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ASSIGNMENT 3: A.P. MOLLER – MAERSK RESPONDING TO CHALLENGES OF SUSTAINABILITY 1

ASSIGNMENT 3

A.P. MOLLER – MAERSK

RESPONDING TO CHALLENGES OF SUSTAINABILITY

RANIA ANANI

ADMN404V12December 21, 2014

ATHABASCA UNIVERSITY


EXECUTIVE SUMMARYThe Maersk Group is facing threats to its long term profitability including its dependency on

container shipping for revenues, increasing piracy, the negative impact on the environment, increasing environmental regulatory pressures and bunker prices. Some opportunities that the group has include diversifying into other business areas such as door to door mail, reaping the benefits of involvement with the Green Ship of the Future Project, and the expanding demand for marine ports and marine freight services markets.

The Maersk group enjoys strengths in its abundant resources which make it the largest container shipping company in the world. It also enjoys the highest employee productivity which speaks to its management capabilities. A diversified revenue stream and geographic spread is also an advantage that the group enjoys as well as strong financial performance. Unfunded pension obligations and high debts are a few weaknesses that the group suffers from.

In order to improve the sustainability of the group’s competitive advantage it must take steps to secure a distinctive competency that will not be easily duplicated by its rivals. Continuing with the Green Ship project and implementation of the new propeller designed to lower emissions is one option. The second option is to invest in an internal R&D department in order to create and patent its own sustainable and low cost shipping technology. The last option and recommended option is to acquire the new start-up company Solar Ship, creating a new business division Maersk Solar Lines. This would require the creation of a new and self-contained business division with a flat organizational structure that will place Maersk as the leader in innovative and sustainable high volume shipping technologies and services.

TABLE OF CONTENTS

Executive Summary............................................................................................................................................. 2

Introduction........................................................................................................................................................... 3Company Overview......................................................................................................................................... 3Industry Overview........................................................................................................................................... 3The Challenge.................................................................................................................................................... 4Assumptions, Limitations & Sources.........................................................................................................4

Mandate................................................................................................................................................................... 4Stakeholder Analysis...................................................................................................................................... 5

External Analysis.................................................................................................................................................. 5Competitive Forces......................................................................................................................................... 5

Competitive Rivalry within the Industry...............................................................................................................5Bargaining Power of Buyers and Suppliers..........................................................................................................6Threat of New Entrants.................................................................................................................................................6Threat of Substitutes...................................................................................................................................................... 6


Macro Environmental Analysis................................................................................................................... 6Threats.................................................................................................................................................................................. 6Opportunities.....................................................................................................................................................................7

Internal Analysis.................................................................................................................................................. 8Strengths............................................................................................................................................................. 9

Distinctive Competencies & Competitive Advantage.......................................................................................9Durability of Competitive Advantage...................................................................................................................10Weaknesses......................................................................................................................................................................10

Strategic Options................................................................................................................................................ 11Continue with Green Ship and New Propeller Design......................................................................11Acquire the Start-up Solar Ship................................................................................................................ 12Invest in an Internal R&D Department..................................................................................................12

Recommendation & Implementation......................................................................................................... 13

Appendices........................................................................................................................................................... 15Table 1.2........................................................................................................................................................... 15Table 1.3........................................................................................................................................................... 15

Bibliography........................................................................................................................................................ 16

INTRODUCTION

COMPANY OVERVIEWThe Maersk group or A.P. Moller-Maersk A/S is headquartered in Copenhagen, Denmark. It

is a worldwide conglomerate. It owns the one of the world’s largest shipping companies and is involved in a wide range of industries including energy, logistics, retail and manufacturing. The group operates through ten business divisions: Maersk Line, Maersk Oil, Dansk Supermarked, APM Terminals, Damco, Maersk Drilling, Maersk Tankers, SVITZER, Maersk Supply Service, and Maersk FPSOs and Maersk LNG. (MarketLine, 2013)

