’s largest historical speed profile database IQ
Routes, facilitated by TomTom HOME, the company’s user portal.5
■■ Better traffic information: TomTom possessed a unique, real-time traffic information service called TomTom HD traffic, which provided users with high-quality,
real-time traffic updates.6 These three goals formed the base of satellite navigation,
working in conjunction to help TomTom achieve its mission.
■■

TomTom’s Products
TomTom offered a wide variety of products ranging from portable navigation devices to
software navigation applications and digital maps. The unique features in each of these
products made them truly “the smart choice in personal navigation.”7 Some of these
products are described next.

TomTom Go and TomTom One
These devices came with an LCD screen that made it easy to use with fingertips while
driving. They provided Points of Interest (POI) that helped in locating petrol stations,
restaurants, and places of importance and traffic information.

TomTom Rider
These were portable models especially designed for bikers. The equipment consisted of
an integrated GPS receiver that could be mounted on any bike, and a wireless headset
inside the helmet. Similar to the car Portable Navigation Devices (PNDs), the TomTom
Rider models had a number of POI applications. The interfaces used in TomTom Rider
were user-friendly and came in a variety of languages.8

TomTom Navigator and TomTom Mobile
These applications provided navigation software along with digital maps. Both of
these applications were compatible with most mobiles and PDAs provided by companies like Sony, Nokia, Acer, Dell, and HP. These applications came with TomTom
HOME, which could be used to upgrade to the most recent digital maps and application versions.9

TomTom for iPhone
On August 17, 2009, TomTom released TomTom for the iPhone.
The TomTom app for iPhone 3G and 3GS users included a map of the United States
and Canada from Tele Atlas, and was available for US$99.99.
The TomTom app for iPhone included the exclusive IQ Routes technology. Instead
of using travel time assumptions, IQ Routes based its routes on the actual experience of
millions of TomTom drivers to calculate the fastest route and generate the most accurate arrival times in the industry. TomTom IQ Routes empowered drivers to reach their
destination faster up to 35% of the time.

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Company History
TomTom was founded as “Palmtop” in 1991 by Peter-Frans Pauwels and Pieter Geelen,
two graduates from Amsterdam University, The Netherlands. Palmtop started out as a
software development company and was involved in producing software for handheld
computers, one of the most popular devices of the 1990s. In the following few years,
the company diversified into producing commercial applications including software for
personal finance, games, a dictionary, and maps. In the year 1996, Corinne Vigreux joined
Palmtop as the third partner. In the same year, the company announced the launch of
Enroute and RouteFinder, the first navigation software titles. As more and more people
using PCs adopted Microsoft’s operating system, the company developed applications
which were compatible with it. This helped the company increase its market share. In
2001, Harold Goddijn, the former Chief Executive of Psion, joined the company as the
fourth partner. This proved to be a turning point in the history of TomTom. Not only did
Palmtop get renamed to TomTom, but it also entered the satellite navigation market.
TomTom launched TomTom Navigator, the first mobile car satnav system.
In 2002, the company generated revenue of €8 million by selling the first GPS-linked
car navigator, the TomTom Navigator, for PDAs. The upgraded version, Navigator 2,
was released in early 2003. Meanwhile, the company made efforts to gain technical and
marketing personnel. TomTom took strategic steps to grow its sales. The former CTO
of Psion, Mark Gretton, led the hardware team, while Alexander Ribbink, a former top
marketing official, looked after sales of new products introduced by the company.
TomTom Go, an all-in-one car navigation system, was the company’s next major
launch. With its useful and easy-to-use features, TomTom Go was included in the list of
successful products of 2004. In the same year, the company launched TomTom Mobile,
a navigation system that sat on top of Smartphones.10
TomTom completed its IPO on the Amsterdam Stock Exchange in May 2005, raising €469 million (US$587 million). The net worth of the company was nearly €2 billion
after the IPO. A majority of the shares were held by the four partners.11 From the years
2006 to 2008, TomTom strengthened itself by making three key strategic acquisitions.
Datafactory AG was acquired to power TomTom WORK through WEBfleet technology,
while Applied Generics gave its technology for Mobility Solutions Services. However,
the most prominent of these three was the acquisition of Tele Atlas.12
In July of 2007, TomTom bid for Tele Atlas, a company specializing in digital maps.
The original bid price of €2 billion was countered by a €2.3 billion offer from Garmin, TomTom’s biggest rival. When TomTom raised its bid price to €2.9 billion, the two
companies initiated a bidding war for Tele Atlas. Although there was speculation that
Garmin would further increase its bid price, in the end management decided not to
pursue Tele Atlas any further. Rather, Garmin struck a content agreement with Navteq.
TomTom’s shareholders approved the takeover in December 2007.13

