Explanation of the Decision-Making
The Decision-Making Process
The decision to open an innovation center in Singapore was made by the leadership of Ferrero Group, namely by Ferrero Chief Executive Officer Giovanni Ferrero in 2017 (“Ferrero announces opening of Singapore innovation center,” 2017). Another party involved in the decision-making was the Singapore side, represented by the Singapore Economic Development Board and its chairmen Dr. Beh Swan Gin (“Ferrero announces opening of Singapore innovation center,” 2017). The agreement between the parties was implemented in a planned manner with the involvement of the investors and shareholders. This approach aligns with the theoretical consideration that the interests of shareholders should always be taken into account when making large scope decisions that might impact the return on investment and overall profitability of an organization (Barney, 2018). Thus, the decision made by Ferrero Group emerged in a favorable environment with the consent of all involved parties.
At the Ferrero Group, the key stakeholders in the strategic solution were using a rational decision-making style. This style is characterized by the need “to consider several alternative scenarios and probabilities for each alternative before making a decision (Abubakar et al., 2019, p. 8). According to this style, decision-makers must collect relevant information, analyze it, and consciously and structurally evaluate the evidence to make an informed decision. In such a manner, Ferrero Group stakeholders applied relevant criteria, identified alternatives, and made a choice objective (Abubakar et al., 2019). Thus, the decision was a long-term solution that was made based on rationally analyzed information and alternatives.
Overall, when placing the chosen organizational strategy concerning innovation center decision-making, one should emphasize that it was implemented based on prescriptive theory. Indeed, this broad theoretical frame implies that the strategic decision was not made in response to an emergency but rather grounded on rational thought-through analysis (Coffie & Blankson, 2018; Pisano, 2017). The rational style was aligned with the profit-maximizing and competition-based theory. Given the planned and well-managed process of innovation center opening that was based on the evaluation of opportunity and risk factors, the goals of profit maximization and enhancement of competitive advantage were pursued. This theory is based on “the belief that a firm’s primary objective is to maximize long term profit and to also ensure a sustainable competitive advantage over its rivals in the external market environment” (Titus & Adiza, 2019, p. 17). In addition to the profit maximization, the social responsibility goals were pursued, leading to a better competitive position and higher profit.
When considering the theoretical frameworks in which the decision was made, one might state that Ferrero Group’s strategy toward innovation pursuit was based on dynamic capabilities identification. According to De Aro and Perez (2021), “the practice of open innovation as a strategic alternative to gain competitive advantage through internal and external collaboration to identify opportunities and develop new markets” (p. 113). The competitive environment analysis and the internal dynamic capabilities such as talent were influential for Ferrero Group (Pisano, 2017). Thus, given the rationality of the decision and its alignment with prescriptive theory and profit-maximizing and competition-based theory, several essential factors within the external and internal environment should be analyzed to explain the strategy. Table 1 compiles the scope of factors that have been decisive for Ferrero Group when opening an innovation center in Singapore. The factors will be explored in more detail in the consecutive sections of the report.
Table 1. Factors Influencing Ferrero Group’s Decision-Making when Opening Innovation Center in Singapore
Shareholder Perspective
From the point of view of investors and shareholders of Ferrero Group, the decision to expand on a global scale, advance operations in Asia, and boost technology and development was based on internal interests. These interests are manifested in gaining a global competitive perspective and increasing return on investment. As the company explained, “the new center is designed to strengthen Ferrero’s position as a global innovation leader and will house several strategic innovation functions” (“Ferrero announces opening of Singapore innovation center,” 2017, para. 2). The advancement of the technological decision in alternative raw materials, sustainable manufacturing, and sustainable resourcing was evaluated as favorable factors for the company’s firming leading position. Thus, the decision was made with the shareholders’ perspective in mind.
Leadership Perspective
Another significant determinant in the strategic decision-making process is company management. As Ferrero Group’s management style analytics indicate, it has always been characterized by measurement-managed culture and growth-directed leadership (“Disciplined approach to performance management at Ferrero,” 2021). The opening of an innovation center aligns with the measurement-managed culture of the company since the company aims to enhance the cost-related benefits and quality-based improvements with the findings of the innovation center at hand.
Sustainability Perspective
At the external level, the rising relevance of sustainability issues in businesses worldwide has set a hallmark for companies to pursue environment-friendly production. The case of Ferrero Group’s decision to open a new Asia-based innovation center in Singapore was also influenced by these sustainability trends. Indeed, according to the company’s latest sustainability report, Ferrero Group pays much attention in terms of investment into research and development in sustainable production. In particular, the company focuses on “sustainable packaging, with accelerated programs on compostable and paper-based packaging, food waste reduction, and evolution of sweet packaged food categories, considering better-for-you and plant-based” (“Ferrero Group sustainability report,” 2019, p. 10). Moreover, the company strives to enhance its innovative solutions for sustainable sourcing practices and agricultural technologies, including water management and biocontrol (“Ferrero Group sustainability report,” 2019). Since the decision to open the innovation center in Singapore aligns with these sustainability goals, the strategy is validated by external sustainability trends in the confectionery industry and the particular company-based goals of Ferrero Group.
Customer Perspective
The factor of customer purchasing behavior and overall market characteristics play an important role in making a strategic decision, particularly the one involving global expansion. The choice of Asia in general and Singapore in particular as a location for launching the first Asian innovation center is validated by the growing Asian market. Indeed, as stated by Dr. Beh Swan Gin, “the rapidly expanding consumer markets in Asia, and underscores Singapore’s position as the region’s leading food and nutrition hub” (“Ferrero announces opening of Singapore innovation center,” 2017, para. 5). One of the driving forces of the customer market growth is the increase in the number of individuals qualified as middle class, which enhances their purchasing capacity and allows Ferrero Group to target them as prospective consumers (See Figure 1).