The $48.5bn company is one of the world’s largest shipping companies with a network consisting of 531 owned and chartered container vessels. Their total capacity is 2.1 million equivalent unit containers as of December 31, 2009. Since it is the largest container shipping company in the world; it has a large potential for great environmental impact on the global, national and local levels. (Data Monitor, 2010)

INDUSTRY OVERVIEWThe logistics industry is one of the main industries that Maersk is involved in. It “is an arm

of supply-chain management services focusing on reducing operational costs, improving delivery standards and increasing flexibility to improve the competitiveness of a business across the value chain. “ (Data Monitor, 2010)


Globalization has increased the number of companies that source, manufacture and distribute on a global scale. The complexity of the supply chains of these companies has also continued to increase and so has the importance of logistics and supply chain management services.

The key market players in the industry as of 2010 are UPS, FedEx, DHL, Maersk, Nippon Express, Ryder, TNT Post Group and Expeditors. The global transportation market size was about $2.6 trillion in 2009. The sector is expected to grow at a CAGR of 0.59% during the period of 2009-2014 reaching a total value of $3.5 trillion. (Data Monitor, 2010)

THE CHALLENGECompanies in the logistics industry are under pressure from parties in the industries it

serves to help alleviate their carbon emissions. Increasing regulatory pressures such as those posed by the EU Emission Trading System (ETS) and the green transport initiatives by the European Commission (EC) have lead companies like DHL, Maersk and TNT to incorporate sustainable practices into their operations. These firms recognize that sustainability not only reduces costs but also improves client satisfaction and enhances competitive advantage. (Data Monitor, 2010)

The industry has been implementing increasingly common practices such as network optimization, carbon emissions tracking, modal shifts, and the use of alternative propulsion technologies and fuels. (Data Monitor, 2010) Maersk must adjust its strategy to maintain its competitive advantage in the market in order to meet the increasing standards of sustainability. Successful implementation of sustainability improvement strategies in the long term, will not only serve to cut costs for the group but also improve the company’s financial performance, ROIC and operating profits.

ASSUMPTIONS, LIMITATIONS & SOURCESThis paper is based on the assumption that Maersk does not yet implemented a sufficient

solution to its problems. It is also based on the assumption that the group does not have an internal R&D department solving the bunker fuel dependency issue. The findings in this paper are limited by the secondary sources used. The data and information collected spans the years 2008-2013.

The analysis in this paper is based on information collected mainly from the 2010 publication by Data Monitor (2010) A.P. Moller - Maersk Sustainability and MarketLine’s 2013 company profile of A.P. Moller-Maersk A/S. An article from the Journal of Management and Strategy has also been referred to as well as the Investor’s Business Daily newspaper and Maersk Line’s website.

MANDATE The Maersk Group’s mandate is shared by its 10 business divisions. Maersk Line’s

philosophy stated that as a division of the A.P. Moller – Maersk Group, the company shares the same values and business principles. (Maersk Line, 2014)


The company’s philosophy is divided into three categories: strong environmental performance, a responsible business partner and the preferred choice for customers. Below is the excerpt from the company’s website:

“Strong Environmental PerformanceThrough industry leading environmental performance and a focus on increasing the efficiency of our vessel operations Maersk Line will seek to maintain our CO2 advantage in the industry. Priority issues include energy efficiency of charter vessels, innovative ship design, and innovation in container design and innovation.

A Responsible Business PartnerMaersk Line will exercise due care to protect our name and our values. Priority issues include responsible procurement, respect for human and labour rights, and protection of the marine environment.

The Preferred Choice for CustomersMaersk Line will work to enable transparency and choice for our customers, supporting their efforts to create more sustainable supply chains and partnering on leadership initiatives to create joint value for

sustainable profitable growth. ” (MarketLine, 2013)

STAKEHOLDER ANALYSISMaersk Group’s stakeholders include its shareholders, employees, customers, suppliers,

creditors and communities. Shareholders are the primary stakeholders, expecting annual profit rate growths and returns. The company’s employees expect decent salaries, promotions and increases in wages depending on their seniority and stage in their careers. The company’s clients expect the promised business partnership, supply chain value in addition to socially responsible and sustainable solutions.

