Business Case Studies
The best way to learn about business practice is to study real-world business cases. Here you can find typical business cases and how to draw conclusions from facts and analysis.
Tuesday, April 15, 2014
AMERICAN CHEMICAL CORPORATION CASE STUDY
Monday, April 14, 2014
Organizational Behavior - Culture Lens at Dynacorp Corp
When Dynacorp has changed its structure, there are problems of linkage and alignment in the light of Strategic Design Lens. According to the new structure, Research and Advanced Development Group and Business Units (BUs) are in the back and Customer Operations are in the front to communicate with markets and customers. Being in the back, the Research and Advanced Development Group and BUs have almost no relation with customers. As a result, the fragmentation of technical expertise would be deepened, the integration between market needs and technology development would be very poor and the technical support services are slow. Therefore, enhancing the integration and cooperation between the front and the back will become a big challenge. On the other hand, the new structure does not totally solve the alignment problem of improving performance measurement system because some branch managers and product managers of BUs are still spending most of their time worrying about the new performance measurement system that is based on performance against revenue and margin goals. In short, the new structure still has weaknesses in linkage between the back and the front and in alignment.
Problems in the view of Political Lens:
In light of Political Lens, the new structure is facing the problems of interest conflicts between BUs and the weak power of executives. As M. Pauley said, different product team leaders are trying to sell different types of products depending on their particular product lines. Moreover, BUs work on their different preferences and compete with each other to develop products in their interest because each of them focuses on particular product category. It means that there is still no recognition that interests are very important for the BUs and their totally different interests and priority are not yet understood and analyzed. Moreover, while arranging the new structure, most of the leaders who came from the old engineering department became the heads of the BUs. As a result, they may have not yet had full power to control their BUs that consist of people from the old production, engineering and marketing departments. Therefore, it is necessary that Dynacorp maps the interests of different BUs, gets buy-in, builds network among groups and increases power of the heads of BUs.
Structure change:
Dynacorp has changed its culture to motivate employees by altering its structure from the functional to front/back structure in order to bring them closer through account teams and by putting engineering and manufacturing functions together, but Dynarcop is still facing a big problem of creating a new organizational culture that matches with its new structure. Its people still work in the old manner and hold old concepts, beliefs, habits, norms, knowledge etc while the new structure requires new knowledge, skills, concepts and so forth. Even though the structure has changed for 2 years, its employees are still in the dark to find out themselves ways to adapt to the new structure and fulfill their new functions. Therefore, it needs to provide training to its employees in order for them to get accustomed to the new working culture and to get new necessary knowledge and skills to carry out their new responsibilities. At the same time, it needs to modify the job guidelines and put employees to suitable positions. As M. Walker noticed, it also needs to replace at leas 25 percent of its current staff and recruit new employees that fit the requirements of the new system. These actions are quite hard to carry out but urgently necessary in order to change Dynacorp’s culture to match with its new structure.
Organizational Behavior - Team Primer
At the end of the case, Bacon faces some serious problems. The most serious problem is strong resistance from market managers who want to deny the task force’s report and recommendations, thus the task force’s objective may not be achieved. The second problem is that a task force member, Bodin, is attacked due to his finding on regional sales managers’ overstating their sales estimates that cause the company’s wrong sales forecasting. As the task force leader, Bacon must find the way to protect Bodin and take responsibility if he is hurt or compromised by the persons whose responsibilities were found related to the wrong sales forecasting. The third problem is the relationships between Bacon and Meir, between Bacon and Reiss. Meir is dissatisfied with task force members and thinks that Bacon does not trust him by hiding Bodin’s report. Reiss lost his trust to Bacon when Bacon let Meir know Bodin’s confidential report. As a result, the task force risks breaking up. The fourth problem is the relationship between Bacon and Cornelius. Bacon will face strong resistance from Cornelius when he did not give Cornelius information at the end of the case. Another problem is that the task force may fail to fulfill its given tasks because its members have not yet agree on the results to be presented and they seem to be separated by subgroups and have different approaches of the task force’s tasks. To restore the trust of the members and bring them together to work on the common tasks will be a big challenge for Bacon since team dissatisfaction has occurred and the members do not have the feeling of working, sharing, helping among each other as a team. Therefore, Bacon needs to find a way to restore the task force.
How did those problems evolve?
These problems have occurred from the task force design. Task force members who are too different in age, background, experience, interests, habits and so forth were wrongly selected. The first meeting was conducted in the absence of the management and was not prepared so that task force members were not aware of each other, did not understand clearly the task force’s goals and tasks, did not have team spirit and team motivation, and did not have a sense of themselves together as a unit. The division in subgroups made the members not to feel that they are part of the team, especially Meir who had to work alone while other worked in their groups. The fact that Bacon himself did not trust Meir put a negative influence on the team spirit and team performance, thus there were no strong commitment and trust within the task force. Then, the internal communication problem occurred when the members did not know the way in which they interact with each other to accomplish the task and to keep themselves together as a team. Due to the lack of skills of a team player, Bacon did not know how to influence the team, run the task force, improve teamwork performance, increase team member satisfaction, and encourage team learning. As a result, the members worked on their own way, did not interact with each other, did not share information among the team, and did not help each other. Bacon worked closely with Holt’s subgroup and Reiss but let Meir work alone and did not give him support or guidance to complete his tasks. Thus, Meir felt that he does not belong to the team but rather work independently. The suspicion between Bacon and Meir seemed to increase. The serious problem happened when the task force did not reach team consensus before presenting recommendations and did not brief the key managers and other constituencies before the final presentation to prevent defensive reactions and rejection of the proposal. Therefore the task force’s presentation seemed to be the presentation of separate subgroups and individuals. The task force could not defend itself before the attack of market managers. Meir was angry with the attitude of his team members and got mad when knowing that his work was much easier if the information was shared within the group and if other members work closely with him. His dissatisfaction and anger ended up by spreading confidential report to his boss. This put Bacon in serious trouble. In short, the problems have occurred from the formation of the task force, the first meeting, running of the task force and bringing the project to completion.
