Document 1 of 100

UNILEVER GROUP

Author: Badie, Latoya; Stretcher, Robert

ProQuest document link

Abstract:

The Primary subject matter of this case concerns the opportunities that Unilever Group gained from the Asian crisis, and possible threats from operating in the Asian market. Secondary issues include an examination of the products, services, customers and suppliers of Unilever Group, andan exposition of causes and effects ofthe Asian crisis. The case has a difficulty level appropriate for junior or senior level. The case is designed to be taught in two class hours and is expected to require one hour of outside preparation by students. In mid 1997 an economic crisis erupted in Asia that would affect economies around the world. Many multinational corporations operating in Asia today including Unilever Group, gained opportunities from the Asian crisis. Unilever Group is one ofthe largest consumer goods businesses in the world with two divisions, one in home and personal care and the other in food (Bestfoods). The case gives a background on Unilever Group's business, the products and services they offer, and their traditional consumer groups. The Asian Crisis, its causes and its aftermath are discussed. The financial performance of Unilever Group since entering the Asian market is presented.

Full text:

CASE DESCRIPTION

The Primary subject matter of this case concerns the opportunities that Unilever Group gained from the Asian crisis, and possible threats from operating in the Asian market. Secondary issues include an examination of the products, services, customers and suppliers of Unilever Group, andan exposition of causes and effects ofthe Asian crisis. The case has a difficulty level appropriate for junior or senior level. The case is designed to be taught in two class hours and is expected to require one hour of outside preparation by students.

CASE SYNOPSIS

In mid 1997 an economic crisis erupted in Asia that would affect economies around the world. Many multinational corporations operating in Asia today including Unilever Group, gained opportunities from the Asian crisis. Unilever Group is one ofthe largest consumer goods businesses in the world with two divisions, one in home and personal care and the other in food (Bestfoods). The case gives a background on Unilever Group's business, the products and services they offer, and their traditional consumer groups. The Asian Crisis, its causes and its aftermath are discussed. The financial performance of Unilever Group since entering the Asian market is presented.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 3

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412006

Document URL: http://search.proquest.com/docview/192412006?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 2 of 100

A MARRIAGE OF CULTURES

Author: Barger, Bonita

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Abstract:

The primary subject matter of this case concerns the merging of two cultures to create an International Joint Venture. The case is designed to be used in a Human Resource Management and/or International Management class at the Junior or Senior undergraduate level and has a difficulty level of 4/5. The case is designed to be taught in a 75- minute class with approximately 60 minutes of outside classroom preparation by students.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns the merging of two cultures to create an International Joint Venture. The case is designed to be used in a Human Resource Management and/or International Management class at the Junior or Senior undergraduate level and has a difficulty level of 4/5. The case is designed to be taught in a 75- minute class with approximately 60 minutes of outside classroom preparation by students.

CASE SYNOPISIS

What is the role of culture when two parent firms decide too "marry" and give birth to an International Joint Venture? This case study probes the role of culture in a newly formed International Joint Venture? The case provides definition and boundaries for the discussion of culture and the role of culture in International Joint Ventures (IJV). International Joint Ventures may be described as the offspring of two parents. The use of marriage as a metaphor for the joining or union of two companies to form a joint-venture is not uncommon in the literature (Lorange, Roos, & Bronn, 1992). The new venture or child embodies the characteristics and features of the parent firms. The parent firm's relationship and responsibilities vary with the new venture based on agreements and contracts cemented in law and good faith.

The concepts of national and organizational culture play an increasingly dominant role as businesses merge in a global arena. Cross national and cultural research linking management practices to cultural differences and providing viable plans and strategies for successful management are in their infancy.

After completing this case a student should have an increased awareness of the issues involved in globalization, the formation of International Joint Ventures, and the impact of culture during the birth of IJV's. Specific topics addressed in the case include: National and Organizational Culture, International Joint Ventures (LVJ), and Human Resource Management across cultures.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 5

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Conference Proceedings, Business Case

ProQuest document ID: 192412441

Document URL: http://search.proquest.com/docview/192412441?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 3 of 100

VIRTUALLY THERE TECHNOLOGIES: A CASE STUDY OF EARNINGS MANAGEMENT AND FRAUD

Author: DiGregorio, Dean W; Stallworth, H Lynn; Braun, Robert L

ProQuest document link

Abstract:

The primary subject matter of this case concerns recognizing and correcting earnings management andfraud. Secondary issues include helping students to develop professional judgment and to become aware of typical reporting problems experienced by growing companies. The case has a difficulty level of three and is appropriate for junior-level students in intermediate financial accounting courses. It could also be used at level four in a senior-level auditing class. The case is designed to be taught in 2.5 class hours and is expected to require 4 hours of outside preparation by students. Alternatively, the case can be assigned as a project that requires minimal classroom time. Earnings management has received a great deal of publicity by the press and increased scrutiny by the SEC. However, many students do not understand how earnings management and frauds are perpetrated, the extent to which "gray" areas exist in accounting practice, and the role that professional judgment plays in determining the correct course of action. This instructional case is designed to help students learn to recognize earnings management and fraud, to develop professional judgment, and to become aware of typical reporting problems experienced by growing companies. Students are required to identify problem situations and differentiate between unintentional errors and omissions, aggressive accounting practices andfraud. They must also propose adjusting journal entries and determine the effect on income. The case is based on a fictional fast-growing high tech company, Virtually There Technologies, which manufactures and markets virtual reality game systems. In the wake of the abrupt departures of the CFO and controller, students assume the role of the new controller. Their job is to get the financial records in order before the annual audit of the company financial statements begins.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns recognizing and correcting earnings management andfraud. Secondary issues include helping students to develop professional judgment and to become aware of typical reporting problems experienced by growing companies. The case has a difficulty level of three and is appropriate for junior-level students in intermediate financial accounting courses. It could also be used at level four in a senior-level auditing class. The case is designed to be taught in 2.5 class hours and is expected to require 4 hours of outside preparation by students. Alternatively, the case can be assigned as a project that requires minimal classroom time.

CASE SYNOPSIS

Earnings management has received a great deal of publicity by the press and increased scrutiny by the SEC. However, many students do not understand how earnings management and frauds are perpetrated, the extent to which "gray" areas exist in accounting practice, and the role that professional judgment plays in determining the correct course of action. This instructional case is designed to help students learn to recognize earnings management and fraud, to develop professional judgment, and to become aware of typical reporting problems experienced by growing companies. Students are required to identify problem situations and differentiate between unintentional errors and omissions, aggressive accounting practices andfraud. They must also propose adjusting journal entries and determine the effect on income. The case is based on a fictional fast-growing high tech company, Virtually There Technologies, which manufactures and markets virtual reality game systems. In the wake of the abrupt departures of the CFO and controller, students assume the role of the new controller. Their job is to get the financial records in order before the annual audit of the company financial statements begins.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 17

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412066

Document URL: http://search.proquest.com/docview/192412066?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 4 of 100

SPACE CENTER SOUVENIRS: ETHICAL DECISION MAKING IN THE AFTERMATH OF A NATIONAL DISASTER

Author: Gruben, Kathleen H; Higgins, Leslee N

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Abstract:

The primary subject matter of this case concerns ethical decision making. Secondary issues examined include small business management in a dynamic environment. The case has a difficulty level that is appropriate for any undergraduate business course. The case is designed to be taught in one class hour and is expected to require no outside preparation by students. Space Center Souvenirs is a small "mom and pop " operation located only two miles from NASA in Webster, Texas. The store's niche is selling space memorabilia. On February 1, 2003, the owners of this small business found themselves in an precarious situation. The space shuttle, Columbia, exploded over Texas. Within only minutes of the explosion, the business began to change and the owners faced ethical decisions they had never imagined. This case focuses on the changes and decision making that even a small business faces when directly impacted by a national disaster.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns ethical decision making. Secondary issues examined include small business management in a dynamic environment. The case has a difficulty level that is appropriate for any undergraduate business course. The case is designed to be taught in one class hour and is expected to require no outside preparation by students.

CASE SYNOPSIS

Space Center Souvenirs is a small "mom and pop " operation located only two miles from NASA in Webster, Texas. The store's niche is selling space memorabilia. On February 1, 2003, the owners of this small business found themselves in an precarious situation. The space shuttle, Columbia, exploded over Texas. Within only minutes ofthe explosion, the business began to change and the owners faced ethical decisions they had never imagined. This case focuses on the changes and decision making that even a small business faces when directly impacted by a national disaster.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 23

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 192412182

Document URL: http://search.proquest.com/docview/192412182?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 5 of 100

THE MEDICAL OFFICE BUILDING AT ST. MARK'S HOSPITAL: A CAPITAL BUDGETING DILEMMA

Author: Hadley, Linda U; Carter, Fonda L

ProQuest document link

Abstract:

St. Mark's hospital has recently celebrated its 50th anniversary. Ten years ago, the hospital trustees conducted a national search to hire experienced hospital administrators to replace the religious order that had run the hospital since its inception. Since that time, many aggressive changes have been made and many ambitious new initiatives have been launched including becoming a premier provider of cardiac services in the region. Recognizing the importance of offering a broader spectrum of health care services, the hospital has made acquisitions to become a more fully integrated health care provider. It has acquired affiliated health care service companies and expanded in the areas of mental and palliative care. Under the new administration, the hospital has undergone significant renovation to repair and modernize an aging physical plant and acquired a large parcel of land in a developing area for possible development or relocation in the distant future. The hospital markets itself as a state of the art facility with a personal touch. The management of the hospital has a commitment to continuous quality improvement and continues to upgrade equipment and services to better serve its patients.

St. Mark's Hospital operates in an environment where its major competition comes from a large publicly supported health care system with modern facilities and deep pockets. The governing board of the St. Mark's is active and approves all major decisions. The Board of Trustees has confirmed its commitment to function as a not-for-profit community hospital, however, it has instructed management to analyze and present all capital budgeting projects as a for-profit entity would. The Board's direction to management requires that the hospital seek to earn the highest return on assets that is consistent with the hospital providing the highest quality care. These returns will be used to finance modernization and further integration.

Full text:

HISTORY

St. Mark's hospital has recently celebrated its 50th anniversary. Ten years ago, the hospital trustees conducted a national search to hire experienced hospital administrators to replace the religious order that had run the hospital since its inception. Since that time, many aggressive changes have been made and many ambitious new initiatives have been launched including becoming a premier provider of cardiac services in the region. Recognizing the importance of offering a broader spectrum of health care services, the hospital has made acquisitions to become a more fully integrated health care provider. It has acquired affiliated health care service companies and expanded in the areas of mental and palliative care. Under the new administration, the hospital has undergone significant renovation to repair and modernize an aging physical plant and acquired a large parcel of land in a developing area for possible development or relocation in the distant future. The hospital markets itself as a state of the art facility with a personal touch. The management of the hospital has a commitment to continuous quality improvement and continues to upgrade equipment and services to better serve its patients.

St. Mark's Hospital operates in an environment where its major competition comes from a large publicly supported health care system with modern facilities and deep pockets. The governing board of the St. Mark's is active and approves all major decisions. The Board of Trustees has confirmed its commitment to function as a not-for-profit community hospital, however, it has instructed management to analyze and present all capital budgeting projects as a for-profit entity would. The Board's direction to management requires that the hospital seek to earn the highest return on assets that is consistent with the hospital providing the highest quality care. These returns will be used to finance modernization and further integration.

CASH FLOW PROJECTIONS

Management has prepared cash flow proj ections to present to the Board for the proposed new medical office facility. The board had tentatively approved the project if management could lease 50% of the facility prior to construction. Management felt that this obj ective was not attainable and has prepared cash flow proj ections for the first ten years of the proj ect. Management feels that these cash flow projections are more realistic than a goal of pre-leasing 50% of the facility. The cash flow projections prepared are presented in Table 1 below. The analysis shows a net cash outflow of $5,298,506 over the ten years of analysis. Management, in support of their position to approve the project, also offered the board an unconventional approach to ROI calculation. The ROI calculations are shown in Table 2.

DISCUSSION QUESTIONS

1. Given the table prepared by management for this capital budgeting decision, what assumptions can you identify being used in this analysis? What relevant factors were ignored?

2. Complete the capital budgeting model presented in the following table. The life of the building is 27 years. For purposes of computing the present value, assume K= 8.06%, with 80% financing. (After year 10, a 2% increase in cash flows was assumed.)

3. Is this an acceptable proj ect? In answering, consider whether there are other unquantiflable factors that should be considered in making this decision.

4. Given the information available, how should the Board of Trustees of St. Mark's Hospital make an accept/reject decision?

5. What do you think of management's approach to the ROI calculation?

EPILOGUE

The Board of Trustees of St. Mark's Hospital approved the project. While the projections do not necessarily support approval, the Board considered the move to be consistent with its strategic plan to modernize, integrate and present itself as a fully integrated health care provider. The Board was motivated largely by the threat of losing physician referrals to its competitors.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 25-31

Number of pages: 7

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411983

Document URL: http://search.proquest.com/docview/192411983?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 6 of 100

LEGAL CONCEPTS AND TERMS UNDERLYING INSURANCE CONTRACTS: A CASE STUDY

Author: Hamilton, Karen L

ProQuest document link

Abstract:

Jack's Business is a sole proprietorship owned and managed by Jack Granger. Jack contracted with AJAX Construction Company to build an addition to his warehouse. The construction project is financed by NYM Bank. Jack knows that the lot on which the warehouse addition will be built has been contaminated with chemicals but he did not tell AJAX nor NYM Bank. Jack also did not tell his insurance company, WIY Insurance Company, because his premiums would have been astronomical or the coverage would not have been available.

While AJAX was building the warehouse addition, part of the building frame collapsed when an employee of Jack's Business ran into it with a crane. Jack told the on-site manager for AJAX Construction Company that AJAX would not be held liable for the damages. A claims adjuster for WIY Insurance Company initially indicated that the property claim would be covered by WIY. However, during further investigation the contamination is discovered and WIY denied the claim on the basis of material concealment. The contamination had nothing to do with the loss.

Full text:

THE CASE

Jack's Business is a sole proprietorship owned and managed by Jack Granger. Jack contracted with AJAX Construction Company to build an addition to his warehouse. The construction project is financed by NYM Bank. Jack knows that the lot on which the warehouse addition will be built has been contaminated with chemicals but he did not tell AJAX nor NYM Bank. Jack also did not tell his insurance company, WIY Insurance Company, because his premiums would have been astronomical or the coverage would not have been available.

While AJAX was building the warehouse addition, part of the building frame collapsed when an employee of Jack's Business ran into it with a crane. Jack told the on-site manager for AJAX Construction Company that AJAX would not be held liable for the damages. A claims adjuster for WIY Insurance Company initially indicated that the property claim would be covered by WIY. However, during further investigation the contamination is discovered and WIY denied the claim on the basis of material concealment. The contamination had nothing to do with the loss.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 33-34

Number of pages: 2

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Conference Proceedings, Business Case

ProQuest document ID: 192412062

Document URL: http://search.proquest.com/docview/192412062?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 7 of 100

RISK MANAGEMENT IN AN ORGANIZATION: A CASE STUDY

Author: Hamilton, Karen L

ProQuest document link

Abstract:

You work for a risk management consultant who has been contacted by two organizations-Community Hospital and LJ Gourmet-to provide recommendations concerning their risks and how to treat them. You have agreed to review their information and develop some preliminary recommendations about their risk management objectives and measures they can use to treat various loss exposures they face.

Community Hospital is the only hospital in a community of 50,000 occupants. It was established in 1970 and is a fully accredited non-profit organization. The hospital has 80 beds and offers full-service inpatient and outpatient health care to the community residents. It provides care to approximately 120,000 people each year with a staff of around 500 full-time and part-time employees, from office staff to surgeons. The hospital's mission is to promote total health by balancing physical, emotional, and social well-being.

LJ Gourmet is a small retail store that sells imported gourmet foods and wines and related items, such as cooking utensils and serving dishes. The store is located in a strip mall and occupies a 25,000 square foot store-front that it leases from the mall owner. The store generates $200,000 in revenue each year with 2 full-time and several part-time employees. The store's goal is to provide the gourmets of the world with quick access to the supplies and food/wine they desire. The store is considering an on-line service in addition to the store-front, but has not yet implemented it.

Full text:

THE CASE

You work for a risk management consultant who has been contacted by two organizations-Community Hospital and LJ Gourmet-to provide recommendations concerning their risks and how to treat them. You have agreed to review their information and develop some preliminary recommendations about their risk management objectives and measures they can use to treat various loss exposures they face.

Community Hospital is the only hospital in a community of 50,000 occupants. It was established in 1970 and is a fully accredited non-profit organization. The hospital has 80 beds and offers full-service inpatient and outpatient health care to the community residents. It provides care to approximately 120,000 people each year with a staff of around 500 full-time and part-time employees, from office staff to surgeons. The hospital's mission is to promote total health by balancing physical, emotional, and social well-being.

LJ Gourmet is a small retail store that sells imported gourmet foods and wines and related items, such as cooking utensils and serving dishes. The store is located in a strip mall and occupies a 25,000 square foot store-front that it leases from the mall owner. The store generates $200,000 in revenue each year with 2 full-time and several part-time employees. The store's goal is to provide the gourmets of the world with quick access to the supplies and food/wine they desire. The store is considering an on-line service in addition to the store-front, but has not yet implemented it.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 35-36

Number of pages: 2

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412197

Document URL: http://search.proquest.com/docview/192412197?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 8 of 100

NEGOTIATING WITH THE CHINESE: CHINESE TIGER BARRELS IN THE CALIFORNIA WINE INDUSTRY

Author: Harropp, Erica Louise; Dove, Sarah; Dove, Duane; Liddell, Wingham

ProQuest document link

Abstract:

This case study investigates the actions of a small California wine barrel company as it attempts to secures an agreement with a Chinese government forestry bureau to sell wine barrels into the California wine industry The primary focus is on negotiating tactics used in initial contract discussions. Cultural differences relating to how contracts are viewed complicate business relationships. Issues of trust are especially problematic when cultures do not have a common basis.

Full text:

CASE DESCRIPTION

This case study investigates the actions of a small California wine barrel company as it attempts to secures an agreement with a Chinese government forestry bureau to sell wine barrels into the California wine industry The primary focus is on negotiating tactics used in initial contract discussions. Cultural differences relating to how contracts are viewed complicate business relationships. Issues of trust are especially problematic when cultures do not have a common basis.

CASE SYNOPSIS

Erik Lynn owner of American Consolidated Barrels operated a small but successful import distributorship selling French oak barrels and other wood products from around the world for winemaking. His marketing plan was to offer a product line covering all tiers of oak aging needs from the most expensive barrel to the least expensive oak chips. Lacking a middle priced product, he sought to negotiate with the Chinese Forestry Bureau for the exclusive rights to sell "Chinese Tiger Barrels".

Lynn pursued a relationship with the Chinese to import their barrels, eventually traveling to the manufacturing site in China to finalize the negotiation. Obviously he faced negotiating in a country and in a manner for which he was unprepared because of lack of prior relevant experience. After a grueling five-day visit filled with elaborate formal luncheons and dinners, Lynn signed a five-year contract. As events unfolded he greatly regretted the terms of the contract and felt he had fallen victim to clever negotiating tactics that resulted in a contract that was not compatible with his best interests.

This case is designed to encourage discussions about cross-cultural business negotiations between Chinese and American representatives. Although this case is specifically about the wine business and the unique characteristics of the stakeholders, it is general enough to fit similar situations involving companies attempting to design and manufacture new products in China for export to America.

Similar issues would be expected to be present in any negotiations between parties form different cultures. Students are encouraged to research factors of both the Chinese and the American cultures that may have influenced the negotiation.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 37-38

Number of pages: 2

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412136

Document URL: http://search.proquest.com/docview/192412136?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 9 of 100

THE COCA-COLA COMPANY

Author: Mace, Tiffany; Stretcher, Robert

ProQuest document link

Abstract:

The primary subject matter of this case concerns the numerous risks that The Coca-Cola Company has overcome in the past, as well as immediate and future risks that the Company faces in the beverage industry. Secondary concerns include the ways in which The Coca-Cola company has strivedto expand internationally. This case has a difficulty level appropriate for senior level and first year graduate. This case is designed to be taught in two class hours and is expected to require four hours of outside preparation by students. At one time, The Coca-Cola Company struggled to produce just 1,000 glasses of The newly invented carbonated beverage, "Coke. "Now, as The Coca-Cola Company continues to serve more than one billion servings each day, millions of consumers rely on The Coca-Cola Company to provide the refreshing beverage. As The Coca-Cola Company grew, it developed new ways of operating more efficiently, while still maintaining and creating value for the stakeholders. If Coca-Cola learns from its mistakes, the Company will remain a top player in the beverage industry. Unfortunately, there is inevitable uncertainty in the world today due to war possibilities and other potential calamities. A frightening war and a declining economy are hindering the stock market. Because investors are uneasy about the risks involved in a global consumer products company, the prospects for effective fundraising from equity sources is questionable. Despite these problems, The Coca-Cola Company has proven to be a primary competitor in a striving and strong market.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns the numerous risks that The Coca-Cola Company has overcome in the past, as well as immediate and future risks that the Company faces in the beverage industry. Secondary concerns include the ways in which The Coca-Cola company has strivedto expand internationally. This case has a difficulty level appropriate for senior level and first year graduate. This case is designed to be taught in two class hours and is expected to require four hours of outside preparation by students.

CASE SYNOPSIS

At one time, The Coca-Cola Company struggled to produce just 1,000 glasses of The newly invented carbonated beverage, "Coke. "Now, as The Coca-Cola Company continues to serve more than one billion servings each day, millions of consumers rely on The Coca-Cola Company to provide the refreshing beverage. As The Coca-Cola Company grew, it developed new ways of operating more efficiently, while still maintaining and creating value for the stakeholders.

If Coca-Cola learns from its mistakes, the Company will remain a top player in the beverage industry. Unfortunately, there is inevitable uncertainty in the world today due to war possibilities and other potential calamities. A frightening war and a declining economy are hindering the stock market. Because investors are uneasy about the risks involved in a global consumer products company, the prospects for effective fundraising from equity sources is questionable. Despite these problems, The Coca-Cola Company has proven to be a primary competitor in a striving and strong market.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 71

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412082

Document URL: http://search.proquest.com/docview/192412082?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 10 of 100

IRIDIUM: THE FIRST SATELLITE TELEPHONE COMPANY

Author: Morrisette, Shelley; Hatfield, Louise

ProQuest document link

Abstract:

Like all innovative ideas, Iridium began as a pure, elegant answer to a real problem. In January 1987, Karen Bertiger, wife of Barry Bertiger, a Motorola satellite engineer, was in a tizzy before a planned vacation to a remote Bahamian island. Karen Bertiger was concerned that her real estate company in Scottsdale, Arizona would miss out on a big closing if she was not available. Frustrated she asked Barry why he couldn't rig something up so that she could stay in touch with her office and clients while they vacationed on an island known for its isolation. The problem stuck with Barry Bertiger, and when he got back to his Phoenix office he raised the question with several other engineers in the Space and Communications Division at Motorola. The idea soon catapulted to the top of the Division's priority list-could Motorola build a global telephone network that would allow anyone to speak to anyone, at anytime, from any location?

For Motorola the timing of the project could not have been better. Motorola was struggling to re-establish itself as a high tech leader, which it clearly had been since its founder created the first car radio. A global telephone network was the ultimate communications proj ect, one that could once again establish Motorola as the leader in a new technology market. The project would also allow Motorola to expand its space business, which was currently limited to government contracts. The project would allow Motorola to use its expertise in a highly lucrative new business, without governmental cost-plus-fixed-percentage pricing. Finally, it would allow Motorola to expand its handheld device business globally, in one bold move.

Full text:

1987 - CARIBBEAN BEGINNINGS

Like all innovative ideas, Iridium began as a pure, elegant answer to a real problem. In January 1987, Karen Bertiger, wife of Barry Bertiger, a Motorola satellite engineer, was in a tizzy before a planned vacation to a remote Bahamian island. Karen Bertiger was concerned that her real estate company in Scottsdale, Arizona would miss out on a big closing if she was not available. Frustrated she asked Barry why he couldn't rig something up so that she could stay in touch with her office and clients while they vacationed on an island known for its isolation. The problem stuck with Barry Bertiger, and when he got back to his Phoenix office he raised the question with several other engineers in the Space and Communications Division at Motorola. The idea soon catapulted to the top of the Division's priority list-could Motorola build a global telephone network that would allow anyone to speak to anyone, at anytime, from any location?

For Motorola the timing of the project could not have been better. Motorola was struggling to re-establish itself as a high tech leader, which it clearly had been since its founder created the first car radio. A global telephone network was the ultimate communications proj ect, one that could once again establish Motorola as the leader in a new technology market. The project would also allow Motorola to expand its space business, which was currently limited to government contracts. The project would allow Motorola to use its expertise in a highly lucrative new business, without governmental cost-plus-fixed-percentage pricing. Finally, it would allow Motorola to expand its handheld device business globally, in one bold move.

1988-1990 - IRONIC NAME

By 1988 a small group of engineers had been assembled at Motorola to solve this ultimate challenge for communications specialists. After exploring multiple possibilities, the engineers decided on a constellation of satellites that could be lofted into space and connected to the public-telephone network utilizing a few super gateways. After studying the current satellite technology, the Motorola engineers decided to create a network of 77 satellites in seven orbital planes. Thus, Iridium became the name of the project, because the element iridium had 77 electrons circling its nucleus. In late 1989 improved efficiency of satellite technology reduced the number of needed satellites to 66. At the time this was seen as fortuitous because the satellite network was reduced by 11 units-never the less, the Iridium name stuck.

In November 1989 the Space and Communications Division engineers were ready to make a proposal to Motorola CEO Bob Galvin. The system would consist of 66 LEO satellites, one super gateway, and several smaller gateways located where call traffic was heavy. Rockets would launch the satellites, in bundles of five or six. The project would use multiple sources to launch the satellites-NASA, military, China, India, whoever was cheapest and fastest. Finally, the cost to build and deploy the system was estimated at $3.3 billion. Bob Galvin enthusiastically approved startup funding for the project and Iridium was internally launched.

While Bob Gavin endorsed Iridium wholeheartedly, he and other Motorola executives insisted that the project be a separate entity and receive the majority of its funding from public markets and private investors. Motorola limited their ownership risk to 18%. Yet, Motorola executives expected to control Iridium completely. The company also expected to make huge profits now, and in the foreseeable future from satellite construction, handheld device creation and marketing, consulting fees, and most importantly network management and maintenance. The financing plan created a problem because the satellite business was not in the habit of raising public funds or of allowing free-market competition. Only governments or satellite consortiums (which were usually governed by state-authorized telephone monopolies) such as Intelsat, Immarsat, or Eurosat were in the satellite business.

On June 26, 1990, at four simultaneous press conferences in Beijing, London, Melbourne, and New York City, Iridium was introduced to the world. The business press was not impressed. Mediums that covered the event warned that due to the high costs of the mobile devices, Iridium would remain a bit player in the telecommunications industry. Most of the business world and established telecommunications companies ignored the public relations blitz. Motorola wanted to raise $800 million in first round financing primarily from established-players such as AT&T, NTT, and BT. But all of the big phone companies thought that Iridium's plan to offer mobile devices that cost consumers $3,000, with calls at $7 a minute, was not a viable business plan. Besides the prohibitive costs to the consumer, Iridium had not acquired spectrum allocations from any major country. Without permission to use partitions of the radio spectrums worldwide the idea was just that-a wonderful, pie-in-the-sky, what-if, idea. Lobbying over 200 counties separately for spectrum property rights would take forever and probably not succeed because many countries' large, and in many cases public, telecommunications companies were against the new, upstart company. What was needed was a global solution to this problem.

Solving the regulatory and financing problems would require a new business plan. The new strategy would have to pit the have-not nations against the haves-the Developing World's desire for cash, technological infrastructure, and control, against the Industrial World's desire to maintain the status quo. Instead of attracting a few large investors Iridium must sell many small portions of the company to developing countries and small entrepreneurial investors. The new plan called for low cash demands up-front ($40 million) and guaranteed revenue from call traffic.

The first hurdle for the new business plan came at the World Administrative Radio Conference (WARC). This is an organization that globally determines radio spectrum allocations. Iridium lobbied the Developing World's members relentlessly, but at the conference the developed countries refused to bring up Iridium's proposal for radio frequencies. Iridium led a revolt and walked out of the WARC conference with most of the Developing World's members. This brought the organization to a complete standstill. Two days later WARC reconvened and the Iridium proposal was the only issue discussed. By the close of the day, the Iridium proposal was passed overwhelmingly with 140 votes. Iridium had the global legal right to use specific partitions of the radio spectrum, now all they needed were investors, partners, channels, distributors, and a working constellation of satellites.

1991-1996 - SELLING AN IDEA TO THE WORLD

Investors now included a diverse group of entities, such as Thailand's United Communications Industry Co., Saudi Arabia's Mawaid Group (led by Price Fahd), China Aerospace (led by the military), Khrunichev (Russia's state-owned space-manufacturing company), Taiwan's Pacific Electric Wire & Cable Co., SK Telecom (affiliated with Korea Telecommunications Corporation), a 40 private investor consortium in South America, a group of banks in India, and PT Bakrie Brothers (an Indonesian company with strong ties to the Suharto regime). By July 1993, Iridium had 14 investor groups, all of whom were from either small developing countries or independent entrepreneurs. The Iridium consortium looked nothing like the original planned picture of a few large international telcos. Other investors included equipment manufacturers such as Japan's DDI Corporation, VEBA AG and RWE AG in Germany, and in North America, Motorola, Lockheed, Raytheon, Sprint, and BCE. Telcom Italia was the only original investor that was an established phone company. In August 1993, the consortium raised $800 million, one of the largest private placements in financial history. Iridium broke out of the gate clean and fast and was off and running.

By December 1993 each of the investors had a section of the globe as their private flefdom. The company was not really a going concern, even with $800 million in the bank. Each of the investors was in actuality a separate company-independent, with its own CEO, board of directors, and accountable to its own stockholders/stakeholders. In reality Iridium had sold territorial franchises to 15 regional corporations. These 15 regional investors/franchisers had to be coordinated, kept happy, and function as a seamless whole to insure Iridium's success. Iridium's corporate headquarters consisted of 20 marketing, management, and international legal specialists. The Iridium board that was supposed to manage the overall focus of the company consisted of 28 members from 17 countries (investors or people controlled by investors), who met only four times a year in a different part of the world for three days. But the Board controlled Iridium's management and direction and that meant the franchisees controlled the franchise.

Because the investors wanted to keep as much of the ownership and, thus, control, for themselves, capital had to be raised through debt financing. But investors such as Motorola, Telcom Italia, and others did not want to guarantee this debt because it would force them to place these secured loans on their corporate balance sheets as debt, which would weaken their financial position. After consulting with Goldman Sachs the financing plan called for Iridium to receive $3 billion in unsecured loans through the sale of bonds to several large banks. Iridium would have to pay higher interest rates for the loans due to investors refusing to "back" the bonds, but no one imagined that this would be a problem. The capital would be used to purchase the satellites, and build the necessary infrastructure. Additional capital (once the system was nearly operational) would be acquired from equity markets. It was estimated that this round of financing would raise an additional $1 billion from issuing common stock in Iridium, LLC.

The Iridium idea was now eight years old and while capital had been raised, employees hired, and general plans made, nothing of consequence really existed. 1995 would be the year when general plans got much closer to reality for employees, investors, banks, and all other stakeholders. The planning would be driven by financial and technical considerations-what needed to be accomplished to acquire $3 billion in unsecured debt and then how long would it take to build the satellite constellation once the money became available? The road to the $3 billion had been clearly delineated. Chase Manhattan, Bankers Trust, and several other large banks prescribed the information they would need to purchase Iridium bonds. It would be a daunting task to gather the relevant information required by the banks, but there was no alternative. The banks would require specific, detailed, and independently validated answers to three questions: 1) Technically can this idea be built, networked, and most importantly operate effectively at the budgeted price and within the projected timeline? 2) Can Iridium develop all of the necessary legal relationships with suppliers, partners, and countries? Naturally the bankers required third party verification that all necessary contracts for system operation were in order. 3) Specifically how, when, and where would Iridium's revenue be produced? The banks wanted information on customers, market potential, pricing, service, distribution, products, service, competition, and alike. Once again, the bankers required all marketing research to be validated by an independent third party.

In the spring of 1995 three separate project groups were set-up within Iridium. Group 1 or the Technology Group was tasked with creating the constellation system. The small group of Iridium technology employees worked with the Motorola engineers who were designing the system. Group 2 or the Legal Group was tasked with establishing legal contracts and relationships with partners and cellular systems throughout the world. They worked primarily with investors in each of the 15 regions. Finally, Group 3 or the Marketing Group must develop a marketing plan based on valid research. To assure the banks that the information they were receiving on Iridium's progress in all three areas was reliable, the company hired Coopers & Lybrand, a Big-Six accounting firm to oversee the three projects. Actually hiring Coopers was not Iridium's idea-it was the banks.

Group 3 was in trouble. Iridium would be forced to conduct primary marketing research throughout the world. Group 3 asked Gallup to do the market research. During the first month of 1996 Gallup, Iridium, Coopers, and the consultants had thrice-daily conference calls. Topics included everything from questionnaire design, to methodology issues, to analysis and projection techniques. By September 1996 Gallup began delivering data on a city-by-city basis. Due to the small samples sizes and, thus, large sample errors, it was impossible to say with certainty if there was zero demand, some demand, or substantial demand for Iridium products. In November Iridium relieved Gallup of many of the analysis issues. Iridium decided that the consultants would complete demand projections.

1997-99 - MARKETING THE NEW BRICKPHONE

In June Iridium raised $240 million in a public offering of 12 million shares. In July the company raised $800 million in high-yield debt, bringing the total debt total to $3 billion. In October Iridium stock stood at $55.00 per share even though the company announced a loss of $85 million for the quarter. The company had the capital to complete the network and Iridium management was pushing the project forward.

In July the first rocket carrying five Iridium satellites was launched from Vandenberg Air Force Base. During the next 11 months 14 additional launches would take place carrying all 66 Iridium satellites. It would be a spectacular feet of engineering and daring technology. But back on Earth things were falling farther and farther behind. The partners had completely dropped the marketing ball. Nothing had been done to market the phone and service anywhere in the world. Plans called for each of the 15 gateways to directly market the Iridium phone to potential clients during the last five months of 1997, but partners did not follow through. Consequently, by end of 1997 the constellation was well on its way towards completion, but potential clients were nowhere to be found.

In November the system went online, not because it was ready, but because upper management insisted that it could not be delayed. The roll out was a disaster. The phones were a disaster. The third quarter loss was $364 million. The new marketing director approached Edward Staiano (Iridium's CEO) with a promotion idea that could really boost Iridium's profile. Most of the world's media was in Bosnia covering the war. Communications in this part of the world were haphazard at best. Iridium offered to equip much of the media with its phones for the free publicity. It was a risk, but Staiano was assured that the system could handle the traffic from Bosnia; but it could not. The network did not work, and because these were media companies, word traveled like a wildfire that the phones were bricks-literally and figuratively.

Iridium and Motorola had become so obsessed with the technical grandeur of the project that they completely ignored how the product would or could be marketed. For starters, the phone weighed slightly over a pound. It needed numerous adaptors and attachments to operate. Customers had to undergo five hours of training to learn how to use the phone. The phone's antennae that folded out from the device was the size of a billy club. In order to use the phone the antennae needed to have a clear path to the satellite (i.e., the phone would not work in a building or even a car). The phone cost $3,000 and usage charges were $7.00 per minute. But the marketing department was not given any of this information. When Group 3 and Gallup were developing the questionnaires Group 1 had told them that the phones were the size of a regular cell phone, would be easy to use, would cost around $1,500, would operate just like a cell phone, and the call quality would be good. Development of the satellite network was a phenomenal achievement, but one that could not be marketed to consumers.

In June Iridium stock stood at $6.00 per share and that there was real concern about the July debt payment of $90 million. John A. Anderson the new CEO was frantically trying to buy some time and restructure the company's debt. Additionally, Iridium bond and stockholders filed a class action suit against the company in August. Anderson was now faced with a much different environment than that of 1997 and early 1998, when Iridium was flying high.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 75-80

Number of pages: 6

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Conference Proceedings, Business Case

ProQuest document ID: 192412042

Document URL: http://search.proquest.com/docview/192412042?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 11 of 100

THE TREACHERY OF RATIOS

Author: Rajagopal, Sanjay

ProQuest document link

Abstract:

The CEO of a foundation that donates to international non-profit organizations is searching for a way to rank, by efficiency, potential recipients of his funds. His consultant advises him of the "program ratio " recommended by Philanthropic Research, Inc. (www.guidestar.org). This ratio is defined as the ratio of program services expense to total expense. The CEO likes the simplicity of this ratio, but the consultant adds that he has devised another, more comprehensive and accurate method of studying efficiency in international non-profit organizations. His approach involves the calculation of a "comprehensive efficiency ratio"-the ratio of program services expense to administrative expense-which can be expressed as the product of two other ratios, each of which reflects the efficiency in a different area of management. The consultant insists that his ratio corrects all the "ills" of the "program ratio", and provides a richer framework within which to study efficiency of international non-profits. The CEo is uncomfortable with the consultant's approach, because he suspects it is flawed. However, he is unable to put his finger on the problem.

This case presents students with a model of managerial efficiency based on financial ratios, and is reminiscent of the Du Pont breakdown of the return on equity. As stated above, the new model purports to decompose an overall measure of managerial efficiency in non-profit organizations into two distinct parts-one that measures management's efficiency in revenue generation, and another that reflects management efficiency in revenue allocation. However, the model is flawed, and students are asked to detect the error. The objective of the case is to alert students to the danger of employing ratios for financial analysis without carefully thinking through the meaning of each ratio used.

The case should be of interest to teachers of financial ratio analysis at the undergraduate level. Since the case is built around an analytical error, it can be used as a puzzle for students who are in the process of learning how to employ financial ratios, and have been exposed to the basic Du Pont decomposition of the return on equity. Even though this case pertains to a simple efficiency analysis specifically of international non-profit organizations, it can be used to convince students of the virtue of expending some effort thinking through the information provided by any financial ratio. The central objective of the case, then, is to encourage students to think critically and approach ratio analysis with care. Each ratio should be examined closely to see what information it provides, and how it relates to other ratios.

With a difficulty level of three, the case is appropriate for junior level students who are familiar with the structure of an Income Statement and Balance Sheet, and who have been introduced to the basic DuPont-type decomposition approach to ratio analysis.

Full text:

ABSTRACT

The CEO of a foundation that donates to international non-profit organizations is searching for a way to rank, by efficiency, potential recipients of his funds. His consultant advises him of the "program ratio " recommended by Philanthropic Research, Inc. (www.guidestar.org). This ratio is defined as the ratio of program services expense to total expense. The CEO likes the simplicity of this ratio, but the consultant adds that he has devised another, more comprehensive and accurate method of studying efficiency in international non-profit organizations. His approach involves the calculation of a "comprehensive efficiency ratio"-the ratio of program services expense to administrative expense-which can be expressed as the product of two other ratios, each of which reflects the efficiency in a different area of management. The consultant insists that his ratio corrects all the "ills" of the "program ratio", and provides a richer framework within which to study efficiency of international non-profits. The CEo is uncomfortable with the consultant's approach, because he suspects it is flawed. However, he is unable to put his finger on the problem.

This case presents students with a model of managerial efficiency based on financial ratios, and is reminiscent of the Du Pont breakdown of the return on equity. As stated above, the new model purports to decompose an overall measure of managerial efficiency in non-profit organizations into two distinct parts-one that measures management's efficiency in revenue generation, and another that reflects management efficiency in revenue allocation. However, the model is flawed, and students are asked to detect the error. The objective of the case is to alert students to the danger of employing ratios for financial analysis without carefully thinking through the meaning of each ratio used.

The case should be of interest to teachers of financial ratio analysis at the undergraduate level. Since the case is built around an analytical error, it can be used as a puzzle for students who are in the process of learning how to employ financial ratios, and have been exposed to the basic Du Pont decomposition of the return on equity. Even though this case pertains to a simple efficiency analysis specifically of international non-profit organizations, it can be used to convince students of the virtue of expending some effort thinking through the information provided by any financial ratio. The central objective of the case, then, is to encourage students to think critically and approach ratio analysis with care. Each ratio should be examined closely to see what information it provides, and how it relates to other ratios.

With a difficulty level of three, the case is appropriate for junior level students who are familiar with the structure of an Income Statement and Balance Sheet, and who have been introduced to the basic DuPont-type decomposition approach to ratio analysis.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 81

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412069

Document URL: http://search.proquest.com/docview/192412069?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 12 of 100

MONSANTO ARGENTINA S.A.I.C.

Author: "Skip" Smith, D K; Aimar, Carlos; Becco, Carlos

ProQuest document link

Abstract:

This case challenges students to use the large amounts of information provided (including characteristics of the multinational company, its competitors, and most importantly, its customers) to defeat a knock-off product made by low-cost producers in Asia which is negatively impacting Monsanto Argentina S.A.I.C.'s revenues and profitability. The case is based on discussions conducted by the authors in Argentina. The case is appropriate for senior-level undergraduates as well as students in MBA and Executive Development programs. It is designed to be taught in a "one hour and a half class session, and is likely to require at least a couple hours of preparation by students. As for the case itself Carlos Becco is the Marketing Director of the Agricultural Division of Monsanto Argentina S.A.I.C. (hence, MASAIC). MASAIC is the Argentine subsidiary of the American-based multinational Monsanto, which is a major producer and marketer of chemicals, fertilizers, pesticides, and seeds. MASAIC has just reported substantial decreases in revenues and profits, due largely to the fact that low-cost producers in Asia have reverse-engineered its primary product (Roundup Herbicide) and are now selling their generic version of this famous Monsanto product at approximately 2/3rds the price MASAIC charges.

Full text:

CASE DESCRIPTION

This case challenges students to use the large amounts of information provided (including characteristics of the multinational company, its competitors, and most importantly, its customers) to defeat a knock-off product made by low-cost producers in Asia which is negatively impacting Monsanto Argentina S.A.I.C.'s revenues and profitability. The case is based on discussions conducted by the authors in Argentina. The case is appropriate for senior-level undergraduates as well as students in MBA and Executive Development programs. It is designed to be taught in a "one hour and a half class session, and is likely to require at least a couple hours of preparation by students.

CASE SYNOPSIS

As for the case itself Carlos Becco is the Marketing Director of the Agricultural Division of Monsanto Argentina S.A.I.C. (hence, MASAIC). MASAIC is the Argentine subsidiary of the American-based multinational Monsanto, which is a major producer and marketer of chemicals, fertilizers, pesticides, and seeds. MASAIC has just reported substantial decreases in revenues and profits, due largely to the fact that low-cost producers in Asia have reverse-engineered its primary product (Roundup Herbicide) and are now selling their generic version of this famous Monsanto product at approximately 2/3rds the price MASAIC charges. Data and information in the case include:

1. Description of the challenge the company faces.

2. For Argentina: Historical overview, a sample of recent statistics from the World Bank, and (for benchmarking purposes), comparable statistics for the United States.

3. On the company: Historical overview, current performance, and numerous factors impacting that performance.

4. Characteristics of the marketing strategy, including descriptive information on the product line, characteristics of the distribution system, and information on the promotion and pricing strategies the company is currently using.

5. Characteristics of the competitive situation.

6. Detailed data on the attitudes of farmer s in Argentina (both users and non-users of Round-Up) on the properties of glyphosphate-basedw eedkilling products which farmer s believe to be most important.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 99-100

Number of pages: 2

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Conference Proceedings, Business Case

ProQuest document ID: 192412079

Document URL: http://search.proquest.com/docview/192412079?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 13 of 100

REAL ESTATE INVESTMENT TRUST VALUATION: THE CASE OF SOVRAN SELF STORAGE

Author: Stotler, James

ProQuest document link

Abstract:

The primary subject matter of this case concerns equity valuation of a large corporation using various valuation approaches. Secondary issues include sensitivity analysis, DuPont analysis and evaluation of competitive conditions in the industry using Porter's five force model. The case has a difficulty level of three and is most appropriate for senior level courses. The case is designed to be taught in two classroom hours and is expected to take two or three hours of outside preparation by students. The student is placed in the role of an equity analyst and asked to prepare a buy or sell recommendation for Sovran Self Storage (NYSE: SSS) stock. SSS is a self-administered and self-managed real estate investment trust (REIT) which acquires, owns and manages self-storage properties. The student must assess the competitive environment of Sovran Self Storage using the DuPont identity and Porter's five force model of competitive strategy as well as estimate the value of SSS stock. All information in the case is historical and publicly available.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns equity valuation of a large corporation using various valuation approaches. Secondary issues include sensitivity analysis, DuPont analysis and evaluation of competitive conditions in the industry using Porter's five force model. The case has a difficulty level of three and is most appropriate for senior level courses. The case is designed to be taught in two classroom hours and is expected to take two or three hours of outside preparation by students.

CASE SYNOPSIS

The student is placed in the role of an equity analyst and asked to prepare a buy or sell recommendation for Sovran Self Storage (NYSE: SSS) stock. SSS is a self-administered and self-managed real estate investment trust (REIT) which acquires, owns and manages self-storage properties. The student must assess the competitive environment of Sovran Self Storage using the DuPont identity and Porter's five force model of competitive strategy as well as estimate the value of SSS stock. All information in the case is historical and publicly available.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 105

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Business Case, Feature

ProQuest document ID: 192412057

Document URL: http://search.proquest.com/docview/192412057?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 14 of 100

MUSIC ONE

Author: Toombs, Leslie; Leavell, Hadley; Maniam, Balasundram; Herzog, Steven

ProQuest document link

Abstract:

Located in Bentonville, Arkansas' historic district, and near Brown State University (BSU), Music One is a specialty retailer of guitars, musical instruments, music supplies, equipment and accessories. The company also offers service and repairs to guitars and musical equipment, custom-built guitars, and via Mooney Customs, rebuilt motorcycles, and motorcycling accessories. Owned by Mike Mooney since 1991, Music One employs three student workers and one experienced bookkeeper. The company has been plagued with instability at the bookkeeper position and it lacks a consistent financial record keeping methodology. Sales and profitability have, on average, steadily increased under Mooney's ownership. Known for honesty and superior customer service, the company serves Bentonville's local population, BSU students, and area seasonal tourists. This reputation gives the company a competitive advantage over large mail-order catalogs and Fayetteville-located competitors. However, the company lacks the loyalty of BSU's student population. Mr. Mooney is committed to expanding the inventory and product line. Also of importance to Mr. Mooney is changing Internet service providers, and utilizing computer and information technology for communication and record keeping purposes. The opportunity exists for the company to use the Internet and Bentonville's growing number of newspaper and radio outlets to penetrate both the student and local markets. He has considered delegating the management of or selling, the music operation to focus his energies on the motorcycling operation. In addition, he has considered relocating Music One.

Full text:

ABSTRACT

Located in Bentonville, Arkansas' historic district, and near Brown State University (BSU), Music One is a specialty retailer of guitars, musical instruments, music supplies, equipment and accessories. The company also offers service and repairs to guitars and musical equipment, custom-built guitars, and via Mooney Customs, rebuilt motorcycles, and motorcycling accessories. Owned by Mike Mooney since 1991, Music One employs three student workers and one experienced bookkeeper. The company has been plagued with instability at the bookkeeper position and it lacks a consistent financial record keeping methodology. Sales and profitability have, on average, steadily increased under Mooney's ownership. Known for honesty and superior customer service, the company serves Bentonville's local population, BSU students, and area seasonal tourists. This reputation gives the company a competitive advantage over large mail-order catalogs and Fayetteville-located competitors. However, the company lacks the loyalty of BSU's student population. Mr. Mooney is committed to expanding the inventory and product line. Also of importance to Mr. Mooney is changing Internet service providers, and utilizing computer and information technology for communication and record keeping purposes. The opportunity exists for the company to use the Internet and Bentonville's growing number of newspaper and radio outlets to penetrate both the student and local markets. He has considered delegating the management of or selling, the music operation to focus his energies on the motorcycling operation. In addition, he has considered relocating Music One.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 111

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412019

Document URL: http://search.proquest.com/docview/192412019?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 15 of 100

OUTDOOR FURNITURE

Author: Weinrauch, J Donald; Maples, Larry; Greene, Walter E

ProQuest document link

Abstract:

The primary subject matter of this case is entrepreneur ship and small business. The case concerns a small business manufacturer that is trying to grow by expanding overseas. The actual small business owners must make some tough decisions on forming a strategic alliance with a small German manufacturer. The case is also rich with financial data that illustrates some common financial challenges for entrepreneurs. Although not required, educators could even have students role play. This case could be used in an undergraduate or graduate Entrepreneur ship, Small Business, and/or International Business course. It could also work well as an introductory case to show students what they should be looking for when analyzing a case. The case could be taught in one to two class hours and it is expected to require around three hours of preparation by students. The following offer some worthwhile learning objectives:

1. Identify some common challenges and problems that small businesses face when forming alliances

2. Appreciate the variables and factors to consider when deciding on specific partners.

3. Consider issues relevant to negotiating and forming an international strategic alliance.

4. Understand the major advantages and disadvantages of giving an exclusive territorial agreement to a company.

5. Illustrate the problem of selecting a partner if due diligence is not done when evaluating a specific firm for an alliance.

6. Appreciate the financial impact, demand, and pressure that Paul Adams, owner of Sports World may have on David's urgency in growing revenue for the Outdoor Furniture division.

Full text:

CASE DESCRIPTION

The primary subject matter of this case is entrepreneur ship and small business. The case concerns a small business manufacturer that is trying to grow by expanding overseas. The actual small business owners must make some tough decisions on forming a strategic alliance with a small German manufacturer. The case is also rich with financial data that illustrates some common financial challenges for entrepreneurs. Although not required, educators could even have students role play. This case could be used in an undergraduate or graduate Entrepreneur ship, Small Business, and/or International Business course. It could also work well as an introductory case to show students what they should be looking for when analyzing a case. The case could be taught in one to two class hours and it is expected to require around three hours of preparation by students. The following offer some worthwhile learning objectives:

1. Identify some common challenges and problems that small businesses face when forming alliances

2. Appreciate the variables and factors to consider when deciding on specific partners.

3. Consider issues relevant to negotiating and forming an international strategic alliance.

4. Understand the major advantages and disadvantages of giving an exclusive territorial agreement to a company.

5. Illustrate the problem of selecting a partner if due diligence is not done when evaluating a specific firm for an alliance.

6. Appreciate the financial impact, demand, and pressure that Paul Adams, owner of Sports World may have on David's urgency in growing revenue for the Outdoor Furniture division.

CASE SYNOPSIS

David Houston, president of Outdoor Furniture (OF), was in the process of making a hasty decision concerning the future of his company. Erik, a German hammock manufacturer, has expressed great interest informing a strategic alliance with OF. This alliance between two small firms would enable Erik to exclusively sell OF products in Germany while OF would have exclusive rights to market the hammock furniture line in the United States. Company officials from Erik were arriving within a week to begin negotiations and sign a formal agreement. Mr. Houston automatically began having doubts about the arrangement, and he felt that maybe he was acting too quickly to Erik and his own son's interest in the arrangement. He wondered if he should back out before it was too late. The case is based on field research and actually happened. An interesting epilogue is presented in the teacher's notes.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 119-120

Number of pages: 2

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412163

Document URL: http://search.proquest.com/docview/192412163?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 16 of 100

MOVIES FOR MORMONS

Author: Wright, Newell D; Larsen, Val

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Abstract:

The primary subject matter of this case concerns market segmentation, target marketing, and positioning. Secondary issues examined include breakeven analysis, ROI, and entrepreneur ship. The case has a difficulty level of three, and is positioned for use in junior level principles of marketing courses. The case is designed to be taught in three class hours and is expected to require three hours of outside preparation by students. Are there enough Latter-day Saints (LDS, also known by the nickname "Mormons") in the United States who will pay money to see commercial movies about Mormon Culture? Richard Dutcher, a graduate of Brigham Young University's School of Film, wants to find out. He has been disillusioned with his filmmaking career, and has decided to try marketing independent movies to the niche LDS audience. If independent filmmakers could produce and market films to minorities groups including Hispanics, Asians, African-Americans, and gays and lesbians, why couldn't Dutcher produce independent films for the Mormon market? The only problem is that it has never been done before.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns market segmentation, target marketing, and positioning. Secondary issues examined include breakeven analysis, ROI, and entrepreneur ship. The case has a difficulty level of three, and is positioned for use in junior level principles of marketing courses. The case is designed to be taught in three class hours and is expected to require three hours of outside preparation by students.

CASE SYNOPSIS

Are there enough Latter-day Saints (LDS, also known by the nickname "Mormons") in the United States who will pay money to see commercial movies about Mormon Culture? Richard Dutcher, a graduate of Brigham Young University's School of Film, wants to find out. He has been disillusioned with his filmmaking career, and has decided to try marketing independent movies to the niche LDS audience. If independent filmmakers could produce and market films to minorities groups including Hispanics, Asians, African-Americans, and gays and lesbians, why couldn't Dutcher produce independent films for the Mormon market? The only problem is that it has never been done before.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 121

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Conference Proceedings, Business Case

ProQuest document ID: 192412137

Document URL: http://search.proquest.com/docview/192412137?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 17 of 100

THE TAX MAN COMETH

Author: Bagwell, James J; Jones, Michael L

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Abstract:

This case involves a variety of tax issues for a student who decides to return to college while pursuing a successful entertainment career. The case is cast using a student's profile that is interesting, but is also a profile with which many college students may personally identify with the issues involved. As such the case invites students to engage themselves in recognizing and analyzing tax issues, as well as learning and applying taxation concepts, including filing status, dependents, education deductions and credits, itemized deductions, business income, earned income credit, child tax credits, and future tax planning. For the student to successfully complete this case, only the basic level of tax law knowledge is necessary. This case presents a thorough summary of tax issues that are presented in many introductory income tax courses, and allows students to develop tax analysis and reasoning skills in a dynamic environment.

Full text:

ABSTRACT

This case involves a variety of tax issues for a student who decides to return to college while pursuing a successful entertainment career. The case is cast using a student's profile that is interesting, but is also a profile with which many college students may personally identify with the issues involved. As such the case invites students to engage themselves in recognizing and analyzing tax issues, as well as learning and applying taxation concepts, including filing status, dependents, education deductions and credits, itemized deductions, business income, earned income credit, child tax credits, and future tax planning. For the student to successfully complete this case, only the basic level of tax law knowledge is necessary. This case presents a thorough summary of tax issues that are presented in many introductory income tax courses, and allows students to develop tax analysis and reasoning skills in a dynamic environment.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 10

Issue: 1

Pages: 123

Number of pages: 1

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412078

Document URL: http://search.proquest.com/docview/192412078?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2003

Last updated: 2013-09-17

Database: ABI/INFORM Complete

Document 18 of 100

Assessing the introduction of electronic banking in Egypt using the technology acceptance model

Author: Kamel, Sherif; Hassan, Ahmed

ProQuest document link

Abstract:

Using the Technology Acceptance Model as a starting point, this case covers the introduction and diffusion of retail banking in Egypt and the development in electronic delivery channels and payment systems in its marketplace. The case represents a model for the application of advanced information and communication technology in the context of a developing nation, specifically, and explores the difficulties and unique challenges of information technology management in developing countries, generally. [PUBLICATION ABSTRACT]

Full text:

BACKGROUND

Global changes are penetrating all societies and communities around the world, bringing more innovations, competition, products, and services and introducing new trends, directions, and ways to do things differently. The Internet and the World Wide Web have introduced new ways for doing business (Kamel, 2001). This has created many challenges and opportunities in the global market-place to the main players of the business cycle; among which are financial institutions. Respectively, in order to face its increasing competitive pressures, they were required to recognize the need to perform a balancing act between achieving strategic goals and meeting the continuous changing customer needs and requirements. While strategic goals are usually corporate-specific and can be achieved in different ways, understanding and meeting customer needs may be studied and analyzed at the industry level. Today, the use of cutting-edge information and communication technology is becoming a cornerstone in dealing with the competitive pressure faced by different businesses around the world.

Over the last few decades, the banking industry has been highly affected by such technology evolution, with an emphasis on the way services are delivered to retail banking customers. Formore than 200 years, banking was a simple branch-based operation. However, things started to change since the early 1980s, with the use of multiple technologies and applications that surfaced with the penetration of computing in various sectors and industries, including banking. Among such technologies were the growing number of technology-based remote access delivery channels and payment systems, such as automated teller machines that displaced cashier tellers; the telephone, represented by call centers that replaced the bank branch; the Internet that replaced snail mail; credit cards and electronic cash that replaced traditional cash transactions; and shortly, interactive television that will replace face-to-face transactions (Kamel & Assem, 2002).

In Egypt, in line with global trends, the retail banking business has been undergoing tremendous changes over the last two decades. As a result, the banking industry was always facing a significant uncertainty regarding the potential investments in advanced banking technologies required to implement the different electronic delivery channels and payment systems. Regardless of the return, currently, banks in Egypt are investing large amounts of money in technology, not only to maintain a competitive edge but also to remain in the business. In order to make better forecasts for business planning and decision-making, banks need to better understand the different factors influencing the Egyptian customer choice among traditional and electronic banking instruments (Kamel & Assem, 2002).

The success in the application of different information and communication technology in retail banking delivery channels and payment systems relies to a large extent on the ability of customers to accept and adopt such systems. In Egypt, most of the technology-related decisions are based on reactions to other decisions taken by the competition, without a real study of actual customer needs or perceptions, which leads to the creation of a high level of risk associated with such strategy. An overestimation of the level of customer acceptance of the technology can misguide decision-makers to get involved in investments, which are not ready to give return, while underestimation of the acceptance level can lead to the loss of substantial market share.

This case analyzes the banking sector in Egypt and the deployment of information and communication technology in the sector in terms of adoption, diffusion, and innovation, while providing an understanding of the acceptance level of consumers of different technology-based delivery channels and electronic payment systems and the extent to which various factors influence consumers' willingness to use different technologies. The case depends on the use of the Technology Acceptance Model (TAM) (shown in Figure 1), introduced by Davis in 1985 to study the level of customer acceptance to new banking technologies in Egypt. TAM, by definition, considers user perceptions of ease of use and usefulness as the main factors affecting the acceptance level of any technology. The case will also consider the role of trust as an external variable affecting consumer adoption of electronic banking delivery channels and payment systems, which is a factor that is much associated with the cultural aspect of the society in Egypt, which for a long time was not accustomed to the use of banking services and facilities (Kamel & Assem, 2002).

The research variables tested that were directly extracted from TAM include perceived ease of use (PEOU), perceived usefulness (PU), and technology acceptance (TA). PEOU and PU were simultaneously acting as dependent and independent variables, while TA was merely a dependent variable that depended on PEOU and PU. Moreover, trust (T) was used as an independent variable, which was indirectly affected by TA through its direct effect on variables PU and PEOU, as shown in Table 1.

In addition to TAM, the case used a PEST analysis to study the different environmental factors affecting the banking sector in Egypt and its deployment of different technology-- based systems. The case study focused on a number of research issues, including the identification of the main environmental factors affecting the Egyptian banking sector in general, and the electronic retail banking delivery channels and payment systems in particular; the extent to which banks were encouraging their customers to use technology-- based systems, and the degree of support provided to them; and the determination of the main patterns of customer usage of different electronic delivery channels and payment systems. A number of hypotheses were formulated and tested during the study that mainly describe the relationships between different research variables as proposed by TAM; such hypotheses are shown in Table 2.

Based on the analytical nature of the study, the methodology used in the research was based on a combination of quantitative and qualitative approaches, where a research questionnaire was distributed among a sample of different bank customers. The survey instrument is shown in Appendix 1. The objective of the questionnaire was to demonstrate and investigate the relationship between the research variables by measuring the salient beliefs and intentions of bank customers in Egypt toward technology-based delivery channels and electronic payment systems. Moreover, the questionnaire measured the level of awareness among customers, and how this awareness was built. The subjects chosen to respond to the questionnaire consisted of a random sample of bank customers with varying demographics and different professions. All questionnaires were sent by electronic mail, facsimile, and, in some cases, it was handed to the respondent in person in an interview session, to provide the opportunity to explain the purpose of the research and to guide the respondent through the questionnaire. Moreover, a number of interviews were conducted with top executives and managers working in the banking sector or in the field of information and communication technology to include policy makers, major players, and decision makers as part of the survey. Most of the results of the questions in the questionnaires and the interviews were of a quantitative nature, with the intent to measure each of the research variables extracted from TAM and to understand the relationships between them.

Technology Acceptance Model (TAM)

The complexity of adopting new technologies was first popularized by the theory of diffusion of innovations (Rogers, 1983), where Rogers summarized the key influences of user acceptance behavior as relative advantage, complexity, compatibility, trialability, and observability. Rogers stated that an individual's perceptions are the basis of a widely studied model from social psychology entitled the theory of reasoned action (TRA), which was first proposed by Ajzen and Fishbein (1980). TRA is a model that has demonstrated success in predicting and explaining behavior across a wide variety of domains (Davis, 1989). Additionally, an extension of TRA is the theory of planned behavior (TPB) (Ajzen, 1991), which accounts for conditions with which individuals do not have complete control over their behavior (Taylor & Todd, 1995). Based on the three above-mentioned user acceptance research areas, diffusion of innovation, TRA, and TPB, TRA has emerged as a prominent model that has served as a basis for expanding user acceptance research. Specifically, a modified TRA model defined in the F. D. Davis study (1985) resulted in a concise, complete, reliable, and valid model for predicting user acceptance, entitled the technology acceptance model (TAM), that has repeatedly shown viability in predicting user acceptance of new and different technologies (Adams, Nelson, & Todd, 1992; Taylor & Todd, 1995; Davis & Venkatesh, 1995; Doll et at., 1989).

The basic goal of TAM is to provide an explanation of the determinants of technology acceptance that are capable of explaining user behavior across a broad range of end-user technologies and user populations, while at the same time, being both parsimonious and theoretically justified (Davis et al., 1989). According to TAM, perceived usefulness and perceived ease of use are the fundamental determinants of attitude toward usage intentions and actual technology usage. In TAM, behavior in terms of technology usage has been explained by investigating the perceived usefulness and ease of use the individual experiences or expects when using a specific technology. According to TAM, the easier the technology is to use, and the more useful it is perceived to be, the more positive one's attitude and intention toward using the technology; therefore, technology use increases. During the last few years, TAM has offered researchers and practitioners a relatively simple and cost-- effective way to predict the ultimate measure of system success, whether or not that system is actually used (Morris & Dillon, 1997). It has been used to explain the use of a number of technologies including databases, communication technologies, and electronic mail, among others. The empirical evidence indicates that increasing the PEOU of the system will increase PU and will translate into an increased behavioral intention (BI), resulting in a larger margin of TA. However, research also indicates that the influences of PEOU on PU diminish over time, as users become proficient with the target system (Chau, 1996; Davis et al., 1989). Therefore, the literature suggests that PEOU determinants will have the greatest contribution to user acceptance in the early stages of system deployment, when users have limited experience with a target system. This concept is significant to consumer acceptance of banking technologies, and as customers are offered use ofan unfamiliar banking technology, they can quickly become discouraged ifthat specific technology is not easy to use, regardless of the technology usefulness. However, it is important to note that the cultural differences that exist between different countries may affect the adoption and diffusion of new technologies.

Trust in Banking Technologies

The level of uncertainty avoidance plays an important role in building trust. Therefore, the research considered the effect of trust on the adoption and usage of advanced banking technologies as an extension to the basic TAM. Within the literature, organization theory provides a cross-disciplinary definition of trust that applies to a large range of relationships among individuals and organizations. In that context, trust implies benevolence, integrity, and ability in an exchange relationship (Mayer et al., 1995).

In a study conducted in Egypt in 2001 on the delivery channels for retail banking products, focusing on measuring the satisfaction levels of customers of banks with the in-- person bank branches and their possible shift to alternative delivery channels, results indicated high dissatisfaction levels due to lack of bank awareness of customer needs. The research showed low loyalty levels, where 62% of customers surveyed stated their willingness to change their banks if offered more convenient banking alternatives. Responsive service was found to be the major satisfaction driver, followed by a 24-hour accessibility feature. Moreover, 71% of surveyed customers showed interest in using e-banking, if their banks guaranteed its security. When customers were asked to rank the importance of the five delivery channels, automated teller machines (ATMs) came first. See Table 3 for the rest of the results.

SETTING THE STAGE

The Banking Sector in Egypt

The banking sector in Egypt is among the oldest and largest in the region. The National Bank of Egypt (NBE) was the first bank to begin operation in the country in 1898; also in the year 1898, the stock exchange was established. In that time, central bank functions were partially performed by the National Bank of Egypt, which was the sole body licensed to issue Egyptian banknotes. The size of the banking sector has grown rapidly during the first half of the 2011 century. In 1956, a total of 32 banks were operating in Egypt. Those banks included 26 commercial banks, four mortgage banks, one agricultural bank, and one industrial bank. All were foreign banks except the National Bank of Egypt and Bank Misr (Huband, 1999).

During the period 1957-1974, nationalization had a dramatic impact on Egypt's financial system. The closure of the Egyptian stock market and the confiscation of all foreign banks turned the financial system into a stagnant, non-competitive sector. Only fully owned Egyptian banks were permitted to operate. In February, 1960, the National Bank of Egypt was nationalized, and in 1961, the Central Bank of Egypt was established to perform its responsibilities as the unique entity responsible for setting banking system regulations (World Investment News, 1998). Starting in the mid-1970s, the Egyptian banking sector expanded markedly, along with the country's open door policy that aimed at an outward-looking growth, with an active role for the private sector to promote economic performance, which was coupled with a new banking law enacted in 1975 defining the nature and mode of operations for all banks. Today, Egypt has a total of 62 banks, with more than 2400 branches, as well as 28 representative offices of foreign banks and three unregistered banks, which do not report to the Central Bank of Egypt (CBE, 2001).

Evolution of Retail Banking in Egypt

Capitalizing on its comparative advantages in the service sector, financial-sector growth potentials, and noticeable economic growth, Egypt is currently moving steadily towards becoming the biggest financial center in the region. Owing to the flourishing privatization program and the prospering domestic bond market, banks have encountered new investment fields, which helped them, diversify their portfolios and lower their financial risks. Retail banking was the most important among those new fields (Egypt SIS, 1999). Retail banking is that part of commercial banking concerned with the activities of individual customers, generally in large numbers. Retail banking is considered less risky compared to corporate banking, as it involves a more diversified loan portfolio across a mass market. Retail customers provide reliable low-cost sources of funds for asset management and good opportunities for retail securities placement and fund management. However, the retail business requires heavy investments to increase the number of branches, enlarge staff size, expand the ATM network, and establish various delivery channels (Grant, 1984).

Since the mid-1990s, the banking sector in Egypt has been changing fast, and after decades of focusing on generating corporate assets, most public and private banks are starting to recognize the potentials for retail business represented in the relatively under-- branched banking sector, compared to the high population and the rising per capita income. Accordingly, most banks started to penetrate the retail market. Recently, the number of individual bank customers reached 9 million (Business Monthly, 2000), and a variety of retail products are currently offered by a large number of banks, including payroll accounts, car financing, mutual funds, credit cards, and personal loans. Moreover, banks are competing in expanding their branch networks and diversifying their delivery channels to include ATMs, call centers, mobile banking, and Internet banking. As part of the research, an environmental PEST analysis was conducted to study the political, economic, social, and technological factors affecting the banking sector, with a focus on retail business activities and the deterrents facing the development and growth of the banking sector.

Political Factors

The political system in Egypt played a significant role in the growth and expansion of local and international banks and played a major role in attracting banks and financial institutions worldwide to establish joint ventures or representative offices in Egypt. The banking sector has been entirely public since the late 1950's, when it was nationalized. However, in the mid- 1970's, an open-door policy allowed the establishment of private banks. In 2002, there area number of international players in the market, including Barclays, American Express, Citibank, HSBC, and recently, Standard Chartered Bank (CBE, 2000). Moreover, a number of laws and regulations were established to help the banking sector grow, especially focusing on the retail banking business, including an electronic law, which is expected to have a positive effect on the growth of the credit card market of different banks. Additionally, the expected approval of the new mortgage law represents another opportunity for banks to expand their retail activities in the area of housing loans (Business Today, 2001).

Economic Factors

Since the mid 1980s, Egypt started to follow an economic reform program, which was designed to establish a stable and credible economy. Macroeconomic indicators look positive, with a growth rate at 6.5%, inflation rate at 2.8%, and budget deficit at 3.6% of gross domestic product (BSAC, 2001). Egypt's success on its macroeconomic agenda secured the stability necessary to establish investor confidence and stimulate the capital market (BSAC, 1999). The growth rates of banks' assets, deposits, and loans are direct reflections of the economic growth of the banking sector, yielding a CAGR of 12.6% during the period between 1995 and 1997 (CBE, 2000).

