Strategies and strategic positioning

SHARED VALUE AS A DRIVER OF DECISIONS

The basic premise is that before you can add the possibility of creating shared value to strategies, you must first develop an awareness of the reciprocal, tangible benefit of economic relations within the network of stakeholders and, thus, the social context.

Creating shared value does not mean renouncing or relinquishing profit, the engine of free enterprise. Rather, it means a more nuanced consideration of each decision made within an entity, a contemplation of the implications of actions taken, and, within the limitations of decisionary discretion, how choices and strategies can be oriented towards creating a social impact.

It is not, therefore, philanthropy, which is window dressing or even promotional in nature.

They are practical decisions, like MAG Group’s decision to gradually convert its fleet of company vehicles from combustion to electrical/hybrid engines to reduce energy consumption, and to invest in renewable energies so that it can produce the motive power needed in its industrial activities. Indeed, the group plans to build two photovoltaic plants in its Italian facilities within 2021.

Other decisions are more complex and are longer term, such as the creation of research hubs within MAG Group in partnership the OEMs to enhance local expertise.

MAG’s strategy for the next five years is generally underpinned by the opportunities to grow and enhance the group offered by the foundations laid over the group’s recent history (see Errore. L’origine riferimento non è stata trovata.).

It is based on the priority values identified over time and is oriented to the pursuit of continuous improvement, consolidating our strengths and reducing our limitations and weaknesses.

The multi-dimensional concept of a company having many stakeholders, described in an earlier part of this report on MAG’s business model, offers a view of strategy as a tool to enhance the business, while simultaneously remunerating and rewarding all stakeholders.

Of course, the driver remains making the most of its property, plant and equipment and intangible assets, and achieving satisfactory profitability, with reference to performance standards underpinned by self-assessment and benchmarks.

MAG deems that these objectives are achievable through the implementation of an action plan focused on:

• its core business, which it has pinpointed for each operating segment (see Errore. L’origine riferimento non è stata trovata.) and the notes to the consolidated financial statements, Errore. L’origine riferimento non è stata trovata. Errore. L’origine riferimento non è stata trovata. REPORTING);
• strengthening its financial, human and intellectual capital and managing it with discipline;
• consolidating relationships with customers and retaining them;
• expanding its customer base in its market segment and consequently diversifying its portfolio and the related risks;
• projects of technical excellence, both in terms of applied research and the development of new products;
• projects to develop the brand and increase brand recognition;
• a strong connection with the local areas via dialogue and interaction with the community.

Consequently, the fundamental elements of this strategy consist of:

• consolidating MAG’s reputation as a reliable, quality industrial aerospace group with a solid range of products and services, an innovation incubator and a creator of value internally and for the local area;
• strengthening the group’s presence in its market segments, not only by growing in size but also by focusing on the essential processes of its core business, with the aim of acquiring a leadership position;
• increasing its diversification, with an increasingly international presence on the relevant advanced or emerging markets, by entering new geographical areas (Asia) and expanding its presence in the training equipment and business jet segments;
• strengthening its operating model, pursuing greater efficiency and process/structure integration. This scope also includes projects involving human resources, management incentives and striving to balance individual results with those of the entire group;
• optimising equity soundness, while maintaining a balance of sources and applications of funds, in order to strengthen capital, profits and cash flows.

Moreover, in response to the market challenges thrown up by the pandemic, MAG has focused in on the more resilient business segments, such as the aircraft components market, military helicopters and customer support, particularly MRO activities, which also reflects the focus on customer satisfaction.

Analysing MAG’s business model from a CSR and sustainability perspective enables the identification of the impact areas of the corporate strategies (   ) in the areas the group operates. These are represented in ISTAT’s map of sustainable development goals contained in its 2019 report.

The notion of the creation of shared value goes back to a concept written about by Michael Porter³ and one of his students at the Harvard Kennedy School, positing that an interpretation of the value chain model focused on maximising short-term profits had created the conditions for an unprecedented financial crisis in which an entire managerial class lost legitimacy.

However, the concepts of social responsibility that were retrieved could not remain marginal to organisations’ value chains and required a framework of guidelines formalising them.

Porter’s solution is a new way of achieving economic success, where company performance intersects with the community and is achieved with the acknowledgement of the transformational power of shared value.

As stated above, the main point of this approach has nothing to do with philanthropy or the redistribution of resources, rather, it is based on grasping the link between competitive advantages and CSR.

If anything, this framework, also in systemic terms, has been enriched with new topics in 2020 or, more simply, a more nuanced consideration of the same issues, as the health crisis has highlighted the urgency of a shared, multilateral approach to the many challenges in government policy.