Workforce Management: Employment Relationships in Changing Organizations
Problems:
- High maintenance, fixed and operating costs.
- Razor-thin margins and low productivity (the facility consistently underperformed).
Reasons of the success of the initiative: the change was done through the right model and dimensions.
- Blocks to change: there is no block to change in Wichita. All employees were not resistant to change, instead they were willing and ready to change. Thus, there were no organizational inertia and no anticipated consequences of the change. This is because Jimenez integrated successfully the change initiative with key human resource practices, here is Keller.
- Model of change: the change initiative follows Tichy and Anne model in which there are 3 stages of changes: recognizing the need for change by generating a feeling of need to change and overcoming the cultural resistance to change in Wichita; creating a new vision by diagnosing the problem and mobilizing commitment of employees; managing the change. The role of Keller as a leader of change is a key for the success of the initiative. He extolled the importance of the initiative in the mind of his colleagues and acted consistently to involve and engage them in the process of change so that they were motivated to change.
- Dimensions of change: the four dimensions of the change initiative are incremental, continuous, bottom-up and emergent. Scope of change: the change efforts were incremental, being local in Wichita and involving in modifying its culture to one that values being more open about problems rather than hide them. Pace of change: the change is continuous by proceeding over time and one change leads to another. Source of change: the change is bottom-up. Even though the change is first driven by the CEO but it is broader, located farther down Wichita and is done by its employees. Process of change: the change is emergent because it started with no explicit maps (beginning with the meetings of the “problem chart”) but developed well over time and one change leads to another. Therefore, Wichita’s employees were socialized together as a unit, were willing to change continuously and thus the initiative was successful.
Lubbock
Problems: Lubbock has the same problems ad Wichita- High maintenance, fixed and operating costs.
- Low productivity low productivity (the plant rarely met the production’s goal).
Reasons why the initiative was not successful: the change was done through the wrong model and dimensions.
- Blocks to change: there are serious blocks to change in Lubbock. All employees were strongly resistant and reluctant to change because of the human nature, organizational inertia and increasing forces from the management (Jimenez and her team) that block the change. Thus, anticipated consequences of the change occurred when implementing the initiative.
- Model of change: the change initiative follows Beckhard and Harris model in which the change focuses mostly in the future state. Jimenez and her team made erroneous assumptions about how Lubbock currently operates and about what groups and sub-units will be the most affected by the change. They ignored to think about the present stage to understand Lubbock’s managers and its employees’ attitude toward the change and its capacity to make the proposed changes in the proposed time frame. They also did not think about the transitional stage when Lubbock’s people are leaving the old system and learning how to make the new system work. Rather they focused only on the future stage with wrong assumptions. Furthermore, they could not integrate the change initiative with key human resource practices who can act as a leader to involve and engage employees to participate in the process of change like Keller at Wichita.
- Dimensions of change: the four dimensions of the change initiative are the inversion of those applied at Wichita: radical, punctuated, top-down and planned. Scope of change: the change efforts were radical - the change involved in fundamental changes inside Lubbock. Pace of change: the change is punctuated - having a clear beginning and an end as scheduled by the team. Source of change: the change is top-down. Unlike Wichita, the meetings of “the problem chart” are compulsory and set by the team. Process of change: the change is carefully planned - the team diagnosed the fundamental problems of Lubbock and applied the model of change that was already very successful at Wichita.
Jimenez thought that she could succeed in applying the change model in Wichita to Lubbock. However, the above analyses show that in fact she had modified this model before implementing it at Lubbock. Therefore, the change initiative was not successful.
Roussel-Uclaf - Organization Behavior
Input set: Roussel-Uclaf (RU) has established cooperative R&D agreements with leading French universities and research organizations who provide RU with technology development and knowledge to create new products. This is RU’s advantage to be a leader among other pharmaceutical companies. RU also has a strong partnership with Dr. Baulieu who is a star on French medical research a prominent researcher in the world’s medical research community to acquire new knowledge for R&D.
Output set: RU’s customers of RU486 are women who prefer buying it because it provides greater privacy, les invasive and avoids anesthesia. RU cares about distributors in eastern Europe where it will not control black market if selling RU486. RU also concerns about poor medical conditions of customers in developing countries where RU can not estimate how big the market should be.
Regulatory set: The French government authorized RU to commercialize RU486. UK and Sweden’s governments also approved RU. But the US government under Reagan and Bush administrations did not favor RU486 so RU could not sell them in such huge market. Until the Clinton administration can RU receive encouragement to produce RU486 in the US.
Set of competitors: RU has almost no competitor who can produce the same product.