TomTom’s Customers
TomTom was a company that had a wide array of customers, each with their own individual needs and desires. TomTom had a variety of products to meet the requirements of
a large and varied customer base. As an example, its navigational products ranged from
US$100–$500 in the United States, spanning lower-end products with fewer capabilities
to high-end products with advanced features.
The first group was the individual consumers who bought stand-alone portable navigation devices and services. The second group was automobile manufacturers. TomTom

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teamed with companies like Renault to develop built-in navigational units to install
as an option in cars. A third group of customers was the aviation industry and pilots
with personal planes. TomTom produced navigational devices for air travel at affordable prices. A fourth group of customers was business enterprises. Business enterprises
referred to companies such as Wal-Mart, Target, or The Home Depot, huge companies
with large mobile workforces. To focus on these customers, TomTom formed a strategic
partnership with a technology company called Advanced Integrated Solutions to “optimize business fleet organization and itinerary planning on the TomTom pro series of
navigation devices.” This new advanced feature on PNDs offered ways for fleet managers and route dispatchers to organize, plan, and optimize routes and to provide detailed
mapping information about the final destination. TomTom’s fifth group of customers,
the Coast Guard, was able to use TomTom’s marine navigational devices for its everyday
responsibilities.

Mergers and Acquisitions
TomTom made various mergers and acquisitions as well as partnerships, which positioned the company well. In 2008, TomTom acquired a digital mapping company called
Tele Atlas. The acquisition significantly improved TomTom customers’ user experience
and created other benefits for the customers and partners of both companies, including
more accurate navigation information, improved coverage, and new enhanced features
such as map updates and IQ Routes.
In 2005, TomTom partnered with Avis, adding its user-friendly navigation system to
all Avis rental cars. This partnership began in Europe, and soon the devices had made
their way into Avis rental cars in North America as well as many other countries where
Avis operated.
TomTom acquired several patents for its many different technologies. By having
these patents for each of its ideas, the company protected itself against its competition
and other companies trying to enter into the market.
TomTom prided itself on being the industry innovator and always being a step
ahead of the competition in terms of its technology.
TomTom had a strong brand name/image. It positioned itself well throughout the
world as a leader in portable navigation devices. The company marketed its products
through its very user-friendly online website and also through large companies such
as Best Buy and Wal-Mart. TomTom also teamed up with Locutio Voice Technologies
and Twentieth Century Fox Licensing & Merchandising to bring the original voice of
Homer Simpson to all TomTom devices via download. “Let Homer Simpson be your
TomTom co-pilot” was one of the many interesting ways TomTom marketed its products
and name to consumers.14

TomTom’s Resources and Capabilities
The company believed that there were three fundamental requirements to a navigation
system—digital mapping, routing technology, and dynamic information. Based on these
requirements, three key resources could be identified that really distinguished TomTom
from its competition.
The first of these resources was the in-house routing algorithms. These algorithms
enabled TomTom to introduce technologies like IQ Routes that provided a “community
based information database.” IQ Routes calculated customer routes based on the real
average speeds measured on roads at that particular time.

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The second unique resource was Tele Atlas and the digital mapping technology that the TomTom group specialized in. Having the technology and knowledge in
mapping that the company brought to TomTom allowed it to introduce many unique
features to its customers. First, TomTom came out with a map update feature. The company recognized that roads around the world were constantly changing and, because
of this, it used the technology to come out with four new maps each year, one per
business quarter. This allowed its customers to always have the latest routes to incorporate into their everyday travel. A second feature it introduced is its Map Share
program. The idea behind this is that customers of TomTom who notice mistakes in a
certain map are able to go in and request a change to be made. The change was then
verified and checked directly by TomTom and was shared with the rest of the global
user community.
The third unique resource was automotive partnerships with two companies in particular: Renault and Avis. At the end of 2008, TomTom reached a deal with Renault to
install its navigation devices in its cars as an option. The clincher was the new price of
the built-in navigation units. The cost of a navigation device installed in Renault’s cars
before TomTom was €1500. Now, with the TomTom system, it cost only €500. As mentioned earlier, TomTom also partnered with Avis in 2005 to offer its navigation devices,
specifically the model GO 700, in all Avis rental cars, first starting in Europe and then
expanding into other countries where Avis operated.