The European Green Deal mentioned several times in this report is an example of this, attributing an environmental sustainability dimension to many decision-making and strategic areas, such as finance, energy and transport, public health and environmental protection, as well as access to education for disadvantaged members of the population that risk being excluded from the accumulation of human capital.

The systemic crisis could be said to have accelerated practical decisions, such as allocating resources to develop new health plans, help businesses and integrate green and digital technologies.

BUSINESS STRATEGIES AND POSITIONING. THE BUSINESS PLAN

MAG’s history has roots that reach back into the industrial experiences of SIAI, Agusta and Nardi, which are part of Italian aeronautical industry history.

MAG’s business project conceived in the mid-90s was a modern, contemporary reinterpretation of these models, creating and consolidating a purely industrial skill set focussed on components before developing a range of distinctive products (systems) and activities (services), putting itself forward to aircraft OEMs as a technologies and systems integrator.

This vision entailed significant investments in product innovation, initially as part of strategic partnerships (e.g., Claverham-FHL, Collins – United Technologies and Moog) and then individually, after consolidating skills and reputation.

During the ACCELERATED INNOVATION phase of its history (as defined in the section entitled Errore. L’origine riferimento non è stata trovata.), collaboration with universities and private research centres expanded beyond the need to complete new product development projects.

Innovation is a source of inspiration for MAG’s development as well as being a driver of growth in the unending pursuit of that difficult balance between the investment amount, financial capacity and factors, and opportunity (see SUSTAINABLE INNOVATION and DEVELOPMENT OF NEW PRODUCTS).

Analysing the stages of MAG’s development in terms of market penetration, the first period was limited to the helicopter market, both for technological systems (ASY) and for interiors and services (ASE). The landing gear for the Eclipse 500 and the A380 project were the first significant investments in the fixed-wing sector and the PORTFOLIO DIVERSIFICATION period saw the acquisition of contracts in the training aircraft, UAVs and business jet segments.

The sales policy pursued in order to achieve these objectives was based on cross selling strategies

• targeting OEMs that belong to the same group of companies as the customers it already serves,
• of other products and services in its range to existing customers.

From an organisational standpoint, MAG has over the years identified its strategic business areas – its operating segments – based on which the organisational decisions are made and operational and management tools deployed, from the identification of responsibilities to the objectives system, reporting processes and performance monitoring.

The first segment is the Aircraft Systems (ASY) segment, described earlier, which incorporates the whole range of safety-critical systems (landing systems, flight control systems, hydraulic systems, etc.).

The second segment – Aircraft Services (ASE) – incorporates the cabin interiors systems (Cabin Comfort Systems) and aircraft services (MRO, aircraft completion, refurbishment, etc.).

In the former, the driver of the potential size of these markets relates to the demand for new aircraft of the reference sectors, including that of the regional aircraft that MAG intends to penetrate in the near future. This sector is estimated at approximately USD80 billion, of which USD10 billion refers to commercial helicopters.

Percentage wise, the group’s systems account on average for 10% of the aircraft sale price, in addition to maintenance activities that may reach a further 15%.

Over the past few years, the percentage of revenue generated by the group’s key customer (Leonardo Group) has steadily decreased as a result of a diversification process commenced over ten years ago, developing strategic partnerships and making large investments.

The results are consistent with the proportion accounted for by the main OEM, down from 75.5% in 2013/14 to 57% in 2019/20. Projections for the period covered by the business plan are for this portion to remain consistently under 50%.

The group’s growth process is therefore based on development objectives in accordance with defined priorities. These objectives are based on the essential elements underpinning its strategies. As such, its growth does not relate solely to volumes.

It includes a series of actions aimed at increasing value, as defined in previous sections of this report (e.g., STAKEHOLDERS AND SHARED VALUE IN MAG’S MODEL) and, accordingly, considering the perspective of the various stakeholders.

Many of the investments made, not only in technologies, although they are certainly the most voluminous (mostly aimed at moving from a majority of make-to-print activities to a balanced presence of make-to-design products, the latter being a strong area of MAG’s technological growth), cannot yet be perceived in terms of current activities, but are an essential factor in consolidating MAG’s position and ensuring business continuity over time.

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1. From “Farm Hub. Organic by Choice”, Creating Shared Value. ↩

2. ISTAT. Rapporto 2019 sullo sviluppo sostenibile. ↩

3. M. Porter and M. Kramer, “Creating Shared Value”, Harvard Business Review, January – February 2011. ↩

4. ISTAT. 2020 SDGs Report. Fig. 2.1 Interlinkages to consider among Green Deal and SDGs ↩