Stakeholder model analysis
Interests of stakeholders: RU faces strong conflicts of what its stakeholders want. Inside RU, executives and employees are themselves divided about the ethnics of marketing RU486. Outside RU, the same controversy arises among RU’s subsidiaries. RU’s mother company, Hoechst, has different interest with RU: while RU wants to launch RU486, Hoechst does not want to market it because of the fear that public opinion will destroy Hoechst’s economic power and reputation and boycott all its products. Furthermore, there are strong opposition of local, national governments and local communities in the US and in the rest of Europe where RU want to sell its product. These institutions are against abortion and therefore try to prevent RU from selling RU486. The reason of these conflicts is that RU does not mobilize the interests of these external stakeholders, co-build the acceptance of abortion between internal stakeholders and among external stakeholders. RU also does not co-opt these sets of stakeholders to accept RU486. RU has only a coalition-building with WHO by signing an agreement to conduct test in the developing world thus paving the way for RU to sell it in there. But this coalition is not strong enough since WHO depends on the US’s money.
Power and influence of stakeholders: The Health Ministry of FranceFrance
Institutional field model to analyze the interactions between organizations and their environments:
Share beliefs: The French society share the belief that abortion is right with RU so it accepts RU486 as the most powerful tool for women for avoid undesired pregnancy. Then the UK, China and Sweden’s societies do too. The CEO of RU also believes personally that it is worth to launch RU486. Other groups in the US also support RU and push it to sell RU486. But the US and Singapore, people, anti-abortion groups and social wisdom are strongly against abortion because they believe in the right-to-life.
Shared values: in Italy, Austria, catholic countries of south Europe people and governments still do not agree whether abortion is right and women should have free choices to use RU486. They do not share with RU that RU486 is the right way to help women in abortion.
Mindsets: The change of mindsets against abortion is very difficult since they are well rooted in people’s mind, especially in America. So RU can not easily get social approval from the US and other countries.
Coercive isomorphism: RU is between two forces: the Clinton administration now urges RU to test and produce RU486 in there while abortion remains highly charged political and cultural issue and anti-abortion pressure rises to threat the boycott of RU’s products.
Isomorphism: Someone suggests RU to do the same way as IUDs, a pharmaceutical firm having similar process to RU had done earlier: give the license for technology for a non-profit Population Council and let it find a smaller company that is willing to produce RU486.
Normative isomorphism: Dr. Baulieu was awarded the 1989 Albert Lasker Award for Research in Clinical Medicine for his contribution to the knowledge of steroid hormones included RU486 in New York. This means that this professional organization has proved that RU486 is the right way to help women in abortion.
Carly Fiorina – Leadership Capability
Coming to understand the context in which you are operating:
Fiorina has a strong sense of understanding the context to map the external terrain. At AT&T, she recognized the phone-equipment manufacturing unit’s potential for growth in emerging market such as Asia and the firm’s capability to supply a switch able to handle both wireless and long-distance traffic. At HP, she boldly declared her intend to merge HP with Compaq as she sees the merge will make the two companies be more efficient and cost effective.
Creating a map that represents the current situation of the group or organization:
She has a savvy approach to customers to understand what they want and how to fulfill their need and wants. That’s why she could always expand the business of her company.
Making sense of the environment:
She saw the market moving quickly and the pace of change accelerating. This sense-making distinguishes her as a great leader who can discover the new terrain for HP as the environment changes.
Relating - centers on the leader’s ability to engage in inquiry, advocacy, and connecting
Inquiry:
Fiorina does not always listen and understand what others are thinking and feeling. She ignores others while implementing her decisions without explicit reasons. She also does not care about the critics against her leadership style “management with flying around”. In this context, she is right to act like that to maintain her position as a female leader, strengthen her executive power and make her management more efficient to manage HP as a world-wide company.
Advocacy:
She is always clear about her own point of view and trying to influence others of its merits. She is able to tell the truth about what needs to be done and clearly define what is and is not acceptable performance. This ability helps her communicate broad strategies, deep knowledge of operations, visions and instructions clearly to her management team and employees.
Connecting:
She is able to cultivate her followers who help each other to accomplish their goals. She also developed a personal touch that inspired intense loyalty among her followers and the ability to build collaborative relationships with others to create coalitions for change. For instance, she has a strong ally with HP board members. The 51.4% vote of HP’ shareholders for the merge HP-Compaq is her success in building coalitions for change as she planned.
Visioning
Creating a compelling, shared and meaningful vision:
She changed the vision of HP from a stand-alone product/service provider to a company that provides an integrated suite of information appliances, highly reliable IT infrastructure and e-service, or to expand HP in a new direction at “Internet speed” and customer orientation. This compelling vision motivate HP’s people to change their current view and ways of working, and work hard to reach it. This shared vision enables them to act together, become bound together around a common identity and sense of destiny. This vision also provides them with a sense of meaning about their work and the difference they will make. Therefore, HP could offer its own e-services and develop e-speak, package online services tailored to customers’ needs during her first year at HP.
Inventing
Changing the way that people work together:
Knowing that the shift of this vision only can be achieved with corresponding changes in organizational structure, she changed the way people work by restructuring HP into four organizations: two focusing on sales and the others focusing on products.
Creating a whole new way of approaching a task: She recognized the need for a new leadership style and faster actions for the new vision. So she decided to change HP from a fully integrated, product-focused business to a more disintegrated approach focusing on product generation, customer-facing and support activities. She also changed her leadership style by using internal Web and message boards to communicate with workers instead of visiting and talking to them in person as the old leadership style.
Creating new approach, new solutions, new practices:
To achieve the goal, she changed the culture and work habit to make employees be more efficient. She encouraged research to explore new technologies and develop new products. She also created the “rules of garage” to motivate new and innovative ideas.
Inventing goes hand-in-hand with sense-making:
She blended sense-making with inventing. Together with the above initiatives, she developed HP’s brand by generating a branding campaign that sent new messages to customers, competitors and industry partners to build a lasting image of the company and brand awareness for its further sustainable development.