Traditional Competition
TomTom faced competition from two main companies. The first of these was Garmin,
which held 45% of the market share, by far the largest and double TomTom’s market
share (24%). Garmin was founded in 1989 by Gary Burrell and Min H. Kao. The company was known for its on-the-go directions since its introduction into GPS navigation
in 1989. At the end of 2008, Garmin reported annual sales of US$3.49 billion. Garmin
had competed head to head in 2009 with TomTom in trying to acquire Tele Atlas for its
mapmaking. Garmin withdrew its bid when it became evident that it was becoming too
expensive to own Tele Atlas. Garmin executives made a decision that it was cheaper
to work out a long-term deal with its current supplier, Navteq, than to try to buy out a
competitor.
The second direct competitor was Magellan, which held 15% of the market share.
Magellan was part of a privately held company under the name of MiTac Digital Corporation. Similar to Garmin, Magellan products used Navteq-based maps. Magellan was
the creator of Magellan NAV 100, the world’s first commercial handheld GPS receiver,
which was created in 1989. The company was also well-known for its award-winning
RoadMate and Maestro series portable car navigation systems.
Together these three dominant players accounted for about 85% of the total market. Other competitors in the personal navigation device market were Navigon, Nextar, and Nokia. Navigon and Nextar competed in the personal navigation devices with
TomTom, Magellan, and Garmin, who were the top three in the industry. But Navigon
competed in the high-end segment, which retailed for more than any of the competitors
but offered a few extra features in its PNDs. Nextar competed in the low-end market and
its strategy was low cost. Finally, Nokia was mentioned as a competitor in this industry
because the company acquired Navteq, a major supplier of map services in this industry.
Along with that, Nokia had a big market share in the cell phone industry and planned
on incorporating GPS technology in every phone, making it a potential key player to
look for in the GPS navigation industry.

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New Competition Everywhere!
Cell Phones
Cell phones were widely used by people all around the world. With the 2005 FCC mandate that required the location of any cell phone used to call 911 to be tracked, phone
manufacturers included a GPS receiver in almost every cell phone. Due to this mandate,
cell phone manufacturers and cellular services were able to offer GPS navigation services through the cell phone for a fee.

AT&T Navigator
GPS Navigation with AT&T Navigator and AT&T Navigator Global Edition feature realtime GPS-enabled turn-by-turn navigation onAT&T mobile Smartphones (iPhones and
BlackBerrys) or static navigation and Local Search on a non-GPS AT&T mobile Smartphone.
AT&T Navigator featured Global GPS turn-by-turn navigation—Mapping and
Point of AT&T Interest content for three continents, including North America (United
States, Canada, and Mexico), Western Europe, and China, where wireless coverage was
available from AT&T or its roaming providers. The AT&T Navigator was sold as a subscription service and cost US$9.99 per month.

Online Navigation Applications
Online navigation websites that were still popular among many users for driving directions and maps were MapQuest, Google Maps, and Yahoo Maps. Users were able to use
these free sites to get detailed directions on how to get to their next destination. In the
current economic downturn, many people were looking for cheap (or if possible, free)
solutions to solve their problems. These online websites offered the use of free mapping
and navigation information that would allow them to get what they needed at no additional cost. However, there were downsides to these programs: They were not portable
and could have poor visualization designs (such as vague images or text-based output).15

Built-in Car Navigation Devices
In-car navigation devices first came about in luxury, high-end vehicles. Currently, it
has become more mainstream and is now being offered in mid- to lower-tier vehicles.
These built-in car navigation devices offered similar features to the personal navigation
device but didn’t have the portability, so users wouldn’t have to carry multiple devices.
However, they came with a hefty price. Some examples of these are Kenwood, Pioneer,
and Eclipse units, which are all installed in cars. These units tended to be expensive and
overpriced because they were brand-name products and required physical installation.
For example, the top-of-the-line Pioneer unit was US$1,000 for the monitor and another
US$500 for the navigation device plus the physical labor. When buying such products,
a customer spent a huge amount of money on a product that was almost identical to a
product TomTom offered at a significantly lower price.

Physical Maps
Physical maps were the primary option for navigating for decades until technology
improved them. Physical maps provided detailed road information to help a person get
from point A to point B. Although more cumbersome to use than some of the modern

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technology alternatives, it was an alternative for people who were not technically savvy
or for whom a navigation device was an unnecessary luxury.