Another group of stakeholders are Maersk’s creditors expecting payments for the large debts that the company has. Maersk’s retired employees expect their pensions and are therefore another important group of stakeholders. The communities which Maersk impacts; in this case the global community, expect the company to continue giving back by increasing environmental sustainability as part of its corporate social responsibility.

EXTERNAL ANALYSIS

COMPETITIVE FORCES

COMPETITIVE RIVALRY WITHIN THE INDUSTRY

The shipping industry is highly competitive. There are several multinational corporations including Hanjin Shipping, Evergreen Marine, Hyundai Merchant Marine and Neptune Orient Lines. These companies operate through a global platform and offer a comprehensive range of services. This fierce competition creates intense pressures on logistics and transportation companies to offer


lower freight rates while reducing delivery and turnaround time. Firms that fail to lower their prices while increasing their service standards risk failure.

Companies in this industry seek to differentiate their services by offering faster delivery times and extended services to increase their market share. Providers are also investing in higher capacity vessels in order to increase volume carrying capacity in order to optimize delivery times and lower costs. Efficiency is a critical success factor in the industry making operational excellence the dominant strategy pursued by companies. Rapid expansion of operations in order to increase revenue growth also places additional pressure on the operations of companies and reduces their profit margins. (MarketLine, 2013)

BARGAINING POWER OF BUYERS AND SUPPLIERS The main suppliers to the liner shipping industry include oil producers, shipbuilders and

port terminals. With regards to bunker fuel prices it is evident that the suppliers have a larger bargaining power while the buyers (shipping companies such as Maersk) have the worse bargaining position. The shipbuilders have a relatively bad bargaining position due to the decreased demand for their services since the 2008 recession. The bargaining power of the port terminals however is determined by their competitive advantage over other port terminals such as location, facilities and service quality. The buyers’ bargaining power on the other hand, has been increasing due to the increased demand for capacity and the shipping companies’ expansion plans. Oversupply and the resultant overcapacity lead to collapsed chartered rates and freight rates. (Gao & Yoshida, 2013)

THREAT OF NEW ENTRANTS

Due to the high initial capital investment required to enter this industry and the complex chain of logistical support needed to merely meet industry standards, the threat of new entrants is rather low. There are also some restrictions on capital and government policies that stop new entrants from successfully entering the market. (Gao & Yoshida, 2013)

THREAT OF SUBSTITUTES

Currently there is no substitute for liner shipping that offers the same large cargo volumes transportation services at low prices. Air freight among other options are much more costly and cannot handle large volumes the way the liner shipping industry does. (Gao & Yoshida, 2013)

MACRO ENVIRONMENTAL ANALYSIS

THREATS High Dependency on Container Shipping

Almost 42% of the group’s revenues were generated from the container shipping industry in 2009. Since the economy is highly volatile in nature this dependency might be a problem in the future for the group’s financial performance. (Data Monitor, 2010)

Piracy Threatening Maritime ShippingPiracy incidents on the high seas saw an annual increase of 40% in 2009 according to the

International Maritime Bureau (IMB). Half of all attacks worldwide occurred off the coast of


Somalia. Successful pirate hijackings have also increased in number and Maersk has been affected by them. A vessel deployed as part of Maersk Line’s East Africa service network was captured in the Indian Ocean in April 2009. Pirates attacked the same vessel in November 2009. (Data Monitor, 2010)

According to a recent global piracy report published by the International Chamberof Commerce (ICC) International Maritime Bureau (IMB), in the first six months of 2013, 138 piracy incidents occurred and seven hijackings were reported. As a result of these attacks 127 sailors were taken hostage. (MarketLine, 2013) Shipping companies have faced the risk of paying ransoms of $75-100 million dollars for pirates to return a ship. An increase in these attacks would have a negative impact on the group’s bottom line.