Her strong capability of sense-making, visioning, relating and inventing makes Fiorina become a powerful and talented female leader in the American corporate world.
Conflict and Negotiation Styles of Japanese People
1. Avoiding style: unassertive and uncooperative behavior
2. Forcing style: assertive and uncooperative behavior
3. Accommodating style: unassertive and cooperative style
4. Compromising style: behaviors at intermediate level of cooperation and assertiveness
5. Collaborating style: strong assertive and cooperative behavior. This will lead to a win-win solution
Negotiation tactics
Japanese have 3 keys to succeed in negotiating:
- Appropriate information
- Time to negotiate
- Feeling of power
They pay mush attention to personal relationships and ask questions that do not relate to matters in hand.
Japanese managers take real interest in their workers’ private life
So Japanese negotiation style is personal and culture-related
Autobytel - Marketing Strategy
Autobytel is the first mover in the internet new car buying service in the US. It enjoyed miracle growth during its early stage but now is facing strong competition from many sources relating to car buying services. In such increasing competition, it has to reposition itself to differentiate from competitors by offering new services and products such as selling cars direct to consumers and increasing the numbers of dealers and reduce costs. Existing marketing mix should be reviewed to find a balance between efficiency and profitability by focusing on internet advertising and personal touch with dealers.
Facing strong competition in the internet new car buying service
As the number of dealers using online buying services is dramatically increasing, Autobuytel is facing intense competition with other online car-buying service providers such as Microsoft, Dell, who had entered the market, set up dealer networks in a short period, and are nearly catching up with Autobytel by using their brands and existing networks or partnership with companies which already have car dealer network bases. They are not only price-competitive, but also have a wide variety of services like car delivery service by CarsDirect.com. Car manufacturers and dealers also start direct online car-selling service. These competitions make Autobytel difficult to differentiate itself from other online car buying service providers in pricing and servicing.
Restructuring costs for revenue growth
Autobytel’s operating cost is extremely high in comparison with revenues, but increasing at slower rate. In 1996, revenues grew 1733% (Exhibit 1), but costs increased at 757%. In 1997, costs increased at slower rate. As the cost is increasing at a slower rate than revenue, it can still manage cost reduction. Competition will not get easier in the future as it has less than 1% market share. Therefore, it should implement cost control program by setting cost according to revenues. It should be very cautious regarding the budget spent on sales and marketing as the profitable and long lasting business should not spend more than its gain. For example, it should target a certain percentage as its net profit margin before spending on sales and marketing.
Offering new products and adding new dealers and services to grow revenues
Autobytel can sell cars directly to customer because this service will be more efficient and convenient to customers. As the internet purchase is the future trend, by doing so it will definitely becoming a market leader in internet car sales. Thus it can acquire more consumers and get more marginal profits than just as being a liaison. However, it should be cautious in launching this service as not to jeopardize business of existing dealers and also it should consider the cost incurred in this venture. It should first limit this service in area near to car manufacturer sites to avoid incurring inventory cost and increase efficiency of car delivery to customers.
Autobytel should explore its dealer network since 89% of its revenues come from dealer subscription fees. To do so, it needs to help dealers increase sales volumes by granting them a larger geographical territory than car manufacturers do. It also needs to give its dealers support (training services) so that they are not fired by having poor service quality. This will definitely help in increasing the number of dealers and position itself as the synergistic partner for dealers to venture into the new era for business through the internet. Providing training to sales persons will increase the efficiency of the dealer. This will not only strengthened the rapport between Autobytel and existing dealer, but also boost up its reputation as the premium.com company. However, it should restrict its dealers from signing up with competitors to protect its investment and to maintain its competitive advantage (Autobytel University).
Autobytel should add new features into its products and services. First it should develop the current consumer-to-consumer and business-to-business car sales markets into one of its major products and charge the successful transaction at a reasonable price. This is because this service can increase the number of business buyers and consumers via its websites. It needs to focus more on used car sales because these sales can give dealers more margins than new cars do. It should also offer truck, van and bus online buying service with the same system by focusing on business-to-business transactions. This new business is very potential since no one has done it. It should create a “buyer chat room” on its website where buyers can talk with its dealers and other buyers about purchasing decisions so that they feel that they make right choices.
Repositioning and marketing mix programs
Autobytel has to position itself as the complete car guide website which provides not only information on car purchase. The new position statement should be ‘More Than Cars’ where it offers simple way of getting all kinds of information and services related to cars. It should strengthen and maintain its competitive edge by referring consumer to reliable and low-price dealer and service centers. That is to brand Autobytel equivalent to other successful online companies like Amazon..com.
In order to achieve the new positioning, a new set of marketing mix is called for. Autobytel should focus on two ends: the consumer and the dealer. On the consumer, internet marketing and advertising should be continued as the target consumers are those pro-internet shoppers. Traditional advertising should not be continued as it was too costly.
As for the dealer, personal selling is the best way to maintain and gain new dealers. Mass advertising is not recommended as it is not cost effective for Autobytel. This is because Autobytel did not want to target all dealers, but only selected dealers in a certain area that is reliable and have a high reputation.
Conclusion
In short, to growth sustainablly in fierce competition, Autobytel needs to reposition itself to differentiate it from its competitors. To do so, it should take a course of actions to accelerate its revenues such as restructuring costs, offering new products and services, adding new features on its websites as well as exploring its dealer network. Moreover, it needs to change its positioning statement with a set of new marketing mix programs focusing on both customers and dealers.