Social Factors

The Egyptian population of more than 68 million in December 2001, represents many attractions for local and foreign banks to expand their business. The current individual bank customers represent around 13% of the population. Among those customers, the number of credit and debit cardholders is less than 7%, which directly reflects the great potential for plastic money in Egypt (Business Monthly, 2000). According to age, bank customers can be divided into three segments:

1. Youth (20-30 years old) represent the most important target group, with their accounts and student loans. They easily adopt technology,but their loyalty to the bank they deal with is not guaranteed, requiring continuous innovative financial services to attract them and cost switching to keep them.

2. The second age group, 30-50 years old, represents good potential due to the large number of housewives within that segment who are willing to use different electronic delivery channels, like ATMs and phone banking.

3. The last segment, above 50 years of age, shows some reluctance to deal with banks in general, and to using technology-based services in particular, requiring special care and incentives, such as retirement packages and special senior accounts.

Market Assessment of Banking Services

For a long time, the market in Egypt was dominated by cash society values, with people reluctant to go to the bank and open an account for purely cultural reasons, opting to keep their cash at home. However, recently, the private sector started to include their employees in various payroll plans offered by different banks. As a result, the number of individual bank customers increased, and a relatively high level of awareness was established among certain segments of the society, which started to recognize the benefits of retail banking. However, it is important to note that the society highly values human interaction, which affects the penetration of retail banking through electronic delivery channels, especially among the less-- educated, who are not comfortable dealing with technology-related equipment. Moreover, among the other current problems is the fact that credit cards are scary for some people due to the high interest rates; very few people are using ATMs for deposits or are willing to use their credit cards over the Internet. It is important to note that the average illiteracy among the population is more than 39% (EFG-Hermes,2001), and a large portion of the remaining 61% is considered under-educated. Consequently, ease of use, simplicity, and Arabic interfaces are key factors for the adoption of new services provided by banks. In general, consumers in Egypt are considered flexible and fast to adopt new habits, which is obvious in the penetration rates of mobile telephony, which was first introduced in 1997. There are now more than 3.5 million subscribers, even though telephony was introduced early in the last century and to date, there are only 7.1 million land lines (www.mcit.gov.eg). However, in order to capitalize on such an advantage, banks need to familiarize consumers with the services and products they offer through solid marketing communications strategies. Such services have to provide an attractive value proposition to the local market.

Technological Factors

The rate of information and communication technology adoption in the banking sector was increasing steadily over the last decade as a result of the growth in retail banking activities, opening of competition within the sector, and noticeable government support of automation efforts. Offering retail banking services involves providing customers with electronic payment systems, such as plastic money debit and credit cards, as well as technology-based delivery channels for performing their daily transactions. Such channels, which are known as remote access systems or self-service banking, include ATMs, call centers, phone banking, Internet banking, and mobile banking. The use of plastic money has a number of benefits, including reducing the cost of printing money and the proliferation of money not fit for circulation. Moreover, the introduction of remote access electronic delivery channels relatively increases access to customers and significantly cuts the cost of transactions, as shown in Figure 3 (Beck et al., 1999).

Since the mid 1980s, Egypt has focused on building its information and communication technology infrastructure, which was reflected in the introduction of the liberalization program of Telecom Egypt in 1998, and the establishment of the Ministry of Communications and Information Technology (MCIT) in 1999. The tremendous improvements in telecommunications infrastructure cost, reliability, bandwidth, and reach achieved are providing a strong impetus to substantial technology investments in the banking sector in Egypt (Magued, 2001). However, despite the increasing technology investments made by banks, the sector is still considered in the early development stages in terms of banking technology infrastructure necessary for future large-scale card issuing, widely distributed ATM networks, efficient call centers, and automated clearing operations.

In the mid-1980s, banks started to install point-of-sale machines and encouraged members to accept payment by credit cards, correspondent to the growth in international and business travel. By the early 1990s, the first locally issued credit card found its way to the local market. Currently, 26 banks in Egypt issue debit and credit cards, but the number of cardholders is small, estimated at 600,000 locally issued cards, among which, more than 400,000 are credit cards, representing less than 7% of bank customers, which is estimated to be around nine million. However, the market for debit and credit cards has great potential and is expected to reach one million cardholders in 2002, according to the forecasts of Visa International (Business Today, 2001). One of the indicators for such potential is the success that Citibank Egypt realized in the issuance of 50,000 credit cards in less than two years. In addition to the traditional debit and credit cards, banks are competing to introduce a number of innovative card products. For example, in 2001, Citibank and Vodafone, Egypt's leading mobile operator, launched a co-branded credit card to add a new product to the variety of credit cards issued in the Egyptian market (Business Today, 2001). Moreover, the use of ATMs, as a remote access channel to banks, has been in place since 1994; however, the rate of growth and adoption is fairly low, and according to the Commercial International Bank, Egypt's leading retail bank, the average number of ATM transactions performed monthly by a bank customer is currently four times the number recorded in 1998. The installed ATM population is currently low, but the rate of installation growth is relatively high. In August, 2001, the total committed ATM population in Egypt was 721, expected to double in 2002, which is still a relatively small number in comparison to the United States, with its 197,500 machines. Moreover, several banks have installed interactive voice response (IVR) systems and are considering the installation of call centers to follow the Citibank Egypt initiative introducing the concept of call centers in Egypt in 1999, known as Citiphone (Kamel & Assem, 2002).

With respect to Internet banking, Internet access in Egypt dates to 1993, mainly through governmental and educational organizations. Commercial Internet access was available since 1994. However, it was in January, 1996, that the government made an official address authorizing the private sector to step into the provision of Internet services. By April, 2002, Egypt's 51 private-sector Internet service providers delivered service to an estimated one million subscribers (www.mcit.gov.eg). The government is currently in the process of increasing Egypt's transmission capacity on the Internet in order to meet the increasing number of Internet users, who are expected to reach two million by the end of 2002. Moreover, the government, starting 14 January 2002, underwent a major step to diffuse the use of the Internet across its 26 different provinces by providing Internet connectivity for free (www.mcit.gov.eg). Internet banking, also known as online banking, is still not fully introduced in Egypt, mainly due to the relatively low number of Internet users. However, since late 2001, Citibank offers the first of such services as a prototype, allowing customers to check their account balances, perform internal transfers, and pay their monthly credit card bills through the Internet. Most of the other commercial banks have short-term plans to launch Internet banking as well.

With respect to mobile telephony, the GSM service started in 1996 by the government was soon after privatized, and competition was introduced. However, despite the rapidly increasing number of mobile subscribers, mobile banking is currently only offered by the National Societe Genarale Bank and is still not very popular among bank customers. Therefore, more efforts need to be made in that area in terms of increasing the simplicity of the user interface and conducting customer education and awareness programs.

To conclude, retail banking is strongly affected by political, economic, social, and technological factors. The current environment of the retail-banking sector includes many opportunities, as well as a number of risks. Although the potentials are high, the challenges are much higher. Therefore, in order to succeed in the market and build a respectable customer loyalty, banks operating in Egypt need to work on increasing customer awareness, and to carefully study and understand customers' social and economic needs. Such understanding can be achieved through different marketing communications tools, which can provide banks with customer feedback about the products they offer.

CASE DESCRIPTION

The study covered five different leading banks operating in Egypt, including Commercial International Bank (CIB), Misr International Bank (MIB), National Societe Generale Bank (NSGB), Egyptian American Bank (EAB), and Citibank Egypt. The cases highlighted their strengths and weaknesses with respect to retail banking activities and strategies, in order to provide a general understanding of the present environment as well as some insight into the future of retail banking. Table 4 demonstrates the profile of the different banks surveyed.

CIB and MIB were chosen as being the largest private sector banks in terms of assets, deposits, and market share. The EAB was chosen because of its perceived service leadership in the banking sector through a widely diversified range of products and services, including retail banking. The NSGB was chosen as a result of its high retail business growth rates over the last two years, beginning in 1999, as well as for being the first bank to introduce mobile banking services in Egypt. Finally, Citibank Egypt was selected, because it is setting the pace in the market through its innovative products and trends in retail banking; and over the last few years, it has been taking the lead in continuously diversifying and introducing new technology-based services for bank customers.

The sample population was randomly selected with varying demographics and professions. It was small due to the fact that the population capable of responding to the survey instrument, as perceived by the researchers, and that represent active online users of the technology with willingness to receive bank information online, was small. It was easy to identify those groups, because only a few hundred customers met those criteria after searching online bank databases and selected customers' databases with e-mail accounts used corresponding with at least one of the banks. The questionnaire was distributed among 200 bank customers; the valid response rate was 103, including 64 (62.14%) male and 39 (37.86%) female of three age categories: 21-30,31-40, and 41-50 years old. Table 5 shows the distribution of the respondents. It is obvious that a larger sample would have provided more accurate results and would have led to the development of more concrete findings. However, it is important to note that this research represents the initial phase of more comprehensive coverage ofthe sector, which should lead to more macro-level findings (Czaja & Blair, 1996).

In addition to basic demographic data, subjects were asked to name the banks they dealt with. Responses included the names of 19 public- and private-sector banks: 56.29% of the respondents indicated that they were using private-sector banks, and 43.71 % reported using public-sector banks. Some of the major issues addressed in the survey included the role played by banks in technology adoption, and general customer perception of the banking-- sector services. In that respect, the private-sector banks took the lead in technology introduction and diffusion at the retail banking level.

With respect to the role of banks in technology adoption, 72% of respondents felt that banks provided the necessary support and assistance when using different electronic delivery channels. Moreover, 70% of respondents felt that banks encouraged them to use remote-access technology-based delivery channels instead of visiting bank branches. The relatively high positive values may have been due to recent efforts exerted by many banks in order to direct customers toward using different electronic delivery channels after recognizing the large benefits they could realize, including reducing the load on bank branches, improving the quality and efficiency of the services offered, and introducing additional added-values to various customers.

With respect to general customer perceptions, 47% of respondents ranked trust as the most important feature they look for in technology-based delivery channels and payment systems, followed by 31% for ease of use and 23% for usefulness, as the primary factors that can encourage them to use such systems. These results seemed logical and in compliance with the high level of conservatism and uncertainty avoidance, which are common characteristics of the society in Egypt. In general, those results implied that for most bank customers, it is of highest priority to be convinced that the technology is secure and trustful, and only then may they try to use that technology. If it is easy and simple, they will be able to use it and, accordingly, find out whether it is useful or not.

A statistical analysis has been performed based on the hypotheses testing on the data collected, in order to test the association between different research variables, as shown in Figure 4. The objective was basically to find out whether the results would succeed or fail to reject the null hypotheses, and accordingly, determine the significance of the alternative hypotheses. Following is the assessment and perceptions of survey respondents of the different electronic delivery channels and payment systems.

Automated Teller Machines

The results obtained for ATMs, shown in Table 6, indicate that most of the alternative hypotheses were confirmed with different significance levels, except Ha (trust will have a significant effect on perceived usefulness). Accordingly, the relationship between trust and perceived usefulness was not clear in the responses received. The lack of such relationship implies that perceiving ATMs to be secured and trustful delivery channels does not affect the customer perception of its usefulness. Such a conclusion may be valid for ATMs, although at this point, there is no proof whether this will also apply for other systems. However, such indications could set the pace for preliminary expectations with regard to customer acceptance ofvarious electronic retail banking delivery channels. According to the resulting p-values, which are measures of the significance of the alternative hypotheses and the strength of the relationship between any two variables, perceived ease of use has a relatively significant effect on technology acceptance, as well as on perceived usefulness.

Similarly significant is the effect of trust on perceived ease of use, while the effect of perceived usefulness on technology acceptance was shown to be the least significant. Those results adhere, to a large extent, to the general results highlighted earlier, and they comply with the conclusion previously stated, that trust is the major factor affecting perceived ease of use, which in turn, drives perceived usefulness and eventually technology acceptance. It is also important to note the element of cultural adaptation and local market conditions in Egypt. In that respect, it is useful to mention that until the mid-1980s, retail banking was hardly diffused among the population. Therefore, the gradual increase in the retail banking population from three million to more than 10 million in less than 20 years is a major development. However, it has to be implemented gradually to avoid cultural deterrents and resistance to change.

Credit Cards

The responses addressing the acceptance of credit cards as a payment system have confirmed the alternative hypotheses H^sup 2a^, H^sup 3a^, and H^sup 5a^, while they disconfirmed Hla and H4,, as shown in Table 7.

The table shows the significant effect of perceived ease of use on technology acceptance as well as the significant role of trust in building such perceived ease of use. However, unlike the case of ATMs, credit cards' results confirmed the relationship between perceived usefulness and trust, but did not confirm the relation between perceived usefulness and technology acceptance of credit cards as a technology-based payment system. The results obtained for credit cards imply that trust is a major factor in the usage of electronic payment systems, and its indirect effect through perceived usefulness and perceived ease of use is the most significant determinant of the acceptance level. Such results were expected for credit cards, which, for many bank customers, may involve a relatively non-affordable level of risk compared to a technology like ATMs.

Phone Banking

The results obtained for phone banking were consistent with all five hypothesized relationships between the research variables. The significance of each of those relationships is shown in Table 8.

The results indicate that the majority of the responses confirmed that technology acceptance is directly related to perceived usefulness and perceived ease of use, and is indirectly affected by the element of trust in technology. The significant relationships indicated from the above diagram imply that phone banking is considered of high potential, as it allows customers to access their accounts in a fast and easy way through the phone and does not involve the effort of moving from one place to another, as is the case with ATMs. However, ifwe go further in comparing phone banking with ATMs, it is important to mention that phone banking lacks an important feature-cash access.

Internet Banking

Similar to phone banking, the results obtained for the acceptance of Internet banking were consistent with the hypothesized relationships. However, the significance levels (p-- values) of all relationships were relatively low compared to those obtained for phone banking. The similarity between the results of Internet and phone banking is attributed to the fact that both technologies provide bank customers with the same range of banking services, namely, balance inquiry, transfers between accounts, and bill payment, without direct access to cash. The low significance of different relationships shown in Table 9 is most likely due to other factors affecting the usage of Internet banking, such as the availability of a PC and an Internet connection and knowing how to use them. This is also affected by the fact that computer literacy in Egypt is only 8% (www.mcit.gov.eg). In addition, the perception of the relatively high risk associated with performing financial transactions over the Internet, as well as the low level of awareness of that technology, have played significant roles in forming these results.

Summary of Results

The analyses of Tables 6 to 9 indicate that the questionnaire responses failed to confirm the alternative research hypotheses in three out of 20 cases, with varying significance levels. This implies that TAM can be considered as a useful tool when used to determine the customer acceptance of electronic banking delivery channels. It is also useful in identifying the related aspects that affect the behavior of different customers with respect to various technologies.

Accordingly, banks can rely to a fairly large extent on the perceptions of their customers regarding any new or existing technology-based service to predict and measure the acceptance levels and the potentials of that service, bearing in mind the effects of other external factors that differ from one technology to the other. With respect to usage patterns of banking technologies, the respondents, as shown in Figure 5, revealed that most of them are using ATMs for cash withdrawals and balance inquiry, while few of them are using it to perform cash or check deposits, and fewer are using it for bill payment. Respectively, such patterns can be attributed to the low level of awareness and lack of trust, which implies that the focus of the banks' efforts should be directed at building such trust and awareness among their customers.

The patterns of credit card usage show that most customers are using the cards for cash advance, as if they were bank loans. The usage of credit cards over the Internet is still in a premature stage, with 7.77%, while their usage for other purchase transactions involving human interaction, such as shopping, restaurants, and hotels, is approaching 50%, as shown in Figure 6.

Figure 7 includes the patterns of phone banking as a technology-based delivery channel, which shows less than 50% of customers using or willing to use such a channel to inquire about their account balances. Despite the high potential for phone banking, less than 20% of the customers have shown interest in using the phone to perform transfers between their accounts or pay their credit card bills. The fact behind such results is that phone banking is still a recent development and is offered only by two banks in Egypt. However, with some marketing efforts, it is possible to build the necessary awareness and trust among different customers and increase their willingness to use such a channel.

The usage of the Internet as a banking delivery channel was shown to be of minimal interest among the respondents (Figure 8). As mentioned earlier, the challenge faced by that channel is lack of awareness as well as the cost associated with the hardware and the Internet connection, which may not be affordable except to a few specific socioeconomic segments. To conclude, it is worth noting that the research succeeded in confirming most of the alternative hypotheses for all banking technologies, and the results clearly highlighted the potentials for each technology as well as the overall perceptions of Egyptian banking customers and their willingness to use electronic delivery channels and payment systems, provided that they are trustful, secure, and easy to use. However, there are extensive efforts that still need to be exerted from banks operating in the retail business in Egypt, especially in the area of building awareness and trust among their customers.

CURRENT CHALLENGES AND PROBLEMS FACING THE ORGANIZATION

Electronic retail banking delivery channels are becoming important not only for competitive purposes among banks but also for their survival, development, and growth. Thus, banks in Egypt have realized the challenge to cater to the growing needs of the market to channel their interest in improving the infrastructure, while focusing on customers' needs rather than solely serving their competitive strategies. It is important to note that the more the banks will be able to provide a convincing value-proposition to their customers, the more they will realize their targeted objectives and increase their market share, which represents a vital challenge relating to the banks' visibility in the market as a technology service provider. However, at the same time, banks must cater to local values and cultures of the society and smoothly adopt, diffuse, and adapt such technologies to serve their customers' needs without facing major resistance.

The challenges also include the diffusion of innovation among the community and the development of the infrastructure required. Also challenging, is diffusing it among Egypt's 27 provinces, while avoiding the creation of communities of haves and have nots and attempting to leverage the statistics of technology penetration, which currently stand at 15% of the population engaged in retail banking and benefiting from its services. There are a lot of questions that need to be answered that represent a set of challenges. If turned into opportunities, these challenges could help boost the banking sector. Can banks cater to changing customers' needs? Can they provide a convincing value-proposition? Can they provide customers with easy-to-use trustful technology tools and delivery channels? Can they make that shift and still focus on their organization-based competitive strategy vision? With continuous development in electronic banking, banks in Egypt have realized that there are no easy solutions. At the same time, they realized that a change of strategy has to take place in order for them to remain in the competition, not only globally but also locally, and that represents the main challenge for the main players in the industry.

The research study results showed that despite the challenges faced while adopting various technology-based retail banking systems in Egypt, there are still strong indications that, over time, technology will permit banks to provide useful services to customers while improving their marketing and communication, increasing their efficiency, and reducing cost of delivery. Moreover, the analysis showed that, consistent with TAM, perceived ease of use and perceived usefulness are playing relatively important roles in defining the acceptance level of different banking technologies. Additionally, the role of trust as an external variable affecting the acceptance level proved to be significant for all systems, including ATMs, credit cards, phone banking, and Internet banking. To summarize, it is believed that major efforts in infrastructure build-up, including technology and human resources development, need to take place not only by banks but also by all players in the new digital economy, including governments and the private sector.

Subject: Studies; Models; Electronic commerce; Banking; Technological change

Location: Egypt

Classification: 9130: Experimental/theoretical; 9177: Africa; 5250: Telecommunications systems & Internet communications

Publication title: Annals of Cases on Information Technology

Volume: 5

Pages: 1-25

Number of pages: 25

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 1537937X

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: references graphs tables

ProQuest document ID: 198672332

Document URL: http://search.proquest.com/docview/198672332?accountid=38610

Copyright: Copyright Idea Group Inc. 2003

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 19 of 100

A process approach for selecting ERP software: The case of Omega Airlines

Author: Verville, Jacques

ProQuest document link

Abstract:

This case explores Omega Airlines, an international air carrier providing air transportation services for passengers and cargo to domestic and international arenas, and their implementation of PeopleSoft's ERP solution (finance, human resources, and payroll applications) for the sum of US$86 million. The ERP acquisition process developed by Omega Airlines for this purchase was atypical of their normal purchasing practices and proved to be a significant learning experience for the entire organization. This case provides a useful illustration of "good practice" and sets forth the framework for the ERP acquisition process. [PUBLICATION ABSTRACT]

Full text:

BACKGROUND

Omega Airlines, a large international carrier, provides air transportation services for passengers and cargo both to domestic and international arenas. Together with its regional partners, Omega Airlines's route network provides transportation services to 125 cities worldwide, including 97 cities in North America and 22 cities in Europe, Asia, the Middle East and the Caribbean. It also provides charter services to six international destinations as well as cargo services to 65 destinations worldwide. It's operations include a large aircraft and engine maintenance business that provides maintenance services to airlines and other customers. Other services that are also offered include computer and ground handling services to airlines and other customers. Among its holdings, Omega Airlines retains 100% interest in five regional airlines; in one of the largest computer reservation systems; and in a major tour operator. It also holds minority interests in other travel and transportation-related businesses.

By 1995, Omega Airlines's Honeywell-Bull mainframe system was running with hardware and software that was more than ten years old. The system contained information that was extremely important to Omega Airlines's daily operations. With the system due for changes, whether through upgrade, conversion, or replacement, action needed to be taken soon, but how long could Omega Airlines postpone the inevitable without impeding or hindering its operations?

SETTING THE STAGE

In August of 1990, Omega Airlines's Strategic and Technological Planning Group presented the Board of Directors with a request for a 'global' authority for commitment (hereafter referred to as an "AFC", this proof of commitment or sign-off must be obtained from Omega Airlines's Board of Directors and Steering Committee before work can proceed on a project) for a strategy to replace the Honeywell-Bull system. The strategy would involve the replacement of the Honeywell-Bull with an IBM mainframe and the conversion or replacement of more than 5,000 applications that were then executing on the Bull system. The funds requested with this AFC (each AFC represents an allotment of funds that is committed whether to a specific phase ofa project or to an entire project), in the amount of US$36 million, would be used to convert 1,500 Bull programs to the IBM mainframe platform, while the remaining applications would be replaced with new applications under separate projects. (Since the `Bull Migration Project' actually comprised many projects spanning several years, several AFCs needed to be obtained, in some cases, for each major phase of each project.) The request was approved (Verville, 2000).

Since then, a number of initiatives were undertaken to execute this strategy. The Board subsequently approved the replacement of the revenue accounting system for the Finance Branch and the procurement, inventory management and aircraft maintenance systems for the Technical Operations Branch. These initiatives represented somewhat less than 40% of all the applications that were on the Honeywell-Bull system.

Five years later( 1995), more than 60% of the 5,000+ applications still remained (in whole or in part) on the Bull, awaiting conversion or replacement. While various projects involving the initial 1,500 programs were progressing, they had yet to be all delivered, and numerous others still needed to be started. Major upgrades of both hardware and software were needed to support critical applications, such as payroll and the airline schedule. Other major areas included Finance, Human Resources, and Sales Reporting. In the interim, continued maintenance was being provided for the Bull, though without any new enhancements.

Y2K Systems Failures

Up to this point, Omega Airlines had, for the most part, adopted a status quo approach. However, status quo was no longer feasible. In January 1995, the urgency of this situation was escalated when one of the applications on the Bull failed. An investigation into the problem revealed that the application had tried to perform a forward-looking date function (looking five years ahead) that the Bull's operating system did not support. It became evident that other applications would experience the same problems and serious system failures on the Bull were imminent, Thus, the `Year 2000' (Y2K) issue became a major problem for Omega Airlines, the impact of which would be felt starting in 1999.

So it was, that in the fall of 1995, the Information Technology Group presented a revised global' AFC to the Steering Committee for the planning phase, for eventual presentation and approval by the Board in May 1996 (date later changed to August 1996). This AFC, formore than $2 million (which was approved), would authorize the IT Group to proceed, in the first part, with an in-depth evaluation of the different alternatives available to Omega Airlines and to recommend either re-investment in the Bull technology or completion of the Bull de-hosting program.

Several key issues influenced the evaluation by the IT Group, the most significant of which were the reliability (or rather, the unreliability) of the Bull platform and the inability of the applications and processing environment to support the turn of the century (the Y2K problem). Given the uncertain condition of the Bull and the critical nature of systems such as finance and human resources, some applications had been partially migrated, some had been duplicated, and still others had been developed on an IBM host system (both systems [the Bull and the IBM host] were then integrated through a series of interfaces). Because of the gradual and partial migration, and in order to provide better integration, functionality, data integrity and overall architecture to facilitate their maintenance, the IT Group's evaluation also included the reassessment of some of the applications that were already transferred (in whole or in part) to the IBM host.

Investigating Options

In light of these issues, the IT Group examined four possible scenarios with which to meet this situation involving the Bull environment (hardware, software, and peripherally affected systems):

1. upgrade the current Bull environment and stay with the current applications;

2 upgrade the current Bull environment and renew the applications;

3. convert the remaining Bull applications to an IBM compatible environment and invest the minimum required on the Bull system; and,

4. eliminate the Bull system completely and

(i) purchase new software packages, or

(ii) convert or

(iii) rewrite the applications for their IBM systems, or

(iv) outsource the functions.

The first two scenarios were considered unfeasible given the probability that the vendor, Honeywell-Bull, would be moving, over the next few years, towards open systems and that they would be providing decreasing support to their mainframe product line. From Omega Airlines's perspective and relative to their goals, Honeywell-Bull would not be the strategic mainframe `vendor-of-choice' for the long term and, hence, the decision was made to move away from this platform.

The third scenario of converting applications to the IBM platform would allow Omega Airlines to continue to operate. However, it would not address the issue of inadequate functionality or the gap between what was provided by these systems and what is required to run the business in an increasingly competitive and complex environment.

Lastly, the fourth option would eliminate the Bull host completely and would position Omega Airlines for the future with either new software packages, modified and enhanced applications, or with the functions being outsourced. All of the applications that remained on the Bull system were reviewed against these four scenarios.

The IT Group also evaluated these scenarios on the basis of financial considerations (cost and benefits) which they included in their Business Case and which are summarized below:

Cost:

* With the third scenario, straight conversion (without enhancement), over the next 10 years, of all remaining applications (Finance, Human Resources, Payroll, etc.) from the Bull to an IBM-compatible environment with minimal investment on the Bull system, was estimated at US$65 million.

* With the fourth scenario, the same applications could be replaced and enhanced for an additional US$15 million, hence US$80 million, over the same 10 year period. However, in this case, there would be significant benefits.

Benefits:

* With the third scenario, there were no foreseeable benefits.

* With the fourth scenario, headcount could be reduced by 37, representing savings of US$9 million. An additional US$12 million could be saved as a result of improved cash management and expense control. Additional benefits estimated at US$ 10 million could be derived through access to valuable management information, mainly in the areas of profitability and sales.

* (The economic justification was based on the realization ofthe headcount savings, the cost reductions and 25% of the management information benefits. The IT Group also estimated that this implementation could yield a return of 20.5% and would better position Omega Airlines for the future.)

While the IT Group concluded that the third and fourth scenarios were the only two viable options available to Omega Airlines, they recommended the fourth which would lead to the elimination of the Bull system.

Buy, Convert, Re-Write or Outsource?

The IT Group then proceeded, in the second part, to evaluate the options available to them in the fourth scenario, namely, the options of buying a software package(s), converting, re-writing or outsourcing the applications. For this, they performed functional requirement analyses, developed the request for supplier proposals, and developed the business case and schedule required to complete the project. This 'second' part (with some overlap from the first part) of the AFC was referred to as the "preliminary analysis and planning phase of the Bull replacement project".

In their evaluation of the fourth scenario, the IT Group determined that for some of the applications, conversion would be the most feasible option available to them due to the specificity and uniqueness of the software functions for Omega Airlines. For other applications, re-writing was the best solution. For others still, the purchase of a software package offered the most cost effective and timely solution.

Final Recommendation and `Go Ahead'

A summary of the IT Group's final recommendations and project plan were presented to the Board and included:

1. to remove Omega Airlines completely from the Bull;

2. to renew/replace the applications and thereby provide enhanced functionality for Omega Airlines users;

3. to reduce application maintenance costs;

4. to improve system and functionality integration by renewing/replacing systems; and

5. to assist in improving Omega Airlines's business processes.

The Board granted their authorization for commitment (AFC) providing the `go-ahead' for the IT Group to commence the Bull replacement project.

One Issue Still Outstanding-Buy or Build?

The only decision that remained was whether to build or to buy. While the option of rewriting the Finance, Human Resources, and Payroll applications was initially reviewed, it was discarded early on (February 1996) in favor of buying a packaged solution. It was readily agreed that "in the 1990s, you do not build, you buy, especially if it is software that is a generic application or in generic use by the industry". With the decision being made to purchase a packaged ERP software, Omega Airlines's Project Leaders proceeded to plan a set of activities which they then used to select the appropriate technological solution.

A Request for Proposal (RFP) was subsequently issued in March 1996 to several software vendors, four of which responded, three of which were thoroughly evaluated. In July 1996, the packaged software solution by PeopleSoft Inc., a recognized industry leader, was chosen to provide Omega Airlines with its integrated Finance, Human Resources, and Payroll applications. Not only would this packaged software allow them to implement within a short time frame (especially given the imposing deadline of 1999 less than three years in the future), but Omega Airlines surmised that the use ofa standard software package would allow them to rapidly implement new functions developed by the software provider and would also reduce their internal development cycle for modifying the software to meet their own unique requirements. Again, the argument that was presented was that when software is already available on the market for a generic function or is in generic use by the industry, "you don't build, you buy." Omega Airlines's management reasoned that since every company has financial and human resource systems, it makes little sense to invest time, money and effort to build when state-of-the-art software is readily available. Other factors that affected the decision to buy an integrated solution were the restrictions imposed by 1999 and Y2K, then just two and a half years away (Verville & Halingten, 2001).

CASE DESCRIPTION

The Acquisition Activities ERP Software

The ERP solution that Omega Airlines decided to purchase needed to meet all of the finance, payroll and human resource software requirements of the following business sectors:

* Payroll

* Pension

* Administration

* Time and Labor

* Collection

* Finance

* General Ledger

* Budgeting

* Forecasting

* Corporate Reporting

* Accounts Payable

* Accounts Receivable

Hence, the solution would need to be consistent with the vision of each of the business areas covered by the scope of this acquisition as well as that of the Technology Strategy Group. The solution would also need to support Omega Airlines's operations on an international scale. Given the strategic nature of the software, it would have to integrate well into Omega Airlines's global environment. Other objectives included the capability of the packaged ERP software to correctly handle the processing associated with Y2K and beyond, and the ability to implement it no later than December 1998. Omega Airlines ERP Objectives were:

* meet software requirements of 12 business sectors

* consistency with the vision of each business sector

* support operations on an international scale

* integrate into Omega Airlines's global environment

* handle Y2K and beyond processing needs

* to be up and running by December 1998

The Starting Point-Planning

With these objectives clearly defined, Omega Airlines began the acquisition process by planning a set of activities to select and purchase the packaged ERP software. This set of activities (plan) consisted of a series of processes that were based in part on formally defined standard purchasing procedures and routine project management protocols. The plan was also sufficiently flexible to accommodate unknown variables that would arise during the acquisition process due to the special nature and complexity of the software package being purchased. Also, because this was Omega Airlines's first time purchase of a complex software package, they did not know what to expect or how exactly to proceed.

The software acquisition planning process was part of Omega Airlines's initial planning phase, begun in 1996, and it signaled the start of the acquisition. Given the broad scope of the proposed acquisition, Omega Airlines required additional staff to gather information on the requirements of each of the areas. They also had to build a team of individuals that would not only be part of this initial phase (the acquisition), but that would, for the most part, continue on to the next phase, or implementation, of the software. Further, they had to establish the requirements that would eventually go into an RFP and that would subsequently be forwarded to vendors.

Within this planning process, Omega Airlines outlined strategies and tactics that would be used in the search for the software. They established criteria by which each of the vendors and their products would be evaluated, criteria that included, among others, architecture, functionality, market share of the vendor, and vendor's financial viability.

Also in the planning process, Omega Airlines sought out information (internal and external) on who the major players in the market place were for fully integrated software packages. They then held an information session where they invited the potential vendors to attend. As part of Omega Airlines's strategy, this information session let each vendor know who they would be competing against and also informed them of precisely what Omega Airlines was looking for. After this session, one ofthe major vendors, ORACLE, bowed out. Following this information session, an RFP was issued (March 111, 1996) and the vendors were given one month to respond.

Eliminating Prospects

After the initial review of the RFP responses, Omega Airlines realized that they had to go back to the vendors for more information due to some modifications they (Omega Airlines) had made to the initial RFP. They realized just how much each vendor's pricing ofthe product differed and the extreme difficulty they would have in making one-to-one or side-by-side assessments of the software package offerings. Consequently, Omega Airlines issued an addendum to each of the potential vendors that stipulated the method according to which the product was to be cost out. A one-week deadline was given following which Omega Airlines did an evaluation of the responses (early May 1996). From an initial group of approximately seven vendors, the list was brought down to three vendors-SAP, PeopleSoft and Dunn & Bradstreet.

Omega Airlines subsequently began, in June 1996, a more intensified evaluation ofthe each of these three vendors' products. Each vendor was invited to put together a three-day session where Omega Airlines brought in approximately 50 of their users to evaluate the functionality aspects of the software. As part of their strategy, they supplied each vendor with scripted scenarios in which specific functions needed to be demonstrated. These were the most complex and demanding requirements that Omega Airlines had. The performance of the software in each of these areas would allow Omega Airlines to differentiate each of the vendors' products one from the other. Also, as part of these three-day sessions, Omega Airlines wanted to gain a better understanding of the vendors technologies and to see how their software would perform. This also enabled Omega Airlines to evaluate and validate the information that was provided in the vendors' RFP responses with what was shown in the scripted demonstrations.

Final Choice

Based on the results of these evaluations, Omega Airlines was able to reduce their list to two vendors-PeopleSoft (primary choice) and SAP. At this point, Omega Airlines began to negotiate with their primary vendor.

In July 1996, Omega Airlines entered into general business negotiations (as opposed to contractual negotiations with the final terms and conditions) with PeopleSoft. The business negotiations process allowed Omega Airlines to agree informally on all ofthe terms and conditions that were critical to their business and these ranged from product support to cost, etc. (All that remained was to translate the business terms into legal terms and conditions.) The objective of this process was to produce a revised proposal, which Omega Airlines called a "business understanding document", whose purpose it was to clarify all that Omega Airlines had negotiated with their primary vendor. The other objective of this document was that it serve as a `letter of intent' to the preferred vendor (PeopleSoft) of Omega Airlines's intention (commitment) to buy their (PeopleSoft's) ERP solution.

Later in July 1996, with the "business understanding document" in hand, Omega Airlines went to their Board for final approval. Once approval from the Board was given, the final contract was put together. One of the critical items that led to the successful closure of the whole negotiation process was a performance clause that Omega Airlines steadfastly insisted upon and was finally agreed to by the vendor. The final contract was then signed.

From the point shortly after the decision to buy an ERP was made, to the signing of the final contract, the ERP acquisition process that Omega Airlines went through took approximately 9 months to complete. The final choice that resulted was for PeopleSoft's packaged ERP software at a cost of US$86 million. Its subsequent implementation was completed in the scheduled timeframe and was regarded a success. According to all involved in both the ERP acquisition process and the implementation process, the PeopleSoft solution was the right choice for Omega Airlines.

In the next section, the ERP acquisition process that Omega Airlines used will be looked at more closely. Beginning with Planning, each ofthe processes that make up the acquisition process will be broken down and the activities that Omega Airlines undertook will be discussed.

ANALYSIS OF OMEGA AIRLINE'S ERP ACQUISITION PROCESS

This section presents a detailed account of the processes and activities that Omega Airlines completed for the acquisition of PeopleSoft's ERP software solution.

Planning Process

"The more work you do before selecting the package, the better. It decreases the surprises and allows you to prepare ahead of time all things that have to be considered in order to put the package into place and there is certainly quite a number of them " (Project Manager - Technical).

Planning encompassed all of the activities that Omega Airlines deemed necessary to pursue this endeavor. In global terms, planning included meetings to determine schedules, priorities, participants, resources that would be required; activities and tasks that would need to be completed; types and sources of information to be sought; and so forth.

It could be seen that there was a great deal of planning done by Omega Airlines for this acquisition. Much thought and attention was given to every stage of the ERP acquisition process during this phase (planning) so as to lay the foundation for undertaking the acquisition. The planning that was done by Omega Airlines addressed the following issues:

* Participants-Who would participate in the different phases of the acquisition?

* Acquisition Strategies-How would the organization approach/deal with the vendors?

* Establishing Requirements-What are our organizational needs in each of the areas that would be affected by the software?

* Establishing Evaluation Criteria-How would we evaluate the software and against what criteria?

* Contingencies-What contingencies do we have to fall back on should there be a delay or if the final negotiations fail or we are unable to find a suitable packaged solution?

Participants

The Director of Enterprise Systems/IT was responsible for the acquisition project and he selected the main person (the Project Director) who would lead the acquisition process for this project. Responsibility ofthe overall process/project was given to the Project Director who, in turn, had to select the various managers, leaders and individuals who would participate in the process. Individuals were recruited from within the organization. These individuals were from the various departments that would be immediately affected by the new technology. In all, Omega Airlines's Acquisition Team consisted of a core team as well as several smaller teams, one for each of the 12 business sectors that would be directly impacted by the new technology. Each of the teams also included an IT (technical) representative. Additionally, external consultants (IT specialists) were also hired for this project.

One of the Project Director's objectives in recruiting people for this acquisition project was his concern for the long-term buy-in and support of the users for the chosen software. One of the keys to ensuring that buy-in and support would mean that he would have to make certain that many of the individuals from Omega Airlines's core team would participate not only on the project team for the acquisition of the packaged solution, but that they would also be part of the implementation project. As per the Project Director:

"...on the project team, I tried to bring in people that would to be part of the selection and also would be part of the implementation. So that they could not say, `Why did you pick this product? That would never work!' So you wanted to avoid that, so I brought in users and project people that were going to carry this thing through right to the end. So they had a vested interest in picking one they could make work. "

For Omega Airlines, this approach worked very well. Participant continuity (team members and end-users) for the acquisition through to full implementation helped to ensure user buy-in of the chosen solution.

Users played an important role in Omega Airlines's decision process. It was important to Omega Airlines's management that users buy in to (actively endorse and support) the new technology. Without this buy-in, Omega Airlines's management felt that the project would be in jeopardy. According to the Director of Enterprise Systems/IT, what Omega Airlines wanted was "a consensus from the users for the decision". By having heavy user involvement in the project, management believed that the Project Team would have the support or buy-in from Omega Airlines's user community that they (both management and the Project Team) needed. Hence, management wanted each "sector of activity to be represented" by users "so that we would have the buy-in". User participation in the project gave Omega Airlines a sense of partnership "with the various users communities and let them come up with a recommendation that they felt comfortable with" (Project Director).

Omega Airlines's Steering Committee also had a role in this acquisition process-they oversaw the project. The Steering Committee was able to allow the acquisition process to flow relatively unencumbered by alleviating obstacles. As per the Director of IT:

"We had a couple of key decisions made by our Steering Committee during our planning phase, which was earlier on-let's stop considering the Bull scenarios, such as upgrading the Bull; let's stop wasting time elaborating the Bull upgrade scenarios. That freed up our time to work on the other scenarios. Another key decision was, if it is out there in the market, we are not going to consider coding. That was another key decision that freed us up. You could have elaborated hundreds of scenarios in this type of acquisition. We would have been all over the place and working on poor scenarios. Fortunately, our Steering Committee helped us eliminate scenarios."

The Purchasing Department also had a role that began early in the acquisition process and that was facilitated by a partnership approach initiated by the Project Director. During the Planning phase, the Project Director met with both the Manager of Capital Equipment Purchasing and the Project Manager-Technical to establish their Request for Proposal (RFP) process-exactly what their goals would be with the RFP, what their time line was for it, and what the transit conditions of the RFP would be. Although the Manager of Capital Equipment Purchasing described his role in this process and that of his department as primarily being to "negotiate and get the terms and conditions under a contract that involved our insurance people, taxation people, our law branch, myself, the user group and the user group firming up the specifications", this example illustrates how Purchasing can play a role in the acquisition process for more than just the final contract and issuing of a P.O.

Acquisition Strategies

Acquisition strategies are strategies that Omega Airlines employed that impacted their Selection process. Omega Airlines's strategy for approaching the various vendors was to bring them all together in a central location and present them with an overview of the type of technology they were looking for. They felt that this would enable them to reduce the list of potential vendors and thus eliminate incompatible technologies or solutions early in the process. It also provided another means for Omega Airlines to gather more information on each of the vendors. As stated by the Manager-Capital Equipment Purchasing:

"...a meeting in a North American city of all potential vendors. This is unusual because normally we would keep the vendors in the dark about whom they would be competing against. In this particular case, we wanted to get a feel for who could do the work for us and also allow some of them the opportunity to team up or partner together in order to give us the full scope or full sweep of applications which was, ultimately, what we wanted."

This approach is an example of an unconventional and unusual Acquisition (Buying) Strategy that Omega Airlines employed to deal with the vendors. While some companies have lists of qualified vendors that are accessible by the public, this apparently was not the practice at Omega Airlines. Hence, for Omega Airlines, it was unusual that the competitors were made aware ofeach other. Also, what made it unconventional was that they gathered the competing vendors together at a neutral site, i.e., a conference room in a hotel. This, apparently, gave the `knowingness' an edge that had an effect on the vendors in attendance (with one dropping out of the competition).

Another strategy that Omega Airlines planned was to have the short-listed vendors present, over a two or three-day period, their proposed technological solutions. For their presentations, each vendor would be required to use pre-determined scenarios supplied by Omega Airlines.

Establishing Requirements

Given the wide-sweeping range of areas that the software solution was expected to cover, Omega Airlines had to determine exactly what requirements would need to be met by the technology as well as what their own business requirements would be, both current and future. They looked at their current resources-what they had, what they were lacking. They determined what they wanted that was not being met by their current systems. In addition to looking at the requirements that would need to be met by the new technology, they also ascertained the resources that would be required in order to acquire and implement this technology. Hence, they assessed their staffing resources, they considered the time requirements, they looked at the financial requirements-how much it would cost to add more staff; they examined their own systems architecture-would it be sufficient to support the new technology, and so on. They covered all areas of the organization. As per the Director of IT:

"...evaluation criteria and we put them in the RFP. Implicitly, the evaluation criteria were all in the RFP as we were asking vendors to describe each process for each business sector, how they were doing this, if they had software to handle this..."

Establishing Evaluation Criteria

Omega Airlines's Acquisition Team established criteria for three distinct types of evaluation:

* vendor,

* functionality

* technical

Vendor evaluation criteria included size, financial stability, reputation of the vendor, etc. Functionality criteria dealt with the features of the software and included functionalities specific to front-end interfaces, user-friendliness and so on. Technical criteria dealt with the specifics of systems architecture, performance, security, etc.

Omega Airlines established all of the evaluation criteria (with very few exceptions) for all three areas early in the acquisition process (during the Planning Process) because the majority of it was needed for incorporation into the RFP that would be sent to the vendors. This document would inform the vendors, in great detail, of the criteria against which they and their software solutions would be evaluated. As per the Director of IT:

"...evaluation criteria and we put them in the RFP. Implicitly, the evaluation criteria were all in the RFP as we were asking vendors to describe each process for each business sector, how they were doing this, if they had software to handle this..."

Contingencies

Given the possibility of not being able to find a packaged ERP solution that would meet the needs of the organization-what would they do? With Omega Airlines, there was no contingency plan per se. Although they did allocate a budgetary buffer of $3.5 million in case of delays in the implementation of the chosen solution, this was not a full contingency plan. So, while they had contingency money, they did not have a contingency plan.

For Omega Airlines, this project offered no alternatives. There was no room for `what will we do if we cannot find an ERP solution?' They had to succeed. They had to find an ERP solution that would work for the organization. This was a "do or die" project.

Information Search Process

What is most significant about the Information Search process in this case are the sources of information that were used by the Acquisition Team. Two types of sources were used: internal and external.

As to the internal information sources, Omega Airlines availed themselves of information from various sources within the organization that included individual users, team members and internal consultants. These internal sources provided information primarily on the organization's requirements (existing and forecast) at all of the levels and in all of the areas that the technology would impact.

External sources were sought to provide information about software solutions that might best meet their needs. Omega Airlines conducted a marketplace search, gathering information from such varied sources as external consultants, publications, trade shows, conferences, references, professional networks, internet and research services such as the Gartner Group.

Other means that Omega Airlines used for obtaining information from the vendors were a Request for Information (RFI) and an information session. Omega Airlines used the RFI to gather information from the vendors in order to "size the cost of the software" (Director of Enterprise Systems/IT), among other things. This, coupled with the information session enabled Omega Airlines to determine, among other things, its long-list of vendors.

It should also be noted that the credibility of the source of information was important considering the amount of readily available and often times unreliable information that one has access to. As per Omega Airlines's Project Control Officer, they found Gartner Group to be a credible source of information.

Selection Process

Concurrent to the Planning process, several iterations of screenings (which could be considered as part of the Selection process) were done during the Information Search process prior to arriving at a short long-list of vendors. Selection and evaluation criteria pertaining to both vendors and technologies were used to screen for vendors who could supply the type of software solution that Omega Airlines was seeking.

For the most part, the Selection process began at the point when Omega Airlines received the RFP responses back from the vendors. With the RFP responses in hand, Omega Airlines then proceeded with the paper evaluation of the vendors' packages, that is, they evaluated the responses as they were presented, at face value, on paper. During their evaluation of the responses, Omega Airlines became aware of discrepancies in how the costing was done from vendor to vendor, a problem they attributed to their own lack of clarification. Nevertheless, they proceeded to narrow their selection to arrive at their shortlist of three vendors. At this point, though, Omega Airlines asked the three short-listed vendors to re-submit certain parts of their responses, requesting that costing be done along specific lines and that clarification be made on some items. As indicated by the Project Control Officer:

"There was a lot of clarification that had to happen. Obviously, your proposal is never quite what you want it to be. We had to have the three short-listed vendors do things like re-quote because we were not as precise as we should have been, in terms of how we wanted to quote pricing.. [this was done] to provide a consistent view so that we could really, truly compare to make sure that we had the same numbers, viewers, same size of user communities. And, of course, every vendor is different-some by users, some by size of mainframe, and whatever."

Once the re-quoted responses were received from the vendors and Omega Airlines had reviewed them, Omega Airlines proceeded to invite the three short-listed vendors to do onsite presentations of their software solutions.

As mentioned above, although the Screening of Information could be considered as part of the Selection process, it occurred during and is commonly understood to be a necessary part of any search for information. During their search, Omega Airlines performed high-level screenings of information to narrow the field of possible vendors/solutions.

So, while it is commonly understood that information screening is done iteratively throughout any process, we are not considering it as part of the Selection process proper, but rather as an integral part of the Information Search process.

Hence, we have chosen to demarcate the Selection process as beginning with the activities following the return of the RFP responses from the vendors. In the case of Omega Airlines, their course of action for the Selection process involved two primary objectives/ tasks, those being the evaluation of the RFPs and the formation of the short-list of vendors.

Evaluation Process

There were three distinct types of evaluation that were conducted by Omega Airlines: vendor, functionality and technical. Evaluation criteria for all three types were developed in the Planning phase of the acquisition process.

Vendor Evaluation

The Vendor Evaluation was conducted based on criteria that were established during the Planning process. Each of the vendors was evaluated in terms of its financial stability, reputation, etc., based on Dunn & Bradstreet reports and other information.

Functional Evaluation

Responsibility for the evaluation of each technology's functionality rested with the Project Control Officer while responsibility for the evaluation of its technical aspects rested with the Project Manager - Technical. It is to be noted that the Functional Evaluation proved in and of itself to be an important process for Omega Airlines. It was during the Functional Evaluation that users participated in the decision process. Functional criteria that were established and questionnaires and scenarios that were developed during the Planning phase of the acquisition process were implemented during this process. Short-listed vendors were invited to participate in a two or three-day demonstration of their technological solution. According to Omega Airline's Director IT:

"We then proceeded with demos, three-day long demos with our users. In each case, we had about 50 people (business analysts, project managers, but mostly regular users) who attended these demos."

Technical Evaluation

In parallel with the Functional Evaluation, Omega Airlines "also had a team of technical architects looking at the technical aspect of it" (Director of Enterprise Systems/IT). Most of the technical criteria that had been established during the Planning stage and included in the RFP were now tested with the technology. In addition to this, the Project Manager - Technical utilized a methodology developed by IBM called `World-Wide Application Development and System Design Method.'

This allowed them to "work with the vendor to define what the major building blocks" were as well as to identify:

* the major components that were part of their solution; * the servers, workstations, network components, database management systems, etc.; and,

* the processing of data on each of those

What Omega Airlines's Technical Evaluation team learned provided them with an understanding of the "interplay between the various components, workstations, server, traffic going over the network and what the impact of that would be-` Is there a lot of traffic?' and `What would the response time characteristics be on a local network versus a WANT"' The Technical Evaluation team also had to determine:

* the volume of data,

* the volume of processing, and

* the sizing of the various components that were necessary to support all the processing and data that resides on them

In addition to this, the team "looked at the ability of the whole infrastructure, end-toend, to support the availability characteristics. In other words, if I lose a terminal, I lose a line, I lose a router, I lose a server, what would happen and what would I have to do to be able to maintain the availability?" The Technical Evaluation team also looked at the software's security from the standpoint of how it was defined and managed.

Again, many of the above requirements were established during the Planning process and added to the RFP.

As part of their Evaluation process, Omega Airlines used pair-wise comparisons and assigned weights and scores to the various areas of evaluation.

Choice Process

The acquisition process culminates in the Choice process and consists of the `final choice' or 'recommendation'. The final choice or recommendation that resulted for Omega Airlines, according to the Project Control Officer, "matched the evaluations all the way through."

In addition to the pair-wise comparison that was done in the Evaluation process, a meeting was convened of all of the representatives of the various business groups to see if there was a consensus on which technological solution was the most appropriate for Omega Airlines. A `round robin' format was adopted and each business sector representative was able to review the cumulative scores and present a brief summary of the reasons for their scores. It was during this meeting (which lasted ten hours) that Omega Airlines's Acquisition Teams reached a consensus, though not unanimous-one group, Time and Attendance, felt that SAP met their needs much better than PeopleSoft. Nevertheless, once all of the arguments were presented and the Time and Attendance team members became aware of all of the factors relating to the choice of PeopleSoft, they accepted (perhaps reluctantly, perhaps not) the arguments presented by the majority of the teams. It was also made clear during that meeting that Omega Airlines's management was committed to "bridging the gap in Time & Attendance with PeopleSoft somehow" (Project Director). Hence, they voted for PeopleSoft.

"At the end, in one big meeting of ten hours, we reviewed each area for each business sector. The meeting consisted of twenty-five people, each representing their sector of activity. Each, as we reviewed the evaluations, presented a summary of the reasons for their scores. What we wanted was a consensus from the users.. for the decision. With heavy user representation, we would have their buy-in. We wanted each sector of activity to be represented there so that we would have buy-in. We did not have unanimity. We chose PeopleSoft, butfor Time and Attendance, SAP was better. ...We did not take a formal vote, we just did a final round-table, and I think based on that, we chose People Soft. The person representing payroll said, "Time & Attendance is much better on SAP, so I vote SAP". But, when that person listened to all the arguments from everybody, they rallied behind the decision because it was obvious that there were more reasons to choose PeopleSoft than to choose SAP. We said that we will bridge the gap in Time & Attendance with PeopleSoft somehow.. [My decision...and my recommendation to the team was for PeopleSoft because it gives us the flexibility to change while with SAP, you have to implement SAP as is otherwise you get into big trouble-this is when a two-year project turns into a five-year project if you try to change too much."

"... when that [those] person[sJ listened to all the arguments from everybody, they rallied behind the decision because it was obvious that there were more reasons to choose PeopleSoft than to choose SAP" (Director of IT).

It can be noted that the user community had enthusiastically embraced the PeopleSoft product. If the teams had chosen SAP, they would have had much greater difficulty selling Omega Airlines's user community on the benefits of it than with the PeopleSoft product. The Director of Enterprise Systems/IT was very aware of this and believed that it would have been difficult to achieve success without user buy-in and acceptance of the new technology.

It should be noted that while PeopleSoft was the Acquisition Team's choice, it was in fact their 'recommendation' as it had to be presented to the Board of Directors for their final approval.

The Choice process that was noted in the Omega Airlines case consisted of one element, a final recommendation or choice. This recommendation was subsequently conveyed to a body outside the Acquisition Team (the Steering Committee [Board of Directors]) for final approval.

As a note about this case regarding the final recommendation, Omega Airlines could have been influenced by the fact that they had previously acquired financial or accounting software from Dunn & Bradstreet (D&B). While Omega Airlines had considered D&B's solution (D&B was on Omega Airlines's short-list of three vendors), the issue of D&B being a former supplier to Omega Airlines did not appear to have had much (if any) impact on their final choice of software solution.

Again, if it had been an issue, in all probability, it would have been dealt with during the Selection process. Moreover, if, as a former supplier, D&B had been more favorably considered, then we speculate that Omega Airlines would have ranked them first on their short-list.

Negotiation Process

Negotiations were pervasive throughout most of the acquisition process. However, there were, in effect, two distinct types of negotiation processes that took place.

The business negotiations were characterized as being informal, while the legal negotiations were characterized as formal. For Omega Airlines, it was the Project Director and the Manager of Capital Equipment Purchasing who conducted the business negotiations. The Manager of Capital Equipment Purchasing was also involved for the signing of the final contract.

According to the Project Director, the objective of the business negotiations was to iron out the "major issues, come to an agreement, and agree on the words to put in the final letter" which they referred to as a "business understanding document". The issues that were negotiated ranged from terms and conditions, implementation, scheduling, performance, to training, etc.

Once an agreement was made with the vendor of choice (PeopleSoft), "the legal people were ready and available to start the legal negotiations process" (Director of IT). The Project Director relates the following:

"...we entered a business negotiation phase as opposed to a contractual negotiation phase. That phase was to agree on all of the terms and conditions that were critical to the business, anywhere from product support to key terms and conditions. The only thing that we did not do there [was] to translate that into legal terms. The objective was to produce a final revised proposal which was what we called a `business understanding document', a letter ofa few pages that clarified everything that we had been negotiating...The objective at the end of this was to give them a letter of intent and advise the other vendor that they had lost.

In the process, we visited the vendor on their site and then re-negotiated every term that we thought was critical. That gave us a final price and allowed us to complete our business case. It also allowed us to go to the Board ofDirectors with the `business agreement', conditional to the Board of Directors' approval, and this way, we did not lose any time. We agreed on dates whereby we could take delivery of the software with some time for some final contract approval. As soon as we got the funding approved, then we went into legal negotiations. That is so much more detailed-looking at terms and conditions and what happens if 'OMEGA' buys a company or sells a company or if, the supplier, went bankrupt or all those other possibilities of ownership, escrow agreements; and all of those types of terms and conditions. That allowed us to put together a final contract and then sign it, and we just made it in time to take delivery as agreed to during the business agreement negotiations phase."

One of the critical issues that concerned Omega Airlines related to the performance of the software on a wide-area network (WAN).

As to how this process could be characterized, it appeared to us that the business negotiations were fluid throughout most of the process. When asked to characterize the Negotiation process, the Manager of Capital Equipment Purchasing replied that "the negotiations were ongoing-it is an evolutionary process", that they start "the minute we begin contact with the vendor", and that they are "fluid" throughout the acquisition process.

CHALLENGES

In the post-acquisition/implementation phase, Omega Airlines will face several challenges not only to support and maintain the new system but also to extend its scope of usefulness to other areas/needs of the organization. Relative to support and maintenance, one major challenge for Omega Airlines IT department will be to keep the resources, people and money flowing in order to meet the post-implementation demands. The Director of IT fears that the will or commitment from senior executives to continuously support the ERP system may wane due to economic factors that currently face the airline industry. The retention of key individuals who must return to previous assignments or who leave the organization either for more challenging positions or because of downsizing due to budget cuts poses yet another challenge for Omega Airlines.

Among the future challenges that Omega Airlines as it charts its future use of ERP systems, is that of Knowledge management. How to manage the information generated by the ERP system. Other challenges, such as, How Omega Airlines align its Ebusiness strategies with its existing ERP systems? Further, How will Omega Airlines implement web services that will allow it to knit together its various business information and ERP applications.

These are only a few of the numerous challenges that confronts Omega Airlines. learning experience for the entire organization. This case provides a useful illustration

Subject: Studies; Enterprise resource planning; Process planning; Software packages; Airlines

Classification: 9130: Experimental/theoretical; 8350: Transportation & travel industry; 5240: Software & systems

Publication title: Annals of Cases on Information Technology

Volume: 5

Pages: 26-44

Number of pages: 19

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 1537937X

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: references

ProQuest document ID: 198672238

Document URL: http://search.proquest.com/docview/198672238?accountid=38610

Copyright: Copyright Idea Group Inc. 2003

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 20 of 100

The T1-Auto Inc. production part testing (PPT) process: A workflow automation success story

Author: Caine, Charles T; Lauer, Thomas W; Peacock, Eileen

ProQuest document link

Abstract:

This case describes the development, design, and implementation of a workflow automation system at a tier one automotive supplier, T-1 Auto. In 1994, Lotus Notes was installed as the corporate standard e-mail and workflow platform. The case goes on to describe the design and development of the Lotus Notes workflow management system. The case concludes with a discussion of project success factors and planned future enhancements. [PUBLICATION ABSTRACT]

Full text:

T1-AUTO BACKGROUND

T1-Auto Inc. is a leading producer of brake components for passenger cars and light trucks. The most significant automotive products manufactured and marketed by T1-Auto are anti-lock braking systems ("ABS"), disc and drum brakes, disc brake rotors, hubs and drums for passenger cars and light trucks. T1-Auto is one of the leaders in the production of ABS, supplying both two-wheel and four-wheel systems, and was the leading manufacturer of two-wheel ABS in North America for light trucks. In order to meet increased ABS demand, T1-Auto built new plants in Michigan and Europe. T1-Auto is also a leader in the production of foundation (conventional) brakes, and benefits from its strategic position as a major supplier of ABS and foundation brakes for light trucks, vans and sport utility vehicles. T1-Auto also produced electronic door and truck lock actuators. T1-Auto operated six plants in the Michigan and Ohio areas and had one plant and engineering facility in Europe. The company operated a central engineering and testing facility near its corporate headquarters outside Detroit, Michigan.

In 1991, T1-Auto had outsourced its IT department. They retained a management core consisting of the CIO and five managers, but transitioned approximately 80 other members of the department to the outsourcing firm. In 1994, Lotus Notes(TM) was installed as the corporate standard e-mail and workflow platform. A team of four Notes(TM) developers wrote workflow-based and knowledge management-based applications. Another team of three administrators managed the Notes(TM) infrastructure. The first workflow application written at T1-Auto was developed for the Finance department. The finance team quickly realized the workflow benefit of streamlining and tracking the capital expense request process. The Notes(TM) development team and the project sponsor, the Controller, worked closely to develop the application. Following this initial success, the power and value of workflow technology caught on quickly at T1-Auto. One of the most successful projects was the Electronic Lab Testing Process described in this paper.

Since the incursion of foreign automobiles in the 1970s, the automotive industry has been characterized by intense rivalry of the participants. This affects the OEMs, the U. S. big three, and cascades through the supply chain. Because T1 is dependent on a few customers, they are subject to their demands for price, quality, and delivery conditions (Porter, 1985). The most severe pressures concern time to market. The OEM continually searches for ways to shorten the design cycle for a new vehicle platform. When a tier 1 supplier such as T1 signs a contract to produce a part, they are given hard deadlines to meet. The means for improving speed to market is most often found by changing the long entrenched inefficient processes that add costs to the supply chain (AIAG, 1997; Lauer, 2000). In the words of David E. Cole, director of the Center for Automotive Research at the University of Michigan, "The business model that is emerging is one that is extraordinarily fast and with a minimum amount of paperwork. Automakers need to get the product out to the customer quicker." (Verespej, 2001)

SETTING THE STAGE

Wayne Russell, Electronics Lab Supervisor at T1-Auto Inc., grabs his cup of coffee each morning and sits down at his PC to check his Lotus Notes email. Using the same Lotus Notes software, he switches over to another database and checks the status of the various tests being performed in the electronics lab. Wayne opens the `Electronics Lab Test System' and tracks the tests that are being performed on parts from the various plants at T1-Auto. Finally, all of the electronic tests were being submitted and tracked in a consistent and efficient manner.

Our company was growing, Wayne reflects. This caused communication gaps because of new people not knowing the testing process. Before the Notes(TM) system, we had not defined the testing process. In the midst of a test, people might be making changes on the fly to the procedures that were being carried out. With all these changes going on, it was difficult to know who the key players, who needed to know what.

The new Electronics Lab Test System CELTS) created and enforced a consistent process for submitting parts to the electronics test lab. The system also handled the various events and sub-processes that occur within the testing process. By leveraging the recently installed Lotus Notes(TM) infrastructure at T1-Auto, the ELTS greatly improved the testing process and quickly resulted in a positive payback for a relatively small investment. This workflow system achieved all of the expected benefits of implementing a workflow system, including: less paper, higher throughput, standardization of procedures, improved customer services, and an improved ability to audit the process.

CASE DESCRIPTION

Production Part Testing Process

The electronics test lab received primarily two types of test requests, production tests and ad-hoc engineering tests. The bulk of the tests were production tests. Ad-hoc engineering tests were performed to check production parts against new requirements or to ensure new products would meet customer and engineering specifications. Production testing was performed to ensure part quality for the life of its manufacturing production.

Production tests consisted of randomly testing finished parts as they came off the production line. Each product that was produced by T1-Auto had test specifications and a test schedule created for it by the engineering team. Products typically had periodic tests defined on a weekly, monthly, quarterly, or yearly basis. Each plant had a quality team assigned to ensure that the test schedules for all of the parts were carried out. Plant quality personnel would pull finished parts from the line and place them in containers for shipment to T1-Auto's test lab.

Product engineers in the company could request the ad-hoc engineering tests at any time. One or more parts would be sent to the lab with specific test instructions including the type of test, number of tests, and specific test parameters.

The test lab consisted of various test machines capable of stress testing parts causing them to run through their particular actions thousands of times in a short period of time. The test lab could also simulate the working environment of a part using special environmental chambers capable of simulating severe weather conditions such as heat and humidity and subjecting the parts to elements such as a road salt.

Once the tests were received at the electronics test lab, the individual test had to be assigned to a lab technician and scheduled. The schedule had to coordinate the technicians, test equipment, and test requirements such as the required completion date.

After the parts had been tested, test reports were written and returned to the plant quality team and product engineer for production tests, or the submitting engineer for ad-- hoc tests. If an issue occurred during testing, the engineer would be contacted for instructions. If the issue was related to the testing process or procedure, the engineer could ask the technician to continue the test. If the issue was related to a part or set of parts falling below expectations, the engineer could then ask that the test be stopped and that the parts be sent to his office for evaluation.

When a production test is stopped due to issues uncovered during the testing process, a process designed to inform all ofthe necessary participants must be followed. A form called the Unsatisfactory Test Results Notification (UTRN) would be filled out and sent to key participants, including the product engineer, sales representative, plant quality team, and product manager. Sales representatives for the particular product are contacted so they can notify the customers about the testing status of the products as soon as possible. In many instances, T1-Auto was contractually bound to notify its customers within twenty-four or forty-eight hours of the time that testing irregularities are discovered. These deadlines created substantial problems for T1, often disrupting previously planned testing which led to further problems. Product engineers would then start a standard ISO/QS 9000-quality process called the "Corrective Action." (See Exhibit 1 for a workflow chart depicting the original pre-ELTS process.)

The Problem Set

The ELTS was quickly identified as a Transaction Workflow problem by the IT Lotus Notes(TM) team. Since the ELTS involved policies and procedures that crossed many groups and divisions within T1-Auto, and because the process was consistent across the organization, the solution lent itself very well to Lotus Notes. However, since T1-Auto was experiencing rapid growth and the number of tests was increasing, the testing process was prone to communication and coordination errors.

Process

Given that T1-Auto was experiencing significant growth and the testing process involved so many different groups, consistency in the process became a concern. Ensuring that all the forms were complete and that they were filled out properly was a problem. Since the participants in the testing process had a number of other responsibilities, the likelihood of delays in time-sensitive events was high. To further complicate matters, the test lab had no advanced notification of required tests. This led to planning inefficiencies in scheduling staff and test equipment. Tests were scheduled once the truck arrived each day with the required tests from each plant. Management became aware that advance test schedule notification would improve utilization of test lab personnel and equipment.

Communication

Another problem with the testing process was that test lab technicians often did not know who were the current product or quality engineers for each product. This could result in an e-mail notification of unsatisfactory test results being sent to the wrong individuals. This sort of incorrect communication alone could add two to three days to the entire process. In general, communication speed is critical in the auto industry where contractual conditions often include delivery requirements for new product development. Failure on the part of T-1 to provide timely notification of test issues to its customers could cascade through the systems causing significant delays.

Another communication problem could occur when a customer or engineer called the plant or test labs to inquire about test status. Because the process was entirely paper-based, typically the best the plant quality personnel could do was to report on the portion of the process they controlled. The plant could tell if the parts have been pulled and shipped to the lab which indicated that testing had begun, or if the test report had been returned and the test completed. For any more detail, the plant personnel would have to call the lab for an update. Again, the paper-based system used at the lab was inefficient, since a status inquiry would require tracking down the physical test submittal paperwork and locating the assigned technician. Simple status inquiries added excessive human interaction and non-- value-added overhead to the process. Furthermore, because of the amount of effort required to handle all the testing paperwork, the entire process was error prone.

Knowledge Management

As with all paper-based processes, historical information was difficult to locate. Test reports were copied and sent to the required participants. Historical reporting or analysis meant rifling through file cabinets and transcribing data to Excel(TM) spreadsheets creating another non-value-added and time consuming process constraint. Communication pertaining to specific tests could also be lost since the communication (e-mail, telephone calls, memo's, and hallway conversations) was not collected and stored with the testing documentation. It was possible at times for a duplicate process error or non value-added event to take place on a test because the necessary historical information was unavailable.

Summary

Inefficiencies in the testing process adversely affected part production. The testing process was contractually mandated. Therefore, it had to be done well. At the same time, due to time to market pressures, it had to be done expeditiously. The existing process was replete with inefficiencies that resulted in delays, communication problems with the customer, and the lack of a knowledge base for analyzing previous tests. Many of these problems stemmed from difficulties in handling all the documentation associated with the testing process. These included document tracking and document sign-offs.

Automated Workflow Management

Workflow is concerned with the automation of procedures wherein documents, information or tasks are passed between participants according to a defined set of rules to achieve, or contribute to, an overall business goal. While workflow may be manually organized, in practice most workflow is normally organized within the context of an IT system to provide computerized support for the procedural automation and it is to this area that the work of the Coalition is directed (Workflow Management Coalition 1995).

The ELTS software took only two months to develop by a single Note(TM) developer. This rapid development time was achieved using the Lotus Notes(TM) development environment. All of the processing and development was accomplished with the core Notes(TM) application and the Lotus Notes(TM) macro development language. Electronic versions of the Lab Work Request, Unsatisfactory Test Results Notification, and Test Results Notification forms were duplicated in the Notes(TM) ELTS database. Additional forms were added for systems management and to allow the system users to carry out electronic discussions using a comment form within the ELTS system. The system was developed, tested, and deployed using proven software deployment methodologies.

Lotus Notes(TM)

The ELTS was initially developed using version 3.0 of Lotus Notes(TM) that was released in May of 1993. The first release ofNotesTM shipped in 1989 and had become widely deployed and accepted as the leading e-mail and workflow application on the PC desktop in major corporations. With Notes(TM), users could create and share information using personal computers and networks (Florio n.d.). Today, Lotus Notes(TM) is on version 5.0 and claims over 50 million users. Lotus Notes(TM) was being tested at T1-Auto for a specific workflow application in 1994. Due to its power and workflow capabilities, it quickly spread to other applications and became the corporate email platform. Prior to Lotus Notes(TM), T1 -Auto had no corporate e-mail package. Version 4.5 of Notes(TM), released in 1996, tightly integrated the power of Notes(TM) with the World Wide Web and called the new server side of the product Lotus Domino(TM). With a small amount of tweaking, Notes(TM) applications can become Web enabled and accessible via a Web browser.