Potential Adverse Legislation and Restrictions
In the legal and political realm, TomTom faced two issues that were not critical now, but
that might have significant ramifications to not only TomTom in the future, but also the
entire portable navigation device industry. The reaction of TomTom’s management to
each of these issues will determine whether or not there was an opportunity for gain or
a threat of a significant loss to the company.
The most important issue TomTom dealt with was the possible legislative banning of
all navigational devices from automobiles. In Australia, the government was considering
banning PNDs completely from automobiles. There was a similar sentiment in Ontario,
Canada, where a law that was currently under review would ban all PNDs that were not
mounted either to the dashboard or to the windshield itself.16
With the increase in legislation adding to the restrictions placed on PND devices,
the threat that the PND market in the future will be severely limited could not be
ignored. All of the companies within the PND industry, not just TomTom, must create a
coordinated and united effort to stem this wave of restrictions as well as provide reassurance to the public that they were also concerned with the safe use of their products.
This effort can be seen in the heavily regulated toy industry. Many companies within
the toy industry had combined to form the International Council of Toy Industries17 to
be proactive in regard to safety regulations, as well as lobby governments against laws
that may unfairly threaten the toy industry.18
The other issue within the legal and political spectrum that TomTom must focus
on was the growing use of GPS devices as tracking devices. Currently, law enforcement
agents were allowed to use their own GPS devices to track the movements and locations of individuals they deemed suspicious. However, if budget cuts reduced the access
to these GPS devices, then the simple solution will be to use the PND devices already
installed in many automobiles.
This issue also required the industry as a whole to proactively work with the consumers and the government to come to an amicable resolution. The threat of having
every consumer’s GPS information at the fingertips of either the government or surveillance company will most certainly stunt or even completely halt any growth within
the PND industry.
Another alarming trend was the rise in PND thefts around the country.19 With the
prices for PNDs at a relatively high level, thieves were targeting vehicles that had visible
docking stations for PNDs either on the dashboard or the windshield. The onus will be
on TomTom to create new designs that will not only hide PNDs from would-be thieves
but also deter them from trying to steal one. Consumers who were scared to purchase
PNDs because of this rise in crime will become an issue if this problem is not resolved.
There was also a current trend, labeled the GREEN movement,20 that aimed to
reduce any activities that would endanger the environment. This movement was a great
opportunity for TomTom to tout its technology as the smarter and more environmentally
safe tool if driving is an absolute necessity. Not only can individuals tout this improved
efficiency, but more importantly on a larger scale, businesses that require large amounts
of materials to be transported across long stretches can show activists that they too are
working toward becoming a green company.
It is ironic that the core technology used in TomTom’s navigation system, the GPS
system, has proliferated into other electronic devices at such a rapid pace that it has

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caused serious competition to the PND industry. GPS functionality was a basic requirement for all new Smartphones that entered the market and soon will become a basic
functionality in regular cellular phones. TomTom will be hard pressed to compete with
these multifunctional devices unless it can improve upon its designs and transform itself
into a single focused device.
Another concern for not only TomTom, but also every company that relies heavily
on GPS technology, was the aging satellites that supported the GPS system. Analysts
predicted that these satellites will be either replaced or fixed before there are any issues,
but this issue was unsettling due to the fact that TomTom had no control over it.21 TomTom will have to devise contingency plans in case of catastrophic failure of the GPS
system, much like what happened to Research in Motion when malfunctioning satellites
caused disruption in its service.
TomTom was one of the leading companies in the PND markets in both Europe and
the United States. Although they were the leader in Europe, that market was showing
signs of becoming saturated. Even though the U.S. market was currently growing, TomTom could not wait for the inevitable signs of that market’s slowdown as well.
The two main opportunities for TomTom to expand—creating digital maps for
developing countries and creating navigational services—can either be piggybacked or
can be taken in independent paths. The first-mover advantage for these opportunities
will erect a high barrier of entry for any companies that do not have large amounts of
resources to invest in the developing country. TomTom was already playing catch-up to
Garmin and its already established service in India.
Globalization of any company’s products did not come without a certain set of
issues. For TomTom, the main threat brought on by foreign countries was twofold.
The first threat, which may be an isolated instance, but could also be repeated in
many other countries, was the restriction of certain capabilities for all of TomTom’s
products. Due to security and terrorism concerns, GPS devices have not been allowed
in Egypt since 2003.22 In times of global terrorism, TomTom must be vigilant of the
growing trend for countries to become overly protective of foreign companies and
their technologies.

Internal Environment
Finance
TomTom’s financial goals were to diversify and become a broader revenue-based company. The company not only sought to increase the revenue base in terms of geographical expansion but also wanted to diversify its product and service portfolio. Additionally,
another important goal the company strived to achieve was reducing its operating
expenses.

Sales Revenue and Net Income
Exhibit 2 shows that from 2005 to 2007 there was a consistent growth in sales revenue, as
well as a corresponding increase in net income. However, year 2008 was an exception to
this trend. In this year, sales revenue decreased by 3.7% and the net income decreased
by 136%. In fact, in the first quarter the net income was actually negative, totaling −€37
million. The decrease in sales can be accounted for by the downturn in the economy.
According to its 2008 annual report, the sales are in line with market expectations.
However, the net income plummeted much more than the decrease in sales. This was

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actually triggered by its acquisition of the digital mapping company—Tele Atlas—which
was funded by both cash assets and debt.
Quarterly sales. In the second quarter of 2009, TomTom received sales revenue of
€368 million, compared to €213 million in the first quarter and €453 million in the same
quarter in 2008 (Exhibit 3). By evaluating quarterly sales for a three-year period from
2007 until the present, it was apparent that the sales followed a seasonal trend in TomTom, with highest sales in the last quarter and lowest in the first quarter. However,
focusing on just the first and second quarter for three years, one can infer that the sales
revenue as a whole was also going down year after year. To investigate further on the
causes of this scenario, the company will have to delve deeper into its revenue base.
TomTom’s sources of revenue can be broadly grouped into two categories—market
segment and geographic location.