Government Perspective
Governmental issues and the overall state climate of the hosting country play a pivotal role in the strategic decision-making concerning globalization issues. In the case of Singapore, the country’s readiness and openness to foreign investment and business development were favorable factors for Ferrero Group’s decision. The governmental initiatives in making the country an innovative capital of the world boosted location choice. Singapore’s “strategic location in Asia and its prominent role within the global scientific research community, which includes among others, the Agency for Science, Technology and Research (A*STAR) and relevant universities” provide advantageous opportunities for the company (“Ferrero announces opening of Singapore innovation center,” 2017, para. 7). Moreover, the agreement that has been achieved with the Singapore Economic Development Board encouraged the relevance and appropriateness of the strategic decision.
Recommendation of Alternative Decision-Making Strategy and Plan
While the decision-making process of Ferrero Group is informed, rational, well-planned and allows the company to achieve its profitability and social responsibility goals, there is an alternative that might provide benefits for the company. The analyzed approach was placed in the context of the profit-maximizing and competition-based theory within the dynamic capabilities identification framework, which aligns with the prescriptive and not an emergent theory (Titus & Adiza, 2019). The same prescriptive theory would guide the alternative decision-making process since the globalization initiative should be a planned and analyzed procedure aiming at long-term outcomes and not immediate results.
The proposed alternative strategy might be based on the human resource theory to enhance the overall capabilities of the company. Indeed, the overall purpose of creating the innovation center is to direct the intellectual capital and talent into the research and development sphere for obtaining “cutting edge technological solutions to offer our consumers the best quality products that provide always new taste dimensions” (“Ferrero announces opening of Singapore innovation center,” 2017, para. 4). Therefore, instead of investing in buying ten brands of products to diversify the product portfolio, the alternative strategy proposes to invest in a recruitment campaign, both internal and external. It would allow for increasing the quality of the human resources and engage with the support of the prominent talent in the industry. When hiring from the local population, the company will ensure cultural integration into the prospective market, which will enhance customer satisfaction and competitive advantage.
Indeed, the value of successful modern businesses is in the intellectual capital, which is the driving force of both the industry and the economy at large. The proposed alternative strategy might be implemented through inter-organizational collaboration to ensure the exchange of cutting-edge knowledge (Abubakar et al., 2019). From the institutional perspective, inter-organizational collaboration might be initiated through merge or acquisition opportunities with local start-ups. To validate the suggested alternative solution, one might evaluate the confectionery industry perspective, informing the decision-making process. Although Ferrero Group addressed the industry trends by advancing its innovation campaign, the specific features of the contemporary confectionery industry might be contributive to the human-resource-based strategic plan.
The industry now is characterized by the growing tendency of innovation-based environmental solutions to finding alternative raw materials. In particular, the recent statistics in the confectionery industry on a global scale indicates a significant growth of vegan products (See Figure 2). The tendency toward healthier confectionery consumption inclines large companies to engage in initiatives that boost innovation in eco-friendly and healthy product manufacturing, which, in its turn, intensifies the competition. Thus, the company’s opening of an innovation center might meet the industry requirements and enhance Ferrero Group’s competitive advantage if properly prepared teams are created in advance.
Similarly, the growth in healthy, eco-friendly, and vegan food industry market value is noticed currently and forecasted for the future (see Figure 3). According to the forecast, the estimated revenue growth by the year 2028 in the industry will reach 14.8% (“Vegan chocolate confectionery market size, share & trends analysis report,” 2021).
Thus, the demand is likely to grow, with Asian markets becoming more active, necessitating integrating locally-based knowledge into research and development efforts. Since Singapore is a global hub of innovation in the food industry, its talent should be utilized to its maximum to serve the goals of Ferrero Group.
Another important external factor decisive in strategic planning is the overall global economic climate. The shift of Western businesses’ attention toward growing Asian markets has been an ongoing tendency, which is illustrated by the socioeconomic improvements in the region (Buchholz, 2021). Moreover, the growing competition in the confectionery industry facilitates companies to invest in innovation and development to engage themselves in technological advantages that would yield long-term benefits in the form of customer loyalty, high rates of market share, and increased profitability and competitiveness. From this perspective, investing in talent development through hiring and intellectual capital exchange with local innovation leaders would be a beneficial long-term contribution to economic success. This strategy might be reinforced through the political domain by engaging with more support from the Singaporean government. Ferrero Group might initiate scholarships and collaborations with universities to guide the research and development process at the structural level.
Conclusion
In summation, the report has analyzed Ferrero Group’s strategic decision-making process concerning opening an innovation center in Singapore. The analysis revealed that the decision-makers used the profit-maximizing and competition-based theory under the prescriptive strategic theory framework and rational decision-making style. Shareholder interests, leadership position, governmental issues, economic, industry, customer perspectives, and sustainability and industry trends were decisive factors. However, an alternative to concentrating on human resource-based theory was suggested to enhance the research and development capacity using local talent for long-term competitive advantage and social responsibility. The company will make a long-term contribution to its sustainability and competitive advantage by investing in intellectual capital through inter-organizational collaborations with local universities and start-ups and engage with governmental support by boosting scientific research.
References
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