Restructuring at Sears – Can the Retailer Turnaround its business?

January 27, 2008

Sears – Moving from centralized to decentralized management structure

In 2005, Sears Holdings was formed with the merger of Kmart and Sears. When the merger took place, a centralized managed structure was essential to control costs and focus on integrating the two companies. But recent profit declines and its struggle to win customers from its competitors have prompted retailer Sears Holdings Corp (Sears) to go for a new decentralized structure in order to turn around its business. Sears had earlier announced lower quarter profit expectations compared to last year. Even its holiday sales and sales of home goods such as appliances and tools slowed with the crumbling U.S. housing market and competition. A new structure was necessary for a turnaround.

The new structure – Five business units

The new structure separates its business units into:

Operating businesses – current product lines like appliances, apparel and electronics
Support – marketing, store operations and customer strategy
Brands
Online and
Real estate

The real estate and onine units will focus on increasing the “sales productivity” of real and virtual holdings. Each business unit will have a leader and an advisory group including senior Sears Holdings executives who will oversee performance. With these five business units, Sears (controlled by hedge fund manager Edward Lampert) can simplify the way they are managed, besides giving each unit greater power to focus on consumers and operating more efficiently.

Nokia and its Growth Strategy in China

December 21, 2007

The Chinese mobile devices market has grown tremendously since the 90s. Nokia has been trying to establish a strong presence in the Chinese market since mid 80s. Nokia has made significant investments in research and manufacturing facilities. In the Chinese market, Nokia faces stiff competition from global players like Motorola, Samsung and also from domestic players like TCL and Ningbo Bird. The domestic local players have increased their market share to almost 50% (in 2003).

In 1994, China had 1.5 million subscribers across the country. Also in 1994, China transitioned from an analogue network towards a digital Global System for Mobile communications (GSM, originally Group Special Mobile) system. In 1998, Motorola, Nokia and Ericsson had 83% market share. Also in this year, Kejian introduced its (first local mobile brand) GSM mobile phone.

Keywords: Nokia in China, Domestic and foreign cell phone players in China, Nokia entry strategy in China, Chinese mobile phone market

Download Case Study: Nokia’s Business Strategy in India

Tesco takes on US WalMart

December 5, 2007

Tesco takes on US Wal-Mart

Case Contents

1. Introduction – Tesco in US Retail Market
2. Tesco – Company Background and Timeline
3. TESCO at a Glance
4. Localization Strategy – Tesco in South Korea
5. Tesco’s Business Strategy in the US – Healthy food, No waiting
6. Store Formats
7. Financial Highlights
8. Related Reading

Download Case Study (in PDF format)

Case Abstracts

UK’s largest retailer Tesco and one of the top supermarket operators in the world plans to open a thousand-strong chain of discount stores in the US. Tesco plans to invest more than $250m (£120m) [$2.5 billion over the next five years] in its US business launch. This expansion plan and strategy places it directly against competitor retail giant Wal-Mart. Many UK retailers have found it difficult to survive or compete in the US retail market. The US retail market is most competitive in the world, a fact well-known to British retailers Sainsbury’s and Marks & Spencer which failed to attract US customers.

Tesco’s Business Strategy in the US – Healthy food, No waiting

Fresh & Easy stores

Tesco started operations in the US by opening 15 of its Fresh & Easy stores in Las Vegas, Los Angeles, San Diego and Phoenix. By 2009, Tesco plans to open 200 more outlets to expand the retail network. Tesco’s basic US stores will be similar to European discounters Aldi and Lidl though Tesco stores will be 75% smaller than most American supermarkets. Fresh & Easy stores about 10,000 square feet are one-third the size of a typical supermarket, but four times that of a convenience store. Tesco is adopting a hard-discount model in the US. Tesco’s convenience stores modeled on the Tesco Express blueprint target US grocers such as 7-Eleven and locally-run stores.