Powerful workflow applications can be developed in Lotus Notes(TM) by designing forms and views. Forms are electronic versions of paper-based forms and contain fields. Fields store the information that is either entered on the form or automatically generated, such as the current date. Besides typical field formats such as numbers, dates, and text, Lotus Notes(TM) contains a signature field that allows for electronic signing of documents. Once a form has been created and filled in, it is called a document. Views within Notes(TM) display all ofa specific set of documents that belong to an application. These views display in a list, using rows and columns, all of the desired fields from the documents. Multiple views for an application are typically created sorting the documents by different fields. The forms, documents, and views for a specific application are stored in a Lotus Notes(TM) database. A typical workflow developed in this manner application is stored in only one Notes(TM) database. (At the time of this development project, Notes(TM) was the best option for developing workflow systems. It should be noted that at present, there are a number of other options available, e.g. Microsoft Exchange(TM).)

The `Electronic Lab Test System' (ELTS)

The Lotus Notes(TM) development team at T1-Auto followed a standard development methodology for the development of the ELTS application. The project was broken down into the following phases: design, development and testing, pilot, full rollout, and ongoing operations. Prototyping was employed during the design phase to ensure that requirements were well understood and that they could be met.

Design

The initial design simply created electronic versions of the Lab Submittal, Unsatisfactory Test Results Notification (UTRN), and Test Completion Notification(UTRN), and Test CompletionNotification (TCN) forms. The intent was to document and automate the existing process. It became clear that process efficiencies could be removed and value could be created ifthe test schedule was put on-line by including a Lab Submittal form with minimal information. A process map was developed using Visio(TM), a graphical charting program. The process map was used to document the existing process and develop requirements for the new system. Exhibit 1 contains a flowchart of the original process. The standard Lotus Notes(TM) development environment lacks the ability to graphically design and test workflow scenarios. It does, however, offer an add-on product called Lotus Workflow(TM) that provides this capability. The ELTS system was designed and created without the use of a graphical design and testing tool.

The development team quickly (less than a week) developed prototypes of the electronic forms and demonstrated them to the plant and lab personnel. Once the forms were approved, requirements were documented with the users showing how the new application would work and how the completed forms would appear in Notes(TM) views. Once the requirements were approved, development began immediately.

Development and Testing

The completion of the Design phase yielded a clear understanding of the requirements for the ELTS application. Since the majority of the work for developing the forms was completed in the prototype phase, the remaining work consisted of:

* Complete the forms,

* Design and build views,

* Code the form and view logic,

* Create the agents,

* Set and test security,

* Write 'About' and 'Using' help pages.

Forms were all checked for consistency and proper operation. Fields were checked for proper function and usability. The design team had set standards to ensure a consistent "look and feel" and ease of use from one application to the next.

Notesa views were created to display current and future tests status, tests by plant, and test by month and day. Views were developed from the perspective of each process participant to make applications familiar and easy to learn and use. For instance, a view was developed for the plant personnel that listed each test in progress by plant, status and date. This made it easier for the plants to find their specific tests. For the lab users, views were developed that listed the tests by status, date and plant. Lab users were more interested in tests from all plants by date. Views were also created to develop specific reports for management that provided test status information.

Once the forms and views were completed, the developers wrote the code that automated the workings of the applications. Fields that would need to be automatically set by computation as opposed to user entry had to be coded. Views could also contain fields that would be computed for display such as number ofdays until a test was required.1 Notes(TM) program agents are small programs that can be triggered to run on a fixed schedule or when an event occurs, such as saving a form. One of the agents developed for the ELTS system was run each morning and checked all forms to see if they are being processed in a timely fashion. For instance, if a UTRN was not acknowledged by the test engineer, an automatic e-mail notification would be re-sent to the engineer as well as the engineer's manager.

While security is very important for workflow applications in general, it is even more critical for the ELTS system given the sensitive nature of a potential test problem. Security is defined on a very granular basis for the system from who can access the system to who can enter data into a specific form field. Access levels range from permission to view a specific form (reader) to permission to edit data on a form (manager). Typically, the Notes(TM) team uses roles for each application and manages security based on putting users into roles. This lessened the overall security management overhead necessary for each application. A role was created for the ETLS systems called `Test Engineer'. Every engineer using the system was put into this role and all were all granted exactly same security privileges within the ELTS system.

Once the system had been coded and tested, the last step prior to releasing the application was to write the 'About' and 'Using' Notes(TM) documents. The 'About' document is accessed from the Notes(TM) menu and contains information about the intent and ownership of each application within the system. The 'About' document also contains the application version and release date. The 'Using' document is also accessed from the main menu and provides information on the specific usage of each application. The development team typically put a description for each fields on the forms. The 'Using' document provided online help for the system.

Once user documentation was written and the system tested, the ELTS system was ready for the pilot test.

The Pilot

Prior to full implementation, a pilot version ofthe new application was installed. Across-- functional team of users from the engineering group, lab, and one plant was formed for pilot testing of the ELTS. The piloting of the project lasted only three weeks. A number of small improvements were made to the application to incorporate the necessary changes identified during the pilot. Most of the change centered on the usability of the application and not the core functionality. Most of the changes were made to the application in near real-time. Members of the development team worked with users in person and over the phone while viewing the pilot version. As the user talked, the developer made and tested many of the changes. Ifthe changes were accepted, they were installed and tested in the production copy of the database.

The pilot was performed in parallel with the existing test process in order to minimize the impact to the organization and to individual workers. This parallel effort doubled the required work for the participants but lowered the overall risk ofthe project. The pilot group had to perform their typical duties as well as perform the testing process with the new system. This double-duty caused some heartache with an already busy group, but since the pilot only lasted three weeks, the members gracefully agreed to the extra effort. After the three-week pilot was completed, the application was deemed ready for full implementation.

Another by-product of the pilot was a list of additional functionality to extend the application into other processes. One such recommendation was to extend the UTRN subprocess to include the corrective action process by automatically creating and populating an electronic version of the corrective action form. This functionality was added after the initial version of the application was released.

Rollout

Training for the new system was minimal since the user interface was familiar to most users. Wayne remembers:

Since the company used Lotus Notes(TM) as its e-mail system, it was a familiar interface for our people. Basically, anyone who was familiar with Lotus Notes(TM) and the product being tested could easily become a user of the system. Once they were on the system, they could easily navigate around the ELTS and receive information.

ELTS was deployed to about fifty users dispersed over seven sites. The users included plant quality personnel, test lab managers and technicians, product engineers, quality engineers, and sales people. Many of the participants needed only view access into the new system. The system provided automatic notification via e-mail for many users when their participation in the process was necessary.

Ongoing Maintenance

T1-Auto kept a small development team intact that maintained existing applications as well as wrote new applications. This team was augmented by an offsite team of Notes(TM) developers from T1-Auto's outsourcing partner. Given the ability to quickly and easily make changes to these systems, the development team had to balance rapid turn-around with stream of change requests. The team tried to collect requests for each application and make monthly changes. This system provided a reasonable way to quickly update each system while maintaining version control and quality standards. The T1 development team was responsible for developing and maintaining over 100 Notes(TM) databases. Their costs were comparable to other development groups at the time, but T1 management felt that their productivity and impact was superior.

Project Success Factors

Abdallah Shanti, The CIO at T-1 Auto, recognized the benefit the ELTS system brought to the organization.

The ELTS project resulted in a benefit of approximately $900,000 annually through the elimination of redundant work. However, the biggest benefit came from more efficient and traceable process that was introduced at the labs. Parts were no longer lost in the middle of a test; testers stuck to their assigned tasks; and plant managers were able to view a test's progress in real-time. A key fact integral to the effective management ofthe testing process was, when there were irregularities in the test, the owner of the project was instantly notified. All this added up to better service to the customer.

The estimated software development cost of $18,000 over two months generated an estimated yearly saving of $900,000 in hard benefits, and potentially even more in non-- quantifiable benefits.

Another valuable benefit was that the ELTS enabled T1 to begin mapping knowledge about the testing process. A knowledge store was developed that tracked all the information on each test. Included with this information was the unstructured data such as discussions and workflow notifications. No longer would there be conflicts regarding when a part was sent and received by the participants. No longer were problems encountered when production engineers did not respond to failed test. (If they didn't, they knew their supervisor would automatically be notified as a result of the inaction.)

For the Plants

The plant quality technicians now had one system for scheduling and tracking the PPT process. In addition, they were given real-time access to test status and were able to quickly look up and answer questions related to tests. Many of the reports they were asked to generate were made obsolete by incorporating the reports into standard Lotus Notes views that were accessible to all participants. With the use of color in views and workflow technologies, process irregularities were identified by the system and action was quickly taken to correct problems. Finally, the plant had to spend less time filling out reports and copying data from one system to another. The quality staff in each plant consisted of a very few people, so no staff reductions were required when the system was implemented. Since cutting cost had not been a primary objective, headcount reduction was not an issue. Finally, the task of updating test status and receiving the Test Completion Notification form was eliminated.

For the Lab

The test labs were given access to the PPT schedule and were better able to schedule their operations. The automatic generation and copying of data from the PPT form to the Test Completion and Test Failure Notification forms reduced errors and time. Workflow notification reduced the time it took for test lab technicians to notify product engineers of testing problems. Test lab supervisors were given a system to track all PPT test status and monitor communication with test technicians. By updating the test status regularly, the test technicians had to spend less time answering questions from engineers and plants particularly when inquiries were status checks.

For the Engineers

Product engineers were immediately notified of problems, eliminating one entire day from the process. Engineers were also given ready access to historical test information for each oftheir products. This information proved to be invaluable when analyzing failure trends over time. For instance, engineers could identify if a failure occurred each year during hot months in the production process. The capability to access and analyze this type of information led to a much quicker resolution for many problems.

Summary

Overall, there were a number of factors that led to the success of the project. Within T1 there had already been some successful workflow projects. Thus, PPT users were open to the ELTS project. Once it proved itself, that it made their work easier and made them more productive, they became supporters of the system. The use of prototyping during the design phase ensured that requirements would be met and provided a vehicle for user involvement. The use ofthe pilot solidified the project's success. Not only did it provide a proof ofconcept within the testing environment, but it also enabled fine-tuning of the ELTS requirements.

CURRENT PROBLEMS/CHALLENGES

Although Wayne Russell was very pleased with the new PPT process, he realized that T1-Auto was on a never-ending path to change. There was continual pressure for T1-Auto and other tier one suppliers to imporves their processes. They were expected to squeeze out cost while at the same time make their processes more responsive to their customers. That could mean anything from quick response to new OEM product line requirements to testing in the face of warranty claims.

T-1 were considering enhancing the ELTS system by adding web enablement using Lotus Domino(TM). By completing this enhancement, it would be possible to create a portal allowing direct involvement to T1-Auto's customers. Another possible enhancement was to integrate the ELTS system with the manufacturing scheduling system. This would allow the ELTS system to be updated by automatically canceling tests for parts if they are not scheduled for production. Integration could also allow the initial test documents to be automatically generated to eliminate manual loading of this information. A final planned enhancement is to integrate the testing system with the Product Data Management (PDM) system. This would tie all of the parts design and specification data together with the parts testing data.

Subject: Studies; Workflow software; Automation; Suppliers; Software packages

Classification: 9130: Experimental/theoretical; 5240: Software & systems

Publication title: Annals of Cases on Information Technology

Volume: 5

Pages: 74-87

Number of pages: 14

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 1537937X

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: references

ProQuest document ID: 198739377

Document URL: http://search.proquest.com/docview/198739377?accountid=38610

Copyright: Copyright Idea Group Inc. 2003

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 21 of 100

Managing information security on a shoestring budget

Author: Varadharajan Sridhar; Bhasker, Bharat

ProQuest document link

Abstract:

This case illustrates the Indian Institute of Management-Lucknow's implementation of a robust security management infrastructure with a limited budget on hand. The case discusses the importance of developing security policies and selecting a proper combination of freeware and proprietary software components. The case illustrates the trade-offs involved and presents experiences of IIML in outsourcing the postimplementation phase to a Security Service Provider. [PUBLICATION ABSTRACT]

Full text:

BACKGROUND

The Indian Institute of Management Lucknow (IIML) is one of the six national level management institutes set up by the Government of India at Lucknow, India, in 1984. The Institute's mission is to help improve the management of the corporate and the non-corporate sectors and also the public systems in the country, through pursuit of excellence in management education, research, consultancy, and training. In order to fulfill its objectives, the Institute undertakes a diverse range of academic and professional activities.

IIML has a large Information Technology (IT) infrastructure and has an annual budget of about 10 million Indian Rupees (INR) (equivalent to about $200,000) allocated in recent years for the development of information technology resources. The details of the annual budget allocated for the computer services of IIML for the year 2001-2002 is given in Appendix A. Students, faculty, and staff of IIML use Internet resources quite extensively for teaching, research, consulting, and administrative activities. The IT infrastructure of the Institute is distributed across the sprawling 20-acre campus. There are about 400 client machines, about 10 high-end servers running various operating systems, applications, and services, catering to the needs of students, faculty, and staff of the Institute. There are about 600 users on the campus.

The Computer Center (CC) at the Institute is responsible for all IT services on the campus and maintains 24-hour computer labs housing about 200 machines for the students, and also hosts the servers and networking equipment. The Computer Center employs one Manager and six systems and programmer analysts who are involved in the maintenance of IT services of the Institute. Most of the Computer Center staff has been with IIML since the Institute started Computer Center operations in 1986. Even though some of the Center's staff do not have academic and professional qualifications in Computer Science or related disciplines, they have acquired expertise in software development and networking through on-the-job training.

The IML Web site (www.iiml.ac.in) is viewed by prospective students, researchers, and scholars at various institutions and corporations around the world. The web site also provides information to about 80,000 potential candidates who apply every year for the MBA program offered by the Institute. Apart from the World Wide Web (WWW), email is another Internet application that is widely used by faculty, students, and staff of the Institute. Email communication by students and faculty spans geographical boundaries and is one of the mission-critical Internet services of the Institute. The Institute Intranet is connected to the Internet via two Internet-access links. There is a plan to network all the student hostel rooms and faculty residences in the coming academic year to provide campus-wide networking. This will further increase the population of client machines by 500. The Institute also has plans to offer distance education programs to corporate executives in the near future.

SETTING THE STAGE

In a recent security survey report released by Internet Security Systems (ISS, 2002), it is reported that Internet risk was, in general, high in 2001 and is getting worse. ISS noted 830 million alarm events, and dealt with 2,185 security incidents in 2001 alone. ISS also points out that 70% of the security attacks happened through the widely used WWW services. IIML was also one of the thousands of affected organizations. The IIML web site was defaced a number of times between May and August 2001, and a large number of man-hours was spent to restore the damaged web pages. A spate of virus attacks caused considerable damage leading to data loss, increased clean-up costs, and a subsequent drop in productivity levels of the users. These attacks impacted the normal function ofthe users and caused considerable drain of computer center resources. IIML had installed simple security services that could not prevent the above-mentioned security intrusions. To address the above-mentioned security threats, a three-member security planning team was formed in August 2001. The team, including Mr. Mohapatra, the Computer Center Manager, set out to prepare a framework for the implementation of a comprehensive information security management system for IIML.

Despite the importance of information security, it is reported in Dinnie (1999) that 45% of companies worldwide made no allowance in their budget for information security and 41% had no budget for maintenance, It is not surprising that only $20,000, a mere 10% of the annual budget of IIML, was allocated for information security management. The challenge was to minimize the security threats by implementing appropriate security components within the allocated budget. Moreover, since security management is an ongoing activity, Mr. Mohapatra also had to decide about the strategies for the continuous maintenance of the deployed infrastructure.

CASE DESCRIPTION

According to von Solms, von Solms, and Caelli (1994),

The goal of Information Security Management (ISM) is to lessen either the probability that something undesirable will happen (or the frequency with which it is known to be happening) or the severity of the consequences when it does happen, or both (p. 143).

The operational environment of an organization is the total set of information services needed and responsible for storing, producing, and distributing information throughout the organization (von Solms et al., 1994). Information Security Management is an effort to provide an optimal level of security for the organization's operational environment. The main elements in ISM are given in Figure 1. An optimal security level is determined by the trade-off between cost and complexities of security measures against the risk, vulnerabilities, and the loss the organization faces in the event of security breaches. Security risks arise because a security attack can exploit vulnerabilities. Countermeasures reduce risk by lowering vulnerabilities, but new ones may appear, and hence the feedback loop shown in Figure 1, indicating continuous refinement of security policies and procedures.

Risk Analysis and Security Policy Formulation

Risk analysis as noted in Figure 1 is the first step in any security deployment exercise. Risk is realized when a threat takes advantage of vulnerability to cause harm to the organizational information resources. There are more than 70 risk analysis methods, including the widely used tool CRAMM, (United Kingdom Central Computer and Telecommunications Agency's Risk Analysis and Management Method) available for organizations to conduct security risk analysis (Spinellis, Kokolakis, & Gritzalis, 1999). The security management team did a risk profile analysis based on the risk profile matrix given in Guttman and Bagwill (1997).

Based on the risk analysis, a security policy document had to be formulated that defined the threats and risks of the information resources within IIML and the procedures and mechanisms for preventing or recovering from any such threats. The key trade-offs while formulating the security policy guidelines are: (1) services offered versus security provided, (2) ease of use versus security, and (3) cost of security versus risk of loss (Fraser, 1997). The main purpose of an information security policy is to inform the users and staff of their obligatory requirement to protect the information assets and resources of the organization. As pointed out in Whiteman, Townsend and Aalberts (2001), a baseline security policy consisting of a minimal set of guidelines was first developed and circulated among the users to get feedback and suggestions. A security policy document covers areas such as identification and authorization control, incident handling, Internet usage, firewall policies and administration, electronic mail usage, and WWW usage (refer to Guttman & Bagwill, 1997, for a comprehensive guide on security policy formulation). IIML wanted to provide many different services both for internal users and to the outside, each ofwhich required different levels of access needs and models of trust. A comprehensive list of services were compiled by the security team as given in Fraser (1997), and the corresponding access-control guidelines were developed. As given in Abrams and Bailey (1995), policy can be expressed in three different forms: natural language statements, mathematical, or non-mathematical formal statements. The security policy document for IIML was prepared using a combination of natural language statements and formal expressions. Mathematical statements, while reducing ambiguity to a minimum, are not understood by the heterogeneous user community, and hence were not adopted. To minimize the ambiguity in natural statements, a non-- mathematical but constrained and more precise form of the policy construct is also incorporated. A sample policy statement in both forms is given in Appendix B. This methodology helped the security team to effectively disseminate the policies to the user community and define precise benchmarks for the security infrastructure implementation phase.

Selection of the Security Components

There are various components in an information security infrastructure, such as the firewall, intrusion detection system, virus protection system, and content inspection systems (refer to McBride, Patilla, Robinson, Thermos, & Moser, 2000, for a comprehensive description of security components). The firewall is a single network access point between the organization network and the external networks. The organizational information resources are protected by the firewall. Firewall solutions can be as simple as installing the latest version of the operating systems on the public servers of the network, and harden the operating system to reduce vulnerabilities. On the higher end, there is the commercial product by Checkpoint that integrates all security functions, costing about $3,000 for a 25-user license. But a firewall alone cannot prevent all security threats. Although firewalls remain critical front-- line defensive equipment, other security components are also needed to guard against the evolving intrusions (ISS, 2002).

The second most important component in a security infrastructure is an Intrusion Detection System (IDS), which is extremely effective in identifying intruders (ISS, 2002). An IDS uses techniques such as pattern matching, expression matching, or byte-code matching to detect any intrusions. Once a possible intrusion is discovered, the IDS will take action ranging from sending an alert to the console of the security administrator to initiating a close to the intruder's network connection. An Intrusion Detection System such as Real Secure from Internet Security Systems costs about $10,000 to $20,000. Freeware products such as Snort are also available.

With the ever-increasing virus attacks, an active virus protection system that detects virus patterns and cleans the files and email messages before they enter the internal network servers is very much essential. A content management system scans the messages for obnoxious and offensive content and filters the messages and sends notifications to the senders. The content management system also improves network and server performance by filtering unsolicited mail messages and blocking spamming. Virus protection systems and content management systems such as Trend Micro Interscan eManager is priced at about $6,000 for a 300-user license.

Additionally, there may be upgrades required for the network devices such as switches and routers to incorporate network security features. In effect, the bill for setting up the security infrastructure could run as high as $60,000 to $200,000, depending upon the size of the information technology infrastructure of the organization. Apart from the hardware and software, trained manpower is needed to install, configure, and manage the security infrastructure. In practical terms, a dynamic proactive defense that combines firewall, intrusion detection, antivirus, and content management, coupled with strong policies and procedures and a strict regime for software updates and security patching is very much required for an effective security infrastructure. The various security components along with the required characteristics as defined by the security team are enclosed in Appendix C.

Comprehensive information security management is a big budget item, and with the awareness of security management still in the nascent stage in India, organizations think twice before embarking on such a project. With a given budget constraint and other limitations, organizations should choose a suitable combination of the various security components that are compatible with the assessed risk level and the defined security policies of the organization.

One way to reduce the infrastructure cost is to look at Open-source software (OSS), which is available free or at minimal price. The term "open source" refers to the code that is open to the public (refer to Swift, 2001, for a comprehensive guide on OSS). The open source technologies may not provide a comprehensive security solution, but help to reduce the total cost of ownership, and can fit in to the organization's security infrastructure at a very low price compared to proprietary components. The main disadvantage of open-source software is lack of support and scalability. It has been noted that OSS is used mainly in smaller organizations that do not have many mission-critical applications (Gill, 2002). Most of the free software also relies on security experts for installation and configuration. Though OSS provides source code, it is practically impossible for a non-expert to fix any problems. On the other hand, OSS advocates argue that minimal changes in the requirements are easy to make, as the open source community consisting of millions of programmers around the world constantly work on patches, bug fixes, and customized modifications of the software (Gill, 2002). Documentation for OSS is minimal, and it is not user friendly. Compared to OSS, the commercial software, such as Checkpoint Firewall, comes with the support of a wide array of hardware and software and has experts trained in the configuration. Under GNU public license (FSF, 2002), freeware comes with no warranty. But, Checkpoint gives a warranty for its product.

The alternatives before the security team were (1) select OSS components, (2) select proprietary components, and (3) select a combination of OSS and proprietary components. The selection depends on factors such as functionality, flexibility ofthe product, robustness, product support, ease of use, and finally, the cost. Based on the desired characteristics outlined in Appendix C and the initial bids received from the vendors, the comparison chart shown in Table 1 was prepared.

The above table indicates that the OSS products satisfy all the desired characteristics as outlined by the security team. However, the hardware/software platform support was limited in the case of OSS products compared to the proprietary products. The cost of the proprietary products is much more than the allocated budget. The decision was clearly in favor of OSS products, especially because of the cost savings, although the security management team was aware of the limitations of OSS products as outlined above. For virus protection and content management, all the bids were for Trend Micro's Interscan Virus Wall and eManager, respectively. These are proprietary products and no equivalent OSS products were available. Since the selected OSS products lack proper documentation and hence require expertise for installation, it was decided to outsource the installation and configuration to Bangalore Labs, a Security Service Provider (SSP). The implementation costs, as given below in Table 2, were well within the budget.

Implementation of the Information Security Architecture

Security consultants from Bangalore Labs installed and configured the firewall and IDS components as per the security policy. All the email messages from within and from outside the campus network are first scanned by the Interscan VirusWall before being delivered to the mailboxes. This prevents virus-laden mail messages from ever reaching the user mailboxes and hence reduced the virus threats noticed earlier. The VirusWall was configured to get the updated signature files from the vendor Trend Micro (www.anitivirus.com) site every 24 hours to keep up with new virus and worms. Within minutes after completing the installation, the benefits of the security infrastructure were evident when the IDS alerted the system administrator of Code Red virus intrusions, and the VirusWall filtered them.

There are other complexities as the IIML network is connected to two Internet Service Providers. IIML wanted to route the traffic through both the links so that load balancing would be achieved. To do this, the SSP implemented a "policy based routing," so that all Web traffic is directed through a high-capacity Internet access link, and email and other traffic is routed through the low-bandwidth access link. These were the additional value-added services that the SSP provided to IIML in addition to installing and configuring the security components. The architecture ofthe IIML network is given in Figure 2. The whole project took about three weeks. The project plan and the rollout of the different services are shown in Appendix D.

Outsourcing Maintenance of the Security Infrastructure

After the successful implementation of the recommended security control, it is important that operational and administrative procedures are developed to support and enforce the security controls. To enforce the continuous, effective functioning of the security controls, it is very important that the controls are also effectively maintained and monitored (von Solms, 1998). Security management is not a one-time activity, and as new vulnerabilities are exposed through penetration testing, patches, and configuration, changes are required for the security components on a continuous basis which act as a feedback mechanism, as given in Figure 1. It has been reported in Weissman (1995) that periodic penetration testing, which is a form of stress testing that exposes security weaknesses, is a must for high-rated security systems. ISS (2002) reports that even though vulnerability assessment is a very important proactive measure, many organizations do not have the staff, resources, or processes to develop institutionalized standards for routine scans and remediation.

Whether to do the maintenance of the security infrastructure using in-house expertise or to outsource it to a service provider is a dilemma that haunts security administrators. The primary motive for considering outsourcing is that long-term outsourcing contracts tend to convert variable costs into fixed costs and thus make technology spending more predictable (Alner, 2001). Security management involves intensive technologies and requires highly skilled and trained security specialists. The organization must recruit, train, and retain employees with unique skills to provide maintenance of the security systems. With little expertise available in this area, businesses can outsource the security management to SSPs (Pereira, 2001). SSPs also have the advanced system and communication monitoring tools and professionals trained in specific security technologies, and hence can guarantee service and system availability.

The security service provisioning industry is still evolving, even in the U.S. In India, Bangalore Labs started this movement, followed by others. The parameters that organizations should investigate before outsourcing their security management services include: technology of SSP to support the services, availability of key infrastructure such as Internet connectivity and network operations centers, comprehensiveness of services offered, and finally, the price and value of service offerings. Typical security services provided by SSPs are included in Appendix E (Sridhar & Bhandari, 2002). Most of the maintenance can be done by SSPs remotely from their Network Operations Centers (NOCs).

The IIML security team decided to outsource the maintenance activities because of the above reasons. Service Level Agreements (SLAs) are critical in the outsourcing business (Alner, 2001). The information security SLA should specify the services expected from the outsourcer and indicate what functions will be retained by the client. SLAs and an Annual Maintenance Contract were signed with Bangalore Labs, the cost details of which are given below in Table 3. Bangalore Labs has a state-of-the-art Network Operations Centre (NOC) at Bangalore. A Virtual Private Network (VPN) tunnel (refer to Stallings, 2000, for VPN technology) was constructed between the IIML firewall and the firewall at Bangalore Labs through which remote monitoring is done (refer to Figure 1). The first successful vulnerability test post-implementation was done at the end of November 2001, and the firewall withstood the rigor of the test.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

The deployment of IIML's information security infrastructure was completed, and the project completion was signed-off with Bangalore Labs on November 5, 2001. Problems started surfacing at the end of December 2001. Performance of the firewall deteriorated, and there were frequent network disconnects with the firewall server. Since all the internal and external traffic was being routed through the firewall, the users started noticing an increase in the Web traffic response time. Some users who used services such as remote login (Telnet) to outside computer systems were not able to do so, because of the policies incorporated in the firewall. Complaints started pouring in at the help desk of the Computer Center. Even though the consultants at Bangalore Labs were in constant touch with the IML Computer Center and were coming up with some solutions, the problems persisted. At this stage, there were the following three issues regarding the security infrastructure project that raised alarms for IIML:

1. Would the OSS components withstand the rigor of the operational environment? Would OSS really reduce the total cost of ownership?

2. Does outsourcing security management lead to compromises?

3. Has the deployment of the security infrastructure reduced the functionality of the services?

Will OSS Meet the Functionality of the Operational Environment?

Repeated attempts by the security consultants at Bangalore Labs and the support team at Astero, Germany, could not provide a permanent solution to the decreasing performance and throughput of the Firewall. In early January 2002, Astero released the new version of its Firewall, which had bug fixes for some of the problems, including the high swap usage problem experienced at the IIML site.

Open-source software movement believes in producing a product that can be tested by millions around the world. There are user forums such as those available at www.snort.org, where the worldwide user community shares its experiences and problems. Solutions for trouble-shooting or enabling a new feature, which is not mentioned in the documentation, can be found out through these forums almost instantaneously. However, since these are technology intensive, it is normally impossible for non-experts to fix problems, as pointed out in Gill (2002). Having the source code did not really help IIML, as the Computer Center staff was unable to make changes to the code and patch up the bugs. They had to depend on SSP, who in turn depended on the vendor and the user community to solve the problems. It took time to find a solution, in contrast to what the advocates of OSS point out.

Even though Bangalore Labs sent the new version of the firewall to IIML under the contract agreement without any additional fees, the trend in the freeware market throws up uncertainties for IIML. The ideological purity ofthe open-source software business is being diluted as start-ups build proprietary products on top of an open source solution. For example, Sistina, which developed an open source file system that multiple computers can share, changed course in August 2001, switched to a closed-source license for the newer versions of its Global File System (Shankland, 2001). Shankland (2001) also points out that many other companies have followed a similar path, becoming increasingly protective oftheir intellectual property. Astero, which started improving the security features of Linux when it started the product development on Astero Firewall, also has developed additional components that are integrated into the firewall. The firewall code is supported under the GNU public license. However, the Web interface for managing the firewall and other components, such as "Up2Date" services, which provides updates on bug fixes and new releases, are not provided as part of the licensing agreement. Astero charges about $4,000 for commercial use of its Firewall software and an annual renewal fee of $ 1,000 for 500 active Internet Protocol (IP) addresses. The migration of freeware software to commercial proprietary software will affect the total cost of ownership of the security infrastructure of organizations, especially those in developing countries that have limited budgets for security management.

Outsourcing Security Management: Is it Really Secure?

Since the maintenance of the security infrastructure had been outsourced, IIML had to depend on the SSP for solving any problem that cropped up. The consultants at Bangalore Labs and even in some cases the vendor of the firewall were given access permission to log in to the Firewall through the VPN connection to look at the trouble spots and analyze the system logs. Does this not leave the security infrastructure of IIML completely exposed to SSPs and the vendors?

Some are of the opinion that since open-source software does not hide the source code, it is inherently vulnerable. But Swift (2001) says, "Security through obscurity is a common misconception" (p. 30). In practice, attackers do not need to know the source code to find vulnerabilities. Hence, the movement on "security through transparency" gained attention and the widespread deployment of open-source software. Security experts tend to agree that computers are less prone to hacking and virus when running open-source software like Linux and Apache Web server. However, once the security management is outsourced, even though an open-source software solution is implemented, it opens up vulnerabilities and "back doors" for the SSPs who install and configure the security components. While for an educational institution such as IIML, security threats from SSPs may be minimal, for a business organization it is certainly a matter of utmost concern.

Mr. Mohapatra, manager of the Computer Center at IIML, is exploring whether the security and email administrators can be sent for security training programs to develop in-- house expertise so that some of the common problems can be internally solved, instead of being referred to the SSP. High-profile hacking incidents last year are serving to spur the focus on security training initiatives by organizations. For example, USAA plans to spend 10% of its IT training budget to enhance its security policy training (Dash, 2002). While it is possible for USAA to spend a sizable budget for security training, small and medium-sized organizations with limited budgets for security will have to think twice before embarking on such an expensive exercise.

Controlled Security Environment: Does this Mean Less Flexibility?

Even though the IIML security policy developed by the security team was circulated among the user community for comments and suggestions, some services that have multiple vulnerabilities such as video and audio chats (ISS, 2002) had to be stopped. This proved to be a deterrent for some faculty who do collaborative teaching and research with other institutions around the world. Also, IIML students were not able to participate fully in some global virtual team projects because of the non-usability of certain technologies. Thus, the comprehensive information security infrastructure, while protecting IIML, restricts the flexibility of service offerings.

Subject: Studies; Computer security; Freeware; Budgets; Cost control

Classification: 9130: Experimental/theoretical; 5240: Software & systems; 5140: Security management

Publication title: Annals of Cases on Information Technology

Volume: 5

Pages: 151-167

Number of pages: 17

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 1537937X

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: tables references

ProQuest document ID: 198653182

Document URL: http://search.proquest.com/docview/198653182?accountid=38610

Copyright: Copyright Idea Group Inc. 2003

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 22 of 100

Efficient data management in e-business transactions

Author: Karacapilidis, Nikos

ProQuest document link

Abstract:

This case reports on the implementation of an open information management system that integrated modern information technology approaches to address the needs of a Greek medium-scale clothing producer heading toward becoming an e-business. This case explores the necessary steps to ensure seamless integration of a new system and the benefits in terms of cost and time savings, error reductions, and improved customer and supplier relationships due to the new system. [PUBLICATION ABSTRACT]

Full text:

BACKGROUND

The company that this case reports on is based in Greece and was founded in 1971 after the merging of two small-scale clothing production and wholesale enterprises (which were in turn founded in 1965 and 1969). Since 1985, the company has established a network of eight modem style shops around the country, which operate as its own retailers, under the company's name. In parallel, the company has 389 customers (as ofJuly 2001), 270 of which are located in Greece and 119 abroad (most of them in Europe). Exporting activities of the company begun in 1971, from France. Currently, its products are sold in Europe, Arab countries and Far East. Strategic planning of the company aims at increasing exports by 1015% during the next five years.

The company produces menswear clothing both at its proprietary facilities in Greece and at another manufacturer in Italy. Apart from clothes, and since 1990, the company has expanded its activities by also trading menswear accessories (also produced in Italy). Its total annual sales for the years 1997-2000 are shown in Exhibit 1, while an analysis of these sales is given in Exhibit 2. The main characteristics of all company's products are their high quality, comfort, fitness and variety of designs and colors. High quality of products has always been of major importance for the company, and it is probably the main reason of its status and share in the market. To achieve that, the production line of the company is equipped with up to date mechanical gear, while all the related processes pass through quality control. Since 1996, it is an ISO 9001 company, while, since August 2000, its shares are traded in ASE (Athens Stock Exchange).

Since early in the last decade, much attention is paid to the continuous training of the 121 employees of the company, in order for them to obtain the necessary expertise. The above employees staff the company's Production, Sales and Marketing, Accounting, Information Systems and Distribution Divisions (see the organization chart shown in Exhibit 3). Much expertise has been recently obtained through the company's involvement in the CRAFT European project, which aimed at the development of an automated quality control system for end-products in a textile industry. The program had a three-year duration, its total budget was 939,880 ECU (the share of the company was 15.16%), while the project consortium comprised 5 textile manufacturers and 3 research institutes.

The company has always been considering that in order to keep its status and market share, it also has to keep an eye for developments outside its own practices and measures. Advances in information technology, shifts in consumer demand, and the increasing movements of goods across international borders (aided by the internal European market) characterize its business environment. This new reality required a fundamental reconsideration ofthe most effective way of delivering the right products to consumers at the right price. Non-standardized operational practices and the rigid separation of the traditional roles of manufacturer and retailer threatened to block the supply chain unnecessarily and failed to exploit the synergies that came from powerful new information technologies and planning tools.

Both demand-side and supply-side management receive much consideration in the company's overall culture, which is fully in line with the Efficient Consumer Response (ECR) movement, effectively began in Europe in the mid-nineties. This movement was characterized by the emergence of new principles of collaborative management along the supply chain. It was understood that companies could serve consumers better, faster and at a lower cost by working together with trading partners. By working together, they are able to combine capabilities on serving the consumer better, faster and at a lower cost. Admittedly, the clothing industry becomes more and more dynamic, in that competition is growing and becoming more complex, technology is rapidly developing, international and environmental issues are augmenting, and business is becoming more and more global. At the same time, consumers become increasingly sophisticated and demanding; they demand sufficient choice, high service and convenience, higher quality products and, generally speaking, more value for money.

SETTING THE STAGE

Six persons staff the company's Information Systems (IS) Division, which is managed by a well-experienced computer engineer. The other five employees have mixed tasks, including operation and maintenance of the information systems, programming, and data entry. All divisions (at the company's own facilities) use PCs connected to a main server. Since 1994, the company was running a custom-developed ERP system and an off-the-shelf bookkeeping system, which were operating in isolation. The former was not fully exploited, in that neither all of its features and abilities were activated nor all business parts were being monitored.

In September 2000, market and business changes, such as increasing competition and shortening of products life cycle, led the company to the decision that they need to heavily invest in contemporary information technologies to both keep its status and gain competitive advantages. It was clear that such technologies would efficiently aid them to communicate, collaborate, and conduct business activities such as marketing, billing, and continuous customer service. In addition, on their way to embark on e-business, the company needed to exchange data with their trading partners, who may be using different platforms and a variety of data formats. For that, it was necessary to leverage their IT investments and integrate legacy data, residing in the existing applications.

To make their business transactions more efficient, the IS Division considered in detail two major issues: the technology that a system able to address the above changes should be based on, and the underlying business processes of the company (Froehlich et al., 1999). The system envisioned certainly had to fit the overall organizational context and be flexible enough to easily address arising opportunities. The global expansion of communication infrastructure should be also exploited, since it could provide the company with the potential of creating competitive advantages by electronically doing business with their trading partners, being their customers or suppliers. Obviously, the related transactions had to be efficiently structured and represented in the data flow and workflow of all partners involved.

To efficiently represent the information flow in an e-business-oriented enterprise system, the company had to consider whether its trading partners already use an enterprise system or even have any experience in doing any kind of business electronically. If not, applications delivering the required functionality via a standard browser over the Internet seemed to be the most appropriate solution. The justification was that such an application could always be kept up-to-date, while there would be no need for any installation at the partner's site (they would only need to establish a connection to an Internet Provider). In addition, a Web-based application could be accessible from anywhere, thus relieving the restriction of only using the user's regular desktop. Another argument was that, following such an approach, the company could maintain a closer communication with its partners, in that "all parties would become apart of each other's operations and activities." For instance, problems experienced by a customer could be immediately reported to the company, either directly or through the foreseen application's centralized database, thus avoiding unnecessary delays.

In case that one or more trading partners of the company already used an enterprise system, things were more complicated since these might run on different platforms and/or use different data formats. What needed was to think about a solution that could integrate legacy data, residing in the existing applications. The computer-to-computer transfer of business information, known as Electronic Data Interchange (EDI), was first considered. EDI is traditionally based on a collection of standard message formats and elements dictionary and has provided businesses with a way to exchange data via any electronic messaging service. However, the IS Division manager concluded that adoption of EDI implies certain tasks and limitations. First, they would have to conduct a thorough analysis to determine precisely how they are going to move their business data to and from the predefined EDI formats. At the same time, what they needed was flexibility in doctrinaire standards that do not fully meet their business needs. Moreover, the manager knew that companies should refrain from using different protocols to exchange data with their peers.

The exploitation of Internet technology and its standards was the next big issue, the argument being that "its wide and rapid adoption has reset the rules of how people interact, buy and sell, and exchange goods and services." Moreover, "contemporary ways of trading, allowing interaction between groups that could not so far economically afford to trade with each other, have been introduced." Being aware of the related technologies and standards, the IS Division manager knew that, whereas previously commercial data interchange involved mainly the transmission of data fields from one computer to another, the new model for Webbased business (the one introduced by the advent of the Internet) is greatly dependent on human interaction for the transaction to take place. That is, the new model should be principally based on the use of interactive selection ofa set of options, and on the completion of electronic forms, to specify user profiles, queries, requirements, etc. Finally, the manager knew that in order to be fully interactive, the company needed to be able to understand the business concepts represented in the interchanged data, and apply business-specific rules to the interchanged data in order to both identify what classes of data it contains and, in the sequel, trigger the appropriate actions.

CASE DESCRIPTION

Analysis and Design Issues

Due to the complexity ofthe issues, the new system had to address and efficiently solve, much attention was paid to the system's early SDLC (System Development Life Cycle) phases, that is analysis and design. Analysis was divided into a requirements determination and a requirements specification sub-phases. During the former, statements of system services and constraints were gathered from all parties involved, namely, all managers of the company's divisions (and subdivisions), representatives of the company's retailers and suppliers (having diverse IT background or previous experience in using an enterprise system), all staff of the IS Division, and foreseen system's users across the company's divisions. Collection of statements was performed through a mix of (both structured and unstructured) interviews and questionnaires, as well as through a careful study of the company's related documents and forms to clearly identify data and work flows. Statements were also classified as concerning an individual user or the whole user community.

Generally speaking, the statements gathered contained the business rules that should be "obeyed" at all times, computations that the system has to carry out, the desired users' views and restrictions on the system's behaviour or development. Having collected the above, a rapid prototype was constructed (in HTML format); this significantly helped the development team to clarify some difficult (vague, contradictory, or overlapping) requirements and avoid misunderstandings early in the development of the project. It should be noted here that most parts of the rapid prototype were reused later, in the implementation phase, since the system was highly web-based.

Rational's Rose CASE tool was extensively used during the requirements specification sub-phase, thus requirements were modelled in UML (Unified Modeling Language). Class diagrams and use case diagrams received much concern in this phase. Moreover, (semiformal) specifications were drawn concerning the system's performance, usability, maintainability and security. Having concluded, the analysis phase, particular emphasis had been given to the following major issues:

* The system foreseen should efficiently support communication with companies that have their own legacy, EDI-based, enterprise systems. Moreover, all types of interaction with such systems should not affect the traditional working methods of the related companies;

* It should easily support communication with companies (being their retailers or suppliers) that have not an IT background or previous experience in using an enterprise system. For this category of companies, a PC and a connection to the Internet should be sufficient to make business. In addition, such transactions should be based on the use of interactive selection of a set of options and on the completion of user-friendly electronic forms;

* It should provide the appropriate schemas and modules to support business-to-- business interaction. Moreover, these should be able to get seamlessly integrated with the existing ERP system to efficiently initiate a series of related actions; and

* It should be based on an open architecture that can be easily extended to address alternative data formats and structures. To this direction, open and widely adopted standards should be preferred.

The design phase consisted of an architectural design and a detailed design subphases. During the former, the development team performed a description of the system in terms of its modules, while decisions about the strategies to be followed regarding client, server and middleware issues were taken. It was decided that the proposed framework should rely on two servers using the Microsoft's Windows 2000 Advanced Server operating system. One of them should stand for the system's front-end (Web server) running Microsoft's Commerce Server 2000 and Biz Talk Server 2000 applications, while the other for the system's back-end (database) running SQL Server 2000 (the three-tier architecture of the proposed system is illustrated in Exhibit 4). In the sequel, detailed algorithms and data structures for each of the system's modules were developed (detailed design sub-phase). Certainly, some of these algorithms and structures had to be tailored or adapted to all constraints imposed by the previously decided implementation platform. In any case, database design for this platform was not a cumbersome task; logical mappings could be easily created from the previously specified data combination rules. Moreover, user interface design basically concerned the fine-tuning of some parts of the previously developed rapid prototype.

Implementation Issues

XML (eXtensible Markup Language), developed by the World Wide Web Consortium (W3C, see www.w3c.org), can efficiently aid companies embarking on e-business, in that it provides the appropriate data format for the related applications (Glushko et al., 1999). More specifically, XML may convey both the contents and structure of a business document, and it has rapidly imposed itself as a popular format for representing business transactions on the Web. At the same time, it is fully flexible, in that it allows a company to set up the document structure that best fulfills its business needs. The structure of an XML document can be formally described in a Document Type Definition (DTD) or an XML schema, whereas appropriate software tools can validate an XML document against a DTD or a schema definition. In addition, the IS Division's manager was aware that a series of industrial standards and tools have been already developed around the XML syntax.

Having seriously considered the above, it was decided that the development ofthe open e-business information management system for the company's needs had to be highly based on the combination of EDI and XML technologies (Webber, 1998). Following such an approach, the overall framework could efficiently support interaction and cooperation between various types of companies (partners), while the required functionality is delivered over the Internet. Data combination and interoperability issues had to be properly solved at this point. The system implemented can efficiently support communication with companies that have their own legacy, EDI-based, enterprise systems (Karacapilidis, 2001). Moreover, all types of interaction with such systems do not affect the traditional working methods of the companies involved.

Another system's feature is that it can easily support communication with partners that do not have an IT background or previous experience in using an enterprise system. In addition, the company's approach was based on the use of interactive selection of a set of options and on the completion of user-friendly electronic forms. It also provided the appropriate XML schemas and modules to support business-to-business interaction. These can be exploited and seamlessly integrated with the enterprise system ofa company to initiate a series of related actions (companies can easily integrate the proposed framework with their own applications). Moreover, the overall framework was based on an "open" architecture that can be easily extended to address alternative data formats and structures. This is due to the advantages of XML, in that it can be adapted according to the needs of various systems and users.

Messages sent and received by the system are in XML format. In cases that a supplier's enterprise system is based on EDI, the appropriate conversion is taking place (all messages submitted and received by such companies adhere to their legacy EDI format). The overall system provides any-to-any format transformation and multiple communication protocols (hypertext transfer protocol, simple mail transfer protocol, flat-file transfer, etc.). In other words, it overcomes the limitations of classical EDI and provides an enterprise with alternative ways of performing electronic transactions.

The system developed consists of three main modules (see Exhibit 5), which deal with the internal workflow management, the demand-side transactions (hold between the company and its customers) and the supply-side transactions (hold between the company and its suppliers). A brief presentation of their specifications together with some technical details of the underlying technology is given below.

The Internal Workflow Management Module mainly deals with the processes, and the related documents accompanying them, that are triggered by the reception of an order from a customer. It is based on clearly specified business models of the company this case reports on; however, it has been kept open and extendable to address the requirements of any other enterprise. Information related to an incoming order is embedded in the company's existing ERP system, which in the sequel issues the necessary production orders. Similarly, ERP provides the module with the input needed to monitor the route of an order throughout the company's production units. The module relies on Microsoft's BizTalk Server 2000, which has been successfully tested in various enterprise settings, and provides all tools and methodologies needed for the transformation and routing of business documents, as well as monitoring ofthe related processes. Exchange of documents is done in W3C-standard XML, while all document transformation can be done in W3C-standard XSLT (Extensible Stylesheet Language Transformations).

Among the tools provided are:

(i) BizTalk Messaging Manager, which automates the process of setting up trading profiles and agreements to exchange business documents with applications and trading partners over the Internet. This management technology is based on a graphical user interface;

(ii) BizTalk Orchestration Designer, which provides a visual environment to design and build dynamic distributed business processes;

(iii) BizTalk Editor, which easily creates and edits XML document schemas; and

(iv) BizTalk Mapper, which easily transforms one schema into another generating W3C-- standard XSLT files for transforming documents.

The Demand-Side Transactions Module is a Web-based application, through which customers can put an order by filling in some specially designed forms. Moreover, the module allows customers to monitor the status of an order, view the pricing lists and offers of the company, and consider his/her personal account files. Much attention has been paid to keep the related user interface as friendly as possible. The tool is also based on XML technologies and relies on Microsoft's Commerce Server 2000 and SQL Server 2000. The tool is fully customizable to the needs of any user involved, providing easy user profiling and management, transaction processing, product and service management, and targeted marketing and merchandising.

Commerce Server 2000 offers an easy way to build tailored and effective e-commerce solutions. By providing the application framework, together with sophisticated feedback mechanisms and analytical capabilities, it allows for quick development of sites that optimize the customer experience and help establishing closer relationships among the trading partners. Its basic tools comprise:

(i) Business Desk, which provides the means for a centralized, web-based management of users, products and services, and marketing campaigns;

(ii) Profile System, which handles issues such as authentication to use a site and advanced targeting and personalization of users;

(iii) Business Processing Pipeline System, which helps in tailoring orders and merchandising processes to fit the users requirements, while being able to easily modify them upon business changes;

(iv) Product Catalog System, which is able to manage millions of products, offer custom catalogues, etc.; and

(v) a set of development and administrative tools and pre-built business components.

Finally, SQL Server 2000 is an ideal platform for launching the above set of applications. Its basic features include reliability, robustness, industry-leading performance, scalability, and appropriate management tools. In addition, it provides rich support for XML, easy Web access to database information, and powerful analysis tools, coupled with high availability and tight security.

The Supply-Side Transactions Module manages the electronic interchange of business documents with the suppliers, thus fully covering the supply chain of the company. In its current version, the tool is not based on the Web; instead, it offers data mediation services among the information systems (i.e., ERPs) of two enterprises. A drawback arising here is that the supplier companies should have a satisfactory level of information technology infrastructure. However, future versions are planned to be fully Web-based, in line with the demand side transactions module described above. As illustrated in Exhibit 5, integration of the three modules described above takes place through the Microsoft's Biztalk Server 2000.

Whenever customers want to interact with the enterprise, they have to fill in the appropriate Web forms and submit a message to the system. Messages sent through the Web interfaces may also be converted to any known format required. Additionally, the system is able to handle documents of any type, thus providing flexibility for future extensions. As made clear from the above, the proposed framework by no means affects the existing trading partners. There will he no change in the working methods they use, nor will they need any extra software or hardware resources. On the other side, customers will only need Internet access and a Web browser to interact with the company. The Web forms designed provide them with a user-friendly interface, thus such companies will not need much effort and investments to get fully acquainted with the proposed way of doing business.

Supply Chain Management Issues

Having previously discussed the technical aspects of the framework adopted by the company, this section comments on some supply chain management issues that have impacted the system's analysis, design and implementation. These concern the improvement ofthe buyer-supplier relationship, the reduction ofproduction costs through a more efficient and up-to-date production planning, and the more efficient inventory management.

Value chain analysis describes the activities within and around an organization, and relates them to an analysis of the competitive strength of the organization or its ability to provide "value-for-money" products or services (Porter, 1985; Shepherd, 1998). The system envisioned by the company had to facilitate the early supplier involvement, which is an accepted practice in many contemporary firms. Usually (but not always), early supplier involvement results in the selection of a simple source of supply, between carefully prequalified potential suppliers. While purchasing and supply management have the ultimate responsibility for selecting the "right" source, the selection process can be handled in many ways (Dobler & Burt, 1996). Using the system developed, the company could easily conduct the analysis and make the appropriate selection (Supply Side Transactions Module). After developing a comprehensive list of potential suppliers, the company's next step is to evaluate each perspective supplier individually. Through an elimination process, a list of potential suppliers is developed, which the buying company may be willing to do business with. The supplier list should be complete enough to include every type of criteria desired, such as quality, price and service. The overall system's approach takes into consideration that the evaluation required to determine supplier capability varies with the nature, criticality, complexity and money value of the purchase to be made. All of the above led to an operating situation in which the buyer-supplier relationship was closer and more cooperative than before. Literally speaking, it led to an informal partnership operation aiming at establishing a "win-win" deal.

Another big issue was the reduction of production costs. The company's objectives, concerning production planning and control functions, have always been to coordinate the use of the firm's resources and synchronize the work of all individuals concerned with production, in order to meet required completion dates, at the lowest total cost, consistent with the desired quality. From the early development phases of this project, two important production planning concepts were considered: the former concerned the multi-level nature ofthe operation ofthe production planning system, while the latter its dynamic nature (Dobler & Burt, 1996; Thomas & Griffin, 1996). The aggregate planning and the master scheduling activities were certainly top management and staff responsibilities. Activities associated with the material requirements planning and capacity requirements planning activities were primarily falling under the responsibility of production planning and control personnel. Finally, the control of production operations themselves was a joint responsibility of production planning and control personnel and supervisory operating personnel (all in the Production Division). Much attention was paid to avoid reengineering the above issues; the system developed gives restricted access to the appropriate users, maintains the traditional decision making processes, while, at the same time, provides accurate and up-to-date information to all associated parties. All company's managers had agreed that efficient coordination of information and workflows, through the foreseen system, should result in a significant reduction of production costs.

Another supply chain management issue was inventory management. As known, the basic objective of an inventory management system is to determine the most appropriate inventory levels. During the development of the system, the company considered the following inventory categories: production inventories (raw materials, parts, and components), MRO inventories (maintenance, repair and operating supplies), in-process inventories (semi-finished products) and finished goods inventories. Their concern focused on the planning and control of production and MRO inventories at various time periods (weekly, monthly and, in some cases, quarterly or even yearly decisions). Complementary to the above aspects, and in order to make more elaborated decisions about inventory management, the overall approach had to consider the behavior of the inventory-related costs (Kobert, 1992). More specifically, two basic categories of costs were associated with inventories: inventory carrying costs (opportunity cost associated with inventory investment, insurance costs, property taxes, storage costs, obsolescence and deterioration) and inventory acquisition costs, which were not related to inventory size per se, but rather, to the number of orders placed or deliveries received during a given period of time. The system developed keeps full track of the above. Identification of correspondences and development of logical mappings (e.g., SQL views) from the associated diverse sources were the major tasks in this issue.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

The overall framework envisioned by the IS Division manager should efficiently support interaction and cooperation between various types of partners (customers and suppliers), while the required functionality should be delivered over the Internet. There was no doubt that the need to exchange information was critical within the company's business community (Sodhi, 2001). As expected, the manager was earlier convinced that, by integrating computers and data communications into the business process, the company could benefit from exchanging information electronically, in that they reduce paperwork, minimize cost and improve response time.

Securing the approval of the company's executive board towards going ahead with the associated project development and the recognition of the need to reconsider the existing organizational structure in order to involve more parts of the business in it were the first big challenges emerging. During his meetings with the members of the executive board and the managers of all divisions involved during the implementation of the project, the IS Division manager was giving particular emphasis to the major issues listed earlier in this paper, in the section of analysis and design issues.

The system was implemented in about 15 months. For its implementation, all employees ofthe IS Division were involved, while two more experienced people, working at a big software house, were hired for part-time work. The system integrated a set of off-the-shelf tools, thus assuring a robust, scalable and fast development cycle. The major challenge during the implementation was to provide the company with new levels of flexibility, while helping their partners rewrite the rules of their business, and ensure the functionality needed to respond rapidly to future changes. The component-based approach followed was in line with current trends of the development of e-business enterprise systems (Fan et al., 2000).

Both during the implementation and at the completion of the project, the employees of the IS Division had to make all users involved in the system aware of what is going on and recognize the advantages and prospects of the new approach. They had to attract their interest and cooperate with them in order to result to a fine-tuning of the system. Upon completion, a two weeks training program was performed. The confirmation ofthe executive board members and all users involved in the system that the approach followed was the right one was certainly of highest importance. All of the above were asked to evaluate the final system through a set of carefully imposed criteria. Moreover, a set of performance indicators for supply chain management was established. Having defined such measures, one can continuously monitor the behavior of the system in order to evaluate it in detail and improve its efficiency.

The first evaluation results show that the development of the system was a success and a reward of the IS Division manager expectations. Cooperation of all parties involved during the project's development, exploitation oftheir expertise and adoption of well-tried and open solutions were certainly the major factors that led to that. The system is able to serve strategic goals of the company, such as embarkation on e-business, efficient data management and integration of supply chain. Project management was also successful; no unforeseen events changed the initial development plan.

Moreover, managerial implications have been only positive until today. The serious involvement ofthe company's personnel (from all operational, knowledge, management and strategic level) from the early development phases gave them the opportunity to reconsider their traditional work practices. Even these that were not fully convinced about the necessity to go ahead and develop the system have only good comments to make today. System users acknowledge the appropriate synchronization of the internal and external work and data flows, improvement of supply chain management, reduction of transactions costs through the appropriate process automation, reduction of errors occurring during the handling of business documents, existence of accurate and on-line information, reduction of the company's inventory levels and, finally, establishment of a highly cooperative environment between the company and its customers and suppliers. The close cooperation of the development team with all parties involved, both during and after the project's development, eliminated any misrepresentations of what the system could deliver and in what frame.

Perfective and adaptive maintenance ofthe system impose problems and challenges the company has to currently address. Most of it concerns the Supply Side Transactions Module. As stated in a previous section, one problem was that the supplier companies should have a satisfactory level of information technology infrastructure. Regarding this module, the next version is planned to be fully Web-based (in line with the Demand Side Transactions Module). There is also ongoing work in improving the user interfaces of the Demand Side Transactions Module; such improvements concern the, as easy as it could get, completion of the related forms and the expansion ofthe services offered. Finally, much attention is being paid in both redesigning the reports currently offered and offering additional ones (to all company's division managers), the aim being to fully exploit the data now stored in the system's database and further aid decision-making processes.

Subject: Studies; Electronic commerce; Information management; Systems integration

Location: Greece

Classification: 9130: Experimental/theoretical; 5250: Telecommunications systems & Internet communications; 9175: Western Europe

Publication title: Annals of Cases on Information Technology

Volume: 5

Pages: 401-413

Number of pages: 13

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 1537937X

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: references

ProQuest document ID: 198654718

Document URL: http://search.proquest.com/docview/198654718?accountid=38610

Copyright: Copyright Idea Group Inc. 2003

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 23 of 100

IS management and success of an Italian fashion shoe company

Author: Sciuto, Donatella; Buonanno, Giacomo; Ravarini, Aurelio; Tagliavini, Marco; Faverio, Paolo

ProQuest document link

Abstract:

This case study presents the chronology of a well-known Italian company, LSB, producing and selling high quality shoes all over the world. During the past few years, LSB has clearly underperformed with regards to its competitors. This case offers an analysis of LSB processes, and organizational structure shows the importance of information management in organizational success. This case study investigates the influence of IS management on the evolution of LSB performance. [PUBLICATION ABSTRACT]

Full text:

BACKGROUND

History of the Organization

Founded in 1950 by the current President, LSB has now become one ofthe most famous shoe manufacturers all over the world. Nowadays, LSB, employing about 250 people, is a noteworthy occupational basin in an industry branch and is characterized by a multitude of very small firms and handicraft laboratories. Synonymous of high quality and fashionable shoes, LSB is situated in a little city near Milan, site of the best-known pole of the shoe industry. The firm is located in a roomy and modem building, where the administration offices and the manufacturing department find their place. Considering its dimension and the company image at the international level, LSB is one ofthe most brilliant realities of the sector, thanks to the three product lines offered: men and women's shoes, which generate 90% of the turnover (about $35 million in 2000), leather clothes and fashion accessories.

LSB Holding is the leader of an industrial group with 30 self owned shops, and controls "LSB Shoe Manufacturing," "LSB France S.A.," "LSB Ltd" (London), and "LSB New York Ltd.," as well as some licensees in Spain and Turkey. The share capital is entirely owned by the family who is up to the second entrepreneurship generation.

However, a trend analysis of the shoe industry shows that LSB has lost the leadership role held in the early 90s. In spite of an always appreciated qualitative production and the strong brand name during the past few years, LSB has clearly underperformed with regards to its competitors; this case study aims at investigating the possible influence of the IS management on the evolution of LSB performance.

The Company Philosophy

During its whole life, LSB has always aimed to seek a clear and coherent strategy, based upon the quest for the maximum harmony between tradition and technology in order to reach a perfect balance between quality and price. The engineering cycle is an enlightening example: shoes are designed and engineered by means of a Computer Aided Design (CAD) system to get a precise definition of all of the technical aspects ensuring the best reliability of the product. The production plant is modernly organized and equipped. Though LSB is still obliged to carry on some production phases in a handicraft way, this constraint is not felt by the firm as an obstacle to the adoption of new technological solutions. On the contrary, technology represents a fundamental strategic weapon as far as it supports LSB in increasing the gap (in terms of production volume) with the handicraft workshops.

Tape of Business, Products/Services Provided

Two collections are shown every year: the spring-summer collection and the autumn-- winter collection. The men's collections are divided into six lines: only one ofthem (the classic and stylish "LSB for men") is shown in both collections. There are four lines for ladies, with a well-known "LSB for women" standing out. In the year 2000, LSB designed about 600 models and sold about 350,000 shoes all over the world. The LSB collections are targeted towards an international customer who pays maximum attention to the quality of both the leather and the accessories used, and seeks the highest care in the manufacturing phase, as well as the best comfort possible.

Global Review of the Market

The information provided last year in Dusseldorf during the annual "Shoe Fair" clearly showed how the shoes manufacturing branch was still loosing ground in comparison with the well-trained Asian competitors. For the first time in a long period, in 1999, the European Community (EC) production went below one billion shoes, showing a drop of 6% with regard to previous year. On the other hand, the European purchasing of shoes has shown signs of growth: per capita consumption in 1999 stood at 4.5 pairs, 3.5% more than 1998. The greatest benefit has turned at import's own advantage, showing an increase by 10.6% in the light of 898 million pairs of shoes bought from foreign countries. On the contrary, the exports, number of firms and employees experienced negative trends, recording respectively a drop of 13%, 0.7% and 4%. As noticed by Antonio Brotini, President of ANCI (National Association of Italian Shoes Manufacturers), "the sector is dealing with a crisis that brought to a decrease (13.7%) of the export towards non-EC countries due to the lengthening of the effects of the shocks that took place in Asia, then in Russia and finally in South America. It did not take long for those shocks to reflect on the Italian market so that "the adoption of new technologies," concluded Brotini, "represents an ideal scope, even ifnot the only one, to plan the international competitive re-launching of the sector."

Data collected by ANCI, with regard to the first half of 2000, proved that the economic climate of the shoe industry was marked by the first signs of recovery from the still situation which has characterized the sector so far. The production performance was as positive as the trend of prices, showing more awarding dynamics not only in the domestic market, but also, more important, in the foreign ones. After a painful period, shoe manufacturers could possibly look at the future with less skepticism, even if the economic climate should have led neither to a state of euphoria nor to a review of the defensive approach that, so far, had characterized the competitive strategy of the companies within the shoe industry. In fact, the competitive scope is still extremely selective and these signs of recovery were valid only for particular kinds of products.

Financial Status

Under both the profitability and the financial performance profiles during the past ten years, LSB has followed the same trend as the high-quality shoe market. After being a leader ofits sector in the first 90s, LSB had to face the crisis that involved the whole industry. During last two years, LSB has been showing a recovery, even though it has lost the leadership of the Italian market, substituted by new firms established in the course of the industry crisis.

Management Structure

Organizational Charts

As shown in the organizational charts, LSB is characterized by a high level of complexity in both its group (Figure 1) and the shoe manufacturing company (Figure 2, Figure 3, Figure 4 and Figure 5).

SETTING THE STAGE

The typical focus on production activities, together with their limited investment budgets, often leads SME entrepreneurs to exclude Information systems (IS) issues whenever planning organizational development. As a result, SMEs usually devote scarce resources to the IS department and, whenever they do, IS staff competence are strictly narrowed to technical issues (Palvia, 1996; Sob, Yap Raman, 1994; Zinatelli, Cragg & Cavaye, 1996). The consequent lack of internal expertise limits ICT specification and selection policies (Monsted, 1993; Schleich, Carney, & Boe, 1990), and inevitably leads SMEs to develop an IS, which is inadequate to the organizational needs (Cragg & Zinatelli, 1995; Lai, 1994; Lang, Calatone & Gudmundson, 1997). The fast pace of ICT innovations amplifies the issue of the worth of IS management. Among SMEs, it is definitively questionable whether IS has been developed according to efficiency and effectiveness requirements, and whether it is aligned with the business strategy. Even more critical is the question whether anyone in the company does consider at all IS efficiency, effectiveness and strategic alignment as issues.

LSB does not seem to differ significantly from this general picture. Like many other SMEs in the fashion industry, LSB management seems extremely concerned about production activities, while leaving only marginal attention to the influence of ICT applications on the company strategy.

Nevertheless, a lot of research has been devoted to the topic of IS effectiveness at the strategic level. More precisely, two main key issues are highlighted in the literature:

* IS strategic alignment is claimed to be verified when business strategies are enabled, supported, and stimulated by information strategies (Broadbent & Weill, 1993), or, from a different point of view, when choices within content and process dimensions of IS planning are mutually supportive, the two dimensions themselves are harmonized in a manner that is consistent with competitive strategy (Das & Zahra, 1991);

* IS organizational support is defined as "the adequate IS support to organizational goals and activities at every level" (Lederer & Mendelow, 1989; Woolfe).

In order to analyse such key issues within LSB, a "business process-based" analysis has been adopted. This approach is coherent with a lot of empirical results. A process-based approach is claimed to be more adequate to support any managerial activity, since it should help addressing a number of common organizational problems, such as fragmentation or the lack of cross-functional integration (Galbraith & Kazanjian, 1986; Garvin, 1998; Harrington, 1991), while enabling individual workers to identify and anticipate new business opportunities (Brooke, 2000; Davenport, 1993). In particular, a process-based approach seems to properly fit SMEs, where employees carry out inter-functional tasks and do not have a precise formalization of roles (Dutta & Evrard, 1999).

In this case study, we suggest a qualitative assessment of IS strategic alignment and IS organizational support of each process. From the methodological point of view, this choice is widely recognized by the literature. Kaplan and Duchon (1988) performed a detailed analysis ofresearch in the field ofIS that made use ofan interpretive approach and qualitative methodologies. More recently, a relevant number of studies underline the intrinsic interpretive nature of IS; interpretive methods of research in IS show to be effective since they attempt to understand phenomena through the meanings that people assign to them (Boland, 1991; Kaplan & Maxwell, 1994; Orlikowski & Baroudi, 1991).

Basing on this general theoretical framework, this case study aims at questioning whether an inadequate integration between strategic business planning and IS management could lead to reduce IS organizational support (Luftman, Papp, et al., 1999; Teo & King, 1997; Teo & Ang, 1999), and, finally, to affect overall company performance.

In particular, the case analysis could address three main research questions:

RQ1: Is the IS strategic alignment verified within LSB? Or, in other words, does the IS provide an adequate support to the information requirements ofthe strategic processes?

Step 1: LSB's strategy analysis identification - the main strategies of LSB have been settled by the means of direct interviews with both the CEO and the top management.

Step 1: LSB's processes identification - a set of strategic processes has been identified through direct interviews with the CEO as well as with managers and operatives. The detailed identification of the information flows has been achieved by the means of direct interviews with the persons in charge of each process. Each process has been represented through data flow diagrams (DFD). Finally, interviews with top level managers have led to identify the most strategic processes.

Step 1: Determination ofthe information requirements ofeach process - DFD has also allowed highlighting the specific information requirements related to each activity carried out within a process.

RQ2: Does a possible lack of IS strategic alignment and IS organizational support lead to decrease the effectiveness and efficiency of a process?

And, as a consequence at the corporate level:

RQ3: Does a possible lack of IS strategic alignment and IS organizational support Ld to decrease the overall company results?

The lack of IS strategic alignment in a business process does not necessarily represent in itself a problem. In fact, it is necessary to highlight how such lack is related to IS organizational support. The case study provides a description of the main issues arising in each of the strategic processes, highlighting the possible gaps between the existing and the needed IS organizational support. This information should be used as a basic input to assess how IS management can affect business performance, at the process level and finally at the corporate level.

LSB Business Issues

From the strategic and organizational point of view, LSB is quite similar to other medium-sized companies. The explicit strategic orientation refers to a few main objectives while the whole business is driven by a number of non-formalized strategic choices.

"Collection Development/Trade Fairs/ Order Gathering" Cycle

Within LSB, all the operative, organizational and strategic choices are strictly conditioned to the peculiar time constraints that characterize the high quality shoe industry as well as the whole fashion industry. The "production/commercial" cycle is strongly affected by the seasonal factor that requires the firm a very rigorous compliance with the time schedules for both the design and engineering of the product and the purchasing of raw materials.

In fact, as a final step ofthis cycle, all ofthe main companies of the shoe industry attend the trade fairs scheduled according to a timeline that can not be changed by a single company. During these fairs, LSB agents perform a "sale by sample" and collect the majority ofall the sales orders. Obviously, the more complete the collection is (i.e., the shoes models being suitably priced) that LSB is able to present at the fair, the better the results will be.

Built to Order Production

LSB aims at reducing the leftover stock by producing the shoes only after receiving the confirmation of the orders, which are gathered during the trade fairs or during the rest of the year by the sales agents.

Consequently, the handling of goods refers almost exclusively to products that are already sold and waiting to be shipped to the property shops or to firms holding a sale concession.

Centralized Management of Purchasing

The purchasing phase is entirely performed by LSB internal staff, and a particular attention is paid to the purchasing of leather. The high strategic importance of this process makes LSB take care of this task for its external workshops, too. Such a choice is mainly due to the need to avoid the risk of unacceptable differences (in terms of the tone of the leather) for the same model produced by different external workshops.

Centralized Management of Relationships with Partners

LSB manages the relationships with its foreign branches, sales agents and shop directors by means of procedures marked by both a very high centralization and a reduced operational and organizational autonomy. The relationships with external workshops are carried out in the same way.

Non-Formalized Strategies and Contradictions

Everyday, LSB entrepreneurs take decisions at the operational level that have an impact on the company strategy. Certainly, each of the following issues represents a subject requiring a deep evaluation of the opportunities and identification of the corresponding implementation practices. Like many other medium-sized companies, LSB top managers struggle in a dilemma between the actual consistency of declared strategies and the effectiveness of the efforts aiming at making such strategies explicit.

Outsourcing Part of the Production

Most of the decisions made on this subject are strongly related to the insufficient production capacity of the internal factory. Thus, LSB could consider a specific production activity as strategic, and, at the same time, decide to outsource it because of the inadequacy of its production plants.

