Jamie Dimon – The man behind JPMorgan’s Turnaround

March 19, 2008

Jamie Dimon (Dimon), president of JPMorgan is referred to as one of the best numbers men around, a Wall Street legend or the right-hand man to Sandy Weill – the titan of banking behind Citigroup. He is also known as an aggressive banker, savage cost-cutter, direct boss who eschews excessive wealth ($44.4 million or £22.2 million annual salary) and invests heavily in philanthropy. In 2007, he was ranked 15 on the 25 most powerful people in business by Fortune.

Dimon was born in New York to second-generation Greek immigrants. He has a degree in biology and economics from Tufts, and a MBA from Harvard. At Harvard he met Sandy Weill. Both went on to create the banking major Citigroup and emerged as a powerful force on Wall Street. In 1998, both separated after having worked together for 16 years. Rumor mills suggested that Dimon was fired by Weill for not promoting his daughter in the company.

After leaving Citigroup, Dimon became the chief executive of Bank One. In 2001, Dimon played a key role in the turnaround of Bank One. In January 2004, he negotiated the acquisition of Bank One by JP Morgan Chase & Company. After the merger, Dimon was appointed President and Chief Operating Officer of JP Morgan Chase. The merger was the third largest acquisition (at the time) in the US history at US$ 58 billion.

Dimon, since then has been aggressively involved with JPMorgan and aims to turn it into the biggest and best banking group in the US. So far, he has been successful in his endeavor and is emerging as one of the most successful navigators of the credit crunch. Over the last few years, he has focused strongly on cutting costs, improving technology and integrating JPMorgan’s disparate operations. But he also has been resolute about preparing the company for an economic downturn. While other investment banks are struggling, Dimon managed several accomplishments one after the other. He co-chaired the summit of world and business leaders in Davos, Switzerland. He even persuaded former Prime Minister Tony Blair to sign on as an adviser and ambassador for JPMorgan. And in what is being regarded as his biggest coup, he has plans to prop up Bear Stearns to avoid a full-blown banking crisis. This draws similar reference to John Pierpoint Morgan (JPMorgan’s founder). JP Morgan financed the US government and other large corporations during the Great Depression and the two world wars. In 1907 during the panic, his organization and personal funding for rescuing of the banking system was representative of the end of a long recession.

Similarly Dimon has played a key role in JPMorgan and the Federal Reserve guaranteeing the huge trading obligations of the troubled firm Bear Stearns. JPMorgan agreed to pay only about $270 million in stock for Bear’s big losses on investments linked to mortgages. Dimon negotiated the deal with Bear and government officials, sleeping only for a few hours over the weekend. Though Dimon had his doubts about the deal and has not been an aggressive acquirer since his joining the company, the quick decision making to buy Bear is outstanding.

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Backsourcing at JPMorgan

Will Tesco succeed in the U.S?

March 14, 2008

The British are coming

Tesco Group is UK’s biggest retailer and operates more than 2,500 stores in the UK and 12 other countries in Europe and Asia. For years, Tesco had plans to enter the U.S. retail market. It was believed that Tesco even looked into possibly acquiring key parts of the Albertson’s grocery chain. But finally, Tesco announced that it would enter the US by 2007 and that its new stores would be based on its “Tesco Express” convenience store model. Tesco operates four different retail formats – Tesco Express, Tesco Metro, Tesco Supercenters and Tesco Extra. Tesco Express is a smaller store format of up to 3,000 sq. feet.

At the time many analysts predicted that the coming of Tesco – even though a new player was a quite accomplished retail entity – had the ability to impact the U.S. market over the long term. To the conventional supermarket channel and even Wal-Mart, Kroger, and Safeway it could only be viewed as a negative. For the traditional supermarket chains who were already struggling to compete with Wal-Mart and the growing popularity of organic food stores like Whole Foods (and other premium food chains), the competition was only going to get worse.

Taking on Wal-Mart

Tesco was serious about expanding into the U.S. as indicated by its initial plans to spend $400 million a year to build its U.S. stores. This investment could pay for 100 to 150 stores. It aims to build 1,000 stores in the US eventually. Tesco chose to enter U.S. through the West Coast first because that region of the country is not yet dominated by Wal-Mart. Like Wal-Mart, Tesco is nonunionised. Wal-Mart is planning to test similarly sized new grocery stores under the “Marketside” banner in the Phoenix area later this year.

Success of Tesco’s launch in the US?