This case study covers the following issues:
1. Assess Tesco’s globalization strategies
2. Examine and analyze the entry and expansion strategies of Tesco in US
3. Study how Tesco localized its retail practices in US
4. Understand Tesco’s efforts to integrate its global best practices with local strategies in US

Case Study Keywords:
Tesco, Samsung, Globalization Strategy, Localization Strategy, International Business, International Expansion and Entry Strategies, Retail Store Formats, supermarkets

Daimler Chrysler Merger and De-merger

November 30, 2007

Daimler Chrysler De-merger

In early 2007, Daimler sold 80 percent of Chrysler to private equity firm Cerberus Capital Management LLC for $7.4 billion. This strategic move ended a nine-year merger. Daimler can now concentrate on its luxury Mercedes brand and its truck business.

Daimler Chrysler Merger – Marriage made in heaven?

In 1998, Daimler and Chyrsler merged to form the Daimler-Benz and Chrysler Corp. in a $36 billion deal. At that time, then-CEO Juergen Schrempp described the merger as a marriage made in heaven. Since then, up-and-down earnings and repeated cost-cutting soured many investors on the effort to create a global auto giant.

HP and Compaq Merger

May 1, 2006

HP and Compaq Merger

The failure of the merger between two leading competitors in the global computer industry, Hewlett-Packard Company (HP) and Compaq Computer Corporation (Compaq) failed as the synergies identified prior to the merger did not materialize.

HP bought Compaq for US$ 24 billion in stock. This was the largest ever deal in the history of the computer industry. The deal meant combined operations in more than 160 countries and more than 145,000 employees. HP-Compaq would offer the most complete set of products and services in the computer industry.
The motivation behind a HP-Compaq merger (whether it made economic sense) and the problems encountered in merging operations is an interesting discussion as the stock prices of both HP and Compaq fell within two days of the merger announcement. An estimated 13 billion dollars was lost (in terms of market capitalization) in this time frame.

Shares fell further as industry analysts failed to understand the benefits HP would derive by acquiring Compaq. HP was a market leader in the high margin printer’s business and Compaq, a low-margin personal computer (PC) manufacturer. Moreover, established players like direct marketer, Dell and leading IT service consulting company like IBM would give fierce competition even if economies of scale were to be achieved.

With the stock price of HP’s shares stabilising at a level much below than before the merger and the PC & other hardware businesses not making much profits, the merger was ruled a failure. Industry experts felt that HP’s printer business should be spun off into a separate entity.
Merger Challenges:

Product line integration: This requires discontinuing some products (some loss in revenue) thereby rationalizing the product line.

Reorganization: In the computer industry this has always been a failure.

Cultural change challenges: HP’s culture is largely based on engineering and compromise, while Compaq had a hard-charging sales culture.

Some Facts:
HP was founded by Stanford engineers Bill Hewlett and David Packard

HP was started in California in 1938 as an electronic instruments company.

According to 2003 figures, HP revenues from imaging and printing systems accounted for 31% which was more than seventy percent of total operating profits.

Keywords: Post merger integration, merger and cultural challenges, HP, Compaq, Carly Fiorna, computer industry, printers, merger & consolidation, merger and acquisitions, change management

AOL-Time Warner Turnaround Strategy

March 25, 2006

AOL-Time Warner Turnaround Strategy

The problem faced by Time Warner after its merger with AOL is an issue which merits discussion. The AOL-Time Warner merger in 2001 resulted in the largest media company in the world. AOL joined hands with Time Warner (TW) to create synergy between its online businesses and Warner’s media business.

Two significant factors affected the post merger company. One, the dot com bust meant adverse effect on AOL’s advertising revenues. And two, dial-up subscribers decreased thereby affecting revenues and overall profitability of AOL. Richard Parsons, the CEO and Chairman of Time Warner and Joe Miller, the CEO of AOL took steps to turnaround AOL. A key element of their turnaround strategy was to offer free content on its portal. This strategy benefited AOL in attracting more online users and advertising revenues.