Qualitative Standard Preservation

This topic is usually an expression of a strategic issue, and its fulfillment should be normally achieved by the implementation and management of a formalized quality control system. So far, such a system has not been implemented in LSB, yet. Thus, the quality issues can be defined as a critical success factor, but, at the same time, LSB does not promote any strategy supporting the product quality. As an example, a third-party manufacturer located in Romania provides LSB with the assembling of uppers. It would be reasonable for LSB to perform a rigorous quality check and a precise cataloguing phase of the defective parts, particularly because of the peculiar geographic position of the partner which does not allow a continuous interaction. On the contrary, this external workshop is not subject to a severe quality control procedure; it is treated exactly like the Italian ones, often located nearby LSB.

Rise in Productivity

LSB top managers have always stressed out the need of boosting productivity, keeping at the same time the high qualitative standard. To achieve that aim, LSB should have at least renewed its machinery. Instead, no action has been actually undertaken in that direction; moreover, the skilled personnel have diminished from 115 to 86 units.

ORGANIZATIONAL CULTURE AND HABITS

Hierarchical Stratification

The hierarchical structure of LSB can be described by the following four level scheme:

1. Owners;

2. Top managers (sales manager, managing director, shop director, production manager) and designers;

3. Employees (production, administration, warehouse, sales, marketing, EDP); and

4. Skilled personnel.

The choice of positioning designers at the top managers' level depends on their importance, related to the kind of product offered (high quality and originality as a distinguishing mark).

Clear-Cut Division of Tasks

From the organizational point of view, LSB shows a rigid functional structure, with a clear-cut division of roles and tasks even within the same function. Nevertheless, there are some exceptions (like the Purchasing Manager or the Time Study Engineer) whose role will be analyzed in detail.

Technology Description

From the technological point of view, it is interesting to underline two issues. The first is the coexistence of two separate networks both based on Microsoft Windows NTM operating system: one for the CAD department and the other for the rest of the firm.

The second peculiarity is that all the software applications used within LSB have been developed by the Chief Information Officer (CIO) using the COBOL programming language. These applications run only under the Open VMSTM operating system (an operating system quite popular in the SOs, very different from the operating systems currently used because it has no graphical user interface).

The ICT tools supporting LSB information system can be summarized in the following way:

* Production, Accounting, Salary and Wages, shops (seat), Sales, Time Study Department

CASE DESCRIPTION

EDP Role and Function

The EDP department is made of two persons, the CIO and another employee who is in charge of the management of remote connections with shops. From the hierarchical point of view, the CIO is just one level under the CEO, but they do not take part in any strategic meetings. With reference to strategic decisions, the CIO's opinion is requested only when an "IT-related" feasibility judgment is needed; therefore, their role seems to be much closer to a consultant figure than a manager. Even though the CIO is not directly involved in the strategic planning process, their tasks are not limited to the ones concerning the development and implementation of customized software applications. They also deal with the fulfillment ofthe information requirements ofboth employees and top managers. Such a situation, which is due to a peculiar attitude of the company owners, is also related to a lack of autonomy in the research and gathering of information by LSB staff. Likewise, due to the decision by the property that no external partners are needed, the CIO has to personally carry out the technical assistance on any hardware component. Finally, they are in charge of the download of the files containing the orders gathered by the sales agents by remotely accessing the agents' laptops.

Personnel Attitude Towards Technology Use

LSB is characterized by employees with diversified IT skills. A meaningful part of LSB staff prefer not to deal with IT tools, and every time they need any information or report, they would ask the CIO to provide the required data. Obviously, this often means a work overload for the CIO.

Top Managers' Roles and Tasks

The founder and President, even if not dealing with any specific activity, still holds a fundamental role because he still keeps a global sight about the firm, and has the last word about the most important decisions. His age (he is about 80 years old) and cultural background (he used to work for the design department) do not allow him to be aware of the ICT opportunities.

The eldest son supervises the marketing and sales departments and represents LSB al the trade fairs. The second son is the director of the design department, where the shoes are created, designed and coded. The last-born son mainly deals with the production department and with choices regarding the purchasing of raw materials.

Definition of the Critical Processes

This paragraph describes LSB five most "critical" processes, i.e., the processes that have a relevant influence on the business performance. Figure 7 provides a synthetic representation of the processes. The corresponding detailed DFD is represented in Figure 10.

* Collection Encoding: coding of new collection components and data entry

* Internal Production Progress: production progress in the inner plant

* External Production Planning and Control: production planning and progress regarding the external workshops

* Information flows between LSB and commercial agents: information transmission/ receiving to/from sale agents and shops

* Evaluation of manufacturing costs

The description of each process is carried out through data flow diagrams (DFD). In this case study, we refer to the formalization of information flows suggested by Francalanci, Schreiber and Tanca ( 1994) as shown in the legend below (Figure 8). In particular, according to this formalization, the term "Interface" indicates any organizational role which receives a specific information flow after a processing phase, addresses it to another organizational role.

In order to better understand how LSB works, it can be useful to aggregate the Collection Encoding and the Evaluation of manufacturing costs processes in the Collection Preparing Phase (as shown in Figure 7). Figure 9 shows the details of the information flows of such phase.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION

Coding of New Collection Components and Data Entry

(Design Department-Purchasing Department Manager)

This process requires the coding ofboth the finished product and its single components (leather, heel, sole). LSB considers it as a crucial process, with a very high priority and importance for the preparation of the collection. Thus, this process requires the accurate respect of time, roles and liability constraints.

It is interesting to notice that even if LSB organizational chart includes the position in charge of the coding process (Figure 4), nobody has held that position for the last two years.

At the moment, the staff working for the design department manually performs the coding of sample components, by writing the codes on paper. These codes are then inserted into a computer by a member of the purchasing department.

While collecting orders from customers, LSB sales agents should have access on their notebook computers to all the codes related to the required products (for both the finished product and its single components). Most ofthe time this information is not available because the manual insertion of codes is a very slow process. One of the reasons is the need of coordination between many different roles. Furthermore, the code of a specific component stored into the computer based information system (CBIS) sometimes turns out to be incorrect, because data are copied from the CBIS to the agents' notebooks without any check on the codes completeness and integrity. Not surprisingly, this lack affects the sales agents' image and quality of work.

The coding process is characterized by definitely redundant procedures. As the data flow diagram in Figure 9 shows, the envelope holding the cardboard model together with its codes and the provisional bill ofmaterials (holding the same codes, manually copied from the envelope) follow different paths. It is essential to underline that codes are registered into the Finished Products Technical Form when information on the bill of materials is still provisional, because it refers to its first drawing up, while codes held into the envelope often undergo various changes. In fact, this information can be modified by a member of the Time Study Department as well as the chief of the cutting department (both of them receive the envelope with a copy of the original codes). Thus, the real problem is the lack of synchronization between the different copies of codes (envelope vs. bill of materials).

One of the reasons for this situation is that LSB requires the printing of a production note before cutting the sample upper. Obviously, this procedure canbe carried out only when the required information has been stored into the CBIS. Nevertheless, this constraint does not seem to be sufficient to justify the inadequate performance of the process.

Because of its strategic importance, this process should be well formalized and effectively supported by ICT. Instead, roles, tasks and responsibilities ("who does what") are not formalized at all, and the process is carried out completely manually. Moreover, the CBIS does not verify any integrity constraint. As an example, the insertion of an incorrect code or an incomplete bill of materials does not produce any alert.

The lack of completeness of the coding process basically depends on the people in charge of it. They are often unaware ofthe coding operations. In addition, the coding process managers usually underestimate the importance of the coding incompleteness, and they do not consider themselves responsible for this problem.

Another issue regarding data consistency is the uncontrolled management of the bill of materials (i.e., the opportunity to change its content all the time) does not allow the employee in charge of data entry operations to keep the correctness of the inserted data under control. Thus, this process lacks coordination ofinformation flows. Each organizational area takes care of its output, without considering that it may be used as the input by some other area's process. This is one of the main reasons for the inefficiency of the coding process. Delays and incomplete data mostly affect the performance of the last phases of the process. Consequently, it is often up to the employees who work on these last activities to find a solution to such problems, even if their cause depends on someone else's activity.

Moreover, the chance of making mistakes is higher because of the very high number of codes. Every pair of shoes belonging to a specific collection (there are two collections per year) is composed of about 20 codes (components and working processes). The average number of shoes within each product line is about 150 and there are four product lines. The high number of codes would definitely justify the process formalization. On the contrary, the current lack of formalization determines a superficial development of the process, itself.

The misalignment between the actual strategic importance of the coding process and its poor ICT coverage mostly depends on the lack of formalization ofthe the process itself, which does not allow a correct exploitation of ICT potential. Both the CIO and the Time Study Department manager are aware of this problem, but this turns out to be useless because of the top managers' lack of trust in ICT.

INTERNAL PRODUCTION PROGRESS

(Process Manager: Production Progress Manager)

This process is carried out completely manually by the production planning staff. Every end of the day, all production notes regarding the working day are manually collected and checked, and then (manually) inserted into the CBIS. It is interesting to notice that there are a number of terminals installed in key positions of a production line, but they are neither connected to the company network nor even used by LSB staff.

The choice of manually managing this process is quite unusual for a company of this size. Besides the evident inefficiency due to the time spent by workers, another consequence is the late update of information regarding the inventory of semi-manufactured products. Thus, the person in charge of managing this stock can not access real time availability of components, but only inventory information regarding the day before.

EXTERNAL PRODUCTION PLANNING AND CONTROL

(Process Manager: Production Manager and Production Progress Manager)

The management of LSB production process is quite complex, because of the presence of both internal and external production units. As an example, the line "LSB elegant man" is managed internally, while all women's shoes are produced by third-party manufacturers. The situation is even more complicated for the sport line, because the processing of leather is outsourced while the assembly of sport shoes is managed by LSB production lines.

Moreover, the production planning and control process significantly affects the whole business performance, because its output is strictly related to the collection development and the commercial performance (in terms of order collection).

In particular, LSB must necessarily complete the collection development and define the price-list before the beginning of the first shoe fair in October. If this requirement is not satisfied (LSB often does not succeed in defining the complete price-list before the beginning of the fair), then customer orders will be confirmed only about one month later, after the communication of the exact price of each model. Obviously, this problem makes the planning and management of external production much more difficult to be performed.

In short, the correct carrying out ofthe coding process would allow a punctual definition ofthe price-list, a necessary condition to collect definitive orders. These, in their turn, would consent to correctly manage the external production planning. Today, instead, LSB often requires external partners to produce at excessive speed, because of the too short period between the order confirmation and the delivery terms.

Another main problem concerns the external production progress control. Both the strategic choice of performing built-to-order production and the choice of partially outsource production activities, demand an efficient and effective integration with external partners during the production process, in order to assure the respect of the delivery terms.

Regardless ofproduction planning limitations, LSB finds it very difficult to get updated information about production activities from third-parties because of the total lack of information system integration. Thus, when a customer complains about a delay in delivery, the sales manager asks the production manager for an explanation. In such situations, the production manager should be able to provide real time information about the progress of outstanding orders. Instead, LSB production manager has to make many phone calls and send many faxes to achieve a clear view on the updated situation of the required order.

Figure 11 shows a fax that was sent to an external partner by two customers complaining about a delay in delivery.

This fax shows the very inefficient way of managing information, due to the lack ofboth technological and organizational integration. It is important to underline that the lack of technological integration not depends on LSB only because most of its external partners do not even make use of a personal computer. Actually, LSB tried to integrate its information system with one of its partners, which has a very similar software architecture (based on Open VMS operating system); but their way of managing information flows is questionable since data about the production progress are stored on a floppy disk which is every day manually transferred to LSB by an employee.

INFORMATION FLOWS BETWEEN LSB AND COMMERCIAL AGENTS

(Process Manager: Not Formalized)

Managing the complex network that LSB has built with its commercial partners largely deals with the management of information flows (besides the interpersonal relationships). This process has a fundamental importance for LSB, both from the administrative and the operational point of view. In fact, the timing acquisition of ordered products represents an essential input for the effective planning of the production resources. On the other hand, descriptive data from the shops regarding the items sold (such as quantities, models and size) provide the role in charge ofthe commercial network with the information needed to determine the models to be delivered.

Each commercial agent has a laptop computer with a software application for the input of collected buying orders. This program, developed by the CIO using the BASIC programming language, creates a sequential file containing the rows of the orders. Everyday, the CIO has the duty to download such file by remotely accessing the agents' laptops.

The procedure of data acquisition from the shops used by LSB is quite similar. Each shop is equipped with a BASIC application (running on a MS-DOS(TM) environment) that at the end of the day creates a file containing information regarding the shoes sold. During the night, a software application installed on a LSB computer downloads the file through a modem connection based on the ZMODEM protocol, which requires an international phone call. Considering that LSB owns 30 shops all over the world, four of which are located in the U.S., it is not surprising that the monthly overall cost of this procedure is incredibly high with respect to the ease of the task.

However, being very expensive is not the only (and maybe not even the major) deficiency ofthis method that also lacks on feasibility. As an example, the German agent once accidentally stumbled into the AC power cable of his notebook computer just during the transmission of the file containing the orders. As a consequence, the file went damaged and the agent had to re-type all the data in order to create again the file to be downloaded by the CIO. The procedure of data transmission from the shops occurs into the same risks, but, even worse, whenever the transfer happens to be interrupted, the procedure repeatedly performs download attempts until it succeeds. For example, once the shop in New York had to be called from Italy 15 times in one night (international rate applying)just to transfer an 80 Kbytes file.

The CIO is obviously aware that simple technologies such as e-mail could make this process both safe and inexpensive. Nevertheless, he believes that the replacement of hardware and software tools needed to carry out this process would be a failure because of the scarce technical competence of end-users and, most of all, because of the owners' mistrust regarding ICT.

EVALUATION OF MANUFACTURING COSTS

(Process Manager: Time Study Engineer)

The correct and punctual assessment of the manufacturing costs represents a critical step within the overall set of LSB processes. In fact, the negotiation with the handicraft workshops is based on such costs, as well as it determines the distribution of the workload between the company and the external laboratories.

Moreover, this process represents a necessary gate within the production cycle. Any delay within this cycle will inevitably lead to not complete the order gathering, thus increasing the uncertainty of the purchase budget, typically driving the company to conservative decisions.

In LSB, the evaluation of the manufacturing cost is carried out by the Time Study Engineer in two stages: the assignment of a specific code to each shoe component and the subsequent assignment of the cost to each codified component.

Being that the involved information is extremely structured, one should expect that this process is fully automated. On the contrary, a large part ofthe activity is performed manually. In fact, before calculating the overall cost ofa shoe starting from the cost of each component, the Time Study Engineer has to check the consistency and completeness of the coding itself. This activity is necessary because of the procedure driving the process of the model manufacturing. Once the designer has finished the first prototype, data regarding the parts of which it is composed are:

* archived in the database of the production notes, which is provided also to the commercial agents as reference for the products specifications; and

* written on the bill of materials, a paper document accompanying the prototype along all the manufacturing process.

However, while the bill of materials is continuously updated according to the modifications occurring during the further development of the model, the database is seldom updated accordingly.

Therefore, the Time Study Engineer is required to compare data archived in the information system with the bills of materials. Whenever a discrepancy is revealed, he should ring all the roles dealing with the development of the model in order to trace back the route of the shoe and to identify possible changes of its components.

Obviously, such a procedure does not avoid oversights. Besides, often it is not possible to find complete information about a model. In these cases, the Time Study Engineer has no choice but to make use of the data regarding the component that is the most similar to the one actually existing in the model.

Subject: Studies; Information systems; Process planning; Organizational structure; Information management

Location: Italy

Classification: 9130: Experimental/theoretical; 2500: Organizational behavior; 5240: Software & systems; 9175: Western Europe

Publication title: Annals of Cases on Information Technology

Volume: 5

Pages: 563-584

Number of pages: 22

Publication year: 2003

Publication date: 2003

Year: 2003

Publisher: IGI Global

Place of publication: Hershey

Country of publication: United States

Publication subject: Business And Economics--Computer Applications

ISSN: 1537937X

Source type: Reports

Language of publication: English

Document type: Business Case

Document feature: references

ProQuest document ID: 198673077

Document URL: http://search.proquest.com/docview/198673077?accountid=38610

Copyright: Copyright Idea Group Inc. 2003

Last updated: 2011-07-21

Database: ABI/INFORM Complete

Document 24 of 100

Husky profiting: From CAD to CAM

Author: Johnson, Doug

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Abstract: None available.

Full text:

If you manufacture a product, you're already managing it through its lifecycle. You identify a customer need, design an appropriate product, source components, manufacture and distribute. Your products may need servicing or recycling, but you manage each stage of these processes too.

Product lifecycle management (PLM) solutions are software tools (and business processes) that allow you to transform existing manual lifecycle management processes to automated, digital ones. For example, instead of producing a paper service manual, why not automatically upload information on any specific product configuration to a secured web site that service personnel can access from the road?

WHY PLM IS IMPORTANT

Automating manual processes should save time and money. For example, if a company digitally shares data between manufacturing and engineering, it will ensure design efficiency is maximized for manufacturability. A successful PLM strategy helps companies enjoy all the advantages of being first to market.

DEVELOPING THE OPTIMAL PLM STRATEGY

A wave of technology hype washed over the business world in the late 90s. The wave crashed, causing some manufacturers to question the competitive gain provided by new technology. Phil Taylor, president of EDS PLM Solutions Canada, says as a result, "it's as important as ever to make pragmatic technology investments that allow you to optimize and execute your business strategy." When manufacturing grows again, the big winners will be firms that best respond to "increasingly differentiated consumer tastes."

Taylor recommends building a PLM strategy on three pillars: your customers' needs, your competitors' ability to meet the same need and how much of a competitive advantage you wish to establish.

TWO-STAGE STRATEGY

A PLM journey should be like any trip. "Establish your PLM vision, then make it a reality one step at a time. A stepped approach minimizes risk and allows you to measure progress," suggests Taylor.

ULTIMATE DESTINATION

Customer requirements will drive any effort. For example, an automotive manufacturer might decide it must consistently be first to market with new models. Its PLM vision would require automating every significant step in designing, approving and manufacturing a new model. The manufacturer would emphasize digital collaboration that allows large teams to work together electronically across an extended enterprise that includes a network of suppliers.

A manufacturer of custom equipment might want to ensure that every employee with a need can access up-- to-date design information about each custom machine.

NEXT STEP IN THE JOURNEY

But when your vision is clear, don't sprint towards it. Take one step at a time, starting with the project with the most immediate business benefit and biggest return on investment. Make sure you choose open, industry standard solutions that can be built upon.

CASE STUDY

Husky Injection Molding Systems Ltd. designs and manufactures injection molding systems for the plastics industry, including: injection-molding machines, molds for PET containers, hot runners and robots. Husky's equipment produces a wide range of packaging, automotive and technical products. The company has customers in more than 100 countries, US$640 million in annual sales and facilities in: Dudelange Luxembourg, Milton, Vt. and Bolton Ont.

HUSKY'S PLM VISION

According to the company's engineering systems manager, Rod Nicol, Husky"s goals are: shorter lead times, lower product development costs and improved processes and product quality.

Husky's initial objective was simple and realistic: better computer-aided design (CAD) file management. Husky installed Teamcenter Engineering from EDS PLM Solutions.

Nicol says Husky also focuses on implementing projects that best meet its current business needs, insisting on open software that is easily integrated with current systems.

Once the initial software implementation was done, Husky began custom development work to integrate it with applications it was already using. Husky integrated Adobe Framemaker, which it uses to manage digital photos of equipment and maintenance procedures. Next, it enabled the printing and viewing of image files inside Teamcenter Engineering. Finally, Husky implemented a custom application that controls authorization for design release, by role and group.

Nicol recommends firms "customize only as last resort." Customization requires programming and additional support. Upgrading is easier when everything is "out of the box." Nonetheless, Husky is satisfied with the custom work it has done. Benefits include less paper, a faster process and up-to-- date information.

Husky also uses an integrated security module to control access and for easy checking of engineering data at remote locations. These efforts help Husky better manage its data.

INVOLVING THE SUPPLY CHAIN

Husky's new system has a small image file that contains all the product data its suppliers need to provide an accurate quote, or manufacture an item. Husky's purchasing department attaches the file whenever it sends an e-mail request for quotation or manufacturing. After a contract is awarded, suppliers download 3D CAD files from a Husky web site, letting them send product data directly to computer-aided manufacturing (CAM) software.

E-COMMERCE THAT WORKS

If you visit the Pronto section of Husky's Hotrunners.com, you'll see that it's possible to request quotes and place orders online. Users who enter their specifications can see a picture of their design and contact Husky to learn how much it's going to cost. With the specifications already in the system, an order is quickly filled.

ONLY WAY TO IMPLEMENT PLM

Nicol is a believer in a two-step process: establishing the vision and moving toward it one step at a time. But it's something Husky learned the hard way, he says. "Six years ago we tried to implement too much technology, too soon, without understanding how we needed to modify our business processes." As a result, technology implementation interrupted the business more than it wanted. The two-step process has solved the problem. "The last several implementations have gone extremely well," Nicol says. "We're taking advantage of the technology, with minimal disruption to our business."

OPPORTUNITY TO IMPROVE

Each of Husky's three main facilities now has its own database. "The volume of data transfer became so large," Nicol says, "manually synchronizing the databases was challenging and required too much labor."

HUSKY'S FUTURE

Nicol feels software technology is powerful and stable enough to help Husky streamline its business processes and reduce time to market. Husky will soon begin integrating its PLM and enterprise resource planning (ERP) systems. It will also use a product structure editor to create and manage bills of material to give its manufacturing department greater access to data. Nicol adds that Husky will "undoubtedly" be expanding its e-- commerce activities.

CONCLUSIONS

If you've heard horror stories of technology implementations gone wrong, the companies either didn't clearly map out their journey, or they traveled too fast. Taylor and Nicol agree the two-step process works. "Have a clear vision," Nicol adds. "Understand what the technology can do and which business processes you need to improve in order to profit from [it]. Implement one step at a time. Don't go charging ahead."

Subject: Computer aided design; CAD; Computer aided manufacturing; CAM; Product life cycle; Automation; Case studies; Electronic commerce; Supply chains; Machinery; Life cycles; Product management

Location: Canada

Company / organization: Name: Husky Injection Molding Systems Ltd; NAICS: 333220; SIC: 3559

Product name: Teamcenter Engineering

Classification: 8670: Machinery industry; 5240: Software & systems; 9110: Company specific; 9172: Canada; 5250: Telecommunications systems & Internet communications

Publication title: IT for Industry

Volume: 3

Issue: 6

Pages: 18-19

Publication year: 2002

Publication date: Dec 2002

Year: 2002

Publisher: Rogers Publishing Limited

Place of publication: Toronto

Country of publication: Canada

Publication subject: Business And Economics--Banking And Finance - Computer Applications

ISSN: 14989549

Source type: Trade Journals

Language of publication: English

Document type: Case study (Business)

Document feature: Illustrations

ProQuest document ID: 225479553

Document URL: http://search.proquest.com/docview/225479553?accountid=38610

Copyright: Copyright Rogers Publishing Limited Dec 2002

Last updated: 2013-06-21

Database: ABI/INFORM Complete

Document 25 of 100

TERRY WEBER'S PERSONAL AND PROFESSIONAL WORLDS COLLIDE: AN EXAMINATION OF WORKPLACE RELATIONSHIPS

Author: Alexander, Heather; Haggard, Carrol R

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Abstract: None available.

Full text:

CASE

"For the past six months I have been doing nothing but waiting tables and telemarketing just to make ends meet and I'm sick of it. I would've never gone to college if I knew that I would be stuck waiting tables for the rest of my life." Terry bemoaned to Kelly James over lunch, reflecting on the last six months since being laid off from Zoey Advertising,

Terry Weber is a very attractive, well educated single 27-year old who holds a masters in public relations from the University of Arizona. Prior to September 11, 2001 life seemed perfect. Upon graduation, Terry was hired at Zoey Advertising and seemed to fit right in. Terry enjoyed working with the people at Zoey and the future looked bright and prosperous. Terry was enjoying New York and was even engaged. Terry was happy with life and Terry's family was happy to see all the success that Terry was receiving. Then along with the rest of the world Terry's life came tumbling down on September 11, 2001. Terry's fiancé was lost in the Twin Towers that day. Then a month later Terry got laid off, because the economy took such a drastic blow that Zoey Advertising could not afford to keep Terry and many others on. With that Terry prepared a resume and hit the streets looking for a job, only to realize there was no work in advertising for someone who had very little work experience and lacked connections. Desperate and about to be evicted Terry took a job waiting tables. Still not able to make ends meet Terry had to take on a second job as a telemarketer. With only three years work experience, in the competitive field of advertising Terry thought maybe I was never meant to be in advertising. Maybe I'm destined to work waiting tables and telemarketing for the rest of my life.

"That's why I asked you to meet me for lunch." Kelly then proceed to tell Terry, "as you know I am the Human Resources Manager at Capella Advertising and we happen to have an opening in the office. It's one of the lower positions, but with the right person there is potential for advancement. " Terry confessed, "that would be great, but I already turned a resume in there and did not receive an interview due to my lack of experience." "I've already taken care ofthat. My best friend is Alex Keller, the president of Capella Advertising, you have an interview with Alex tomorrow at 1 :00 p.m," Kelly replied with a smile. Extremely appreciative of Kelly, Terry left to prepare a portfolio in order to make the best impression possible. On the way home Terry could only think about how this is it a chance to get life back together. Terry couldn't afford to mess anything up. Wanting and needing everything to be perfect Terry researched the company and practiced various interviewing techniques.

The next day, Terry left for the interview feeling confident and looking great. At first sight of Alex Keller Terry almost fainted, the president of a company isn't suppose to look this good or this young. Alex looked to be in the late 20s and was absolutely gorgeous. Throughout the interview Terry thought, "Alex really has it together, highly intelligent and very business driven." Intimidated by the attractive and brilliant Alex Keller, Terry was preparing to be denied once again due to lack of experience. At the end of the interview Alex hesitated, looked up and then back at the resume. "You're definitely not the most qualified for the position, but you have three things going for you. One is my best friend is Kelly who speaks very highly of you. Two, your work from your previous job is not bad and you seem very willing to do anything to succeed. And the third reason, Alex hesitated and looked up at Terry I think we'll have plenty of time to discuss at a later date. Congratulations, I'll see you tomorrow at 9:00 a.m. sharp," Alex said while looking Terry up and down.

"Kelly meet me at 7:00 p.m. at Ruby Reds for a celebration dinner. I got the job thanks to you," Terry exclaimed on Kelly's answering machine. The only thing that confused Terry was Alex Keller's last reason, but Terry was so happy that it really didn't matter what the last comment meant. Besides, Terry wasn't going to let anything ruin this second chance at having a dream life.

Terry's first week went great. It felt just like it did back at Zoey Advertising. Everyone was extremely nice, especially Alex Keller. Alex really helped Terry get a grip on the job. As time progressed so did Terry, after only six months with the company Terry was promoted to Advertising Manager. This was a huge step up in the company, because Terry would be working on bigger accounts with more opportunity for further promotions. Once again Terry's life seemed to be right on track, excelling at work, enjoying the people at work, an upgrade in lifestyle due to the promotion, and the relationship with Kelly was starting to get serious.

Throughout the next couple months Terry and Alex Keller's work relationship developed into a close friendship. Terry felt comfortable enough to call the president by Alex. Other employees started to gossip about whether their relationship was still strictly professional. Terry didn't think much of it. Alex had always remained completely professional, "Yes, they were friends, but it doesn't hurt to have friends in high places," Terry thought. "They are just jealous of my accomplishments."

Then, the company learned that it had scored the biggest account they've ever had, which meant raises and long hours. One night after a long evening of work Alex sent the entire team home and asked if Terry didn't mind staying for a few extra minutes. When they were finally alone Alex asked if Terry was alright. "I've noticed a change in you and I'm getting worried," Alex said sympathetically. "Kelly and I got into a huge fight. I really still love Kelly, but I don't know if the feelings are mutual," Terry said with a sob. Trying to comfort Terry Alex said, "don't worry, things will start to look up soon." Feeling a sense of relief just by telling someone Terry decided the best thing to do was to home and get some rest.

The next day at work there was something different about the atmosphere, it seemed more light-hearted to Terry. There was also a difference in the way Alex was acting and dressing. The outfit Alex was wearing looked more like something someone would wear to a night club not a place of business. This seemed unusual, because Alex had always had a perfect figure but had always dressed very professionally and a little conservative. Besides that Alex was exerting more touching behaviors than normal and seemed to just be hanging out. Terry just figured that Alex was trying to be a friend and be sensitive right now. Over the next several days, both the new attitude and dress continued and Terry finally started to wonder what had happened to the old Alex. Working late one night after almost everyone had left Terry made a comment about how exhausting this account was and how nice it would be to take a day off and visit a masseuse. With that Alex walked over to Terry saying, "There's no need for that I can be your personal masseuse," while starting to rub Terry's shoulders. "My love for this job is at an all time high since I hired you, this has been the best thing Kelly has ever talked me into" Alex informed Terry. This made Terry feel very uneasy, but what could you do to someone who has in a sense helped put your life back together? Politely removing Alex's hands and apologizing for having to leave, Terry told Alex, "I'm sorry I need to leave, Kelly and I are meeting tonight to try and reconcile." "You're too good for Kelly. Terry, you're very smart I just don't know if you've figured out how the business world works. Just remember in this city all you need is the right person on your side and they can take you to places you've never imagined. So why don't you go and take care of your business and think hard about what I said," and with a sly smile and a slam of the door Alex left. That night Kelly and Terry did reconcile, but Terry chose not to tell Kelly what Alex said for fear that it might create problems between the two of them.

Over the next few weeks, Alex's dress continued to get more provocative, and Alex seemed to find ways for the two of them to be alone late at night. But Alex's advances seemed to halt once Terry explained that things were back to normal with Kelly. Slowly, Terry felt the relationship with Alex getting back to normal, now that it seemed like they had some grounds established.

After a couple of weeks of "normalcy, " Terry and Alex had to make an out of town weekend trip in order to meet with a new major client. When they arrived at the hotel, they discovered that the reservations had been messed up and there was only one room available for both of them; all the other rooms were booked. This made Terry feel uncomfortable, but nothing could be done about it. That night after they met with the client and scored another big account, Alex decided they needed to celebrate, so Alex called room service and ordered a bottle of champagne. Terry, already feeling uncomfortable with the room arrangement, felt that the wine would just add to the uneasiness, but said nothing. After all, the success was really nice. After they had a few drinks and had been laughing Alex caressed Terry's leg and confessed that the messed up reservation was no accident. "I did it on purpose so I could finally show you what you can have," confessed Alex. At that point Alex started to unbutton Terry's shirt and moved in for a kiss. Terry found Alex very attractive, but loved Kelly and thought only of Alex as a friend and a boss. Terry jumped back and said, "It is probably best that this not occur, I should leave now and see if they have another room available." Terry left the room completely confused, Alex had made subtle advances before and they had always flirted with one another. It hadn't been until these last few months when things seemed to get a little strange. Terry couldn't forget the things Alex said about Kelly or about having the right person on your side. In order not to jeopardize the relationship with Kelly, Terry realized the flirting had to stop. The relationship needed to remain strictly on a professional level.

Terry is in a quandary, torn on what to do. "I could just quit," Terry thought. But by quitting, Kelly would want to know what happened since up until now there never has been a problem with work or Alex. Besides, Kelly and Alex have been best friends forever and this would really hurt Kelly. On the other hand Alex wasn't a true friend to Kelly. Also, if I quit, the job search would have to start again and starting back at the beginning just doesn't look all that appealing. Another spell of unemployment, and being saddled with the label 'trouble-maker' is certainly to be avoided. "I guess I could just forget the whole thing and hope that things get better. " What would happen by staying? Things could go back to normal, but in reality the chance of that happening seem very slim. "Or, I could confront Alex." That option seems to have been pre-empted by my actions tonight. And, besides, Alex is the company president, who else is there to report the incident to? "Well, I guess I could report it to Kelly, after all, she is the Human Resources Manager." In thinking about this option, Terry had to consider the fact that Kelly and Alex were best friends thus potentially compromising Kelly's objectivity. Terry also feared how Kelly might react to the allegation, wondering who Kelly would view as the responsible party, since Kelly was never told of the advances Alex made or what was said the night they got back together; or any other time for that matter. Further, Terry was concerned if the company's "non fraternization" policy could be reversed, shifting the central issue from Alex's proposition to a dating situation. "I could hire an attorney and sue. But, to turn around and bite the hand that fed you, just doesn't seem right. My success and fortune are due to the fact that Alex took a chance on me even with little experience." With these questions filling Terry's mind, instead of sleeping, a long and restless evening lay ahead. These thoughts left Terry feeling very conflicted, with a difficult decision to face. Should the alleged sexual harassment be reported, and if so, to whom?

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 1-5

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412254

Document URL: http://search.proquest.com/docview/192412254?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 26 of 100

ENRON CORPORATION: FROM BOOM TO BUST - A CASE STUDY

Author: Ghosh, Arvin

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Abstract: None available.

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I. Background of the Company

Enron Corporation's beginning was quite modest. It started out as Northern Natural Gas Company, and incorporated in Nebraska in 1930 by three other companies - North American Light & Power Co. and United Light & Railways Co., each owning a 35% interest, and Lone Star Gas Corp. owning the remaining 30%. These three companies were sole stockholders until 1941 when United Light & Railways Co. sold its holding to the public and Lone Star Gas Corp. distributed its interest to its stockholders. North American Light & Power Co. held on to its stake until 1 947, when it sold its shares to the underwriters who then offered the stocks to the public. Northern Natural Gas Company was enlisted in the New York Stock Exchange also in the same year.

The Company grew mainly through acquisitions. It started in 1 944 when Northern acquired the gas-gathering and transmission lines of Argus Natural Gas Co. In the following year, Argus properties were consolidated into Peoples Natural Gas Company, a subsidiary of Northern. Through Peoples, the Company made a series of acquisitions in subsequent years. It also created a few other subsidiaries one of which brought Canadian gas reserves to the Continental United States. Northern made several acquisitions in 1967 and continued expanding during the 1970s. In 1980, it changed its name to InterNorth, Inc.

In 1983, the Company acquired Belco Petroleum Corp. through cash and stock offerings. In 1985, it made its biggest acquisitions - Houston Natural Gas Corp. for approximately $2.4 billion when Mr. Kenneth Lay, the Chairman of the latter, became the Chairman & CEO of the merged company called HNG/InterNorth. In 1986, the company's name was changed to Enron Corporation, and under Mr. Lay's leadership the Company grew fast through further acquisitions and consolidations. In 1990, it formed Enron Europe Ltd., and went multinational, becoming a very diversified company. Beginning in 1991, Enron built its first overseas power plant in England, and many other plants in industrial and developing countries in subsequent years. It also bought Wessex Water PLC, a British water and sewage company, and moved into energy trading and broadband communication services. Before its bankruptcy, Enron was operating under three primary organizational categories: Enron Wholesale Services (EWS), Enron Energy Services (EES), and Enron Global Services (EGS). Enron Wholesale Services consisted of five groups. EES consisted of four groups, and EGS was composed of seven groups. It was the 7th largest corporation in the United States in 2000.

IL A Brief Chronology of Enron's Collapse

Like most crises, Enron's was in the making for quite some time. Its many ventures outside the energy industry - from water supply to paper pulp, and its ventures outside the United States from windmills in the U.K. to electric power plants in Brazil and India, became financial failures and dragged the Company down. As a result, debt soared while cash shortage loomed precariously. The Company tried to sell its poorly performing foreign assets to the tune of $7 billion in Summer 2000, but the deal faltered and the situation became worse. Then the Company tried to sell its foreign assets piece-meal. But that, too, failed. As the last resort, it turned more to Mr. Andrew S. Fastow, its then Chief Financial Officer, to keep the Company afloat through various partnership deals which originally were started in 1997 and worked for a while until the whole deal unraveled in the Fall of 2001.

Actually, the root of Enron's current crisis was the creation of off-balance sheet partnerships under Mr. Fastow. Staring from 1997, Mr. Fastow set-up such partnerships as JEDI, RAPTOR, LJMl, LJM2, and CHEWCO, to name a few. The main purpose of these partnerships was to shift the incurring debts off the balance sheet of Enron Corporation. Also, Enron took resort to so-called 'structured finances' arranged by large commercial banks and investment banks where loans were disguised as trading activities. In all, Enron took advantage of accounting rules to avoid reporting of some $3.9 billion in loans off its balance sheet during the last ten years before its collapse.

But the problem came to the surface when some of these partnerships became unglued, particularly LJM2 and RAPTOR. The main financing of these partnerships was putting up Enron stocks as collateral, and when the price of that stock fell below a certain level, it created pressure to cover the debt which was not in the balance sheet. It was also found that many of the trading activities of Enron's divisions were engagements in self-dealing and so-called 'wash' trades. For example, it was reported that the most of the profits generated by Enron Energy Service (EES) were 'illusory.' In the end, Enron was forced to restate its earnings for the last five years by nearly $600 billion.

Enron's problems came to a head in October 16 of 2001, when the Company disclosed $1 billion in write-down and an unusual $1.2 billion reduction in shareholders' equity in the third quarter of that year because of transactions with the investment partnerships controlled by Mr. Andrew Fastow who was ousted one week earlier. On the same day Moody's Investor Service announced that Enron's long-term debt obligations were on review which were then two notches above the 'junk bond category. Enron's credit rating was indeed downgraded on October 29. On October 31, the SEC announced that it had opened a full-fledged investigation into whether Enron misled investors.

In a last-ditch effort Enron tried to merge with its Houston rival Dynegy Corporation when the latter was agreeable to acquire it for $8 billion. When that attempt failed, Enron had no recourse left but to file for Chapter 11 bankruptcy in New York City Court on November 2, 2001 . Enron did sue the Dynegy Corp. for reneging the agreement, a part of which was to hand over the control of Northern Natural Gas Co., its wholly-owned subsidiary to Dynegy. It was quite an irony that when Dynegy sold this unit a few months later to another company, Enron had no connection with the original company through which it started its far-flung ventures to become 'the best company in the world,' to quote Mr. Kenneth Lay, its erstwhile Chairman and CEO.

III. Analysis of Financial Statements

In 2001, Enron restated its financial statements for the preceding four years, i.e., from 1997 through 2000. Therefore, we should be calculating the key financial ratios for both the reported data in the financial statements and the data from the restated financial statements. In Table 1, we have shown the leverage and the profitability ratios for both the reported and restated data. Here we find that within four years, Enron's debt had increased by 10% to a very high figure of 82.49%, but the restated debt ratio was even higher-to the tune of 86.98% in 2000.

In 1999 alone, the debt ratio was shown as 77.33% in the original balance sheet, but in the restated balance sheet it was 76.80%, and for 2000 it was 86.98% - a 1 3% increase in actual debt ratio within one year. The same trend we find for debt/equity ratios as well as asset leverage ratios in percentage terms. As for the profit margin, it was less than 1% in 1997 and in 2000. Although the return on asset had increased during this period, still it was less than 2% in 2000. Return on equity, though improved somewhat, was much less than the industry average for the same time period.

In Table 2, we have shown the abbreviated cash flow analysis taken from the reported and restated data for 1997-2000. We find that, except for 1997, restated net income was considerably less in all the remaining years, and the restated net cash flow, although increased significantly in 2000 from 1997, was much less as compared to the reported data. The curious thing was the reported net working capital data for 1999-2000. While in 1999 it was a negative $ 1 billion, in 2000 it turned into a positive $1.77 billion-a suspicious one-year improvement commented by a few financial analysts as reported in the media.

In Table 3, we have calculated Altman's Z-score for 1996-2000 to gauge the probability of bankruptcy for Enron Corporation.

We find that from 1996 to 1998, it was in the potential bankruptcy area as the Z-score was less than 1.8. Although the Z-score was improved somewhat in 1999-2000, still it was in the gray area of potential bankruptcy, and never in the safe area of 3.0 or greater during the last five years of Enron's existence before plunging into actual bankruptcy in 2001.

In Table 4, we have calculated the intrinsic value of Enron's stock, following the dividend valuation model (the Gordon Model).

We find that while the equilibrium or intrinsic value of Enron's stock was $46.68, its average price was $53.00 in 1999, and the 52-week highest price of its stock before declaring bankruptcy was $76.06 - a much over-valued stock in the New York Stock Exchange. Still the stock market was enamored with Enron's stock and most of the analysts were enthusiastically making the 'buy' or 'hold' recommendation before its total collapse. As a matter of fact, the danger signals it emitted should have been exposed to the investing public by the financial analysts as a warning for investing in Enron at their peril . IV. The Enron Environment

Although Enron Corporation as a viable entity is finished at the present time, still within a relatively short period it has created such a pervasive and corrupt environment that its impact will be reverberated throughout Corporate America for quite some time. We can mention here only a few glaring examples:

Cooking the books. Although Enron did not invent the so-called 'creative accounting,' it had stretched it to the limitby its 'pro forma earnings report' when all kinds of future earnings, to be realized or not, were included to inflate netincome, and stock price.

Creating off-balance sheet partnerships. Here debt of the parent company could be shifted which would not show in the financial statements of the firm. All these Enron partnerships such as JEDI, Chewco, LJMl, LJM2, and Hawaii 125-0, to name a few, were created to conceal more than $4 billion of debt and enrich some participants unseemly.

Using offshore tax havens such as Bermuda and Cayman Islands extensively. Although Enron was not the first one, but using almost 900 subsidiaries and other techniques in tax-haven Caribbean islands, Enron paid no U. S. corporate income tax for the last five years before taking shelter under the bankruptcy court.

False trading activities to boost up demand and stock prices. Before 'round-trip' trading in the broadband market, Enron almost perfected the practice of computerized desk-top energy trading which included many bogus trades and self -dealing called 'wash trades.' This helped to raise the price of electricity in such states as California, by taking advantage of its deregulated atmosphere. This, in turn, had created such a speculative fervor that many other energy traders like Dynegy, Duke, Reliant Resources and CMS Energy followed suit, to their dismay when exposed to the media later on.

Entering into the consulting business with this so-called 'expertise.' For its intimate knowledge in off-balance sheet partnerships and setting them up in Caribbean islands to avoid showing debt and tax burdens of the parent company, had created an opportunity for Enron to go into the consulting business with many large Fortune 500 companies. Enron tried to market various potential fraudulent 'earnings management' techniques such as 'accelerating earnings' to other big companies.

Creating 'see no evil' environment with the outside auditing firm. Enron had shown how, by enticing high fees for consultation, it could totally compromise the watch-dog role of a reputable public accounting firm such as Arthur Andersen, and convert the latter into a rubber-stamp auditing entity. It was reported that the Andersen partners in the Enron account ignored the advice of its own specialists and that the auditors shirked to examine properly the representation made by the Enron management.

As a fall-out of this pernicious environment, the United States Congress had passed and President Bush had signed into law a bill which tightened many irregularities of the U.S. corporations and imposed stiff penalties and longer jail time for the convicted corporate officials. Also, the SEC has clamped on a new regulation by which all CEOs and CFOs of big U.S. companies have to sign the financial statements vouching for their veracity.

V. Concluding Remarks

Enron Corporation was drowned by its own debts, bonds issued mainly to finance its far-flung projects throughout the world which became money-losers and enormous burdens to the parent company. To hide these debts, its officials created many off-balance sheet partnerships such as RAPTOR, and like that bird of the Jurassic Period which as a pack used to hunt and prey huge dinosaur, it killed the giant company within a very short time.

Enron as a company may come out from bankruptcy by going back to its basic business, namely, transmission of natural gas through pipelines and generating and managing electric plants. But its glory days are over. Through deceit and deception it had set a conflagration in which all its big dreams had turned into ashes.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 9-14

Number of pages: 6

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412179

Document URL: http://search.proquest.com/docview/192412179?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 27 of 100

COOPER TIRE & RUBBER COMPANY: THE NEW EXECUTIVE COMPENSATION PLAN

Author: Kargar, Javad; Amatong, Kofi

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Abstract: None available.

Full text:

BACKGROUND

Cooper Tire & Rubber Company was a manufacturer of replacement tire and automotive components, headquartered in Findlay, Ohio. The company had been in business for over 80 years and operated out of two separate operating groups: Cooper Tire, and Cooper- Standard Automotive. It operated more than 60 production facilities in 13 countries and employed more than 21,000 people.

The Tire Group was the seventh largest tire manufacturer in the world. Its primary product lines included automobile, truck and motorcycle tires, which were sold nationally and internationally in the replacement tire market to independent dealers and wholesale distributors. Sales of the company's tire segment were $1.7 billion in 2001, a decrease of $98 million, or five percent, from $1.8 billion in 2000. And its tire unit sales for 2001 were down eight percent from 2000. Operating profit decreased from $184 million in 2000 to $73 million in 2001. Operating margin was 4.3 percent in 2001, a decrease from 10.2 percent in 2000. Industry-wide sales of replacement tire in the United States market decreased in 2001 by approximately 4.7 percent from 2000 sales levels. Consumer demand softened in early 2001 due primarily to weakened United States economy. This softening continued throughout the year and was exacerbated by the events of September 1 1 , 200 1 . In addition, foreign produced, low-priced tires continued to be imported into the United States market at high levels. The outlook for replacement tire market was expected to be a challenging in year 2002 and beyond.

The Company's automotive segment produced body sealing systems, active and passive vibration control systems, and fluid handling systems primarily for the original equipment manufacturing (OEM) automakers around the world. Light vehicle production in North America declined by approximately ten percent to 15.5 million vehicles from 17. 1 million vehicles in 2000, which was the highest level ever recorded, and represented an increase of approximately one percent over 1999 levels. Sales for the company's automotive segment were $1.5 billion in 2001, a decrease of 13 percent from $1.7 billion in 2000. Operating profit of the automotive segment was decreased from $69 million in 2000 to $39 million in 2001. Operating margins were 2.6 percent in 2001, versus 4 percent in 2000. On the positive side, the segment benefited from North America fluid systems production in Mexico, where the cost structure was significantly lower than in the United States. Although the company expected that 2002 would be a difficult year if economic conditions remained weak, emphasis on continuous improvement, lean manufacturing and other cost reduction efforts were required to remain profitable in this environment.

THE NEW EXECUTIVE COMPENSATION PLAN

Cooper had undergone dramatic change over the years 1999-2001. During that time period, the company had identified a growth strategy, and hired a new chief executive officer charged with implementing that strategy. In 1999, Cooper completed the acquisition of the Standard Products company and announced an agreement to acquire the Siebe Automotive Division of Invensys, which was subsequently completed in January 2000. As a result of the aggressive efforts taken in response to the Board's direction, the company had nearly doubled its revenues, had significantly diversified and broadened its product lines and organizational structure, and had further penetrated its key markets. Given the magnitude of change associated with these transactions, the company revised its executive compensation programs to better support the requirements of the new organization. The company determined that in order to maximize shareholder value, the company's executive composition program should meet the following objectives:

Attracting and retaining outstanding executive talent

Providing superior financial rewards when the company achieves superior financial performance

Providing incentives through cash bonus payments to meet both the company's short and long-term performance objectives

Aligning the interests of the company's executive officers with those of its shareholders

As a result of this review, a number of changes were made to the executive compensation program for 2000 and beyond, all of which were within the boundaries of the 1998 Compensation Plan approved by stockholders in 1998. The changes included:

Targeting the base pay element of the company's executive compensation program at median levels for comparable positions at U.S. industrial companies

Targeting annual and long-term incentive elements of the program at levels based on survey data for publicly held U. S. industrial companies

Replacing return on equity with return on invested capital as the performance measure for corporate officers in the annual bonus plan

Replacing ROE for corporate officers with operating cashflow as the performance measure in the long-term cash incentive plan

Replacing return on assets managed for division officers with a growth element based on generation of operating cash flow as the performance measure in the long-term cash incentive plan

To accomplish these objectives, the company's executive compensation program consisted of four key elements: base salary, incentive compensation based upon meeting designated performance targets over a one-year period; incentive compensation based upon meeting longer-term performance targets over a three-year period; and equity-based compensation, consisting primarily of stock options. The aggregate value of these elements was intended to deliver competitive compensation for each position and was based on survey data for publicly held U.S. industrial companies comparable in size to that managed by each executive officer. The company estimated that as of March 5, 2001, approximately 400 managers were eligible to participate in the Incentive Plan.

Annual Salaries

The Committee determined the base salary of each executive officer of the company. Each base salary was targeted to be at the median for the position at U.S. industrial companies similar in size to the company. The group of industrial companies used as a comparison for determining the base salaries of the company's executive officers, as well as the other elements of their compensation package. Variations from the median in the base pay of certain executives were based upon the specific job responsibilities of the position, the job performance, and the individual's tenure in the position.

Annual Cash Bonuses

The annual bonus of each executive officer was determined by two factors:

1. The percentage of base salary that a particular officer will receive if the "performance target" established, by the Committee at the beginning of the year for the business unit was exactly met.

2. The performance of that business unit relative to the performance target established for the unit by the Committee. Beginning in 2000, the performance target for corporate executives was based upon the company's return on invested capital (ROIC), rather than return on equity (ROE). For executive officers employed in a business unit of the company, the performance target was based upon that business unit's return on assets managed (ROAM). If the performance target was met, each officer in that business unit would receive his or her target bonus percentage. If actual performance was 80% of the performance target, a bonus of 50% of the target bonus percentage would be paid. If actual performance was less than 80% of the performance target, no bonus would be paid. If the performance target was exceeded, an additional 5% of the target bonus percentage would be paid for each percentage point by which actual performance exceeded the performance target.

Long-term Cash Bonuses

In addition to annual cash bonuses, the company provided its executives with an opportunity to earn additional incentive compensation based upon meeting performance targets established for a three-year period. Beginning with the 2000-2002 performance cycle, the performance target for all corporate and business unit executives were based upon the generation of operating cash flow (net operating profit after tax plus depreciation and amortization) calculated for the company or a business unit, in relation to the operating cash flow targets set by the Committee for the company and each of its business units. Under the program, a "target cash amount" was established for each executive, which would be paid in the year following the end of a three-year performance cycle, if performance targets established by the Committee for the cycle were exactly met. If the actual performance of a business unit varied from the performance target, the actual cash bonus payable would be greater or lesser than the target cash amount. If actual performance was less than 90% of the performance target, no bonus would be paid. If the actual performance was 90% of the performance target, a bonus of 50% of the target cash amount would be paid. That amount would increase by 5% for each percentage point increase in the actual performance of the unit as a percentage of the performance target. If the performance target was exceeded, an additional 10% of the target cash amount would be paid for each percentage point by which the actual performance exceeded the performance target.

Stock Options

In awarding stock options to the company's key executives, the Committee intended to provide those executives with a direct opportunity to benefit from long-term increases in shareholder value as reflected in the company's stock price. Options under the plan were generally granted for ten-year terms and become exercisable in two equal installments, one and two years after they are granted, respectively. This plan provided for the issuance of up to 5,000,000 shares of Common Stock.

RESULTS OF THE NEW PLAN

Two years after the new executive compensation system was introduced, some operating units executives were disgruntled with it, claiming that they had to work harder but made no annual cash bonuses. The actual corporate performance in 2001 was less than 80% of target performance, resulting in no annual cash bonuses to corporate executives, and also no payouts were made to any business unit executives but one. Fearing that some of his executives might quit, Mr. Dattilo was under pressure to find a way or possibly modify the executive incentive plan to meet its intended objectives.

Cooper's stock had lost about 60% of its value over the five-year period ending in 2000. And over the same period, the company's stock had under-performed all six of its peers in the S&P 500, auto parts and equipment. But, with most of the stocks performing poorly in 2001, Cooper's stock price improved slightly in 2001.

THE NEXT MOVE

There was no formal monitoring system by Cooper management to determine the impact of the new executive compensation plan. For Mr. Dattilo, the preliminary results were not quite encouraging. His sales revenue had decreased slightly, and his net income decreased more than half, and some of his executives were not happy. In fact it came as no surprise to Mr. Dattilo when Jack Luthy one of the division executives expressed his frustration about the new executive compensation plan. Although Mr. Dattilo regarded Jack as a competent executive who had the potential to do even better with the division, he was concerned that Jack might need some behavioral changes with regard to the new compensation system.

From his conversations with some executive officers, Mr. Dattilo had made some notes about several issues he wanted to discuss with the Board members at the upcoming meeting. He was not sure how the executive compensation problem should be fixed, but he knew something should be done soon. "Well, may be a brilliant idea will come to me over the weekend," he mused as he headed to the airport.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 15-19

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412221

Document URL: http://search.proquest.com/docview/192412221?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 28 of 100

ECAMPUS.COM: AUGUST CRISIS

Author: Loy, Stephen L; Brown, Steven

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Abstract: None available.

Full text:

STRATEGIC ALLIANCE

Ecampus.com was the brainchild of Wallace Wilkinson, who along with nine other investors, invested $51 million to create Ecampus.com. Impetus for the venture came from a Request for Proposals (RFP) issued to college textbook store management companies by the University of Maryland (UM) System in the fall of 1998. The UM System has multiple campuses in Maryland and on military installations and ships around the world. Thus, the RFP required a fully transactional Web site to allow students to buy their textbooks from anywhere in the world.

Wilkinson viewed Ecampus as a way to expand the sales of WCTC even if it cannibalized some sales from WBI's campus bookstores. When asked about Ecampus hurting WBI's sales, Wilkinson replied that it was "better to cannibalize my own campus textbook sales rather than have someone else do it."

The purpose of the alliance was to allow Ecampus to focus on the website storefront operations, marketing and sales, and handling credit card transactions. The WCTC was fully automated to handle the warehouse operations, inventory management, purchasing supplies and shipping. The information technology architecture allowed customers to place orders and make payments at the Ecampus website. Then, the order information is transmitted via a secure frame relay Tl line to the WCTC warehouse, located three miles from the Ecampus computer center. Once received, WCTC warehouse management software optimizes the picking, packing and shipping processes for each order, and orders are immediately filled and shipped via United Parcel Service. For books not in stock, a purchase order is electronically transmitted via EDI to the appropriate supplier or publisher who ships the books directly to the customer.

INITIAL IT ARCHITECTURE

The information technology architecture of the Ecampus Web site consists of the front end, also known as the "store front," and back end systems. The front end components and applications are what visitors see and interact with when visiting the Ecampus.com website. A team of developers from Oracle, Inc. wrote the store front applications using the Java programming language. From the beginning, Ecampus wanted to be the "most high tech of the high tech" e-commerce businesses. To that end, they wanted to create an innovative store front that was "the easiest and fastest place to buy textbooks ... on the Internet."

The Ecampus business model was unique to e-tail e-commerce. While everyone else was trying to keep visitors on their site and viewing as many pages as possible, the Ecampus model was to have customers to find their items, pay for them and leave the site as fast as possible. The model was based on their understanding of college students. According to Jack Garvin, "Our key to success is understanding the Internet users' demand for high quality products, excellent customer service, excellent security, and fast loading Web pages that are easy-to-use. We have to understand our customers and the college students' life style. It's all about creating a relationship that meets the customers demands."

The business model was based on the belief that customers already know what books they need, they just want to get them fast and without any hassle. This model meant that the web pages had to load fast, and the search engine and payment/check out process had to be simple and fast. An innovative application to speed things up was the "traveling book bag. " The traveling book bag, developed by Oracle for Ecampus, was unlike typical web shopping carts in that the total sales and savings are displayed at the top of every page as the customer moves from page to page. Also, the customer can view the contents of the book bag, without having to wait for another Web page to load. Other proprietary applications developed by Oracle included inventory searches, order processing, calculating shipping costs and delivery times.

The front end systems were supported by a Sun database server that housed the Oracle 8i database management system, and product, sales and customer databases. The back end systems included the application server that contained the web pages for the storefront and the programs to process orders, validate credit card information, interface with the WCTC warehouse, order confirmation and shipment tracking.

AUGUST CRISIS

When most colleges and universities in the U.S. began the fall semester in mid August, the deficiencies in the Ecampus.com website became apparent. A ten million dollar advertising campaign that included commercials on the Comedy Channel, Cartoon Network, VHl and TNT cable television networks immediately generated more than 60,000 visitors a day to the Ecampus.com web site. At the peak, approximately 20,000 people were trying to download a web page from the Ecampus site. The volume of traffic overwhelmed the Ecampus network. Response time degraded to almost a crawl.

The main problem was that the web site was designed to handle 2,000 concurrent page requests or roughly 2000 web site visits. Ecampus had based its network capacity on the experiences and peak traffic of other web-based businesses, and its prediction of consumer response to its advertising campaign. "We did everything you're supposed to do to predict demand. However, the response generated by the advertising campaign was far beyond anyone's wildest dreams. No one could have predicted it. It was off the wall," explained Doug Alexander, V.P. of Planning and Development.

As the network reached its capacity, the Windows NT operating system became unstable and response times were so slowthat customers either terminated their connection or were disconnected. On top of these problems, the electrical power for the Ecampus computer center was knocked out for two hours when the Oracle service technician backed the service vehicle into the electrical power box servicing the building. "We knew we needed a backup power source, but we were too busy just getting the site up and running," Jack admitted.

The failure of the network resulted from several problems. First, the Windows NT network operating systems became slow and unstable under the heavy traffic load. While the problem with Windows NT was widely known in e-commerce circles, it had not been a serious problem because no e-commerce firm had experienced the sudden traffic volume like Ecampus did. Second, the beta version of the Oracle Application software Ecampus used had a bug that limited it to handling 362 concurrent processes or web page requests. Third, the Proliant computers in the server farm could not be scaled up by adding more processors to the mother boards. Ecampus would be off the Internet for two days while it added more servers and rebooted Windows NT. The fourth problem was the lack of an emergency electrical power source. The fifth problem was the Tl service lines had insufficient bandwidth to handle the volume of traffic. Greater bandwidths or "fatter pipes" sufficient to handle Ecampus' high volume of traffic were not available in the Lexington area.

NEW IT ARCHITECTURE

The Web store front is a mission critical system for Ecampus. Creating an IT architecture that is highly reliable, scalable, and security was imperative. To this end, Garvin established a total redundancy policy for firewalls, switches, routers, TI lines, load balancers and servers. The new IT architecture boosted capacity of the system from 2,000 to 6,000 simultaneous users.

Capacity and reliability were enhanced by increasing the number of Tl service lines four and adding redundant with a failover link. Also installed were a Cisco autosensing Fast Ethernet 12-port switch designed for 100BaseFX fiber connections; redundant load balancers with enhanced disaster recovery capabilities; a battery backup power supply that could power the data center for up to seventy-two hours; and a total database replication (mirror) system to preserve all data and processes.

To achieve better scalability the Windows NT network was switched to a Unix system that included fifteen Sun Solaris web servers.

WHAT NEXT?

Once the upgraded system was running smoothly, Jack began to think about the future. Obviously, Ecampus was going to grow much faster than planned. Management had prudently anticipated a gradual growth pattern for the company, but the sales volume was already two-three years ahead of the plan. The new architecture, as powerful as it was, could not handle the likely growth of the company. By mid January, the Ecampus web site had to be ready to handle 50,000 concurrent visitors and one million page swaps per day.

Jack identified two options. Option one is to expand the server farm to approximately sixty servers and to upgrade the telecommunication link to the Internet to a T3 service. The bandwidth of a T3 is approximately twenty-nine times greater than a T1. The T3 change is about $20,000 per month and the leasing additional servers would cost about $15,000 per month. Also, three more information systems employees would need to be recruited. The cost of the new employees would be another $16,000 per month. This option might get them through the next year. After that, the growth in sales would exceed the capabilities of the bandwidth. Then, Ecampus would have to relocate its store front if fatter pipes were not available in Lexington by then.

Option two is to outsource the front-end operation a host provider with a large server farm on the Internet backbone, preferably the hub, where the greatest bandwidth is available. Several providers are located in the Washington/Northern Virginia area where AOL, Oracle and other companies with high Internet demands have large operations. Northern Virginia is on the "hub" of the Internet and in the Philadelphia, New Jersey, Washington, D.C. regional loop that is serviced by OC-96 bandwidth in 1999. The loop will be upgraded to an OC- 192 by summer 2000.

This option would not require moving any employees or hiring additional personnel or installing any additional hardware or software. Several T1 lines or a single T3 service line would electronically link the remote store front to the Lexington center. With this set up, the web pages, copies of the product and customer databases, and the order processing programs would reside on the Vienna system. When a customer places an order, the data could be immediately transmitted via a VPN to the distribution center (WCTC) for processing and shipping. Additionally, the customer and sales databases in Lexington would be updated to maintain a mirror copy of the Vienna databases. Thus, Lexington could function as a fully functional backup or "mirror site." The ten Java and XML programmers could continue to develop and maintain Web pages and program in Lexington.

Jack began to think about the advantages and disadvantages of these options and what Ecampus should do. It was now mid-September and a decision had to be made soon so they could implement it by December 14. The very survival of the company was at stake. The critical issues are: What is the better option for handling the large volume of traffic that will come to the Ecampus web site in January? Also, what is the better option to support rapid growth in the future? Making the right choice could greatly enhance the value of the company's stock when it is put up for Initial Public Offering (IPO) in May.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 23-27

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412406

Document URL: http://search.proquest.com/docview/192412406?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 29 of 100

CAR LOAN PAYMENTS AND TIME VALUE OF MONEY

Author: Macy, Anne

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Abstract: None available.

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TEACHING POINTS

Carrie and her friend Shawna visit a car dealership so Carrie can purchase a new car. Carrie is looking to purchase a model close-out in order to save some money. Carrie's old car is a trade-in and acts as the down payment. The students calculate the loan payment given the purchase price agreed to by Carrie and the dealership. The students then calculate the present value of Carrie's loan payments. The difference is the amount packed. A second question concerns the amount of the monthly payment, the time of the loan and the total interest paid. It demonstrates the cost of a lower monthly payment over a longer time frame is more total interest paid. The third teaching point is an Internet exercise that has the students find prices of different years for a certain make and model of a car. This leads to a discussion on car price depreciation.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 29

Number of pages: 1

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412359

Document URL: http://search.proquest.com/docview/192412359?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 30 of 100

BEACH FOODS, INC.

Author: McLain, P Michael; Stretcher, Robert; Sharma, Jitendra K

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Abstract: None available.

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INTRODUCTION

Mike, as the controller for Apex Manufacturing, was examining the financial statements of Beach Foods, Inc. Beach Foods, Inc. wanted to establish trade credit. Normal trade credit terms in the food industry was 2/10n30. This allowed a quick turnaround in the account receivable for Mike's company.

Beach Foods, Inc. did not have a good credit history. Beach Foods, Inc. normally paid its bills after 40 days according to the credit report. Beach Foods, Inc. was privately held. Its stock was held be two brothers and their father.

Beach Foods, Inc. is looking at purchasing about $10,000 worth of product a month. Beach Foods, Inc. probably would not purchase any product from Apex Manufacturing, unless it was granted trade credit. Similar products could be purchased from Apex Manufacturing competitors.

Mike asked the salesman why, Beach Foods, Inc. was deciding to purchase from Apex Manufacturing since it had been purchasing from Apex's competitor. The salesman stated that Beach Foods, Inc. was purchasing from Apex because it had the lowest price. Mike is not sure that Apex is always the lowest price on its manufactured product.

It would have been an easy decision to turn the company down for trade credit, but Mike's new boss had come from the Sales Department and the company was now totally sales driven. Mike knew that has soon as he turned down giving trade credit to Beach Foods, Inc., the sales department would telephone Mike's boss and the decision Mike made would be overturned. Mike had to develop some method which he could get approved, to make the credit decision into a quantifiable method.

Mike's bonus at Apex Manufacturing is based upon Apex's return on investment along with the day's sales outstanding of the account receivable. The bonus plan is an all or nothing type of plan. You either hit your assigned financial ratios and earn your bonus or you miss the numbers and receive no bonus. Any increase in the day's sales outstanding could eliminate Mike's bonus. This bonus amounted to $15,000 last year and is slated to remain the same this year.

Mike had read about the bankruptcy prediction models developed by Beaver and Altman. If he could use one of these models to predict the credit worthiness of his customers, his accounts receivable problems might be solved. Mike'sboss, would then have to argue "against the numbers", and that would be more difficult. Besides, if the Board of Directors questioned the rise in day's sales in account receivable; he would have plenty of documentation concerning the credit decisions made.

Mike had obtained a copy of Beach Foods, Inc. income statement and balance sheet. A local CPA had reviewed these financial statements.

Because Beach Foods, Inc. was privately owned, the normal Altman Z-score model does not work. Altman provided two other Z-score models in his book for privately owned firms.

Beaver's univariate model is cash flow/total debt. This model had a prediction accuracy of 95% in the year before bankruptcy. Other predictive ratios used by Beaver included net income/total assets, total debt/total assets, and current ratio. He found that cash flow/total debt had some predictive ability five years prior to bankruptcy.

Altman used several variables in combination to predict the ability of a firm to continue. The classic Altman model is Z = .012X1 + .014X2 + .033X3 + .006X4 + .999X5. Xl is defined as Working Capital/Total Assets, X2 Retained Earnings/Total Assets, X3 Earnings Before Interest and Taxes/Total Assets, X4 Market Value of Equity/Book Value of Total Debt, and X5 Sales/Total Assets. A score of less than 1.81 is an indication of bankruptcy, between 1.81 to 2.99 a gray area, and above 2.99 an indication bankruptcy is not likely.

The problem with this model is that it will not help Mike and Beach Foods, Inc. Beach Foods, Inc. is not a public company and X4 could not be calculated. Substituting book value for market value is a poor substitution. Since book value is based upon historical costs under accounting rules, while market value is based upon fair market value.

Altman provides for revised weighting based upon book value substitution. This will be referred to as the five variable model. Z = .717X1 + .847X2 + 3.10X3 + .420X4 + .998X5. X4 is defined as net worth (book value)/total liabilities. All the other X items remained as defined above. The scoring area changes to less than 1.23 an indication of bankruptcy, between 1.23 to 1.81 an indication of possible failure, and above 1.81 an indication of going concern.

Altman also provided a four variable model as Z = 6.56X1 + 3.26X2 + 6.72X3 + 1.05X4. Xl is defined as working capital/total assets, X2 retained earnings/total assets, X3 EBIT/total assets, X4 Net worth (book value)/total liabilities. Below 1.10 is an indication of bankruptcy, between 1.10 to 2.60 an indication of possible bankruptcy, and above 2.60 an indication of a going concern. In the model Xl to X4 are expressed as percentages while X5 is expressed as an absolute value.

Mike can make two incorrect decisions. He can grant credit and then have Beach Foods go bankrupt or he can deny credit and Beach Foods could prosper. (Type I and Type II errors). Either error can be considered to be the incorrect decision.

Credit decisions are often made in business. They are based upon the five "C's" of credit. They are capacity, capital, collateral, conditions, and character. Capacity means the ability to repay the money borrowed. Capital means you have the financial ability to repay with available assets. Collateral is the security that exists in the event of nonpayment. Conditions mean what the money is going to be used for or also is the current economic climate. Character means the people running the company. Many credit professionals will look at not only the character of the firm, but also the character of the management. Running credit reports on the payment history of the company and credit reports on the firm's management.

Generally in trade credit collateral is not given. Collateral would be provided for such loans as bank loans or other borrowings.

With the five "Cs" of credit, some of the determining factors are subjective. In addition, they are not provided equal weights. Some of them are considered more important than others.

QUESTIONS

1. What is the meaning of Reviewed Financial Statements? Why are they different from audited financial statements?

2. What is the prediction ratio for the Altman four variable model?

3 . What is the prediction ratio for the Altman five variable model?

4. What is the prediction ratio for the Beaver model?

5. What other financial ratios do you think could be used? Are multivariate or univariate models better? Why?

6. Do you think financial ratio analysis is better at predicting short or long-term financial position? Explain why?

7. Would you grant trade credit to Beach Foods, Inc?

8. What credit limit would you assign?

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 31-35

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412232

Document URL: http://search.proquest.com/docview/192412232?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 31 of 100

ADJUSTING TO RAPID GROWTH AND NEW TECHNOLOGY: THE EDUSAT PROJECT

Author: Stretcher, Robert; Hynes, Geraldine E

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Abstract: None available.

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THE BEGINNING OF A GREAT DAY

Robert Viner walked into the hallway where preparations were being made for the 9:00 AM quarterly staff meeting. He noticed that people were not in the usual demeanor of coffee and donut consumption while cordially visiting with one another. There seemed to be a tense buzz among the staff, who were intensely conversing in the hallway and in the meeting room. Viner saw his administrative assistant, Mike Lawrence, toting a stack of papers into the meeting room. "Good morning, Mike. What is all this?"