Revenue per Segment
TomTom’s per segment revenue stream can be divided into PNDs and others, where others consisted of services and content. Evaluating the first quarter of 2008 against that of
2009 and the last quarter of 2008, TomTom experienced steep declines of 40% and 68%
(see Exhibit 4). This could be a consequence of the compounded effect of the following: (1) The number of devices (PNDs) decreased by a similar amount during both time
periods. (2) The average selling price of PNDs had also been decreasing consistently. In
a technology company, a decrease in average selling price is a part of doing business in
a highly competitive and dynamic marketplace. Nevertheless, the revenue stream from
business units other than PNDs had seen a steady increase in both the scenarios.

Revenue per Region
TomTom’s per region revenue stream can be further divided into Europe, North America, and the rest of the world. Comparing the first quarter of 2009 against 2008, it can
be seen that revenue from both Europe and North America was on the decline, with a
decrease of 22% and 52%, respectively (see Exhibit 5). At the same time, revenue from
EXHIBIT 3
Revenue per
Segment: TomTom (Amount in
millions of €)

EXHIBIT 4
Revenue per
Region: TomTom (Amount in
millions of €)

Z31_WHEE5488_15_GE_CA31.indd 10

Europe
North America
Rest of world
Total

Quarter 1 of 2009

Difference

178,114
84,641
1,087
263,842

146,549
55,558
10,976
213,083

–22%
–52%
90%
–24%

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Ca se 31 TomTom

31-11

EXHIBIT 5
Cash versus
Long-Term
Debt (Amount in
thousands of €)

Long Term Debt
Cash Assets
Borrowings

EXHIBIT 6

30%

Operating Margin:
TomTom

25%

2005

2006

2007

2008

2009

301
178,377
0

338
437,801
0

377
463,339
0

4,749
321,039
1,241,900

4,811
422,530
1,195,715

Operating margin

20%
15%
10%
5%
0%

2005

2006

2007

2008

the rest of the world had seen a huge increase of 90%. Both of these analyses supported
TomTom’s current goal to increase its revenue base and is aligned with its long-term
strategy of being a leader in the navigation industry.
Long-term debt. In 2005, TomTom was a cash-rich company. However, the recent
acquisition of Tele Atlas, which amounted to €2.9 billion, was funded by cash, the release
of new shares, and long-term debt (see Exhibit 6), in this case a €1.2 billion loan. These
combined to use up TomTom’s cash reserves. Currently, TomTom’s debt was €1,006
million.
Operating margin. TomTom saw a consistent increase in operating margin until 2006.
However, since 2007, operating margin has been decreasing for the firm. In fact, by the
end of 2008 it came down to 13%, compared to 26% in 2006.

Marketing
Traditionally, high quality and ease of use of solutions have been of utmost importance
to TomTom. In a 2006 interview, TomTom’s Marketing Head, Anne Louise Hanstad,
emphasized the importance of simplicity and ease of use with its devices. This underlined TomTom’s belief that people prefer fit-for-purpose devices that are developed
and designed to do one specific thing very well. At that time, both of these were core
to TomTom’s strategy as its targeted customers were early adopters. Now, however, as
the navigation industry moved from embryonic to a growth industry, TomTom’s current
customers were early majority. Hence, simplicity and ease alone could no longer provide
it with a competitive advantage.
Recently, to be in line with its immediate goal of diversifying into different market
segments, TomTom was more focused on strengthening its brand name. In December
2008, TomTom’s CEO stated “ . . . we are constantly striving to increase awareness of