When AOL began operations it soon became the leading company for-pay online subscriber service, bringing easy-to-use Internet service to more than 30 million users. AOL was mainly based on around its dial up business. With customers shifting to broadband, AOL was losing subscribers rapidly. In 2004, AOL had 20 million subscribers. The dial-up segment though profitable, was declining in revenues having lost 2.6 million subscribers in a period of one year. The share price of AOL Time Warner fell by 60% after the merger. The merger was heavily criticized from all quarters.

Growth in advertising business came with AOL establishing itself as a support service rather than an internet access provider. Seeing AOL’s success Google entered into a global advertising partnership with the AOL. Google acquired a 5% equity stake in AOL for US$ 1 billion.

To be continued…

Wal-Mart in Japan Case Study

February 12, 2006

Wal-Mart in Japan

The focus of this case study is the hurdles faced by retailing giant Wal-Mart in the Japanese market. In the early 90’s, Wal-Mart’s decision to globalize is a major focus area.

Issues covered in the case study include: Download Case Study (in PDF format)

Wal-Mart’s entry strategy in Japan
WalMart’s best practices in retailing like Every Day Low Prices (EDLP) and Rollback to the Japanese market through its joint venture with Seiyu.
Wal-Mart’s problems faced in Japan because of the differences between the operational and cultural environment in its home market and the Japanese market.
Walmarts future prospects and business strategies in Japanese Market.

Other management issues covered include:

The Japanese retailing industry: It’s nature and structure and its market size, market scope, and market characteristics.
How to frame an entry strategy for a global and culturally diverse market.

Business Case study terms:

Wal-Mart Stores Inc., Green Field Operations, Costco Wholesale, Metro, Tesco, Japanese Retail Industry, Ito Yokado , Large Store Law, Every Day Low Prices, Carrefour, Daeiei, America Online Inc., Sam’s Clubs

Management Case Studies: Writing a good Case Study

January 1, 2006

Management Case Studies: Writing a good Case Study

A Plain English handbook by the US Securities and Exchange Commission in the late 90’s to help companies draft clear SEC disclosure documents emphasize the need for writing clear informative text. As Warren Buffett mentions in the preface, it is quite difficult to understand what the companies are actually saying.

Writing clear, informative text is vital for a case study. Those who master the technique can boost their case studies value with readers. Clear writing is becoming more and more important.
Readers of a case study will have very different backgrounds and knowledge levels. Some students may be from finance backgrounds who understand balance sheets. A majority will not.

Case studies should be written in a manner that students and educators can assess their level. There needs to be sufficient introductory level subject matter for those with relatively less financial or business knowledge, and more advanced information for those who do. It’s easy to do that on the web with hyperlinks but difficult to do in a hard copy case study.

Case Study – A student’s perspective

With management and business case studies, Yamini, a MBA student with Maharishi Institute of Management Education likes to see a summary at the beginning. She opines that having key facts up front will be very useful.

Case study writers who use acronyms and do not define them develop an incomplete case study. It is absolutely wrong to assume that a case study reader knows what acronyms mean. Most readers are particularly interested in hard facts. Most students read the case study from the back. As Ishleen says, “I am not interested in the fancy stuff in a business or management case study.”

Good-quality writing does get case studies credit. One case study writer with a business management education provider says, “We get feedback from the students and case study corporate trainers. These people are the actual users of the case studies so they know if they have understood the case study or case studies correctly, but we sometimes have to modify the case studies for the students or corporate trainers. The language in our case studies tends to be straight to the point and simple. We try not to make it too formal and complicated with management or business jargon. In cases where we write about management subjects like business ethics and corporate governance, the text in the case study needs to be more formal. It depends on which management or business area we write.”

The skill lies in not just writing correctly, but in being able to interpret and explain potentially complex business situations in clear-cut ways.