"We'll need these when we discuss the expansion in volume. Michelle in tech support and Donna in customer service are both complaining about the workloads. They say they have been putting in twelve-hour days since mid- July, and that they have been inundated with calls from our customers. " Mike thought for a moment. "In fact, I have been getting a lot of emails lately from irate customers complaining about the lack of service."

"We have an hour until the meeting," Robert replied. "Why don't you pull our customer database and run a graph to show growth? And while you're at it, let's get some numbers from the university operator on call volume and response time. They can probably provide that for us within an hour. If they can't, call the business office. They should have a record until the end of July; I know we got the bill for July already."

"Will do," Mike said.

Robert heads the Division of Satellite Learning (DSL) at Cokesbury University. He came to the university in 1996. He accepted the Director's position with the charge of making Cokesbury a premier provider of satellite education from primary to master's levels. Robert has enjoyed a great deal of support and funding from the university's administration.

A CUSTOMER CALL

Robert walked to the end of the hall, where his office was already open. The division secretary, Shera, was on the phone. "Ma'am, I will certainly give him the message, and he does return his calls. . .oh, he just walked in. Hold for a second. " Shera turned to Robert. "I know you don't like to take direct calls, but this lady is in a panic. She has just set up her system and says she can't get through our help line. Wanna take it?"

"Why not?" Robert replied. "I'm in a productive mood today." Robert closed the door to his office and picked up the phone. "Hello.... yes, I'm Robert Viner, and I am the project's director."

"At last!" the voice replied. "I am Joyce Vernon. I ordered your satellite equipment to do home schooling this year. We had a time setting it up, but worked through it with your technical staff. The last time I was able to get through on your help line was a week ago. We always had to wait for lengthy periods for the help, but someone would eventually answer. This past week I have tried to call at least twenty times. I have been put on hold for up to an hour, and half the time they hang up on me after I have waited on hold. That's a pathetic way to end an hour of my time, especially since, while I am on hold, I'm being told every 30 seconds that my call is very important to you and that you very presumptuously appreciate my patience." The voice paused. "I'm about ready to send your equipment back and forget trying to deal with your poor service. Your brochure said that service is your priority."

Robert groaned silently to himself. "I'm terribly sorry you had problems, Ma'am. We have had a tremendous call volume this month, and it should slack off a bit after school starts in September."

"Oh, I feel much better about this week now that you've said that. I still can't get through, and programming for my child's classes supposedly starts tomorrow! Call volume slacking off after September isn't going to help me a bit! Your call center is in dire need of help. Why don't you just admit it and get the help your customers need and the help that I need? Hanging up on me after I've waited on the phone for an hour isn't MY idea of customer service!"

"I'm sorry you feel that way, Ma'am," Robert replied.

"Oh, Puh-lease don't apologize for the way I feel! " her voice sounded loud and irritated now. "I feel the way anyone would feel after being duped by your ads and treated the way I've been treated! I wasn't born yesterday, and I'm not the stupidest person around. I have a master's degree in education, and as far as I know, I haven't claimed to be excellent unless I really delivered! AND I don't tell people they are important to me unless they ARE!!! Your University is associated with the church, right? Don't you believe that your actions tell the truth, regardless of what your words say?"

Robert winced. He felt the same way when people apologized for the way he felt. "I do apologize. We obviously have a problem, and I will get someone to call you from our tech support department. Please give me your phone number or email address, Ms. Vernon."

"What assurance do I have that they will call me, and will they call before tomorrow?" the voice asked.

"I will give you my personal assurance that someone will call you today, before 4:00. If they don't, you can call me back through a different number." Robert gave her the direct line to his assistant. "I will talk to our support staff within the next hour."

"Thank you. I hope this works," Joyce replied.

"I assure you it will. Goodbye. " Robert hoped his assurance that things would work was true. The call was unsettling, especially if others were experiencing the same thing.

THE QUARTERLY STAFF MEETING

Robert had been stopped six times on the way to the front of the meeting room. His staff had shared some nightmarish happenings with him. The phone system had indeed been malfunctioning, and customers had been calling the academic dean's office to complain. Orders for new satellite systems were backlogged by a week, and customers were experiencing problems because of a glitch in the updated software package for the system. Additionally, new customers were experiencing equipment problems with a certain type of receiver, and were clamoring to exchange the equipment. Robert had prepared an agenda for the meeting, but decided to just conduct more of a 'town meeting', since these urgent problems needed to be worked out first.

"OK, folks, the August staff meeting will come to order" Robert began. "I am going to forego the agenda today so that we can concentrate on some pressing problems. My office has received many calls complaining about the poor service we have been providing. With the fall semester starting in two weeks and the home school material starting this week, we need to immediately address some of these issues."

"I'll start!" Michelle Verit stood up. She managed the technical support area, and had three equipment technicians and ten support technicians working for her. "I know you have gotten complaints about us. The new receivers and software have given us a fit. About half the receivers we delivered in the past two months have been defective. They will pick up the signal at our test facility, where we have the LNB's already pointed in the right azimuth and direction, but they won't begin picking up a signal when our customers are trying to aim theirs according to our directions. We've had to replace about 60 so far and we expect more. I can understand the frustration they are experiencing, and our staff is overloaded with the call volume. Our supplier, Igalactic, won't take any responsibility for them other than replacing them. I refuse to work our technicians more than ten hours a day. They work six days a week already, and these sixty hour weeks are getting to all of us. If we didn't have such a large call volume, we could handle things fine."

Donna Brewer raised her hand. She was the customer service manager. "We have received the brunt of the call volume, and we feel that too many systems were sold. We simply can't get to all of the calls. Customers are irritated at having to stay on hold for so long, and even more irritated that we have to transfer them to tech support and they have to wait even longer. Then, for the past three days, the phone system has been acting up. The university communications department said we're nuts, and that there is nothing wrong. But when I tried to call our service number, I got the same message our customers were getting. It said 'we are unable to answer your call at this time.' When customers can manage to get through, they are asking why we are so 'unable,' and with good reason. This is a terrible time for the phone system to be down."

Michelle Verit stood again. "I'm getting the same story from our customers. They're really angry aboutit."

Donna spoke up, "they're really angry about tech support, too. They're complaining to us about the attitude of the technicians. As far as I can tell, they're following your instructions, but the systems aren't working."

"That's Igalactic's fault," Michelle replied. "There's nothing we can do about faulty units."

"Our main problem is call volume," Donna said. "If we didn't have all these customers to deal with, we could easily handle customer service requests. Why did we sell so many units, anyway?"

Everyone turned and looked at Randy Hall, the marketing manager. "Now, wait a minute. If you didn't want to gain customers, why did you want marketing done? The problem isn't that I did my job too well. It's that you guys are not doing your job well enough! " Randy had been perturbed for a while because he had been asked to 'help out' in the customer service area, and marketing had been on hold for a month to limit new account growth. He was doing what he considered to be subservient work and not doing what he was hired to do - marketing.

Samantha Turner, the office manager for the service offices, spoke up. "There's no reason why we should get terse with each other. We need to deal with these things and come up with some steps we will implement to get them solved. "IfI can help get things done, I am willing to assist."

Robert slouched in his chair, thankful that Samantha had spoken up. "Thanks, Sam," Robert said. "We all need to adopt that attitude. The last thing we need is to get nasty with one another."

From that point, the meeting seemed to drag on. Robert finally sent everyone back to work after an hour, since no progress was being made in the meeting. He walked back to his office. Mike, his assistant, met him at the door.

"I think the sky is falling, Mr. Viner. You have received twenty-six calls during the meeting, all from angry clients, whom I have dealt with as best I can - I'm taking a break now. " Mike walked out of the office. The phone rang. The second, third, and fourth lines quickly followed. Mike stuck his head out the door. "Samantha, HELP! " he yelled.

COKESBURY COLLEGE AND THE DSL

Cokesbury College was founded in 1866 as a liberal arts institution associated with an assembly of protestant churches. The mission soon grew to include several divisions, including ministerial studies, business, and sciences. The college remained virtually unchanged until 1956, when an asserted effort to increase the size and breadth of the college began. After a successful fundraising campaign, new buildings were erected and the college became a university with four schools: liberal arts, business, education, and nursing. In 1992, a division of pharmaceutical studies was added, and in 1995, a division of satellite learning.

The university has maintained a loose affiliation with the church, but now has a much broader financial support base, and therefore answers to a greater variety of stakeholders. The initiation of the Division of Satellite Learning presented an opportunity to build a self-supporting division that would hopefully become a cash-generating venture. The university had spent a small fortune for the infrastructure to support the first few years of operation. By the end of the fourth year of operation, the division had generated cash flow sufficient to pay back one-third of the original investment in 1996. Most of that return had come in the third year, when the number of satellite learners had reached what appeared to be a critical mass, sufficient to continue operations with some additional support from the university.

THE WORD FROM THE DEAN

Later in the day, as Robert was walking back to his office from the faculty/staff cafeteria, he ran into the academic dean, Ed Devinna. "Hello, Robert!" greeted Devinna. "I need to talk to you."

Usually when Devinna said he needed to talk, it was either really good news or really bad news. He was good at leaving routine concerns for regular meetings. Devinna and Robert stepped over to a convenient bench. "I've been receiving phone calls about some problems people are having with your system, and with getting through to your staff," he began. "In fact, we've been getting these calls fairly frequently for the past few days. What's going on?"

"We have had some problems with the phone lines, and have had a tremendous call volume for the past two weeks. The problem with the phones started about a week ago, as far as I can tell. I've asked the communications director to handle it."

Devinna looked away for a moment. "We can't have this continue, Robert. I don't want poor service to be associated with Cokesbury. I consider this project to be equally important as our traditional programs."

"We're very aware of the problems that all of these new satellite students have created, and we're moving to correct them. We had a staff meeting this morning about it," Robert replied.

"New students are not the problem, Robert. New students are our survival," Devinna asserted. "Let me know your plans for dealing with this by tomorrow about this time." With that, Devinna said goodbye and headed off to his own office.

Robert walked back to his office. Mike had left the call volume report and a growth chart on his desk (exhibits 1 and 2). Robert pondered the information. The growth looked about as he had expected, perhaps greater than expected for the current month. The call volume report reflected the customer concerns that had been expressed to him, the customer service personnel, and unfortunately, to the academic dean's office. Average wait time had hit a high during the past week. It was almost one hour. Robert noticed another figure of interest at the end of the report. An item labeled 'timeouts' had been at a low level until the past few weeks. He picked up the phone and entered the communication department's extension. "Hello, Carol. How are you?" Carol was the communications director's assistant. "What does the timeout item mean on this report you sent me? "

"Oh, that's the number of times a held call timed out," Carol replied.

"What do you mean by 'timed out'?" asked Robert.

"Well, if the system indicates a hold, at the end of one hour, it times out and the connection is terminated. That is there because we have a limited number of lines, and sometimes a caller will disconnect, but it won't be detected. After an hour goes by, that line will reset."

Robert sighed. "What if someone really HAS been on hold for an hour? Would the system disconnect them, even if they're still on the line?"

"Yes." Carol replied. "But who would leave someone on hold for an hour? That would do wonders for Cokesbury's reputation, wouldn't it?"

"It would. Thanks for the info, Carol. Bye. "Robert flushed with embarrassment. "WE would leave them on hold for an hour and hang up on them, that's who," he thought to himself.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 39-45

Number of pages: 7

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412417

Document URL: http://search.proquest.com/docview/192412417?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 32 of 100

FEELINGS EXPRESSIONS: STARTING, MARKETING, AND GROWING A SMALL BUSINESS

Author: Robinson, Sherry

ProQuest document link

Abstract: None available.

Full text:

SCENE 1

Dave leaned over Lana's shoulder, grimacing as he examined the dangerously low balance of their checking account. His face didn't brighten when Lana pointed out that their savings account was just over the $100 minimum.

"When we had two incomes, we did fine. We had enough savings to get us through the last two years since Joey was born and I quit work, but now we're down to the bone," Lana sighed. "I hate to go back to work and leave him with a babysitter all day. Besides, that would take half the money I earn."

"I'd rather you stay with Joey, too. At least until he goes to school. If I were still an hourly worker, maybe I could get some overtime, but since I was promoted to management, my salary doesn't change."

"When I was in college," Lana recalled, "I took a course in small business management. Maybe I could start my own company. I've always wanted to be my own boss, just like my Mom."

"How did she get the idea to start her own business?" Dave asked.

"Well, she was looking for a pair of concrete lions to put at the bottom of the driveway and couldn't find any. That gave her the idea that there was a need and an opportunity."

Dave's eyes shifted toward the ceiling as he tried to think of something he had unsuccessfully searched for lately.

Questions

1. Identify an item that you have looked, but not found, in the last few months.

2. Why were you unsuccessful? For example, were you unable to find the product because it does not (to your knowledge) exist, or because it was not available in your area?

SCENE 2

Days went by while Lana and Dave tried to come up with business ideas. One evening, as Dave and Lana sat in rocking chairs on the their front porch, Lana described a conversation she'd had that morning. "Rachel Corson was telling me today that their old St. Bernard died. Their little boy Sammy is really upset. They want to put a memorial marker on the place where he's buried to make Sammy feel better, but don't want to spend the kind of money it would take to have a granite tombstone engraved. I told her I might be able to make one out of concrete that wouldn't cost so much."

"Hmmm, that's too bad," Dave muttered as he read the newspaper.

"Dave! " Lana exclaimed, smacking him on the leg to get his attention, "Don't you get it? I could make memorial stones. Mom can make the stones and I'll buy them from her and personalize them. I know she'll give me a good deal on the concrete."

"Tricky situation, Lana. People who have lost their pets are grieving. How will approach them? 'Hi there. Sorry your dog died. Wanna buy a gravestone?' " Dave joked.

Giving Dave a dirty look, Lana went inside to design a marker. Five weeks later, she delivered a personalized pet marker to the Corsons. Soon, word of mouth had led to the sale of three additional markers, and Lana's business "Feeling Expressions" was born.

Questions

1. In what specific ways could Lana promote her product?

2. Should she advertise? If not, why not? If so, create an appropriate ad for Lana.

SCENE 3

Lana slumped down next to Dave on the sofa. "Whew, I'm bushed."

"Well, every time I see you, you're working on someone's block. I'm amazed at how they've taken off."

"I wouldn't mind, " Lana explained while rubbing the cramps out of her forearms, "but I don't seem to be making that much considering all the work I'm doing. I think I put too low a price on my blocks. I pay $10 for each stone, another $3 for other materials, and each one takes me 2 hours to finish. Yet, I only charge $20 plus tax. I'm only paying myself about $3.50 an hour! And that's not even counting other costs."

"That's easy. Raise the price," Dave said reaching for another potato chip.

"It's not that easy at all," Lana explained as she, too, munched on a chip. "IfI raise the price, maybe they won't sell."

"Maybe they will," Dave sputtered with his mouth full.

"Do you really think demand for pet grave markers is inelastic?" Lana asked skeptically.

"I don't know just what you mean by inelastic, but I think people will pay whatever you charge."

Questions

1. What factors influence elasticity? How do these relate to Lana's product? Without examining sales figures, do you think demand for Lana's product is elastic or inelastic?

2. Given your answer to the above question, what should Lana do?

SCENE 4

The lead on Lana's pencil broke as she drew out new designs for her markers. Past business had convinced her that there was demand for her product, even after she raised the price. However, she was concerned about the limited potential in her local area.

"I'd like to sell them on the internet, and open up my market to the whole country," she explained to her mom, who was feeding Joey some dry cereal. I think I could design my own web page, but would the extra sales warrant the cost of having someone host the site?"

"You've got a more basic problem than that, Lana," her mom started, pausing to pick up a piece of cereal that had fallen on the floor. "Each block weighs 15 pounds, and they aren't indestructible. They would have to be packed very well. Shipping would cost almost as much as the block itself."

Questions

1. Should Lana sell her blocks online through mail order? If so, how should she handle the shipping problem?

2. What other considerations will Lana have if she decides to offer her pet markers online?

SCENE 5

"Good boy, Joey!" Lana called out as her son reached the top of the slide and slid down. Dave sat down with his second cup of coffee and Lana ate another french fry.

"How did a big network like Direct to Home Shopping find out about the pet markers? " Dave inquired skeptically.

"Do you remember the block I donated to the charity auction? I didn't know who would be buying it, so I put 'Gone but not forgotten.' Apparently the cousin of the buyer works for DTHS. She liked it so much she made some calls and got my number."

They sat listening to the cheerful voices of the children enjoying the playland and watching Joey go down the slide again and again and again. "I'm thrilled they want my pet markers, and it would be a huge sale, but it's a big step. Even though I won't be personalizing them, I'll have to deliver 500 markers to the studio before the segment airs."

Dave's eye squinted as he contemplated 500 markers stored around the house waiting for shipment. "What then?"

"That's the rub. If they don't sell, I have to accept them back. It's a guaranteed sale for them, but a big risk for me. Not only is there the upfront investment of materials, but there's a chance we'll be up to our ears in unsold markers."

"And think about the time it will take to do them. When would you have to deliver them?"

Lana paused as she counted back the weeks. They want to run the segment in 10 weeks. "There's just no way I could do that all by myself in that amount of time."

"Hire some help," Dave said with assurance that he had solved the problem.

Lana bit her lip as she analyzed the situation. "I could do that, but of course that would eat into my profit. I'd also have to hire a babysitter for Joey so I could work uninterrupted." She took out a pen and searched among the dirty napkins for a clean one to write on. After making some calculations, she said hesitantly, "The volume sold would make up for the higher costs, but only if enough of them sell." Lana leaned back and sipped on her chocolate milkshake as Dave got up and joined Joey.

Questions

1. What risks would Lana be taking if she agrees to sell on DTHS?

2. Should she proceed with this opportunity?

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 51-54

Number of pages: 4

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412174

Document URL: http://search.proquest.com/docview/192412174?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 33 of 100

REVIVING A FLOUNDERING BUSINESS: A CASE STUDY OF A FAMILY BUSINESS WITH MULTIPLE PLANTS

Author: Tavakoli, Assad; Nijhawan, Inder P

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Abstract: None available.

Full text:

INTRODUCTION

Sandy, Sim's wife, knew that something is wrong. Lately, Sim has been distant, withdrawn and melancholy. Whenever Sim is at home, he is in a pensive mood. This is unlike Sim. He is a born optimist and manages to keep his chin up no matter how vexing the problem and how grave the circumstances. Gosh, Sim was even able to beat the cancer when all odds were stacked against him. Upon constant nagging by Sandy, Sim broke down and told her that he is distraught and depressed because his business, which he nurtured over so many years, is floundering. Each audit report seems to reflect the fact that his company is steadily but surely heading toward insolvency. It was Sim's dream to leave a profitable business for his son. But Sim's dream is shattered and he is heart broken. Sim's, Inc. is a family owned business, which has been in existence for over four decades. It employs fourteen employees to produce a variety of high quality products such as quilted bedspreads, comforters, pillows, table covers and table's ruffles. The company has well-trained, experienced core of employees and a network of in-house sales representatives who concentrate on the interior design and fabric trade. The company is headquartered in Jefferson City, but it has a satellite plant located in the Glover city - approximately 200 miles away from it's headquartered. The company markets its products by selling directly to interior decorators and retail fabric stores close to its headquarters. To access markets outside the region, it employs the services of the sales representatives located in other regions of the United States. The company has a customer base of 1,600. Over the years, the company has assiduously acquired an outstanding reputation for quality, attention to details and friendly service. The financial position of the company was sound until the sales began to slump.

The company has no mission statement and strategic plan. The management is so engrossed in day-to-day operations that it has no time to develop a vision and set quantifiable goals against which it can measure its performance. For the last several years, the company had not developed any new products, and merely responded to the manufacturing needs of its customers. There has been no marketing innovation and its customer's base has barely expanded. The product catalog has not been updated and it contains photographs that were taken in 1980's. Sales representative rarely visit with customers and consequently a few customers had learnt about the company's products directly from the sales representatives. This stems partly from the fact that the geographical area covered by the sales representative is too large for effective market penetration; four sales representatives cover fourteen states and other states are covered through the independent sales representatives. The independent sales representative, however, has little incentive to push Sim's products because its sales constitute less than 10 percent of their total business. Also, the independent sales representatives bundle Sim's products with other products sold to designers and thereby exclude its products' sale to retailers.

The company insists that payment be made in cash, and does not accept credit cards. It is not that the company is strapped for cash; in fact, it has a large cash reserve, which is invested in the mutual funds and also used as self-insurance fund to cover fire, flood, and other damages.

The Company has an antiquated telephone system that impedes efficient communication within the company and with clients. Several clients have requested a toll free number, but management has refused to provide this convenience. The management rarely communicates with the sales force and the sales force is not provided access to customer database.

Issues described above have plagued the company for several years. No wonder, its sales have been declining both at the Jefferson and its Glover plants. Most of its solvency ratios, equity ratios, and profitability ratios also have been slumping in tandem. Net income has also been declining because the sales have been declining faster than the costs. Because of declining sales, both plants have been working below their capacity (Jefferson plant, 80 percent and Glover plant, 60 percent). Accordingly, both the plants have been unable to adequately cover the overhead costs. The problem is further exacerbated by a steady increase in cost of employee benefit packages, based on the length of service. The Glover plant is particularly hard hit because the average term of service of its employees is over 25 years.

THE INDUSTRY

The custom quilting and fabrication industry has grown by 25 percent over the past ten years, despite cyclical peaks and valleys. There are 53 workrooms of similar size to Sim's of 25-100 employees scattered throughout the country. Atthe same time, there are numerous small workrooms capable of duplicating Sim's products and offering services to decorators. Smaller firms, however, do not have the capability to compete with larger enterprises in terms of scope. Consequently, they tend to fabricate simple jobs and in the process they whittle away at the market available to larger ones. There is little possibility for economies of scale in this industry, since most of the fabrications are individualized and are made to order by interior designers. Brand loyalty is very little, and designers normally look for the best deals with very little switching cost. The substitute products for custom quilted bedding are the "ready made" upscale designer labels, such as, Ralph Lauren and Laura Ashley. These products are available in department stores, boutiques, and catalogues. Although, the ready-made products do not provide custom fabric and quilting, they compete in price and image. The barriers to entry are relatively low, which has led to a fragmented market in terms of geography, price, and quality. The raw materials; including, lining and polyester filling are readily available at very reasonable prices, due to the generic nature of the materials and competition among the suppliers.

In the Southeastern region there are four major competitors, other than Sim's, for custom quilting and fabrication: 3-W Quilting & Laminating Co; Scroll Fabrics; Virginia Quilters; and Artistic Quilting. While each of these firms has the same core quilting business, each also produces its own specialties, such as, laminating, down products, hotel contracts for spreads and headboards. There are also many medium and small workrooms, which are jockeying for a position in the same market.

INSTRUCTIONS TO STUDENTS

You are expected to conduct SWOT analysis; compute critical financial ratios, examine the productivity and profitability of the company and develop breakeven charts; analyze the market environment by using RMA analysis and the Porter's five forces model of competition; proj ect sales and cost estimates, and review the case study carefully and using the following data to complete the tasks listed above:

* Balance sheet for three years. (Appendix A)

* Income statement for three years. (Appendix B)

* RMA ratio calculation guide. (Appendix C)

* Price Comparison between Sim's, Inc. and major competitors (Appendix D)

Tables will be furnished on request. Please contact the authors: atavakoli@uncfsu.edu or inijhawan@uncfsu.edu.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 55-57

Number of pages: 3

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412299

Document URL: http://search.proquest.com/docview/192412299?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 34 of 100

COPYCAT SOFTWARE: PROTECTING THE FIRM'S INTELLECTUAL PROPERTY

Author: Wegman, Jerry; Pendegraft, Norman

ProQuest document link

Abstract: None available.

Full text:

INTRODUCTION

Intellectual property is the bricks and mortar of the Information Age. In the Industrial Age commercial wealth was characterized by imposing physical structures: large factories, generating plants, deep mines, powerful railroads. As we enter the Information Age, more and more commercial wealth lies in the pure creations of the mind - things like music, cinema, technology and computer software. A company like Microsoft, with over $100 Billion in market capitalization, holds assets that consist primarily of intellectual property. A body of law has grown with respect to the ownership and protection of intellectual property. While digital technology has been a huge stimulus to the creation of intellectual property it has also made it relatively easy to make exact copies. It has also made it easy for a dishonest employee to record thousands of pages of trade secrets on a single disc that he or she can take home in shirt pocket. Intellectual property law is adapting to the new digital environment. It is more important than ever, particularly to the managers of firms like software companies that create and hold intellectual property assets.

Creation and protection of IP is important to our nation: the FBI reports on its website that IP accounts for 5.68% of our Gross National Product, and will soon employ a million workers (WWW.FBI.GOV). However, piracy threatens this important sector. The FBI reports that U.S. companies lost an estimated $200 billion in 1997 due to piracy. This case deals with one significant way in which IP is stolen: misappropriation by an employee. It also raises and discusses the larger question of how a firm should be managed in order to protect its valuable IP and to avoid liability for inadvertently infringing on the IP of others.

BACKGROUND

Value Chain Software designs, writes, and supports business software. The company was formed in 1976 and by 2001 had sales of $498 million. It had been profitable for several years, earning $101 million in 2001.

CopyCat Software is a much smaller company. In 2001 CopyCat had sales of $60 million and was just becoming profitable. CopyCat offers software products that compete with Value Chain's. Demand for such products was growing when CopyCat entered the market. CopyCat's products compete largely on price.

Prior to the events leading to this case Value Chain Software had developed products that ran under various operating systems including UNIX, NT, MAC and LINUX. Offering products for use with different operating systems poses a problem. Each application program needes to be adapted to a different operating system yet allow for easy interchangeability by users who had become accustomed to the application program. Any change in one version needed to be matched by corresponding changes in the other versions. This created a large programming burden.

Value Chain Software solved this problem by separating its software into two components: an applications component that was constant among operating system versions, and an adapter component it called ALPHA that translated the applications commands to various operating systems in a form that the particular operating system understood. This assured consistency among the versions of the apps programs and eased the programming burden. In 1998 a talented Value Chain software engineer, Ben Arnold, led a team that developed a new version of the ALPHA adapter program. He was allowed to take home copies of ALPHA's source code so that he could work on it at home and also in order to have off-site storage in case of catastrophic loss at the work site.

CopyCat had developed a popular scheduling program that ran under the NT operating system. Customers of CopyCat had requested versions that would run on LINUX and other operating systems. In 1999 Jesse Stone, CEO of CopyCat, persuaded Ben Arnold to leave his job with Value Chain and come to work at CopyCat. Jesse was put in charge of developing versions of the popular scheduling program that would run on LINUX and other operating systems.

SCENARIO

This scenario is illustrative. The dialogue and incidents described are entirely fictional. After a long day at the office, Jesse walked up to his new BMW. He grimaced as he thought about the payments, but CopyCat was finally earning money and he was a success. It was time to start enjoying it. Jesse was shaken from his reverie by a nondescript young man who said: "Good afternoon. You are Jesse Stone, CEO of Copy Cat Software Inc.?"

Jesse looked around before answering, "Yes, what can I do for you?"

"Mr. Stone, I have legal papers here for you, a Summons and Complaint based on a lawsuit filed in Federal District Court. Here are the papers".

Jesse was shocked. He had never been sued before. He looked at the Complaint. The plaintiff was his competitor, Value Chain Software, and it alleged theft of its intellectual property. Value Chain was claiming damages of $100 million and seeking destruction of all copies of software that used the OMEGA adapter and an injunction against future use of its IP. Jesse's head began to swim. Copy Cat was already leveraged to the hilt. If it lost this case, there was no way it could pay anything close to the damages claimed by Value Chain. Bankruptcy loomed.

As he drove home, Jesse thought about the impact of a suit. Besides the car, he had just signed a purchase contract for an expensive Silicon Valley home, which he expected to pay for using his stock options. However, once the lawsuit became known, the price of CopyCat stock would fall well below the options' strike price and the options would be valueless, at least for the time being. Without the money from the options, Jesse would have to break the house purchase contract, losing his $100,000 earnest money deposit. Should he call his broker right away and exercise his options, before the news got out and his options were valueless? Jesse remembered a news story about Martha Stewart and also a conversation he had with Clarence, his corporate counsel, something about "insider trading". He would have to clarify that point right away.

The next morning Jesse left word for his corporate counsel to see him immediately. Some time later, his intercom intoned "Mr. Darrow here to see you sir". Clarence Darrow, CopyCat's chief counsel, entered Jesse's large executive office.

"Good to see you, Clarence. We have a big problem here. Seems one of our products has a lot of its source code copied from Value Chain Software's similar product."

"Direct copy, word for word?"

"Afraid so."

"How did that happen?" asked Clarence.

"Don't know yet. But the project leader, Ben Arnold, used to work for Value Chain. He should be here soon."

The intercom: "Mr. Arnold here to see you"

"Send him in".

Jesse began: "Ben, sit down. A serious development has occurred and we need some answers. Value Chain Software has discovered that our OMEGA program has 50% of its source code copied directly from their ALPHA Product. What do you know about that?"

Ben began to sweat. He had finished the OMEGA project in record time and had even earned a special bonus for it. Ben had never directly told anyone that he had "borrowed" lots of code from the discs he had taken with him from Value Chain Software.

"I ... I don't really know, Jesse"

"You worked at Value Chain Software for 6 years; didn't you"

"Yes"

"Any projects similar to OMEGA?"

"Well, there was one similar project - ALPHA. It was an adaptation project to make applications compatible with different OS platforms . I mentioned it to you when you assigned me the OMEGA project."

Jesse: "You never told me about that. It does sound just like our OMEGA product. Could you have . . . accidentally used code you developed at Value Chain in our project?" There was a long silence. Ben winced. Clarence's and Jesse's eyes were focused hard on him. He finally said "its possible".

"Possible?? You idiot! Copying half a program doesn't happen by accident. Come clean, you ..."

Ben was shaken. His shoulders drooped. He sighed. He knew he was beaten. In a monotone he described how at Value Chain Software he was allowed to take the new source code home each evening, how he copied it and used it to write the OMEGA program for CopyCat. After telling the whole story, Ben slumped in his chair, dazed, only half aware of what followed.

"Well," said Clarence, "looks like a case of theft of trade secrets and copyright infringement."

Jesse said: "So what's the damage - worst case scenario?"

"Worst case? Well, Value Chain wins on intentional trade secret theft and intentional copyright violation. They get an injunction ordering the physical destruction of all of our infringing product. They get a damages award of three times their actual loss plus their attorneys' fees, or statutory damages of $100,000 for each copyright violation. Each means each copy of the product sold. Either way it's more than we can pay. We have to devise a strategy for fighting this lawsuit. I want to remind everyone here that as your attorney, everything you say is privileged. That means I cannot disclose it. So you can speak freely. Now Jesse, when did you first become aware of the copied code?"

Jesse replied, "When that process server gave me the court papers - not a moment before". "Good" said Clarence. "That will probably mean that any infringement will not be considered intentional. It reduces our liability from treble damages to simple damages, and no plaintiffs attorney fees to pay, either."

Ben stirred. He wasn't sure if he should speak up. Finally he said "Jesse, after you assigned me the OMEGA project, I think I sent you a memo in which I disclosed my previous experience at Value Chain with their ALPHA product". There was a long silence.

Finally Clarence spoke. "We need to get that memo."

"What's the big deal about that memo?" asked Jesse.

Clarence replied, "It's the Watergate all over again, Jesse. What did you know and when did you know it'. If a court determines that the firm knowingly accepted stolen trade secrets, its civil liability skyrockets."

Jesse could not believe his ears. He finally said, "O.K., we'll dig out the memo and see what it says. I have no recollection of such information or such a memo - heck, I get 200 emails a day and delete most of them without even opening them up. We will get our best techies to back-track my office computer and Ben's."

Clarence said, "Now we have to decide what to do with OMEGA - you can't continue to sell the product with copied code."

Jesse said, "I'll pull together a management and programmer team and review our options. I hate to abandon a good product; maybe we can salvage it."

REQUIRED

Students will have to resolve two fundamental issues: (1) How should CopyCat respond to the lawsuit in order to minimize its damages? (2) How should CopyCat develop an intellectual property policy for the firm that will deter misappropriation of its own intellectual property and also prevent future legal liability resulting from misappropriating the intellectual property of others? In addition, there is a collateral issue of whether Jesse's exercise of his stock options would violate the insider-trading rule.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 59-63

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412181

Document URL: http://search.proquest.com/docview/192412181?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 35 of 100

PAINTBALL DEPOT

Author: Mullins, Terry W

ProQuest document link

Abstract: None available.

Full text:

CASE BACKGROUND

Paintball Depot is a three-year-old company that has grown rapidly. The company sells paintballs, paintball guns, protective masks and specialized clothing to a target market interested in competitive games that involve marking opponents with splatters of paint. Teenage boys comprise the primary target market, but people of various ages and both genders are also customers.

The store is located on a maj or street in Robbinsborough, North Carolina, not far from a state university with an enrollment of more than 1 0,000 students. The store is located in building that was once a single-family residence. Some walls of the house have been removed to increase open retail floor space. The Robbinsborough store, the company's first location, is open six days a week from noon to 8:00 p.m. Most of the business occurs in the afternoon and early evening hours. The company recently opened a second store Teague, a smaller town located approximate twenty miles away. The Teague store is open from 4:00 p.m. to 8:00 p.m. Tuesday through Friday.

Approximately halfway between the stores, the company operates its playing fields. The playing fields, located on 15 leased acres, contain a target range, an urban assault simulation, and wooded obstacle courses that can been arranged in various ways for competitive battles. Also on the premises are parking lots, rest rooms and a small stores where paintball supplies can be purchased.

PLAYERS

Four people, Jackson Owens, Brent James, Lee Williamson, Miguel Guerra, own shares in Paintball Depot. Owens owns 70%, James owns 28% with Williamson and Guerra owning 1% each. Jackson Owens, an internationally ranked paintball player, founded Paintball Depot serves as the president. Brent James, who does not work for the company, provided the firm's initial capital, $30,000. Owens, Williamson and Guerra work for the company. Paintball Depot broke even the first year and earned a profit in years two and three. Sales were approximately $150,000 the first year, grew to $540,000 the second year and were almost $1,000,000 the third year. Profits in the third year were more than $50,000.

CONFLICT

Recently, the relationship between Jackson Owens and Brent James has become strained. Brent James would like to have a larger role in developing a strategy for the company. Owens, on the other hand, insists that James is a "silent partner" who should not meddle in the day-to-day operations of the company. He has offered to "pay Brent his $30,000" any time he wants. Brent James thinks his 28% interest in the company is worth far more that $30,000. Their bookkeeper has not been much help beyond telling them what the book value of the company is.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 69

Number of pages: 1

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412261

Document URL: http://search.proquest.com/docview/192412261?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 36 of 100

WYETH PHARMACEUTICALS: AN EQUITY VALUATION CASE

Author: Stotler, James

ProQuest document link

Abstract: None available.

Full text:

INTRODUCTION

Wyeth Pharmaceuticals (WYE) is a dominant player in the pharmaceutical industry. WYE manufactures health care products such as prescription drugs, medical devices, supplies and instruments, and over-the-counter medications. WYE has several prescription drug subsidiaries including Wyeth-Ayerst Labs, A.H. Robins Company, Sherwood Medical, Corometrics Medical Systems, Fort Dodge Laboratories, and Whitehall Labs. Consumer health care accounts for 17.8 percent of sales, pharmaceuticals account for 70.2 percent of sales and agricultural products account for 17.5 percent of sales.

Products

The company produces research based pharmaceutical products in many different areas including women's health, neuroscience therapies, musculoskeletal therapies, vaccines, specialty products, cardiovascular therapies, anti-infectives, nutritionals, animal health and agricultural products. While WYE makes many popular consumer products like Advil, Robitussin, and Centrum their portfolio is composed of a wide range of products and they are not dependent on any one patent protected product.

In the area of women's health care, WYE produces Premarin and its family of products. Premarin is one of the company's conjugated estrogens manufactured from pregnant mare's urine. This product no longer has patent protection but the Premarin family of products are the most prescribed medications in the United States today. Premarin itself, which has been on the market nearly 60 years, is used to manage the symptoms of menopause and to prevent osteoporosis. Osteoporosis is a condition involving loss of bone mass in post menopausal women.

WYE also develops and markets neuroscience therapies. In this area its two primary products are Sonata and Effexor XR. These products are designed to improve the quality of life for individuals with central nervous system disorders and general anxiety disorder. Sonata was approved in the United States and Europe in 1999 and is the first in a new class of non-benzodiazepine, a sleep inducing compound. This product can be very helpful to people who simply cannot fall asleep because it works within 30 minutes and has no residual physical or cognitive side effects. Also in 1999, Effexor XR became the first drug approved for general anxiety disorder in the United States in more than 10 years.

Enbrel is a leading product in WYE's musculoskeletal franchise. Enbrel is the first FDA approved treatment for rheumatoid arthritis. It was approved in 1998 to treat moderate to severe rheumatoid arthritis in people who had not responded to certain other medications. Immunex, a majority owned subsidiary of WYE, discovered Enbrel and the product is co-marketed in the United States with Wyeth-Ayerst. The product is marketed solely by Wyeth-Ayerst outside the United States.

Other products in WYE's portfolio include the following. Prevnar targets invasive pneumococcal disease which is the leading cause of bacterial blood stream infections and meningitis in infants and children. Rapamune is an immunosuppressive agent designed to prevent organ rejection following transplantation. Myotarg is a product for treating relapsed adult acute myeloid lymphoma which was recently assigned "priority review" status by the FDA which indicates that the FDA intends to act on the application within six months of the date of filing the application.

As an analyst for Carolina Investment Advisors you are assigned the task of estimating the value of Wyeth Pharmaceuticals' stock and issuing a buy or sell recommendation on the stock. Your recommendations are widely watched by clients of Carolina Investment Advisors so you take your assignment very seriously. To get started with the valuation task, you compiled the following information.

THE PHARMACEUTICAL INDUSTRY

In late 1999 and early 2000 the biotechnology sector soared in valuation in anticipation of some very promising research in the area of human genomics which involves attempting to map the human genetic code. Although the biotechnology sector and the pharmaceutical sector are related, much of the human genomics speculation drew investment capital into biotechnology which would have otherwise been invested in the pharmaceutical sector. The second half of 2000 has seen a decline in the biotechnology and human genomics sector and moderate price increases in pharmaceutical stocks.

Overall, major firms in the pharmaceutical industry have recorded many successive years of double digit percentage earnings increases. In general, the drug industry should be able to maintain strong earnings growth in the future, but individual company's can be impacted by such events as patent expirations on key drugs, product recalls, and class action lawsuits involving the company's products.

The industry has recently seen a significant amount of merger activity. For several months a three way battle was underway for control of Warner Lambert. Wyeth Pharmaceuticals submitted a friendly bid to buy the company and an agreement was reached. These negotiations drew the attention of Pfizer, another large pharmaceutical company, and they submitted a hostile bid which was 20 percent higher than the amount which Wyeth Pharmaceuticals had agreed to pay Warner Lambert in the friendly deal. Warner Lambert ultimately went with the Pfizer offer. The original friendly deal between WYE and Warner Lambert included a $2 billion breakup fee which required the party which walked away from the deal to pay $2 billion to the other party. WYE was unable to acquire Warner Lambert but is entitled to receive the breakup fee. Similar types of merger activity are ongoing in the pharmaceutical industry. The driving force behind the merger activity is access to existing and potential patents and proprietary research and development information in the product pipeline.

Wyeth Pharmaceuticals is in an industry with a moderate number of large competitors and many smaller biotechnology companies. WYEs primary competition comes from large competitors such as Pfizer and Schering Plough. The table below provides a summary of key financial ratios for WYE, its competitors and the industry.

The return on equity for WYE is above the industry average and that of its competitors. The profit margin of WYE exceeds the industry average but is less than Pfizer and Schering Plough. Asset turnover is quite low for WYE and falls below both competitors and the industry while WYE has an equity multiplier which is much greater than the industry average and that of both competitors.

VALUATION DATA

Your analysis requires some information about the market in general as well as information on how the price of WYE stock behaves under certain market conditions. While compiling the following information, you realize that your estimate of the value of WYE stock is quite sensitive to certain factors. In this regard, you decide to conduct a sensitivity analysis to determine how sensitive the value estimate is to various input variables.

The data collection begins with interest rates. Consulting a reliable online source, you learn that the interest rate on a 90 day United States treasury bill is 4.5 percent while rates on a 6 month treasury bill are 4.9 percent. A 30 year government bond is trading to yield 5.1 percent. Recent rates on certificates of deposit at large banks are around 4.8 percent and large creditworthy corporations have issued commercial paper with a yield of 5 percent. During this same time period, the Standard and Poor's 500 earned an average return of 12 percent.

In addition to the above information on market interest rates, Table 4 contains some information you compiled relating to WYE and the market. The earnings of WYE have grown from $1.28 per share five years ago to $1.72 in 2001. This growth rate is expected to continue in the future.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 2

Pages: 73-77

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412423

Document URL: http://search.proquest.com/docview/192412423?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 37 of 100

When a crisis stirs: a case study: Capers Community Markets

Author: Kosub, David

ProQuest document link

Abstract:

In any given week 45,000 to 50,000 consumers may pass through a Capers checkout. Some of the stores' most popular items include the Capers brand of salad dressings, peanut butter and barbecue sauces, all of which may have been contaminated. Before long, hummus, muffins and tapenade would be added to the initial list of 11 products the health authority and Capers identified as potential hep A carriers.

Still, confusion and misinformation reigned. Some rumours suggested that Capers' lettuce was infected; others warned that any product from Capers was to be avoided. Sonja Tuitele's phone, and the phones of her colleagues, were ringing off the hook as reporters from across Canada clambered for interviews. It was clear that Wild Oats Inc. and Capers needed help.

It's not all about money--or at least it shouldn't be. People get sick when food gets contaminated. Sometimes, food contamination causes death. In this instance, the company's first concern was the health and well-being of its customers and employees. Capers had been assured by the local health officials that the chance of someone becoming seriously ill or dying as a result of the hep A infection was remote. Still, the sight of the long lines of Capers customers winding their way up to the nurses' desks to be inoculated--a three-hour wait on a long weekend--troubled Tuitele and her colleagues.

Full text:

[Graph Not Transcribed]

It's the call every grocer dreads.

"This is the local health board," the saccharine sweet voice on the other end of the line informs you. "We have reason to believe that one of your employees is a carrier of the hepatitis A virus. We'll need your cooperation to determine if any of your customers or employees have been infected. Meantime, we're issuing a media advisory to inform the public about the problem."

You're stunned at first, thinking it can't be true. "We have an excellent food safety program," you tell the public health official. "Surely someone has made a mistake." And as the voice on the other end of the line assures you that there's no mistake, your mind begins to race: "What do I do? Who do I tell?" Business has been great, but now the prospect of thousands of customers reacting in horror to the news looms, and you envision consumers running from your business.

All too true

On March 26 of this year, Michelle Rentke, commissary manager for Capers Community Markets in Vancouver, took a similar call from the Vancouver Coastal Health Authority. A former employee of the commissary kitchen, which supplies food to Capers stores, had contracted the virus and may have spread hep A to other employees and customers who had handled the products prepared in the kitchen.

Within minutes Rentke was on the phone to the company's human resources department and to food services manager Deb Ouellet. It wasn't long before Sonja Tuitele, communications director for U.S.-based Wild Oats Inc., owner of Capers, was pulled into the crisis as well.

"The commissary kitchen supplies food to all three of our Capers stores," explains Tuitele, "so there was potential for customers at all three of our stores to have bought those salad dressings and sauces and fresh prepared foods that are made with those items."

In any given week 45,000 to 50,000 consumers may pass through a Capers checkout. Some of the stores' most popular items include the Capers brand of salad dressings, peanut butter and barbecue sauces, all of which may have been contaminated. Before long, hummus, muffins and tapenade would be added to the initial list of 11 products the health authority and Capers identified as potential hep A carriers.

Be honest

Most people can't see much good in a situation like this. Trying to explain that the employee identified as the hep A carrier left your employ a week earlier or that the window for contracting the disease is only a matter of weeks will only go so far with a worried public. Still, Tuitele says if you keep your wits about you and assume a completely transparent and honest approach, chances are you'll win more sympathy than scorn.

"A lot of our employees were questioning giving the media carte blanche to come into our store, letting them come in and shoot behind our deli counter, with people preparing food. But we didn't have anything to hide," she says. "I know it's tough sometimes, but I think that being open and communicative is really what helped us through this all."

Get out in front of this one

The worst thing that can happen at the beginning of a food safety crisis is for someone else to do your explaining for you. The Vancouver Coastal Health Authority told Capers it planned to issue a news release, informing the public about the potential contamination. Capers thought it was such a good idea that it decided to respond in kind.

[Graph Not Transcribed]

"We put out our news release at about the same time the health board put theirs out, identifying the products and the health clinics that were set up for the free vacines," says Tuitele. "Capers didn't have its own website, so we quickly put one up and an 800 [phone] line so that people could call in and get the information."

The following day customer advisory sheets were handed out at all three Capers stores. Updated each day, the sheets were an assertive way for Capers to inform its customers about the potentially contaminated foods, the symptoms associated with hep A and the times and locations for vaccination clinics.

"Some people call the 800 line and some [visit] the website, but a lot of people just wander into the store," says Tuitele, "and we wanted to make sure everything was consistent in terms of the information we were getting out there."

Don't go it alone

Still, confusion and misinformation reigned. Some rumours suggested that Capers' lettuce was infected; others warned that any product from Capers was to be avoided. Sonja Tuitele's phone, and the phones of her colleagues, were ringing off the hook as reporters from across Canada clambered for interviews. It was clear that Wild Oats Inc. and Capers needed help.

"I'm the only communications person for the entire company, so we didn't have in terms of media contacts an ability to mobilize quickly," says Tuitele. "We needed our staff in the stores. Meantime, there's media at the health clinics and we wanted to have people there and in the stores who were accustomed to working with the media, to help funnel all the requests to me."

A vendor recommended James Hogan and Associates, a Vancouver-based public relations firm that had weighed into food crises before. The company immediately began scheduling interviews and monitoring media coverage of the Capers crisis. James Hogan agreed that an open and honest approach was the best way to go.

And the result was good optics. Nightly news shows regularly aired shots of Capers staff deftly handling produce while wearing protective gloves. Clean, brightly lit aisles and hygienic-looking stores seemed to emphasize that here was a decent, customer-focused company that was simply experiencing difficulties not of its own making.

Show you care

It's not all about money--or at least it shouldn't be. People get sick when food gets contaminated. Sometimes, food contamination causes death. In this instance, the company's first concern was the health and well-being of its customers and employees. Capers had been assured by the local health officials that the chance of someone becoming seriously ill or dying as a result of the hep A infection was remote. Still, the sight of the long lines of Capers customers winding their way up to the nurses' desks to be inoculated--a three-hour wait on a long weekend--troubled Tuitele and her colleagues.

"We went and provided food and beverages to the people waiting in lines--waiting for the vaccinations. And because it happened to be Easter weekend, we had an Easter bunny help entertain the kids because kids can get impatient," explains Tuitele.

[Graph Not Transcribed]

Staff needed reassurance that management cared about their health and safety, too. Each day conference calls were convened with store directors and managers, and a briefing provided staff in each of the three stores with information. Employees were naturally devastated by the news, says Tuitele.

"It's hard for the people who've worked in the stores. We have a lot of longevity among our employees--people with 13 years at Capers--and they were asking, 'How could this happen?' and saying, 'We don't understand why it's become such a panic.' We're just trying to work through a lot of issues where people have a lot of personal pride in their work," she adds.

Say you're sorry like you mean it

Sure there's a risk of litigation. But that risk exists whether or not you are to blame. At the very least, your customers have been inconvenienced, so get out in front of them and express your regrets.

"We were very careful about that and while this could happen to anyone...we felt that an apology was appropriate. We apologized for the concern we caused and for the frustration and inconvenience," Tuitele explains.

Instead of a 15-second sound bite, Capers placed ads in mainstream and community newspapers. It was a good way, says Tuitele, "to say 'Yes, we're in crisis mode, but we are thinking about you and doing the best we can to be open and communicate with you.' "

Tuitele acknowledges that Capers has seen a drop in sales as a result of the crisis, but the full impact won't be known for some time. But she feels optimistic that the dip in sales won't be as severe as originally anticipated because customers are showing a lot of support--a direct result of Capers' open approach.

Would Tuitele and her colleagues do anything differently if they had the chance? Sure. For one thing, she'd have had the toll-free phone line ready to go in case of an emergency. And a "calling tree" would have been set up with the business and home phone numbers of key company contacts to help employees get in touch with the right people during a crisis, she says.

"You can never predict what's going to happen in any crisis," Tuitele says. "What's important is that you have systems in place prior to a crisis."

David Kosub is a freelance writer based in Victoria, B.C.

Capers had been assured by the local health officials that the chance of someone becoming seriously ill or dying as a result of the hep A infection was remote. Still, the sight of the long lines of Capers customers winding their way up to the nurses' desks to be inoculated--a three-hour wait on a long weekend--troubled Tuitele and her colleagues.

Would Tuitele and her colleagues do anything differently if they had the chance? Sure. For one thing, she'd have had the toll-free phone line ready to go in case of an emergency.

Subject: Management of crises; Supermarkets; Food safety; Public opinion

Location: British Columbia Canada

People: Rentke, Michelle, Tuitele, Sonja

Company: Capers Community Markets

Classification: 9172: Canada

Publication title: Canadian Grocer

Volume: 116

Issue: 5

Pages: 24-25+

Number of pages: 0

Publication year: 2002

Publication date: Jun/Jul 2002

Year: 2002

Publisher: Rogers Publishing Limited

Place of publication: Toronto

Country of publication: Canada

Publication subject: Food And Food Industries--Grocery Trade

ISSN: 00083704

Source type: Trade Journals

Language of publication: English

Document type: Case study (Business)

Document feature: Illustrations

ProQuest document ID: 222841659

Document URL: http://search.proquest.com/docview/222841659?accountid=38610

Copyright: Copyright Rogers Publishing Limited Jun/Jul 2002

Last updated: 2013-11-02

Database: ABI/INFORM Complete

Document 38 of 100

Case study

ProQuest document link

Abstract:

The forecast is also beneficial to buyers. MKG uses a spreadsheet that provides buyers with suggestions of how much inventory to hold, how much to buy, and when to buy it. The same type of spreadsheet is used to manage selected stock finished products. The spreadsheet incorporates replenishment lead times, and the highest level of demand (maximum consumption, or MC) that MKG wants to provide for. The MC is set on a quarterly basis, independent of the specific forecast of any period. The forecast is used to assess whether MC values are appropriate for the upcoming quarter.

Full text:

MKG Cartridges Inc., a Mississauga, Ont.-based office products remanufacturer, uses its forecast to plan capacity on its critical disassembly/reassembly process. Given the long learning curve for new employees, MKG chose to manage what many would consider to be variable direct labour on a fixed basis. Management examines a three-month period to provide a given level of capacity for a certain amount of operating expense each month. The company weathers modest changes in business levels and mix without reacting, as there is no attempt to absorb all labour and overhead into every unit -- management simply treats all non-material costs as periodic operating expenses. The forecast also provides information on the expected throughput over the three-month window. At times, when capacity seems tight, different operating scenarios are entered into a model to determine the profit impact of increasing capacity in critical areas of the business.

In addition to capacity planning, MKG uses its forecast to give selected suppliers an idea of what business they can expect over the specified three months. It has identified key components that are in short supply or have long lead times in the marketplace. The information does not act as any sort of purchase commitment, simply a heads-up to critical people about the strategic components that have to be sourced.

The forecast is also beneficial to buyers. MKG uses a spreadsheet that provides buyers with suggestions of how much inventory to hold, how much to buy, and when to buy it. The same type of spreadsheet is used to manage selected stock finished products. The spreadsheet incorporates replenishment lead times, and the highest level of demand (maximum consumption, or MC) that MKG wants to provide for. The MC is set on a quarterly basis, independent of the specific forecast of any period. The forecast is used to assess whether MC values are appropriate for the upcoming quarter.

By using its forecast selectively, MKG has been able to increase service levels to over 90% on time, and trim inventory levels. Using the forecast only for planning has introduced stability into their business, freeing up management to engage in proactive decision-making.

Subject: Business forecasting; Production management

Company: MKG Cartridge Systems Inc.

Classification: 9172: Canada

Publication title: CMA Management

Volume: 76

Issue: 4

Pages: 30

Number of pages: 0

Publication year: 2002

Publication date: Jun 2002

Year: 2002

Publisher: Society of Management Accountants of Canada

Place of publication: Hamilton

Country of publication: Canada

Publication subject: Business And Economics--Accounting, Business And Economics--Management

ISSN: 14904225

Source type: Trade Journals

Language of publication: English

Document type: Case study (Business)

ProQuest document ID: 197851329

Document URL: http://search.proquest.com/docview/197851329?accountid=38610

Copyright: Copyright Society of Management Accountants of Canada Jun 2002

Last updated: 2011-10-13

Database: ABI/INFORM Complete

Document 39 of 100

Business-to-business eCommerce of information systems: Two cases of ASP-to-SME eRental

Author: Heart, Tsipi; Pliskin, Nava

ProQuest document link

Abstract:

Enterprises today can eRent Information Systems (IS), through the Internet, from Application Service Providers (ASP). This emerging IS eRental concept is a special case of business-to-business e-commerce, where the product is an IS application and the business units engaged in commerce are an enterprise and an ASP. For small or medium-sized enterprises (SME), IS eRental might be an appealing solution to complex and costly IT acquisition and implementation. This paper briefly describes Net-POS and Silverbyte, two Israeli software vendors for the hospitality industry whose members, mostly SMEs, confront with great difficulty the high cost of owning, maintaining, and managing the state-of-the-art IS infrastructure required in the Internet era. These vendors have recently the ASP arena by adding an IS eRental option to their for-sale offerings. The case studies are followed by a discussion of the new ASP concept as well as of possible directions for research on ASP-to-SME eRental.

Full text:

1. INTRODUCTION

According to Lin & Benjamin (2000), information technologies and information systems (IS) are major contributors to productivity and competitive edge and, in particular, enablers of eCommerce. Their line of thinking continues that of Brynjolfsson (1993) and Brynjolfsson & Hitt (1998) who were among the first to attribute the growth of the American economy during the last decade to massive technology investments and to productive uses of technology. The question is, however, whether the ability of enterprises to use technology productively and competitively depends on size. In this paper we contend that, throughout the history of computing, the effects of enterprise size on the ability of organizations to acquire technology were related to the evolution of the IS renter from the old service bureau to the emerging Application Service Provider (ASP). One possible way for SMEs to overcome the hardships in IT implementation is to use ASPs.

For the last two years, two Israeli Independent Software Vendors (ISVs), Silverbyte and NetPos, who operate in the hospitality industry, are offering their customers an option to rent and host the application on servers located at the vendor's server-farm, instead of buying and installing it locally. Both companies report that many smaller organizations find the idea appealing, and they manage to acquire new customers at a satisfactory rate. In this paper, we will examine these two cases, describing the benefits to the customer organizations. We acknowledge that it is far too early to assess what the future may hold for ASPs and how far-reaching the implications of ASP-to-SME eRental could be for IS delivery and management in the global economy. Yet, it is possible to focus in this paper on lessons that can be learned from two case studies of ASP-to-- SME eRental. Further research questions are also derived from the study, and are outlined in the last section of the paper.

Back in the early days of computing, for the most part, only large enterprises could afford to buy and maintain the hardware and software required for IS implementation in-house. However, most Small or Medium-sized Enterprises (SMEs), to avoid the high expense of buying and maintaining an IS infrastructure, resorted to IS rental from service bureaus. By the late eighties, when technology became much more cost effective, following massive decreases in the cost, size, and complexity of computers, SMEs found IS infrastructures more affordable, the demand for IS rental diminished, and most service bureaus had disappeared (Halperin, 2000).

Surprisingly, even though the cost-performance ratio for technology continues to improve, IS rental is once again in demand in the form of IS eRental via the Internet from ASPs, due to growing complexity of IT infrastructure and applications.

This newly emerging concept of commerce is a special case of Business-to-Business eCommerce, where the product is an IS application and the business units engaged in commerce are an enterprise and an ASP. SMEs, much like the situation in earlier days of computing, find it difficult and hardly affordable to own, maintain, and manage around the clock, state-of-the-art IS infrastructures required for competition in the Internet-based global economy. Thus, it was assumed by both market analysts and vendors that SMEs are potential customers of ASPs (IDC 1999, Goldman-Sachs 1999).

Although the exact definition of SMEs varies, there is quite an agreement about the difficulties that SMEs confront: "Limited people resources. Budgets stretched razor thin. A constant barrage of competitive threats" (www.sap.com). These limitations make it difficult for SMEs to meet the demands of the new eBusiness era, which require not only automating front-office and back-office functions, under "always-on" operation regime, but also maintaining application integration within the organization and continuous communication of internal applications with external ones. Until very recently, the IS infrastructures of many SMEs revolved around purchased applications residing on different platforms and using separate databases. A survey conducted by the U.S. National Institute of Standards and Technology found that:

"Recent studies and focus groups suggest that while small and medium size manufacturing enterprises (SMEs) are investing large amounts of capital in IT consulting services, they're also purchasing piecemeal applications that are inappropriately scaled for their businesses. To compound the problem, they're not training their staffs appropriately to use the IT solutions in which they've just invested. Many IT hardware and software solutions sit idle, are used inappropriately, or are not used to their maximum advantage". (www.nist.org: "Verification of Information Technology (IT) Solutions for Small and Medium Size Manufacturing Enterprises (SMEs)")

Since, for an eBusiness strategy, well integrated IS infrastructures must be up and running 7 days a week, 24 hours a day, SMEs find their fragmented IS infrastructures too expensive to own and maintain and too complex to manage. It is thus not surprising that ASPs have begun to offer the eRental business concept to SMEs (Goodwin, 2000).

The customers of the ASPs in these two cases are members of the hospitality industry in Israel which, because of their relatively small size and like their counterparts elsewhere in the world, can hardly afford the cost of owning the state-of-the-art IS infrastructure required for eBusiness in the Internet era.

To prepare the background for the case studies, the new IS eRental concept is reviewed, in the next section, and the state of IS in the Israeli hospitality industry is described in the third section, supported by a survey conducted by the authors (Heart et al, 2001).

The fourth and fifth sections contain a brief description of two Israeli software vendors, NetPOS and Silverbyte, that have recently entered the ASP arena by adding an eRental option to their IS offerings. The case details were collected by the authors, through a personal acquaintance with the owners and managers of the vendors. Supportive evidence was gained by visits to customers of Silverbyte and Net-Pos, and by conducting informal interviews and discussions with managers in these organizations.

Finally, the last section contains a discussion of the ASP concept as well as possible research directions on ASP-to-SME eRental in the future.

2. THE NEW IS ERENTAL CONCEPT

The same reasons that had previously led to the emergence of service bureaus have more recently led to the emergence of ASPs as a modern outsourcing concept. A recent report (ASPnews.com, 2000), which describes the forces that are driving the ASP business model, predicts: "Within a few years, users will not want to install applications locally. Instead, they will access the applications they need, on demand, from online providers who will charge them by the second for the precise value of the specific features and resources they choose to use." In the context of this paper, users are SMEs.

Microsoft, the ultimate "off-the-shelf" "boxed" application vendor, in the framework of its "Dot Net" intentions, has recently announced plans to rent applications off the net. Other vendors in the rather young ASP market of over 1,000 ASPs (Heinlein, 2000), which was pioneered in 1998, include Breakaway Solutions (www.breakaway.com), Corio (www.corio.com), Usinternetworking (www.usi.com), Oracle (www.oracle.com), and EDS (http://www.eds.com/ services_offerings/so_os_app_rental.shtml).

According to recent surveys (Brown, 2000; Goering, 2000), ASPs offer a variety of applications including ERP, CRM, project management, data warehousing, and eMail (www. allaboutasp.org). According to IDC (1999), "Worldwide ASP spending will approach $8B in 2004", a 92% compounded annual growth rate. The Yankee Group forecasted in 1999 that the ASP market size would be above $14B by 2004. Thus, a consensus regarding ASP market projections has yet to be reached, but all predictions agree that it is about to be a large market.

ASPs require a broad range of competencies, including skills and expertise from the services, networking, and application worlds. Figure 1 illustrates the various skill sets required by those firms seeking to be an ASP (source: IDC, 1999).

Considering the various skills required for ASP, various players are entering the market, either as "pure players" (like Silverbyte and Net-Pos described later), or as partners of other vendors, to complement lacking competencies. Thus, in early days, IBM has partnered with IT&T as the supplier of WAN infrastructure and connectivity. Figure 2 describes the various market players (source: IDC, 1999).

The ASP business concept presumes leveraging software across multiple enterprises with hardly any customization. Because of this, larger enterprises might be reluctant to become ASP customers (May, 1999). According to Mateyaschuk (1999), however, lack of software customization may not be such a major limitation of the ASP concept from the perspective of smaller organizations. Some vendors respond to the customization issue by targeting specific industries and/or small market niches. Oracle and Corio target manufacturing and dot-com companies, IBM rents J.D. Edwards and Great Plains ERP packages to consumer-packaged-goods and fabrication-and-assembly industries (IBM Home page), and EDS targets manufacturing and consumer-packaged-good companies. ASPs which offer well targeted applications to small market sectors typically rely on technology that is highly specialized and difficult to duplicate (Heinlein, 2000).

Even though, according to analysts, it looks as if the ASP concept can reduce cost of ownership by between twenty and fifty percent (Wainewright, 2000), doubts still exist about the economical viability of IS eRental. Pandesic, for instance, was formed in 1997 as a joint venture of Intel and SAP and rented SAP's order-management and fulfillment system applications to SMEs (McCabe, 2000). In mid 2000, Pandesic announced that it has shut its Web site down and has ceased taking new customers because its board determined that Pandesic would be unable to turn a profit quickly enough to justify existence. Although reasons for Pandesic's fall have never been discussed in depth, there is good reason to believe that several ASP limitations were acting as impediments to growth. One limitation is the reliance of ASPs on the Internet, which raises questions about response-time and security (Cisco, 1999). Another limitation has to do with the need for application integration. According to Heinlein (2000), ASP customers might prefer providers that offer multiple services based on integrated applications.

Whether or not ASPs will be a significant factor in the evolving IS landscape remains to be seen. Yet, it is worthwhile considering possible ASP success factors. It may very well be that the ASP business concept might be more attractive to some industries, especially those dominated by SMEs. The hospitality industry, for instance, composed mostly of SMEs can well be defined as such a niche market. The ASP Infogenesis, which offers point-of sale applications to hotels in the US, found that hotel chains "are interested in creating more of an enterprise-view approach to their technology. With the advent of lower-cost connectivity in the form of wide area networks (WANs), hospitality operators are looking to harness the power of an integrated data view where they can access, analyze, and interrelate data from all front- and back-office systems." (Hotels, 2000). The next section reviews a survey of the Israeli hospitality industry (Heart et al., 2001) showing that most hotels, other than the very large ones, can hardly afford advanced applications and are poorly positioned for eBusiness.

3. THE STATE OF IS IN THE ISRAELI HOSPITALITY INDUSTRY

The authors conducted an IS survey in the Israeli Hospitality Industry during 1999-2000 (Heart et al, 2001), funded by the Israeli Ministry of Tourism. More than 300 questionnaires were mailed to all registered Israeli hotels in a comprehensive survey, which followed a preliminary vendor survey, in-depth interviews with hotel-chain managers, and structured interviews in seventy hotels. The research questions were predominantly "Which IS applications are installed in the Hotels? What is the IS contribution to decision-making in the hotels? What are hotel IS needs?" On a 1 to 7 Likert scale, where 1 is low and 7 is high, the survey also tried to find the levels of IS satisfaction, application integration, and managers' utilization of IS. The respondents were also asked about annual expenditure for IS maintenance and about IS investment as percentage of total annual revenue. The questionnaire concluded with an open question, where respondents could explicitly specify needs and wishes.

The preliminary vendor survey indicated that Israeli hotels have limited choice of packaged applications. None of the solutions is comprehensive one, automating both front-office functions (e.g., reservations, reception and cashiering and other directly guest-servicing applications) and back-office functions (e.g., accounting, procurement, and human resource management). The small number of vendors cannot be attributed to the Hebrew language or the small market size since most of the leading software companies, such as Oracle, SAP, or Baan, do business with Israeli customers despite the language and the size of the market. Moreover, ERP vendors have customized their applications to a variety of service industries, such as banking and higher education, yet do not have a solution to fit the needs of the hospitality industry (See the web sites of SAP, Oracle, Baan).

The preliminary structured interviews revealed that, in the absence of one integrated solution, hotels install various applications ("Best of Breed"), sometimes residing on separated file-servers with different operating systems, a situation that imposes extra burden on the hotels when trying to integrate these applications.

The comprehensive survey yielded responses from 59 out of the 303 registered hotels, a response rate of 19%, which is considered high compared to surveys done in the industry elsewhere (Hensdill, 1998). 51% of the respondents were hotel managers, 21% were comptrollers, 7% were CIOs, and the rest held other roles in the hotels. Of the responding hotels, 25% were classified as small (less then 100 rooms), 47% as medium-sized (between 101 to 250 rooms), and 28% as large hotels (more then 250 rooms). This classification is consistent with the one used by US surveys (Hensdill, 1998). Moreover, no significant differences were observed in the results when obtained under different classifications.

The survey has demonstrated a very high level of IS usage among the Israeli hotels. Of the responding hotels, 96% used at least one computerized application, usually reservations and front-desk, compared to 87% computerization rate in the US and 77% worldwide (Hensdill 1998). Even hotels with 30-50 rooms were computerized. This result is hardly surprising, considering the high level of technological orientation prevailing in Israel for more than a decade.

The average level of Satisfaction was 5.03, which is above medium on a 1 to 7 scale, and the average level of integration was of 4.43, which is about medium. Since the average for integration was contradicted by responses to the open-question section, where most respondents wished for more integrated applications, it is likely that the question was not well understood. Managers of large Israeli hotel chains interviewed in preliminary in-depth interviews expressed dissatisfaction with "compromise" applications, installed in the absence of better solutions, and with lack of application integration, viewed as an impediment to decision support.

The comprehensive survey also showed that the annual IS maintenance spending lies between $12,000 and $24,000 and that about 1% - 2% of yearly revenue is invested in IS. A similar level of IS investment was found in US hospitality surveys. It is noteworthy, however, that other industries invest in IS on average 7% (Rubin 1999). This relative low level of IS investment might well be one possible explanation for the lack of interest in the hospitality market by global IS vendors.

The results of the survey have confirmed that hotels are not large enough to afford the expense of deploying and maintaining owned applications. Thus, like other SMEs, hotels are at risk of lagging behind in utilizing IS for eBusiness in the Internet era. Two Israeli vendors, NetPOS and Silverbyte, operating in the Israeli hospitality market, have recently addressed this situation by offering their customers a choice between eRental and sale of applications for hotels and restaurants. Since the IS needs of the hospitality sector throughout the world are similar, descriptions of these vendors which already function as ASPs for the hospitality industry, in the following two sections, should help shed light on ASP prospects.

4. CASE A: IS ERENTAL FROM NET-POS TO RESTAURANTS

Since 1998, Net-POS (www.net-pos.com) has been selling Point of Sale (POS) software packages for personal computers, predominantly to Israeli restaurants. The second product Net-POS has been selling, since 1999, has been a Restaurant Management System that supports, in addition to the POS function, such restaurant operations as food-inventory management, procurement, and costing. By the end of 1999, eighty organizations, including some major Israeli restaurants, spa properties, and hotel chains, became Net-POS's customers.

When a Net-POS's customer buys an application package from Net-POS, it also acquires robust touch-screen Windows-based client workstations, for the end users, and a robust server, where the application and the database reside, which the workstations are connected to. A network infrastructure, for connecting the client workstations to the server, is also acquired, as are licenses for operating systems, backup utilities, security applications, and database, in addition to the Net-POS software package.

In addition to fixed costs, the server must be regularly maintained, including backup, security handling, and software upgrades, an especially burdensome task since each and every workstation must be upgraded separately. In fact, many Net-POS buying customers have found it necessary to employ IS professionals for handling maintenance and complex upgrades. On top of this, some restaurants have faced technical installation problems as when there was no room for the server and network equipment due to space scarcity. Finally, to reduce system down time to a minimum, Net-POS buying customers acquire expensive service agreements on both the hardware and software sides.

Having sensed disappointment among its buying customers, who began to view owning applications as burdensome, Net-POS has expanded its offerings in early year 2000 to include an eRental option. To a customer, Net-POS today is either an ASP from which application services can be rented or a software vendor from which applications can be bought. Instead of running an application bought from Net-POS on an IS infrastructure owned by the buying restaurant, a renting restaurant runs the same application on an IS infrastructure owned by Net-POS.