There was growing speculation that the initial performance of Tesco’s new Fresh & Easy discount grocery stores concept was not up to the mark and that internal sales targets were not being met. Some reports in the US suggested that the small neighbourhood groceries, similar in concept to an Aldi hard-discount store, have been failing to attract customers at the rate needed. (The hard discount store, pioneered by Aldi, is a small outlet with only 700 to 1,000 lines of stock compared with 100,000 in a big Wal-Mart. The shelves are mostly filled with own-brand goods.)

Even competitors like Stater Brothers, a supermarket chain in south California (and where the first 20 Tesco stores opened) felt almost no impact from Tesco. The Fresh & Easy concept was being questioned. Fresh & Easy had claimed to be up to 25 per cent cheaper than its main supermarket competition and had expectations of average sales to reach $200,000 per store per week.

Will Tesco succeed in the U.S?

A spokesman from Tesco however maintained that its failure claims were “a bit ridiculous, given that we only opened four months ago”. Tesco is continuing to push ahead with its ambitious US store plans, with another 150 stores expected to open over the coming year in its initial markets. The group has committed £1.25bn ($2.48bn) over five years to its US expansion plans. It is signing leases on additional store sites in northern California, where it is also planning to open a second large distribution centre outside Stockton.

In the past, retailers from the UK like Marks & Spencer, Next, Dixons, and Sainsbury’s have all tried to expand in the US and failed. Tesco has already made the first change to its executive management team at Fresh & Easy. Jeff Adams is heading back to US. He was the chief executive of Tesco’s Lotus business in Thailand. He will be second-in-command to Tim Mason, Fresh & Easy’s chief executive. Meanwhile, Tesco has other things to worry about in its home UK market after it was accused of setting up an elaborate offshore tax avoidance scheme.

Adidas Reebok Merger Case Study

March 6, 2008

The sporting goods industry has seen many mergers and acquisitions (M&A) driven by rising competition and industrial growth. In 1997, Adidas acquired the Salomon Group for $1.4 billion. In 2003, Nike acquired Converse for $305 million and in 2004 Reebok acquired The Hockey Company for $330 million.

Adidas and Reebok – Two mega brands, with great strengths

In August 2005, German adidas-Salomon AG announced plans to acquire Reebok at an estimated value of € 3.1 billion ($3.78 billion). At the time, Adidas had a market capitalization of about $8.4 billion, and reported net income of $423 million a year earlier on sales of $8.1 billion. Reebok reported net income of $209 million on sales of about $4 billion. While analysts opined that the merger made sense, the purpose of the merger was very clear. Both companies competed for No. 2 and No. 3 positions following Nike (NKE).

Competition with Nike and Puma

Nike was the leader in U.S. and had made giant strides in Europe even surpassing Adidas in the soccer shoe segment for the first time. According to 2004 figures by the Sporting Goods Manufacturers Association International, Nike had about 36%, Adidas 8.9% and Reebok 12.2% market share in the athletic-footwear market in the U.S. Adidas was the No. 2 sporting goods manufacturer globally, but it struggled in the U.S. – the world’s biggest athletic-shoe market with half the $33 billion spent globally each year on athletic shoes. Adidas was perceived to have good quality products that offered comfort whereas Reebok was seen as a stylish or hip brand. Nike had both and was a favorite brand because of its fashion status, colors, and combinations. Adidas focused on sport and Reebok on lifestyle. Clearly the chances of competing against Nike were far better together than separately. Besides Adidas was facing stiff competition from Puma, the No. 4 sporting-goods brand. Puma had then recently disclosed expansion plans through acquisitions and entry into new sportswear categories. For a successful merger, the challenge was to integrate Adidas’s German culture of control, engineering, and production and Reebok’s U.S. marketing- driven culture.

The ADDYY and RBK Merger – Impossible is Nothing

On January 31, 2006, adidas closed its acquisition of Reebok International Ltd. The combination provided the new adidas Group with a footprint of around €9.5 billion ($11.8 billion) in the global athletic footwear, apparel and hardware markets.

Adidas-Salomon AG Chairman and CEO Herbert Hainer said, “We are delighted with the closing of the Reebok transaction, which marks a new chapter in the history of our Group. By combining two of the most respected and well-known brands in the worldwide sporting goods industry, the new Group will benefit from a more competitive worldwide platform, well-defined and complementary brand identities, a wider range of products, and a stronger presence across teams, athletes, events and leagues.”

Hainer also said, “The brands will be kept separate because each brand has a lot of value and it would be stupid to bring them together. The companies would continue selling products under respective brand names and labels.”

Related Reading on Adidas Reebok merger case study: Is the Adidas Reebok merger working?

Download PDF file (25 pages) – Management Case Study on adidas and Reebok Merger

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