Environmental Regulatory PressuresMaersk Group’s involvement in multiple industries makes it subject to numerous

regulations from both national and international agencies regarding emission reduction. Maersk’s vessels and oil drilling activities face increasing operating costs and lower profitability as a result of these regulations and obligations. (Data Monitor, 2010)

Increasing bunker prices could impact revenuesAny increase in bunker prices has a negative impact on Maersk’s earnings. Changes in the

prices of crude oil impact bunker prices. It is estimated that the average bunker prices would rise from $672 per metric ton in 2012 to $760 per ton by 2017. Bunker oil prices make up a significant portion of costs incurred in Maersk’s liner trade, bulk shipping and air cargo services. Passing on all the costs of bunker fuel price increases to the customers is not an option for the company. By increasing rate hikes and fuel surcharges to completely cover the bunker costs, the group would risk losing its market share to competitors. Therefore, a rise in fuel costs would negatively impact the financial position and operating profits of the firm. (MarketLine, 2013)

OPPORTUNITIES

Diversifying into other business areasExpanding into them mail and express mail branches of the logistics industry is an option

for Maersk to explore. Considering the group’s success and expertise, expanding into this line of business should not be too difficult. Offering customers point to point delivery options would diversify the company’s portfolio further, reducing the dependency of the group’s financial performance on container shipping. (Data Monitor, 2010)

Green Ship of the Future projectThe Green Ship of the Future forum was initiated by Maersk, Odense Steel Shipyard, MAN

Diesel and Aalborg Industries in Denmark in 2007. The forum has grown to include about 20 participants in total and is being coordinated by the Force Technology and Technical Training University of Denmark. The project aims to create innovative solutions to reduce the environmental impact of ocean freight. This initiative could help Maersk achieve its sustainability objectives and become an industry leader in sustainable innovation. (Data Monitor, 2010)

Meeting long-term CO2 Emissions Target


The group has set targets for reducing emissions by 10% in 2012 and 20% in total from the year 2007 to 2017. The current emission reduction programs will allow it to achieve those targets. (Data Monitor, 2010) These targets could be expanded further to achieve a more significant competitive advantage and lower operational costs in the long term.

New Propeller DesignThe contracted loaded tip (CTL) is a new propeller design by the company Sistemar

currently being tested on Maersk ships. This new propeller is expected to reduce air emissions and fuel consumption by up to 8%. If successfully tested it could be installed on all of Maersk’s ships, significantly reducing emissions. (Data Monitor, 2010)

Growing Marine Ports and Services MarketThe global marine ports and services market has been recovering since 2009. It is expected

to experience strong and stable growth towards the end of the forecast period. In 2012 the market has total revenues of $58.1 billion, according to MarketLine (A division of Informa plc.), which is a compound annual growth rate (CAGR) of 5.1% since 2007. (MarketLine, 2013) The performance of the market is further forecasted to accelerate with an estimated CAGR of 7.2% from 2012-2016. This acceleration is expected to drive the market value up to $76.7 billion.

Maersk is operating a global terminal network in 68 countries through APM terminals. It also has interests in 69 port and terminal facilities and over 170 inland service operations. Maersk also provides port management and terminal operations services to over 60 liner shipping and port customers. Therefore, an expanding market will drive the demand for Maersk’s services which if then captured will positively impact its financial growth. (MarketLine, 2013)

Strong Outlook For the Global Marine Freight MarketAccording to MarketLine, the global marine freight market is also expected to grow. Solid

growth rates are forecasted up-until and including the year 2017. The performance of the industry is forecasted to accelerate with an expected CAGR of 4.6% for the period of 2012-2017. This would drive the industry’s value up to $513.8 billion by the end of 2017 compared to $410.7 billion in 2012. The Maersk Line division could benefit from this opportunity for market expansion and increased demand for the company’s services. (MarketLine, 2013) There is ample opportunity for the company to improve its return on invested capital (ROIC).