An IS eRenter from Net-POS acquires "thin" client workstations, connecting to Net-POS facilities, rather than acquiring, installing, and managing a network of server and "fat" client workstations. Under the IS eRental option, license expenses for operating systems, backup utilities, security applications, and database, for the customer, are greatly reduced, as are maintenance, backup, security handling, and software upgrades. In addition, Net-POS renting customers need neither employ IS professionals, nor sacrifice scarce and expensive space for server and network equipment. The financial burden of service agreements is also greatly reduced.

Already, Net-POS has quite a number of customers and suppliers connected to Net-POS Tender Solution (NTS), another service available from Net-POS to eRental customers an Internet private virtual network. NTS is an eMarketplace for foods and beverages, through which inventory data, purchase orders, and design specifications can be transmitted. NTS contains automatic mechanisms for anonymous tenders, a complete set of Business-to-Business applications, and cost-efficient business inter-networking. NTS. Some Net-POS clients are conducting supply chain management activities via NTS. Currently, because renters are connected to Net-POS servers while buyers are not, only buyers can enjoy the NTS services while buyers cannot.

NTS participants are charged eMarketplace commissions and access fees, which are determined according to the relative size of the connected user and the volume of eMarketplace transactions that are conducted through NTS. In the future, Net-POS hopes to charge customers content subscription and knowledge sharing fees for benefits they may gain from the databases that contain large repositories for product specifications, product categorization, pricing, availability and demand trends.

NTS creates affordable and efficient distribution channels along the supply chain for customers of food and beverages, on the demand side, and for producers, suppliers, or third-party distributors, on the supply side. Through a standard web browser, a user may request that an automatic, anonymous, and public tender be launched on the NTS network for supply of requested goods. NTS may also launch a `request for tender' automatically, upon reaching a predetermined inventory level for an item. NTS will then pull together similar tenders to one larger single tender. Due to the larger tender size, vendors might be willing to quote lower prices, enabling small restaurants to enjoy economics of scale usually reserved for larger enterprises.

Each authorized vendor has its own personal database stored on the Net-POS web site, as part of the vendor's `Virtual Sales Representative', containing vendor identity, relevant categories of products, and the like. Each authorized vendor has access to a powerful eMarketplace platform for receiving and managing online auction tenders and direct orders from connected retailers. Moreover, it is possible for central retailers to display demographic information, types of business, and statistics about tenders or orders. Retailer ratings, based on business criteria, preselecting retailers, and online alerts, are available as well.

Currently, five restaurants have chosen to operate the applications remotely, using Net-Pos as an ASP, including a new global chain, which is now establishing its presence in Israel. Customers express overall satisfaction with performance and cost reduction, and with the simplicity of managing the application and infrastructure. Thus, Net-Pos considers this option a success, since more and more customers present interest in becoming ASP customers.

5. CASE B: IS ERENTAL FROM SILVERBYTE TO HOTELS

Over the past 10 years, the main product that software vendor Silverbyte (www.silverbyte.com) has installed in more than eighty Israeli hotels (about 30% of the market), as well as in a few non-Israeli hotels, was a DOS-based property management application. Since 1998, being the first vendor to launch and sell a Windows-based application suite has given Silverbyte a firstmover competitive advantage in the Israeli market. Silverbyte offers its customers a comprehensive line of solutions for aspects of hotel operations other than property management such as POS management, Spa Scheduling and Management, Guest Services, and Events scheduling. Seamless integration of these products with the front- and back-office systems provides hotels and hotel chains with a comprehensive enterprise wide solution.

In 1999, Silverbyte was asked to rescue a large Israeli hotel chain in ASP mode. A few months prior to that, the chain decided to connect all the members of the chain, using relatively inexpensive "thin" client workstations, via leased-lines, to application and database servers installed in its central office. Because service quality did not live up to its expectations, the chain management asked Silverbyte to take over maintenance of the server-farm under a 7*24 service level agreement.

For more than a year, since early 2000, Silverbyte has been offering the IS eRental option to independent hotels, as well as to hotel chains, under a deployment and financial arrangement customized for each customer. Silverbyte's plan is to expand the choice of applications it eRents to include other useful hotel applications, such as guest service center and spa management, as well as other office and administrative solutions, such as MS-Office applications.

The IS department of most of these chains resisted the ASP concept at first. Silverbyte, sensing resistance, responded with the "Corporate ASP" deployment concept. In this mode, the servers, applications, database, and network are purchased by the hotel chain, located on hotel premises, and maintained centrally by the chain's IS department. One of the chains, to reduce maintenance costs even further, has opted to have its applications and database hosted at a Silverbyte location. More than 60 out of 160 Silverbyte customers in Israel are using Silverbyte products in regular ASP mode and two Israeli chains are using SilverByte products in Corporate ASP mode.

In addition to a one-time subscription fee, Silverbyte is charging its customers per connected workstation. The monthly charge per workstation is a decreasing function of the number of connected workstations or applications used by the hotel. This price includes hardware and software support 7 days a week, 24 hours a day, all year. A small hotel, for example, can purchase one "thin" client workstation and be up and running with Silverbyte's application suite within hours. Thus, the hassle caused by network and server installation is avoided, as is the setup and fine-- tuning of the application, which are remotely executed by Silverbyte.

Independent hotels find the IS eRental option appealing than the buying option since the technological support that hotel chains can perhaps afford is beyond their means. The reasonable monthly charge is more appealing to them than the initial purchasing and installation costs required when they choose to buy Silverbyte's application suit. Although the monthly charges are somewhat above monthly charges for buying customers, other expenses are much less compared to owning the equipment and employing full-time support personnel in the hotel.

Following growing demand from its user base and the technological development in the computer and Internet industry, Silverbyte has begun to develop eBusiness tools supportive of a dynamic selling environment on the web. The planned portal technology would enable hotels and their customers, suppliers, and business partners to directly access, navigate and manipulate integrated information using an intuitive interface. Silverbyte plans to be the provider, in ASP mode, of this portal technology that would integrate information from all these entities. For example, potential customers, on the demand side, would be able to connect to hotels, on the supply side, on a vertical Silverbyte eMarketplace, processing each customer's request for hotel reservation. Silverbyte's portal technology should enable hotels to run a more cost-efficient business due to better supply chain management in particular.

Silverbyte is expanding its ASP offerings beyond the Israeli market, having been recently selected by iGroup, a leading Scandinavian Internet company, to establish an ASP platform for the Scandinavian hotel market. In this way, Silverbyte is becoming a solution and technology provider for companies wishing to become hospitality ASPs on the basis of Silverbyte's experience and well-established technology. This joint venture with an Internet provider is adding the communication and connectivity assurance required by all ASP customers.

The transformation of Silverbyte toward becoming an ASP which eRents applications, from the traditional software vendor whose business model was based on a one-time sale, has been gradual. Currently, Silverbyte is looking to form a business partnership with a telecommunication vendor, to enhance the services it can offer to customers, improving reliability, quality, availability, and bandwidth. Silverbyte considers its becoming an ASP a main line of business, already reporting the server-farm, hosting about 80 hotels and 250 workstations, profitable.

6. DISCUSSION OF THE ASP CONCEPT

Both the Net-POS and Silverbyte cases demonstrate an IS eRental model and its eBusiness implications. For instance, the auctioning feature of Net-POS, NTS, facilitates simple, confidential, dynamic, real-time transactions and constant transmission of information between buyers and suppliers. Through NTS, Net-POS offers connected parties, in an industry where gross margins are very thin, reduction in operational costs, cost-efficiencies resulting from aggregation of demand from various independent customers, improvement in supply management processes, and elimination of redundant links along the supply chain. This has significant economic value for determining price and managing inventory. Moreover, aggregation of buying power on the supply side causes vendors to vie amongst themselves in order to gain joint orders. In this way, individual retailers can become part of a large virtual wholesaler, with the benefits of scale for themselves and better prices for their customers. Net-Pos initiative can be considered a success, since its customers are satisfied with the technical, managerial and operational aspect of the Asp solution, and more restaurants show interest in becoming Net-Pos customers.

Silverbyte's approach has been shown to appeal not only to small independent hotels, but to larger Israeli hotel chains as well. In contrast to Net-POS, the initiative to become an ASP did not originate with Silverbyte. Rather, offering application services was initiated at the request of one of its bigger customers wishing to avoid software buying and the heavy investments in initial installation costs, monthly service and upgrade fees, and expensive IS experts. Silverbyte, as opposed to Net-Pos, is already seeing profits from its ASP line of business. The above two case studies present the eRental business model in a positive light, as do promising prospects for the ASP market forecasted by leading consulting and research companies. It is generally agreed, however, that there are some shortcomings and limitations for ASPs still to be overcome (AllaboutASP, 2000).

Security and service level agreement (SLA) uncertainty, as well as lack of understanding ASP, are among the most common reasons for organizations to stay away from the ASP concept (Underwood, 2001).

It is yet to be determined whether, in the future, organizations will be more willing to entrust their most valuable information resource to an external vendor, especially when other organizations have access to the same server farm. The control issue is a problem especially with organizations with an established IS department that is not short of technical personnel. Such organizations are expected to be more reluctant to give up full control over IS implementation and utilization and thus continue to purchase and install applications in-house. The control concern is one of the reasons that the focus of this paper has been on ASP-to-SME eRental rather than on IS eRental to enterprises of all sizes.

Customization imposes yet another ASP limitation. Organizations will either have to give up customization altogether or ASPs will have to find effective and efficient means toward the end of customization that are easy to implement for or by potential customers who, under such circumstances, might find the IS eRental option more appealing.

Another current limitation of ASPs is that the communication infrastructure is usually provided by a third party provider and that the bandwidth, in many cases, is too narrow. Customer organization will stay away from ASPs unless adequate response time and communication reliability can be guaranteed.

Many experts believe that a critical mass of eRental customers is necessary before an ASP can show profits. Until a critical mass of customers is established, most ASPs tend to charge unprofitable rates in order to penetrate the market. Silverbyte hopes to achieve, during 2001, a critical mass of about 200 workstations which is required under the current charging scheme to sustain a profitable server farm, including the required applications, database, communication technology and professional staff. Net-POS, as a player at the restaurant market whose members are smaller than hotels, finds it more difficult to achieve the critical mass, thus having to rely more heavily on profits from its eMarketplace solution.

Whether or not a viable business model can be found has yet to be established. Other Business-to-Business eCommerce pioneers have not fared better so far. They, much like pioneers of ASP-to-SME eRental are seeking other opportunities, such as joint ventures and business partnerships, which will improve prospects for profitability. Some ASPs, for instance, seek partnerships and joint ventures with other vendors (e.g., for communications infrastructure) which might help make the ASP-to-SME eRental business model more sustainable and profitable to vendors, while still attractive to customers.

Given the uncertainty about the eRental business model, there are several questions for researchers to address in the future:

1 How can SMEs cost-effectively take advantage of advanced applications offered by ASPs?

2 Under what circumstances, in terms of size, location, or globalization, should SMEs and larger organizations wishing to become better positioned for the eBusiness era rent applications from ASPs?

3 What is the critical mass of customers that would be required to ensure ASP sustainability and profitability?

4 What charging mechanisms would make ASP-to-SME a win-win proposition?

5 What economical and financial models will prove cost-effective to ASP vendors and customers and would make IS eRental a winning business models?

6 What application portfolio and integration level are required from an ASPs in order to persuade potential customers to switch from being software buyers to eRenters?

Like hotels served in the above two cases, SMEs in other industries might find it more appealing to eRent from ASPs that offer advanced and competitive IS applications at reasonable costs and affordable maintenance efforts. We expect the diffusion of broadband networking, as well as the decline in communication costs in most western countries, to enhance the appeal of the ASP concept to SMEs. Reliable and fast access to advanced applications should open new opportunities for eBsuiness.

Israeli restaurants and hotels, the customer organizations in the above case studies, are service-oriented thin-margined SMEs, whose operations management is quite similar to that of non-Israeli SMEs in industries other than the hospitality industry. Hence, we propose that it is possible to generalize beyond this industry, in one country, to other service and non-service industries, in other countries.

The main lesson to learn from this paper is that the emergence of new models of commerce, given the convergence of information and telecommunications technologies, applies also to the IS field. In the IS case, according to our study, Business-to-Business eCommerce is manifested mainly in the form of ASP-to-SME eRental. For hotels, as well as for other SMEs, the implications of the IS eRental models have yet to be determined. The above cases demonstrated the wide-ranging implications of IS eCommerce on such activities as supply-chain management, distribution, marketing and sales.

Subject: Case studies; Application service providers; Rental services; Small business; Business to business commerce; Software; Vendors; Business to business marketing; Internet; Services; SME (Small & medium sized enterprises); Electronic commerce

Location: Israel, Israel

Company: net-POS, Silverbyte

Classification: 9110: Company specific; 8302: Software & computer services industry; 9178: Middle East; 9520: Small business; 9172: Canada

Publication title: INFOR

Volume: 40

Issue: 1

Pages: 23-34

Number of pages: 12

Publication year: 2002

Publication date: Feb 2002

Year: 2002

Publisher: Canadian Operational Research Society

Place of publication: Ottawa

Country of publication: Canada

Publication subject: Computers--Electronic Data Processing

ISSN: 03155986

CODEN: INFRCL

Source type: Scholarly Journals

Language of publication: English

Document type: Feature, Case study (Business)

Document feature: Illustrations; References

ProQuest document ID: 228525260

Document URL: http://search.proquest.com/docview/228525260?accountid=38610

Copyright: Copyright INFOR Journal, University of Ottawa Feb 2002

Last updated: 2011-09-09

Database: ABI/INFORM Complete

Document 40 of 100

TROPICAL TRENDS, INC.

Author: Bagwell, James J

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Abstract: None available.

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A WEEK AT THE BEACH

Cool Dude, CEO of Tropical Trends has been desperately trying to order beach and surf gear to arrive in time for the start of Summer Break 2002, when thousands of college students and professors will hit the beach. Tropical Trends ordered 500 Turley t-shirts in five sizes, if Turley could promise delivery by May 1. Turley agreed. The deadline has past and no t-shirts have been received. When Cool Dude contacted Turley, he was told that they did not know when they could send the order, due to the tremendous popularity of the new t-shirt styles. However, Cool Dude was told that for an additional cost of $10 per shirt, they could insure overnight delivery for the entire order.

Tropical Trends also ordered 400 surf shirts from Boomerang. When the order arrived, however, it consisted of 700 Spring Break 2000 tank tops in pink and purple, labeled as is, all sales final, no refunds, no returns. Cool Dude promptly returned the tank tops, but Boomerang sent the tank tops back to Tropical Trends, along with an invoice for additional freight charges, and a demand letter for payment.

Tropical Trends had also ordered 200 surf shorts and 200 cargo pants from O'Keill. Before receiving the shipment, Cool Dude called and cancelled the O'Keill order, placing an order with Tip Curl instead, at a lower price. O'Keill said that the surf shorts and cargo pants had already been manufactured for Tropical Trends, and that it would hold Cool Dude responsible for the entire amount due. The shipment arrived the next day.

During Summer Break, Jana and Sam, two college students, stopped into Tropical Trends to check out the new season's coolest surf gear. Upon entering the store, the students tripped over the steel strip in the door installation in the floor. Jana fell straightforward, gashed her head open on a store shelf, and had ten bottles of suntan oil fall on her head, knocking her out. Blood sprayed out of Jana's arm onto a rack of Adidas soccer jerseys and Speedo swimsuits. Sam fell on top of Jana, breaking both of Jana's legs. At this same instant, Steven rushed over to check on Sam and Jana, slipped on the suntan oil on the floor, and fell on top of Sam, breaking Sam's hip. Carl, a sales associate, commented that several students had tripped over the door strip in recent weeks.

Tory, a high school student, noticed that the commotion was going on, struck a match to a firework fuse, grabbed four trendy surf t-shirts, and rushed out of the store. Dustin, a security guard, who also worked at Harpoon Harry's as a bouncer, saw Tory run out of the store. About that time, the firework landed in Dustin's lap, setting his uniform on fire. After putting out the fire, Dustin chased Tory, took out his club and struck Tory ten times. Meanwhile Tory's girlfriend, Amanda, ran out into the parking lot and saw the entire beating incident. She was overcome and fainted, hitting her head on a concrete curb. Shanna, a friend of Tory and Amanda, seeing this event happen, began throwing large conch seashells through the store window. Dustin carried Tory into the store's back warehouse and locked him in a closet for punishment.

Jason, a lifeguard that worked part-time as a Tropical Trends associate, pulled and used his stun gun on Shanna, who cut her face on the ice cream freezer, as she fell down. Carl called the police, who walked up and cuffed Tory's friend Ned, and Shanna, without saying a word, and whisked them downtown to police headquarters. Meanwhile, Shanna's old boyfriend Ryan arrived, and started speaking embarrassing language against Shanna in front of the shoppers. Ryan's friend Josh, however, took the opportunity to add a few of his honest thoughts about his business law final exam that he took right before Summer Break.

Tropical Trends also ordered and received t-shirts from Tuiksilver, instead of Turley, for $5 more than the original Turley price, in order to have surf gear to sell at the start of Summer Break. The Tuiksilver shirts arrived on schedule.

Meanwhile, Justin, the mayor's son, who is a sophomore in high school, set off five cherry bombs, causing all of the shoppers to leave the store, potentially costing Tropical Trends the entire afternoon sales.

Cool Dude returned to the store after a round of golf, saw smoke boiling out of the building, found Amanda sunburned and lying in the parking lot against the curb, and could not believe all that happened. When he opened the closet door after the smoke cleared, he found Tory asleep in the closet.

ASSIGNMENTS

1. Discuss the rights of the parties that have been violated.

2. What legal theories provide the best arguments for the affected parties?

3. What possible legal outcomes may occur?

4. How would you recommend that these issues be resolved in the most satisfactory manner to Tropical Trends?

5. What policies or programs should the CEO implement to better manage legal risks and prevent potential losses from occurring in the future?

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 3-5

Number of pages: 3

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411981

Document URL: http://search.proquest.com/docview/192411981?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 41 of 100

MANAGEMENT, UPSET WORKERS, AND A UNION: FEDERAL-MOGUL IN ALABAMA

Author: Borstorff, Patricia

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Abstract: None available.

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CASE: FEDERAL MOGUL

April 9th 1998 7:30pm : The management team of Federal-Mogul's Jacksonville, Alabama Plant are gathered in the conference room. "We're just sitting here waiting ....waiting for the votes to be tallied. This is the crescendo of all of the history here at Jacksonville. I've never seen anything like this before," explains Tamra Perry, the new Human Resource Manager. Tamra has been with Federal-Mogul for 11 years, but she's only been in Alabama for 3 weeks; three very intense and sleepless weeks.

History

Federal-Mogul was founded in 1899, and was a leading manufacturer of engine bearings. As the company grew and prospered, it began acquiring other industry leaders, (which remains a constant theme at Federal-Mogul to this day). Jacksonville offered lower wages, a large employment pool, cheap land, and a chance to start over again. The facility began with state-of-the-art equipment, 200 ambitious new employees, and lots of energy. The distribution center was ahead of its time in technology and personnel. Team concepts were not yet successfully attempted in the US, but Jacksonville began with the "oneness concept". Everyone was part of the large team and worked together to achieve their goals. The only difference was that the warehouse employees (hourly) are paid for overtime but management and staff (salaried) work overtime without extra pay; beyond that, all are treated equally and fairly.

Federal-Mogul continued its growth through acquisitions and venturing into the unknown international aftermarket. Manufacturing was no longer a focus, but distribution of the products, especially in the international markets, was the key. South and Central America, Africa, and Australia were of particular interest. In 1996, Federal-Mogul owned and operated the actual auto parts stores within these continents. Federal-Mogul was their own customer in the international markets.

Jacksonville, Alabama was the largest distribution center in North America, which might appear to be a safe and secure haven; it was not. In fact, with the company focus on the international arena, the export warehouse in Port Everglades, Florida was now the 'favored facility'. However, the customers in North America still needed to be serviced. There were 2 distribution centers (Jacksonville, Alabama and May sville, Kentucky) and 43 service centers (7 in Canada and 36 in the US). The service centers, in turn, provided a local availability of the products to Federal-Mogul's customers (i.e. Napa, Carquest, Auto Zone, Navistar).

In November 1996, at an after-market distribution meeting, the decision was made to close Jacksonville. Three main issues posed a threat against Jacksonville: hourly wages were too high, benefits were out of line, and logistically Alabama was not an ideal location for servicing North America.

Management wanted one chance to try and become competitive. Seventy percent of Jacksonville's employees had been with the company more than 20 years; they would want to save the plant. Wage and benefit surveys were conducted while process and performance analyses were dissected. Night and day, the managers and staff worked on plans for cutting costs. There was a specific dollar figure to meet, otherwise their case would be refused. These people were putting together a business case to save Jacksonville. There were offers and counter-offers. And on December 26, 1996, the final plan for saving Jacksonville was accepted by Federal-Mogul's senior managers. The plan called for serious financial sacrifices and increasing performance productivity. The three primary changes would be: implement new benefits on January 1, 1997 (Insert Figure 1); implement new wages through a stepped adjustment beginning March 1, 1997, (Insert Figure 2); and transfer the Carter Fuel and Signal-Stat Lighting product lines from Maysville to Jacksonville. All of this was communicated to employees. People found out that they would be losing roughly 15% of pay and many benefits plus having more work to do with less people. "It was like a walking morgue", recalled the Director of Organizational Development and HR Planning. "Tempers flared and interpersonal conflicts went through the roof. Workers comp cases increased nearly 60% and overtime hours increased drastically. People were trying to get their money back by any means possible." The morale was low; the mood was grim. Many people left and took advantage of the Alternative Transition Payment. Others were in disbelief.

Weeks later, employees discovered that managers had no pay cut, only the hourly workers were effected by all the cost reduction plans. "And that drove a huge wedge between 'them' and 'us'. Managers were known as 'the few, the proud, the untouched'", What the employees did not know was that the original plans called for a wage adjustment for salaried employees also. However, after careful consideration, senior management revoked that portion of the plan. Managers were willing to be exposed to the same wage reductions as the hourly employees; they realized it was neither fair nor equitable for them to remain unaffected by these wage adjustments. They also knew how difficult it would be to deal with the consequences of their positions and the other issues that this perceived discrepancy would create. Corporate management reviewed salaried wage surveys for equivalent management positions along with the wage rates at other Federal Mogul facilities. In order to maintain balance among all managers in Federal Mogul overall, the managers at Jacksonville would not be subjected to any pay adjustments. Managers are transferable commodities and need to be capable of easily relocating to other facilities; a present pay reduction would simply mean a larger pay increase at the time of transfer. Pay now or pay later. Also, an adjustment to a manager's salary would have no cost savings effect upon the facility itself due to Federal-Mogul's budgeting procedures; salaried personnel were accounted for within the corporate overhead. So, reducing the managers' salaries would not contribute to the magical dollar figure for Jacksonville's cost reduction.

Recovery from the wage and benefit reductions was difficult. Thirty percent of the employees left the company. Some new employees were hired immediately to fill open positions, in an attempt to resume daily business. However, the old employees were still bitter and the new employees were untrained and untested. So, with most of Jacksonville's training being OJT, it was not easy to teach the new employees their new jobs. Plus, there was still that third detail, product line transfers; moving two product lines out of Maysville into Jacksonville. That new business volume needed to be maintained with thirty less people than Maysville used. (More work for less pay.) The product and equipment was squeezed into every available square inch of space. Employees worked 12-hour shifts, seven days a week in order to complete the project in time. The physical move was completed by June 1 5th, but other problems were ahead.

The summer of 1997 was a struggle. Trying to train new employees and integrate them into a boiling pot of frustrated workers was a battle itself. Trying to control the tempers that continually flared and the interpersonal conflicts that sparked, especially between 'us' and 'them', was an entirely different battle. Somehow, work continued and people tried to find their own ways of handling their individual concerns. Some people just settled for the hand that they were dealt, while others simply avoided anybody or anything that annoyed them. Some folks were more frustrated than others were and rumors of union activities began to spread quietly throughout the plant.

In December 1997, an incentive fund was available for disbursement. The plant had allocated $60,000 in their budget for use as incentive pay. These funds had to be distributed by December 3 1 st or they would be lost and shuffled back into the corporate "slush fund". The HR Manager, at that time, decided that the incentive pay should be distributed based upon performance. The stronger your performance had been, the bigger your incentive check would be. That might have been a fair means of allocation, but no measurements of productivity were in place. So, instead, supervisors were told to rank their employees; rank them from highest to lowest, based upon the supervisor's observation of each employee's performance throughout the year. The incentive pay would be distributed plant-wide based upon these rankings. Little communication was given regarding productivity standards, performance evaluations, or the methods and measurements behind the ranking system. However, the incentive checks were mailed over the Christmas holiday. Some people did quite well, but some did not receive a penny. As a consequence, when people returned to work after the first of the year, frustration had reached an all-time high.

The employees at Jacksonville were fed up. Talk of union activity reached a crescendo with the employees being quite vocal about their desire for a union to "come to their rescue". Union Cards were distributed until 50% of the people had signed. Union campaigning was heavy and organized rallies were held frequently. The employees of Federal-Mogul Jacksonville were tired of being pushed around and demanded to have a voice in the activities of their facility. The petition for election came in late March and for 30 days and 30 nights, both the union and the company tried to communicate their position to the employees. The UAW offered hope and glowing promises for better things to come. The company tried to pinpoint the major issues that needed to be addressed, held brainstorming sessions, and began solving those problems.

The employees had 6 major issues to contest: New attendance policy - loss of paid time off; Job Bidding - Panel process lacked consideration for seniority; Lack of communication; Favoritism by management; Inconsistency of policies and their execution; and Lack of an Employee Handbook.

There were meetings, letters, signs, buttons, peer pressure. And it has all come down to this day, April 9th 1998. "We're sitting here waiting for the votes to be tallied. Hoping that all of the work we have done; all of the programs we are trying to put into place; all of the blood, sweat and tears will pay off," explains Mrs. Perry. Finally, at 7:30pm it was over, . . ..the company had won, by 21 votes. There would be no union in Jacksonville. It was over, but all of the work had really just begun. Just because the union was not successful this time does not mean that they would never come knocking on the door again. The company had won, for now.

EPILOGUE - JUNE 1999

Company Update

In September 1997, the CEO and President were removed from office and they divested all interest in international retail stores. Jacksonville has an even bigger field of competition (11 new plants). They continue to be analyzed for their productivity and cost effectiveness. Each of the major issues has been addressed with new policies and handbook and open communication.

Jachonville Overview

Total Employees: 415; Pieces shipped daily: 220, 000; Facility Size: 365, 000 square feet; Pieces shipped daily: 360, 000; Annual sales volume: $480 Million

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 9-13

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412360

Document URL: http://search.proquest.com/docview/192412360?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 42 of 100

BURNS, MORRIS & STEWART: SUPPLYING THE HOME CONSTRUCTION AND REMODELING INDUSTRIES

Author: Allen, Shane; Watts, Larry R; Motley, Luke; Box, Thomas M; Fullerton, Scott

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Abstract: None available.

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BACKGROUND

Mr. Doug Stewart founded BMS Inc. in 1977 as a "C" corporation in Nacogdoches Texas. Within five months of its founding, Mr. Hank Crouse became the general manager and by 1988 he had acquired a majority interest in the company. Mr. Crouse is the son-in-law of the founder, Mr. Stewart. BMS is a key manufacturer in the millwork products industry. BMS manufactures wood products for the construction industry and among these products are wood exterior doorframes and related moldings. The initial production facilities consisted of a 10,000 square foot building that had no doors or walls. In 1996, the newly formed partnership of Burns, Morris, and Stewart L.P. purchased the assets of Burns, Morris, and Stewart Inc.. Burns, Morris, and Stewart Inc. became inactive after the asset sale. The general partner of Burns, Morris, and Stewart L.P. is the BMS Management Company of Columbus Ohio. As part of the 1996 corporate restructuring from a corporation to a limited partnership, the Crane Group of Columbus Ohio purchased the BMS Management Company.

While their manufacturing capabilities have grown and their product mix has changed over the years, BMS is still manufacturing substantially the same products as at their inception. The company still manufactures doorframes, but is also a full service millwork shop that has been priming, weather-stripping insertion, mortising, mattering, and drilling capabilities. Emphasizing their commitment to doorframes, their company motto is "When it comes to sizing up door frames, nobody fits the job like BMS. If you can spec it, we can deliver it".

A primary product invented and patented since the company's inception is the FrameSaver(TM). The FrameSaver(TM) is a doorframe designed to resist rot and insect damage. The FrameSaver(TM) is manufactured using a Crane Plastics composite wood material known as TimberTech(TM). The FrameSaver(TM) composite wood material is placed at the ends of the doorframe. This product is very important to BMS as many of their customers are along the Gulf Coast and in other areas of the United States where high moisture content and insects such termites and ants are a constant problem.

The current manufacturing facilities are on a ten-acre tract of land and include a 3,600 sq.ft. administration building, a 135,000 sq.ft. manufacturing facility, and a 13,000 sq.ft. storage space. A railroad siding on the property simplifies the delivery of raw materials and the shipment of finished goods. The sales territory of BMS extends from Pennsylvania to Florida, the Gulf Coast, and Nevada. BMS has approximately 250 customers for its products. Core customers are in Texas, Arkansas, Oklahoma, Mississippi, Louisiana, and Tennessee.

The business process that BMS employs is unique. Scrap and rejected lumber products are purchased by BMS from lumber companies. They then manufacture these products into doorframes using a finger joining process. They then sell scrap material from the BMS manufacturing process as shavings for animal bedding, chicken house floor covering, or compost. Thus, the manufacturing cycle is very efficient in the use of natural resources.

INTERNAL ENVIRONMENT

BMS is a manufacturer of quality exterior doorframes and related components, selling to jobbers and building product distributors across the U.S. The home office and manufacturing facility are in Nacogdoches, Texas using a total of 135,000 sq.ft. To meet the doorframe competition, the company must have a good knowledge of construction industry standards, the different types and costs of lumber, construction terms, lumber sizes and other necessary characteristics of the construction industry. For example, Mr. Michael Kinked, CFO and comptroller of BMS, commented that the contractors in Houston, Texas installs the doorframes differently than the rest of the contractors in Texas and as a result Houston, they manufacture Texas doorframes differently for those contractors.

The manufacturing process at BMS begins when raw material in the form of reject and scrap pieces of dimension lumber in approximately two foot lengths and sized two inches by six inches is delivered to the plant. They receive the lumber on flat bed trucks on pallets. It is unloaded for inspection and then moved to a machine area with several operating areas for removal of all defects. After they remove the defects, they move the pieces to the finger jointing area where cutting saws form the finger joints and then to an adhesive area where they join the pieces together to form longer pieces. Approximately 50% to 60% of the input raw material is lost during this process due to poor quality such as splits, knots, uneven edges, etc. They grind the raw material that is not used in production operations up for sawdust or run through a chipper to make shavings and chips for resale to the local poultry and horse industries.

After joining, they cut the long lengths of finished boards to the desired lengths and then milled into the various BMS products such as brick mold, case, fhead, frame, full, and studs. This is also where frames are finger jointed with the wood/plastic composite TimberTech(TM) to make the patented FrameSaver(TM) doorframe. Currently, the company has five milling lines in production, which they support, by two finger joint lines and various lumber defecting lines. Two priming lines prime and paint the products with environmentally friendly water-based paints. Modern, K-VaI Co., automatic mortise and miter machines are used in respective areas. Various rip saws, conveyers and double end dado and mortising equipment, further support milling lines. They deliver the finished products to customers on leased trucks.

BMS takes great pride in customer satisfaction and customizes many of their products to customer specification. Since 1977, BMS has built a reputation for producing top quality frames at competitive prices. According to Michael Kunk "it's a reputation that hinges on quality frames, fast delivery, and perhaps the most important element - customer service". The company is more of a job shop rather than a high-speed production assembly operation. This type of operation increases the cost of products so the company has turned to import wood for approximately 1/3 of its raw material to remain competitive in its markets. BMS has traditionally used southern yellow pine for its raw materials.

Cost control in the doorframe market is critical. According to Mr. Michael Kunk, CFO of BMS, 60% of the cost of the product is from materials. The biggest problem with the predominant material used in the manufacture of doorframes is that it is southern yellow pine. Southern yellow pine typically has high moisture content, knots in the wood, wane, and finish problems. They import substitute wood material from South America, Indonesia, and China. Imported wood is being used because its low cost and lightweight. The wood is a variety of pine, but is not as strong as southern yellow pine. The major problem with imported wood is having a long lead-time for delivery and dealing with quality issues.

Suppliers to BMS include raw material suppliers and the Crane Plastics Company. The predominant raw material used in BMS products is scrap or rejected lumber. These suppliers include the Riverwood International Corporation, Louisiana Pacific, Boise Cascade, American Paneling, and Temple Inland. The vast majority of the product used in the BMS product line is southern yellow pine. There is no shortage of southern yellow pine rejected lumber. Estimates show that the lumber industry produces approximately one billion board feet of products per year that would be suitable for BMS production operations. Of these one billion board feet, BMS purchases approximately sixteen million board feet per year, or roughly 1.6% of the available supply. Other suppliers to BMS include the Glidden Company, Schlegal Ine, National Casein Company, Senco Products Inc., and the Crane Groups Crane Plastics Company. Crane Plastics provides the material for the FrameSaver(TM) product.

BMS has the patent rights to all doorframe designs that prevent premature rotting by adding a different type of material to the bottom of the doorframe. This patent is not limited to the plastic compound used in the FrameSaver(TM) product, but also includes frames that use cedar, or any other material that differs from the main part of the frame. This insight was gained from Mr. Kunk's comment that some patent infringement may be going on which may require court action.

Of particular interest to BMS is the entry of new competitors using composite materials and products made entirely without wood. Reasons for new entrants into this market are moisture problems with wood, the desire for something different, and more stringent building code requirements. There is specific interest in the manufacture of a fiberglass door for a pultruded frame to create a complete fiberglass entry system. Pultrusion is "an automated manufacturing process for the production of consistent cross-sectionally shaped profiles of fiber reinforced composites. The profiles produced with this process can compete with traditional metal profiles such as steel and aluminum for strength and weight. The polymer-reinforced matrix can be formulated to meet the most demanding chemical, flame retardant, electrical, and environmental conditions. Pultrusion brings high performance composites down to commercial products such as lightweight corrosion free structures, electrical non-conductive systems, offshore platforms, road and railway trucks, and many other innovative new products. Pultrusion products are applied in a wide range of market areas. However, there are certain areas were pultrusions today are recognized as commodity products and have become the industry standard. Properties, such as light weight, corrosion resistance, electrically and thermally non-conductive, determine the success in these applications."

Pultrusions, along with cellular PVC products, could provide a direct challenge to BMS and the FrameSaver(TM) product. The customer mix for BMS's products is composed of small local shops and national chain home remodeling stores. BMS has 125 loyal, strong industrial customers. These core customers are in Texas, Oklahoma, Arkansas, Louisiana, and Mississippi. Among these core customers are Builders First, Southern Mill Work, Bison, Stripling Lake, BMC West, Cameron Wholesale, Crest Metal Doors, and many other smaller entities. Other significant sales come from Missouri, Indiana, Florida, and Virginia. They have made sales on the east coast and as far away as London England. No single customer accounts for more than 10% of sales and production output. Besides these customers, BMS maintains a relationship with 107 dealers who carry the FrameSaver(TM) product.

BMS employs approximately 150 people, most of who are of unskilled or semiskilled workers. Nacogdoches has a large population of minorities, predominantly Hispanic, that are categorized as unskilled. It is therefore not surprising that a significant portion of BMS's labor force is composed of Hispanics. BMS is a non union shop and Texas is a right to work state. According to Michael Kunk, CFO of BMS, there has never been a union organization attempt made at BMS. The average hourly non-incentive rate that a BMS employee earns is approximately $9.00. Employees work one of two shifts per day, eight hours at a time, for five days per week. They thus estimate that the average hourly weekly payroll is $54,000 with a yearly payroll of $2.8 million. Now, they currently operate the plant eighty hours per week, (two shifts * 40 hours per person per week). This results in an overall plant utilization of 47% based on the maximum utilization of 168 hours per week. According to Michael Kunk, the plant is currently working at approximately 80% of capacity based on eighty hours per week. During peak seasons, the BMS uses temporary workers to cover labor shortages.

BMS has recently installed a modern Microsoft (MS) Windows-based ERP (enterprise resource planning) computer system. This computer system allows BMS to track work-in-process (WIP) and finished goods (FG) inventory and do financial analysis. BMS has a WEB presence with an informational web page at www.bmslp.com. The web site does accept the online ordering of the FrameSaver(TM) End Frame End(TM) for $14.95 plus $5.00 shipping and handling. Additionally, questions and information can be emailed to the company through a request for information screen. The manufacturing computer system software package is Fourth Shift from Computer Aided Business Solutions of Golden Colorado. The Fourth Shift software is message driven and uses Access databases and Excel spreadsheets. The Fourth Shift software is an ERP software package and not a MRP (Material Resource Planning) software package. Mr. Kunk was very pleased that the company decided to add the computer system and not add additional people in the selling and general administrative and accounting areas as the company grew. The system provides a part number that is customer specific and every customer has a number. There are 12,000 possible product numbers. They make the doorframes to order and very little is made for finished goods inventory. BMS does not support online Internet based ordering or tracking of orders for their products other than the FrameSaver(TM).

The Sustainable Forest management Initiative certifies BMS's commitment to the preservation of the environment(SFI). Through the SFI certification, BMS works to integrate responsible environmental practices and sound business practices to the benefit of landowners, shareholders, customers, and the people they serve.

FUTURE DIRECTIONS

BMS intends to increase market share by selling to large retailers. To be able to supply Premidor Corporation, Stanley Corporation, Lowe's, or Home Depot, with frames for their door units is definitely a long-term desire. This market is very competitive because the buyers want one price for the frames to their door units and the supplier must make any improvements at the same price. There have been no attempts to create a strategic alliance with a door maker to increase sales. Currently, Stanley and Premidor are the largest door makers in the U.S. Home Depot and Lowe's are desired retailers that BMS would like to create an alliance with, but they have trouble getting costs down low enough to reach these customers. The strength of buyers' power hurts BMS in this area. Since doorframes are considered as commodity products, the margins on the FrameSaver(TM) line are not adequate because BMS cannot charge a higher price for the product. Another long-term objective of BMS is to lower costs by maximizing product runs, lowering costs to convert which are labor and overhead other than the cost of materials, and paying low wages. Labor costs currently average $9.00 per hour plus an extra 25% in benefits. If the costs for FrameSaver(TM) decrease enough, BMS feels that they can dominate the market. According to Michael Kunk, CFO, many customers say, "If it were cheaper, we'd buy all of our frames from BMS". Labor and overhead, other than cost of the materials, are currently $1.45 per frame side plus $.24 in other expenses to total $3.14 for the two sides of a frame.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 15-20

Number of pages: 6

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411945

Document URL: http://search.proquest.com/docview/192411945?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 43 of 100

IN THE WOODS: A HIGHWOODS PROPERTIES, INC. VALUATION CASE

Author: Downing, Tracy P; Stotler, James

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Abstract: None available.

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INTRODUCTION

Jane Moore, the assistant director for human resources, sat at her desk planning out her day and the activities that she had to accomplish by the end of business. It was 8:50am, so that left her only ten minutes to review for her Employee Stock Purchase Plan presentation to the new employees. Even though she had given this presentation several times within the past month, she was still a little nervous talking to her fellow co-workers and an independent analyst. The purchase of the company's stock through the program was purely optional, but she had to deliver enough information to the authence so that they would understand all the necessary aspects of the stock plan and the company. Jane leaves the comfort of her office to begin her presentation.

HIGHWOODS PROPERTIES, INC. (HIW)

Highwoods is a fully integrated, self-administered real estate investment trust ("REIT") that provides leasing, management, development, construction and other tenant-related services for its properties and for third parties. The Company currently owns or has an interest in 590 office, industrial, retail and service center properties encompassing approximately 46.3 million square feet, including 26 development projects encompassing approximately 2.7 million square feet. The Company also controls more than 1,650 acres of land for future development. Highwoods is based in Raleigh, North Carolina, and its properties and development land are located in Florida, Georgia, Iowa, Kansas, Missouri, North Carolina, South Carolina, Tennessee and Virginia. Just as important as the properties themselves is the attention Highwoods gives to serving the needs of their customers.

PORTFOLIO OF PROPERTIES

As of December 31, 2000, the company owned 493 in-service office, industrial and retail properties, encompassing approximately 36.2 million rentable square feet, and 1,885 apartment units. The following table provides information about the Highwoods' wholly owned in-service properties at December 31, 2000:

The diversification of the Highwoods portfolio across seven states and 11 core markets helps to insulate the company from economic dislocations that could occur. These cities are the fastest growing in the country and are major economic hubs in states that contained 18 percent of the nation's population, yet accounted for 27 percent of the nation's growth according to the 2000 US Census. The diverse economic drivers within the company's core markets add to the stability of the overall portfolio. There is no anticipation of additional geographic diversification beyond the southeast per Carman Liuzzo, CFO, for the company. From high-tech research and development in the Research Triangle to service centers in Tampa, distribution in the Piedmont Triad and financial services in Richmond, the company's local market economies base their strength on a variety of economic engines.

Highwoods operates its premier properties with the client in mind. Weekly divisional meetings keep local personnel current with the latest developments in their markets. Monthly, a group meeting of senior management reviews progress on company wide initiatives. Twice a year, senior management conducts meetings with all employees to discuss company goals and objectives.

Highwoods' greatest strength in the market place, as stated by Liuzzo, is the company's people and their years of experience within the real estate industry. He also says that it is tough to get good management in other markets outside of the southeast. Beginning with Ron Gibson, the CEO, and branching down to the division heads, members of management possess a minimum of 13 years of experience and average 20 years overall in upper management. This plays an integral role even with the individuals that have daily contact with present and prospective customers. The leasing professionals are on the frontline of meeting the customers' space needs. Their experience, training and professionalism are highly regarded in the industry. They assist customers in understanding the local market, evaluating space options and understanding the details of moving into new space. With many customers in multiple buildings and markets, consistent quality and service delivery are assured with a program called the corporate host program.

Highwoods supports the notion that real estate is an inherently local business although centralization of some functions may be appropriate. Where the company touches the customer most often - leasing, asset management, build-to-suit projects and a myriad of other tasks - people and decision authority are local. Areas such as financial management, lease accounting, tax accounting, benefits management, and capital allocation have been centralized at the Raleigh, North Carolina headquarters. The following chart compiles information found in the 2000 annual report for the company.

REIT INDUSTRY

The Real Estate Investment Trust (REIT) sector is sometimes viewed as an alternative to the fixed-income market. Based on the Value Line January 2001 report, price and earnings momentum for this industry were projected to be average. Recent Federal Reserve Bank (FRB) actions to cut interest rates have benefited this industry in the form of lower interest costs and additional interest rate cuts by the FRB are widely expected in the near future.

The overall real estate sector may under perform in the future months. Several REITS have announced their exit from the market, although it's too early to tell whether they were strategic moves or ones based on the expectations of a cyclical downturn in the economy. The downside to the expectation that higher-growth companies will out perform is that higher-growth sectors are typically more interest rate sensitive than lower growth sectors. Nonetheless, it is anticipated that real estate stocks should continue to perform well on an absolute basis given their current low valuations and continued solid fundamentals. Even though Highwoods has been successful in gaining market share in the recent past, there are future challenges to be considered due to market fluctuations. "The greatest challenge for Highwoods is to maintain occupancy in the real estate industry and to get recognized by investors", says Liuzzo.

Companies with high-expected growth (1999 and 2000 FFO) performed better than those with lower expected growth prospects. Those companies with average annual FFO growth in 1999 and 2000 (above 10%) saw their prices rise 0.4% while those companies with growth below that level saw a decline of 1.1%. Using the 10% cut-off, approximately one-half falls into the value index. It is believed that the lower spread between performance in growth and value of real estate stocks compared with the broad market is indicative of the lower volatility of real estate stocks and is not an indication that the effect does not hold for the real estate sector.

STOCK PURCHASE INFORMATION

At this point, Jane was wrapping up her presentation. She captivated her co-workers by telling them that the company's dividend grew from 1.89 in 1996 to 2.25 in 2000 and that Liuzzo anticipates a modest change of 2-3% in the future. She went on to tell the audience that government bonds are trading near historic low yields and a 30 year government bond was recently trading around 4.78 percent and that the Standard and Poor's 500 has earned an average return of 10.2 percent over the long run. Each employee is to receive a 1 5% discount on the lower of Offering and Exercise Average Stock Price. Offer dates are always the first day of each quarter beginning with January and ending with October of the year. The Exercise Date is always the last trading day of the Quarter. Jane also informed the audience that employees purchased 55,593 and 29,214 shares of Common Stock under the Employee Stock Purchase Plan during the years ended December 31, 2000 and 1999, respectively. Per Liuzzo, 30% of the company's employees participate in the plan, which makes up approximately 3-4% of the total shares.

The following chart illustrates the calculation for the current third-quarter discounted price of the stock.

THE DECISION

Jane completed the presentation by informing the employees that all forms are due on December 11th (21 days before the January 1st offering date) in order for employees to Participate in the Stock Purchase Plan for the first quarter of the next year. She gave them a packet that included the following pertinent financial data just in case employees needed a little more information to make their final decision of whether or not to participate in the program.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 23-28

Number of pages: 6

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411924

Document URL: http://search.proquest.com/docview/192411924?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 44 of 100

AIRPORT CONCESSION: DEVELOPING A BUSINESS PLAN AND PROFORMA ANALYSIS

Author: Evans, Michael D; Nunnally, Bennie H

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Abstract: None available.

Full text:

CASE

Mike Thomas, a well-respected Professor and practicing financial planner, developed a strong desire to become an entrepreneur. Mike felt he had the background to start and run a small business successfully. He had an MBA and was a CPA. Mike had prepared winning business plans for others. Now it was his turn to do for himself. If only he could identify an attractive business opportunity.

Mike actively reviewed the listing of businesses for sale in the local paper and the Wall Street Journal. He also networked with other professionals (i.e. bankers, attorneys and accountants) to seek out business opportunities. Franchises were considered as well as buying an existing business. Months went by and Mike still had no ideas.

In November 1995 Jost International, Inc. (Jost) ran an ad in the local newspaper inviting interested parties to submit a proposal to operate either a Kentucky Fried Chicken (KFC), TBCY or TBCY/Mr. Felds concession at the Charlotte/Douglas International Airport for a term commencing when the concessions were available for occupancy (expected to be January 1, 1996) through December 31, 2004. These concessions were to be part of a new food court built at the Airport. It was estimated that 6,100,000 passengers would pass by the food court each year in route to board their flight.

Mike contacted Jost to request additional information. Mike learned that Jost had a master lease to operate all of the concessions at the Airport. As part of its master lease agreement, Jost is required to sublease some of the concessions to local small businesspersons.

Mike's research revealed that the Airport is ranked 10th nationwide in total operations and 22nd nationwide in total passengers. In 1994 a total of 18,275,339 passengers utilized the Airport. In addition, the Airport employs approximately 10,000 individuals.

This opportunity looked attractive. It presented the opportunity to operate a well-established franchise in an airport environment. Mike had previously explored operating a KFC stand alone franchise. He had visited KFC headquarters in Louisville, KY. Unfortunately, there were a limited number of stores available at that time and all were located in the Northeastern part of the U.S. Mike was not interested in moving to any of these locations.

Mike was undecided regarding which concession to pursue. He decided to accumulate as much background information as possible on all three. He received franchise information and visited existing stores to determine staffing patterns and menu prices. It became readily apparent that food prices at the Airport were significantly higher than those of a stand alone operation.

After conducting preliminary research, Mike decided to pursue the KFC concession. Table 1 contains key information received from Jost and KFC. Note that there was no historical data regarding airport concessions since franchisers were just beginning to open them. The information provided by Jost and KFC represented their estimates of revenues and cost of goods sold. Jost based its estimates on airport demographics and experience operating other food concessions at airports. KFC based its estimates on average sales per store for existing locations. In addition, the rent to be charged was 15% of sales for each of the concessions. Mike also learned that royalties would be charged by the franchiser. The Airport would charge each concession for maintenance. This charge was expected to be 3.5-4.5% of sales. The average hourly wage rate paid to concession workers at the Airport is $6.00.

Mike wasn't sure which estimates to use in preparing proforma financial statements.

The sales forecast was extremely important. Once projected sales were established, other expense items could be determined. He learned that he could expect payroll costs to be 20% of sales. Employee benefits would be 20% of payroll.

An investment of $425,790 was required to open the KFC concession. $15,700 of this amount was for equipment. Construction costs were expected to total $395,423. The remaining funds ($14,667) would serve as working capital. Construction costs would be depreciated over 31 years. The equipment would be depreciated over 7 years. The Airport would retain title to all improvements and equipment.

Mike would have to arrange his own financing. Neither Jost nor the Airport would provide any financing assistance. Mike had approximately $50,000 to invest in the deal. He also had a family member who was willing to provide some additional capital.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 29-31

Number of pages: 3

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411847

Document URL: http://search.proquest.com/docview/192411847?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 45 of 100

PRECISION MANUFACTURING: THE RISKS AND REWARDS OF MINORITY BUSINESS VENTURING

Author: Evans, Michael D; Robbins, Keith

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Abstract: None available.

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INTRODUCTION

Richard Thomas could not sleep. He had recently celebrated the birth of his daughter. His thoughts now focused on what kind of life he could provide for her. Life had seemed so simple. He and his wife had successful business careers. They owned their own home, drove nice cars. They were active participants in the Charlotte, North Carolina social scene. Recently, this had come to seem insufficient. Though Richard and his wife enjoyed their lifestyle, their daughter's birth served as a wake-up call. Richard realized that he presently lacked the financial resources necessary to assure his daughter's education much less assure his family's future financial independence. He wanted to provide his family with a level of financial security that would accommodate a more affluent lifestyle and build his net worth to the point that his daughter's financial independence would be assured. From discussions with friends and colleagues, Richard became interested in an opportunity to acquire a manufacturing firm. Though he had no manufacturing experience, he believed that his extensive administrative and managerial experience would facilitate a successful transition. Richard's insomnia resulted from his churning of the pros and cons of just such an opportunity: financial independence or financial ruin.

As an African-American, Richard was aware of the fact that most minority entrepreneurs initially venture into service-sector businesses. The barriers to entry in the service sector are typically substantially lower. Most importantly, starting a service business does not usually require such a substantial capital investment. Lack of access to capital has been a significant impediment to entrepreneurship among African-Americans. On the other side of town, Mike Jones, a friend of Richard's, found himself in a similar position. Mike was a Certified Public Accountant (CPA) with a wife and three kids. He had a successful financial planning practice and was a business school faculty member at a nearby state university. Mike's wife had been a judge since she was first elected eight years ago. The Jones' had a comfortable annual income yet Mike, like his friend Richard, yearned to increase his family's net worth by developing sources of income that did not require his time; he was comfortable with the prospects of serving as a passive investor. His goal was to develop sources of income that did not require his time.

RICHARD THOMAS

After graduating from Ohio University with a BS in accounting, Richard joined a major public accounting firm. While there, he passed the CPA exam completing the certification requirements. In 1982, he left public accounting to join a major real estate development firm in Dallas, TX. He was transferred to the Charlotte office in 1986. In 1988, principals of the Dallas-based firm decided to start their own real estate development firm. Richard was recruited to join the new firm. He served in a number of managerial capacities and ultimately became Chief Administrative Officer.

Richard's wife, also a CPA, started a CPA firm in partnership with another female CPA. Her goal was to build a successful CPA firm by providing quality accounting and tax services to small businesses and not-for-profit organizations.

AN OPPORTUNITY?

In September 1993 Richard spotted the following ad for the sale of a precision machine shop in the Wall Street Journal. The company was located in a small community in Eastern North Carolina. Richard felt the opportunity was worth pursuing even though the facility was a 3-4 hour drive from Charlotte.

Precision Machine Shop

Sharpsburg, NC

Fortune 500 Customers

CNC Machining

$800K Annual Revenue

Richard contacted the owners of BARO, AG. He learned that two employees bought the company in a leveraged buyout. The company, headquartered in Schoolcraft, MI, had a subsidiary, Precision Manufacturing, in Sharpsburg, NC. The owners decided to sell the Sharpsburg facility because they did not believe they could manage this facility effectively given the distance involved.

PRECISION MANUFACTURING

Precision Manufacturing was established as a subsidiary of BARO, AG in 1983. It produced full precision machine parts for customers in the East and Southeast. Precision's primary customers were aircraft, aerospace and medical equipment manufacturers. Sales at BARO, AG grew steadily through 1990 as the number of employees increased to 28. After 1990, sales began to decline and the number of employees was cut back to 13.

From a personal perspective, Richard was not willing to relocate his family. How could he effectively manage a business in Sharpsburg and uphold his family obligations? He had limited cash available to finance the purchase ($50,000) and he had limited manufacturing experience.

Richard believed that the opportunity was worth pursuing despite his concerns. He believed that onsite management and marketing personnel would result in additional sales and improved profits. Further, the company would qualify for 8(a) certification from the Federal government's Small Business Administration (SBA) as a minority-owned business.

Richard anticipated that this would lead to business opportunities with the government and to joint ventures with major corporations seeking to do business with the government.

Richard negotiated a purchase price of $500,000 with BARO, AG for the assets of Precision Manufacturing. This did not include the land and building that were leased by the sellers. It was Richard's intent to continue to lease the real property under the same terms as the seller. Richard had $50,000 to commit to the project. Accordingly, his challenge was to raise $450,000.

Richard sent a copy of his business plan to the larger banks in Eastern North Carolina. He also sent the plan to the Small Business Investment Corporation (SBIC) of one of the major banks. He met with investment groups and other interested parties to secure financing.

January 16, 1984 Richard received a bank's commitment letter from a regional bank. The bank agreed to provide $350,000 and establish a $100,000 line of credit under one condition: Richard must move to the Sharpsburg area.

Richard sent a copy of the commitment letter to the SBIC. In February, Richard received a commitment letter from the SBIC for $100,000 of debt financing. The SBIC agreed to $100,000 in 12% subordinated debentures. The new entity would pay interest only for the first year. The loan would be fully amortized in years 2-6. In addition, the SBIC would have the option to purchase 40% of the company at the end of year 6 at a bargain price. The SBIC would also have an option to put the shares back into the company at fair market value.

Richard had discussed his pursuit of a manufacturing company with Mike Jones. Mike had, in turn, expressed his interest in investing in a manufacturing company. When Richard detailed the proposed financing, Mike stated that he would take the place of the SBIC under the same terms. Richard preferred to have Mike involved in the deal. To induce Mike to participate, Richard offered him a 20% equity interest upfront. Mike had the option to sell his equity interest back to the company at fair market value at any time after year six.

The bank determined that the deal structure for the asset purchase was unacceptable. They were not comfortable with 90% debt financing. The bank required 20% equity. Richard had no additional capital to contribute. The only viable option was to recharacterize Mike's investment from 100% debt to 50% debt and 50% equity.

Mike was not enthusiastic about the proposed change. The debt financing offered a fixed 12% return and a fixed repayment schedule. At the time, the prime rate was 7%. The change in the characterization of Mike's investment would introduce additional uncertainty regarding the return of the initial capital invested.

Mike also learned that Richard was successful in securing financing to purchase the real property. The lender, however, would require that Mike subordinate his loan to both the bank loan and the real estate loan (i.e. a third position). This further increased Mike's risk. Mike agreed to consider the change in exchange for a greater equity interest (40%). See Table 4 for the terms of the financing.

So Richard sat sleeplessly in his chair reviewing his options. All the pieces were in place to close the purchase of Precision Manufacturing including the real estate. Richard would serve as President of the company. He would have an initial annual salary of $40,000. This amount would escalate annually at $10,000 per year for the next four years. He would also have the opportunity to receive bonuses based on the amount of annual profits generated. Closing the deal would also put his family's finances at substantial risk. Richard would be required to personally guarantee both the bank debt and the real estate financing. He would be financially ruined if the deal didn't work.

Mike also had a serious decision to make. He had long wanted to invest in a manufacturing company. Was this the right opportunity? Was Richard capable of successfully managing this business? Was this a good deal structure? An investment of $100,000 was quite significant. This money could be used to educate his children.

Richard and Mike both pondered into the night. Each knew that the decision they would make in the morning had the potential to secure their financial future or to destroy it: make or break?

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 33-38

Number of pages: 6

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411942

Document URL: http://search.proquest.com/docview/192411942?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 46 of 100

AMAZON.COM

Author: Kargar, Javad

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Abstract: None available.

Full text:

BACKGROUND

After receiving his B.S. in Electronic Engineering and Computer Science from Princeton University in 1986, Jeffrey Bezos joined FITEL, a high-tech start-up company in New York. Two years later, Bezos moved to the Bankers Trust Company and helped manage more than $250 billion in assets. From December 1990 to June 1994, Bezos helped build a hedge fund for D.E. Shaw & Co. During the summer of that year, one statistic about the Internet quickly caught Bezo's attention. The statistic revealed that Internet usage was growing at 2,300 percent a year. That was his wake-up call.

He quit his job and drew up a list of twenty possible products that could be sold on the Internet, and quickly narrowed the prospects to books. There were about 1.5 million English-language books in print and 3 million books in all languages worldwide. There were about 4,200 US publishers and the two biggest bookstores, Barnes & Noble and Borders Group Inc. accounted for less than 12% of total market share. But the largest physical bookstore in the world had only 175,000 titles.

Working out of his garage in Seattle, Washington, Bezos opened the virtual doors of Amazon.com in July 1995. The company's revenue was about $5 million in the first year of operations, which was comparable to Barnes & Noble superstore. Amazon went public on May 1 5, 1997, and the Initial Public Offering (IPO) price was $1.50.

MERCHANDISING STRATEGY

Amazon rapidly diversified into other industries. It was the Internet's number one music, DVD/video, and book retailer based on its 1999 revenues. By offering over 13 million titles in books, music and DVD/videos, Amazon was the largest online retailer, with over 18 million customers in more than 160 countries.

In 1998, Amazon launched two international sites, one in England, and one in Germany, and had products and services tailored to the local markets. The Amazon.de Web site was presented in the German language. Revenue for the International segment was $167.7 million and $21.8 million in 1999 and 1998, respectively. Forrester Research Inc., the Boston consultancy, predicted total e-business in Europe to $1.6 trillion by 2004.

Amazon entered the toy category in 1999. Sales of toys hit $95 million in less than five months after the company's toy store opened. In July 1999, Amazon introduced another store to sell electronics. With lack of confidence in Amazon's distribution capability, some manufacturers refused to supply Amazon. For example, Pioneer and Sony, two of the biggest manufacturers announced that they would not allow Amazon to sell their products and would take action against third-party dealers that try to sell their products through Amazon's consumer electronic site. Amazon introduced its person-to-person auction site in March 1999. The number of auctions on Amazon grew from 140,000 to 415,000 during the second half of 1999.

In September 1999, Amazon added another new category, the zShops, where an unlimited number of independent shops could set up shop under the Amazon umbrella. The zShops allowed individuals and businesses to offer popular as well as hard-to-find items. The biggest benefit for Amazon was steady cash flow without the costs associated with a warehouse of products. Each online store was charged a $9.99 monthly fee, and commissions of 1 percent to 5 percent in return for access to Amazon's customer base. During 1999 and early 2000, the company formed partnerships with NextCard, Ashford.com, Living.com, Gear.com, Homegrocer.com, Della.com, and Pets.com.

AMAZON'S TECHNOLOGY INFRASTRUCTURE

Maintaining a viable and reliable technology was very critical to Amazon's operations. Because its operations were dependent on the continuous use of computer software and hardware, Amazon had invested significant resources in the development and maintenance of its technology base. Amazon spent $47 million in 1999 to keep its Web site on the cutting edge of technology. Bezos saw site and systems improvements as necessary to avoid losing out to other online competitors. Merrill Lynch Internet analyst Henry Blodget said, "If you're trying to service a mass market, you need to maintain an expensive Web site that costs around $50 million, whether you have $1 or $1 billion in revenue."

Amazon's Web sites, network operations, and transaction processing systems were monitored continuously. The continued, uninterrupted operation of its Web sites and transaction processing systems was critical to Amazon's business. As of October 2000, the company used the services of three Internet service providers so it could maintain constant connectivity, both domestically and internationally.

DISTRIBUTION CENTER OPERATIONS AND ORDER FULFILMENT

In late 1999, most leading e-tailers were making some moves to build their own distribution infrastructure for 2000 and beyond, as they struggled to contain costs and control the quality of their customer service contacts. Amazon knew the design of its Web site would be meaningless if it failed to ship its products on time. Amazon also believed that by expanding its own distribution centers it could decrease shipping costs and make order fulfillment more efficient. In 1999, Amazon expanded its US distribution infrastructure with building six new distribution facilities in five States. Overall, the company had 10 warehouses including one in England and one in Germany.

Although the distribution decision promised cost savings through larger volume ordering and lower shipping costs, it also meant that Amazon needed to generate much higher sales to justify its costs. But, order volume had not yet reached levels that allowed Amazon's warehouses and order fulfillment operations to realize scale economies. The cost of marketing and fulfillment operation was 25% and 22% of sales revenues during the year 1999 and nine months in 2000 respectively. That was about 20% of annual revenue for most of land-based retailers, and 12% for catalog retailers.

By adding product lines, and building distribution centers all over the country, the job of policing its inventories became much more difficult for Amazon. In fact, on $676 million in sales in the fourth quarter of 1999, Amazon incurred $39 million write-down on inventory, which significantly decreased its gross margins.

MARKETING AND CUSTOMER SERVICE

Amazon's marketing strategy was designed to strengthen the Amazon.com brand name, increase customer traffic to the Web site, build customer loyalty, encourage repeat purchases, and develop incremental revenue opportunities. The company used a variety of media, promotional methods, and public relations activities to achieve its marketing goals. Innovations such as personalized programs and services, as well as flexible merchandising, were all part of Amazon's approach to marketing. To attract more customers, Amazon offered lower price than a conventional store and free or subsidized shipping. Amazon, and particularly Jeff Bezos, was featured in news publications and in other news sources quite frequently.

From the beginning, Amazon's focus had been on offering customers compelling value. Customer service representatives were available 24 hours a day, seven days a week to provide assistance via both e-mail and toll-free telephone. The company's more than 200 customer service representatives, working in five customer service centers were trained to work with customers to resolve their problems. Amazon's A-to-Z guarantee also gave protection to its customers by providing a $250 guarantee for regular purchases and a $1,000 guarantee for purchases made through its 1-Click ordering capability.

FINANCIAL SITUATION

Amazon had not generated cash or profits since its inception. The company had over $900 million in cash going into the fourth quarter of 2000. The company was depleting its cash reserves to cover the negative cash flows from operations. The company lost $866 million within nine months of operations in 2000, $720 million in 1999 and $125 million in 1998. Interestingly, much of the revenues that Amazon had recognized from its corporate partners had come as stock.

Amazon essentially funded its revenue growth through a variety of sources in 1999 and 2000. From 1997 through the third quarter of 2000, the company had received $2.2 billion from its bond offering, while its revenues had been $2.9 billion. In January 1999, Amazon sold $1.25 billion of 4.75 percent convertible bonds maturing in 2009. In February 2000, it sold $681 million of 6.88 percent convertible bonds maturing in 2010. Amazon also had $264 million of 10 percent senior discount notes outstanding, maturing in 2008. Convertible bonds featured fixed interest payments to coupon holders paid in two chunks a year. When Amazon issued the debt, the market for e-commerce stocks was flying, and it looked like the company might be able to call the notes and force investors to convert their notes for shares of its stock. But, in a stunning turnaround in 2000 from its previous years of growth, Amazon's stocks and key convertible bonds started dropping sharply and top tech-fund managers began to reduce and even eliminate Amazon from their portfolios. In October 2000, Amazon stock was trading in the $20 - $25 range, down about $88 from its high $113 in December 1999.

INDUSTRY AND COMPETITIVE ENVIRONMENT

Several factors made the online retailing business attractive relative to traditional retail stores. The Internet technology dampened the bargaining power of distribution channels by providing online retailers with new, more direct avenues to customers. While it was relatively easy to create a Web site that functioned like retail store, the big challenge for an online retailer was to generate traffic to the site in the form of both new and returning customers.

Physical-store-based retailers had to make significant investments in real estate, inventory, and personnel for each store location. Online retailers generally incurred a fraction of these costs due to centralized distribution and virtually unlimited merchandising space. Online retailers, however, faced significant technology costs associated with operating a cutting-edge online store and sizable marketing and promotion costs to build site traffic, which offset many of their cost advantages over brick-and-mortar retailers.

The Internet technology also expanded the geographical market by bringing many more companies into competition with one another. On the Internet, buyers could often switch suppliers with just a few mouse clicks. For example, companies like PayPal provided settlement services -so-called ewallets-that enabled customers to shop at different sites without having to enter personal information and credit card numbers. OnePage allowed users to avoid going back to sites over and over to retrieve information by enabling then to build customized Web pages.

Online retailers were more aggressive in discounting their prices and running special promotions like free shipping than traditional store retailers, and brick-and-mortar retailers with online stores. They could offset the revenue loss from price discounting with the fees they earned from selling advertising space on their Web sites. But, the rate of growth of Web advertising was slowing.

To build sales and market share, online retailers had to build strong brand awareness and generate heavy site traffic. One way of doing this was by allying with Yahoo!, American Online, and the other portals that Web surfers used as gateways for sessions on the Internet and paying them substantial sums of advertising space. Getting lots of exposure on the major portals was deemed critical to building traffic, since it was difficult for online retailers to differentiate on the basis of product selection.

In year 2000, Amazon was competing with a variety of online and off line companies. Several traditional store-based such as Wal-Mart, Kmart, and Target, and some online competitors had larger customer or user bases, greater brand recognition and significantly greater financial, marketing and other resources than Amazon did. Traditional store-based retailers also enabled customers to see and feel products in a manner that was not possible over the Internet. In addition, as the use of the Internet and other online services increase in the future, larger, well established and well-financed entities could join with online competitors or suppliers of products, including toys, video games, books, software, and music.

FUTURE OUTLOOK FOR AMAZON

Going forward, Jeff faced several challenges. The company had a weak balance sheet, massive negative operating cash flow, competition was becoming stronger, and all of a sudden dot-com land changed abruptly and the capital markets were looking at the profitability. It was widely agreed among analysts that most sources of funding, such as the capital markets and bank loans, were likely to be off-limits to Amazon. So, the issue of survivability was a very salient one for those investing in Amazon. The main issue seamed faced by Amazon was whether the company could establish profitability on a sustainable basis before it runs out of cash. Thus, Jeff had to decide which business model and strategy made the most sense for Amazon.

There was still another issue that related to the company's efforts to implement its strategy for growth. By adding product lines the job of policing its inventories became much more difficult. On $676 million in sales in the fourth quarter of 1999, Amazon was forced to take a $39 million write-down on inventory. In 1999, when Amazon's sales grew 170% from the previous year, its inventories ballooned by 650%. It was widely believed that the excessive debt and poor inventory management would make Amazon's operating cash flow situation worse the more it sells.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 41-46

Number of pages: 6

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411882

Document URL: http://search.proquest.com/docview/192411882?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 47 of 100

WAVE OF THE FUTURE?

Author: Kargar, Javad; Hutson, Chuck

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Abstract: None available.

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COMPANY CONCEPT AND HISTORY

Peter Sprague started the company in 1988. It was initially built around the concept of designing and manufacturing the technology necessary to facilitate distribution of information over data broadcast. Wave's initial strategy was to provide few large customers like Lexus-Nexus or Dialogue, with a secure system for distributing the information to their professional users. The challenge with the strategy was creating a critical mass of metering devices in the marketplace where the number of users was limited and competition was well entrenched.

In developing the financial strategy, Peter first approached wealthy individuals through a number of money raisers. At the same time, Peter also was calling on wealthy friends in a more casual way. Overall he raised about $6 million over a two-year period.

In 1994, the management decided that the only way the company could stay alive was to go public. Two months after going public, the company changed its focus and directed its efforts toward distribution of commercial information, competing with its previous customers.

A STRATEGIC SHIFT

By understanding the limitations of transactions over the Internet, in 1997 Wave developed the first trusted client platform, EMBASSY technology (EMBedded Application Security System) to extend trust from the network server to the end-user's PC. In short, EMBASSY provided protection of digital content, securely store secrets such as personal data, and securely execute applications during an electronic transaction at the end-user's PC and other end-user devices such as set-top boxes. Securing such information from illegally copying, theft, or illegal distribution was important in maintaining a trustworthy digital economy. A key element of the EMBASSY system was an advanced hardware device, which provided critical secure resources, including non-volatile storage, a secure microprocessor, real time clock, a unique ID and cryptography accelerators. Secure storage within the EMBASSY system provided additional protection by protecting the end-user's secrets within the security boundary of the EMBASSY device.