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C as e 3 1 TomTom

our brand and strengthen our reputation for providing smart, easy-to-use, high-quality
portable navigation products and services.”23
Along with Tele Atlas, the TomTom group has gained depth and breadth of expertise over the last 30 years, which made it a trusted brand. Three out of four people were
aware of the TomTom brand across the markets. The TomTom group has always been
committed to the three fundamentals of navigation: mapping, routing algorithm, and
dynamic information. Tele Atlas’ core competency was the digital mapping database,
while TomTom’s was routing algorithms and guidance services using dynamic information. Together, the group created synergies that enabled it to introduce products almost
every year that advanced on one or a combination of these three elements. Acquiring
its long-time supplier of digital maps, Tele Atlas, in 2008 gave TomTom an edge with
in-house digital mapping technology.
TomTom provided a range of PND devices like TomTom One, TomTom XL, and
the TomTom Go Series. Periodically, it tried to enhance those devices with new features
and services that were built based on customer feedback. Examples of services were IQ
Routes and LIVE services. While IQ Routes provided drivers with the most efficient
route planning, accounting for situations as precise as speed bumps and traffic lights,
LIVE services formed a range of information services delivered directly to the LIVE
devices. The LIVE services bundle included Map Share and HD Traffic, bringing the
content collected from vast driving communities directly to the end-user.
These products and services accentuated effective designs and unique features, and
required TomTom to work with its customers to share precise updates and also get feedback for future improvements. Hence, effective customer interaction became essential to
its long-term goal of innovation. In 2008, J. D. Power and Associates recognized TomTom
for providing outstanding customer service experience.24 Although it awarded TomTom
for customer service satisfaction, J. D. Power and Associates ranked Garmin highest in
overall customer satisfaction. TomTom followed Garmin in the ranking, performing well
in the routing, speed of system, and voice direction factors.25
As mentioned previously, when the navigation industry was still in its embryonic
stages, features, ease of use, and the high quality of its solutions gave TomTom products
a competitive edge. Eventually, the competition increased in the navigation industry and
even substitutes posed a substantial threat to market share. TomTom offered PNDs in
different price ranges, broadly classified into high-range and mid-range PNDs, with an
average selling price of €99. There were entry-level options that allowed a savvy shopper to put navigation in his/her car for just over US$100. Higher-end models added
advanced features and services that were previously described.
TomTom sold its PNDs to consumers through retailers and distributors. After
acquiring Tele Atlas, it was strategically placed to gain the first mover advantage created by its rapid expansion of geographical coverage.26 This was of key importance when
it came to increasing its global market share.
TomTom directed its marketing expenditure toward B2B advertising that was
directed to retailers and distributors. TomTom also invested in an official blog website,
as well as search optimization, which placed it in premium results in online searches.
This enabled TomTom to do effective word-of-mouth promotion while keeping flexible
marketing spending, in accordance with changes in the macroeconomic environment or
seasonal trends.27 Although this approach gave TomTom spending flexibility, it lacked
a direct B2C approach. In 2009, only 21% of U.S. adults owned PNDs, whereas 65% of
U.S. adults neither owned nor used navigation.28 By not spending on B2C marketing,
TomTom discounted on the opportunity both to attract first-tier noncustomers and
glean an insight of needs of second-tier noncustomers.29

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31-13

Operations
The focus of operations had always been on innovation. More recently, TomTom’s operational objective had been to channel all its resources and core capabilities to create
economies of scale so as to be aligned with its long-term strategy. TomTom aimed to
focus and centralize R&D resources to create scale economies to continue to lead the
industry in terms of innovation.30
Implementation of this strategy was well underway and the changes were visible.
By the second quarter of 2009, mid-range PNDs were introduced with the capabilities
of high-range devices. In addition, 50% of PNDs were sold with IQ Routes technology.
The first in-dash product was also launched in alliance with Renault, and the TomTom
iPhone application was also announced.31
After acquiring Tele Atlas to better support the broader navigation solutions and
content and services, the group underwent restructuring. The new organizational structure consisted of four business units that had a clear focus on a specific customer group
and were supported by two shared development centers.
The four business units were CONSUMER (B2C), composed of retail sales of PND,
on-board, and mobile; AUTOMOTIVE (B2B), composed of auto industry sales of integrated solutions and content & services; LICENSING (B2B), composed of PND, automotive, mobile, Internet, and GIS content and services; and WORK (B2B), composed
of commercial fleet sales of Webfleet & Connected Solutions.
TomTom’s supply chain and distribution model was outsourced. This increased TomTom’s ability to scale up or down the supply chain, while limiting capital expenditure
risks. At the same time, however, it depended on a limited number of third parties—and
in certain instances sole suppliers—for component supply and manufacturing, which
increased its dependency on these suppliers.
TomTom’s dynamic content sharing model used high-quality digital maps along with
the connected services, like HD Traffic, Local Search with Google, and weather information. This provided customers with relevant real-time information at the moment they
needed it, which helped them deliver the benefits of innovative technology directly to
the end-user at affordable prices. Although the network externalities previously mentioned were among the advantages of TomTom’s LIVE, it had also increased TomTom’s
dependency on the network of the connected driving community. The bigger the network, the more effective the information gathered from the guidance services.
Furthermore, in order to reduce operating expenses and strengthen the balance sheet,
heavy emphasis had been placed on the cost-cutting program. In 2009, the cost reductions
were made up of reduction of staff, restructuring and integration of Tele Atlas, reduced
discretionary spending, and reduction in the number of contractors and marketing expenditures. However, if not executed wisely, it could hamper TomTom’s long-term objective
of being a market leader. For example, one of the core capabilities of any technology
company was its staff; reducing it could hinder future innovative projects. This may also
occur when reducing the marketing expenditures in a market that still held rich prospects
of high growth. Among U.S. adults, 65% did not own any kind of navigation system.32