Growing Oil and Gas Transportation MarketThe oil and gas transportation markets are forecasted to grow at an anticipated CAGR of

7.8% for the 2012-2017 period to record revenues of more than $220 billion. The Maersk Tankers division operates a fleet of 162 crude oil carriers, product tankers and gas carriers, which transport crude oil, refined oils products and gas. Maersk LNG operates six filly owned and two partially owned transport vessels. This creates an opportunity for Maersk’s divisions to capitalize on this growth in market demand. (MarketLine, 2013)

INTERNAL ANALYSIS


STRENGTHS

DISTINCTIVE COMPETENCIES & COMPETITIVE ADVANTAGE

ResourcesAs of December 31, 2009 the Maersk group has a global network comprised of 531 owned

and chartered container vessels with a total capacity of 2.1 million twenty-foot equivalent units (TEUs). These figures make the company the world’s largest container shipping company. (Data Monitor, 2010)

CapabilitiesFor the year 2009 Maersk’s revenue per employee ratio was the largest in the industry. This

means that the company enjoys a competitive advantage in productivity. (Data Monitor, 2010)

Adoption of Green PassportThe company has adopted the green passport which is a document listing the inventory of

all materials used in the construction of ship, which are considered potentially hazardous to human health or the environment. (Data Monitor, 2010) This document ensures that when the ship is dismantled it will be done in a labor safe and environmentally responsible manner. (A.P. Moller - Maersk Vessels, 2007)

Voyage efficiency systemThis system was developed to plan voyages in the most fuel-efficient and environmentally

friendly manner. It is also used to minimize engine loads while ensuring that ships arrive just in time. (Data Monitor, 2010)

Diversified Revenue Streams and Geographic SpreadMaersk’s portfolio of businesses is diversified. The group comprises of approximately 1000

companies involved in several business lines within the transport, energy, offshore, retail and manufacturing industries across 130 countries. The company operates mainly in Europe, Asia, the Americas, the Middle East and Africa. (MarketLine, 2013)

The ten business divisions are Maersk Line; Maersk Oil; Dansk Supermarked; APM Terminals; Damco;Maersk Drilling; Maersk Tankers; SVITZER; Maersk Supply Service; and Maersk FPSOs and Maersk LNG. (MarketLine, 2013)

45% of the total revenues in FY2012 were generated from the Maersk Line division, hence the company’s high dependency on the division. Maersk Oil contributed to the second largest portion of the revenues at 16.9%, followed by Dansk Supermarked (15.9%), APM Terminals (7.9%), Damco (5.4%), Maersk Drilling (3.1%), Maersk Tankers (2.1%), SVITZER (1.5%), Maersk Supply Service (1.5%), and Maersk FPSOs and Maersk LNG (0.6%). (MarketLine, 2013)

The revenue spread is also diversified geographically speaking. In FY2012 Denmark accounted for the largest revenue share of 18.9% of the group’s total revenues. The US accounted for 9.5%, followed by Qatar (7.3%), the UK (5%), China and Hong Kong (3.6%), Brazil (2.4%) and


Singapore (0.6%). The remaining 52.9% of revenues were spread over other the remaining geographic regions. (MarketLine, 2013)

This diversification in revenue sources provides the company competitive advantage over its competitors and reduces the group’s risk exposure to demand fluctuations in certain divisions and geographic regions. This spread also enables the group to benefit from opportunities available in various market segments. (MarketLine, 2013)

ProfitabilityThe group recorded solid growth in sales and profits in FY2012. Revenues of DKK342,058

million ($59,100.8 million) were recorded during FY2012, which represent an increase of 6.1% over FY2011. Moreover, the net profit of Maersk grew by 42.7% amounting to DKK21,673 million ($3,744.7 million) in FY2012, compared to DKK15,189 million ($2,624.4 million) in FY2011. (MarketLine, 2013)