In February 1999, Wave secured a $2 million no-interest bridge loan from a private investor in return for discounted stock warrants to fund operations. In March 1999, it also raised $23 million through the institutional private placement of 2.1 million shares of Class A Common Stock at $11.00 per share.

In November 1999, Peter began approaching various institutional investors for financing. In the late 1999 and early 2000, the e-commerce was in the high-growth phase, and the equity-financing environment was very favorable and many e-commerce companies had no trouble raising equity financing. On March 7, 2000 the company secured $122 million through the private placement of approximately 3.6 million shares of Class A Common Stock at $34.00 per share to institutional investors. Since then, the company's share started dropping and it was traded in the range of $2.00 to $3.00 per share by late 2001.

WAVE'S BUSINESS MODEL AND MARKETS

The Company's strategic objective was to achieve broad market acceptance of the Wave System as a distributed trust platform for commerce performed in user devices. To achieve broad market acceptance, Wave pursued strategic relationships with several main PC manufacturers, and companies involved in the development of commerce in electronic content and services. Peter's biggest challenge was shifting the paradigm and getting PC makers to realize that the current security architecture was inherently insecure, and an isolated environment was needed to manage transactions. Initially, Wave targeted music, video, and print media on demand and educational software market segments, as a mean of rapidly achieving the broad installed base of its technology.

Wave's business model had evolved to support a growing array of trust security and e-commerce functions, which provided three principal revenue streams:

1. One-time per-unit fee revenue from licensing the EBMASSY platform.

2. Revenue from licensing of services based on the Wave Commerce System, which would enable client-side transactions or metering content protection through digital rights management technologies.

3. Hosting revenue from secure applets that would utilize the EMBASSY platform. This license revenue from third party services such as financial services, and privacy solutions was based on an annual, per-platform license fee.

SECURITY AND TRUST IN THE DIGITAL ECONOMY

The Internet had proven to be a revolutionary distribution medium for digital goods. It had dramatically changed the world by greatly reducing the barriers associated with communicating information on a global basis. The highly efficient distribution network was rapidly being melded into a digital marketplace supporting the buying and selling of digital content. This exchange of digital content, such as music, movies, applications software, entertainment games, and books was the basis for the new Digital Economy.

The benefits to this new marketplace were substantial: distribution of content to a far broader target market, reduced costs due to the elimination of both physical goods and the retail distribution chain, and optimized target marketing were all key advantages. Perhaps most significantly, content creators could have access to a wide range of merchandising models that were unavailable. The opportunity to sell music by the individual track, sell book chapters, rent software applications for a limited period or even offer a free trial program would change the way information was presented to the user.

In the early stages of the evolution of the Digital Economy, it was already witnessed how the very same elements that represented the core benefits of the Internet, facilitated malicious and unscrupulous behavior. The efficiency of the Internet as a distribution vehicle had been repeatedly demonstrated in recent high profile piracy cases, including counterfeit Sega Dreamcast games, and the devastating "I Love YOU" virus. Napster had indoctrinated the world on the issues of content protection, intellectual property values and the surging need for systems to manage digital content with any value greater than free.

Another key weakness in the existing infrastructure was the lack of privacy for the user. Personal information was the primary vehicles for identifying consumers in the marketplace. The existing insufficient privacy and protection of the user's personal information was yielding various forms of abuse, including usage monitoring and identity theft. All of these obstacles were tied to the lack of sufficient security and trust in the digital marketplace and should be solved in order for the Digital Economy to flourish.

COMPETITION

Wave operated in a highly competitive and fragmented environment that was characterized by rapidly evolving technology. Many of the Wave's competitors and potential competitors had substantially greater financial and technical resources than the Company. Also, many existing and potential competitors had greater name and recognition and more extensive customer bases that could be leveraged. Wave Systems competed with conventional information delivery systems, such as AOL, subscription services on CD-ROM, and services on the Internet. However, Wave's metering capability was competitive with other electronic content delivery systems in a number of applications as it was designed to provide advanced protection against unauthorized usage, accurate and detailed information on content usage, and transparent operation.

Many large information industry players were forming alliances and attempting to capitalize on the information delivery options offered by the Internet. In electronic content delivery via the Internet, Wave Systems competed with electronic commerce payment technologies developed and offered by IBM, Micropayment Services, Broadvision, Connect, CyberCash, and Open Market.

THE PERSONNEL

Peter Sprague, Wave's 60-year-old founder and Chairman graduated from Yale and studied economics at Columbia. Previously Peter was Chief Executive Officer of the Company from July 1991 to March 2000. In 1962, Peter started Iran's largest chicken farm. Meanwhile, he spent three decades as chairman of National Semiconductor, which he took from receivership in 1965 to a company with $2.4 billion in revenue when he left in 1995. Peter had also served as Director of Enlighten Software, and Imagek, and was a member of Academy of Distinguished Entrepreneurs, Babson College.

Steven Sprague, Peter's son was elected President and Chief Executive Officer of the Company on June 26, 2000. Previously Steven was President and Chief Operating Officer of the Company from May 23, 1996 until he was elected Chief Executive Officer. Steven had also served as Vice President of Engineering for Krofta Inc., a worldwide environmental water and wastewater treatment company.

As of April 2001, Wave employed 217 full-time employees and 40 consultants. The Company compensated its key employees and consultants mainly with Common Stock. Among Board of Directors was George Gilder, Senior Fellow at the Discovery Institute in Seattle, Washington; author of nine books, and contributing editor to Forbes Magazine.

BUSINESS DEVELOPMENT

The Company's biggest challenge was shifting the paradigm and getting PC makers to realize that the current architecture was inherently insecure, and an isolated environment was needed to manage transactions. Although Wave had spent more than five years trying to convince PC producers to integrate EMBASSY technology in their hardware products, no hardware producers had yet integrated the technology into their products.

In order to bring added value to the PC manufacturers, Wave also focused primarily on promoting the acceptance of EMBASS Y by electronic content providers via the Internet. The initial market was targeted on entertainment and educational software developers and distributors. The Company had invested heavily in developing relationships with entertainment and educational software providers. As of April 2001, Wave had over 100 titles functional for demonstration.

In 1999, Wave and Sarno ff Corporation jointly established WaveXpress to develop technology and services that would allow content providers to send electronic content to properly equipped PCs by utilizing unused bandwidth in the Digital Television spectrum. Wave also formed MyPublish site, a fee-free Internet commerce service to allow individuals and small businesses to harness the Internet to publish, promote, and sell various types of electronic content. In addition, the Company launched Charity Wave, a free online charitable contribution service that guaranteed participating non-profit organizations 100 percent of all monies donated.

In 2000, Wave demonstrated the EMBASSY V 1.0 chip in Compaq smart card keyboard. It was designed specifically to meet stringent European banking standards, this smart-card reader was developed by Compaq for Cyber-COMM, a consortium led by French banks whose mandate was to find technology solutions to solve online consumer security, trust and privacy issues. Wave also formed an alliance with Advanced Micro Devices (AMD) to provide extended functionality based on an evolving standard for PC platform security being created by the Trusted Computing Platform Alliance (TCPA).

FINANCIAL PERFORMANCE

Wave had losses totaling about $146 million over its last three years of operations. Since its inception in 1998, it had posted only $450,000 in operating revenue and generated cumulative net operating losses of $151 million. In the past year alone, it had lost $48 million. At the end of 2000 it had $80 million in cash.

Clearly, if Wave grew as rapidly as anticipated, it would need additional external financing for 2003. However, the enormous revenue growth projections, although viewed as realistic and based on successful deployment of technology, carried an amount of uncertainty with it.

THE DECISION

Sprague realized that, at present, Wave had been spending about $ 4 million a month to support about $300,000 of monthly revenue. Clearly, this situation could not last long. No amount of expense reduction could make the company profitable from its operations. Even though the financial deal that was closed on March 7, 2000, left them with about $122 million in working capital, several questions troubled Sprague:

1. Should he reduce corporate expenses? Would such a move jeopardize the success of strategic alliances?

2. If he were to educe expenses, what should he cut?

3. Was Wave doing everything it could to ensure the growth of the current revenue streams? What should be the relative emphasis for generating additional revenues?

4. Were new options necessary? Was the current organizational structure adequate?

5. How to finance the production cost of millions of EMBASSY technology?

6. How to deploy EMBASSY in the new consumer electronic devices such as PCs and set top boxes?

7. How to deploy EMBASSY in hundreds of millions of owned consumer electronic devices?

Peter sat back and contemplated the decisions he had to make. He had a lot of work to do to finally get Wave off the ground.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 47-52

Number of pages: 6

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412000

Document URL: http://search.proquest.com/docview/192412000?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 48 of 100

ETOYS.COM - A SURVIVAL CASE

Author: Kargar, Javad

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Abstract: None available.

Full text:

COMPANY BACKGROUND

eToys, based in Santa Monica, California, was founded by Toby Lenk, 38, in March 1997. The concept for eToys came to Toby Lenk when he was a Corporate Vice President with the Walt Disney Company in the Strategic Planning Group. Toby and his first employee, Frank Han, had a long discussion on niche option. Frank thought the company should stay small and focus on educational toys. But he wanted to shoot for the stars, building a massive online toy warehouse. Realizing that the Internet was a hassle-free way for parents to buy toys for their kids, Lenk quit a job as a strategic planner for Disney to start the e-tailer. eToys was born in early 1997, with financial backing from Intel Corporation. Sales were $500,000 during the 1997 holiday season. The company had sales of $34.7 million in its fiscal year ended March 31, 1998.

The company went public in May 1999 at a price of $20 per share, raising $192 million in equity capital. In the first trading day, its stock soared into the $70s, and closed at $66.63 a share, giving eToys a market value of about $7.7 billion. The proceeds allowed the company to invest heavily in brand development, new product and service offerings and the infrastructure to support the best customer experience for buying children's products. eToys was spending heavily to promote its web site and to develop the systems needed to grab a chunk of the $25 billion toy industry and a piece of the $30 billion spent on children's video game, music, videos, software and baby products.

In early summer 2000, top executives of Toys 'R' Us set up a meeting with Toby to discuss how the two companies might work together, according to a source close to Toys 'R' Us. But he held fast to his belief that eToys could make a go of it without an offline partner. He was devoted to that vision, pounding the table and repeating the mantra "all kids, all Internet," even after investors started demanding quicker progress toward profitability.

ETOYS' MERCHANDISING STRATGY

eToys started by offering toys and then attempted to diversify its product lines beyond toys. Eventually, the company had added video games, books, videos, software, music, children's apparel and baby-oriented products and planned to add more categories in the future. The company focused exclusively on online retailing of children's products and intended to become the primary place for consumers to purchase children's products. eToys categorized the products into different departments, including toys, video games, books, software, videos, music and baby.

In Christmas 2000, eToys carried a significant level of inventory. As a result, the rapidly changing trends in consumer tastes in the market for children's products subjected the company to significant inventory risks. It was critical to the company's success that they accurately predicted those trends and did not overstock unpopular products. The demand for specific products could change between the time the products were ordered and the date of receipt. eToys was particularly exposed to this risk because it derived a majority of its sales in the fourth calendar quarter of each year. In addition, to the extent that demand for products increased over time, the company was forced to increase inventory levels, which would subject them to additional inventory risks.

In addition to the breadth and depth of product selection, eToys offered customers a multitude of services that were not quite available through other online toy retailers. These services included award-winning toy lists, picks of the Month, Dr. Toy's tips, and a list of affordable toys from the "200 Treasures Under $20" feature. Additional convenience features enabled consumers to locate items easily using keyword Quick Search or the sophisticated Toy Search.

ETOYS' WEB SITE TECHNOLOGY

In 1999, eToys made a great effort to keep its web site on the cutting edge of technology. The company's web site and technology expenses of $43 million in the fiscal year 2000 (versus $3 million in the fiscal year 1999) reflected increased spending for the systems and telecommunications infrastructure necessary to support increased traffic and transactions volume. eToys' technology costs ended up climbing so high that many wondered whether any online-only retailer that wasn't selling multiple product categories to a broad market could survive. eToys' pioneered parent- friendly innovations, including a sophisticated search engine had proved a key element in its climb into the ranks of leading online toy retailers.

ETOYS' SALES AND MARKETING STRATEGIES

Unlike established traditional retailers, the focus at eToys was on brand-building rather than revenue building. Toby was reluctant to use coupons and other promotional tools, even while competitors were handing them out left and right. He had always insisted that after getting established reputation, eToys could continuously decrease its huge advertising and marketing costs, and not only retain, but increase its customer base. But, by late 1999, it became clear that advertising costs were rising higher than the company and investors had expected. During 1999 Christmas season, eToys increased its marketing budget by 30% after a flock of unexpected competitors crowded into the online toy category and spent lavishly on advertising. In year 2000, he spent about two-thirds of eToys' $56 million annual marketing budget on pricey TV ads to build brand recognition.

In the summer of year 2000, the company spent $8 million in the summer marketing campaign. The goal was to persuade parents to spend big on a wide variety of summer-themed children's products. Meanwhile, eToys' revenues for the entire third quarter of 2000 rose 23% to $131.2 million. The company had been expecting holiday sales of at least $210 million. In fact, eToys spent $33 to acquire each new customer, who spent an average of $67 per order.

ETOYS' STRATEGIC MARKETING ALLIANCES

In addition to TV advertising described above, eToys secured key partnerships with all of the major Internet gateways, including American Online, Yahoo!, Excite, Lycos and Info seek, and was the exclusive online toy store for Moms Online. eToys' biggest promotional and marketing alliance was with American Online, where in August 1999, it singed three-year, $18 million agreement with AOL. Under the agreement, eToys would be the exclusive provider of products promoted in the Toys, Video and Video Games categories of the Holiday and Birthday Wish Lists area in the AOL kids only channel.

ETOYS' DISTRIBUTION SYSTEMS

eToys was expecting to sell $75 million to $85 million of toys, books, video games and other products in 1999 holiday season. And the company knew the design of its Web site or the number of site hits would be meaningless if it failed to ship its products on time. The company's cost of distribution and customer service was $50 million in 1999. In 1999 Christmas season, eToys used outsourcing organization to ship its products to the customers, but under this setup eToys delivered 96% of its orders on time. During the 1999 holiday season, the e-commerce industry, including eToys, was the subject of widespread negative publicity relating principally to shipping and related customer service issues.

In early 2000, most leading e-tailers such as Amazon were making some moves to build their own distribution infrastructure for 2000 and beyond, as they struggled to contain costs and control the quality of their customer service contacts. In a related move, in the spring of 2000, eToys leased over 400,000-square-feet of additional warehouse capacity to develop its own state-o-the-art fulfillment center in Danville, Virginia. Still in year 2000, some direct-mail companies were subcontracting their product distribution. But unlike books, music, or apparel, toys required special handling because of their different sizes, breakable nature and urgency for the holidays or other occasions.

Although the distribution decision promised cost savings through larger volume ordering and lower shipping costs, it also meant that eToys needed to generate much higher sales to justify its costs. The amount of money eToys had invested in property and equipment increased to $124 million as of September 2000, from $23 million a year earlier. According to Kevin Silverman, an analyst at ABN Amro, "That equated around 95% of the company's revenue, compared with about 20% of annual revenue for most of land-based retailers, and 12% for catalog retailers."

ETOYS' CUSTOMER SERVICE

eToys management believed that attentive customer service was critical to retaining and expanding its customer base. Customer service representatives were available 24 hours a day, seven days a week to provide assistance via both e-mail and toll-free telephone. Customer service representatives handled questions about orders, took credit card information over the phone, and helped customers find items.

ETOYS' GROWTH AND EXPANSION STRATEGIES

The company's strategy was to stock the deepest selection anywhere from mass-market to specialty toys. At the same time, eToys was branching into other children's categories with the aim of becoming the dominant Internet retailer of merchandise for children up to age 12. By January 2001, it had added music, videos, software, video games, books, baby, and hobby supplies. In April 1999, it acquired BabyCenter, an education and community site that also sold such items as maternity wear and strollers. It planned to launch a hobby store as well as create new and distinct content areas focused on topics of interest to parents and children in the future. The company entered the United Kingdom toy market in October 1999 with the hope of gaining first-mover advantage in the English spoken language country and using the Internet as a new distribution model.

ETOYS' COMPETITVE ENVIRONMENT

The toy industry was changing, not only in the type of product sold, but also where products were sold. The changing face of toy retailing was evidenced by the multitude of discount stores, warehouses, specialty merchandisers and e-commerce toy traders all grabbing for their piece of the pie. Of the ten retailers on the list of the top toy retailers in 1998, six (Wal-Mart, Kmart, Target, Ames, Meijer) were discount stores, two (JCPenney, Sears) were department stores and only two (Toys 'R' Us, KB Toys) were categorized as toy stores.

While retailers competed fiercely, the Internet provided yet another outlet for a quickly growing generation of technologically tuned-in consumers. Boosted by the introduction of more affordable PCs and a higher comfort level of consumers using their credit cards over the Internet, online shopping grew beyond expectations, with toy site usage rising at a record pace.

Competition in the children's product industries was based upon brand-name recognition, selection, convenience, price, perceived quality, speed and accessibility, quality of site content, customer service, and reliability and speed of shipment. A web site could offer a vast amount of information on those products, and at the same time eliminated the cost of printing and mailing catalogs. Yet, like catalog companies, online retailers didn't have to ship products to hundreds of stores. They didn't have to stock shelves. And they didn't have to rent space. Yet, online retailing was not an inexpensive way to do business. For one thing, maintaining a large Web site was costly. Then there was the cost of marketing a site. And, finally, there was the unglamorous task of processing and shipping orders.

THE FUTURE OF ETOYS

The company's costs were ballooning just as funding for dot.coms dried up in 2000. The company owed its creditors about $250 million, and as of December 31, 2000 it had $62.8 million in cash left on the company's balance sheet. In 1999 and early 2000, eToys failed to tap the market for a secondary offering of stock while its shares were relatively high. And in the Christmas of 2000, despite a spiffy TV ad campaign and expanded line of goods, there weren't enough customers. Investors lost their interests in the company when in December 15, 2000, eToys announced that holiday sales would be about half of what it originally projected.

In early January 2001, eToys laid off 700 employees, shut down two warehouses, and closed its British operation. Running out of ideas, Toby hired Goldman Sachs & Co. to explore a range of strategic alternatives. He still believed that eToys could become a profitable company, but questioned how investors would value the business.

There was considerable speculation as to who might be interested in participating with, acquiring, or merging with eToys. One potential alternative was to find a large retailer that did not have significant online retailing operations, such as Target or Kmart. Another possibility was KBKids.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 53-57

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411837

Document URL: http://search.proquest.com/docview/192411837?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 49 of 100

ST. LOUIS CHEMICAL: THE CASH DILEMMA

Author: Kunz, David A

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Abstract: None available.

Full text:

BACKGROUND

St. Louis Chemical is a regional chemical distributor, headquartered in St. Louis. Don Williams, the President and primary owner, began St. Louis Chemical five years ago after a successful career in chemical sales and marketing. The company reported small losses during it first two years of operation but performance over the last three years has been outstanding. Sales have grown at double-digit rates, new product lines have been added and profits have more than tripled. The growth has required the acquisition of additional land, equipment, expansion of storage capacity and more than tripling the size of the work force.

At the insistence of Williams, the company has promoted "next day delivery" since its inception. Other chemical distributors can seldom provide this service because they don't stock the number of products and the quantity of each carried by St. Louis Chemical. Not surprisingly, "next day delivery" has proven very popular with its customers and has allowed St. Louis Chemical to capture a large market share. The sales force is also a strong supporter of the service but because inventory shortages occasionally cause sales to be missed they are constantly arguing for even greater amounts of inventory to be maintained by the company. Williams has tended to agree with the sales force and has over the years instructed the purchasing department to error on the side of carrying too much rather than too little inventory.

Another factor contributing to the double-digit sales growth has been Williams' use of a liberal credit policy to stimulate sales. Credit terms offered by its main competitors are net 30 days, which conforms to general industry practices. St. Louis Chemical also sells using net 30 day terms but Williams has encouraged the firm's credit manager to take a "soft approach" when collecting past due accounts. As a result, the credit department has been slow to press past due accounts for payment. Not surprisingly, the relaxed collection effort has proven to be popular with both customers and the sales force but has resulted in a increasing number of customers paying late. To further increase sales, Williams suggested credit standards be lowered so that more customers can qualify for credit. The credit standards were lowered two years ago and again at the beginning of the year just ended.

THE SITUATION

Despite the apparent "success" experienced by St. Louis Chemical over the last three years, cash flow has been a problem. It has been a struggle for Williams to maintain sufficient cash to pay obligations in a timely manner. The company reached its bank-borrowing limit at the end of last year (2000) but Williams successfully negotiated an additional $3, 000,000 in borrowings using fixed assets as security. The additional capacity was used during the year just ended (2001) as well as an extra $2,000,000 working capital loan extended by the bank. The bank has refused to grant additional loans until the debt ratio can be lowered to below 50% and the Times Interest Earned Ratio increased to above four.

The company has the opportunity to add a product line of high margin water treatment chemicals but an investment of $700,000 is required to finance the special handling and packing equipment necessary. Inventory investment will require another $600,000. Williams has been attempting to acquire this attractive product line since starting the company and if he cannot obtain the necessary capital the line will be offered to its primary competitor. To finance the expected sales growth for 2002 (to $86,000,000), Williams has estimated the firm will need at least $2,000,000 for additional current assets and another $1,200,000 for capital expenditures. Putting it all together the company needs approximately $4,500,000 in new financing to add the water treatment line and provide the necessary resources to achieve the planned sales growth for 2002. Issuing more common stock is not an option since Williams does not want to further dilute his ownership position. The stock is not publicly traded.

THE TASK

Assume you are a newly hired assistant to Williams. Evaluate the firm's current situation using the information provided in Schedules One and Two. In your analysis answer the following:

1. Prepare a Cash Flow Statement for 2000 and 2001. Interpret the information provided by the cash flow statements. How has St. Louis Chemical been using its cash and why is additional cash needed?

2. Calculate the return on equity for the last three years using the extended DuPont equation. Interpret the results. What does the equation reveal regarding the company's profitability, used of assets and sources of financing?

3. Evaluate the company's performance for the last three years using ratio analysis.

4. Calculate the firm's Cash Conversion Cycle for the last three years. Interpret the results. How can the Cash Conversion Cycle be used to evaluate a firm's working capital policy? Evaluate the firm's working capital management.

5. Based on answers to questions 1 -4, summarize why the firm is experiencing cash problems? Provide your recommendations to improve the cash situation.

6. What alternatives are available to the firm to acquire the new water treatment product line and finance the required sales growth for 2002?

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 59-63

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411860

Document URL: http://search.proquest.com/docview/192411860?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 50 of 100

APPLEBEES

Author: Lane, Wilburn; McCullough, Michael

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Abstract: None available.

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APPLEBEE'S INTERNATIONAL

Applebee's International, Inc. is headquartered in Overland Park, Kansas and operates casual dining restaurants in 49 states and eight countries under the Applebee's Neighborhood Grill and Bar brand. The décor inside each restaurant celebrates the surrounding community with photographs and memorabilia of local heroes, schools and history. In 2000, Applebee's was the largest casual dining "concept" in America with 1001 franchises 285 company-operated restaurants, for a total of 1286 locations. By November of 2002, they had 1382 restaurants.

Bill and T.J. Palmer opened a restaurant called T.J. Applebee's Edibles & Elixirs in Atlanta, GA in November, 1980. They opened a second store in 1982 and then in 1983 sold the concept to W.R. Grace and Company. As part of that deal, Bill Palmer was named president of the Applebee's Division of W.R. Grace. The Palmer's became franchise owners in 1985 and currently own and operate 25 stores in Atlanta.

In 1988, Abe Gustin and John Hamra of Kansas City, purchased the concept and named it Applebee's International Incorporated. The name of the stores were changed to Applebee's Neighborhood Bar and Grill to reflect Palmer's original idea of it being a place "people could call their own." They completed and initial public offering (IPO) of its common stock in 1989. Currently the stock trades on the NASDAQ under the symbol APPB.

When Gustin and Hamra bought the concept in 1988 there were only 54 restaurants. By 1998 they had over 1000 and the most recent count is 1382. Thirty-five of their restaurants operate in eight foreign countries. Total systems sales for Applebee's International reached $2.67 billion in 2000. The year 2001 marked nine consecutive years that Applebee's had opened at least 100 stores. The plan for 2002 is another 100 or so new restaurants with 25 being company owned and 80 or 90 being franchised.

Eighty percent of all Applebee's were built in the last nine years, so the chain is young in that respect. They have opened over 100 restaurants in each of those years and this level of growth appears to define their strategy, to increase profits by unit growth.

Applebee's slogan, "Eatin' good in the Neighborhood" is used to support their emphasis on Applebee's as a neighborhood bar and grill. They appear to want the public to see them as a "local" restaurant only, even though they have over 1300 stores in 49 states and several foreign companies. In 2001 Applebee's spent $51 million to promote their image as a "neighborhood" restaurant, hardly something a real neighborhood restaurant could afford to do.

They employ what they call a cascade training program (High Impact Training) for both company and franchise management and hourly associates. This program is designed to fit the "lifestyles" of those who are likely to work for Applebee's. To help feed this training and other management programs, home-office associates occasionally work a shift in a restaurant to refresh their understanding of what it takes to consistently deliver good service. The goal of Applebee's is to instill in their associates that the customer should get a feeling of warmth, comfort and trust. They want Applebee's to be a gathering place.

DARDEN RESTAURANTS, INC.

Darden Restaurants, Inc. is the largest publicly held casual dinning restaurant company in the United States. It has literally clawed its way to the top-using lobster claws. The Orlando, Florida based company has nearly 1200 restaurants in United States and Canada. The flagship chain is Red Lobster with about 660 units in all. They also own the 480 units of the Olive Garden Italian restaurant chain. In addition, they have the 24 unit chain Bahama Breeze Caribbean restaurants. With the exception of the 34 Red Lobster units in Japan, Darden has built its restaurant empire without using franchising. Its oldest chain, Red Lobster, serves lobster, crab, fish and shrimp, while its Olive Garden chain features Italian appetizers, soups, salads, pastas, grilled entrees, and seafood. The smallest chain, Bahama Breeze offers Caribbean cuisine with an array of beef, pork, chicken, and seafood dishes. Darden has recently started a new chain called Smokey Bones BBQ that is a barbecue/sports bar concept. They currently have 1 0 units, but plan to take the concept nationwide.

The history of Darden Restaurants is a colorful one. Darden was started by Bill Darden, who in the late 1930's (at the age of nineteen) owned a luncheonette called Green Frog in Waycross, Georgia. The restaurant became a big hit, and the restaurant's slogan "Service with a Hop" launched Darden's career in the restaurant business. By the 1950's Darden owned a variety of restaurants, including several Bonanza, Howard Johnson's, and KFC outlets. In 1963, Darden and a group of investors bought the Orlando, Florida restaurant, Gary's Duck Inn. This was Darden's prototype of a moderately priced, sit-down seafood chain. He decided to name the new chain Red Lobster.

The first Red Lobster opened in Lakeland, Florida. Joe Lee, who had worked at one of Darden's other restaurants became its first manager. It was so successful that it had to be expanded within a month. By 1970 there were three Red Lobsters in operation and two more under construction. At that time, General Mills purchased the chain, but kept Darden to run it. General Mills had been in the restaurant business before, but this was their first successful venture. Rather than franchise the Red Lobster name, General Mills chose to develop the chain on its own.

In 1 975, Darden became the chairman of General Mills Restaurants, and Joe Lee was named president of Red Lobster. While the Red Lobster chain continued to grow, General Mills began searching for another type of restaurant to complement its seafood chain. Some of the concepts discarded were steak house, Mexican, and health- food restaurants. The company decided to go with an Italian theme, and in 1980 opened its first Olive Garden in Orlando, Florida. The restaurant featured moderate priced Italian food. As General Mills added outlets in the mid-1980's Olive Garden became another Darden success story in the casual-dinning industry.

In 1990, General Mills opened it first China Coast restaurant in Orlando, Florida. The chain grew rapidly-opening more than 45 units in a single year. By 1993, Olive Garden had begun to cool off. Same store sales slid as competitors added Italian items to their menus. Olive Garden responded by increasing its advertising budget, introducing new menu items, and began testing new formats, including smaller cafes for malls. In 1995, General Mills decided to concentrate on consumer foods, and spun off the restaurant business as a public company. The company was named Darden Restaurants in memory of Bill Darden, who had died in 1994, ironically the same year that Joe Lee was named CEO. The new company abandoned its chain of China Coast restaurants that same year.

Constantly looking for new ideas to meet consumers ever changing needs, Darden opened a test restaurant called Bahama Breeze in Orlando in 1997. Red Lobster's sales fell in 1997, but the company initiated a turnaround in 1998, by revamping its menu. The company decided to get into the barbeque business and in 1999 opened its first Smokey Bones BBQ in Orlando, Florida. In 2000, Darden announced plans to open 36 new restaurants and renovate more than 150 other units by 2001. As the largest restaurant chain in the casual dinning (dinner house) segment, Darden is continually looking for new ideas to help it maintain and build on its position in the industry.

BRINKER INTERNATIONAL, INC.

Brinker International, Inc. is engaged in the ownership, development and franchising of the Chili's Grill & Bar, Romano's Macaroni Grill, On The Border Mexican Grill & Cantina, Cozymel's Costal Mexican Grill, Maggiano's Little Italy, Corner Baker Café, and Big Bowl restaurant concepts. In addition, Brinker International is involved in the ownership, and has been involved in the development, of the Eatzi's Market and Bakery. Currently, Brinker has nearly 1170 units. The flagship chain is Chili's with about 750 units. In the often-fickle world of casual dining, Brinker's Chili's chain has experienced continued popularity. However, the CEO of Brinker, Ronald McDougall has shut down restaurant concepts that were not working, such as Grady's American Grill and Kona Ranch. Also, Brinker sold Wildfire, a 1940's style steak house. In their place he developed concepts that did not face competition from big chains, including Big Bowl Asian cuisine created in partnership with Lettuce Entertain You Enterprises. With Phil Romano, founder of Romano's, Brinker also has developed Eatzi's Market & Bakery, a high-end take-out and grocery business.

The Brinker story began when Norman Brinker pioneered the so-called "casual-dinning" segment in 1966 when he opened his first Steak & Ale in Dallas. In 1971, he took the company public and watched it grow to mare than 1 00 locations by 1 976. In that year, Brinker sold the chain to Pillsbury and became the president of Pillsbury Restaurant Group (which included Steak & Ale, Poppin' Fresh Restaurants, and Burger King). In 1983, Brinker left Pillsbury to take over Chili's, a restaurant chain of southwestern-styled eateries founded by Larry Lavine in 1975. Brinker took Chili's public in 1984. The company began recruiting joint venture and franchise partners.

Chili's expanded its menu to include items such as fajitas, staking the company's growth on aging baby boomers who were looking for something more than fast food. When Brinker's attempts to acquire such fast-food chains as Taco Cabana and Flyer's Island Express, Brinker decided to focus on the casual, low-priced market. In 1989, Chili's acquired Knoxville, Tennessee based Grady's Goodtimes and Romano's Macaroni Grill, a small Italian chain founded by Texas restaurateur Phil Romano in 1988. The company name was changed to Brinker International in 1990 to reflect the expansion of its restaurant offerings.

In 1992, Brinker started Spageddies, a casual, lower-priced pasta restaurant. While playing polo in 1993, Brinker suffered a major head injury that left him comatose for two weeks. Even though this was a traumatic event and the early prognosis was poor, Brinker made a rapid recovery and returned to running the company. Wanting to cash in on the popularity of Mexican food, Brinker acquired Cozymel's Mexican Grill in 1994 and bought the 21-unit ($50 million) On The Border Mexican food chain in 1995. Ronald McDougall became CEO in 1995, but Brinker remained chairman. McDougall sold Grady's and Spageddies to Quality Dining because they no longer fit the company's overall strategy.

In 1996, the company acquired two restaurant concepts, Corner Bakery and Maggiano's Little Italy, from Rich Melman's Lettuce Entertain You Enterprises. In collobration with Romano the company opened a test location (in Dallas) of Eatzi Market & Bakery in 1996. This was a take out restaurant that the company used to capitalize on the public's increasing desire not to cook. Brian Kolodziej, a former chef at Dallas' ritzy Mansion on Turtle Creek hotel, engineered a major overhaul of Chili's menu in 1997.

In 2001, it gained complete control of Big Bowl and bought a 40% stake in Rockfish Seafood Grill. The company has shifted its emphasis to company-owned restaurants rather than franchising. Brinker purchased 47 Chili's and On The Border restaurants from New England Restaurant Company and 39 Chili's restaurants from Sydran Group in 2001. Also, Brinker acquired Sydran's rights to develop locations in all or part of 14 western states. It is obvious that Brinker is not afraid to try new things and that they are quick to rid themselves of properties when the concept does not work.

OUTBACK STEAKHOUSE

Outback Steakhouse, Inc. is based in Tampa, and is one of the largest casual dinning steak house restaurant chains. It has about 700 units. The flagship is its Outback Steakhouse chain. The restaurants have an Australian theme and are decorated with boomerangs, surfboards, and other items associated with Australia. The chain features moderately priced dinners of steak, prime rib, chicken, fish, and pasta in a family dining atmosphere.

The company operates in 19 countries including Australia. Outback also owns 84 units of Carrabba's Italian Grills offering Italian dishes prepared in an exhibition kitchen. It has six Fleming's Prime Steakhouses that are in the upscale dinning segment. The company also owns one Zararac unit which features Creole cuisine. Outback has opened six Roy's, which is a chain of restaurants featuring Euro-Asian food. It also operates one Lee Roy Selmon's restaurant that offers southern comfort foods. Most of its units are company owned, but it does have 101 domestic franchised units and 32 international franchised units. Outback keeps its growth rate high and management turnover low by giving managers a stake in the restaurants. Multi-Venture Partners, a partnership controlled by Outback chairman and CEO Chris Sullivan, President Robert Basham, and Senior Vice President Timothy Gannon own about 10% of the company.

In 1987, Chris Sullivan and Robert Basham (who had worked together under casual dinning guru Norman Brinker of Steak and Ale fame) founded Multi-Venture Partners to house their new restaurant concept, an Australian-themed eatery inspired by the success of the movie Crocodile Dundee. They opened their first Outback Steakhouse in Tampa, Florida in 1988. While Sullivan had never been to Australia, it did not stop him from creating a kitschy-yet-fun Australian eatery with food items that had unusual names like "Shrimp on the Barbie" and the Bloomin' Onion.

The restaurant was a huge success and realized a profit in its first year-a rarity in the restaurant industry. Sullivan and Basham got another Steak and Ale employee to join them. His name was Timothy Gannon. The three of them went to work to expand the business. They opened seven restaurants in 1989 and 14 more in 1990. Also, in 1990 Multi-Venture Partners changed its name to Outback Steakhouse. The company went public in 1991. With the Outback brand firmly established, the company decided to branch out. It bought a half interest Carrabba's Italian Grill in 1993. These were two upscale eateries in Houston, Texas.

In 1995, Outback purchased sole rights to develop the Carrabba's concept, although the original joint venture remained in place in Texas. Also, in 1995, the chain bought back 47 franchised Outback units for 138 million dollars in stock. In 1996, it opened 76 Outback Steakhouses (including the first international Outback-in Toronto) and 25 Carrabba's Italian Grills. The Carrabba's concept was not as unique as Outbacks and did not fair as well as Outback.

In 1997, the company closed nine Carrabba's units and the following year began remodeling the rest. Over the next two years, Outback expanded the steak house concept to Latin American and Asia while continuing to grow in the United States. In 1999, the company bought Fleming's Prime Steakhouse. The company continued to expand in 2000, opening its first Zazarac restaurant and developing the Roy's restaurant chain. In the latter part of 2000, the company also opened it first Lee Roy Selmon's restaurant. Armed with several years of experience under the wing of Norman Brinker, the owners of Outback were able to hit the ground running and have never looked back. Their sales have continued to grow, and they are now one of the major players in the casual dining (dinner house) segment of the restaurant industry.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 65-70

Number of pages: 6

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411829

Document URL: http://search.proquest.com/docview/192411829?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 51 of 100

STARBUCKS

Author: Loyd, Shawna; Jackson, William T; Gaulden, Corbett

ProQuest document link

Abstract: None available.

Full text:

COMPANY BACKGROUND

Starbucks originated in 1971 when the company opened its first location in Seattle's Pike Place Market. The firm experienced moderate success through the 70s and into the early 80s. In 1987 (five years after originally joining the company as director of retail operations), Howard Schultz purchased Starbucks through his company, Il Giornale. Starbucks grew from 17 locations at the end of that year to over 3,300 by the end of 2000.

Schultz stayed as the CEO until 2000 when he assumed the position of chairman and chief global strategist. During Schultz's tenure the company grew significantly, not only in terms of number of locations, but also in related business activities: roasting plants; blended beverages; alliances; and even compact disc sales. It seems that everything that Schultz touched turned to gold.

STARBUCKS' MISSION

In 1990, Howard Schultz, Starbucks CEO sent a senior executive team to a retreat for the sole purpose of drafting a mission statement. The company's values and beliefs were to be analyzed and Schultz insisted the mission statement convey a strong sense of organizational purpose and that the company's beliefs and principles were clearly set out. The resultant statement was then submitted to employees for review. Changes were made to the statement as a result of employee comments. In addition to the development of the statement, a "Mission Review" system was developed so that employees could voice concerns whenever they felt management decisions were not consistent with the mission statement. Mission statement comment cards were, and still are, available to employees. The Mission Review team receives hundreds of comment cards every month. Essentially, the company has a team of employees monitoring management and holding it to its own high standards. Teams of people from different parts of the company meet to address employee concerns, seek solutions and to provide a report at the quarterly Open Forum.

EXTERNAL ENVIRONMENT

Many people make Starbucks a part of their daily routine by either stopping for coffee in the morning or evening, or by brewing Starbucks coffee in their own homes. The mermaid logo on the cup has become a prestigious symbol in this country and abroad. The company claims to sell "the coffee experience" along with its' physical offerings of coffee and related equipment/goods.

The importance of Starbucks as a "third place" or community-meeting place is very important to the Starbucks product offering. The "coffee experience" reflects the Italian-style concept of enjoying the full-bodied flavor of espresso made from the best dark-roasted coffee beans in a certain, romantic place or manner. Starbucks promotes the use of its shops as gathering places where friends can meet and relax and the cares of the day can be left behind, at least temporarily. As the public continues to move away from the consumption of alcoholic beverages due to increased alcohol awareness campaigns, Starbucks offers an acceptable alternative that can be consumed in a social environment.

Starbucks does not specifically target any particular market, adhering to the concept that its products are purchased on a needs based schedule by much of the population. While there is truth to the Company's methods, perceptions and attitudes toward coffee as a refreshment differs by age of consumer. People from the ages of 20-29 are generally satisfied with the quality and quantity of coffee they consume, feel good about drinking coffee, and are less price conscious and more attuned to the popularity of the beverage. This age group is also more likely to increase their coffee consumption in the future and is accepting of espresso-based drinks. Consumers in the 30 to 59 age bracket are also satisfied with the quality and quantity of coffee they consume and like their younger counterparts, are aware of the popularity of coffee.

The 60+ market of coffee consumers are not as easy to please. They are less satisfied with coffee quality, although they are comfortable with the amount of coffee they consume. They are more likely to drink coffee to relax but are concerned about medical/health reports regarding consumption of caffeine. The variety of coffee available appeals less to this group and they are not excited about espresso-based drinks. They are also more price-conscious than other consumer groups.

Coffee consumption continues to increase, reaching an all time high in 2000 with 161 million people (79%) of the adult population consuming the brew, according to National Coffee Assn. annual trend reports. During this time period approximately 54% of Americans drank coffee every day and 25% were occasional consumers. The number of occasional drinkers is an important factor and is of special interest to coffee purveyors since the retail value of the coffee industry has grown 5.5 billion in five years to $18.5 billion in 2000.

Economic recession could provide a threat to the consumer view of the product. An economic downturn resulting in less discretionary income could mean fewer sales of Starbucks' coffee products. Although each individual purchase averages less than $3.50, the possibility that luxury purchases may be eliminated from many consumers' budgets still exists. On the other hand, recession may offer an opportunity for Starbucks to offer a gathering place or haven for concerned consumers who no longer feel prosperous and need a relatively inexpensive, socially acceptable pick-me-up and/or hang-out. The popular press calls the daily latte one of the "pampering items" that consumers will not give up, along with Coach handbags and massages. It seems that consumers polled would rather not give up the things they do "for themselves." Additionally, the role of caffeine in everyday life should be considered. As Motley Fool Analyst Lou Ann Lofton notes, "While people may slow their spending on clothes or other stuff, they still need their caffeine fix."

On a more global note, while Starbucks has caught on wherever the company has dared to take it, there is no lack of criticism for the cultural invasion of the stores. Charges of "cultural imperialism" have been levied. The most controversial store opening was in November 2000 when the Company opened a kiosk in Beijing's Forbidden City, palace of the emperors for centuries. Tempers cooled when the Starbucks agreed to remove the familiar green mermaid logo sign, perceived by many Chinese as a cultural defilement of the historic palace grounds.

As the Company moves into international markets, care must be taken to find a cultural " fit". All international stores are currently joint partnerships in order to make the transition into the new area easier by drawing on the experience and knowledge of the local partner company. North American unit stores are all company owned. Local business partners are sought out in International markets and the local baristas receive 13 weeks of training in Seattle. The coffee lineup doesn't vary, but Starbucks does adapt foods to local tastes. Peter Maslen, president of Starbucks Coffee International, claims that stores are not stamped out in "cookie-cutter" fashion-Starbucks stores are designed to fit in with local culture, regardless of where they are located.

The company is essentially at the mercy of the supplier who is in turn at the mercy of the rules of their home country. However, Starbucks buys massive quantities of coffee beans from numerous suppliers, and should enjoy power over those suppliers. In apparent response to growing criticism from global labor advocates and human rights organizations, Starbucks announced plans (02/01) to purchase 75,000 pounds of Fair Trade certified coffee beans. Starbucks annual purchase of coffee beans exceeds 50 million pounds. The Fair Trade Commodities Program began in Europe decades ago with the intent of encouraging smaller growers of goods and better working conditions for tea and coffee growers. The organization's goal is to bring coffee bean prices to at least $1.26 per pound. Large growers routinely receive as little as $ .50 per pound. Starbuck's ability to raise prices for their products is limited and company profitability could be compromised should prices increase. However, with the exception of the Fair Trade bean purchase, the current price for coffee beans worldwide is low and does not indicate the need for price increases at the store level.

While the nature of Starbucks business is essentially low-tech, efficient coordination of the company's 25,000+ employees is important. Another issue is distribution of Starbucks products to its retail units. Company-operated stores in 34 states, the District of Columbia and five Canadian provinces (which comprise the Company-operated North American retail operations), as well as the United Kingdom, Thailand and Australia (which comprise the Company-operated international retail operations) represents a significant distribution challenge.

The U.S. restaurant industry/specialty sector is a low-growth area with many competitors vying for the same consumer dollars. Starbucks performance in relation to that of the industry and the sector have been well above norms.

Although the popularity of coffee and coffeehouses is increasing and competitors are rapidly entering the market, Starbucks still maintains 90% of the market share. The Company certainly has competitors but none who operate at the same scale. Such large-scale operations afford the Company the luxury of considerable leverage over suppliers that most competitors would not have access to.

According to a 2000 US Business Reporter Industry Report, the industry in which this specialty coffee segment is classified (restaurant) is expected to show domestic growth of no more than 2% in the next five years. Additionally, no large increases in the size of the U.S. population, amount of food/drink consumed by Americans or percentage of dollars spent in restaurants is expected in the near future. The restaurant industry environment is quite competitive, even cut-throat, but the outlook for the specialty coffee/tea segment of the industry is quite different. The total value of this segment has grown by more than one-third since 1984 and coffee consumption continues to rise. As was noted previously, Starbucks maintains the vast majority of market share in this segment and boasts 35.2% company growth for the last five years while the segment continues to grow at approximately nine percent. The Company is focused on differentiation through brand recognition and image. However, other companies are able to offer comparable quality in coffee products. Lack of differentiation in the basic physical product (coffee based drinks) makes the choice of patronizing either Starbucks or a competitor one of personal choice (atmosphere, habit, price, prestige).

Increased coffee consumption and lowering interest rates (as of 4/01) create a favorable atmosphere for the coffeehouse entrepreneur. Lower cost for start up capital and the chance to cash in on the popularity of coffee products is encouraging growth in the ready-to-drink coffee sector. The retail value of all U.S. coffee sales was $18.5 billion in 1999 (National Coffee Association, New York) - a number that analysts predict will continue to grow well into the new century. The new business person taking advantage of coffee and tea consumption and popularity faces few obstacles. However, competing with Starbucks on an equal basis is not feasible.

A company entering this segment faces prohibitive economies of scale in purchasing, labor, real estate, marketing, etc. Entry on a smaller scale is much more probable, even with issues such as less purchasing power, little if any brand recognition and labor costs. The learning or experience curve is also in Starbuck's favor, since they have been in business for more than 25 years. While many Starbucks clones have come on the coffeehouse scene in recent years, none have been able to dent the market share the Company holds due to strong brand identification and customer loyalty. Entrants into the market would be forced to spend a considerable amount of time and money to overcome the momentum of Starbucks.

Conversely, the specialty coffee/tea market is growing, most notably in the occasional sector. These occasional coffee drinkers are less interested in the product; the appeal is the social atmosphere and community of the coffee experience. Starbucks may offer these consumers a known commodity or prestige-need fulfiller but more often, the ambiance and flavor of the establishment, whether it be Starbucks or another is more of a personal choice. This being the case, newcomers to the specialty coffee business have just as good a chance at capturing this developing market as does Starbucks.

Starbucks management claims that there is room for everyone in the market and, the Specialty Coffee Association concurs. The policy of clustering stores in popular locations actually increases customer traffic in that area. Unfortunately, development of such a cluster can also further the difficulty would-be competitors encounter as they search for affordable lease space for a start-up business.

Substitute products abound in the Industry segment in which Starbucks operates, and, while any product (coffee, tea, soda, ice cream, fruit drink) can reasonably be substituted for Starbuck's products, the Company offers more than just refreshment. According to Howard Schultz, chairman and chief global strategist, Starbucks offers "the coffee experience."

The popularity of coffee products is growing but there is always a part of the consumer population that is ready for a change at any time and many consumers are "mood-driven." Although coffee is a staple for many consumers, the risk of being overtaken by other products remains constant. Starbucks continues to diversify through development of new products and as well as searching for new channels of distribution. The Company also takes advantage of the economies of scale and channels of distribution offered by its carefully chosen business alliances, both domestically and abroad.

While consumers of Starbucks products are certainly critical to the Company's success, no one buyer or group of buyers is powerful enough to influence Starbucks in any significant manner. As previously mentioned, the core product of the coffeehouse industry is high quality coffee in the form of hand crafted drinks or roasted beans. If this product were the only element consumers were considering, the product would be undifferentiated and coffeehouses could expect to be pitted against one another by the customers. In this case, however, all things are not equal since Starbucks maintains such a large market share. Rather than following the "group" as pressure is applied by consumers, Starbucks continues to be the trend setter (according to the National Coffee Association) but that is not to say that the company does not feel pressure exerted by consumers or consumer groups.

The Company was the target of protesters in 1999 and 2000 when Fair Trade and anti-Fair Trade advocates alike picketed Starbucks' Seattle offices. According to a company spokesman, pressure from protesters did not influence long standing buying policies; the decision to purchase Fair Trade certified beans from authorized vendors was existing Company policy in keeping with Starbucks values, views, quality standards and decisions to support developing coffee producing regions by paying a fair price for quality green coffee beans. The very issue of coffee house products as morally obj ectionable, or not, is actually one of education. From the beginning, one of Starbucks' goals was to educate the consumer about the superior quality of dark roasted coffee from exotic parts of the world. It stands to reason that such education would go past the coffee in the educated consumer's cup to the origin of the product. Additionally, it has been suggested that many consumers find it much easier to justify their $4.00 latte or espresso when they are assured the beans were grown and harvested under conditions that were fair, humane and that hopefully enhanced the lives of the farmers in those remote areas of production through payment of a living wage.

Most individual suppliers of green coffee beans do not have strong positions relative to Starbucks. The Company is the purchaser of more than 50 million pounds of green coffee beans annually and on the surface it would appear that all bargaining power was with Starbucks. This is true - and false. Starbucks is a major purchaser of high quality coffee beans and wields a considerable amount of influence over coffee brokers but since the product is organic, a certain lack of control is inevitable. Prices can be locked in through long term contracts but natural catastrophes occasionally happen and in such circumstances, power is meaningless. Most coffee beans are sold through brokers but are grown by individual family farmers in dozens of countries and regions around the world, sometimes on as few as two acres of land. The crop is vulnerable to natural catastrophes such as drought, flood or freeze, and damage in one growing region could affect the availability of crops worldwide. The cost of green coffee beans would naturally rise if a large region such as Brazil were to suffer a crop crisis such as the dual freeze in 1985. Overall, it is in the best interest of coffee bean buyers to pay a fair rate for green coffee beans. Although low prices help the short-term bottom line figures of coffee buying businesses, these cut-rate practices damage the long-term industry needs for increased coffee bean availability. It is in the best interest of the industry to encourage individual coffee growers to expand their coffee bean growing operations. Increased production is critical if the specialty coffee industry intends to accommodate the growing thirst for premium coffee and coffee products.

Starbucks enjoys considerable buying power and, therefore, leverage due to the size of the company. Starbucks was recently able to obtain lower prices from regional dairies for milk products, a significant part of the Company's cost of good sold. By exercising this leverage, Starbucks was able to increase its gross margin for the North American Sector during the first quarter of 2001.

LEADERSHIP AND POWER

Howard Schultz became the CEO and Chairman of Starbucks after he purchased the company in August of 1987. His promise to investors at that time was to merge existing Starbucks and Il Giornale stores and open 125 new stores within the year. Although the acquisition was actually that of the smaller Il Giornale buying Starbucks, Schultz opted to keep the Starbucks name because of brand recognition. According to Schultz, "having a name people could remember and recognize. . .and relate to provides enormous equity." Starbucks opened more stores per year than originally planned, expanding aggressively to today's level of more than 3,300 stores world-wide. In 2000, Schultz stepped down from the office of CEO and became Chief Global Strategist. In his current capacity, Schultz uses his experience and charisma to encourage employees and investors and to guide them as Starbucks continues to grow.

Schultz managed to escape a common entrepreneurial trap, reluctance to delegate. Entrepreneurs often feel ownership for the idea and have the passion to pursue it but lack the skills and experience critical to manage a growing and ever more complex company. Senior management at Starbucks has and for the most part, always has had these qualifications. To Schultz' credit, he recognized his own limitations and recruited managers specifically suited for the tasks and challenges of Starbucks. Many of Starbucks' executive officers came to the Company from major brands and often at a pay cut. Not only were Schultz and his advisors looking for professional qualifications, but also the type of character and culture that would fit with Starbucks' own.

Management in the early days of Starbucks was entrepreneurial, or as Schultz calls it, the "ready, aim, fire! " approach to running a company. In 1990, Orin Smith, current CEO, was hired to turn Starbucks into a professionally managed company that could endure the pain of growth. He recruited seasoned professionals in key areas such as finance, legal, supply-chain operations and management information systems. A clearer strategic direction was developed - one that would support the creative spirit at the heart of the company (entrepreneurship) with process and structure, without overdeveloping bureaucracy. Not only can Schultz be characterized as a "transformational" leader; so can many of the officers responsible for the tremendous growth of Starbucks. Schultz and other executives have not only a role models, but also as a coaches and teachers.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 73-79

Number of pages: 7

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411884

Document URL: http://search.proquest.com/docview/192411884?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 52 of 100

NIGERIAN PACKAGED GOODS, LTD.

Author: Smith, D K

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Abstract: None available.

Full text:

THE SITUATION

Boarding his flight to Lagos, Brian Keith wondered again whether his decision four months ago to accept his old friend Johnson Ojo?s offer to become Managing Director of Nigerian Packaged Goods, Ltd. would make or break his career at the multinational parent company, Global Packaged Goods, Ltd. As former Managing Director of a major Nigerian Packaged Goods Ltd. subsidiary, Keith had hands-on senior management-level knowledge and experience of the Nigerian business environment. Thus, while he knew very well the tremendous opportunities and successes which can be achieved in Nigeria, Keith also knew how problematic the Nigerian business environment can be. Difficulties Nigerian Packaged Goods had faced recently and/or was currently facing included:

1. For the most recent year, Nigerian Packaged Goods, Ltd. had written off more than 1.5 billion naira (approximately US$15,000,000) of old accounts receivable and inventory. As a result, the company would be posting a large annual loss.

2. As the magnitude of the problems Nigerian Packaged Goods, Ltd. was facing had become more clear, Keith had requested a three-month suspension of the company?s listing on the Nigerian Stock Market. When it resumed trading, the price of a Nigerian Packaged Goods, Ltd. share fell from around 13 naira to 5 naira. Clearly, the public image of the company had been badly damaged.

3. The former Managing Director and most of his senior management team had retired, and both staff morale and motivation were currently very low.

Putting his career-related concerns behind him, Keith began thinking again about the performance objectives which he and Ojo had discussed earlier in the day. The two of them had agreed that to ensure continued support for Nigerian Packaged Goods, Ltd. from Global Packaged Goods, Ltd. headquarters in Belgium, it would be necessary both to double Nigerian Packaged Goods, Ltd. sales volumes within the next four years and to dramatically increase profitability as well. The challenge of course would be to actually achieve those objectives.

THE COMPANY

Global Packaged Goods, Ltd. (hence, GLOPAG) the parent Belgium-based consumer products company of Nigerian Packaged Goods, Ltd. (hence, NIPAG) has been exporting products to Africa for more than 100 years. At the beginning of the 20th century, the company opened its first manufacturing plant in Africa, a soap factory in South Africa. Over the years, the company greatly expanded its operations in Africa. Currently, GLOPAG has operating subsidiaries not only in Nigeria but also in Cote D?Ivoire, the Democratic Republic of the Congo, Ghana, Kenya, Malawi, Namibia, Niger, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe.

Most GLOPAG activities in the above countries including Nigeria involve food and non-food consumable consumer items. Products in the foods category include bouillon cubes, cooking oils, ice cream, and margarines. Non-foods products include baby care lotions and powders, detergents, petroleum jellies, soaps, toothpastes, and other personal care products. Across all countries, laundry detergents is the largest and strongest GLOPAG category.

Over the years, GLOPAG and its predecessor companies have had a huge presence in Nigeria. In 1993, then-Chairman Erasmus Adepo announced that NIPAG?s annual revenues had, for the first time, exceeded one billion naira. As indicated below, each year till 1996 NIPAG reported very impressive increases in turnovers:

At the end of 1997, NIPAG announced that CEO Adepo and most of his senior management team had retired, and that Mr. Johnson Ojo, one of the most distinguished businesspersons in Nigeria, had been appointed NIPAG?s non-executive Chairman. It was at this time that the head of GLOPAG?s business group for Africa offered the Vice Chairman/CEO post to Brian Keith. After spending a few days wondering whether this assignment represented a huge opportunity or a kiss of death, Keith had accepted GLOPAG?s offer to become NIPAG Chairman and CEO.

CHARACTERISTICS OF THE NIGERIAN MARKET. As the economic environment in Nigeria deteriorated, receiving high ?value for money? became very important to many consumers. Offering well-known brands had at one time been sufficient for success, but by the 1990s performance and ?value for money? had become far more important for most consumers. For a substantial portion of the market, low prices are very important as well.

PRICE AND PRODUCT-RELATED INFORMATION. In the face of the deteriorating economic environment, NIPAG moved to protect profits by increasing prices and reducing costs. One approach NIPAG used was to reduce the active ingredients of many of the international brands it manufactured and sold in Nigeria. In the process, NIPAG substantially lowered the 'value for money' for consumers and debased the brand equity of these products.

One implication of the above 'debasing' is that world-class brands smuggled into Nigeria began to represent better 'value for money' for consumers than the NIPAG products manufactured locally. Furthermore, and in contrast to packaging innovators (milk-products companies, some detergents companies) who began offering single-use packs or sachets which were more affordable for Nigerian consumers, NIPAG continued to use traditional (that is, large developed-world-sized) packaging. Thus, over the years, NIPAG not only moved away from its original promise of 'superior value for money,' but also failed to deliver on the explicit promise of GLOPAG's Corporate Purpose, that is, 'to anticipate consumer aspirations and to respond creatively and competitively with branded products and services which raise the quality of life for our customers.'

PROMOTION-RELATED INFORMATION. Over the years, NIPAG?s competitors in Nigeria (both formal and informal sector) have massively increased their marketing spends. The percentage of revenues spent by NIPAG on advertising, however, is almost the same now as it was many years ago when sales were nearly twice as high. For this reason, NIPAG's 'share of voice' (that is, total promotional funds spent by NIPAG, divided by total promotional funds spent by all sellers of consumer packaged goods in Nigeria) is far lower today than during NIP AG's glory days.

DISTRIBUTION-RELATED INFORMATION. NIPAG has 28 depots serving 850 wholesalers and large retailers. Nearly all of these direct customers are located in major urban areas (i.e. rural coverage is very weak), and many compete against each other. For example, the company has 20 distributors in the Northeast: Six in Jos, four in Maidugari, and so on. Very few of these direct customers are making any money.

NIPAG salespeople are of course calling regularly on the direct customers, trying to persuade these distributors and large retailers to buy additional products and to maintain inventories. However, NIPAG does not use its leverage with banks in Nigeria to assist its direct customers with their financial arrangements. In other words, the direct customers are responsible for developing their own lines of credit from banks. Typically, NIPAG's direct customers end up paying 4 or 5 points more for their credit facilities than the rate paid by NIPAG for similar facilities.

ADDITIONAL CONSIDERATIONS. As Keith reviewed the situation, he noted the following points:

1. While the business environment in Nigeria had deteriorated enormously since the glory days of the 1970s oil boom, NIPAG had done little to update its business model or its strategy. NIPAG had always been a dominant ?second-to-none? company, and the members of the Board of Directors still embraced and reflected this attitude, even though various measures of NIPAG?s performance (for example, turnover and profits) no longer justified such a conclusion. For example, while NIPAG?s product turnover in 1989 had been 46,000 tons, the corresponding figure for 1997 was only 24,000 tons. Of this huge decrease, some had been lost to other companies in Nigeria which manufacture products similar to those produced by NIPAG (foods, cosmetics, soaps, detergents, toothpastes, and so on). However, as noted earlier, the most serious competition was coming from products manufactured at world-scale plants elsewhere in the world and then smuggled duty-free by traders into the Nigerian market.

2. Regarding profitability, NIPAG found itself in a 'Catch 22' situation. On the one hand, NIPAG's existing system (5 old factories full of old equipment) was very expensive to run and generated very little profit. On the other, because there was very little profit being generated, senior overseas managers were unwilling to spend money updating factories and/or equipment. NIPAG?s plants are dirty and antiquated. This led to various sorts of odd situations. For example, although NIPAG?s headquarters were located on a very impressive harbor-side compound with a private jetty capable of handling ocean-going vessels, and although these facilities were conservatively estimated to be worth at least one billion naira, a substantial portion of the communications and office equipment in the complex dated back to the early 1980s. Furthermore, the office did not possess central airconditioning. Given the age of the headquarters communications infrastructure, readers will not be surprised to learn that only a few of the most senior NIPAG executives had e-mail access in their offices. Furthermore, there is no automated sales processing, no on-line communications links to depots and/or major distributors, and so on.

3. While NIPAG continued to provide a full range of expensive services and benefits for employees (food from company-owned and operated canteen, car purchase schemes for senior managers, medical scheme, security scheme, etc.), none of these schemes had been updated recently and none of them are competitive with benefit plans offered by other major firms in Nigeria. For example, while some companies offer house purchase schemes to senior managers (the company co-signs the note and the manager receives a subsidized interest rate), NIPAG had never provided this sort of benefit to its staff. Furthermore, the quality of these non-essential services which NIPAG provides to its employees (canteen, medical care, etc.) tends to be quite low.

4. As indicated earlier, the economic environment in Nigeria had changed dramatically over the last several years. Nonetheless, NIPAG had made no major revisions or adjustments to its compensation schemes for managers.

5. As indicated earlier, NIPAG provided no incentives for junior staff (supervisors, people working on a production line, etc.) to strive to improve throughput, productivity, and/or quality. Furthermore, NIPAG exhibited no particular interest in safety, worker health (important to productivity), working conditions (important to morale), etc. There was no emphasis on and little interest in cross-functional teams and other newer approaches to doing business. Furthermore, there was no emphasis on establishing and then promoting to everyone a mission/vision as to who NIPAG is, what NIPAG seeks to achieve, and so on. In other words, there was no attempt to capture workers' hearts and heads, and to get them to be entrepreneurial/proactive in improving the company and its operations. NIPAG provided no rewards for staff interested in any of the above attitudes or performance, even though it was clear that at first-class plants elsewhere in the world, junior (i.e., production) staff can double their salary if they take responsibility for and then deliver high levels of product quality, productivity, safety, throughput, and so on. NIPAG provided no recognition or any other rewards for employees adopting such attitudes.

6. Traditionally, NIPAG has been a very hierarchical company. Directors of NIP AG's various functions (marketing, finance, human resources, etc.) are clustered together in a directors wing at headquarters, rather than being located near the mid-level managers who report to them.

7. With its 'glory days' history of being able to sell everything it could manufacture, NIPAG has never devoted much time or energy to customer service. The company does have customer service representatives, but both the leader of the customer service organization and the individuals in the customer service roles are low-level employees.

THE CHALLENGE

Assume you are Brian Keith, the new Vice Chairman/CEO of NIPAG. How will you go about achieving the performance objective which you and your chairman (Johnson Ojo) have identified, that is, to double NIPAG's sales in the next four years?

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 85-90

Number of pages: 6

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411944

Document URL: http://search.proquest.com/docview/192411944?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 53 of 100

SOUTHERN ELECTRIC OF THE CAROLINAS, INC.: A TWO-PERSON WORK RELATIONSHIP

Author: Spears, Martha C

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Abstract: None available.

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THE BEGINNING

Although Tommy Palmer and David Ard grew up in the same hometown, they didn't meet until some years later while helping with high school football during summer breaks from college. Although David's plan was to someday coach high school football, his father's untimely death led him to take over the small, family owned electrical business. Tommy had worked at various construction jobs since his early teens and had a talent and interest in the electrical field. After graduating from college in business administration/management, Tommy took the appropriate courses and became a licensed electrician. His first job after college was with a large electrical contracting company.

By 1994, both Tommy and David were in their late 20's and looking for a change. Tommy was not pleased with the way the company he worked with was operated. He wanted more control over his livelihood. David, on the other hand, had his own company but wanted consistency with the internal structure. David and Tommy both agreed that it was reasonable for them to establish a business partnership and start their own company - Southern Electric of the Carolinas, Inc.

STRATEGY AND STRUCTURE

With the assistance of one of Tommy's former business professors and the local Small Business Development Center, the friends started by forming a 50/50 partnership. Their mission statement was simple, "Provide our employees an enjoyable work place with no unfulfilled promises; be where we promise to be, when we promise to be there, and provide high quality work while we are there." It was decided that David would continue to take care of the "field" operation and Tommy would manage the "office" procedure. They decided that their ultimate goal as an organization would be to hire eight employees and have sales of $250,000 per year.

Tommy and David have now been partners for eight years. As a business, Southern Electric has exceeded the partners' original financial goals - they have fourteen employees and yearly sales of $1,000,000. Although they never had a formal, written business plan, they made yearly goals and conducted planning sessions at the end of each year to determine if goals and objectives had been met and what could be done to improve the organization the following year. But since the start-up, the responsibilities of the partners, the organizational structure, the business objectives, and their personal relationship have changed substantially.

Southern Electric now has two distinct divisions: service and commercial. The service/residential repair side is operated by David and the commercial/contracting side by Tommy. Each is solely responsible for making operational and personnel decisions in each division. They hired a business manager, Keith Ivey, to take care of the day-to-day operation of the office. Keith makes sure the bills are correct and sent on a timely basis. He is also responsible for ordering the required job materials for crews in both divisions.

Although Tommy and David still see each other on a daily basis, their interaction with each other is limited. They are mainly concerned with the crews working in their own divisions and with their close contact with Keith. In private conversations with each partner, their perception of how Southern Electric should operate is very different.

David is very outgoing, he likes to meet new people, and wants the company to be a fun place to work. He is satisfied with the size of the organization, although he would like to hire additional employees to take responsibility for the management of the service division. He often states that his ultimate goal is for the business "to run itself.

Tommy, on the other hand, sees the operation somewhat differently. He is much quieter and is more focused on how to meet the goals of the organization. He pays close attention to the financial information for the company. He wants the company to grow and to be there to manage and oversee the expanding operation.

Tommy and David realize they each have unique perspectives of how Southern Electric should be operated. They now see each other as having conflicting views of what should happen next to their organization. To better understand their interpersonal relationship, they consented to take a battery of personality and behavioral tests.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 91-92

Number of pages: 2

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411964

Document URL: http://search.proquest.com/docview/192411964?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 54 of 100

THE FALL OF ENRON: DID MANAGEMENT BURN THE EMPLOYEES?

Author: Thomson, Neal F; Embry, Olice

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Abstract: None available.

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INTRODUCTION

Enron Corporation, one of the United States largest energy companies, was formed in 1985 through the merger of Houston Natural Gas, and InterNorth, a natural gas company based in Omaha, Nebraska. The merger created a multistate bag pipeline company, with over 37000 miles of pipe (Geomemphis.com, 2001). The company diversified from these roots into a nationwide company involved in energy and energy related services including electricity, natural gas and communications. They also became involved in the trading of wholesale energy, and energy related financial instruments, including derivatives (biz.yahoo.com, 2002; Forest and Zellner, 2001). During this time, Enron grew rapidly, becoming America's seventh largest corporation. The company's revenues increased from $9.2 billion in 1995, to over $100 billion in 2000, and the company's stock returned approximately 500% during that period (Forest and Zellner, 2001). However, a significant portion of these gains was created using accounting tricks, by setting up partnerships and hiding massive amounts of debt. Once these tricks were discovered, Enron had to consolidate several of these shell corporations, and over $1.2 billion in shareholder equity evaporated overnight (Weber, Little, Henry and Lavelle, 2001). The company was forced to apply for chapter 11 bankruptcy protection, and the price of their shares plummeted from a high of $90 per share in October of 2000, to a low of $0.26 per share by December of 2001, a loss of over 99% of the value of the firm.

The losses to investors are staggering, including many mutual funds, 401k funds, and state pension plans. The estimated losses to Ohio's state pension fund alone was $69 million, with New York and California following close behind with losses of $60 million and $5 million respectively. The total loss in the market value of all the shares of Enron outstanding exceeded $60 billion (Kadlec, 2001). The ethical questions relating to the actions of Enron, and the senior management of the company will most likely keep legal and ethics scholars busy for several years to come. This case however, is limited to an examination of the harms that were suffered by Enron employees, who were heavily invested in Enron stock, primarily through their retirement accounts. Many of these employees had losses in the millions of dollars when the shares crashed. In the following sections, the actions of Enron's management will be examined, and the role these actions played in the employees losses will be discussed.

ENRON'S CORPORATE STRUCTURE AND FINANCIAL WOES

Enron corp. at its beginning, was a traditional style natural gas pipeline company, who's primary business was the distribution of natural gas to customers through their 37000 mile pipeline network. However, in 1989, the company began to diversify by trading in natural gas commodities, building themselves into North America's largest natural gas merchant (gomemphis.com, 2001). In 1997, this trend would be expanded. The new CEO, Jeffrey K. Skilling, came on board with an ambitious plan to expand Enron's trading business to include all types of energy and energy related services (Zellner et al., 2001). Since the natural gas industry was maturing, and profit margins were declining, their strategy was to broaden their reach. Looking for new markets to enter. One of their first expansions was to purchase Portland Electric, in July 1997, moving them in to the electrical power business. As they had done with the gas business, they began trading in wholesale electricity, and related instruments. Since this strategy initially seemed to work, they quickly branched out into other types of commodity trading, buying and selling metals, steel, advertising time and space, wood products and even weather related derivatives (Zellner, et al., 2001). By 1998, Enron had expanded the energy business into international markets, including India and Brazil. They then expanded into the water business, purchasing Wessex Water Company in Britain. However, some of these investments, including the Wessex water deal, and the broadband purchases they made, ended up losing large amounts of money, as the markets for the products collapsed at inconvenient times, or regulators changed the prices the company could charge (Zellner et al, 2001).