Human Resources
Like in any other technology company, the success of individual employees was very
important to TomTom. Additionally, TomTom had a vision that company success should
also mean success for the individual employee. Therefore, at TomTom, employee

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C as e 3 1 TomTom

competency was taken very seriously and talent development programs were built
around it. There was a personal navigation plan that provided employees with a selection of courses based on competencies in their profile. In 2008, TomTom completed its
Young Talent Development Program, which was aimed at broadening the participants’
knowledge while improving their technical and personal skills.
TomTom’s motto was to do business efficiently and profitably, as well as responsibly.
This underlined its corporate social responsibility. TomTom’s headquarters was one of
the most energy-efficient buildings in Amsterdam. As previously mentioned, earlier
navigation was oriented toward making the drivers arrive at their destination without
getting lost. TomTom was the pioneer in introducing different technology that actually
helped drivers make their journeys safer and more economical. This showed TomTom’s
commitment to its customer base as well as to the community as a whole.

Issues of Concern for TomTom
First, TomTom was facing increasing competition from other platforms using GPS technology, such as cell phones and Smartphones. In the cell phone industry, Nokia was
leading the charge in combining cell phone technology with GPS technology. Around
the same time TomTom acquired Tele Atlas, Nokia purchased Navteq, a competitor to
Tele Atlas. With the acquisition of Navteq, Nokia hoped to shape the cell phone industry
by merging cell phone, Internet, and GPS technology.
The Smartphone industry was emerging with the iPhone and the Palm Pre. There
was also a shift in how people were able to utilize these technologies as a navigation
tool. A big trend in Smartphones was applications. Because of the ease of developing
software on platforms for Smartphones, more and more competitors were coming to
the forefront and developing GPS navigation applications. On October 28, 2009, Google
announced the addition of Tom Tom and Garmin Ltd. as competitors. Google was adding driving directions to its Smartphones.
For TomTom, both of these sectors might signal that major change was on the horizon and that there was no longer a need for hardware for GPS navigation devices. The
world seemed to be heading toward a culture where consumers wanted an all-in-one
device such as a cell phone or Smartphone that would do everything needed, including
offering GPS navigation services. A recent study done by Charles Golvin for Forrester
suggested that by 2013 phone-based navigation will dominate the industry. The reason
was due to Gen Y and Gen X customers who were increasingly reliant on their mobile
phone and who would demand that social networking and other connected services be
integrated into their navigation experience.33
Secondly, TomTom faced a maturing U.S. and European personal navigation
device market. After three years of steady growth in the PND market, TomTom had
seen decreasing growth rates for PND sales. Initially entering the European market 12
months before entering the U.S. market, TomTom witnessed a 21% dip in sales for the
European market. Although TomTom experienced some growth in the U.S. market for
2008, the growth rate was not as good as in prior years.

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31-15

NOTES
1. TomTom AR-08, “TomTom Annual Report 2008,” TomTom
Annual Report 2008, December 2008.
2. Ibid.
3. TomTom, “TomTom, Portable GPS Car Navigation Systems,”

4. Ibid.
5. Ibid.
6. Ibid.
7. TomTom AR-08, “TomTom Annual Report 2008,” TomTom
Annual Report 2008, December 2008.
8. Ibid.
9. Ibid.
10. Ibid.
11. “TomTom NV,”
-n-v.
12. Ibid.
13. Thomson Reuters, “TomTom Launches 2.9 bln Euro Bid
for Tele Atlas,” (November 19,
2007).
14. Boston Business Article,
/ticker/2009/06/let_homer_simps.html.
15. Magellan website,
/About-Us.
16. Tanya Talaga and Rob Ferguson, TheStar.com, October 28,
2008,
(July 29, 2009).
17. ICTI, 2009, (July 29, 2009).
18. Ibid.
19. GPS Magazine, September 23, 2007,
.com/2007/09/gps_thefts_rise.php (July 29, 2009).