The net margins of the group also experienced robust growth. The net profit margin increased to 6.3% in FY2012 from 4.7% in FY2011. Strong growth was also witnessed across most geographic regions in FY2012. Revenues from Denmark grew by 2.3%, while revenues from the US, China and Hong Kong, Brazil, Singapore, and others grew by 25%, 16.7%, 22.6%, and 11.6%, correspondingly. This strong financial performance indicates that the company’s the shareholder’s value (created value and ROIC) and provides the group with better financing options for expansion plans. (MarketLine, 2013)

DURABILITY OF COMPETITIVE ADVANTAGE

Due to the competitive nature of the industry, increased sustainability standards and environmental regulations as well as fluctuating bunker fuel prices; Maersk’s competitive advantage is not durable enough to tackle future challenges. Measures must be taken to reduce the significant dependence on the liner shipping business division and the dependency of the liner shipping division on bunker fuel prices.

Moreover, resources such as the number of container vessels and the employee productivity can easily be duplicated by other strong competitors in the industry. Maersk must find another way to create a sustainable competitive advantage in the long term.

WEAKNESSES

Unfunded pension obligationsMaersk’s unfunded pension obligations are very large. These retirement benefits for the

group’s employees are provided directly and indirectly through contributions to defined contribution plans. The pension obligations amounted to DKK14,044 million ($2,426.5 million) in 2012 compared to the planned assets of DKK12,596 million ($2,176.3 million). This means that the company has an unfunded status of DKK1,448 million ($250.2 million). These obligations may force the group to make regular cash contributions in order to close the gap between the pension assets and liabilities. This would negatively impact the cash flow and liquidity of the company. (MarketLine, 2013)


Highly indebted

By the end of FY2012, Maersk had total borrowings of DKK111,064 million ($19,189.6 million), making it highly indebted. The net interest bearing debt was DKK88,598 million ($15,308 million) in FY2012. Net interest expenses are also high and stood at DKK4,724 million ($816.2 million) and DKK4,436 million ($766.5 million) in FY2012 and FY2011, correspondingly.

Debt service payments to settle this heavy debt could negatively impact cash flows from operations and could limit the group’s ability to secure additional financing for expansion projects. The cash diversion from operations and expansion plans to debt obligations places Maersk at a competitive disadvantage to companies with better access to capital resources. (MarketLine, 2013)

STRATEGIC OPTIONS

CONTINUE WITH GREEN SHIP AND NEW PROPELLER DESIGNAn option for Maersk is to continue investing in the research and development of

technologies and innovations with the Green Ship of the Future forum. Despite the risk of sunk costs, it is likely that an innovative solution to reduce the need for bunker fuels will be discovered. This would help the group meet their sustainability and lower cost objectives.

Continue with Green Ship & New Propeller DesignArenasContinue with current business division diversification and clienteleVehiclesIncrease financial investments and contributions including hiring own scientists and researchers to be involved in the initiativeDifferentiatorsMaersk must use its main differentiator as an experienced, reliable and comprehensive high volume shipping service provider and combine it with any resulting reductions in emissions and fuel costs to attract market share.StagingImmediately contact HR to find a suitable scientist and researcher to hire full time with Green Ship on behalf of Maersk. Increase financial contributions to the initiative and set up a monthly contribution schedule..Economic LogicDespite the increased up-front costs and financial investments, the initiative should lower long term operational costs and improve financial performance in the long runPros