Cumberland Metal Industries - Pricing Strategy
Cumberland Metal Industries (CMI), a company specialized in making of curled metal products, has develop a new product, metal cushion pad with health safety and long durability, to help contractors drive piles faster. Based on the successful tests, CMI now wants to launch this new product to the market. The main challenge CMI is facing is to price its new pads. Since the pad is totally new in the market, CMI should use perceived value pricing method and apply marketing mix programs comprised of advertising, education, and distribution channels to launch this product as well as develop it to get full market share in the future.
Perceived Value Pricing – strategy for future success
CMI should set the objective of this new business to be the monopoly and to maximize profits. However, the prerequisite for this objective is to get a patent to prevent this product from being copied and imitated. As long as CMI did not get patent for this product, CMI should not sell it as it would invite the entry of competitors because this cushion pad is not a high technology product and easy to be copied. Thus the following pricing strategy will be based on the scenario of getting patent protection.
To price the new product, CMI should apply perceived value pricing method to deliver its value to customers and CMI must make them perceive this value. CMI also needs to apply several marketing-mix programs such as advertising and roles of influencers to communicate and enhance perceived value in customers’ minds. The price calculation is as follow:
Normal a price of an 11 ½ inch asbestos pad is $3. A CMI’s pad lasts longer than asbestos pads 10 times (conservative estimate: p4). Thus speed and efficiency will be the top priority for marketing and pricing this pad. Based on product life, the pad will only have $30 value. However, based on the data from Colerick test, Corelick spent $1000 for asbestos pads; they use 6 CMI’s pads for the same job. So, it took $1000/6 = $166.67 worth of albestos pads to complete the same work by CMI’s pads. From the Fazio test, it took $400 worth of albestos pads. This has not take efficiency into consideration yet. Assuming that the users do care about speed and efficiency, CMI can charge additional price.
From the Colerick test, the job is to drive 50 feet in to the ground using 300 piles. The albestos pads spend 20mins (150ft/hrs: p.3) on driving and 400mins on set changing. The CMI’s pads spend only 15mins (200ft/hrs: p.3) on driving and 4mins on set changing. We do not need to take the hidden costs into consideration because it is not affected by reducing the driving time or pad changing time. So (420–19)min /60min = 6 hrs 41 min time saving. Because the contractors have to spend $100 per hour, Colerick probably save about $668/6 pads =$111.33 on equipment rental, labor and overhead costs for this work by using CMI’s pads. So the worth of CMI’s pad is $166.67+$111.33 = $278.00
CMI should choose the option to purchase the $50000 permanent tooling, because it will reduce cost per unit by $78.94. By this cost saving alone we can get back the money we invested in the tooling in less than 3 months. This will maximize profit in the long run. The total manufacturing cost will be $69.18/pad. The management wants 40%-50% contributing margin after all manufacturing costs, the price will be about $115 ~ $140 to satisfy the management’s profit expectation. Thus CMI’s should price the pads at $149.00, as this price will have 50% saving for the contractors.
Each CMI’s pad can save a huge among of costs for the contractors. If CMI can get the patent then no competitor can enter the market with the same product. CMI can charge the monopoly profit maximized price, but initially they should give promotional discount of 15% during the introductory phase, that is the first 2 purchases to make customers adopt the new pads because the price can look intimidating. (asbestos pad $3, CMI pad $149).Marketing-mix strategy to launch and explore market share for new cushion pads
First, CMI needs to get the patent of this new product to protect from competitor entry. As CMI’s objectives is to be monopoly, patent is crucial.
Second, CMI needs to develop distribution channels. Direct channels to contractors who own pile hammers as they contributed high quantity and demand (50% of estimated market share). Also by having direct channels, CMI has more control on the education and monitoring of its clients. After that, CMI should sell to wholesalers and hardware stores to cover the small contractor. CMI should not be too concern about the equipment rental because as CMI’s pads gain popularity in the industry, customers will pressure the rental company to use CMI’s pads.
Third, CMI needs to develop promotional and advertising programs to make customers perceive the value of new pads. CMI needs to educate its consumers in terms of health benefits (no asbestos) and safety (no heating problem) and to add the brand quality by advertising in professional journals. CMI also needs to make the function and merit of the new product to be known by customers, especially the value the new product can create the aspect of health concern.
Fourth, CMI needs to establish a network of influencers or increase public relations. To do so, CMI needs to established networks in a new industry to the company and key influencers to endorse its product. The result from Professor McCormack will be of high value to gain endorsement from consulting firm.
Fifth, CMI needs to do market research, estimate the price elasticity of the new pad and the demand function and then adapt the initial price to the profit maximized price.
Conclusion
CMI’s pads definitely will be the market leader in the industry as it is innovative with high efficiency. Getting patent for this pad will ensure the growth profitability of CMI. In this case, perceived value pricing is used as the pad has more to offer than conventional asbestos. In line with this pricing strategy, marketing mix of advertising, education and distribution play a role in ensuring the success of this product.
IKEA Invades America - Low Pricing Strategy
Executive Summary
The IKEA Group, one of
the world’s top furniture retailers, has emerged as the fastest-growing
furniture retailer in the US. To become one of the leading furniture
retailers in such huge and promising market, it has set an ambitious
goal to have 50 stores around the US by 2013. IKEA has 4 branches in Los
Angeles alone. From 1997 to 2001, the revenues of IKEA doubled from $66
million to $1.27 billion in five years. Looking at the growth rate over
the past decade, it seems possible for IKEA to reach this goal.
