Harvard Case - Sunmoon: Transforming an Asset Heavy Legacy Business Model
"Sunmoon: Transforming an Asset Heavy Legacy Business Model" Harvard business case study is written by Simon Schillebeeckx, Sheetal Mittal. It deals with the challenges in the field of Strategy. The case study is 14 page(s) long and it was first published on : Dec 15, 2017
At Fern Fort University, we recommend Sunmoon implement a comprehensive strategy focused on digital transformation and business model innovation to address the challenges posed by the rapidly evolving global construction industry. This involves leveraging technology and analytics, strategic alliances, and vertical integration to create a sustainable competitive advantage.
2. Background
Sunmoon is a South Korean construction company with a long history and a strong reputation for quality and reliability. However, the company faces significant challenges in the form of an asset-heavy legacy business model, intense competition, and the growing influence of disruptive innovation in the industry. The case study highlights Sunmoon's efforts to adapt to these challenges through various initiatives, including international expansion, product diversification, and technology adoption.
The main protagonists are:
- Mr. Kim, the CEO of Sunmoon, who is committed to transforming the company's business model and securing its future.
- Mr. Lee, the head of the company's new business development division, who is responsible for exploring new opportunities and implementing innovative strategies.
- The Sunmoon team, who are tasked with navigating the complexities of the changing industry landscape and implementing the company's strategic vision.
3. Analysis of the Case Study
To better understand Sunmoon's situation, we can utilize a combination of frameworks:
1. Porter's Five Forces:
- Threat of New Entrants: High due to the increasing availability of technology and the rise of new players in the construction industry.
- Bargaining Power of Buyers: Moderate, as large construction projects often involve multiple stakeholders with varying needs and priorities.
- Bargaining Power of Suppliers: Moderate, as the construction industry relies on a diverse range of suppliers, but some materials and specialized services can be scarce.
- Threat of Substitutes: High, as alternative construction methods, such as modular and prefabricated construction, are gaining traction.
- Competitive Rivalry: Intense, as the construction industry is characterized by a large number of players vying for limited projects.
2. SWOT Analysis:
Strengths:
- Strong Brand Reputation: Sunmoon enjoys a strong reputation for quality and reliability, which is a valuable asset in the construction industry.
- Experienced Workforce: The company has a skilled and experienced workforce, which is crucial for executing complex construction projects.
- Financial Stability: Sunmoon has a solid financial foundation, allowing it to invest in new technologies and initiatives.
Weaknesses:
- Asset-Heavy Business Model: The company's reliance on large-scale infrastructure projects makes it vulnerable to economic downturns and market fluctuations.
- Limited Technology Adoption: Sunmoon lags behind its competitors in terms of adopting new technologies, such as AI and machine learning, which can improve efficiency and reduce costs.
- Bureaucratic Culture: The company's traditional organizational structure and decision-making processes can hinder innovation and agility.
Opportunities:
- Emerging Markets: The growth of emerging markets presents significant opportunities for Sunmoon to expand its operations and secure new projects.
- Digital Transformation: Leveraging digital technologies can enhance efficiency, improve project management, and create new revenue streams.
- Sustainable Construction: Growing demand for sustainable construction practices provides an opportunity for Sunmoon to differentiate itself and attract environmentally conscious clients.
Threats:
- Economic Uncertainty: Global economic instability can impact construction spending and project delays.
- Technological Disruption: The emergence of new construction technologies and business models could threaten Sunmoon's competitive position.
- Regulatory Changes: Changes in government regulations and policies can impact the construction industry and create new challenges for Sunmoon.
3. Value Chain Analysis:
Sunmoon's value chain can be analyzed to identify key activities where business model innovation and digital transformation can be implemented:
- Inbound Logistics: Optimizing supply chain management through technology and analytics to ensure timely and cost-effective procurement of materials.
- Operations: Utilizing AI and machine learning to improve planning, scheduling, and resource allocation, enhancing project efficiency and reducing costs.
- Outbound Logistics: Implementing digital solutions for project delivery and logistics management, ensuring timely and accurate delivery of materials and services.
- Marketing and Sales: Leveraging digital marketing and social media to reach new clients and build brand awareness, particularly in emerging markets.
- Customer Service: Utilizing digital platforms to provide real-time updates and communication with clients, enhancing transparency and building trust.
4. Recommendations
To address the challenges and capitalize on opportunities, Sunmoon should implement the following recommendations:
1. Embrace Digital Transformation:
- Invest in Technology: Implement advanced technology solutions across the value chain, including BIM (Building Information Modeling), IoT (Internet of Things), and AI-powered analytics to improve efficiency, accuracy, and project management.
- Develop a Digital Strategy: Define a clear digital strategy that outlines the company's digital transformation goals, key initiatives, and expected outcomes.
- Build Digital Capabilities: Invest in training and development programs to upskill employees and equip them with the necessary digital skills.
2. Innovate Business Model:
- Explore New Revenue Streams: Diversify revenue streams by offering value-added services, such as project financing, construction management, and facility maintenance.
- Develop a Modular Construction Strategy: Invest in modular construction technologies to offer faster, more cost-effective, and sustainable construction solutions.
- Focus on Sustainability: Promote sustainable construction practices and offer green building solutions to attract environmentally conscious clients.
3. Strategic Alliances and Partnerships:
- Collaborate with Technology Providers: Partner with leading technology companies to access cutting-edge solutions and expertise in digital transformation.
- Form Strategic Alliances with Construction Companies: Collaborate with other construction companies to leverage complementary strengths and expand into new markets.
- Engage with Government Agencies: Establish strong relationships with government agencies to stay informed about regulatory changes and access opportunities for public-private partnerships.
4. Vertical Integration:
- Expand into Related Businesses: Consider expanding into related businesses, such as manufacturing prefabricated components or providing construction materials, to control costs and improve efficiency.
- Develop In-House Expertise: Invest in developing in-house expertise in areas such as design, engineering, and project management to enhance project quality and reduce reliance on external consultants.
5. Global Expansion:
- Target Emerging Markets: Focus on expanding into high-growth emerging markets with strong infrastructure development needs.
- Adapt to Local Conditions: Tailor business operations and marketing strategies to meet the specific needs and preferences of local markets.
- Develop Cultural Sensitivity: Foster a culture of diversity and inclusion to ensure effective communication and collaboration with international partners and clients.
5. Basis of Recommendations
These recommendations align with Sunmoon's core competencies, mission, and external customer needs. They address the company's weaknesses while leveraging its strengths and opportunities. The recommendations are based on the following considerations:
- Core Competencies: The recommendations leverage Sunmoon's existing strengths in project management, quality, and financial stability.
- External Customers: The recommendations address the growing demand for sustainable, efficient, and technologically advanced construction solutions.
- Competitors: The recommendations aim to differentiate Sunmoon from its competitors by embracing disruptive innovation, digital transformation, and vertical integration.
- Attractiveness: The recommendations are expected to enhance Sunmoon's profitability, market share, and long-term sustainability.
6. Conclusion
By embracing digital transformation and business model innovation, Sunmoon can transform its asset-heavy legacy business model into a more agile, efficient, and sustainable operation. The recommendations outlined above will enable the company to navigate the challenges of the evolving construction industry, secure its future, and create long-term value for its stakeholders.
7. Discussion
Alternative options include:
- Maintaining the Status Quo: This option carries significant risks, as the company would be unable to compete effectively in the rapidly changing industry.
- Mergers and Acquisitions: While this could provide access to new technologies and markets, it also presents challenges in terms of integration and cultural compatibility.
Key assumptions include:
- Technology Adoption: The success of the recommendations depends on the successful adoption and implementation of new technologies.
- Market Demand: The recommendations assume a continued demand for sustainable, efficient, and technologically advanced construction solutions.
- Financial Resources: The recommendations require significant investment in technology, training, and new business ventures.
8. Next Steps
To implement the recommendations, Sunmoon should:
- Develop a Detailed Implementation Plan: Outline specific actions, timelines, and resource allocation for each recommendation.
- Establish a Dedicated Team: Create a cross-functional team to oversee the implementation of the digital transformation and business model innovation strategy.
- Monitor Progress and Adjust as Needed: Regularly track progress, evaluate results, and make adjustments to the strategy based on market conditions and emerging trends.
By taking these steps, Sunmoon can successfully navigate the challenges of the evolving construction industry and secure its future as a leading global player.
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Case Description
Set in 2016, this case presents the ten-year long journey undertaken by SunMoon to transform its legacy business model that had led the company to become a loss-making, cost-inefficient and debt-ridden entity in 2007. Gary Loh, who joined the company in 2007, spearheaded the efforts to restructure the debt, modernise operations, and change the business model. However, the process was arduous, being besieged on one hand by financial issues such as capital inadequacy, downward spiral in revenues and increasing losses; and on the other hand by operational issues such as inter-personal conflicts, debt settlement challenges and labour unrest. The case further discusses how SunMoon, after having divested its non-performing assets and non-core businesses, set out to achieve its new strategic vision to be an asset-light, brand-focused, and consumer-oriented company. Its new business model centred on building and leveraging SunMoon's brand equity, developing a larger retail network across more geographies and dealing in a wider range of products. While SunMoon's deal with Yiguo (Alibaba backed) - the leading fresh food e-commerce company in China, was a testament to its new model, fruits being a commodity product and the highly fragmented nature of the industry raised various concerns: Would SunMoon be able to become the industry benchmark in quality for both buyers and growers, and provide an aggregator platform like Uber or Airbnb? Would it be able to create the last mile connectivity with end-consumers and provide brand differentiation among them?
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