Many collaborators working on the initiative increases the chances of success Maersk maintains good relations with other players in the industry The group would stay up to date with innovations in the segment Having their own scientists on the initiative will increase their involvement and

influenceCons

Maersk cannot patent any findings or technologies resulting from the initiative


Investments may be sunk costs due to insufficient progress

ACQUIRE THE START-UP SOLAR SHIPMaersk can also acquire the startup company Solar Ship. This company has designed solar

powered cargo ships. It is a wedge shaped ship that is a hybrid helium-filled dirigible and airplane. It operates using energy generated from the solar panels on top. Their first ship, Solar Impulse, has been in testing and is designed to fly 620 miles a day up to 53mph and haul 12 tons while landing virtually anywhere. (Investor's Business Daily, Inc., 2011)

Acquire the Start-up Solar ShipArenasExpand Maersk Group’s diversified business portfolio to include this new solar shipping division and cater to a new market segmentVehiclesAn acquisition of this company would be highly recommended in order to secure the technology and know-how as a competitive advantage for MaerskDifferentiatorsThis acquisition will significantly impact Maersk’s differentiation in the industry. It would be considered the most innovative and future oriented provider of high volume cargo shipping. This impact would likely last a long time if the company uses this strategy wisely.StagingImmediately get in touch with the company’s owners and discuss acquisition before other competitors reach them firstEconomic LogicDespite the large capital and acquisition costs, the move should secure an innovative new transportation and logistics line of business and secure a long term competitive advantage that will translate into significant increase in shareholder value.Pros

The group will become the industry leader in innovation by acquiring this company

The creation of a new business line The creation of a new revenue stream such as through licensing the technology

in the future etc News of acquisition likely to increase shareholder value through higher share

pricesCons

A high risk investment High capital costs May negatively impact Return on Invested Capital ratios in the short term

INVEST IN AN INTERNAL R&D DEPARTMENT Maersk could invest in an internal R&D initiative in order to secure and patent its own

innovative new sustainable technology and alternative energy source for its liner ships. Unlike the R&D collaborations, any resulting findings or solutions would be owned by the Maersk group and


the company would gain a competitive advantage that cannot be easily duplicated by its rivals. This would serve as a long term solution to Maersk’s sustainability and bunker fuel costs problem while giving the group a distinctive competency that will enhance the durability of competitive advantage in the long term.

Invest in an Internal R&D DepartmentArenasContinue with current business division diversification and clienteleVehiclesCreate a new department specifically for research and development to achieve the objectives. Hire talented new employees (engineers, scientists and researchers) and provide them with the resources required to innovate and create new sustainable liner shipping technologies.DifferentiatorsMaersk must use its main differentiator as an experienced, reliable and comprehensive high volume shipping service provider and combine it with the unique resulting technology. It would differentiate the company as the most innovative and future oriented in the industry. This would attract a larger market share with special needs for new sustainable solutions.StagingSet up a meeting with Maersk Line’s management as soon as possible to draft a plan for the establishment of the new R&D departmentEconomic LogicDespite the increased up-front costs and financial investments, the initiative should lower long term operational costs and improve financial performance in the long run. The improvement will be directly proportional to the significance of the findings or new technologies developed through this initiative.Pros

Ability to patent any resulting technologies and solutions Having larger control over the research and findings With success the group would become the leader in innovation within its

industry Potentially reduce long term operational costs and increase sustainability The group can create a new revenue stream from resulting technologies it may

license to competitorsCons

High initial investments High risk Negative impact on ROIC in the short term Being limited to in house scientists and engineers may limit the results of R&D

RECOMMENDATION & IMPLEMENTATIONAcquiring the start-up Solar Ships is the recommended option. This strategy is most suitable

for tackling the challenges posed by the external environment. There is a bright potential with this acquisition as entering this new business line aligns with the critical success factors of the Maersk


group. Since Maersk Line is very experienced in the industry, and has the correct mix of resources, it is more than capable of successfully tackling this opportunity.

This is the strategy that will give the Maersk group the distinctive competency that will be difficult for any rivals to duplicate. The elements of this strategy are internally consistent and the Maersk Group’s robust financial performance as a whole can be used to finance this acquisition. With the right strategy, the group will be able to secure financing by increasing share price while breaking the news to the investors.