Z31_WHEE5488_15_GE_CA31.indd 15

20. “Webist Media,” Web Ecoist, August 17, 2008,
.com/2008/08/17/a-brief-history-of-the-modern-green
-movement/ (July 29, 2009).
21. Nick Jones, Garnter, January 5, 2009,
.com/id=1007612
22. US News, October 14, 2008,
dreviews.com/cars-trucks/daily-news/081014-GPS-Devices
-Banned-in-Egypt/ (July 29, 2009).
23. TomTom AR-08, “TomTom Annual Report 2008,” TomTom Annual Report 2008, December 2008.
24. Reuters, “TomTom Inc. Recognized for Call Center
Customer Satisfaction Excellence by J.D. Power,” January 7, 2008,
/idUS141391+07-Jan-2008+PRN20080107.
25. J. D. Power and Associates, “Garmin Ranks Highest in
Customer Satisfaction with Portable Navigation Devices,”
October 23, 2008,
/releases/pressrelease.aspx?ID=2008221.
26. TomTom AR-08, “TomTom Annual Report 2008,” TomTom Annual Report 2008, December 2008.
27. Ibid.
28. Forrestor Research, “Phone-Based Navigation Will Dominate
by 2013,” March 27, 2009.
29. W. Chan Kim and Mauborgne, Blue Ocean Strategy (Boston:
Harvard Business School Press, 2005).
30. TomTom AR-08, “TomTom Annual Report 2008,” TomTom Annual Report 2008, December 2008.
31. Ibid.
32. Forrestor Research, “Phone-Based Navigation Will
Dominate by 2013,” March 27, 2009.
33. Ibid.

6/20/17 10:50 AM

Basic Concepts of
Strategic
Management

Chapter 1

Learning Objectives
Understand the benefits of strategic
management
Explain how globalization and environmental
sustainability influence strategic management
Understand the basic model of strategic
management and its components

1-2

Learning Objectives
Identify some common triggering events that
act as stimuli for strategic change
Understand strategic decision-making modes
Use the strategic audit as a method of
analyzing corporate functions and activities

1-3

The Study of Strategic Management

Strategic Management
 a set of managerial decisions and actions that
determines the long-run performance of a
corporation

1-4

The Study of Strategic Management
Strategic Management includes:
Internal and external environment scanning
Strategy formulation
Strategy implementation
Evaluation and control

1-5

Phases of Strategic Management
Phase 1: Basic financial
planning

Phase 2: Forecast-based
planning
Phase 3: Externally oriented
strategic planning

Phase 4: Strategic
management
Copyright © 2015 Pearson Education, Inc.

1-6

Benefits of Strategic Management
 The attainment of an appropriate match, or “fit,”
between an organization’s environment and its
strategy, structure and processes has positive
effects on the organization’s performance.

 Strategic planning becomes increasingly
important as the environment becomes more
unstable.

1-7

Benefits of Strategic Management
Clearer sense of strategic vision for the firm
Sharper focus on what is strategically
important
Improved understanding of a rapidly changing
environment

1-8

Impact of Globalization
Globalization
 the integrated internationalization of markets and
corporations
 has changed the way modern corporations do
business

1-9

Impact of Innovation
Innovation
 describes new products, services, methods and
organizational approaches that allow the business
to achieve extraordinary returns

 Innovation is the implementation of potential
innovations that truly drives businesses to be
remarkable.

1-10

Impact of Sustainability
Sustainability
 refers to the use of business practices to manage
the triple bottom line

1-11

Impact of Sustainability
The triple bottom line involves:
1. the management of traditional profit/loss;
2. the management of the company’s social
responsibility; and
3. the management of its environmental
responsibility.

1-12

Theories of Organizational Adaptation
 Population ecology
 once an organization
is successfully
established in a
particular
environmental niche,
it is unable to adapt
to changing
conditions

 Institution theory
 organizations can and
do adapt to changing
conditions by
imitating other
successful
organizations

1-13

Theories of Organizational Adaptation

Strategic choice perspective
 not only do organizations adapt to a changing
environment, but they also have the opportunity
and power to reshape their environment

1-14

Theories of Organizational Adaptation

Organizational learning theory
 an organization adjusts defensively to a changing
environment and uses knowledge offensively to
improve the fit between itself and its
environment

1-15

Creating a Learning Organization
Strategic flexibility
 the ability to shift from one dominant strategy to
another and requires:
• Long-term commitment to the development
and nurturing of critical resources
• Learning organization

1-16

Creating a Learning Organization
Learning organization
 an organization skilled at creating, acquiring and
transferring knowledge and at modifying its
behavior to reflect new knowledge and insights

 Organizational learning is a critical component of
competitiveness in a dynamic environment.

1-17

Creating a Learning Organization
Learning organizations are skilled at four main
activities:

 Solving problems systematically
 Experimenting with new approaches
 Learning from their own experiences and past
history as well as from the experiences of others
 Transferring knowledge quickly and efficiently
throughout the organization

1-18

Basic Model of Strategic Management
Strategic management consists of four basic
elements:
Environmental scanning
Strategy formulation
Strategy implementation
Evaluation and control

1-19

Basic Elements of the Strategic
Management Process
Figure 1-1

1-20

Strategic Management Model
Figure 1-2

1-21