Apple Computers Channel Conflict Case Study

November 20, 2005

Apple Computers Channel Conflict

In 2003, an Apple reseller, Tom Santos, filed a lawsuit against Apple Computers Inc. . The court case alleged Apple of showing undue preference to its own Apple retail and online stores. The lawsuit claimed that Apple Computers was neglecting Apple reseller stores while shipping new goods. Many believed the suit was a result of Apple’s deteriorating relationship with some of its dealers

Apple was also accused for adopting unethical business practices. The legal battle criticized Apple’s intention to divert sales to its own stores. Dealers claimed that Apple used discriminatory pricing to undercut dealers, selling products below cost in order to get customers away from independent stores. Many other resellers joined the legal proceedings. Till June 2005, the plaintiffs awaited the allotting of a trial date at the Superior Court of the county of Santa Clara, California. Over the years Apple has succeeded not because of its first-to-market strategy but because it has been able to reach customers with clever products, clever marketing, and smart distribution. Apple though claims that its intent with its retail stores program is to make the market bigger, rather limit its existing channel.

Case Study Keywords:

Apple Computers Inc, Apple, Macintosh (Mac), handling channel conflicts, Apple iPod, Steve Jobs, Steve Wozniak, Reseller, Online Store, Retail Store, Class Action Lawsuit , Hybrid channel system, channel functions, channel integration, channel leader, channel members, channel strategies, dealers, channel partners, Apple resellers association

Management Issues:
Channel Conflict and resolution
Channel Strategies and Management
Reseller Management Issues
Channel Conflict vs. Channel Cooperation
Developing flexible and hybrid distribution strategies to minimize channel conflict

About Apple Computers Inc. (Nasdaq listing: AAPL)

Apple Computer, Inc. is a Silicon Valley company based in California. Apple’s main business is computer technologies. Apple is known for its pioneering, efficiently designed hardware like the iPod and iMac. Apple’s innovations in the software segment like the iTunes part of iLife suite and Mac OS X, its operating system are noteworthy.

Apple Computers Facts and Figures:

Apple Computers was founded on April 1, 1976
Apple was founded by Steve Paul Jobs (Jobs) and Steve Wozniak (Wozniak)
Apple was founded in Jobs’ garage.
Apple opened its first retail store in May 2001
Apple’s first store was opened in a suburb of Washington D.C.
Apple helped begin the personal computer revolution in the 1970s

Related Reading:
Resellers, Consumers File Suit Against Apple
http://www.thechannelinsider.com/article2/0,1895,1768399,00.asp

Microsoft’s Channel Focus Appeals to ISVs
http://www.thechannelinsider.com/article2/0,1895,1833854,00.asp

Channel Conflict and Coordination in the eCommerce Age
http://omis.scu.edu/pdf/POMS-channels-2003-0402.pdf

Best Practices for Channel Management
http://newsroom.cisco.com/dlls/tln/newsletter/2002/september/part1.html

GlaxoSmithKline – Supply Chain Challenges

October 28, 2005

GlaxoSmithKline – Supply Chain Challenges – Part 1

Supply chains have improved drastically in the past ten to fifteen years. The revolution can be attributed to companies’ shift in focus to efficiency. This applies both to the supply and manufacturing operations. GlaxoSmithKline is an example in case. Its efforts in improving production processes and packaging and enhanced supply to meet demand better are proof enough. This article highlights some of the challenges GlaxoSmithKline faced and how it overcame them.

GlaxoSmithKline – The Company

GlaxoSmithKline (GSK) is the world’s second largest pharmaceutical, biologicals and healthcare company (as per 2004 figures). Its sales touched GBP 20 billion yielding a profit of GBP 6 billion approximately. It employs around 100,000 people worldwide, with over 40,000 in the sales and marketing teams. Primarily headquartered in London, with dual US headquarters in Philadelphia and Research Triangle Park. GSK’s prime activities include creation, discovery, development, manufacture, and marketing pharmaceutical and consumer health-related products the world over.

GSK operates largely in two segments, Pharmaceuticals and Consumer Healthcare. GSK has more than 36,000 SKU’s manufactured across over 80 manufacturing plants worldwide. GSK has a market share of seven percent in the pharmaceutical business.