However, IKEA faced several challenges: American’s mind-set, competition
from established furniture retailer and different customer’s
preference. To address to these challenges, IKEA needs to apply market
leader strategy expanding total market size, defending and developing
its market share to achieve this goal.
IKEA Brand: lasting advantage
One
of IKEA’s lasting advantages is its brand. To many consumers, IKEA
means low-priced furniture, Scandinavian design and style, shopping
convenience. IKEA’s cheap furniture does not make consumers feel cheap
but rather beautiful, convenient and well-designed. IKEA has a unique
shopping culture that makes consumers feel a “real Scandinavian design
and style” when they shop. Thus, brand awareness gives IKEA a great
power in the US market. However, IKEA’s motto is “low price with
meaning”. “With meaning” for US market is different from the other marketsmarkets.
If IKEA can not capture what US customers want, its offerings will
become “low price and no meaning”. IKEA already listens to US customers’
needs but it should focus more on local market point of view.
Challenges in America
- Reluctance to change furniture: mind set of Americans
Americans
typically have the mind-set that furniture should last a life time,
which is not in-line with IKEA’s value that does not include durability
in its products. Thus to increase market share in America, IKEA must
change the American’s attitude towards furniture as something fun and
disposable, furniture is something that add value to lifestyle without
incurring too much cost.
- Value added in high-end furniture retailer
As
in IKEA motto: low price, there is no delivery and credit services
offered. Whereas a typical American furniture retailer (Wal-Mart
excluded) offered free delivery service, on top of personal
consultation, interior design,
credit (easy payment scheme) and huge selection of products. IKEA has
to compete not only in price, but also the value added services that
these furniture retailers offered as a package together with the
furniture purchased.
- Consumer preferences
Another challenge
that IKEA faces in America is different consumer preferences and needs.
IKEA originated in the Scandinavia has to modify its products to suit
America’s furniture market.
Managing sustainable growth for the future
To
achieve the 2013 goal, IKEA should apply market leader strategy by
expanding total market size, defending and developing its market share.
To expand total market size, IKEA should use both new market segment and
market penetration strategies. First, it should segment the market to
middle-upper class. This particular segment includes young, educated,
high mobility home makers that reside in sub-urban America. They are
typically open minded and technology savvy which suits IKEA’s brand
image and offerings.
Second, IKEA should find new users, uses and
increase usage volume of its current customers. To do so, it should
encourage and cultivate a new concept of furniture as representative of
life style. As life style changes furniture should change too. It should
not compete with either high or low-end furniture retailers in U.S
(price and quality), but instead use them as benchmark and focus on its
niche. IKEA should benchmark its products against hi-end furniture
retailers in the US. It should also avoid head-on competition against
both high and low-end furniture retailers. Instead it should position
itself as a market leader in its niche market.
IKEA should
co-create value with customers by establishing “IKEA Club”. This Club is
a platform to encourage interaction among IKEA’s consumers so they can
teach each other how to buy, assemble and use its products. Beside that,
the Club also works as a platform to exchange ideas and experience in
using its products. Moreover, it should create a website
for potential shoppers to mix and match its products online before
visiting its’ stores. This will reduce the shoppers’ confusions and
increase customer participation in designing home furnishing using its
existing product offerings.
To protect and develop its market
share, IKEA should endure IKEA brand by maintaining its company values
and unique shopping culture at all stores such as keeping store design,
decoration, structure, service. In this case, it needs to modify the
product matrix according to US markets by maintaining the price range
but increase number of styles that meet the needs and wants of the
target market. IKEA also needs to position itself by changing US
consumers’ mindset via various IKEA-consumer communication channels.
Conclusion
As
mentioned in the case, America’s furniture market is very fragmented.
In order to increase the market share, IKEA needs to focus on
positioning itself as the one stop center
for all home furnishing needs. IKEA should target their marketing
efforts on middle-upper, educated segment of America’s population as
they are the one that will be more open to accept new ideas and concept
that IKEA has to offer. Also IKEA should differentiate itself, focus on
the experience it offers to shopper, not just the low price products. By
doing so, the goal of 50 stores in 2013 is not far from reach.
Unilever in India: Hindustan Lever’s Project Shakti Marketing FMCG to the Rural Consumer
HLL has enjoyed a competitive advantage as a sole provider of personal hygiene care products before the liberalization of India’s economy. However, with the entry of foreign MNC, HLL is suffering from stagnant growth and lower profit margin. Project Shakti was created to address these issues. The high growth of Shakti has created managerial challenges to the project management team. As Shakti grows, the current management structure has become inefficient to make it profitable with minimum costs. Thus, restructuring management measure is crucial to sustain Shakti in the long run and to provide HLL with competitiveness.
Challenges of Project Shakti
Rural market is already giving HLL a competitive advantage. But competitors are also tapping into the rural market with existing HLL direct channels. Thus to continue HLL competitive edge, Project Shakti is essential. Until 2004, Shakti is contributing 3.5% (pg 6 & 17: 15 x 20 / 85) towards HLL total revenues and it still has potential to continue growing. This is because personal hygiene awareness is in the increase. Shakti may be able to achieve the founder’s dream of 15%-20% of total revenues, assuming that Shakti can increase the usage rate of current consumer. However it will not achieve the market penetration of over 500 million rural population as this figure signifies that HLL will nearly monopolize the rural market with 80% penetration rate. The greatest challenges that Shakti face are costs and management control to make it profitable.