Lastly, this strategy can be implemented as there is no room for organizational resistance when introducing a whole new business division. New employees and new managers are not likely to resist a new company that just hired them and therefore they will likely cooperate and ensure the success of the new division.

In order to reduce bureaucratic costs associated with managing a new business division, Maersk should create this Solar shipping division to be self-contained as part of their multidivisional organizational structure. This new business division must be developed with a strategy, vision, mission and mandate that are an extension of that of the Maersk Group. (Jones, 2013)

A new organizational design must be implemented with a suitable combination of organizational structure that will best promote and capitalize on innovation in the sustainable shipping (Solar shipping). Control systems created for this division must support and encourage further innovation in the solar shipping technology. The culture must be that of the Maersk group with a higher focus on the future, innovation and sustainability. (Jones, 2013)

This business division (Let’s call it Maersk Solar Lines) should implement a flat organizational structure where decision making is decentralized. This would create the ideal environment for rapid and successful innovation. Strategic control systems (including reward systems and incentives) must be implemented by the current Maersk management to ensure that the new business division will work as intended to meet the strategic objectives of the group.

The organizational culture of Maersk (the values, norms, beliefs and attitudes) should also be passed on to the business division from the management through organizational socialization of new employees. The business model, structure and control must be implemented and combined in a way that will ensure strong relationships among the functions that will work together to further build on the acquired distinctive competency (solar shipping technology).

Maersk Solar Lines will likely cost more to develop and sustain in the short term since research and development of new technologies is a costly endeavor. However, in the long term, Maersk will have positioned itself as the world leader in sustainable and innovative cargo transportation and logistics services. (Jones, 2013)

APPENDICES


TABLE 1.2 SWOT Analysis (Data Monitor, 2010) (MarketLine, 2013)

TABLE 1.3Five forces diagram

StrengthsDiversified revenue streams and geographic spreadRobust financial performance of the groupWorld’s largest container industryHigh employee productivity (per industrystandards)Adoption of Green PassportImplementation of voyage efficiency system

WeaknessesUnfunded pension obligationsHighly indebted

ThreatsIncreasing bunker fuel pricesCompetitive pressuresDependency on container shipping industryPiracy threat to maritime shippingNegative impact on the environmentRegulatory pressure on the industry to reduce emissions

OpportunitiesGrowing marine ports and services marketStrong outlook for global marine freight marketGrowing oil and gas transportation marketDiversifying into other business areasGreen Ship of the Future projectLong-term CO2 emissions targetNew propeller design

Porter's Five Forces + Andrew

Grove's 6th Force

Bargaining Power of

Buyers

Bargaining Power of Suppliers

Threat of Substitute Products

Threat of New Entrants

Competitive Rivalry within

an Industry


BIBLIOGRAPHYA.P. Moller - Maersk Vessels. (2007). 2007 Environmental Report – A.P. Moller - Maersk Vessels. A.P.

Moller - Maersk Vessels.

Data Monitor. (2010). A.P. Moller - Maersk Sustainability. Data Monitor.

Fredrickson, D. C. (2001). Are you sure you have a strategy? Academy ol Management Executive, Vol. 15, No. 4.

Gao, Z., & Yoshida, S. (2013). Analysis on industrial structure and competitive strategies in liner shipping industry. Journal of Management and Strategy, 4(4), 12.

Investor's Business Daily, Inc. (2011, 11 17). Solar-powered cargo ships. Investor's Business Daily. Los Angeles: Investor's Business Daily, Inc.

Jones, C. W. (2013). Strategic Management an Integrated Approach, 10th Edition. Cengage Learning.

Maersk Line. (2014). Philosophy. Retrieved from Maersk Line: http://www.maerskline.com/en-ca/about/philosophy

MarketLine. (2013). A.P. Moller-Maersk A/S. MarketLine.

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