Year Merger/Acquisition New Company Name
1989
Beecham merged with SmithKline Beckman SmithKline Beecham
1995
Glaxo acquires Burroughs Wellcome & Co. Glaxo Wellcome
2000
Glaxo Wellcome merged with SmithKline Beecham GlaxoSmithKline
2001 GlaxoSmithKline acquires consumer health care company Block Drug Co. GlaxoSmithKline
Exhibit 1: Merger and Acquisition activity at GSK

The Challenges

Post merger Integration Issues
With the spate of mergers and acquisitions, GSK faces three major integration challenges:

* Integrating the separate identities
* Integrating different strategies and
* Integrating the packaging and manufacturing operations of Glaxo, Burroughs Wellcome, Beecham, SmithKline Beckman and Block Drug Co.

Complex product portfolio
Market dynamics and short life expectancy of patients have tilted the demand in favour of specialised drugs. GSK, like its competitors has to combat the need for specialised drugs continuously and reaping quick rewards. Such market forces alongside a changing industry make creative marketing and innovative products crucial.

Multi faceted US Markets
The US market mainly comprises of chain pharmacy stores, more traditional mom and pop stores and high-end deliveries. Such diverse markets have diverse needs. Catering to different customers brings forth the challenge of managing small volumes of niche packages.

Regulatory and operational challenges
Frequent merger and acquisition activity implies complicated paper work (re-registration and labelling) compliance with regulatory frameworks of different countries. With over 250 legal entities across the world, printing and other associated challenges emerge with different names that have to appear on different products distributed in different countries. The complexity increased manifold with the mergers owing to labelling changes. Moreover, different markets have different schedules on when GSK must incorporate the labelling changes.

Different departments could always make different packaging design changes. Communicating packaging specifications, graphics and artwork changes across the entire pharmaceutical organization was challenging if not an insurmountable task.

Outsourcing/supplier challenges
One of GSK’s products, Aquafresh Floss‘N’Cap (AFNC) is symbolic of the typical outsourcing challenges. AFNC has a flip top containing dental floss and toothpaste in the tube. AFNC had three custom designed sub assemblies outsourced to three different suppliers. The suppliers worked in sequence on the custom designed cap. Once the package reaches GSK, only filling of the tube with toothpaste remained. Coordinating with these three cross Atlantic suppliers, especially outside GSK’s manufacturing facilities was a challenging task.

Finding alternate/multiple suppliers
GSK had a bad experience early on with supply disruptions from a single source supplier. Almost a decade ago, one of its sole resin supplier’s plants exploded. It had no alternate suppliers and consequently had to lose market share not to mention customer goodwill, as customers have to do without critical drugs or life saving devices. GSK wanted to eliminate such situations. The challenge was not only to find alternate suppliers but ones who complied with the FDA regulations and supplied in time.

On the major machinery and equipment side, GSK’s goals were different though. It wanted to limit the number of machinery suppliers to better familiarise with the manufacturer’s equipment and establish partnerships with machine suppliers who offered total packages when compared to independent system integrators.

Operational/production challenges
The foremost challenge in production operations was synchronising with different manufacturing locations and multiple suppliers. With different packaging and assembly lines, implementing automation and advanced technology or process improvement programmes was a huge challenge. Other considerations were quick machine setup, minimum production stoppages, better equipment availability and flexibility besides handling innumerable design changes.

Technological Challenges
Technologies, for example RFID in anti-counterfeiting are largely untested or simply not the best. GSK has RFID supply chain projects planned but faces a tough test with respect to being the first mover in investing huge sums into the technology or adopt a wait and watch policy. GSK may lose out in both cases owing to failure of the relatively new technology or lose out to competitors who can gain significantly by adopting the technology faster

* Originally published by me in TMM

Glaxo Smithkline (GSK) spends about GBP 800 million to develop a drug. Its efforts and money will go waste unless its customers get the product in time without any defects and have no difficulty in handling the package. In other words, every facet of GSK’s supply chain should be up to the mark. This article (Glaxo Smithkline Supply Chain Challenges –Part I) highlighted some of the supply chain challenges GSK faces. Part II of this article (Glaxo Smithkline Supply Chain Challenges –Part II)illustrates GSK’s response to those supply chain challenges.

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