Managing Project Shakti in the long term
The Shakti system in the beginning of the project was good but not sufficient to handle the growth it had obtained. Thus changes are needed to make it more cost effective and profitable. As Shakti matures, there are a number of entrepreneurs who are more successful than the others. HLL’s RSP can organize a monthly gathering for all entrepreneurs in the same district, encouraging interaction and communication among entrepreneurs. By doing so, the experience and knowledge of the successful entrepreneurs will motivates others. This will increase the efficiency of each entrepreneur (profit increase) and also decrease the amount of time spent by RSP to visit individual entrepreneur, giving RSP more time to explore untapped villages in the same district. Thus the current 500 RSP is sufficient to manage 25,000 entrepreneurs. Also, HLL should be focus only in states with SHG movement to increase its cost effectiveness. HLL should also cultivate more successful entrepreneur from existing entrepreneur as organic growth of these entrepreneur is faster and easier to give profit. As HLL penetration to rural market is only a mere 16% (1 entrepreneur in 5 villages, pg 12), the market potential and market size is big enough to give a fair share to every player, thus the conflict between Shakti entrepreneurs and direct sales channel, if ever arise will be minimal. Moreover, a control measure can be applied by limiting the number of entrepreneur in each district thus minimizing conflict.
iShakti and Shakti Vani – survivals for Shakti
iShakti and Shahti Vani are Shakti’s initiatives created to provide rural India with access to information and social communication. Although the setting up costs for those two programs are quite high, Rs 150 million, funding is likely to be achievable because this cost occupies about 3.6% of Shakti’s revenues (150 / 3.5% x 120,000 (pg 2)) and therefore Shakti itself can finance these programs. Funding is also possibly receivable by persuading other profits centers to invest in the programs and by using the revenues of iShakti to finance Vani. Furthermore, iShakti will have high potential revenues from selling MR to the internal customers and to sell the channel to other interested, non-competitor parties, e.g: banks, insurance companies, farm equipment etc. Vani itself does not generate revenues directly, but it is a powerful tool to increase hygiene awareness in rural India, as a result indirectly increase HLL sales at long term. In short, iShakti and Vani will be workable and scalable to help Shakti success.
Social Impact and Role of Business
HLL should make a social impact on rural India. By involving in the improvement of rural living conditions, HLL can and will continue to enjoy the competitive advantages as the main company to participate in social development. The connection between business and communities will develop lifetime customers for HLL. This involvement may not be the typical role of business, but as long as it is profitable to HLL without compromising moral and legal issues, it will be a good move for HLL to increase its reputation as a socially responsible organization.
Conclusion
Project Shakti started to suffer from growing so big that the current structure needs to be adjusted. Restructuring the managing measure of RSP to entrepreneurs, focusing Shakti in selective districts and prioritizing efforts in existing entrepreneurs, Shakti will generate higher revenues with minimal increase in costs. Shakti should continue as it is providing HLL a distinct competitive edge and increase HLL’s profits and growth. Moreover, Shakti helps to position HLL as socially responsible organization.
Local and export processing enterprises – similarities and differences Essay
In terms of legal issues, each of them has different rights and responsibilities. LPEs are owned by Vietnamese nationals or local institutions. LPEs are also restricted to selling their products to local markets and to buying the main raw materials from overseas markets. Besides, LPEs are allowed to hire foreign employees up to 5 percent of their total workforce. LPEs have to pay value-added, import and export taxes. In contrast, EPEs are owned by foreign individuals or institutions. EPEs have to export all their products to overseas markets and to buy the main raw materials from foreign countries. Moreover, EPEs are allowed to hire foreign employees up to 10 percent of their total workforce. But EPEs are exempted from value-added, import and export taxes.
The two types of processing enterprises also differ in technology and production level. Being local companies with limited capitals, LPEs are not usually able to adopt new and expensive technology. The local workforce, which has limited English and technical skills, prevents LPEs from applying new technology from foreign countries. Therefore, LPEs can only produce simple, non-technological products such as garments and shoes. On the other hand, EPEs are usually technology-rich firms with modern production methods because they must satisfy the technological requirements set by the Vietnamese government in order to have a license to operate in Vietnam. Thus, EPEs normally have their higher level of technology and produce highly technological products such as color printers and digital cameras.
Another difference between LPEs and EPEs is the effectiveness of management. LPEs normally have old management systems, which are bureaucratic, inflexible and conservative. These systems slow down the decision making process, thus prevent LPEs from being able to improve fast their production performance, produce new products and grow in highly competitive environments. In contrast, EPEs have networked, flat, flexible, diverse and global management that allows EPEs to respond quickly to environmental changes and adjust their organizational structures to fit new situations. As a result, EPEs are able to operate across the borders, compete in international markets and build networks with international business partners.
Although the two kinds of manufacturers are different in legal rights and responsibilities, the level of their technology and production, and the effectiveness of their management, they do not totally contrast one with another. Having their higher technology level and effective management, EPEs are business models for LPEs to follow. On the other hand, LPEs learn from EPEs not only the new technology they bring in but also the way they manage their business and compete in international markets. Thus both EPEs and LPEs contribute to the diversity and development of the Vietnamese manufacturing industry.
Memo Sample for inside communication at a corporation
MEMO
To: All Weymouth Employees
From: Carl Weymouth
Date: September 10, 1990
Subject: Personnel Reduction at Weymouth in coming months
I am very sorry to inform you that our company will face serious difficulties in the near future. According to latest sales forecasts, the company’s revenues will probably decrease by 25% in the next eighteen months due to increasing competition from European and Japanese companies. To become more competitive, Weymouth needs new capitals to buy new equipment and restructure production processes at all mills. Moreover, the company needs to spend more money on controlling pollution levels within the state standards. Consequently, Weymouth must find effective solutions to save as many costs as possible.
Recently, our company has implemented several cost-cutting measures. The company has shut down several less efficient mills and processing plants, and delayed some plant modifications for those that do not meet environmental regulations. The company also has cut purchasing and supply costs, implemented restricted travel expenses and reduced operating expenses as many as it could do. However, these effective measures have not helped Weymouth meet its urgent need for capitals. Therefore, the last solution our company could take is to reduce our employment force by 1000 salaried positions at all levels in coming months.
The company will pay those who must leave the company and have one or more years of service a termination payment, unused vacation for 1990 and accrued vacation for 1991. Our company also pays one-month coverage insurance from the leaving date and a partial insurance at reasonable rates for the following months. The company’s managers will help those former employees search for new jobs.
On the other hand, the company will provide those who stay after this employment reduction with salary increases and improved benefit packages including provisions for retirement, vacations, medical and dental cares, life insurance and stock ownership. In return, those employees have to take more responsibilities and fulfill more job requirements. They also have to create more initiatives and work more effectively for the development of the company.
In coming months, supervisors will inform each employee individually his or her employment status and answer questions he or she may have.
I feel much regret to inform you this personnel reduction planplan
Marriott Corporation - Net Present Value and Project Evaluation
Manage rather than own hotel assets: Marriott sold its hotel assets to limited partners to reduce assets and thus, it can increase ROA and thereby increase potential profitability.
Invest in projects that increase shareholders’ value: the discounted cash flow techniques to evaluate potential investments allow the company to invest only in profitable projects. Therefore, it can maximize the use of its cash flow to gain profits.
Optimize the use of debt in the capital structure: because firms with lower percentage of debt have higher value, Marriott uses this strategy to increase its value and thereby increase it profitability.
Repurchase undervalued shares: By buying back its undervalued shares, Marriott can increase PE ration when needed and can make its investors’ holdings more valuable because share prices will increase (increase in ROE). It also can appease investors and avoid pressure to increase dividend, thereby it can use its retained earnings to invest more in profitable projects. This strategy means that Marriott are confident in its future performance.
Marriott use the Weighted-Average-Cost-of Capital (WACC) method to measure the opportunity cost for investments.
WACC = (1-t)rD(D/V) + rE(E/V)
where D and E are the market values of the debt and equity respectively; rD is the pre-tax cost of debt; rE is the after-tax cost of equity; V is the firm value (V=E+D); and t is the corporate tax. This method is applied for Marriott as the whole corporation and for each of its three lines of business. WACC is calculated based on its financial data of 1987 provided in the case.
1. Calculate the debt cost rD
- According to the summary of operation (exhibit 1) t = income taxes/income before income taxes = 175.9/398.9 = 44%
- According to Table A, D/V = 60%. Therefore, E/V = 40%
- Because Marriot is a high-quality rate company and it could pay a spread above the current government bond rates:
rD = S fraction of debt at floating for each line x US government interest rate + S fraction of debt at floating for each line x debt rate premium above government for each line
rD = [0.5x8.72 + 0.4x6.9 + 0.25x6.9] + [0.5x1.1 + 0.4x1.4 + 0.25x1.8] = 0.1041
Because lodging had long useful life, the long term interest rate for lodging line should be the interest rate of 10-year maturity bonds (8.72%). Meanwhile, restaurants and contract services are short term investment so the interest rate for these lines should be the interest rate of 1-year maturity bond (6.9%).
2. Calculate the riskless rate
- First, calculate the weighted average
The weighted average of each business line is based on its profit contribution to Marriott’s total profits. On page 2, the weighted average of lodging is 51%, that of contract services is 33% and that of restaurants is 16%.
Marriott’s lodging line is considered to be in the same market with Hilton, Holiday, La Quinta and Ramada. Similarly, its restaurants and contract services are in the same market as Church, Collins, Frisch, Luby, McDonald and Wendy. To be more conservative and accurate in the estimation of market volatility, Marriott should choose geometric average.
- Second, calculate b
To calculate b, assume that the project has the same risk and the same leverage as the firm overall.
b = S weighted average x the average of equity Beta of firms in the same business lines = 0.51[(0.88+1.46+0.38+0.95)/4] + (0.33+0.16)[(0.75+0.6+0.13+0.64+1.00+1.08)/6] = 0.813
- Third, calculate Risk premium
To better evaluate the market volatility Marriott should choose the time interval of 7 latest years, from 1981 to 1987. Then Risk premium = (Geometric average of long term US government bond return from 1981 to 1987 + Geometric average of long term high-grade corporate bond return from 1981 to 1987 + Geometric average of Standard & Poor’s 500 composite stock index return from 1981 to 1987)/3 = [(1.1682)5x1.2444x0.9731]1/7 + [(1.1783)5x1.1985x0.9973]1/7 + [(1.1471)5x1.1847x1.523]1/7 = 0.1412
- Forth, Expected return or cost of equity is 0.214 (Exhibit 3)
- Fifth, calculate riskless rate (risk free rate) RF
Expected return = RF + b[Risk premium] so RF = Expected return - b[Risk premium]
RF = 0.214 - 0.813x0.1412 = 0.099
3. WACC
WACC = (1-t)rD(D/V) + rE(E/V) = (1 – 0.44)x0.1041x0.6 + 0.214x0.4 = 0.121