These losses came at a time when the company could ill afford to report the kind of results they had created. Expectations for company growth were high, and any report that fell below expectations would devastate the company. The share price would fall, and their bond ratings would drop, ending their granthose plans for expansion. However, their CFO, Andrew Fastow, had an answer to these problems. Through the use of complex business partnerships, he was able to keep most of the debt they had incurred "off balance sheet." The company continued to show rising profits, and the stock price soared. However, there was a problem. Certain provisions in the partnerships required that Enron be held accountable for their partner's debts (really Enron's debts, but moved to the partnerships to keep them off balance sheet), if their bond rating dropped below investment quality. The hammer finally fell, and Enron was forced to absorb their partners into the main corporation, which ended up adding $1.2 billion to the balance sheet. This started a downward spiral in the stock price, bond ratings, and overall financial situation of Enron. It finally reached the point that at the end of 2001, Enron Corporation filed for chapter 11 bankruptcy (Forest, Zellner and Timmons, 2001). During this time frame (2001) the company's share price fell from a high of near $90 per share, to a low of $0.26. This situation was devastating to investors, and none were hit harder than Enron's own employees, many of whom had most of their life savings in Enron stock through their retirement plans.

ENRON EMPLOYEE RETIREMENT PLANS

Enron employees were encouraged to contribute to their company sponsored, and controlled, 401k plan, through the use of a company-matching fund. However, the funds provided by the company HAD to be invested in Enron stock, and could not be moved until the employee had turned 50. Furthermore, employees were encouraged to invest the remaining portion of their retirement funds into company stock. In August of 2001, Kenneth Lay, then Enron CEO, told employees that he "never felt better about the growth prospects of the company. Our growth has never been more certain" (Kadlec, 2002, pg 34). As if these tactics were not enough, Enron switched plan administrators, and froze the assets in the retirement accounts for 10 days, during the period in which Enron stock was plummeting, keeping the employees from having any chance of minimizing their losses (Kadlec, 2002). Ironically, Enron executives had already begun unloading their shares of stock, with then CEO Jeffrey K. Skilling alone selling $17.5 million in company stock by June of 2001. Enron executives, including Jeffery Skilling, CFO Andrew Fastow, and 27 other Enron executives are estimated to have made over $1 billion from the sale of stock, during the year of 2001 (Zellner, et al, 2001). Since this occurred at the same time that these executives were hyping the stock to employees, they inevitably ended up selling some of their shares to their own employees.

Employees in the Enron 401K plan had an average of 62% of their retirement savings invested in Enron stock (Kadlec, 2002). One couple, Bobbie and Jerry Dodson, of Baker, Florida lost nearly $1.5 million dollars from their retirement account during the collapse. Bobbie, who filed for retirement in 2001, was expecting her monthly retirement check to be around $800. The revised estimate is now slightly over $300. One would expect that Jerry's monthly check would drop similarly.

Certainly, Enron employees are not the first to lose pensions, or retirement fund assets when their company went bankrupt. However, the Enron case is somewhat unique, in that the management was actively encouraging investment in the company, and painting a rosy picture of the company's future, while dumping all of their shares as quickly as possible. Enron Chairman, Kenneth Lay, claimed in recent interviews that he too was suffering staggering financial losses, and shared the pain of his employees. Evidence of this can be seen in the fact that he recently had to sell one of his vacation homes, for an approximate price of $10 million. However, the fundamental fact remains, these executives were selling their shares, while simultaneously hyping the stock to their own employees.

DISCUSSION QUESTIONS

1) Did the Enron Executives do anything wrong? Why, or why not?

2) What should they have done differently, if anything?

3) Should the government step in and create new regulations regarding this issue?

4) Who bears the most blame in this situation? The Enron executives, the government, or the employees and other shareholders?

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 93-96

Number of pages: 4

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411866

Document URL: http://search.proquest.com/docview/192411866?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 55 of 100

C.A.W. CONSTRUCTION COMPANY: A PROPOSAL FOR DIVERSIFICATION

Author: Withey, John J

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Abstract: None available.

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BACKGROUND

"The cost of ready-mix is going up again! This is the third time in the last 12 months. We are now going to have to pay $60.00 a cubic yard for this stuff!"

Frustration over the price of ready-mix concrete was nothing new to Paul Carter, general manager of C.A.W. Construction Company. Ready-mix concrete was only available from a handful of local suppliers, and they all demanded the same price per cubic yard. Negotiation rarely took place, and due to the length of time it takes for concrete to harden, purchasing from more distant suppliers was not feasible.

Carter's concern arose from the fact that while C.A.W. Construction was an asphalt paving contractor, many construction projects that use asphalt also require ready-mixed concrete. Commercial paving projects such as parking lot surfacing or shopping mall construction often include concrete sidewalks or concrete entry aprons. Asphalt streets in residential areas may utilize concrete curbs or special concrete areas at intersections. Even major highway construction or resurfacing that are essentially asphalt projects may still require some concrete components at entry and exit points.

Ready-mixed concrete is produced in a stationary plant (cost is only $500,000) and delivered to the work-site in special delivery vehicles that keep the mix loose and wet while in transit. The mix only has a useful life for projects located less than 50 miles from the plant. A challenging aspect of managing a ready-mix operation is to coordinate production at the plant site with availability of the delivery vehicles, and to dispatch the vehicles in a manner that matches work-site preparation and crew availability. Any error in this process results in unusable mix, and is quite costly. An efficient operation must be able to deploy a minimum of eight delivery vehicles. Some larger ready-mix companies operate several plants in adjacent markets (50 miles from one another), and attempt to use the same fleet of vehicles across multiple plants.

A ready-mix business supplies concrete to a wide range of applications. Typical is the residential market. New or remodeled housing construction frequently requires ready-mixed concrete for foundations, sidewalks, driveways, etc. Commercial and industrial applications are prevalent also, as are the road building settings described above. A common dimension of all applications for ready-mixed concrete, however, is that they demand a relatively small amount of concrete, as compared with the applications where a semi-permanent on-site plant would be appropriate.

The rationale for C.A.W.'s entry into the ready-mixed market seemed very plausible to Paul. C.A.W. Construction already is an established construction company with significant experience on projects that utilize ready-mixed concrete. While C.A.W. only provides site preparation services and asphalt paving, they do subcontract ready-mix suppliers on many of the same projects. They feel they know the local market for ready-mixed concrete and the competitors they would face if they entered this market.

Paul Carter wants C.A.W. to have ready-mix capability because it would allow the company to become a full-service provider of site preparation and paving services. C.A.W. would eliminate its expensive dependence on a crucial class of subcontractor. Ready-mixed concrete would be a new profit-center for C. A. W. Construction. For Paul, a move into the ready-mixed market appeared a natural and desirable diversification for the company.

Governmental departments of transportation are the principal customers sought by C.A.W. Construction. During the last five years, however, C.A.W. has gradually moved into the private, non-government market. This market is less predictable and more competitive. Private work can be more profitable than public sector projects and it is not characterized by the same public, inflexible bidding process. Presently, C.A.W. derives 15% of its revenues from private sector projects. Sentiment among many executives, however, remains with the traditional public sector road paving project.

THE NEW MARKET

Customer segments in the market for delivered mix include residential, industrial, and commercial builders. C.A.W. Construction presently serves a principal city of 250,000 residents, although the company's reachable market contains four times as many people. Population growth projections for the principal city are flat, but the entire market area is expected to grow at a rate of three percent per year over the next ten years. Much of the residential growth is occurring in the northern most portion of the area, roughly 25 miles from C.A.W.'s asphalt production site. There is, however, a major interstate by-pass being constructed around the southern end of the area. C.A.W. is participating in this multi-phased construction project which is expected to take an additional three years to complete. Significant commercial development is anticipated along this new highway. When making projections regarding the demand for ready-mixed concrete, industry analysts often use the rule-of-thumb of one cubic yard per resident per year.

Year-to-year changes in the demand for ready mixed concrete can be very volatile. Annual changes of as much to five or six percent are not uncommon. Key factors are new residential housing starts and renovations of existing private construction. Ready mix production in C.A.W.'s home State in the most recent year was 6.8 million cubic yards.

Due to land costs and zoning regulations, Mr. Carter and other company executives want to install a ready-mix concrete plant adjacent to their asphalt manufacturing plant. It is unlikely that a ready-mixed concrete production plant located on the same site with C.A.W.'s asphalt operation could effectively compete for business beyond the current asphalt market area. Vehicles with limited delivery and unloading time, making repeat trips carrying ten cubic yards of concrete mix to job sites that typically needing 60 to 100 cubic yards restrict the size of the geographic market that can be reached.

COMPETITORS

Four companies share the market in the area surrounding C.A.W.'s office and asphalt plant location. Weamer Concrete, Inc. and Pac-Mix, Inc. control a big portion of the total market, with Hobass Concrete Products Company a distant third. American Concrete Corporation, with a more distant production site than the other three, occasionally does some work in C.A.W.'s market area. Hobass and Pac-Mix sell a dry product that is actually mixed in their delivery vehicles while in route to the job-site. Weamer uses a central mix plant and delivers the mix to the job-site already wet. One recent survey of building contractors revealed no significant preference for either type of mixing process. Weamer and Pac-Mix operate large fleets of delivery vehicles and multiple plants. Both companies should be enjoying economies of scale that allow them attractive margins on delivered ready mix.

Despite significant differences in size and market power, there is almost no price competition. It's probable that either Weamer or Pac-Mix could make things difficult for Hobass or American with price reductions, but this has not happened. Paul Carter believes the market is large enough for all four companies to successfully participate without much head-to-head competition. Paul hopes the market is large enough to support a new competitor but admits that it is difficult to predict what reaction might be provoked by the entrance of new competitor.

A review by CA. W. executives of the four local competitors reveals the following:

All four do more with concrete than just ready-mix. Precast work and other concrete based products are common. Also, non-concrete products may be part of the total product mix. Tool rental, for example, is part of what Pac-Mix offers its customers.

The two smaller competitors integrate their ready mix business with other, related businesses. Hobass Concrete Products Company, for example, is also involved in above ground construction. Hobass and American have annual revenues of approximately $2.5 million and $4 million, respectively, of which less than half is derived from the manufacture and delivery of ready-mix concrete.

All four do business with a large number of small customers. Buyers include many individual home owners as well as a variety of building contractors.

Weamer and Pac-Mix use a multi-plant strategy. Operating more than one production plant allows better utilization of expensive delivery vehicles.

All four have a lengthy record of service in the local market. In spite of management and ownership changes, all four competitors have developed long term relationships with their principal customers.

COST TO ENTER

Key investments necessary to enter this market are a central-mix concrete production plant supported by a minimum of eight front-loading delivery vehicles. An installed central-mix concrete production plant costs $500,000. Front-loading delivery vehicles cost $125,000 each. Presently there is a two year wait for new delivery vehicles. It is estimated that a new production plant can be operational within 120 working days. Plants and delivery vehicles have useful lives of approximately seven years.

The need for a minimum of eight delivery vehicles derives from the relatively small pay load per vehicle, the large demands from the typical ready-mixed concrete project, and the necessary short delivery distances. With an approximate haul capacity of ten cubic yards to jobs that can require six to ten times that amount, multiple trucks are often required to complete one job. Even on single load projects (a residential driveway, for example), mix must be delivered and poured within 90 minutes. This implies a two-hour cycle per truck per load, and severely restricts the geographic reach of a single plant.

It is especially relevant that investment in delivery vehicles, compared to the cost of production facilities, is very high. A single production plant can produce 300 cubic yards of concrete per hour, while delivery vehicles are limited to 10 yard loads and are tied up for two hours between loads. This is undoubtedly the reason why many ready-mix businesses are multi-plant operations. Expensive, inefficient vehicles can be scheduled from alternative plants, allowing access to wider markets without significant increases in overhead.

While concrete production and delivery is a capital intensive business, there is still a need for additions in personnel. One driver for each vehicle and three full-time plant operators is the basic complement of labor needed. Some additional sales and office help is also required. C.A.W., a union employer, will need 13 new people year around at an average cost of $30.00 per hour.

Cost of capital rates assume a floating percentage slightly above prime, currently at 9%, and a seven year 'loan life' of the plant and delivery vehicles. Commercial lenders usually do not make equipment loans for periods longer than seven years. Depending on their usage, concrete mixing delivery vehicles are reaching the end of their reliable life after seven years. The production plant may be useful for a somewhat longer period.

On a national level, concrete producing businesses average 48% gross margin (not including labor). Local producers are probably slightly higher. This means that a cubic yard of mix with a market value of $60.00 can be produced for approximately $30.00. Working capital needs for stone and cement ash inventories, receivables, and cash are estimated at 25% of sales.

THE DECISION

C.A.W. Construction Company brings a known name, a solid reputation with subdivision developers, and considerable knowledge and experience to the concrete industry. These are strong assets and should aid with entry into the ready-mix business. Moving from working with subdivision developers to working with building contractors should be relatively easy. In some cases the two groups are the same people. Further, none of C.A.W.'s potential ready-mix competitors are involved with asphalt paving. C.A.W. expects considerable synergies across the two similar operations.

Smaller contractors and homeowners will be a new market segment for C.A.W., however, and will require some time and promotion expense to successfully attract. There is considerable turnover in the contractor segment and C.A.W. Construction will need some distinctive advantage for being chosen as a ready-mix supplier. Repeat business and long term loyalties characterize this market segment. Some contractors have done business with the same ready-mix supplier for 20 to 30 years. Short of extremely poor service, it is unusual for a contractor or builder to change mix supplier.

Unfortunately, many residential builders view ready-mixed concrete as a commodity only. No significant differences are seen in the mix available from different sources, and at this point, no significant differences are perceived among the area's four mix suppliers. In fact, there are numerous differences in characteristics of ready-mix concrete. Different grades, aggregate ingredients, set-up time, and surface appearance are just a few. At this point, the local building contractor segment is neither aware nor very interested in these differences.

Presently, the building contractor and homeowner segments seem most impressed with reliable service, suppliers with large, modern truck fleets, and liberal credit terms. No price competition exists between mix suppliers, so contractors rarely ask for price quotes. Only on bigger projects such as non-residential buildings, might there be some flexibility. Right now, Weamer and Pac-Mix get virtually all larger projects.

When asked specifically why their business uses whichever mix supplier they use, owners often have a reason that dates back to when the struggling contractor was in need of lenient credit terms. Once that loyalty is formed, it rarely changes.

Paul Carter and other management personnel are very much in favor of entering the readymix market in the area where C.A.W. already has a presence. They realize, however, they will have to convince the company's senior executives on the feasibility of their desires. Specifically, they will have to identify the size of the local ready-mix market, both in the short and longer term. Paul wonders what market share his company would have to achieve in order to break-even, as well as what volumes would be necessary to meet the company's 15% return-on-assets-managed objective. Both he and his associates know they will have to make a compelling case for this project if they expect the company to make the necessary investments.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 97-102

Number of pages: 6

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411975

Document URL: http://search.proquest.com/docview/192411975?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 56 of 100

eCAMPUS.COM: THE BEGINNINGS

Author: Brown, Steve; Loy, Steve; Thomas, Joe

ProQuest document link

Abstract: None available.

Full text:

CREATION OF A SPINOFF

Steve Stevens, President of Wallace's College Bookstores, was very concerned. In the spring of 1998, the University of Maryland issued a RFP for the management of its bookstore. The announcement required the managing company to include an on-line transactional component of the bookstore, which handled orders, shipping and payment. The University of Maryland was a huge account because of its overseas programs. Although this was the first university that made on-line service a requirement as part of an overall management contract, Stevens was sure this was a picture of things to come.

Stevens called a meeting of his top management to discuss what he saw as a real threat to their position in the industry-full service on-line textbook operations. Maryland's call for Web based services, coupled with Amazon.com's sudden rise to prominence in the retail book market, served as a wake up call. Steven's was not as concerned with Amazon.com as he was with his more direct competitors, Barnes & Noble and Follett. Follett and Barnes & Nobel managed about one third of the more than four thousand college bookstores. Both of these companies were expected to be on-line by September 1998. In addition, Stevens knew another competitor, Varsity, and two newcomers to the market, Big-Words.com and Textbooks.com, were planning to go on-line before the start of schools in the fall 2000. At the beginning of the meeting, Stevens shared his vision with the management team: Wallace's would become the number one on-line textbook seller as fast as possible.

In the fall of 1998, the management team decided to create a freestanding company called ecampus.com and have it fully operational by the next fall. Their rationale was that simple on-line transactions could be handled on a store-by-store basis, a full service operation could not. On-line consumers were expecting a rapid response, real time inventory, and fast accurate tracking capabilities. There was just no way to integrate and handle the inventory demands on a store-by-store basis during the fall rush period. This model was different from Barnes & Noble and Follett. Both of these companies were creating Web sites for college textbooks that would become part of their brick and mortar operations.

Wallace's Book Company was the prime mover for the initial round of capital. Wallace Wilkinson, the company's founder and former Governor of Kentucky, used his personal influence and the book company's successful history to persuade the likes of John Y. Brown (Kentucky Fried Chicken), Dave Thomas (Wendy's) and several other friends and business associates to invest substantial amounts in the startup of ecampus.com. Start-up cost for the new company was substantial: $50 million January through August. There were three major start-up costs for eampus.com. These were technology, legal, and distribution and logistics, with technology being the highest by far. Technology start-up costs included developing computer hardware, software, and other computer related hardware such as telecommunication lines used to conduct the operation. They also included transaction-processing systems used to conduct business online. The legal start-up costs included incorporation costs and their contractual arrangements with Wallace's.

Wilkinson maintained fifty-one percent interest in the new venture and threw the support of his company behind ecampus.com. This strong tie between the two companies became the foundation for the alliance between the two companies, ecampus.com would build, operate, and maintain a full service Web based textbook store, and Wallace' would use their buying power and distribution system to support ecampus.com.

A team often people, three from Wallace's and seven from Oracle, met in early February 1999 and began writing code to insure that the front end (customer ordering) had the proper support from the back end (applications) which ties the electronic storefront with the inventory and distribution system. While code was being written and distribution was being coordinated with Wallace's, DeVito/Verdi Advertising of New York was contracted to provide marketing research and an initial advertising campaign.

THE LAUNCH

Another component of the ecampus.com vision was to recruit the strongest management team possible to help launch and run the new venture. Stevens and several other members of Wallace's staff left to head up ecampus.com. An executive placement firm was used to recruit other top executives with strong backgrounds in their respective fields. Once the key people were in place, a decision was made to begin staffing with temporary employees who fit the ecampus.com profile from local employment agencies and colleges on an as needed basis. Like most e-commerce firms, they were looking at a very young staff. It was also decided to keep the organization fluid by keeping structure minimal during the startup phase. By April 16th they were incorporated, moved into a new headquarters May 17th, and anticipated going on-line before the beginning of the fall school season.

Timing was very important for ecampus.com. The purchase of textbooks is seasonal because students basically only purchase textbooks twice a year, at the beginning of the fall semester and at the beginning of the spring semester. All systems needed to in place by fall of 1999 or the actual launch would have to be postponed until the beginning of the next year. The development team from Wallace's and Oracle felt the web site's architecture had to be in place and working flawlessly by the end of June to meet the fall deadline.

While Operations was developing the technology, Devito/Verdi was busy putting together a $10 million advertising campaign. Their preliminary research further confirmed that the primary target should be both traditional and non-traditional students. They also found out that students felt like campus bookstores had a tendency to "rip off" students. An advertising campaign was crafted to resonate across the entire post-secondary textbook market. Its theme was similar to the antiestablishment college culture found in the movie-Animal House. The message portrayed ecampus.com as a company that understood students were broke and that ecampus.com could make them less broke. The advertising firm felt one of the most important goals of the campaign would be reaching incoming freshman and create customer loyalty. In order to reach this market, ads were run on MTV and Comedy Central late at night and early in the mornings.

The organizational structure at ecampus.com had to evolve around its quick start-up. It was a simple, relatively informal structure, with functional attributes. The structure was very flat and organic which encouraged a great deal of individual initiative and self-discipline. The company used experience to create solutions and remedies to problems as they occurred. Each manager brought their style of management with them, and ecampus.com encouraged them to employee the different styles at will. The organic environment provided them with the flexibility to change and adjust their styles and ways of thinking. At the same time, this increased the level of uncertainty within the organization.

The great independence that ecampus.com required in their employees caused some problems with communication. Managers were independent, self-motivated, and highly driven; this caused them to take on as many tasks as possible. Therefore, the managers were not very accessible to answer questions at critical times. Most of the time, managers were out of town or in meetings with other members of top management. The company typically communicated with its employees by email and voice mail. They used the same communication for outsiders as well, ecampus.com felt that these forms of communication were more personal and reflected the nature of the company. Besides electronic mail, management at ecampus.com had frequent meetings with employees to help overcome accessibility problems and to encourage coordination. These meetings were held in a forum environment. Employees were encouraged to speak openly about anything.

Most of the managers at ecampus.com allowed the employees to voice their opinions. This became part of the loose culture and lean structure that ecampus.com had sought to develop. ecampus.com hired their employees on the basis of their individuality with emphasis on motivation and creativity. The employees were allowed to go about their business in a fashion that they felt fit the situation best. Because managers at ecampus.com were also free to express their own individual styles, the style varied from department to department. Employees that transfer from another department were required to adapt to the new management style. Because of the current push for individualism, there was very little team atmosphere at ecampus.com.

Financial strategy and management, parallels the culture and structure of ecampus.com. They have used Wallace's as a basis and have remained flexible throughout the start-up phase. Bill Zimmer, CFO, stated that ecampus.com began their operations with a set of financial proj ections that had been borrowed from Wallace's computer model. At this point Zimmer is reluctant to divulge information concerning these projections due to the competitive nature of the business they are in. However he did state that they "looked good so far." He felt, even with the late start, the company was right on track and could become the number one Web based textbook company. Even though ecampus.com was closer to making a profit than any other firm ? the industry, they were not underestimating their competition. To stay ahead of the competition, ecampus.com was continually refining their financial structure and pricing methods to keep prices lower to maintain and attract new customers. Consequently, they have maintained their financial strategy of selling books with no shipping charges. Revenues could be greater if they charged for shipping, but this was part of their original marketing strategy to give them a competitive edge.

ecampus.com does not currently operate under a recognizable type of capital budget due to the fact that they consider their budget to be basically unlimited as far as capital expenditures go. In October ecampus.com received a second round of financing of $40million. Several large financial institutions approached ecampus.com shortly after establishing themselves as the market leader. However, Wilkinson would have had to give up controlling interest which he was unwilling to do. At this point in time, their capital structure is 100% equity with plans to eventually mix debt financing into the structure as well. The financial people at ecampus.com have developed a set of budgets using a zero-based budgeting approach, but at this point in time the budgets are not being used. Zimmer said that with a company their size one or two people were able to review all expenditures.

POST LAUNCH

The winter sales season went extremely well. As anticipated, the number of hits per day was more than triple the volume during the fall sales period. Changes in the capacity were made prior to the January rush that handled the demand flawlessly, ecampus.com seemed to be well on their way to becoming the number one Web based textbook company in North America.

It was about this time that Jack Garvin, Vice President of Technology, began having doubts about his tenure at ecampus.com. Having worked at other technology based companies; he was familiar with the pressures of highly volatile environments. He had been a project manager and team leader in several of his previous jobs. The structure at ecampus.com was much looser than any company he had worked for in the past. He had noticed the placement companies were not as enthusiastic and cooperative as they were in the past. Also, the company was experiencing a heavy turnover in the temporaries who had been hired on a permanent basis. The pay was good, but the environment was intense.

Working 100 hours a week with little supervision or training during the start-up period was exciting but draining. After the selling season was over there was a let down. The employees had been screened carefully and had been hired on their ability to work in a fast-paced environment. The company was now over the excitement created by the demand for creativity and individual initiative during the launching stage. Jack knew unless ecampus.com encountered some type of crises or another growth spurt personnel would be faced with this type of work cycle from now on.

Web based companies' stellar success had taken a severe hit in the stock market. The once seemingly endless supply of capital was drying up. The employment market was being flooded with bankrupt managers of Internet companies who had become overnight millionaires through stock options when their firms went public. It was obvious to Jack ecampus.com was not going public anytime soon. Wilkinson would never give up control unless there was a personal fortune to be made in the stock market. There were still great expansion opportunities. Textbooks were selling well; however, ecampus.com was far from the one-stop shopping site for college students Stevens envisioned over a year ago. Jack wondered whether the capital and the enthusiasm would be there in the future. The anticipation of exercising his stock options any time soon was fading fast.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 9

Issue: 1

Pages: 107-111

Number of pages: 5

Publication year: 2002

Publication date: 2002

Year: 2002

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411850

Document URL: http://search.proquest.com/docview/192411850?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2002

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 57 of 100

TRIALS AND TRIBULATIONS OF A FAILING BUSINESS: A CASE STUDY OF A FAMILY OWNED FARM SUPPLY COMPANY

Author: Nijhawan, Inder P; Tavakoli, Assad; Strong, Sajata; Jacola, Mercedes

ProQuest document link

Abstract: None available.

Full text:

CASE SYNOPSIS

Harry Farm Supply (HFS) is a family owned business with only four employees: Harry, his son, a secretary and a part-time worker who works from March through August. Harry and his son manage all the functional areas of the business and the secretary and a part-time worker provide clerical support and handle in-store sales. Due to small number of staff, clear job descriptions do not exist. Everyone pitches in to ensure that clients are well served. Harry's son has an MBA degree, but has no time for strategic planning, market analysis, and spends most of the time spreading fertilizer and chemicals.

Harry has been in business for over 32 years, is active in the community and enjoys an excellent rapport with his clients. The owner has built his reputation on reliable and friendly service. The HFS provides a variety of farm goods and services including fertilizers, chemicals, seeds, tile, soil sampling and analysis, crop management consultation, and custom spreading of lime, fertilizer and chemicals. The major source (68%)of the income is, however, derived from the sale of fertilizer and chemicals, 3% from lime, 7% from seed, 6% from tile and remaining 16 % from other services.

Over the past several years, the agricultural products industry has suffered from several setbacks. The most significant change in the fertilizer industry was the practice of direct selling by chemical and fertilizer companies to farmers, which circumvents the small independent distributors like Harry. Accordingly, the primary supplier (Royster Clark Inc.) is also Harry's competitor. Harry's only advantage over its supplier is that he has been in business for over three decades and is well known and respected in the farming community. In the past few years, the company has noticed a significant change in the fertilizer market. In the past, loyalty to brand and/or retailer was one of the most important considerations in consumer purchases. However, lately because of the falling crop prices, the profit margin of farmers has been squeezed to the point that the farmers have become extremely price sensitive. Farmers are also beginning to blend their own fertilizer by using manure as an alternative to the fertilizing their crops. On the cost side, there has been a steady increase in the price of vital input - natural gas, which is needed to produce nitrogen, based chemicals necessary to grow all major crops. On the demand side, the market for fertilizer has been declining for the past few years because of a reduction of tobacco quotas and decline in the prices of cotton and soybean. The problem has been further exacerbated by an excess production and intense competition from foreign suppliers. Further, the price elasticity of demand is only 0.56 and substitute goods are gaining market share at the expense of Harry Farm Supply, Inc. Since being in business, Harry has seen over 30 independent dealers close their doors.

The company has an exorbitant amount ($150,000) of bad debt because it lacks a sound credit policy. Although the company pays membership to a credit agency, its services are rarely utilized because Harry believes that client's acquaintance is more important than his credit worthiness. The company's outstanding accounts receivables in terms of "days" is approximately 5 times longer than the industry average. Harry has not conducted any formal analysis to know whether or not the cost of credit exceeds its benefits.

There are approximately 3,573 farmers in a 50 miles radius from the location of the Harry's business. Records show that the Company made sales to only 170 of these farmers over the last year. Therefore, it has only 4.8% market share in terms of the number of farmers. In terms of total sales of the fertilizers and chemicals, the Company holds only less than 2 percent of the fertilizers sales and less than 1 percent of chemical sales.

Harry farm supply Inc. is unable to compete on the basis of price because its major competitor is also its supplier. Harry currently purchases goods at wholesale at the same price as the customers can purchase them directly from the supplier.

The company has twelve-year old truck to haul and spread chemicals and fertilizer. The truck breaks down often and disrupts the service to the chagrin of the driver and the customers.

After successful operation of the business for over two and half decades, the HFS is on the verge of failure. There has been a steady decline in the profitability of the company. Indeed, Harry is heartbroken! He wanted to leave his son a profitable business. But Harry's dream is shattered, and he is, instead, faced with several dilemmas: (1) to continue with losses or shut down; (2) to swallow his pride and become an agent of his supplier (Royster Clark, Inc); (3) to continue to provide loans to his clients who have depended on him for credit over three decades or to assume the role of a middleman between his clients and the supplier, who is willing to provide credit albeit on terms which are much stricter than Harry's; (5) to change or keep his current pricing policies; (6) to discontinue some of the operations and focus on fertilizer sale only or continue with all the current operations.

To resolve these and other issues, Harry's son with a MBA degree has compiled the following information:

1. Income and balance sheet statements (Tables 1-3)

2. Income and balance sheet statements and cash flow trend (Tables 4-6).

3. RMA assets and sales comparison (Tables 7-10).

4. Price comparison chart for ammoniated premium fertilizer (Table 11)

5. Costs and benefits of credit (Table 12).

6. Analysis of Harry Farm Supply Inc market share and potential growth (Table 13)

7. Harry's Farm Supply Inc market share in total farms (Table 14)

Tables will be furnished upon request.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 1-2

Number of pages: 2

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412052

Document URL: http://search.proquest.com/docview/192412052?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 58 of 100

WANNA GET A CLIENT

Author: Niles, Marcia S

ProQuest document link

Abstract: None available.

Full text:

CASE DESCRIPTION

The case Wanna Get a Client addresses the client proposal and acceptance process facing public accounting firms. While substantial effort for audit staff and management is involved in repeated proposals for clients seeking auditor-provided services, little is taught about it in traditional auditing courses. Students hunger for "real world" experiences in their coursework, and enjoy exercises that go beyond the textbook. Including this kind of an experience in an auditing class enriches the student's audit knowledge by bringing together a number of audit techniques such as audit risk assessment, client background investigations, analytical procedures and proper documentation. Wanna Get a Client also forces students to integrate a number of skills developed in other classes such as services marketing, oral presentation and financial analysis. Using reasonably difficult unstructured tasks builds skills that students will use in their later careers.

Wanna get a Client is appropriate for senior undergraduate or graduate students. The material used includes a new client checklist obtained from one of the Big 5 accounting firm and a comprehensive audit case, SCAD V (McGraw-Hill, 2000) that provides rich "client" data. The proposal project is integrated into several class periods, but will consume ten to twelve hours in preparation.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 3

Number of pages: 1

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411989

Document URL: http://search.proquest.com/docview/192411989?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 59 of 100

HORIZON CAR WASH

Author: Olson, Philip D; Middleton, Al

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Abstract: None available.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns entrepreneurship and small business. Secondary issues examined include opportunity evaluation, strategy, financing, and legal structure. The case has a difficulty level of four. That is, it is appropriate for the senior level. The case is designed to be taught in a one hour class and is expected to require approximately three hours of outside preparation by students.

CASE SYNOPSIS

This case concerns two individuals, Brian and Joe, who are exploring whether or not to purchase Horizon Car Wash. If they purchase it, they plan to modify it so that some of the services the business provides will be different from those offered in the past. A significant portion of the case focuses on Horizon's competitors, customers and costs. Brian and Joe use this information to analyze their purchase decision. The case also covers Brian and Joe's backgrounds and skills. This information is helpful when judging if Brian and Joe's strengths match that needed to run a successful car wash. Other areas covered are how the two individuals might finance Horizon's purchase and what legal structure will be best for them.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 4

Number of pages: 1

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412037

Document URL: http://search.proquest.com/docview/192412037?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 60 of 100

GOOD HEART GENERAL HOSPITAL: SEXUAL HARASSMENT AND THE COMMUNITY

Author: Robinson, Sherry

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Abstract: None available.

Full text:

CASE DESCRIPTION

This case deals with "gray areas" in sexual harassment laws. A secondary issue involves the maintenance of good community relations while at the same time protecting employees and providing a non-hostile work environment. The case is designed for one class session, with one hour of preparatory research on sexual harassment laws prior to discussion of the case. The difficulty level is 2, but is appropriate for any higher level discussion of the intricacies of sexual harassment laws.

CASE SYNOPSIS

Nicole, a college student, is a receptionist at Good Heart General, a small hospital in a rural town. She begins to receive unwanted attention from a frequent hospital visitor-a local minister. When the situation is made known to her employer, she is reprimanded for making an accusation against an upstanding member of the community.

The story is revealed in scenes, giving students the opportunity to discuss events and decide at each stage of the case (1) if sexual harassment has occurred and (2) what action Nicole should take next. At the end of the case, students are asked to advise Nicole on her possible initiation of a sexual harassment law suit.

As is often true in real life, the question of when sexual harassment has occurred is not clear cut. The case provides material for discussion as students are likely to interpret the words and actions of the minister differently. Students will become more knowledgeable about the legal definitions of sexual harassment as they apply them to the various scenes.

SEXUAL HARASSMENT AT GOOD HEART GENERAL HOSPITAL

BACKGROUND

Nicole, a 21-year-old senior in college, was a part time receptionist at Good Heart General Hospital. She had worked at Good Heart the four years she had been in college, and liked the job because the flexible hours gave her time to study and attend classes. As a social person, she also liked the variety of people she met at the hospital. Nicole usually worked alone on evenings and weekends, but occasionally she filled in for receptionists on the day shift.

Most of the receptionists were young women who worked part-time. The only department personnel who were not receptionists were Sandy, the manager, and Jason, the insurance specialist. Because he worked closely with the billing department, Jason's office was on another floor.

Good Heart was a small facility nestled in a rural town. Because a much larger hospital was only 15 miles away, Good Heart's competitive advantage was its friendly, personal service and it worked hard to maintain good relations within the community. It was especially important for receptionists to be outgoing because they were visitors' first contact when entering the hospital. Any complaints that a receptionist had not been pleasant and sociable usually led to a reprimand and a reduction in hours.

SCENE 1

Nicole sat at the reception desk, staring out the glass doors watching the sunset on a warm summer evening as she rested her eyes from her work at the computer. A distinguished looking gentleman with a neatly trimmed silver beard walked purposefully up the sidewalk and into the lobby. Nicole greeted the man but he barely spoke as he reached over the counter for the "religion census," the list of current patients who wished to have members of the clergy visit them. The man looked intently at the list for several minutes before silently heading down the hallway to "Med-Surg," the area where patients' rooms were located. Nicole went back to her work on the computer, slightly confused by the man's cool demeanor.

The next morning, Nicole filled in for a receptionist who was sick. Although the day shift was more hectic, it was a nice change to have other people in the department to talk to. Nicole was talking to Vicki, a beautiful young woman with long blonde hair, when Vicki abruptly said, "Oh, here comes that man. I hate him. He gives me the creeps." Nicole looked out the glass door and saw the same man who had come to the hospital the previous evening. She was about to ask why Vicki disliked him, but there wasn't time. The man opened the door and walked over to the desk, ignoring the women as he took and read the religion census and walked away.

As soon as he was out of sight, Nicole asked Vicki about what she said.

"He just makes me really nervous. One day he asked if he could take my picture. I asked why and he said he likes to take pictures of pretty girls."

"So did you let him?" Nicole asked curiously.

"No way. I don't even know who he is."

Heather, who had worked in the department longer than anyone else, joined in. "He's Reverend Rogers, the minister at the big church in town."

Nicole was about to ask if he was usually as quiet as he had been that day and the evening before, but the phone rang and she forgot about the conversation.

SCENE 2

Nicole was working her normal early evening shift when she saw Reverend Rogers ambling toward the door. She reached for the religion census and put it on the counter. To her surprise, he struck up a long conversation. Apprehensive about being reprimanded for talking rather than working, but even more afraid of provoking a complaint of unfriendliness, Nicole subtly but unsuccessfully attempted to go back to her work. As she answered phone calls and greeted visitors she hoped Reverend Rogers would grow tired of the interruptions and leave. However, he simply relaxed by resting his forearms on the chest-high counter.

Eventually, the night-shift receptionist arrived and Reverend Rogers left. Nicole performed a few additional duties and headed for her car, parked in the employee parking lot behind the hospital. After the door locked behind her, she noticed a man waiting in the shadows a few feet away. Reverend Rogers stepped into the light and offered to escort her to her car. She struggled to think of a polite way to refuse, but the words escaped her. When they arrived at the spot where her small red Honda Civic was parked, he began to ask a multitude of questions about the vehicle. As she answered him, she opened the door and sat down. Grabbing the door with his left hand, Reverend Rogers positioned himself between Nicole and the door. Nicole reached for her cell phone, telling Rogers that she always called her Dad before leaving so that he would know when to expect her home. She hoped the man would take the hint and leave, but he continued to talk. Finally, Nicole tugged on the door with enough force that Rogers backed away.

SCENE 3

Nicole had just arrived for her early evening shift and no one was in the department except Jason, who was doing some work in the small room off to the side of the reception desk. Looking up, she noticed Reverend Rogers walking toward the door. Quickly, she darted to the back room, "Jason, will you come out here and stand with me?"

"What are you talking about?" he replied with an annoyed look on his face.

"There's a man coming up the sidewalk who followed me to my car the other night. Please, you don't have to DO anything, just be there."

Jason hurried to the desk, glanced out the door, and then hid behind the wall of the office. "Let's see what happens. He can't see me here, but I can hear everything that goes on."

Nicole greeted Reverend Rogers as she handed him the religion census. She tried to be polite without encouraging him to stay. Slowly he leaned over the desk so he was within several inches of Nicole. "What time do you get off work?"

She moved back an inch or two and said something vague about getting off "later." She had the distinct impression he had taken that position in order to peak down her shirt. Nicole grew more uncomfortable by the second. Reverend Rogers asked her a few more questions before pushing back from the desk and heading down the hall.

Jason came out from his hiding place. "You were right to come get me. That was really inappropriate." Nicole gave Jason more details regarding her past experience with the man. Glancing toward Med-Surg, Jason saw Reverend Rogers returning, so he walked around the desk toward him. Immediately, Rogers turned around and went back to the patients' rooms.

"See that? He was coming back to talk to you some more, but as soon as he saw me, he turned tail and ran. I'll stay here with you until he leaves."

Fifteen minutes later, Reverend Rogers returned to the desk and again leaned in toward Nicole. When Jason appeared from the side room and stood behind Nicole, Rogers made hasty exit.

SCENE 4

Nicole often worked the entire weekend, but this week she worked only on Saturday and had Sunday off. As she sat in a pew waiting for church service to begin, Shirley, a "lay chaplain" at Good Heart plopped down beside her and asked, "So, what's this about some minister harassing you?"

Nicole was surprised that the story had been made public, but told Shirley, whom she had known for many years, of the incidents.

One afternoon a week later, Nicole was home, having just finished her day at school, when the telephone rang. Her boss, Sandy, asked her to attend a meeting, but refused to tell Nicole what it was about.

When she arrived, Nicole was ushered into President Smith's office, where he and Sandy were waiting for her. Smith held a paper in his hand, waving it around as he spoke. "According to this letter, you've been spreading tales about a member of the clergy."

Nicole relayed the recent incidents.

"You can't say such things," Smith commanded. "If a minister was accused of doing such things, he could be ruined and sue us for it. Don't say anything else about him. Furthermore, call this Shirley who wrote the letter and tell her to stop spreading the story."

Nicole could hardly believe her ears as she fought back tears. "What do you think about this?" Sandy asked.

"I feel like I want to quit," Nicole said in exasperation.

"You can if you want," she replied matter-of-factly.

SCENE 5

When the next month's work schedule was posted, Nicole's hours were reduced to only an occasional evening and one weekend day. Nicole examined the schedule and saw that shifts she usually worked had been given to other receptionists. When she told Sandy that she needed more hours, she was told there just weren't enough hours to go around.

A week later Nicole was called in to substitute on the day shift. During their afternoon break, several other receptionists asked what had happened at the "big meeting" with Sandy and the president. Nicole told them how she had been instructed to stop telling people what happened to her.

Almost every receptionist, including Heather, admitted to having had similar experiences with Reverend Rogers. "Why don't you say something and back me up?" Nicole asked.

"I'm not going to say anything," Heather explained. "I need my job. Besides, I could have told you that would happen if you spoke up. It's been that way since he moved here. If you don't go along with him, he'll say you were rude and you're out of here."

Nicole continued to receive fewer scheduled hours.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 5-8

Number of pages: 4

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412003

Document URL: http://search.proquest.com/docview/192412003?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 61 of 100

THE MAGIC OF MEVATEC

Author: Shonesy, Linda B; Tucker, Dawn; Gulbro, Robert D

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Abstract: None available.

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CASE DESCRIPTION

This case is intended for use in undergraduate strategic management or business policy courses. It may also be appropriate for entrepreneurship courses at the undergraduate level. The primary subject matter of this case concerns the growth of a small business based upon entrepreneurial leadership and vision of the owner and founder. This case allows the student to carefully evaluate an organization's corporate culture and corporate strategies; and to determine the relationship of culture to financial and strategic success. It also enables the student to identify the challenges that many organizations are facing today, with the downsizing, that is occurring in both the government and in the private sector. This case is designed for one to two hours of class time, and is expected to require two to four hours of outside preparation.

CASE SYNOPSIS

This is the story of an entrepreneur, and the company that she created, using a nurturing leadership style, an entrepreneurial vision, empowerment of employees, and a competitive company culture. This culture is referred to as "Mevatec Magic" and places an emphasis on individual development.

Mevatec is a unique organization that uses scientists, engineers, and business professionals, who apply creative insight along with advanced technologies to assist government and industry to solve daily problems (www.mevatec.com). Nancy Archuleta started Mevatec in Las Cruces, New Mexico in 1985, however, by 1987 this new business was in trouble. Ms. Archuleta decided in 1988 to transition to the government high tech services sector. The company reduced their dependence on defense work from nearly 100% of revenue to an estimated 60% by 1996 ("Mevatec Corporation," 1999).

In 1989, the company moved to Huntsville, Alabama, where revenues have soared from $50,000 in 1988 to over $78 million in 2001. They have diversified into aerospace engineering, management services, and information technology. Mevatec's customer base is well diversified. The fastest growing business base is in the area of assisting commercial and government entities in driving down costs and improving customer service ("Mevatec Corporation," 1999).

THE MAKING OF A MAGIC ENTREPRENEUR

Nancy Archuleta, Chief Executive Officer of Mevatec Corporation, was born and reared on a farm in Las Cruces, Mexico. She learned early that to get ahead in life, she must work hard and often make personal sacrifices. She lived with her family in a one-room house that was accented by three beds and a "pot-belly" stove. Since her father was disabled, her mother was forced to iron clothes for others to help earn a living (James, 1993). Nancy described her mother as a person who tried to make the best of things. (Interview, 1999). Her mother always emphasized that no matter what a person had in this world, that they must leave things better than they found them (www.mevatec.com). Nancy embraced that philosophy.

Nancy was a dreamer and spent her time reading and dreaming about far-away places. However, her dreams seemed to be pushed farther away, after she dropped out of high school to marry and work (Interview, 1999).

Nancy's first marriage soon was in trouble, and she made up her mind that she must turn her life around. She began working several jobs, attended night school to obtain her diploma, and then, began taking college courses, while supporting her four children (James, 1993). Nancy started working for a life insurance company, and was able to have her own agency within several months. The magic was beginning (Interview, 1999)

Because of Nancy's success in the insurance business, she became more visible in her community, and was asked to serve on the board of a company called Mevatec Corporation. This company manufactured printed circuit boards for contracted commercial customers. After evaluating the company and the various business problems that it was having, she decided to buy it in 1985, as she felt that she could make it successful (Interview, 1999).

TURNAROUND MAGIC

Nancy Archuleta had no idea of the seriousness of the situation that she would be facing with her purchase of Mevatec. There was no magic wand to solve her problems. By 1987, she lost a major contract, and had to lay off seventy-five percent of her employees. The economy during that time period was on a roller coaster. She quickly diversified into both commercial and government jobs (Poole, 1994). Then, she transitioned the company into a technical service company by 1989. As she began to concentrate more and more on government defense work, she moved the company from Las Cruces to Huntsville, Alabama. Huntsville was a thriving community that seemed immune to defense cutbacks, and thus, work for her fledgling company was readily available. It was a haven for entrepreneurs like Nancy Archuleta (Brinkley, 1996).

Revenues began to improve after the relocation. Nancy put her own family members to work, and set out to grow her business. She started with only eight employees. A former marketing professor once gave her some advice, as she set out to conquer the lucrative defense industry. He said, "Build a business plan, as if peace were declared in the world tomorrow." (Mackowski, 1992, p.96) She did just that and more. Her plan was based upon the premise that she would never let the economy move ahead of her and dictate a decision for her. She would be ready for peace tomorrow. She decided that a solid business plan was her magic wand.

A MAGICAL CORPORATE CULTURE

"Mevatec Magic" was a term used by Ms. Archuleta to describe the environment that she wanted to create inside her company. This environment was to reflect her values and included an emphasis on the individual development of her employees. She insisted that her employees give back to the community. She encouraged her employees to participate in various community service projects (James, 1993).

The style of management that was seen in Ms. Archuleta's early years changed drastically, as she grew with her company. She made decisions in a more decentralized style by empowering her employees to be involved in all aspects of her business. She instilled a strong sense of loyalty and drive into each employee, by setting a good example for them to follow (www.mevatec.com). Mevatec's corporate culture could best be described as a family environment.

MAGICAL GROWTH

Since relocating to Huntsville, revenues soared from $50,000 per year to over $78 million per year in 2001 (www.mevatec.com). The other good news was that the company reduced its dependence on defense work from nearly 100% of revenue to approximately 60%. Ms. Archuleta looked for ways to use her defense technologies in the private sector. One solution was to apply computer graphics to animation. She invested money on research in computer animation and software development for commercial purposes. She saw her company's future in Hollywood, as well as in Washington (Brinkley, 1996).

Mevatec specialized in research and analysis, software engineering, systems design, development, and integration, and technical support services. The fastest growing part of the company, however, was in cost analysis and estimating, and business process re-engineering. They assisted both commercial and government entities in cutting down costs and improving customer service. They also provided information technology, such as web-based applications development for both the government and commercial sectors. In the spring of 1997, Mevatec won the largest small business contract ever awarded by the United States Army with a contract ceiling of $844 million (www.mevatec.com).

Mevatec expanded rapidly to include several locations by the late 1990s. With the headquarters in Huntsville, AL, and 9 support centers across the U.S, they now employed 450 people (www.mevatec.com).

MAGICAL MANAGEMENT PHILOSOPHY

Ms. Archuleta described her management philosophy, "Once you delegate a task, get out of people's way and let them do it; never ask anyone to do anything that you would not be willing to do yourself; and have a great capacity for hugging" (James, 1993, p. G6). This environment promoted individual initiative and creativity with a strong sense of teamwork. She always sent out an email when she returned from a trip that said, "Come get your hugs!" (James, 1993, p. G6) Her expanded philosophy simply stated," To make this world a better place, one must leave it better that it was when you arrived." That was the philosophy upon which Mevatec was solidly based (www.mevatec.com).

Ms. Archuleta sat on various boards in the community and served as a volunteer for several organizations. She was always willing to take personal time to mentor and coach other small minority and women business owners, as she believed in strengthening relationships by giving back to the community that had been good to her (Mackowski, 1992). The awards for Mevatec have been numerous, ranging from awards by President Bush and President Clinton for being an outstanding entrepreneur to ranking in the top ten of small Hispanic business owners (www.mevatec.com).

LOOKING TO THE MAGICAL FUTURE

Mevatec is considered a focused, energetic technical services company, whose main strategy is in engineering services, supporting both commercial and governmental sectors of the economy. While still a small business, this company clearly gets the job done with the explosive talent that it has been able to attract and its unique company culture. The company focuses on quality and places its employees on the same level of importance as their customers. "Everyone a coach, everyone a player" is the continuing education hope for each employee from Mevatec. This results in a culture that is enthusiastic, dedicated to customer satisfaction, and plays as a real team (www.mevatec.com).

Mevatec mission states, "At Mevatec, we value our customers, our employees, and our community. We take pride in our solutions, insist on integrity, and accept individual responsibility for our actions. We seek balance and harmony in our life" (www.mevatec.com).

Mevatec is well positioned for future success with an array of technical capabilities, excellent management, energetic and loyal employees, a strong financial base, and Nancy Archuleta. Her magic wand seems to be working overtime. You can almost see the pixie dust!

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 9-12

Number of pages: 4

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412421

Document URL: http://search.proquest.com/docview/192412421?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 62 of 100

MARIA CIRO

Author: "Skip" Smith, D K; Fraga, Roberta Cassiano

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Abstract: None available.

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ABSTRACT

Maria Ciro is a just-graduated civil engineer who loves her new job as project manager for a construction company in Brazil but dislikes very much the fact that the 18 hours per day she and other young professionals are expected to invest in their jobs leaves her no time or energy for a life outside of work. Maria is determined to escape what she views as a "slave labor" situation, but hasn't yet decided how to do so. Discussion of this mini-case will provide students an example of the personal/professional dilemmas they are likely to encounter after graduation, describe for them a process they can use to work through such dilemmas, sensitize them as to how research can be integrated into decision processes, and make them aware of one of the best job/career search resources (the book "What Color is Your Parachute," by Richard Bolles) in the world.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 13

Number of pages: 1

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192412027

Document URL: http://search.proquest.com/docview/192412027?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 63 of 100

CAPITAL BUDGETING WITH COMPETING PROJECTS: DONRAY CORPORATION

Author: Stretcher, Robert

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Abstract: None available.

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CASE DESCRIPTION

The primary subject matter for this case involves capital budgeting decisions during a point in time where the firm has multiple competing mutually exclusive projects. Alternative cost of capital estimates and strategic considerations represent secondary concerns. Howard Ledbetter, the firm's financial manager, is tasked with the job of identifying an 'optimal' capital budget that is consistent with the firm's long term strategy. The case has a difficulty level appropriate for junior, senior, and perhaps MBA level finance courses. It can be taught in approximately two class hours and should require three or four hours of outside preparation by students.

CASE SYNOPSIS

Howard Ledbetter, an accountant serving as DonRay Corporation's financial manager, has been challenged to make a presentation to the CEO and other officers of the firm concerning DonRay's current investment opportunities. Quarreling among several of the executives has convinced the CEO to consider a precise financial analysis of each project, and of different combinations of projects. Ledbetter must compile an optimal capital budget argument, and provide explanations concerning which 'bundle' of projects would be best for the firm. He must also consider the relative attractiveness of several different measures for the firm's cost of capital.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 14

Number of pages: 1

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411973

Document URL: http://search.proquest.com/docview/192411973?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 64 of 100

LOTEC TACKLE COMPANY - CASE B THE E-COMMERCE INITIATIVE

Author: Wells, F Stuart; Wells, Susan G; Pickett, Gary C

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Abstract: None available.

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CASE DESCRIPTION

Primary subject areas: information technology - e-commerce/web site development managerial issues e-commerce feasibility and outsourcing or in-house development. Course levels include junior, senior, and masters. LOTEC Tackle Company - Case B "The e-commerce initiative" may be used either as a continuation of Case A or as a standalone case. While focusing on the proposed entry of LOTEC into the world of e-commerce, students are challenged to evaluate the current organizational and technological environment in making decisions that will have a dramatic impact on LOTEC's future. The rich detail provided in the case allows students to determine if a cyber presence is appropriate for LOTEC and if it is, what organizational, operational, and technological decisions must be made in the transition to e-commerce. The tendency of the ill-prepared student will be to jump at the opportunity to "e-commercialize" the existing system without first understanding the complex issues involved in adapting business processes to the cyber-world environment. This case is ideally suited as both the e-commerce component of a Systems Analysis and Design course or as the major application component of an E-Commerce course. Consequently, the scope of the assignments will determine the time and resources needed to accomplish the task. Minimally, two hours of preparation for an issues-discussion in a one-hour class is typical. The teaching note suggests several assignment scenarios rangingfrom discussion questions regarding various e-commerce issues to a project requiring students to design and develop a web-based system solution.

CASE SYNOPSIS

LoTec Tackle is a fifty-year old family business that has experienced dramatic growth and profitability. An information systems initiative was undertaken three years ago. A computerized transaction processing system was created to improve company efficiency and customer service. The move toward technology was made only after addressing concerns of the employees and convincing them that an information system would not eliminate or diminish their jobs but rather would enhance them. Matthew Logan, grandson of one of the founders and now the company's president and general manager, is pleased with both the system and his new IS manager Reed Norman. Matthew, fueled by the recent success, feels the company may be ready for another challenge. Each day he notices the emergence of more and more dot-com companies. He wonders if it is time to move LoTec into the world of e-commerce.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 15

Number of pages: 1

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411887

Document URL: http://search.proquest.com/docview/192411887?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 65 of 100

YOU GET WHAT YOU PAY FOR OUTSOURCING AT REALTY ONE

Author: Wells, F Stuart; Wells, Susan G

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Abstract: None available.

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CASE DESCRIPTION

This case is appropriate for Management of Information Systems, Systems Analysis and Design, and E-Commerce classes. Discussions will focus on critical success factors for outsourcing in general and outsourcing e-commerce implementations in particular. Students are challenged to determine what the problems are and what could have been done to prevent them. The case is appropriate for either a senior or graduate level class and should require one-two hours class time and two-three hours of outside preparation for instructors familiar with the principles of e-commerce.

CASE SYNOPSIS

Outsourcing of information systems is not a new topic; people have been doing it for years. Successes and failures abound. However, for every company that gets it right the first time there are numerous examples of outsourcing fraught with problems. This case presents an actual scenario, disguised to protect the participants, of one company's failed effort at outsourcing and the efforts to correct thatfailure. All case facts are essentially correct and accurate. Realty One, an independent real estate office, is a company that failed at outsourcing but did not immediately realize it. This case will focus on key decisions that affect outsourcing success. Realty One's mistakes, failures and successes are presented in scrupulous detail. The broker-owner's failure to see anything but the immediate costs associated with information technology severely hampers any attempt at successful outsourcing. Students are challenged to determine not only what went wrong, but also to craft a solution based on a set of critical success factors that will result in a stable yet flexible system. Properly prepared the case will require students to weave together both commonly accepted information system practices with those techniques and strategies particular to outsourcing and e-Commerce.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 16

Number of pages: 1

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411922

Document URL: http://search.proquest.com/docview/192411922?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 66 of 100

HOW JAPAN LOST NIKKEI FUTURES BUSINESS TO SINGAPORE

Author: Azarmi, Ted

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Abstract: None available.

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CASE DESCRIPTION

The primary subject matter of this case concerns international finance. Secondary issues examined include international business and futures contracts. The case has a difficulty level that makes it appropriate for senior level and for first year graduate level. The case is designed to be taught in two class hours and is expected to require three hours of outside preparation by students.

CASE SYNOPSIS

The objective of this case is to teach and initiate a class discussion about how do international financial exchanges compete? The discussion is facilitated by two examples of financial strategies for introduction of a new instrument on three different exchanges in Japan, Singapore, and the U.S. Risk and rewards, and eventual outcomes of each strategy is discussed.

I. NIKKEI 225 STOCK INDEX

In Japan, modern stock trading started in 1949 in Tokyo, Osaka, and Nagoya. Smaller exchanges in Kyoto, Hiroshima, Fukuoka, Sapporo, Niigata, and Kobe began trading latter on. The Tokyo exchange is by far the most important one with about 80% of all trading volume. It is also the second largest market in the world after the New York Stock Exchange (NYSE).

The first index, based on Japanese stocks was calculated on May 16, 1949, by Nihon Keisai Shimbun inc. (This company runs a business newspaper in Japan with a similar role as that of the Wall Street Journal in U.S.). The index was called the Nikkei 225 stock-average and was calculated based on the prices of 225 stocks in 34 industries. The idea for the Nikkei 225 index is essentially the adjustment method for stock price averages that began with Charles Henry Dow's Pioneeringwork on his index for NYSE stocks (Dow-Jones index).

After the initial success of Nikkei 225, Nihon Keisai Shimbun added the Nikkei 500 stock index and the Nikkei over-the-counter stock average. Another index call TOPEX is also in use. Among these indices, the oldest one- Nikkei 225 provides the best historical continuity and is both internationally and domestically the most widely used index for the Japanese market.

II. THE NIKKEI 225 STOCK EVDEX FUTURES CONTRACT

The Nikkei stock average is an index for the "cash market". That is, the average price is calculated based on the current value of the underlying stocks. In finance, it is also useful to trade a financial product based on its future price. For example, if the Japanese economic performance in three months is the underlying risk, one may wish to trade in a futures contract in Nikkei 225 that expires three months from now. This futures contract enables the investor to sell (or to buy) the underlying basket of the stocks today with the obligation to deliver (or to take delivery of) the assets three months from now. The trader locks into a price that represents the value that the underlying basket of the stocks is expected to have in three months. Of course, given the uncertainty about the future price over the life of the contract, the value of the position moves around as people take different views on what the Nikkei 225 would be worth in three months. For example, if the current price for this contract is 20 million yen, then the purchaser of the Nikkei futures is obligated to take delivery of the underlying stocks (buy the index) in three months for that price. If three months from now, the value of these stocks goes down to 19 million Yen, the purchaser looses 1 million Yen (Similarly, if after three months, the value goes up to 21 million Yen, the purchaser gains one million Yen). The futures contract, also enables one to trade the underlying basket of the stocks with posting a small "margin" instead of the total value of the underlying asset.

The Chicago Board of Trade (CBOT) pioneered futures trading in commodities. Later on, the Chicago Mercantile Exchange (CME) introduced futures trading in financial instruments. The CBOT and the CME are the world's largest exchanges for trading in futures contracts. In 1982, CME began trading a contract based on the S&P 500 index futures. By 1985, that contract increased from about 3 million to 15 million in trading volume. A number of other futures contracts based on U.S. stock indices experienced similar success. However, at that time there weren't any futures contract representing an index for Japan- the second largest economy of the world.

The basic difference was that the U.S. had about a century of experience in futures trading in Chicago. In contrast, in the early 1980's, the concept of futures trading was still in its infancy in Japan. By this time, the Japanese trading houses were active on Chicago's futures exchanges. The time was right for trading in Nikkei 225 futures and the CME was interested in trading it in Chicago.

However, the index belonged to Nihon Keisai Shimbun. For trading the index, the paper had three basic financial strategies open to it. First, Nihon Keisai Shimbun could enter in contractual agreement with CME, granting exclusive trading rights for Nikkei 225 futures at that market. The second strategy was for this contract to remain exclusively in Japan, trading at a local exchange, such as the one in Osaka. The last strategy was a middle-of-the-road approach: Allow Chicago to trade it, without granting an exclusive right. Each strategy had its own advantages and shortcomings.

Trading exclusively in Japan, was the alternative with the highest risk. Without Chicago's futures market expertise, customer base, and experienced traders, it was likely that the Nikkei futures contracts would not have been successful. There have been unsuccessful futures contracts before. For example, the onion futures contracts were no longer trading in Chicago.

III. CHICAGO MERCANTILE EXCHANGE, THE SINGAPORE INTERNATIONAL MONETARY EXCHANGE, AND THE OSAKA EXCHANGE

Giving the business exclusively to Chicago had the least risk. However, the rewards were small too. Japan would have lost the Nikkei futures business benefiting one of its exchanges. The Nihon Keisai Shimbun picked the middle-of-the-road approach. In May of 1985, it signed an agreement with CME. This agreement allowed CME to trade a futures contract based on the Nikkei index. This pioneering agreement paved the way for the trading of a Japanese financial product in an overseas market. The trading began in the same month.

Of course, from the beginning, the Japanese weren't about to let the Nikkei futures trading be totally lost to the overseas markets. A market for trading Nikkei 225 futures was also developed on the Osaka exchange at the Osaka center for Nikkei futures trading.

This strategy met its objective: From the onset, trading in Nikkei 225 futures was successful. Despite the Osaka market, there was also considerable Japanese interest in trading the Nikkei Futures in Chicago. Among other reasons, this had to do with the fact that some traders preferred the open outcry trading mechanism of CME to the computer trading at Osaka. However, Chicago has a 14 hours time difference with Tokyo (The difference increases to 15 hours during a period called the day-light-saving time from April to October, when Chicago sets its clocks an hour ahead to save energy by taking advantage of earlier sun raises). Due to the time difference between the two markets, Japanese traders could not conveniently access CME during business hours in Japan.

Having to conduct trading at night was a definite problem for Japanese brokers. However, offering evening-hours fit Chicago business environment much easier. That market was already considering around the clock operation by computerized trading.

Evening trading at Chicago would have presented another difficulty for Japanese traders: In the evening, many of the professional services of the exchange staff were unavailable. In addition, if Nikkei futures at the evening sessions in Chicago were listed on a computerized trading system such as Globex (or Access), the traders who preferred an open outcry market had no reason to take their business from Osaka to Chicago. Therefore, Chicago had not had a competitive advantage in offering an evening session in this contract. As a matter of fact, a number of other futures contracts which Chicago was already offering in the evening were not as "liquid" as their counter parts in the day session. According to Mr. Yoshikazu Kiyoto, the deputy general manager of the fixed income securities division of the Nikko Securities Co, anxiety over liquidity during the evening session were a matter of concern to Japanese traders (Financial Exchange July-August 1989).

This business environment presented an opportunity to the Singapore International Monetary Exchange (SIMEX) to offer its own Nikkei 225 futures contract. SIMEX has an open outcry trading system and the time difference between Singapore and Tokyo is not large enough to make trading inconvenient for Japanese traders.

CME and SIMEX had the option to link their Nikkei 225 contracts. These exchanges had already been linked together through a mutual offset arrangement in a number of futures contracts that were offered at both markets. The positions taken in these contracts at CME could be transferred to or liquidated at SIMEX and vice versa. These futures contracts are called "fungible".

With a fungible contract, the risk that one market will grow at the other's expense is low. However, there were higher potential gains from exclusively offering a successful Nikkei contract. SIMEX chose to independently offer a non-fungible Nikkei 225 futures contract in September 1986.

In the first few years, trading at SIMEX was not very active. The volume was low. When large orders were placed in this market, the size of the order could adversely move the market price.

IV. THE INTERNATIONAL NIKKEI FUTURES TRADING

Now there were three different exchanges trading the same product (Except that the futures contract in Osaka had twice the face value of the contract in Chicago and on SIMEX). Since all three markets were to a large degree targeting the same clients, there was a chance that one or more of these markets would not attract enough clients and suffer a liquidity problem.

In late 1980's the Japanese regulators allowed the banks and securities houses in Japan to do brokerage business in futures markets for their customers. This created additional market growth potential for all three exchanges that were offering Nikkei 225 futures. Particularly, the Osaka market gained from the additional business.

The trading hours, the economy of the host country, and the access to the local market by both foreign and domestic traders were important to the success of Nikkei futures on each exchange. Most of these factors were in favor of Chicago and Osaka. Consequently, by early 1990's the Chicago and Osaka markets were thriving. In contrast the Singapore market had smaller liquidity.

The CME Nikkei contract has the same specification as the one on SIMEX, except that the Osaka contract has twice the face value of the contract in the two other markets.

V. THE ARBITRAGE OPPORTUNITIES

When there are three markets for the same product, it is likely that the product may (at least temporarily) have a different price in one market than the others. Then, a trader can buy the product in the market were it is cheapest and sell it in the market with the highest price. If this can be done, before any adverse price movements in either market, a riskless "arbitrage" profit would be realized.

There are no arbitrage opportunities between the Chicago and the SIMEX markets or the Chicago and Osaka market. These markets simply do not trade simultaneously. The Chicago market opens from 8:00 a.m. to 3:30 p.m. while SIMEX opens from 7:00 p.m. Chicago-time (6:00 p.m. during daylight saving) to 6 a.m. However, for most of the trading day, the Osaka and SIMEX's trading times overlap. Therefore, traders had arbitrage opportunities based on price discrepancies between these two markets.

In a typical arbitrage, a trader in the Osaka market would watch the futures contracts for Nikkei at that market, while his co-trader in SIMEX is telling him over the phone every few seconds where the price is in Singapore. Sometimes, a trader that is authorized to trade only on SIMEX places a large buy order. Given the SIMEX's low liquidity, large order tend to move the prices up more at SIMEX. For a few seconds a price difference between Osaka and Singapore opens up. Exploiting this price difference, the two traders execute an arbitrage trade.

For example, in one arbitrage-trading situation, the Osaka Nikkei futures price was 17,600 and the SIMEX price was 17,580 for three seconds. The trader in SIMEX placed a buy order for 100 contracts and his co-trader placed a sell order for 100 contracts in Osaka, both at the market price. The SIMEX order was filled at 17,600, while the Osaka order was sold at 17,590. That is, by the time the order filled in Osaka, that market had moved from 17,580 to 17,590. Two seconds after these orders were filled, both markets traded at the same price of 17,610. The Arbitrageur liquidated both positions at a loss.

The arbitrage profits were made at the expense of the traders who dealt a large order on SIMEX. Of course, these traders started to shy away from Singapore. Their large orders could be handled with a smaller adverse price movement in Osaka. By 1992, Singapore was doing a paltry volume of 4,000 Nikkei contracts per day.

VI. SIMEX GREW AT OSAKA'S EXPENSE

It looked like Japan had successfully captured the Asian day and the western night business for its Nikkei 225 futures contract. While the western day business was done in Chicago. Singapore was being pushed to a marginal side business. SIMEX tried hard to attract more business. It was even offering an award to the brokerage firm that did the most business through it. Things did not improve much until the summer of 1992, when the Japanese regulators gave Singapore a big "Omiage" (gift)!

Osaka imposed very stringent rules on the options and futures contract trades in that market. The traders had to place high maintenance margins on deposit with the exchange. The exchange would pocket the interest on these funds. In addition, dealers' commissions should meet a minimum rate that the exchange had specified. This enabled the SIMEX dealers to gain a competitive advantage by offering discount commission rates that could not be matched at Osaka. Within a few weeks of these rules, the trading business began to move from Osaka to SIMEX. The trading in SIMEX rose from 4,000 to over 20,000 contracts per day. Of course, Osaka could always count on a large volume of domestic business to ensure its survival. However, SIMEX emerged as an important international market well poised to take most of the western-night business from Japan. In 1996, there were two equally important Asian markets for trading Nikkei 225 futures: SIMEX and Osaka. CME dominated the western trade in Nikkei futures contracts.

INSTRUCTORS' NOTES

To achieve the objectives of this case one should teach and initiate a class discussion about the following issues:

1. How do arbitrage trades take place?

Answer: The discussion is facilitated by an example of an actual arbitrage trade between traders at Osaka and at SIMEX in the case. Arbitrage is possible when two markets trade the same product at two different prices. Traders attempt to simultaneously buy at the cheaper market and sell into the more expensive market.

2. Fungible futures contracts should be discussed.

Answer: A fungible agreement allows traders to open a position in one market and to close it in another market.

3. What is a futures contract on a stock index?

Answer: The discussion is facilitated by an example of a Japanese future contract on a stock index. A future contract is a standardized contract that is traded on an exchange and requires maintenance and initial margin deposits (contrast with a forward contract). It allows one to buy or sell the underlying asset at a fixed price at a given future date.

4. How do international financial exchanges compete?

Answer: The discussion is facilitated by two examples of financial strategies for introduction of a new instrument on three different exchanges in Japan, Singapore, and the U.S. Risk and rewards, and eventual outcomes of each strategy is discussed.

5. The case facilitates a class discussion of open outcry trading mechanism versus the computerized trading systems such as evening trading on Globex, Access, and Project A; and day trading at Osaka exchange.

6. What is the effect of the regulation on a country's financial exchanges?

Two examples of new regulations in Japan and their effect on the Osaka exchange is discussed.

Publication title: Allied Academies International Conference. International Academy for Case Studies. Proceedings

Volume: 8

Issue: 2

Pages: 17-21

Number of pages: 5

Publication year: 2001

Publication date: 2001

Year: 2001

Publisher: Jordan Whitney Enterprises, Inc

Place of publication: Arden

Country of publication: United States

Publication subject: Business And Economics

ISSN: 1948-3198

Source type: Conference Papers & Proceedings

Language of publication: English

Document type: Feature, Business Case

ProQuest document ID: 192411990

Document URL: http://search.proquest.com/docview/192411990?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete