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CONSOLIDATION IN THE AIRLINE INDUSTRY

Author: Thomson, Neal F

Abstract: None available.

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Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns ethics. Secondary issues include social responsibility, government regulation of business, and business strategy. This case has a difficulty level of 3 to 4, appropriate for junior and senior level classes. This case is designed to be taught during a one hour class period, and is expected to require two hours of outside preparation by students.

CASE SYNOPSIS

Since the US airline industry was deregulated in 1978, the number of scheduled service carriers (non-charter companies) has increased from 30 to peak at 49 (in 1985) and stood at 42, in 1999. However, in 1978, the four largest carriers had a 40.7% combined market share, where today, the four largest carriers have a 53.1% (1998) share (Twenty Years, 2000). This situation, to some, borders on a monopoly, particularly since a couple of these airlines have interline, or code-share agreements. As if this were not enough, the top three airlines have announced plans to acquire or merge with three others of the top ten. This will create a situation in which three airlines will control over 75% of the entire domestic airline industry. This case examines these proposed mergers and acquisitions, and discusses their possible impact on air passengers.

CONSOLIDATION IN THE AIRLINE INDUSTRY

In May of 2000, United Airlines, the largest US carrier, announced that it was planning to purchase US Airways, the country's #6 carrier (United to buy, 2000). The combination would create a behemoth of an airline, with nearly twice as many daily flights as the next largest competitor, American Airlines (United/US Air, 2000). This was followed in January 2001 by the announcement by American Airlines that it intended to buy TWA, the #7 carrier, which had just entered chapter 11 bankruptcy. This was followed quickly, in February 2001, by an announcement from #3 carrier Delta Airlines that, if the other two mergers were allowed, Delta would then merge with #5 carrier Continental Airlines, not because they want to, but because they would need to in order to survive. These three combined entities would at that point control over three fourths of all domestic US air traffic (Twenty Years, 2000)). Their next largest competitor, Northwest Airlines, already only half as large as United, would fall to about 35% of the size of any of the top three. Southwest Airlines, which would then be #5, is only about 20% if the size of each of the combined airlines. The remaining 10-15% of airline traffic is split between dozens of smaller, regional carriers, such as America West, Alaska Airlines, AirTran and JetBlue.

BENEFITS OF THE MERGERS

The most immediate benefit from any of the mergers would be to the stakeholders of TWA. The company has been losing money for many years, and even Delta's CEO, Leo Mullin, who is opposed to the merger, called it a "rescue attempt." American has loaned TWA enough money to keep its planes in the air until the merger goes through, benefitting the shareholders, the customers, and the 20,000+ employees of TWA who will lose their jobs if the company goes under. In fact American even promised to minimize job losses during consolidation (Davis, 2001). American Airlines will benefit by getting a foothold in several markets that they don't currently serve, and increasing their presence in others.

Benefits from the United, US Airways merger, according to United, include convenience to consumers, since the combined airline will offer more destinations. Also, since US Airways has had problems in the past with customer satisfaction and performance related complaints, being under United's management may mean better service to consumers. In addition, US Airways shareholders stand to make a large profit from the transaction, and United shareholders are expecting the deal to lead to greater future company profits. Lastly, US Airways customers would have their frequent-flier points converted into the United Mileage-plus program, which would allow them to use the points on United and 18 other carriers with whom United has a reciprocal points agreement (United Proposes, 2000).

Benefits from the Delta, Continental merger would largely be similar to those of the United deal. Higher profits, more destinations for consumers, and fewer interline transfers (changing airline companies mid-trip, on a multi-leg flight). While these benefits are certainly significant, critics of the mergers have also voiced significant concern about several possible costs or negative outcomes of combining these companies.

DOWN SIDE TO THE MERGERS

One of the biggest concerns that critics have voiced involves the lack of competition that would arise. These airlines would gain near monopolies at many airports, which cause many to worry that fares will rise. Senator Ron Wyden of Oregon suggested that the mergers would "suck up most of the competitive juices that are left in the airline sector." Senators John McCain and Slade Gordon argue that the mergers would not only lead to higher fares and less competition, but even more mergers. In fact, American is already eyeing Northwest Airlines as their next target, a move which would consolidate over 30% of the airline industry in a single company (Koch, 2000). A study by the U.S. General Accounting Office estimates that the American/TWA merger will reduce competition in twice as many markets as it increases competition, and for the United/US Airways merger, the ratio is even worse, at four to one. The lack of competition that would result from these mergers is likely to lead to several problems for consumers. First, fares would most likely rise, since, without competitors, there is no pressure to keep them down. Second, flight delays and poor customer service are already problems at many airports, and are expected to get worse. Consumer complaints rose 16% in 2000, and the DOT reported that at least one of every four flights was delayed, cancelled or diverted. In addition, airlines have raised their fees for changing reservations by as much as 33%, and have placed ever more restrictive limits on carry-on luggage. Some airlines now limit passengers to one carry-on bag, and measure passenger bags to ensure they are not over size limits (Matheiu, 2001).

On top of the direct loss of competition that would occur with the merging of six airlines into three, some expect there to be a secondary impact, wherein the remaining small carriers have an even more difficult time competing. America West CEO William Franke suggests "If these proposed transactions are approved, the current level of service in these markets will be threatened and our ability to grow will be stymied (Lawmakers, 2001)." Airran CEO Joseph Leonard has also expressed concern that these mergers would create anti-competitive situations, and is pushing for the government to force the three majors to give up some slots, at several high-traffic airports, to lowfare competition like Southwest and AirTran, if the mergers go through (AirTran CEO, 2001). His position is supported by a Transportation Department study which found that major hub airports with competition have fares that are, on average, forty percent lower than hubs without competition. In early January, former Transportation Secretary Rodney Slater cited Providence, Rhode Island, as a perfect example. One year after low-fare carrier Southwest Airlines began flying to Providence, fares dropped by 50% and traffic tripled. (Transportation Secretary, 2001)

INVESTIGATIONS OF THE MERGER

Currently, several government groups are investigating the mergers. First, the U.S. Senate Commerce Committee has been holding hearings regarding the merger. Also, the Department of Transportation, and the Justice Department are examining the mergers with regard to their effects on competition and antitrust issues. A decision at any of these levels could effectively block one, or aiï of these mergers. Your role in this case is to take the position of the government officials investigating the mergers. Answer the questions below, as if you were a member of one of the above mentioned government panels, and the information in the case is what you have discovered to date.

DISCUSSION QUESTIONS

1. Do these mergers bring a net benefit to US society, or do the harms outweigh the benefits?

2. Will the airlines involved in these mergers be better off in the long term, as a result of the mergers? Why or why not?

3. Who gets hurt and who benefits from the airline mergers? Is that fair?

4. Are any laws being broken?

5. Does the government have the right to block these mergers?

6. Should the government stop these mergers? All of them, or just certain ones? If not all, which ones? Why those ones?

References

REFERENCES

AirTran Airways CEO Addresses Airline Competition at Pittsburgh Aero Club. (2/15/2001) Online Posting, www2.marketwatch.com

Davis, Patty (2/02/2001) Lawmakers: Airline mergers may harm consumers. Online Posting. www.cnn.com

Elliot, Christopher (9/27/2000) Airline Reform Taking off. Online Posting. www.cnn.com

Koch, Kathleen (7/27/2000) McCain criticizes proposed airline merger. Online Posting. www.cnn.com

Lawmakers: Consumers Lose in airline mergers? (2/07/2001) Online Posting. www.cnn.com

Mattheiu, Joe (1/27/2001) Flight delays worse than ever. Online posting. www.cnn.com

Pellegrini, Frank (5/24/2000) United/ US Air: Something Monopolistic in the air? Online posting. www.cnn.com

Transportation Secretary Urges Closer look at Airline Competition. Online posting. (01/17/2001) www.cnn.com

Twenty Years of Deregulation: 1978 to 1998. (2000) online posting. www.faa.gov

AuthorAffiliation

Neal F. Thomson, Columbus State University

thomson_neal@colstate.edu

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

Volume: 8

Issue: 1

Pages: 26-28

Number of pages: 3

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: 192411762

Document URL: http://search.proquest.com/docview/192411762?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 4 of 100

INSTRUCTIONAL CASE: AN INTERNAL AUDIT INVESTIGATION OF MAC INDUSTRIES

Author: Blair, James A; Moet, Lisa K

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The purpose of this case is to provide students an opportunity to experience the role of internal auditor. Suggested uses of the case in the classroom include class discussion or having students identify audit objectives, verify pertinent documentation and prepare a formal, written audit report. The case has a difficulty level of four, and is appropriate for senior level courses. The case is designed to be taught over the course of a semester or quarter requiring approximately three class hours and is expected to require approximately ten to fifteen hours of outside preparation by students. This case works well as a group endeavor.

CASE SYNOPSIS

The case offers opportunities to discover several issues where Mac Industries can be advised. Considerations include the following: a paradigm change in Mac Industries purchasing of raw materials, fraud detection, compliance with company policies on training and overtime, and effective and efficient use of resources. Students will demonstrate their ability to apply analytical procedures and synthesize the existing conditions in a manufacturing plant.

BACKGROUND

Mac is a division of Bell Corporation providing fabrication of sheet metal ducts to another division within Bell, X-Cell. Mac's operations are housed in a 42,000 square foot facility containing various machines including cutters, molders, trimmers, glazers.

In the past ten years, foreign competitors and technologically advanced domestic competitors have eroded X-Cell's market share for the finished units. They have been able to offer units at considerably better prices. X-Cell has lost orders because of its inability to deliver product on a timely basis.

Profitability has been down in the last year, return on equity has been lower than anticipated and cash flow from operating activities has decreased. Executive management of Bell has made a request to the Internal Audit Director for an operational audit of the Mac division to be performed.

You have just been assigned to the audit of Mac Industries after some preliminary information has been gathered. An initial review of Mac Industries reveals the following:

STAFFING

There are 400 hourly workers on three shifts. The plant operates 24 hours per day, 7 days per week, on a swing shift basis. There are approximately 100 hourly workers per shift at an average base wage of $12.45 per hour (including wages paid for Sunday and holiday work). Total budgeted payroll was $13,850,000. Actual annual hourly payroll for the audit year was $16,120,000. The company has an overtime policy that provides any employee working in excess of 40 hours per week, a premium of double the straight time wage. Straight time wages were budgeted at $10,906,200 and premium wages were budgeted (but unscheduled) at 10% of straight time dollars. Mac also pays a premium for any work performed on a holiday or Sunday. This premium is for scheduled work on those days. Overtime on holidays and Sundays is, accordingly, paid at two times straight time, and is also included in the budget. The local labor pool is skilled and Mac's wages are considered competitive. Workers are paid for up to 6 days sick leave per year and there are 10 holidays. When members of machine operating crews are sick they must be replaced with workers from another shift willing to fill in. These workers are paid on an emergency call out basis of double time. Company policy requiïes all unscheduled overtime and sick leave to be approved in advance. It is required that overtime be recorded on a separate pink time sheet, signed by a supervisor and reviewed by the payroll accountant.

FIXED ASSETS AND MAINTENANCE

The machines used in the fabrication process are aU 13 years old and have an acquisition cost of $8,750,000. They are all fully depreciated. The company has a machine operation training program which machine operators are required to attend annually. There is a company policy on this. Only 40% of operators had attended training in the last year. Plant capacity is 120,000 machine hours for 25 machines. AU costs are allocated on actual machine hours, which, for the audit year, amounted to 90,000 machines hours. Sales forecasts and commitments to customers are made on this expectation. The company has a preventative maintenance program that requires all machines to be shut down an hour per day for routine maintenance procedures. Actual machine downtime due to breakdowns and routine maintenance was 30,000 hours during the audit year. The maintenance department, operating on a single shift, consists of 25 workers who are requiïed to attend training school by company policy. Seventeen of the current maintenance department workers, who average $22 per hour, have attended training. The other eight workers have been unable to attend mainly because of the many breakdowns. Maintenance cost for the last year was $2,000,000. Most of this cost was for labor, but included $300,000 in parts and supplies.

PRODUCTION

The ducts fabricated are aU a standard size, requiïing the same amount of raw material. The standard size metal sheet used for the ducts weighs 280 pounds. The plant produced 360,000 ducts in the last 12 months, or an average of 1,000 ducts per day. The plant maintains a small inventory of approximately three days supply of finished ducts and ships most out to X-Cell immediately upon completion. A commercial trucker, Acme, is used to ship the ducts to the X-Cell plant 100 miles away. A tariff rate of 18 cents per pound is charged and freight costs for the year amounted to $15,422,000. Trucks are weighed on the company scale at the plant shipping dock. Weights must be confirmed on X-Cell's scale and a receiving document verified by Mac's shipping department. The Acme Truck Company is owned by the brother-in-law of the Mac plant manager.

INVENTORY

The Mac plant has an inventory of sheet metal of $17,000,000. This inventory has turned over 6 times in the last year and is being replenished continuously. Requisitions from inventory are made from work orders prepared by the order department. The inventory is replenished based on a computer program that automatically reorders when stock hits a certain "reorder level." This level is based on budgeted usage of material and anticipated delivery times from the vendor. "Safety stock," or the inventory level necessary to cover needs during the reorder and delivery period, is based on anticipated usage. It is a programmed function that requires periodic updating to reflect operating efficiencies. No adjustments in the program have been made for 2 years.

SCRAP

The operation results in scrap that is collected at the end of each shift and stockpiled for pick-up by an outside buyer. No efforts are made to identify the machines from which the scrap originates and scrap costs are not specifically identified. Costs of whole sheets used in the fabrication process are passed on to X-Cell. The plant receives a payment from the scrap buyer once monthly, accompanied by a scale ticket indicating gross, tare, and net weight of the truck he uses to collect the scrap. The contract and company policy requires the weights to be made on an independent certified scale. The price the scrap buyer is paid is based on a market price of 50 cents per pound. In the most recent year, scrap income amounted to $3,632,106.

ACCOUNTING POLICY

Accounting for the plant recognizes the cost of duct shipments to the receiving division as sales. Ducts are "sold" at actual labor and material costs and overhead is allocated with all allocations made monthly. The plant controller distributes actual labor cost to all units produced during the month, and distributes the material cost of each sheet used in production to all units produced during the month and allocates overhead on the same basis. Scrap income is deducted from unit cost on the same units produced basis. Because shipped units are "priced" at cost, Mac recognizes no profit and is considered a service arm of Bell Corporation.

INTERVIEWS

Shift foreman on machine operating floor. "It's hard to keep the machines running because the maintenance crews don't always get in to do their weekly maintenance. When the machine is down, my crews are idle. If a machine is going to be down for over four hours, the crews are sent home, but we have to pay them time and one half for the time worked. If it takes less than four hours to fix, the crew just waits around idle. People are sick a lot too. It's hard to keep the same crew together all the time. Someone is always sick. I think some people make enough in overtime they can afford to be "sick" more than the six days they are paid for sick leave. Sometimes the machines break down because of operator error, but sometimes repair and maintenance is incomplete and the machines break because they aren't fixed right to start. Only about half of my people have attended operator training. They keep statistics on breakdown causes in maintenance but they won't give us any figures."

Shift supervisor. "I'm not really sure of the exact overtime procedures. I wasn't given a company policy manual and the one I borrowed from the second shift supervisor was kind of out dated. I figured I was doing things right since the payroll clerk never bounced any of my time sheets."

Payroll accountant: "I don't always have time to check for overtime authorizations. The overtime is put on the regular payroll sheet. I don't really see the need for a separate pink sheet anyway. The computer figures it all out."

Scrap accountant: "I'm supposed to be checking for a weight ticket from an independent scale? No one told me. I understood I needed a scale ticket but no one told me it had to be independent and certified."

Head buyer. "Our inventory is too high. We have a supplier that is willing to deliver on a JIT basis and we're negotiating with him, but he supplies a standard size sheet that runs a little too large so we have excess that ends up scrapped. We have to pay for the inventory as it is delivered, so we have carrying charges on it. With interest rates at 12%, that ends up being expensive. We're negotiating for a smaller size sheet that produces less scrap and JIT delivery."

Accountant: "Costing is fairly simple because we simply accumulate actual costs. There are some inefficiencies in the process that go unrecognized, but until competition became a factor the emphasis was on units produced, not cost."

Scrap handler: "We collect the scrap at the end of each shift. It is a two-man job on three shifts; that's eight men just picking up scrap. We put it in the scrap buyer's bin and he comes to haul it off. They used to sell this on the highest bid basis, but there was talk about bid rigging, so now we get the market rate that nobody can argue with. I visited a friend over at their scrap lot on my day off and noticed them weighing a truck half emptied already. When I asked why, they said it was two different customers' scrap, but it sure looked like ours."

Shipping Supervisor: "This is the most important part of the whole plant because freight cost is higher than any other cost item. We used to have a truck broker arrange for our trucks and found a lot of times they didn't arrive on time, and you never knew whom you were going to have to deal with. Now we have a contract with one trucker, and it works pretty well."

SUGGESTED ASSIGNMENT QUESTIONS

1. Identify the two most significant issues for audit review, evaluation and examination. This selection should assume limited available audit resources.

2. Identify the audit objectives.

3. Write a notification letter to the auditee describing auditor needs and the nature, scope, timing, and objective of the audit. Include in this letter all information necessary for the auditee to know.

4. Write an audit program to accomplish the audit objectives.

5. Gather evidence and complete a formal written audit report prepared in accordance with the IIA Standards.

Students should independently identify the issues in the case. The instructor may answer questions to clarify items and further disclose available information. Part of the task of the auditor is to ask the right questions and integrate evidence. The audit report will be considered complete if it contains findings that are fully supported.

The Standards of the IIA may be used as guidelines, with particular emphasis on planning, general, fieldwork and reporting standards. There must be synthesis throughout the exercise, for example, linking issue with objective and with audit program, on to evidence and report; each supporting and leading to the next. The case involves careful reading to uncover the issue(s) and is analytical in nature (like the real world). Some of the issues presented may be of no real audit significance. The case has already defined (directly or indirectly) the risk of each issue discussed.

AuthorAffiliation

James A. Blair, Bank of Federated States of Micronesia

jblair@bofsm.fm

Lisa K. Moet, Metropolitan State College of Denver

moet@mscd.edu

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

Volume: 8

Issue: 1

Pages: 36-39

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: 192411766

Document URL: http://search.proquest.com/docview/192411766?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 5 of 100

A WORLD WITHOUT MICROSOFT?

Author: Waite, Michael

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns whether it is ethical to seek the breakup of a company based on its conduct in the marketplace. Secondary issues include the Government's role in protecting the consumer, dispute resolution, and the United States legal process. This case is directed at undergraduate junior and senior level students. Suggested classroom discussion length is 1-2 hours with student preparation time of a similar duration, 1-2 hours.

CASE SYNOPSIS

Microsoft has been under federal investigation for possible antitrust violations since 1989. The company has grown to be among the worldwide leaders in the computer industry through products such as Windows Operating System and Microsoft Office. Has Microsoft misused its market power? Is it the government's duty to punish Microsoft? Is it ethical to breakup Microsoft in the event the company is found to have violated antitrust laws ? Is the proposed remedy appropriate in the present technology industry climate ?

CASE HISTORY

Founded in 1975, Microsoft has emerged to become a worldwide leader in software, services and Internet technologies for business and personal computing. Following twenty-five years of unprecedented growth and development by Microsoft the United States Department of Justice has endeavored to vastly diminish the company's dominance in the technology industry.

Microsoft has been under investigation by various federal agencies since 1989 when the Federal Trade Commission first considered possible antitrust violations by Microsoft. The present case presided before Judge Thomas Penfield Jackson in the U.S. District Court originated in May 1998. Judge Jackson published his Findings of Fact on November 5, 1999, which was drawn from the legal arguments presented by the Department of Justice (DOJ) and Microsoft. The Findings of Fact formed the platform of knowledge on which Judge Jackson made his landmark ruling on June 7, 2000 that ordered the breakup of Microsoft. The result, if upheld, is that Microsoft is to be broken up into two separate companies, essentially separating the operating system business unit from the software products unit.

Judge Jackson suspended the decision pending appeals. Microsoft immediately appealed the decision, requesting the case be reviewed by the Court of Appeals. The DOJ presented a submission seeking the Supreme Court to hear the case directly from the District Court. The Supreme Court declined the DOJ request, insisting that the case first be reviewed by the Court of Appeals. The DOJ submitted its 150 page maximum brief to the D.C. Court of Appeals on January 12. Microsoft will respond with its brief to the Appeals Court on January 29, 2001. Oral arguments in the appeal phase are scheduled for February 26-27, 2001; after which a decision is not expected for several months.

THE CASE

The DOJ, acting on the behalf of the people of the United States, basis for its case against Microsoft is the antitrust laws derived from the Sherman Act of 1894. Events detailed in the DOJ's Proposed Findings of Fact submitted to Judge Jackson on August 10, 1999 include:

(1) The independent threats made by Microsoft against rivals Netscape, Sun Microsystems, IBM, and Compaq hurt and/or destroyed competing products.

(2) Microsoft holds over 90% of the operating systems market and has abused this market dominance by over pricing, formulating exclusive agreements, and acting in a predatory manner.

(3) Microsoft's refusal to allow vendors to sell Windows 95 and 98 without including Microsoft's browser.

(4) Harm to consumers through loss of 'cross-platform' technologies that would enable all programs, regardless of manufacturer, to operate on the Windows system.

Microsoft's counter two-volume Proposed Findings of Fact outlined its position on the case before the court. The document was presented to the court on September 10, 1999. Critical components of Microsoft's argument against the DOJ request for a breakup are:

(1) Microsoft is in fierce competition in all industries in which it operates, including the operating system and software industries.

(2) Integration of Internet Explorer into Windows provided consumers with benefits that cannot otherwise be obtained.

(3) Microsoft has in place objective standards on which pricing agreements are based, specifically outlined in the cases of Microsoft's dealings with Compaq and IBM.

(4) Each DOJ charge of anticompetitive behavior against Microsoft is not applicable given the relevant facts of each individual case.

BASIS OF CASE

The Findings of Fact by Judge Jackson were developed by ruling on the validity of the claims made by Microsoft and the DOJ in each of their respective Proposed Findings of Fact. The June 7, 2000 decision to breakup Microsoft was not unexpected in the industry given the November 5, 1999 Findings of Fact determined by Judge Jackson that included:

(1) Microsoft's operating system is a monopoly with "no products, nor are there likely to be any in the near future"1 for it to compete against.

(2) Microsoft's market share is protected by a high barrier to entry

(3) Microsoft's market dominance was the main cause of the failure of alternative products that would have competed with Microsoft including IBM's OS/2 Warp, Apple's Mac OS, and Be's BeOS.

(4) Microsoft's "actual pricing behavior is consistent with the proposition that the firm enjoys monopoly power."

The case against Microsoft is an evaluation of the company's operating practices since it began to dominate the computer software, operating system, and related technology markets in the late 1980s. Microsoft claims it is a victim of its innovative leadership and ultimate success at meeting and exceeding consumer demands. The DOJ counters with the claims that since Microsoft achieved market dominance it has engaged in repeated anticompetitive actions to protect its monopoly position. The DOJ claims that Microsoft's actions have destroyed numerous competitors unfairly and, if left unpunished, Microsoft will harm the long-term interests of consumers.

The DOJ brief presented to the D.C. Court of Appeals on January 12, 2001 restates the case it presented to Judge Jackson in the District Court between May 1998 and June 2000. Restricted to a 150-page limit the DOJ used approximately 40 pages of its argument supporting the character and competency of Judge Jackson. The majority of the DOJ brief focuses on the events it claims demonstrate Microsoft's antitrust violations. Also presented to the Court of Appeals on January 12, 2001 was a brief from a technology trade group called ProComp in support of the Government's case. ProComp is a consortium of companies that includes Oracle, AOL Time Warner, and Sun Microsystems.

The Court of Appeals phase of the United States versus Microsoft is significant for the determination of several issues. Issues to be determined include the many aspects of the disputed Findings of Fact upon which the District Court verdict was based. The Court of Appeals result will assign a burden to the losing entity, this being to have the decision overturned by the justices in the Supreme Court. Both the DOJ and Microsoft have stated publicly that if they are unsuccessful in the Court of Appeals they will take their case to the Supreme Court. As a result this legal process is unlikely to be resolved until the end of 2001.

DISCUSSION QUESTIONS

1. Was Microsoft acting unethically in its business activities? If yes, is the government being ethical in breaking up the company?

2. Has Microsoft had a net positive or negative effect on society?

3. Should Microsoft's efforts to compete globally have a significant impact on this case?

4. What are the ethical issues that the DOJ could use to justify their push for the breakup of Microsoft to the United States public?

5. What are the ethical issues that Microsoft can base its argument on that the act of dismembering the company is not justified nor appropriate?

6. At what point does competition in a capitalist economy become detrimental to society?

7. Is the U.S. Government acting in society's best interest? Why or why not?

Footnote

NOTES

1 U.S. District Court, United States of America v. Microsoft Corporation, Findings of Fact, Sect. II.18 November 5, 1999.

2 U.S. District Court, United States of America v. Microsoft Corporation, Findings of Fact, Sect.2.H, November 5, 1999.

References

REFERENCES

Dolan, Thomas G. Editorial Commentary: Defining Monopoly. Barron's 79.46 (62). 15 Nov. 1999.

Finneran, Michael. Why Microsoft must divest Windows. Business Communications Review. Hinsdale: 30.1 (22-24). Jan. 2000.

Gifford, Daniel J., and David McGowan. A Microsoft Dialog. Antitrust Bulletin 44.3 (Fall 1999): (619-677).

Hazlett, Thomas, Robert Litan, and Edwin Rockefeller. Legal and economic aspects of the Microsoft case: Antitrust in the information age. Business Economics: 35.2 (45-53). Apr. 2000.

Hosmer, LaRue Tone. Moral Leadership in Business. USA: McGraw, 1994.

Microsoft. PressPass. Legal News. July 1 2000. <http://www.microsoft.com/presspass/trial/default.asp>

Sandberg, Jared, and Steven Levy. Getting Real about a Deal. Newsweek: 135.14 (28-31). Apr. 2000.

United States. Dept. of Justice. Plaintiff's Findings of Fact. 10 Aug. 1999. 1 July 2000 <http://www.usdoj.gov/atr/cases/f2600/2613-1.htm>.

United States. Dist. of Columbia. Findings of Fact. 5 Nov. 1999. <http://www.microsoft.com/presspass/trial/c-fof/fof.asp> 14 July 2000.

AuthorAffiliation

Michael Waite, Columbus State University

waitey@hotmail.com

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

Volume: 8

Issue: 1

Pages: 50-53

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: 192411752

Document URL: http://search.proquest.com/docview/192411752?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 7 of 100

CRESCENT CITY SECURITY SERVICES

Author: Cappel, Sam D; Pearson, Terry R; Tucci, Jack E

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary focus of this case involves an examination of the methods which have be employed to successfully implement a niche-differentiation strategy within the context of a competitive industry structure. Secondary issues include preparation for the retirement of the founder in a small privately held firm. Specifically, the case may be used to stimulate discussion and examination of the various options available to the owner of a small business that wishes to retire. This case has a difficulty level of four, and is designed to be taught in 1.25 class hours and is expected to require three to five hours of outside preparation by students.

CASE SYNOPSIS

Crescent City is a privately owned security guard service. The sole owner and shareholder of the company is James B. Reviere. Mr. Reviere has owned and operated the company since 1975. The company provides security guards for commercial and residential security. The company is located in New Orleans, Louisiana were its business is concentrated.

The primary service that the company provides is on-site security patrol for industrial, office, warehouse, health care institutions, and government facilities. H.O.M.E. Protective Services, a small subsidiary of the company, provides on-site security patrol for residential establishments. Mr. Reviere acquired H.O.M.E. in 1986. Contracts are obtained through bids developed by the President and the Operations Manager. Crescent City clients are primarily upscale businesses that pose fewer risks for guards and these businesses are willing to pay higher prices for higher levels of service than those offered by principal competitors in the local market.

The private security industry is one of the fastest growing industries in the United States. Crescent City differentiates itself by providing highly trained professional guards and customized services. Crescent City is the only security company in its market area supporting guards with round-the-clock dispatch services. The current business plan exists in the mind of the founder. The owner has decided to retire in five years, but has not yet determined what steps to take in preparation for his leaving the firm.

MISSION

Crescent City has no formal mission statement, and no written business plan, however, there is a very clear business plan in the mind of the founder. According to Mr. Reviere the mission of the company is, "to provide the highest quality guard services for industrial and residential organizations, to meet the needs of customers through services provided by participating in very aggressive selection, training and management of guards, and to maintain a competitive position and profitability by serving upper end clientele."

HISTORY

James B. Reviere founded Crescent City Security Services, Inc. of New Orleans, Louisiana 1975. Mr. Reviere was drafted as a young man and served in the Army Military Police where he learned about security. After the service he worked as regional sales manager for a major firm in the security industry. After four years in sales management, he was approached by a former client who asked that he provide services for their account. He saw potential in the security business so he started his own company. Crescent City Security Services, Inc. has provided security in the form of armed and unarmed security personnel to commercial and residential customers for over twenty-five years. Its primary market is the greater New Orleans area.

Crescent City started out providing on-premises security guards for industrial businesses. In 1986, Mr. Reviere acquired H.O.M.E., which provides patrol services to residential areas. This expansion was made in response to a rising crime rate in the New Orleans area that made many residents feel un-safe. The company's services range from access control, entrance security, interior security, card security control systems, and general site security. Mr. Reviere has stated that he wishes to retire in five years.

OPERATIONS

Crescent City prides itself on its personnel selection. To ensure that Crescent City has the highest quality employees the company requires drug screening, extensive background checks and references, a polygraph exam is conducted on each applicant and security guards must take and pass a licensing exam administered by the State of Louisiana. Crescent City is the only security company in its market that takes such an aggressive stance in employee screening.

The company serves customers who have security needs that do not involve a high degree of risk. Mr. Reviere seeks customers who are not price sensitive and leaves high-risk minimum cost contracts (eg. convenience stores, night clubs etc.) to others. According to Mr. Reviere, "others may sell at lower prices but they can't provide the level of service desired by our clients." Because they are selective in the contracts that they wiïl accept, the company has experienced a relatively low level of 'security incidents'. This policy has kept employees safe and insurance rates low.

The compensation earned by Crescent City guards is approximately $1.00 more per hour than guards employed by competitors in the market. Higher salaries, coupled with a relatively low risk work environment allows Crescent City to set higher expectations for its employees, and has resulted in low employee turnover.

Organizational Structure

For the past twenty-five years the company has maintained a functional organizational structure. The company consists of the president (Mr. Reviere), a personnel manager, an operations manager, and a salesperson. The company has a clerical staff of two persons who help with daily activities. The next level of management is the guard supervisor. The supervisors rely on the assistance of round the clock dispatchers. The last level in the organizational structure is the guard. This structure has been in place for the past ten years with no turnover among persons holding the top management positions.

Products / Services

Crescent City Security Services, Inc. provides security guard services for commercial and residential customers. The current scope of customers that Crescent City serves includes health care institutions, government facilities, offices, warehouses, industrial facilities, up-scale restaurants, hotels and casinos. The services provided to commercial institutions can include any of the following: perimeter control, K-9 site patrol, office space security, physical plan protection, access control, closed circuit equipment monitoring, card security system control, entrance security, interior security, general site security, sensitive materials/information security, plant safety, shipping/receiving dock security, ship watches, walking patrols, and fire watches. Services provided for residential sites include neighborhood safety patrol, security for special events and access control. On request, residential security guards will insure that the premises is secure prior to a resident re-entering their home after an absence.

All of the above are the typical services that Crescent City provides in a contract, however, some contracts call for special needs. The company can develop a unique approach to a client's needs based on a thorough survey and definition of security requirements. The company has been able to provide these services to the New Orleans market profitably for twenty-five years.

Financials

The most important financial goal for Crescent City Security Services, Inc. is maintaining an average gross profit of eighteen percent to twenty percent per year. This is the percentage that management has deemed necessary to continue the steady growth pattern that the company has maintained since the 1980's. Most companies in the industry earn an average of eight percent to ten percent gross profit.

The company recognizes revenue as services are provided. A typical bid price includes the cost of wages, employee benefits, training, uniforms, overhead and an average markup of one hundred forty-five percent of the base rate. The contracts are billed on a monthly basis.

The company uses the modified accelerated cost recovery system (MACRS) for depreciation purposes. The company's allowance for doubtful accounts is approximately three percent of the accounts receivable balance. Lastly, uniforms are expected to be used for approximately twelve months and are amortized using the straight-line method on a month-to-month basis.

In 1998 Crescent City Security Services failed to meet targeted profit goals. The failure to meet this goal was due a significant increase in total general and administrative expenses in 1998 as compared to the past three years. This increase was unexpected and cut into company profits for that year. Management speculated that the federal minimum wage rate would be increased that year; therefore, an increase in hourly wage rates for all employees was approved. Since legislation calling for an increase in the minimum wage rate in 1998 failed to pass, contract provisions relating to increases in the minimum wage rate did not offset additional incurred costs.

INDUSTRY ENVIRONMENT

The analysis of this industry will focus on the following major components within the external environment: political, economic, social, legal, and technological factors. Analyzing all these together helps to create and promote the synergies necessary for Crescent City Security Services, Inc. to survive, grow, and compete successfully in the marketplace.

Legal Environment

By its nature, the private security business deals with numerous cases of tort litigation because of the following: First, the job descriptions of security personnel include duties, which, in the absence of specific legal justification, constitute intentional torts (e.g. following people, arresting people, requiring people to vacate premises etc.). Secondly, premises liability is a fast growing area of tort litigation, and security personnel by definition are guardians of the safety of premises. Finally, the current trend in the private security industry in the U.S. is toward increasing involvement of private security in numerous areas that used to be the exclusive domain of public officers. Thus, when combining a tight labor market, relatively low compensation, and increasing demand for private security services, it is highly probable that many security personnel will work alone, with little supervision, and with minimal instruction as to their duties.

The current legal environment affects the industry in several ways, particularly in areas related to licensing and regulating (defining or setting limits on powers, duties, liabilities etc.). Any company operating in the industry must be in compliance with rules and regulations set forth in local, state and national legislation.

Technological Environment

To avoid obsolescence and promote efficiency, firms must stay abreast of technological changes within the industry. The use of electronic devices is greatly impacting the effectiveness of security and investigative services. Recent innovations include remote monitoring systems utilizing highly developed night vision technology, and complex access devices utilizing voiceprints, fingerprints, or the retina for positive identification. Increased litigation has stimulated the development of new weapons developed to apprehend or subdue suspects without injury.

Few industries have been more impacted than the security industry by new capabilities to transmit digital images such as fingerprints and photographs, the ability to conduct instant background checks, and DNA technology.

Economic Environment

Consumption patterns are affected by the relative affluence of various market segments. Therefore, in its strategic planning, each firm must consider economic trends in the segments that affect its industry. On both the national and international level, the level of disposable income, inflation rates, and trends in the growth of the gross national product must be considered.

The last decade is characterized by growth in the U.S. economy. According to some economic scholars, Americans income in the recent period rose twice as fast as their expenditures, pulling the nation's personal savings rate up to its highest point in many years. Public panic over crime along with a favorable economic environment has made the private security industry one of the fastest growing industries in the United States, accounting for more expenditure and employing more guards than public police forces around the country. In 1990 alone, $52 billion was spent on private security, compared to $30 billion on police. More than ten thousand private security companies employ some one and a half million guards, nearly triple the 554,000 state and local police officers.

The private security industry generates billions in profit and is still growing rapidly. One congressional advocate of increased regulation says that national labor statistics indicate more jobs will be created in the private security field than in any other category over the next decade. Industry executives estimate that the number of private guards will surge to two million by the year 2002.

Social Environment

The social environment affecting the firm involve the beliefs, values, attitudes, opinions, and lifestyles of persons in the firm's external environment. As social attitudes change, so too does the demand for various types of products and services. Like other external factors, social forces are dynamic, with constant change resulting from the efforts of individuals to satisfy their desires, and needs by controlling and adapting to environmental factors. The entry of large number of women into the labor market and the accelerating interest of consumers and employees in the quality-of-life issues have marked United States society.

As a result of changes in social factors, today business people and middle-class consumers have a very different perspective on life. Using private security guard services is sometimes perceived as a matter of social distinction in terms of status and prestige among many Americans. Despite the fact that high crime rates are declining as a result of the country's robust economy, the effect of television and other media has contributed to a dramatic rise in public awareness of security issues. Consequently, the private security industry has been growing faster and faster to meet the needs of those seeking progressive solutions to problems of crime and violence.

Private guards are popping up everywhere, patrolling shopping malls, workplaces, apartment buildings and neighborhoods. The phenomenal growth of massive private shopping malls, and the decline of downtown shopping areas, means the public is more likely to encounter private security than public police on a daily basis. However, community organizations are emerging that recognize the dangers of placing too much trust in either public or private police while acknowledging the need for action to combat crime.

As federal funding declines, many municipalities are attempting to cut costs further by hiring "rent-a-cops" to work ambulance services and parking enforcement, to watch over crime scenes and transport prisoners who increasingly face incarceration in corporate-run prisons. In California, often the indicator of new trends in American culture, wealthy residents of Los Angeles hire guards complete with squad cars. The City Council has fifty applications pending to barricade public streets to facilitate the work of these private security cruisers.

DILEMMA

Mr. Reviere has decided to retire in five years. While throughout the past twenty-five years he has employed a concentrated growth strategy in a niche market, he is not sure if he should continue to expand or whether he should simply strive to maintain his current volume of business? Should he re-invest profits in the business with the goal of increasing the sales price when he retires, or employ a harvest strategy to accumulate more retirement funds during the last five years of operation?

Questions to Consider

At this stage in the life of his business, should Mr. Reviere consider developing a formal business plan?

What factors have enabled Mr. Reviere to successfully compete with a nichedifferentiation strategy?

How should the decision by Mr. Reviere to retire in five years be incorporated into his operating plan for the future?

What method for dissolution of the business would be best for Mr. Reviere, and what steps are necessary to implement the process?

AuthorAffiliation

Sam D. Cappel, Southeastern Louisiana University

Terry R. Pearson, Southeastern Louisiana University

Jack E. Tucci, Abilene Christian University

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

Volume: 8

Issue: 1

Pages: 61-65

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: 192411894

Document URL: http://search.proquest.com/docview/192411894?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2001

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 11 of 100

MODULAR MANUFACTURING IN THE AUTOMOBILE INDUSTRY: DANA LEADS THE WAY

Author: Box, Thomas M; Watts, Larry R

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Abstract: None available.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns operations management - specifically modular manufacturing. Secondary issues include globalization, inventory management and human resource management. This case has a difficulty level of three. It is suitable for a junior level course and can be taught in a 50 - minute class with two hours of preparation by students outside of class. The case could also be used in a senior-level strategic management class to illustrate a virtual supply chain in the auto industry.

CASE SYNOPSIS

"Chrysler should sell pens and shirts - promote their brands and worry about design and direction," said Ruperto Jiminez, as he looked out the window of Dana Corporations' Campo Largo plant in southern Brazil. Jiminez, president of Dana Brazil, was reflecting on the shipment of Dana's 10,000th "Rolling Chassis (TM) "to DaimlerChrysler's Dakota truck plant three kilometers away. The year was 1999 and Dana's new plant was performing better than originally expected.

Dana Corporation, a worldwide manufacturer of components and subassemblies for trucks and cars, opened its 76,000 square foot Campo Largo plant in July 1998. The plant is something of a gamble, but probably a good one, based on the revolution going on in worldwide truck and car manufacturing and the explosive growth of the auto industry in Brazil since 1994. The rolling chassis concept attributes to Dana's long experience as a chassis supplier to Mack Truck and Chrysler's Extended Enterprise concept that began in the early 90s. It is the most advanced example of modular manufacturing in the automotive industry and has important implications for the entire structure of the industry in the next few years.

Modular manufacturing began, in the United States, at Kaiser Shipbuilding during World War II. Kaiser engineers and operations management personnel discovered that the production and launch of Liberty ships could be speeded up by pre-assembling "modules" - sections of the ships and then welding together in the final assembly phase. Kaiser engineers were very successful in this endeavor as exemplified by the lead time for final assembly of Liberty ships that got down to 4-5 days near the end of the war! Following the war, Japanese shipbuilders incorporated modular manufacturing in the construction of super tankers (for crude oil) and the cost savings allowed the Japanese to dominate this industry in a period of just a few years.

Modular manufacturing, in general, suggests that parts of the value chain may be economically "outsourced" to other firms. In many instances, the supplier firms provide prototype development, engineering, manufacturing and assembly of components and entire systems. The advantage to doing this is that the buyer is relieved of inventory management problems and costs, while the supplier firms benefit from application of their special expertise in selected parts of the value chain.

DANA CORPORATION

Dana is one of the world's largest independent suppliers to vehicle manufacturers and the aftermarket. Founded in 1904 and based in Toledo, Ohio, the company operates some 320 major facilities in 33 countries and employs more than 82,000 people. Dana reported sales of $13.2 billion in 1999. Operating profits were $678 million and Dana has not missed or reduced a dividend payment in 65 years and will pay its 249th consecutive dividend in March 2000 (Dana Corporation, 1999).

Much of Dana's recent success attributes to the Five-Point Plan that articulates the near term tactics necessary to achieve the strategic plan titled "Beyond 2000". The Five Point plan includes the following elements:

1. Grow while focusing on returns and maintaining financial discipline.

2. Seek strategic, "bolt-on" acquisitions at reasonable valuations.

3. Divest non-strategic and non-performing operations.

4. Repurchase stock as the company generates cash; and

5. Complete integration efforts and realize synergy savings.

Dana is organized into seven Strategic Business Units - Automotive Systems Group ($4.5 billion revenue in 1999), Heavy Truck Group ($1.9 Billion), Off-Highway Systems Group ($800 million), Automotive Aftermarket Group ($3.0 billion), Fluid Systems Group ($1.2 billion), Engine System group ($1.4 billion) and Dana Commercial Credit. The Automotive Systems Group (ASG) "houses" the Rolling Chassis plant at Campo Largo. ASG employs 26,000 people in 20 different countries. Key products, in addition to the Rolling Chassis, are axles, drive shafts, brakes, clutches steering and suspension components and systems. Their primary markets are passenger cars, light trucks, vans and SUVs. The top five customers are DaimlerChrysler, Ford, GM, Isuzu and Volkswagen.

Dana's financial performance over the last few years has been quite satisfactory; unfortunately, despite year-to-year growth in revenue and profit, the stock market has not rewarded the firm with stock price appreciation. The recent 52 week high was $45.88 and the low $20.31. The share price on July 24, 2000 was $23.56. Earnings per share in the last twelve months were $3.46 and the P/E ratio was a miserly 6.8. The Quick ratio is 0.6, The Current Ratio is 1.15 andLT Debt/Equity is 0.88. Dana ranks No. 127 On the Fortune 500 and No.340 on Fortune's Global 500.

Quality has been an important initiative throughout Dana's history. Woody Morcott (Chairman of the Board) is known as a "quality zealot". Under his leadership, Dana has earned numerous awards for quality and innovation. In 1992, Dana Commercial Credit received the Malcolm Baldrige National Quality Award. Dana has been named among the Top 10 manufacturing firms by Industry Week magazine and Fortune magazine selected Dana as one "America's Most Admired Companies." Dana ha also been a finalist every year since 1995 for Automotive News' PACE award for technology innovation. PC Week cited Dana as one of the "Fast Track 500" firms involved in e-business.

THE AUTOMOBILE INDUSTRY IN BRAZIL

In 1997, Brazil produced 1.9 million cars and light trucks (Seikman, 1999). In 1999, sales had dropped 26% to approximately 1.4 million vehicles. Despite this remarkable slump in demand, new assembly and parts plants are being constructed at a record pace in the largest country in South America. In mid-2000, General Motors will open the "Blue Macaw" plant at Rio Grande del Sul. This plant was built to allow GM to experiment with modular manufacturing techniques outside the purview of the United Auto Workers.

Ford Motor Company is spending $1.3 billion (including government subsidies) to construct a 250,000 vehicle per year assembly facility. Fiat, VW and Audi are also adding substantial capacity in Brazil. Honda opened a Sao Paulo plant in 1997 with a 30,000 car per year capacity. Toyota - despite having made trucks in Brazil for 41 years - has only recently opened a very small plant to build Corollas. All told, the Big Four are spending $6 billion to "spruce up" existing facilities and total capital spending for autos could be as much $25 billion since 19991.

The expansion of the auto industry in Brazil attributes to the effects of Mercosur - a regional trade alliance signed into law in 1994. The Treaty of Asuncion (MERCOSUR) strengthened the national markets of Argentina, Brazil, Paraguay and Uruguay by eliminating internal duties and tariffs and providing a common external tariff. One of the considerations under Mercosur is the necessity to maintain domestic content - specifically 60% in the automotive sector.

THE ROLLING CHASSIS

The auto industry in the United States has been involved in "gut wrenching" changes in the last twenty years (Womack, J.P., Jones, D.T., & Roos, D, 1990). As a result of rapidly increasing foreign competition and the evolution of - primarily Japanese - transplants, American manufacturers have experienced a 25% loss of market share in passenger cars and light trucks. This has led most American manufacturers to move in the direction of "Lean Production". The fundamental principles of Lean Production are:

Teamwork

Communications

Efficient use of resources and elimination of waste

Continuous improvement

Chrysler - now DaimlerChrysler AG - has focused on lean production since the development of the LH series vehicles in 1989 (Raia, E., 1993). The LH cars (Dodge Intrepid, Eagle Vision and Chrysler Concorde) were produced from scratch in only 39 months. Chrysler's LH team included suppliers in prototype development and, indeed, delegated design responsibilities and component sourcing to a number of suppliers. The success of this effort came to be known as the Extended Enterprise Program and has resulted in $3.7 billion in cost savings for Chrysler between 1989 and 1997 (Anonymous, 1997).

The new Dana facility, 300 miles south of Sao Paulo, Brazil, looks like an oversized clubhouse rather than an outpost of global revolution in auto and truck manufacturing (Seikman, 1999). Inside the plant, two dozen workers assemble the largest module in the auto industry today at a rate of one every 14 minutes. The rolling chassis includes the frame, axles, drive shaft, suspension, steering system, brakes, wheels, tires (mounted) and electrical circuits. Dana manages 66 suppliers, including scheduling and purchasing and handles 320 part numbers.

The assembly line for the rolling chassis consists of 12 workstations with the truck frames loaded on stands on a powered conveyor. The frames move down the line transversely with all front-end components mounted from the left and rear end components mounted form the right. The frames go down the line upside down until near the end where they are flipped with a crane to add tires and wheels. Dana then aligns the front and rear end, loads three chassis on a semi trailer for the short trip to the DaimlerChrysler Dodge Dakota plant where they are rolled into the assembly building.

Workers in the plant earn about $6,000 per year and both Dana and Chrysler estimate that the savings attributable to the Rolling Frame concept are well over 10%.

THE FUTURE

The Rolling Chassis isn't Dana's only business in Brazil. They supply front corners (suspension, wheel and steering components) to Volkswagen at Curitiba. With the recent acquisition Eichlin, Dana has the opportunity it begin supplying elastomers and tubes to Chrysler and that would boost the 33% of the chassis that Dana has to nearly 50%.

The Rolling chassis concept is, obviously "portable." New auto plants are being built around the world to take advantage of attractive factor costs and growing markets in the second and third world countries. For example, in Brazil, alone, Ford, General Motors, Renault, Peugeot and Honda have all announced new facilities with the total investment to be nearly $25 billion.

Dana has made presentations to the Japanese manufacturers and although they haven't "signed up", there appears to be some interest. It is only in the United State where modular manufacturing is having a hard time getting off the starting blocks. The UAW and even General Motors are reluctant to adopt the new supply chain strategy. The reluctance of the UAW is obvious - feared loss of union jobs.

DISCUSSION QUESTIONS

1. What is the cycle time on the Dana line? What would need to be done to double the output?

2. How does the Rolling Chassis concept benefit DaimlerChrysler's Dodge Dakota plant in Brazil?

3. What are the implicit risks to Dana with the Brazil plant?

4. Why is General Motors reluctant to adopt modular manufacturing?

5. Would Dana be wise to build a facility like this to serve Toyota in Japan?

References

REFERENCES

Anonymous (1997, July7). Chrysler's extended enterprise. Industry Week 246(13), 62.

Dana Corporation (1999). Annual Report. Toledo, OH, 6-7.

Raia, E. (1993, March 4). The extended enterprise. Purchasing, 114(3), 48-52.

Siekman, P. (1999, September 6). Building 'em better in Brazil. Fortune V141.

Womack, J.P., Jones, D.T., & Roos, D. (1990). The Machine that changed the World. New York: Harper Collins Publishers.

AuthorAffiliation

Thomas M. Box, Pittsburg State University

tbox@pittstate.edu

Larry R. Watts, Stephen F. Austin State University

lwatts@txucom.net

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

Volume: 7

Issue: 2

Pages: 1-5

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412486

Document URL: http://search.proquest.com/docview/192412486?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 14 of 100

KODAK'S PICTURE OF TOMORROW

Author: Garrison, Freida S; Gulbro, Robert D

ProQuest document link

Abstract: None available.

Full text:

CASE DESCRIPTION

The purpose of this case is to highlight the importance of using good organizational theory and design techniques to survive the demands of a rapidly changing environment. The case has a difficulty level of three and can be taught in a one-hour class period.

CASE SYNOPSIS

Eastman Kodak is enthusiastically striving to adapt and prosper amid rapid changes in a global marketplace. A digital revolution is unfolding that generates both problems and opportunities for Kodak to quickly address. This 120-year-old American firm has accepted the challenge and is sharpening its futuristic vision.

Kodak has always been dedicated to producing quality, innovative products that are easy for customers to use. Since the mid-1990s, however, it has been critical for the firm to aggressively pursue continuous organizational changes to remain competitive. Thus, the firm has made major changes in its organizational structure, processes, systems, facilities, and products. Kodak has even formed numerous joint ventures with competitors. These types of changes lead to a new organizational culture, which is usually facilitated by visionary leadership.

BACKGROUND

George Eastman was inspired as a young amateur photographer in Rochester, New York, to simplify the complex process of taking pictures. In 1880, he obtained a patent for his dry plate formula and a machine for mass production of plates. In 1883, he introduced film in rolls, with the roll holder adaptable to nearly every plate camera on the market. The company has been called Eastman Kodak Company since 1892. Ahead of his time, Eastman focused on low cost mass production, international distribution, extensive advertising, customer focus, and treating employees fairly.

Satisfying customers and making the picture taking process easier are still important at Eastman Kodak. The company employs approximately 80,000 employees. It has manufacturing operations in numerous countries, and Kodak products are marketed by subsidiary companies to people in more than 150 countries. Kodak is a world leader in imaging with 1999 sales of over $14 billion from its wide range of products and services.

SITUATION

Losing sight of its core business of cameras and film, Kodak became unproductive when it began developing other products. It became inefficient and ineffective, allowing its Japanese rival and major competitor, Fuji Photo Film Co., Ltd., to make market-share inroads in 1997. Furthermore, digital technologies and competition from Internet-based startups were challenging Kodak.

These problems were indicative of a need for a radical change. To achieve strategic advantage, managers can focus on four broad areas of change: Products and services, strategy and structure, people and culture, and technology. A radical change for Kodak would involve changes in all four of these areas. The company needed to be transformed by top management with leadership vision.

DISCUSSION

In the mid-1990s, George Fisher, Kodak's Chief Executive Officer (CEO) since 1993 recognized that if the company was to remain competitive it must be transformed via innovative changes in the organizational structure, processes, systems, facilities, and products. His vision included a large-scale reshaping of the organization as they changed their focus from developing diverse products to creating more and better images and broadening market visibility and brand recognition. Top management's vision should include these basic elements: A set of core values, a mission, and a plan of action.

Fisher, along with Kodak's President and Chief Operating Officer, Daniel A. Carp, announced specific actions that were underway to reduce the company's total cost structure by at least $1 billion over a two-year period. They expected to use the savings to extend the company's growth strategies, provide competitive flexibility, and to continuously increase profitability. Fisher said that "Kodak plans to achieve top-line growth of 8-12% by 2004." Growth reflects increases in sales or profits over time.

Kodak's new corporate structure enabled the business to be run more by its worldwide business units than its corporate functions, which facilitated company strategies. Cost reduction activities would include each company unit streamlining its organization, which eventually resulted in laying off about 20,000 employees. In corporate downsizing and restructuring, a top-down approach is usually used.

According to Carp, their strategy also emphasized retaining the flexibility to support the Kodak brand with aggressive investment in marketing and promotions, and to keep focused on opportunities. Having leaders who clearly communicate a vision that includes flexibility and openness to new ideas, methods, and styles promotes a change-oriented organization and helps employees cope with cultural changes.

Fisher and Carp also made plans to consider more outsourcing, partnerships, and consolidation of vertical production activities. Carp said this would "add value to our company." To add value to assets, leaders need a vision of where they are taking an organization and a strategy for getting there.

Carp used Kodak's recent joint venture with Sun Chemical as an example of how management was willing to do whatever was necessary to ensure that its strategy and goals were met. When two or more organizations can benefit each other in some way, they often form strategic alliances through contracts and joint ventures.

The company also expected to double the cost benefits of quality improvements from about $100 million per year to $200 million per year over the next few years in its existing factories. Kodak is constantly benchmarking, which is a process whereby small teams of workers conduct research on other company's products, services, and business practices; and then either imitate or improve upon them. Quality programs such as benchmarking usually involve a significant people and culture change.

Addressing the fact that Kodak's principal competitor, Fuji Photo Film Co., Ltd., had gained market share in the U.S., Carp outlined the company's major strategies for responding: "We are narrowing the value gap with our principal competitor to levels consistent with our brand equity." Beyond pricing strategy, Kodak would deliver value to consumers through advertising, merchandising, distribution, and other efforts.

Fisher announced in May 1998 that they were beginning to see the benefits of the large-scale reshaping. Kodak had increased and made more effective its advertising and simplified its marketing approach. They reduced their product offerings and this new brand architecture aligned Kodak products more precisely with primary consumer segments' needs. Fisher said, "We have refocused our company on what we do best, reduced our debt, improved return on net assets, strengthened Kodak's overall performance, and aggressively pursued growth."

According to Fisher, Kodak would exit 1998 with overall costs reduced by $500 million, and predicted at least a $1 billion cost reduction by the end of 1999; and had plans to achieve top-line growth of 8-12% by 2004. He acknowledged, however, that there was still plenty to be accomplished: "Our goal is to methodically change and restructure Kodak to be more competitive and accommodate periods of slower top-line growth while generating attractive returns."

The ongoing goals cited by Fisher included: Support high yield products and services; improve quality and cycle times; bring the digital business to profitability; reduce overhead costs without sacrificing advertising; and stimulate growth. Carp predicted that digitization initiatives would become a huge source of growth. Organizations find it necessary in a rapidly changing environment to make continuous improvements, set new goals, and assess the results of their goals.

Fisher announced a strategic alliance with Intel Corporation that would allow both organizations to leverage their unique strengths. He also announced that the company was pursuing considerable growth in emerging markets such as China. Also, in established markets, Kodak had set the stage for growth through innovation, product differentiation, and digital imaging. Organizations develop a differentiation strategy in an attempt to distinguish their products or services from those of industry rivals.

As the organizational transformation continued, about one-third of the senior management team changed; and Dan Carp succeeded George Fisher as CEO in January 2000. Organizations often bring in new leaders when making large-scale changes to revitalize the organization and the culture. Top management turnover provides new perspectives for organizational leadership and may symbolize a new organizational direction.

In his keynote address at a digital photography forum in April 2000, Carp said that Kodak "won't be happy until the mass consumer market signs up for digital, in much larger numbers than today." However, he challenged the entire industry to consider that "digital" might not be a magic word for consumers. This idea is known as an organizational innovation because it was new to the industry. Carp proposed that they were all guilty of trying to sell the features they had engineered instead of the benefits consumers value such as "point-and-shoot-simplicity."

Carp communicated his vision for a successful transition of the picture business to the digital marketplace. He described how Kodak was helping customers to become comfortable with the transition through the company's film digitization initiatives, such as Kodak Picture CD and "You've Got Pictures" via American Online. He explained that transitioning to digital on a grand scale was not going to be easy, however-unless the industry could offer and communicate to consumers something that was demonstrably better, faster, cheaper, or easier to use.

Carp's vision included an industry-wide initiative to give consumers compelling reasons to switch to digital, such as demonstrating how digital technology can solve problems such as running out of film or just buying the pictures they like. He emphasized the need to create a learning environment for changing consumers' perceptions and breaking through the technical barriers and marketing challenges.

Kodak continues to grow and effect innovative changes. In June 2000, it was announced that Kodak now dominated China's billion-dollar film market, edging out its global rival, Japan's Fuji. Kodak's sales and profits are soaring in China due to its political savvy and aggressive expansion drive. Their primary goal in China now is to expand the market even more by encouraging Chinese consumers to take more pictures.

Recently revealing strategies for a profitable transition of the company to a "digital model," Carp predicted top line revenue of $24 billion by 2005. In communicating his vision, he emphasized that management would build on key Kodak advantages that no competitor-traditional or digitalcould match. These included the strongest brand, the largest customer base, the best infrastructure, the biggest and best photo processing services, the broadest portfolio of solutions, and the deepest resources.

In July 2000, Kodak announced record earnings on second quarter sales growth, which increased from $491 million a year ago to $513 million. Although it is still snapshots of important family events that remains the core of Kodak's thriving $14 billion business, their digital initiatives continue to be a priority for innovation and growth. The company has a photofinishing Web site at kodak.com, and has announced agreements with eight online photofinishers to use its laboratories, technicians, and supplies to print photographs.

To expand their digital reach, Kodak continues to form joint ventures with other companies including competitors. In July 2000, Kodak announced along with Canon Inc., Fuji, and Matsushita Electric Industrial Co., Ltd., that they had jointly developed a new version of the digital print order format for printing, transferring, and viewing photos from digital cameras. Kodak also formed an agreement with Ciprico and Cygnet Storage Solutions to provide portrait labs a viable solution for both short- and long-term storage.

In July 2000, Kodak announced numerous innovative initiatives for delivering advanced products and services to consumers, along with helping to grow their customers' businesses. For instance, the company established a Web site as a "virtual neighborhood" for Portrait/Wedding Photographers as a comprehensive source of marketing and photography information.

One of Kodak's newest product innovations is the Kodak DC3400 zoom digital camera, which is being marketed as an affordable, easy-to-use, stylish looking camera. Among other features, it can capture images in black and white or sepia. Adapting and surviving in a rapidly changing environment makes it critical for many organizations to create new products.

In addition to producing innovative products and services, Kodak's management has shown that it is committed to creating a strong corporate culture. The company encourages the use of creative teaming arrangements, and has established at least fourteen venture teams. Kodak has granted stock options to employees and has honored them for diversity achievements. The company's progressive slogan is: "To Take Pictures. Further." Also, the company sponsors education programs, strives to meet environmental standards, and is a member of The Family Friendly Programming Forum.

Kodak continues to announce new initiatives, strategies, goals, and partnerships. Top management has shown that they are aware that organizational transformation can put them on the path to success, and that Kodak must become a learning organization to adapt to a rapidly changing environment.

Learning organizations include elements such as mindful leadership, greater information sharing, empowering employees, and changing corporate cultures and structures to become more flexible and adaptive. The company vision must be widely communicated and ingrained in the organization, because otherwise employees might move in a different direction.

In today's chaotic business world, organizations need to continuously make innovative changes. Strategy, structure, and technology need to be aligned to provide the flexibility to meet new demands of increased global competition. Many organizations believe that the best way to remain innovative and competitive in today's rapidly changing environment is through a mutual sharing of good ideas-even with their competitors.

References

REFERENCES

Byrne, J. A. (1996, August 26). Strategic Planning. BusinessWeek (Online). Available: http://www.businessweek.com

Daft, R.L. (1998). Organization Theory and Design (6th ed.). Cincinnati: South-Western College Publishing.

Eastman Kodak Web Page. Available: http://www.kodak.com

Hesselbein, F. (Spring 1999). The Key to Cultural Transformation. Leader to Leader, 12 (Online). Available: http://www.pfdf.org/leaderbooks/L2L/spring99/in.html

Schifferes, S. (2000, June 21). Kodak Looks to Digital Salvation. BBC News (Online). Available: http://news.bbc.co.uk

Teresko, J. (2000, July 17). Kodak's New Image. IndustryWeek (Online). Available: http://www.industryweek.com

AuthorAffiliation

Freida S. Garrison, Florida Tech

fsgarrison@aol.com

Robert D. Gulbro, Athens State University

gulbror@athens.edu

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

Volume: 7

Issue: 2

Pages: 8-12

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412432

Document URL: http://search.proquest.com/docview/192412432?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 17 of 100

SUSAN KELLY: DEFAMATION OR A LEGITIMATE REFERENCE?

Author: Lapoint, Patricia A; Haggard, Carrol R

ProQuest document link

Abstract: None available.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns the practices of employee reference/background checks and their legal, ethical and social implications. This case can be used to explore several issues: ethical business practices, legal liabilities of theft of company property and negative job references, and the social context of small town social networks. Since this case integrates material from Business law (torts), Human Relations (EEO) and Organizational Behavior (reference checking) it could be used in any of these classes, or in Business Policy, as a capstone activity. This case has a difficulty level of two. The case can be presented and discussed in two to four class periods depending on the number of issues considered. Students can be expected to spend two to four hours of outside preparation to be fully prepared to discuss the case.

CASE SYNOPSIS

Susan Kelly has been unemployed and seeking work for 10 months. She recently learns that her former employer has been giving negative references about her performance to prospective employers in the community. Prior to leaving her previous employer, she copied accounting/tax documents to protect herself from possible legal liability. It was after this information came to the attention of the former employer, that the negative references began. Susan suspects that the negative references are in retaliation for her copying the tax documents.

SUSAN KELLY: DEFAMATION OR A LEGITIMATE REFERENCE?

Susan Kelly left the office of J. D. Barrett & Company with great hope. "For the past ten months, I have been pounding the pavement looking for a job commensurate with my experience. I never realized that finding employment would be so difficult especially in a very tight job market (4.5% unemployment rate). This has never happened to me before; I do not understand". This was the third company Susan had visited that day and the only one that seemed to hold some promise for possible employment. Her interview seemed to go well and her proficiency test scores were very high. Mr. Barrett indicated that he would let her know in a couple of days. Perhaps her long job search would be over.

Susan is a divorced 34-year old mother of two daughters ages nine and five for whom she is sole support. She and her two daughters live in the home of her mother and father who have resided in this small, (population 29,540) socially conservative east Texas community since the 1950's. Periodically, Susan would leave town, but invariably she would return. Her former husband is a resident of the community. Susan has been described by some residents of the community as "a flamboyant, flashy hellraiser." All because she would occasionally frequent the local nightclubs on the weekends to have a drink and dance with friends.

Prior to Susan's current unemployment status, she was employed as a bookkeeper/clerk for Thompson and Smith Real Estate Company for six years. She had advanced to her position as bookkeeper/clerk from receptionist/secretary by the owners, Brad Thompson and James Lee Smith. During this six-year period, the office had grown from a 3-person office (including the owners) to its current size of seven (six staff and one owner/manager). Susan loved working in the office. She found the work to be challenging and her co-workers fun. Two years ago, James Lee Smith bought out his partner, Brad Thompson, leaving James Lee as the sole owner of the real estate company. It was shortly after the transition in ownership that things began to change for Susan.

James Lee Smith has been in the real estate business for 25 years, all of it in this east Texas community. He was born and raised in east Texas. He received his education at Texas A&M in business. James Lee is married, with four children (3 sons and 1 daughter). His youngest son and his daughter are both in college. The other two sons also live in this community and are both married. James Lee and his wife are members of the Hillside Church of Christ and are very active in church affairs. James Lee serves as an elder for the church, president of the local Kiwanis Club, past-president of the Professional Realtors Association, and Project Director for the Industrial Foundation.

Susan's departure from Thompson and Smith Real Estate Company, although on good terms, was tainted with her suspicions of accounting improprieties. Approximately a year and a half ago, Susan began to notice discrepancies in several of the billings. It was about this same time that James Lee and his wife began renovation on their new home. Invoices for various types of construction expenses, for example, concrete, paint, and furniture were billed to the office. Bringing these invoices to James Lee's attention, Susan immediately discussed the proper disposition of these bills with him. He told Susan that he had directed the bills to the office for convenience and instructed her to set up a special account from which to handle the payments. She left his office indicating that she would do as he had instructed, but she felt very uneasy about the entire situation. Her concern was that company funds were being used to pay for his personal use. James Lee would assign the codes to each of the bills and Susan would entry them into the appropriate accounts. Over the next several months, more bills came into the office and few were coded for the special account.

Susan began to worry that her direct involvement handling the special account as bookkeeper might create a personal legal liability for her. As a result, she made a visit to her nephew who was in law school to seek his advice on the matter. He confirmed, based upon her statement of the facts, that she might be legally culpable for tax fraud unless she could provide some evidence to the contrary. Upon leaving her nephew, Susan became extremely agitated.

Not knowing what she should do next, she called her estranged husband, Billy Ray for advice. Although she and Billy Ray see each other occasionally in town, this was the first time she had talked to him since their separation. Susan explained in detail what had occurred at the office and what advice her nephew had given her. Billy Ray told her that he had heard rumors about the construction expenses on the home from several of the construction workers. Billy Ray said: "Susan, we've always known what a scoundrel James Lee is. This is nothing new. What I think you should do is protect yourself by hiding these tax documents in a safe place. That way, if there is any question later on about your involvement, you will have some proof that it was James Lee who authorized the invoice payments, not you." Billy Ray left, but Susan was further concerned about other financial discrepancies that she had uncovered before the partnership was dissolved.

She took that concern to James Lee's former partner, Brad Thompson. "I can't believe what you are telling me Susan. Are you sure? I know that James Lee is very ambitious, but I hardly believe that he would have cheated me out of my share of real estate commissions. I appreciate your bringing this to my attention and I will surely look into the matter."

Over the next several months, the working relationship between Susan and James Lee deteriorated significantly. Susan decided to take Billy Ray's advice and moved the questionable tax documents from the office. Recently, James Lee had hired a new office manager, Lynn Turner, who now directly supervised Susan. While Susan and Lynn seemed to establish a good working relationship with one another, a rift in that relationship occurred around the Christmas holidays. As was customary each year, the office held a Christmas party for its employees. On the day of the party, Susan came dressed in a red, tight fitting dress, cut above the knees. She wore dangling earrings and red spiked heels. Only recently, Susan learned that her apparel was being described as being "inappropriate office attire."

Susan's health began to suffer as a result of the tension over the accounting discrepancies. She sought medical treatment for the job-related stress and was prescribed medication to reduce some of its effects. After a while, Susan decided that she could no longer function in that environment, and in February gave James Lee notice of her resignation. At that time, she indicated that she would stay until her replacement had been hired and properly trained. After only several days of training her replacement, Lynn informed Susan that she was free to leave. Susan informed Lynn that her replacement was not fully trained yet, but this did not seem to concern Lynn.

Exhausted, but optimistic Susan returned home from J. D. Barrett & Company, when she received a telephone call from Ann, a friend who was one of Barrett's employees. Ann indicated that she had overheard a conversation between Mr. Barrett and James Lee Smith regarding her previous employment with Smith Realty (name had been changed since the partnership dissolution). A few days later, Mr. Barrett called Susan to tell her that they would not be hiring her. Completely devastated, Susan began to cry. "None of this makes any sense! What is going on here?"

Several months later, certain information came to Susan's attention. Shortly after Susan had confided to Billy Ray, who now was divorced from Susan, he went to James Lee's office to tell him that Susan had taken the tax documents from his office. According to Billy Ray, James Lee was furious and wanted to charge Susan with theft of company property. He even suggested to Billy Ray that he should "steal back" the tax records. Also, Smith had conveyed to Barrett that Susan's job performance had slipped significantly (errors) in the last 2-3 months of her employment. She had been expected to train her replacement fully, but left before that had been accomplished. When asked if he would rehire her, he said he would not. This was most puzzling to Susan since she had left Smith Realty on amicable terms. There were also suggestions by Smith that she did not get along well with her co-workers, especially the new office manager with whom she had a discussion about professional attire.

The most shocking information to come to light was that of bad references. Susan's friend, Ann, told her that James Lee had been giving her bad references for every job that checked references and "that he planned to continue giving her bad references!" How could my performance be bad? I have had nothing but positive feedback from my employer.

At this point, Susan determined that she needed help. Therefore she contacted the law office of Miller, Warner and Marshall and discussed the details of her case with Daniel Miller. After listening to Susan, Daniel said that Susan had a number of options available to her. She could report James Lee to the Board of Realtors for unethical practices, or to the IRS and let them take care of him. However, neither of these options would undo the damage done by the poor references. She could file a lawsuit against Smith Realty, James Lee Smith, and Billy Ray Kelly. Susan could sue for defamation, libel and slander, tortuous interference with contractual relations, and intentional infliction of emotional distress (not simply a suit for negative job references). Susan could file the suit, not with the intention of pursuing it, but as a means of getting James Lee's attention. Susan could decide that all this was not worth the effort and "kiss and make up with James Lee," in order to receive a good job reference. Or, she could simply move out of town and make a fresh start for herself and her children. Susan left the meeting with Daniel Miller with much to think about.

Within a day after the visit to Daniel Miller, Susan experienced harassing threats on her cellular phone. One unidentified man said, "We know who you are. We know what you have done and if you do not stop, someone will get hurt". Frequently, calls would be made to her parent's home in which the callers would hang up. Cars would often drive up the driveway at night, turn their headlights off, and then leave. Her two children were experiencing name calling from the parents of school children, and on one occasion, her oldest daughter was followed home from school by a black Ford pickup truck. Susan's father, a long haul truck driver, came home one day to find a rolled up slice of bacon placed between two envelopes with the wording "you are fried" in the mailbox.

Totally confused and fearful, Susan feels totally abandoned. Not only is she unemployed, but she appears to have no prospects for employment and has a significant fear for both her and her family's physical safety. With these ideas weighing heavily on her mind, Susan must quickly decide on a course of action.

References

REFERENCES

Fenton, J. W. Jr., & Lawrimier, R. W. (1992). Employment reference checking, firm size and defamation. Journal of Small Business Management, 30 (4) 88-95.

Godwin, Mike, Peter Vander Haeghen, and Gordon Cantonwine. 1995. The Naked Truth about the Employment Process: Avoiding Instead of Repairing Problems. Monitor Video Production Services/Small Business Information Center.

Lansford Publishing Company Series. 1974. Employee Selection. Lansford Publishing Company.

Lexis/Nexis database of Texas court cases. October 28, 1958. Dr. C.W. Payton v. The Hurst Eye, Ear, Nose & Throat Hospital and Clinic et. al.

McKay, E. D. (1997). Reference checking: A legal minefield. HR Focus, 74, 511-512.

Paetzold, R. L., & Willborn, S. L. (1992). (Ir)rationality and the demise of employment references. American Business Law Journal, 30, 123-142.

Risser, Rita, and Lisa G. McCurdy. 1998. The Fairness Factor. CRM Films.

Shanoff, B. S. (1997). Reference litigation serves as a warning to former employers. World Wastes, 40 (9), 7-12.

AuthorAffiliation

Patricia A. Lapoint, McMurry University

lapointp@mcmurryadm.mcm.edu

Carrol R. Haggard, Fort Hays State University

chaggard@fhsu.edu

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

Volume: 7

Issue: 2

Pages: 16-19

Number of pages: 4

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412186

Document URL: http://search.proquest.com/docview/192412186?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 20 of 100

MANGIA!

Author: Geiger, Joseph; McCollough, Michael

ProQuest document link

Abstract: None available.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns a failing kitchen outlet/restaurant. Therefore the case presents to students the application of an outlet retailer in a novel setting (food retailing). The owner is having great difficulty in building a restaurant from the base of a successful catering service. Issues of target marketing, location decisions, brand image and brand extensions, customer versus production orientation, retail versus wholesale activities, restaurant/kitchen management, small business management, scale economies and business expansion decisions, and service marketing are involved in the solution. The case is difficulty level 4 but could be structured for difficulty level 5. The case is designed to be taught in one to two class hours after approximately eight hours of outside preparation by the students.

CASE SYNOPSIS

Mangia! is a kitchen outlet restaurant (or retailer) that began as a catering (or business-tobusiness venture). The owner, noticing a leveling off of the growth in the catering business, one year ago decided to open a small Italian specialty-food restaurant. As a kitchen outlet, Mangia! was intended (1) to sell to consumers excess inventory arising from volume purchasing for the catering business; (2) to exploit the reputation of the catering operation at the retail level; and (3) to serve as a production base for the catering business capturing overall scale economies. The owner is proud of her authentic Italian cuisine and is reluctant to modify its preparation. For instance, she once refused to prepare an egg salad on whole wheat because this compromised her artistic vision.

The kitchen outlet/restaurant is located in a neighborhood mall in a rural university town with a population of approximately 55,000. The owner is proud of her authentic Italian cuisine and reluctant to modify recipes, preparation, or food presentation to specific customer requests. The owner had hoped to attract upscale, dual income couples and families from the two universities and small high tech industrial base in the community. Patronage was to be augmented by mall workers and movie theater customers. After one year, the owner concluded that her goal of building upon the catering business was not being realized. The owner had unsuccessfully experimented with several advertising schemes before hiring a consultant. The consultant provided several tough options: (1) abandon the restaurant and focus on expanding the catering business, (2) find a successful formula for gaining name recognition, profitability, and market share (several suggestions were provided), or (3) employ a combination of catering and direct selling of the product line to wholesalers and other restaurants. Faced with limited resources and fierce competition, both the catering and restaurant businesses were at risk. What should she do?

CASE NARRATIVE

Cheryl Miller, owner of the Mangia! restaurant and Catering by Cheryl, was startled by the persistent ringing of the bell on the cash register counter of her small, two stool restaurant. Cheryl had been in the back, preparing a catering order and mulling over the lack of walk in customers in the restaurant. Hurrying out to the counter, she asked the customer if she could help. "Yes," the young man said, "I would like a tuna salad on whole wheat, please." "Sorry," she replied. "We only serve the salad sandwiches on thick cut French bread like is says on our menu." "But I like it on wheat," he responded. "You will really like it on my specially prepared French bread," Cheryl urged. "It is the best way to eat tuna salad." After pausing for a minute and glancing at the menu, the customer requested the turkey Panini on rye bread. With great patience, the owner explained that Panini can only be served on focaccia. "That's what makes it Panini!" she explained enthusiastically. After a long, hard look the customer left the restaurant. As she watched the young man enter the BBQ restaurant down the hall, she returned to preparing the catering order with a puzzled look on her face. She quickly forgot about the customer - she was in a hurry as the catering orders for the day were large and numerous.

The Business

Mangia! is located near the main entrance of a modest (20 business) neighborhood mall in a city of 55,000 people. The mall contains two restaurants in addition to Mangia!, several retail outlets, a supermarket, a major video rental chain store, and a modern six screen movie theater complex. In addition, in front of the mall and within easy walking distance of the mall entrance is a Kentucky Fried Chicken, a Pizza Hut, and a casual dinning franchise, Wingers. Mangia! is not realizing the success of the other restaurants in the very same mall. Mangia! means "eat" in Italian and also signifies a special attitude Italians have for eating fine food - thus the '!' in Mangia!. Mangia! opened its doors in 1999 as Chef Cheryl's catering kitchen outlet. The owner uses the restaurant as her kitchen for both catering and retail restaurant sales. This enables her to use leftover product bought in bulk for catering contracts, provide more variety on her menu, and achieve scale economies in purchasing and producing product.

The owner, a local artist, attended culinary school and had, for the past few years, operated a successful catering operation out of her home. When gross sales neared $100,000 per year (Table 1), she moved into the mall and opened Mangia! Her motto, "anything less, is" reflected her loyalty to authentic Italian cooking prepared and presented in the traditional manner. Although the product line is not well known in the university-dominated community, Cheryl thought she could build upon word-of-mouth and reputation from catering to create a successful restaurant. Mangia! is open from 7:30 a.m. to 6:00 PM with a breakfast/lunch format.

The menu (Table 2) falls into four main product categories: Panini, salad sandwiches, side dishes, and desserts. Panini builds a variety of selected gourmet ingredients on a toasted slice of focaccia bread. The result is grilled just enough to melt the cheese and is served with kettle chips and assorted fresh vegetables for $5.35. When supplied in large numbers (catering orders), the unit price is reduced. The egg salad and tuna salad sandwiches are prepared on French bread. The side dishes are sold individually and are popular with many take-out and mall-worker customers. The desserts are a favorite of the total customer base. Coffee is brewed from 'gourmet' brands. However, facing competition from other restaurants and stores in the mall, she does not do espresso.

The aesthetic features of the restaurant include an Italian style facade that is suggestive of an Italian bistro. Colors of the Italian flag are incorporated into the interior decor - Cheryl strives to create an atmosphere of "Little Italy". Decorating is minimal with displays of baked goods and refreshments and a small table with two stools prominently displaying coffee. The kitchen, coolers, and catering supplies are hidden behind a dividing screen. Call-in and walk-in take-out orders are promoted as well as dining at one of the three tables just outside in the main hallway of the mall. While the restaurant conceivably could accommodate two to three small tables, there is currently no practical seating in the outlet. Take-out orders are given to the customer wrapped neatly in wax paper and placed in an unmarked brown paper bag. However, Mangia!'s trademark sandwich, Panini, does not travel well and is best eaten within minutes of preparation. Mangia!'s employees talk to the customers and try to listen to suggestions on improving services and store features. Cheryl often states to her customers, "I strive to sell the whole experience associated with buying an exceptional meal - quality food to people living a lifestyle where high quality should be the standard in their lives."

Mangia!'s competitors in the service region consist primarily of ethnic food chain stores and deli service counters in supermarkets (Table 3). The BBQ and Mexican restaurants and one supermarket occupy spaces in the mall. Several fast food chains and one restaurant featuring southern ribs and Buffalo wings (Wingers) are also located nearby. All of the competitive restaurants are thriving, with long lines on Friday and Saturday nights. The Mexican restaurant recently finished a major expansion to take advantage of this high demand.

Mangia! views its customers mainly as double income no children couples (DINKs) and single, professional females (Table 4). However, informal records kept by the owner during the first year indicate that, while the catering operation attracts many of the target customer group, the restaurant is many patronized by mall workers and the general public. Interestingly, the owner is looking forward to a new tenant moving into the mall which should create additional mall traffic patronage. The target customer base, as defined by the owner, is believed to be around 6,500 people (Table 5). However, as noted, the actual customer base more closely resembles the general population, with the largest single element being the employees of the businesses located in the mall. To reach her intended customer base (i.e., upscale individuals seeking exotic foods), the owner has attempted to advertise and promote Mangia! in a variety of ways: general advertisements, radio promotions, and coupons. In order to create and implement a more thoughtful approach, the owner hired a consultant who performed a retail audit. Cheryl had read the consultant's report the previous evening and was still reeling at the results: (1) the new mall retailer will only provide about 25 new employees and will not have a major impact on sales; (2) she should seriously consider abandoning the restaurant and return to full time catering (which the consultant thought still has some growth potential); (3) return to catering only, but aggressively seek other retail outlets to sell her products as branded items; or (4) spend a considerable time building the image of the outlet via new advertising initiatives (several suggestions were recommended) while expanding and upgrading the restaurant eating areas (new furniture, etc.).

As she completed her catering order and prepared to place the items in her delivery van, an employee arrived to cover the store. "Hi Cheryl," she said. "Do you expect much restaurant traffic this afternoon? I need to do some cleaning and restocking in the supplies area." "No," Cheryl grumbled, "I think I will find another consultant!"

AuthorAffiliation

Joseph Geiger, University of Idaho

joeg@uidaho.edu

Michael McCollough, University of Idaho

mccollou@uidaho.edu

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

Volume: 7

Issue: 2

Pages: 22-26

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412305

Document URL: http://search.proquest.com/docview/192412305?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 21 of 100

HOLLYWOOD: FICTITIOUS AND FACTUAL CASE MODELS FOR TEACHING SITUATIONAL REALITY

Author: Morgan, William B; Bender, Jay

ProQuest document link

Abstract: None available.

Full text:

Headnote

ABSTRACT

This paper outlines a reasonable pedagogical opportunity for teaching across a wide spectrum of college curriculum. Through the adaptation of selected movie and television productions into case studies, situational learning models can be developed. The advantages and disadvantages of both factual and fictional character usage are detailed. An example of adaptation is provided.

The roles that leadership, management, ethics, and a number of necessary social skills show in the activities of a variety of modern controversial leaders, and other organizational sources. One of the long accepted processes for teaching these skills is the Harvard Business School case study method. Ortmayer (1994), defines a teaching case by noting that: "Cases tell stories of particular situations and decision makers are forced to grapple with complex issues and alternatives courses of action" (p. 29). Osigweh (1985) writes that a case "... is so rich in content that it provides enough data to lead the student through all the appropriate problem-solving or decision-making phases required for the exercise" (p. 122). This method of teaching forces active learning, and is characterized by its ability to use actual or created situations to enhance analytic thought, reflection, inquiry, and often content knowledge (WestEd, 1997).

When the goal is to help students build analytical and synthesis skills, apply concepts, learn to solve problems, develop mature judgement and critical thinking skills, and enhance communications skills, case teaching has proven to be an excellent tool (Simmons, 2000). In short, the key is student involvement in the case process beyond the simple surface thought that typically occurs with other teaching methods.

Case material come from a variety of sources which include personal experiences, magazine and newspaper articles, colleagues, professionally written case studies, scripts, and etc. (Simmons, 2000). An important point to understand about the case study method is that case situations and characters may be completely fictitious. Indeed, leadership, ethics, decision making and other lessons can be visualized from semi-fictional or completely fictional characters from the past or even the future. The critical issue is to insure the case presents the "qualities" that one wishes to emulate or study.

Warner (1998), in his article How to Write a Case Study, identifies a number of advantages and disadvantages found with factual and fictional case studies. He finds that while factual cases tend to be more concrete and not theoretical, they also have a number of drawbacks. Among the drawbacks are:

1. They tend to become outdated as organizations, strategies, problems, and people change over time.

2. Factual cases must deal with only the topics that are implicit in the case.

3. Since they are factual cases they often portray real organizations and people in a negative manner. This problem may bring rise to fairness and libel issues.

Warner also outlines the disadvantages of fictional cases. First, there is the issue of not knowing if a solution works or not knowing the right answer. Second, is that fictional cases only present theoretical situations or events. However, because these cases are not limited by the facts but by reason, a writer can exercise greater freedom to embellish on problems, issues, situations, and people. This freedom usually provides a better opportunity to focus on specific problems or teaching points. The cases, however, should also allow students to use both past experiences and text-driven knowledge to provide a newly developed range of answers and understandings.

In addition to meeting a desired teaching need, good cases should also be brief, provocative, ambiguous, and open to a number of conflicting responses. These marks of a good case were verified by a survey of case-teaching instructors conducted by Wrage (1994). According to the respondents of Wrage's survey, the best cases were "well-focused, full of conflict, exciting to students, susceptible to analysis from more than one theoretical direction, and sufficiently complete in themselves as to require little extra factual elaboration" (p. 21).

Rangan (1996) in his HBS paper, Choreographing a Case Class, provides insightful wisdom for how cases might be taught and summarizes key points of an effective case class. He defines each of the ways cases are taught as being lecturing, theorizing, illustrating, and choreographing. Rangan's argues that case teaching is not a tactical pedagogical tool, but rather the very heart of a teaching strategy, and that effective learning from case studies relies on inductive student learning from case data. The cornerstone of this strategy is for the case instrument to stimulate the inductive process by creating vigorous debate on the merits of an argument. He believes that, "... by comparing a series of cases and contrasting them with each other, students should learn to slowly construct a framework built out of relevant information, consolidate it and sharpen it as a robust way of understanding not only the case issues discussed, but also as a useful platform to support future thought on related issues" (p. 2).

When studied within the confines listed above, a number of Hollywood movie or television productions present a vast array of possible case study situations. The development of situational models from movie and television provide an all most unlimited availability of situational material that can be used to characterize reality. These models may be based on reality or only out of the creativity of authors and screenwriters - who have varying degrees of talent. Numerous characters and situations provide potentially positive and negative models for learning and many of these films have short segments, which make them suited for classroom adaptation. Examples include:

Jerry McGuire (current fictional character) - business ethics.

Aleksandr Solzhenitsyn (factual) - truth.

John Wayne (past fictional character) - honor.

Pope John Paul II (factual) - human dignity.

Jean-Luc Picard (future fictional character) - leadership.

Nelson Mandela (factual) - forgiveness.

Osigweh (1985) notes that the artificial nature of a case can unleash the learner from the constraints of their own situation and allow them "to explore the logic of the situation, learn new principles, examine alternative solutions and to listen to one another's views" (p. 129). Movies and television productions, along with the various characters portrayed, have provided numerous and effective case material. An example of such usage is Hillman (1977-1984), who used the popular Star Wars movies as the basis of a series of highly successful children's written reading programs. These programs were reported to have gained much of their effectiveness from the children's strong "relationship" with both the movie plots themselves and the various characters.

Another excellent example of successful adaptation could be the episodes from the popular television series "Star Trek: The Next Generation." This series presents a vast array of possible case study situations. What makes this series unique is that someone has taken the time to develop what can be described as "teaching notes" for selected episodes. Indeed, Dr. Wess Roberts and Bill Ross, the authors of the book Make it So, describe the stories as providing, "a powerful metaphorical setting," and Captain Jean-Luc Picard as a "compelling protagonist, who exemplifies all of the leadership qualities" (p. xi).

Make It So, is a collection of anecdotes and observations (cases) from selected experiences of Captain Picard and the crew of his ship. These anecdotes are retold through Picard's words and are presented as his thoughts and emotions about the experiences and the leadership lessons they contain. While the events are futuristic and fictional, readers are presented with real solutions that work.

This contribution of cases creates a complex paradox between factual and fictional reality - another useful and enjoyable benefit of the case study method for learning various skills. From a pedagogical view - the assignment of contemporary (and futuristic) movie/television characterizations for analysis presents an excellent basis for debate and discussion. This obviously positive instance of usage should not blind us to some of the real challenges to case usage as a pedagogical method.

Having found a solid case material is not the end of the process - but only a beginning of the process of real teaching by effectively presenting cases. Many questions about "how" to achieve successful learning using cases remain. These questions include:

a. How should the case notes be used? Should the notes be only a starting point for the instructor? Anecdotally, the authors have found that often college professors disagree with many of the points made by the case writer. There is also some contention as to the use of end case questions as a prime or secondary analytical tool.

b. At what level (graduate or undergraduate) and in what courses should cases, role play, or other experiential techniques be used?

c. Exactly how much training in the techniques do both the students and the instructor need before cases are really effective?

d. Is there a minimum or maximum class size for effective usage?

e. While cases can provide involvement in course material, how do instructors avoid making it just another graded exercise?

f. What is the best approach for teaching cases?

Writings by Rangan, Wrage, Ortnayer, and others provide reasoned answers to many of these questions as well as provoke additional questions and debate. However, the usage of either factual or fictional characters, cases styled from television or movie scripts, or that such cases fail to stimulate the inductive process by creating vigorous debate does not appear to be at issue.

References

REFERENCES

Hillman, J. C. (1977 - 1984). Star Wars Reading Programs. New York: Random House.

Mangham, I. (1995). Scripts, talk and doubletalk. Management Learning, 26, 4. 493-511.

Ortmayer, L. L. (1994, Spring). Decisions and dilemmas: Writing case studies in international affairs. International Studies Notes, 19, 2.

Osigweh, C. (1985). Professional management. Dubuque, IA: Kendall/Hunt.

Rangan V. K. (1996). Choreographing a case class. Boston, MA: Harvard Business School (HBS Case/Article #9-595-074).

Simmons, S. R. (2000). An introduction to case study education. [Online]. Available: www.decisioncase.edu/intro.htm [2000, Jun. 14].

Warner, C. (1998). How to write a case study. [Online]. Available: www.missouri.edu/ ~jourcew/howwrite.html. [2000, Feb. 27].

Wess, R. & Ross, B. (1995). Make it so: Leadership lessons from Star Trek the Next Generation. New York: Pocket Book.

WestEd. (1997, September). Teaching cases: New approaches to teacher education and staff development. Tried and True Teaching . . . [Online]. Available: www.ed.gov/pub/triedandtrue/teach.html [2000, Jun. 14].

Wrage, S.D. (1994, Spring). Best case analysis: What makes a good case and where to find the one you need. International Studies Notes, 19, 2.

AuthorAffiliation

William B. Morgan, Felician College

wmorgan@cybercomm.net

Jay Bender, Southhampton College (LIU)

JBender@southampton.liu.edu

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

Volume: 7

Issue: 2

Pages: 27-30

Number of pages: 4

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412289

Document URL: http://search.proquest.com/docview/192412289?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 25 of 100

CHARLESTON AREA MEDICAL CENTER AND GENERAL ANESTHESIA SERVICES: CONTRACT NEGOTIATIONS FOR CERTIFIED REGISTERED NURSE ANESTHETISTS

Author: Rutsohn, Phil; Forget, Bob

ProQuest document link

Abstract: None available.

Full text:

CASE DESCRIPTION

The primary subject matter of this case concerns contractual relationships between a hospital and group practice. There are a multiple of secondary issues that are addressed concerning the utilization of low cost providers in the changing health care market to the financial implications of Certified Registered Nurse Anesthetists to anesthesiologists. This is Part A of a multi-part case. We anticipate the immediate development of Part B which will focus on a conflict between the efficient/effective utilization of CRNA's andphysician unwillingness to delegate responsibility. Part C will look at current and future practice options for CRNA's. The case has a difficulty level appropriate to seniors and graduate students.

CASE SYNOPSIS

Imagine being an independent contractor where 65% of the services for which you are reimbursed are provided by others. Further imagine that you assume no responsibility for recruiting, managing or compensating those individuals. You get all of the benefits but none of the costs. Essentially that's how the provision of anesthesia has historically functioned. The CRNA's provide 65% of the anesthesia, are employed by the hospital (with all that entails) and the physician bills third parties for overseeing the Anesthesia Care Team. While this case focuses on a specific hospital and group practice, this issue is currently a hot topic defining the relationship between hospitals and anesthesiologists throughout the country. "Pay for the service-not the inputs" is becoming a common cry among third party payers; meaning, if a CRNA can do it don't pay anesthesiologist rates! Anesthesiologists are facing serious future financial pressure which may substantially change the way they practice their profession and like most of us they are going through this change fighting it every inch of the way. In this case the Charleston Area Medical Center is faced with the reality of declining revenues and wants to either transfer the employment of its Certified Registered Nurse Anesthetists to its contracted anesthesiologists or take greater control of the billings to get its "share of the pie". The anesthesiologist group (GAS) wants things to stay the same. The case demonstrates that even though the medical community wields substantial political influence the health care market is changing and physicians must change with it.

BACKGROUND:

Charleston is the capital of West Virginia. Located in the Kanawha valley it's the largest city in West Virginia with a relative buying market of approximately 275,000. As the capital and largest city in the State it supports a large medical community characteristically composed of individual and/or small group practices. Charleston's flagship hospital is the Charleston Area Medical Center (CAMC) a 919 bed nonprofit hospital that operates as a subsidiary of CamCare Inc. CamCare, incorporated in 1984, is a large integrated delivery system reflective of the typical holding company model developed throughout the 1980's and 90's. It incorporates an array of for-profit enterprises, management services, home health care and the like. The institution's primary market consists of Charleston and 12 counties but as a Level III tertiary care center it also draws patients from the surrounding states of Ohio, Kentucky and western Virginia.

In today's rapidly changing, cost control, managed care medical market Charleston and for that matter the entire state of West Virginia might be viewed as a "medical paradise"! West Virginia is the "grayest" state in the nation having the oldest median age. It ranks in the top ten in the nation for incidence and prevalence of lung disease, heart disease, diabetes, obesity and a sundry of other diseases and illnesses. And perhaps from the medical community's viewpoint its most significant characteristic is the absence of managed care penetration. Currently managed care penetration statewide is approximately 11% with most participants being government employees. While hospitals in the State are feeling the crunch of the Balanced Budget Act 1997, reduced admissions per thousand population and increasing demands for larger discounts by payers, physician reimbursement has remained relatively constant.

In 1994 CamCare, recognizing that market penetration by corporate HMO's was a matter of "when" and not "if, attempted to stem the tied and garner market share by developing its own HMO calling it CareLink. CareLink floundered for several years gaining market share but at a price-expenses consistently exceeded revenues. As a result, in 1999 CareLink $18 million in the hole, was sold to Coventry-the epitome of corporate managed care that CamCare desperately tried to keep out of its market! CareLink's failure may be attributed to its lack of expertise in managed care, its premium/reimbursement ratio (reimbursement to physicians was far too high relative to the premiums it was collecting) and a lack of infrastructure necessary to promote efficient as well as effective health care delivery. But, its most critical failure was timing. CamCare introduced the HMO model into Charleston before the medical and political community was willing to accept the changes that went along with it. As a result there was little physician cooperation and few mechanisms available to the organization to promote cooperation. In his 1999 annual report to the board of directors of CamCare, the CEO stated, "the traditional physician community has been very concerned (relating to CareLink) and very resistant. The image of a big institution attempting to control physician practices has been a constant source of debate.

The vast majority of medical care provided in Charleston is done in a traditional fee for service environment where formal relationships between hospitals and physicians have changed little over the last 30 years. With this brief overview in mind lets take a look at the issue at hand-who is going to be responsible for employing the Certified Registered Nurse Anesthetists (CRNA's)?

HISTORY:

The anesthesiologists and the CRNA-a love hate relationship.

The delivery of anesthesia services in surgical suites across the nation is shared by anesthesiologists and certified registered nurse anesthetists working in a variety of configurations of dependence and independence. In many rural areas CRNA's work independent of an anesthesiologist while in some urban environments the anesthesiologist is the sole provider of anesthesia. Most commonly these two providers work as a team-an "anesthesia care team" (ACT) where the anesthesiologists maintain a superior position and the CRNA functions in a subordinate role. Current reimbursement practices by Medicare reinforce the team concept by compensating anesthesiologists as the team leader for a maximum of four concurrent cases. CRNA's may work for a hospital on a salary basis (39%), for an anesthesiologist most often on a salaried basis; (35%); or, as an independent practitioner billing for services(15%).

While CRNA's are relatively high paid advanced practice nurses with salaries ranging commonly from $90,000 to $125,000, when compared to anesthesiologists with incomes often exceeding $300,000 they are viewed as low cost providers. The degree of expertise for each of these professions is certainly different; however, fully 65% of all anesthesia services are provided by CRNA's with frequent overlaps in duties with the anesthesiologist. As one can imagine, the relationship between these two professions is volatile to say the least. Some anesthesiologists would like to see the role, scope and functions of CRNA's severely restricted (denying the reality of a changing marketplace) while others recognize the economic value of incorporating them into their service delivery model. But, universally anesthesiologists believe that CRNA's should be subordinate to them!

Who should employ the CRNA? What should be the practice limitations imposed upon CRNA's? How does one configure a team to maximize the effectiveness and efficiency of anesthesiologists and CRNA's. These are questions that are currently being asked by providers, payers and policy makers. As we shall see the negotiations between CAMC and GAS, Inc. address these particular issues.

The hospital's viewpoint.

For almost 20 years (1980-1997) the Charleston Area Medical Center (CAMC) maintained an exclusive contract with General Anesthesia Services (GAS) to provide all anesthesia services for the hospital and its affiliates. During this time the relationship between these two organizations would not be characterized as being sterling but it was at least satisfactory to both parties. However, beginning inl995 and particularly with the passage of the Balanced Budget Act 1997 the hospital's executive team began to question the financial feasibility of maintaining a contractual relationship with GAS as it currently existed. The days of significant excess revenues had ended. The hospital had lost money three years in a row and it looked like the Balanced Budget Act was going to insure continued losses.

With the contract coming up for renewal CAMC and GAS entered into spirited and often heated contract negotiations. In the end, CAMC citing inflated salaries, high billings, lack of consistency in using drugs and equipment and lack of organized leadership refused to renew its contract with GAS and awarded a contract to InPhyNet a Florida based corporation. The hospital estimated that the four-year contract with InPhyNet would save the institution over $2million. InPhyNet as part of its contract obligation was required to offer employment to GAS anesthesiologists. However, GAS salaries for anesthesiologists approximated the 90th percentile nationwide and InPhyNet was offering to pay between the 65th to 75th percentile. The end result-the anesthesiologists would not commit to InPhyNet.

In response to CAMC's decision to award the contract to an out-of-state company 250 admitting physicians flexed their political muscle by jointly announcing that they would delay making the transition from GAS to InPhyNet for 60 days virtually halting all surgery at the hospital for two months. In addition, GAS filed a petition with the County Circuit Court seeking to stop the hospital from revoking their clinical privileges (remember this is an exclusive contract). Naturally the political pressure on CAMC's Board of Trustees was tremendous motivating the immediate appointment of a study group to find a solution to the problem. The study group working closely with the hospital's executive team developed four options for the Board's and eventually GAS' consideration.

The anesthesiologists' viewpoint.

In 1980 five anesthesiologists horizontally integrated into General Anesthesia Services (GAS) for the expressed purpose of contracting with the Charleston Area Medical Center to provide exclusive anesthesia services to the hospital. As early as 1981 and again in 1985 GAS proposed to employ all nurse anesthetists by the Group rather than as hospital employees. At that time the nurse anesthetists expressed a desire to remain in the secure environment of the hospital and the institution was not financially motivated to make any changes. In fact during this time insurers paid for nurse anesthetists as part of the indirect cost of the operating room. Therefore the hospital could maintain tight control of surgical services with minimum difficulty securing adequate reimbursement.

During the period 1980 to 1996 the group grew from five anesthesiologists to 30 anesthesiologists while the ACT ratio went from 4 nurse anesthetists per anesthesiologist to 2 1⁄2 nurse anesthetists per anesthesiologist. This change is attributed to changing physician preferences and changing case complexity. By the late 1980's and into the 1990's Certified Registered Nurse Anesthetists began lobbying intensely to be recognized as independent practitioners. One outcome was a change in reimbursement by Medicare for CRNA services. While this benefited the CRNA's it increased the burden on the hospital. Reimbursement from Medicare declined (because of inefficient billing practices by the hospital) and the cost of CRNA's increased. As a result CAMC became determined to shift the cost of the anesthetists to GAS while maintaining complete control of their work life. This strategy was viewed by GAS as being an unacceptable cost of doing business.

Careful negotiations and discussions between GAS and CAMC continued for two years with the last year often being heated and unsatisfactory. As the contract was reaching its termination point Gas conceded to reduce their charges by 33%, to better accommodate the managed care cost reduction trends and to participate in the training of nurse anesthetist students. This was a responsibility that GAS refused to undertake in prior negotiations because it contended that its mission was to insure quality medical care to patients and not to provide an educational experience for students..

Although every effort was made to reach an agreement CAMC's executive group reported to the board of directors that GAS was a poor negotiating partner and without benefit of discussion with the affected anesthesiologists, the Board issued a Request for Proposal. GAS was convinced that the hospital's primary goal was not to maximize quality while promoting financial efficiency but rather to punish GAS and award the contract to a competitor. Subsequently the hospital awarded the contract to InPhyNet who immediately tried to employ the very physicians for whom the hospital was attempting to remove their privileges. After heated discussions and activities the hospital recognized that its medical staff would not validate its choice for anesthesia services. Ultimately it became clear that CAMC might have to cancel its contract with InPhyNet on the basis of "inability to service contract". GAS recognized that it was faced with a "live or die" situation and agreed to develop 4 contract options and the hospital would also develop 4 options.

With options in hand, CAMC and GAS scheduled a meeting to discuss, consider and ultimately develop an agreement that would be mutually satisfactory. Both parties were emphatic that the options presented were just that-options and not final offers! At the meeting the following options were proposed:

CAMC PROPOSALS:

Option I : CAMC would retain the CRNAs and negotiate an exclusive contract with GAS. In turn GAS would agree to work with the institution to develop an ACT practice model acceptable to both parties. A review of GAS's billing practices would be initiated and protocols would be developed for the use of drugs, supplies and agents. The contract would be time limited with periodic renewals depending upon progress toward goals.

Option II: CAMC would retain CRNAs, enter into an exclusive contract with GAS and lease CRNAs to GAS. Through this professional "lease-back" arrangement, GAS would reimburse the hospital for hospital-employed CRNAs.

Option III: CAMC would terminate all CRNAs, contract with GAS who would either employ the CRNAs or subcontract with an Independent CRNA Practice Group. CAMC would be transferring the cost of all CRNA services to GAS and GAS would gain all of the revenues associated with CRNA billings.

Option IV: CAMC continues its contract with InPhyNet, continues to employ the CRNAs who will be leased back by InPhyNet and InPhyNet will subcontract with GAS. GAS proposals:

Option 1 : GAS would employ all CRNAs

Option 2: GAS would help CRNAs set up an independent practice and subcontract with CRNAs

Option 3: CAMC would continue to employ the CRNAs and GAS would enter into a professional lease-back arrangement with the hospital.

Option 4: CAMC would incorporate a nurse specialists practice to include nurse midwives, family nurse practitioners, pediatric nurse practitioners and certified registered nurse anesthetists. GAS would contract with the group for CRNA services thereby providing seed money for developing contractual relationships in other specialties.

With 8 options available to them CAMC and GAS adjourned agreeing to meet within two weeks and arrive at a solution.

Question: There are significant similarities between the options presented by each party. Identify those options that contain meaningful differences and present the advantages and disadvantages of each from either the perspective of the hospital or from the perspective of the group practice.

AuthorAffiliation

Phil Rutsohn, Marshall University

Bob Forget, Marshall University

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

Volume: 7

Issue: 2

Pages: 39-44

Number of pages: 6

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412218

Document URL: http://search.proquest.com/docview/192412218?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 28 of 100

CHINA HOLDING COMPANY VS. CHINA WHOLLY FOREIGN OWNED ENTERPRISE - A CASE STUDY

Author: Sun, Terri

ProQuest document link

Abstract: None available.

Full text:

Headnote

ABSTRACT

When a multinational has invested a number of manufacturing operations in China, a centralized structure will normally be needed to cover the functions of business development, engineering and management support, as well as other administrative functions such as expatriates administration, funds and taxation management. In this case, three types of organization that are available in China are compared and discussed: 1) A representative office can perform some of the functions, however as it is not a legal entity it cannot receive income for its services, and it is taxed on its expenses (5% on deemed sales revenue and 33% on deemed profit); 2) A holding company is an ideal legal entity to perform all the functions, but a US$30 million new investment commitment in two years must be made to form a holding company, in addition to the existing investment requirements; 3) A wholly foreign owned enterprise in one of the free trade zones in China is another alternative. It is cheap to establish and has reasonably flexible / broad business scope. However its ability to provide engineering support, management and expatriate services to the same parent company's China operations, and receive income for its services needs to be confirmed, and put into practice. It will be the most favored entity to perform various functions to service its China operations, if Chinese Government allows these to be included in the business scope.

BACKGROUND

China's auto industry is one of the fastest growing industries in its economy. In year 1999 national total vehicle production was US$27.8 billion, an increase of 12.3% from the previous year. Chinese government has planned a total national vehicle production US$30.2 billion for year 2000. The Government has determined to stimulate the nation's internal demand for consumption, in the areas of living and transportation. This will have a positive impact on the development of the nation's auto industry. The government's new policies will be introduced in the near future, which will include some favorable taxation administration, city infrastructure coordination, consumption encouragement, and financing assistance systems, to encourage Chinese individuals to purchase small and economical family vehicles.

In early 1999 a multinational acquired another multinational. Both multinationals were major auto parts suppliers worldwide. After the acquisition and integration, this particular multinational in the auto industry in China has the following characteristics:

- It has established a number of joint venture manufacturing operations in China, located in different cities;

- Engineering support and product development coordination are provided centrally in China, for certain products;

- Centralized support on accounting, sales/marketing, purchasing, IT & HR are desirable, and need to be provided;

- Expatriate managers are assigned to the joint ventures (JV), and there are Management Service Agreement (MSA) between the foreign parent company and the JVs. Under the agreement the JVs will pay MSA fees to the foreign investor;

- Business is expanding in China.

The purpose of this paper is to explore and analyze the advantages and disadvantages of three forms of organization that are available to perform the management functions that the foreign parent company requires and which may be established in China. Three types of organization are:

1. Holding company (CHC);

2. Wholly Foreign Owned Enterprise (WFOE);

3. Representative Office.

ISSUES TO BE RESOLVED

Prior to the acquisition, there were two multinationals operating 9 manufacturing operations (joint ventures and wholly owned enterprise) and 2 representative offices in China. After the acquisition, there have been a number of issues that need to be resolved.

Externally Meeting Customers Requirements

Based on the fact that China's auto industry is expanding, more multinational vehicle manufacturers (VM) are entering into China, more and more vehicle platforms are being introduced. To position this particular auto parts making/supplying multinational in a competitive edge in winning business to support the major vehicle manufacturers' major platforms launched in China, a number of questions need to be answered:

1. How to integrate all operations in China and present single face to the customers?

2. How to best service the customers in terms of product development, competitive price, superb quality and on time delivery?

3. How to maximize the usage of centralized available management resources to provide fast and complete market/customers information to the operations, enabling them to act in accordance with the market/customers requirements?

Internally Stronger Management Support

As a result of the acquisition, there are 9 manufacturing facilities operating in one country, which have been established by different product groups, the reporting lines are therefore divisional. The operations manufacture different auto parts but supply to the same customers. To achieve the goals to best service the customers and win more business, a strong and efficient corporate management structure is desirable to centrally coordinate between the operations and customers, catering to China's unique domestic auto industry competition nature.

China is a developing country, in the stages of moving from planned economy to market economy. As a consequence legal systems are incomplete, the business environment is far from well regulated, and there is fierce domestic competition due to the fact that local (provincial) government is counted on their area's economic performance. For these reasons China can be a difficult and confusing place to run the business with a lot of hurdles and uncertainties around. An effective corporate management structure is desirable to:

4. enable the operations to share the hard learnt China experience and avoid repeating the same mistakes.

5. provide services to the operations covering areas such as accounting/finance, business development, sales/marketing, purchasing, IT and HR.

Equal Pay Issue

The foreign parent company is providing expatriates to the joint ventures and receives fees from the JVs under management service agreement (MSA). The reason for having a MSA is that under Chinese labor regulation (a document specially issued for foreign invested enterprises in year 97, No. 46), there is a provision stating that in order to apply the sprit of Chinese Labor Law, i.e. salary distribution shall be based on the individual's contribution to the enterprise, equal pay for the same work (job), Chinese senior management personnel shall be paid the same rates as foreign expatriate senior managers. The amount under equal pay (notional salary) over the amount that the Chinese senior managers are actually paid (actual salary) will be contributed to the Chinese employee's welfare funds, such as pension fund and housing fund. E.g. under the equal pay the Chinese manager's notional salary is, say US$6,000 per month, but under Chinese pay system a local Chinese senior manager's actual salary is, say RMB4,000 (US$480) per month, the difference of US$5,520 will then be the additional contribution to the Chinese welfare fund.

This requirement was not in the JV contract, and was not in the original JVs' feasibility study, but Chinese partner and JV's labor union normally insist the application of this provision.

MSA is an alternative to the equal pay requirement. Together with a MSA that is agreed and signed that the JVs will pay an agreed amount for the expatriate management service to the foreign parent company, there normally is another agreement that the foreign investors in turn agree that the JV will provide additional fund to the Chinese employee welfare funds.

Tax Issues

The management service fee attracts 5% business tax, plus 33% corporate income tax based on 10% deemed profit on the total fees received, or a total tax of 8.14% before the money can be remitted offshore.

Multinationals normally have representative offices in China. The representative office also attracts taxes on its expenses, i.e. the 5% business tax on the deemed sales revenue and 33% corporate income tax on the deemed profit, or a total tax of 9.76% on representative office's expense amount.

The reality is that the foreign company is paying taxes on both the incoming amount received under MSA, and the outgoing amount that its representative offices spend in China. If the multinationals retain all their supporting functions under representative office, the expenses can be very substantial, hence the business tax and income tax liabilities can be substantial accordingly.

With inability of some of the foreign parent companies to claim tax credit in their home countries, and the difficulties that foreign investors in PRC have commonly experienced to repatriate hard currency offshore, due to Chinese government's extremely tight control over foreign exchange, issues need to be resolved are:

6. How to most effectively use funds available in China?

7. How to minimize the tax liabilities on the funds received, and money spent?

Based on the post-acquisition issues arisen listed above, as well as the need to better manage the funds in China, we believe a corporate entity needs to be formed in China, to strengthen management capability, and manage the funds more effectively.

TYPES OF WHOLLY FOREIGN OWNED LEGAL ENTITY AVAILABLE IN CHINA

There are two types of wholly foreign owned entities that are available in China for foreign companies to choose. The decision on forming which type of the entity is dependent on the functions that the foreign parent company needs the entity to perform, and the amount that the parent company is prepared to invest in China. Two types of entity are:

- China Holding Company (CHC), and

- Wholly Foreign Owned Enterprise (WFOE), of which there are two types:

- Type 1 : normal WFOE in the economic zones in most major cities in China;

- Type 2: WFOE in the free trade zones which are located in Shanghai, Shenzhen, Tianjin, Dalian and Qingdao. The government policies in the free trade zone are more flexible, in terms of boarder business scope.

ADVANTAGES & DISADVANTAGES COMPARISON - A SUMMARY

From a multinational point of view, based on the fact that it is in the absence of major investment needs in China in the near future, a summarized comparison on the advantages and disadvantages of forming a CHC or WFOE are as follows:

From the table above we can see that WFOE in the free trade zone has higher score than CHC, in terms of investment requirement, establishment cost and tax benefit. If a multinational with US$30 million existing investment, has new business projects to invest in China for another US$30 million in two years, CHC will be an ideal solution. A lot of administrative issues can be resolved following the establishment of the CHC.

However, if a multinational has had substantial current investment but does not have new investment projects in China likely to reach a total of US$30 million in two years, and there are a number of issues that need to be resolved, the option of WFOE should be looked into and further explored.

A representative office can be an alternative to provide most of the management and engineering support functions, but the key limitation is that it is not a legal entity, which means that it only reports its expenses and pays taxes based on the amount of its expenditure. It does not have the capability to generate income and be self-funding, but has to be dependent on the foreign parent company to feed the hard currencies to maintain its day to day expenditure. It therefore does not provide a satisfactory answer to the needs of managing funds and minimizing tax liabilities within China.

CONCLUSION

In writer's opinion, on the basis that two outstanding points are clarified and confirmed, a service WFOE registered in one of the free trade zones to include the relevant functions that are currently performed under representative office's name, is a favored solution to meet the requirements that the multinationals may have. Two points that need to be clarified and confirmed are:

10. Ability to sign Management Services Agreement (MSA) with the JVs and WFOEs of the same foreign parent company, and engage in the business of providing (selling) management / expatriates services to the same entities; and

11. Ability to receive payments under the same agreement.

Comparing with CHC and representative office, based on the confirmation of the above 2 points, the benefits of having a service WFOE are:

12. The WFOE is an entity that can be used as a vehicle to present single face to the customers and provide engineering support and management services to the JVs and WFOEs of the same parent company, and thus receive income (management service fee) from those entities, to maximize the funds usage within China;

13. Since it is a legal entity responsible for its profit and loss, it can receive income and claim expenses incurred in producing income (currently the expenses are paid through representative office), and pay corporate income tax on the actual net profit;

14. It does not have a requirement to form with an additional investment commitment of US$30 million in two years;

15. It enjoys tax benefit in the free trade zones (15% income tax);

16. Tax savings on management service fee if the fee is paid to the WFOE in China, and substantial savings on the taxes levied on representative office's expenses, if the expenses currently paid through representative office are paid by the WFOE.

To date the writer is still in the process of investigation. Since it is a new thing in China to use WFOE to provide management / expatriate services to the JVs and WFOEs of the same parent company, it takes time and effort to get the legal entity type and place of forming the entity right, and put it actually into practice. Following the formation of the service WFOE most of the outstanding issues mentioned earlier in this paper should then have a solution. The benefits are obvious therefore the efforts will be there to make it happen.

References

REFERENCES

Tentative Regulations on Foreign Investment Companies (Promulgated 1995 by MOFTEC)

Explanation on Relevant Issues of "Tentative Regulations on Foreign Investment Companies" (Promulgated 1996 by MOFTEC)

Supplementary Provisions on "Establishment of Companies with an Investment Nature by Foreign Investors Tentative Provisions" (Promulgated 1999 By MOFTEC)

Notice on Certain Issues Concerning Foreign Investment Enterprises Engaging in Investment Business (Promulgated 1995 by Ministry of Finance & The State Administration of Taxation)

Notice of People's Bank of China on Foundation & Operation of Financial Company of Foreign Investment Enterprises (Promulgated 1996 by the People's Bank of China)

People's Republic of China Foreign Investment Enterprise Accounting Regulations (Promulgated by the Ministry of Finance)

Clark T. Randt, Jr. (Second Edition) Obtaining PRC Approvals for Foreign Investment Enterprises and Infrastructure Projects. Asia Law & Practice

China Auto Industry Analysis Magazine By China Machinery Buearu Auto Industry Development Institute, and China Auto Industry Development Consulting Company

France houdard, Operating in China - A survivor's guide for foreign-invested companies. The Economist Intelligence Unit (E.I.U), March 1998

Notice on "Foreign Invested Enterprise Salary Administration - Tentative Method" (Promulgated 1997 by Ministry of Labor, No. 46)

AuthorAffiliation

Terri Sun, Macquarie Graduate School Of Management, Australia

terri.sun@bigpond.com

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

Volume: 7

Issue: 2

Pages: 53-59

Number of pages: 7

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412371

Document URL: http://search.proquest.com/docview/192412371?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 29 of 100

THE DESIGN OF NEW FINANCIAL PRODUCTS-SUCCESS AND FAILURE

Author: Weston, Rae

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Abstract: None available.

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(ProQuest: ... denotes formula omitted.)

CASE DESCRIPTION

This case deals with a critical evaluation of two real investment products both of which were offered to the market but only one of which was successful. It allows students to decide from a consumer viewpoint what features of the products should appeal to the four groups of potential investors identified in the case.

The case is designed to focus attention on the demand side of investment product offerings.

The case is used as part of a program on marketing financial services and products .It is designed to take from an hour to one and a half hours depending on the depth of analysis required.

The case is intended for difficulty level 5.

CASE SYNOPSIS

This case provides details for two investment products launched in a deregulated market by the same company only two years apart. One was highly successful, the other failed to attract sufficient investor interest and did not proceed. The products are Highpoint International Index Trusts and Endowment Warrants. Both products are based on derivatives. Such products find it difficult to be fully understood by the retail investor market. Full details of the product offerings together with their advantages and disadvantages are provided.

The students are told that the potential market(s) for these products are one or all of the typology of financial services consumers. They are expected to focus on identifying the features of the two products that could attract these groups and on how these could be structured into a marketing plan.

All the information provided in the case is real and students are able subsequently to follow up the progress of the successful one on the launching company's web site.

THE CASE

Harrison(1994) has developed a typology of financial services consumers which classifies consumers according to their perceived knowledge of financial services; level of involvement or interest in financial services and attitudes towards financial services and financial institutions.

This typology was developed from a quantitative sample of customers and cluster and discriminant analysis was used to establish that there were four segments of this customer base that were distinct and statistically different. The four groups were classified according to their perceived knowledge of financial services; level of involvement or interest in financial services; and attitudes towards financial services and financial institutions. The four groups were described as Financially Confused; Apathetic Minimalists; Cautious Investors and Capital Accumulators.

The Financially Confused had a low perceived knowledge of financial products and low financial maturity. They used only basic banking products and a heavy cash orientation. Their focus was on short-term save-to-spend activity, with little orientation or savings.

The Apathetic minimalists had a low perceived knowledge of financial services but a relatively high level of financial maturity. They held some fairly complex financial products and were willing to trust financial advisors ,but had low levels of confidence in dealing with financial institutions.

The Cautious Investors considered themselves to be knowledgeable about financial services but had only a moderate amount of financial maturity. They held a range of low-risk financial products, including stocks and unit trusts. They had reasonably long planning horizons and financial objectives.

The Capital accumulators had a very high level of perceived knowledge of financial services and a very high level of financial maturity. They held complex products about which they were knowledgeable and were financially active in equity-based investments.

Details of two products launched by the same investment bank are provided below.

The questions that need to be answered about these two products are:

If these groups are the potential customers, which, if any, would be attracted to each of the products?

What would be the source of the attraction?

Which is the successful product?

Why is it successful?

What are the likely causes of failure of the other product?

Product 1

Highpoint International Trusts

The Product

Highpoint International Index Trusts combined two concepts:

First, an opportunity to have an investment linked to the performance of major UK, US, German and Japanese stock market indexes. Each of the four Trusts is based on a specific share market index, the UK FT-SE 100, the US S + P500, the German DAX and the Japanese Nikkei 300.

Second, the "Highpoint" concept, which means that returns will be based on the highest point reached by the particular index during the investment period of about 5 years, regardless of when within the period it occurs.

Further, even if a share market index fell substantially, the original Trust investment will be repaid in full and in $A.

Each Trust will invest the net proceeds of the issue with Credit Suisse Financial Products, a company rated AAA by Standard and Poor's and backed by Credit Suisse, a major international bank.

The termination date of the trusts will be 30 December 1999 at which point investors will be returned the net value of their original investment, plus the percentage increase between the value of the index at the start date of the trust and the highest point reached by the index during the life of the trust. No income will be distributed by the trusts.

Each trust will trade separately on the Australian Stock Exchange.

Advantages :

The benefit of "highpoint"

Capital protection backed by Credit Suisse

No currency risk for Australian investors

Australian Stock Exchange listing

No taxable income

How does it work?

The investor subscribes a minimum of $2000. 98% of the amount is paid to Credit Suisse Financial Products as a premium under an Equity Index Option Agreement exercisable on 30 December 1999. The remaining 2% will be invested by way of deposit under a Deposit Agreement to mature on 30 December 1999 when it will be applied in full settlement of the amount payable on exercise of the option.

On exercise of the options Credit Suisse Financial Products will be required to pay the Trustee a final payment amount in respect of each Trust equal to the total investment (premium plus deposit) made by the Trust multiplied by a fraction that will take into account the Highpoint and the Participation Factor of the relevant Index eg:

...

where

the Highpoint is the highest closing level of the index between the start date and 30 December 1999;

the Start Date is the date on which the participation factors are set;

the opening index level is the level of the relevant Index at the closing of trading on the Start date; and

the participation factor is the actual participation factor of the relevant index.

What are the Participation factors?

Participation factors are a measure of the percentage amount by which the Indexes must rise before the Trust investments will show a profit. For example, an actual Participation Factor of 1.05 means that the relevant Index must increase by 5% from its closing level on the Start Date before the relevant Trust investment will show a profit.

Participation factors will be set at the following maximum levels.

FTSE-100 1.10

S&P 500 1.05

DAX 1.15*

Nikkei 300 1.0

The participation factor is higher for the DAX because it is an accumulation index.

What are the fees and expenses?

A once only placement fee equal to 3% of application moneys to be held by the Trustee on behalf of the manager and to be used to pay fees to brokers and others for previewing subscriptions for units.

The Trustee receives an annual fee equal to 0.07% of the initial value of the Trust. The Manager is entitled to receive a once only management fee equal to 0.15% of the initial value of each Trust fund. The manager has waived this fee to the extent that it cannot be met from interest received by the Trusts on the application moneys and day to day cash balances. A once only pre-paid management fee equal to 2% of the application moneys is payable by investors in addition to the application money. This fee will be used to meet the normal operating expenses of the Trusts.

Credit Suisse Financial Products will pay the manager an amount equal to 0.25% of the aggregate amount invested and may reimburse certain costs and expenses not exceeding $ Al 4,000 to the Manager.

Product 2

Endowment warrants

Endowment Warrants are long-dated European call options with variable strike and variable duration capped at approximately 10.5 years. The underlying asset is a share in a public company.

Endowment warrants enable investors to leverage a share portfolio without having to borrow. The investor pays a premium of 30 to 60% of the share price for the endowment warrant. The difference between the share price and the warrant price plus an amount for the issuer's equity risk, the investment bank's fees and associated brokerage costs is described in the Outstanding Amount. This increases with interest and is then paid off over the life of the endowment warrant by the dividend stream and other cash disbursements such as rights issues to which shares are entitled.

The description "endowment" for the warrants comes from the concept that, given a required year-on-year dividend growth (based on the last year's dividends) the Outstanding Amount will be fully paid off and the share ownership will revert to the warrant holder.

If dividends do not pay off the Outstanding Amount in 10 years, the investor can choose to fund the shortfall or cash in the value of the investment. The downside risk is limited to the original amount paid for the warrant. If the dividend growth is more than projected, full ownership occurs earlier.

The two warrant issuers are Macquarie Bank and Credit Suisse. Both base interest charges on the 90 day bank bill rate but Macquarie charges 3% over the bill rate and passes on franking credits to the investor to pay down the outstanding amount (tax changes removed this in 1997) while Credit Suisse only charged the bill rate but did not pass on the franking credits. Because dividends are used to pay off the outstanding amount they are not taxable but the investor is liable for capital gains tax when the investment is sold.

Advantages

They are simple and require little record-keeping. "With endowment warrants you simply "set and forget" as there are no franking statements, no interest payments, and no complicated annual tax calculations."

An investor with limited investment funds can gain exposure to a larger number of shares than by physically purchasing the shares.

For pension funds which are not allowed to borrow endowment warrants allow them to gear into shares.

Dividend growth for the stocks on which endowment warrants were first issued averaged 21% over the previous decade. The shares will be paid off if the average is only 12%. They offer the opportunity of paying current prices for shares that may rise in value many times over the 10 year period.

Disadvantages

In the very long term (over 30 years) the growth rates for dividend-earnings for the market has averaged 5 to 7% a year.

The interest rates charged are variable and may rise from their historically low levels.

The price premium built into the warrants by the writers may not be sustained in the secondary market.

The cost of leveraging. The broker gets 2.25% of the 3% upfront fee and an additional 0.5% on the value of the underlying shares. It would only cost 2% for the investor to buy the shares directly.

A holder of endowment warrants is not taxed on the dividends that pay off the warrants, but when the shares are eventually acquired, the cost base for the assessment of capital gains tax is the cost of the warrant (the deposit plus any payment to cover the amount by which dividends fall short of covering the outstanding amount). If the shares were bought with external finance, the cost base would be higher and the capital gains tax liability lower.

Overall fees amount to around 25% of the price of the warrant and these are added to the initial amount to be recouped from dividends.

Technical note: Highpoint is priced using look-back options. A lookback option gives the holder the right to purchase or sell the underlying asset at the best possible price attained over the life of the option. It is classed as a path-dependent barrier option.

References

REFERENCES

Girdham , M., "How to Market Unit Trusts: A Consumer Behaviour Model", Marketing Intelligence and Planning, Vol 5, Issue 2, 1987.

Harrison, Tina(1994) "Mapping customer segments for personal financial services" International Journal of Bank Marketing Vol 12,no 8

AuthorAffiliation

Rae Weston, Macquarie Graduate School of Management

rweston@laurel.ocs.mq.edu.au

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

Volume: 7

Issue: 2

Pages: 60-64

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412231

Document URL: http://search.proquest.com/docview/192412231?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 34 of 100

SEVEN SPRINGS, INC.

Author: Brooks, Gordon; Kilpatrick, John; Johnson, George

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Abstract: None available.

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INTRODUCTION

Seven Springs, Inc. was formed in February 1997 to meet the evolving need of society, Quality Drinking Water. The idea to bottle "Seven Springs Pure Spring Water" has been kicking around since the 1920's, when the water was hauled by train tanker to Omaha, Nebraska. This water was taken again to Omaha in the 1950s and 1960s for hospital use. In the past twenty years, there have been a couple of dozen "would be entrepreneurs" who considered the idea sound, but generally became discouraged in their analysis when confronted with the distance to markets. One elderly rancher remarked that he would do well, if he could get one penny for each gallon of water that flowed from his artesian wells.

The distance challenge did not dissuade Major Gordon Brooks, Sr., US Army (Retired). Brooks, the entrepreneur, the water mogul, as some refer to him, seems to fit in with the "code of the west." He prefers to quote the golden rule, "Do unto others as you would have others do unto you."

After his retirement, from a career in the Field Artillery and Research and Development, Brooks moved his family to Bassett, Nebraska, world renown for its premier cattle raising attributes. However, the timing to enter the industry was not right for Brooks, so he went to work for others. While helping on the corn harvest in Ainsworth, he was treated to his noon meal each day. When asked what kind of soda he wanted to drink, he replied that he'd prefer water, and could bring it from home. "Nonsense," replied Mrs. Moody, I'll bring you water." Which she did. Brooks read the labels, as is his habit, and discovered some brands provided came from Canada, France, Montana, Arkansas, or Arizona. They each had a distinct taste, some of which he did not like. Then he looked at the prices and told Mrs. Moody's son, Brad, to tell his mom to stop bringing water, he could bring it from home, since he had good water in Bassett. Brad remarked, "the best water in the area is from Long Pine." Brooks asked why was that? Brad replied, "because it's from Seven Springs." The seed was planted. Brooks had learned at an early age the value of quality spring water. His father, a physician and pioneer of "Clinical Ecology", used to take Brooks and his brothers to a spring in Maryland as early as 1959 to collect spring water for household use.

The research began almost immediately, as the weather turned colder and the corn harvest ended. Brooks applied his skills from the US Army and his education [B.S., Biology, University of California-Davis, and the MBA, from Idaho State University] contacting key people in the community and the state about the feasibility of bottling and marketing the Seven Springs Water. During a radio interview, Brooks remarked that the largest challenges were community acceptance and transportation. "No matter how good an idea is, without community acceptance, you really have a shallow victory." Transportation, yes there is a fixed and variable component, however, for a start-up business, one technique, which is appropriate, is to consider transportation as a fixed cost and drive on.

RESEARCH: The research is continuous, but started on 21 November 1996. This involved the Internet, Small Business Administration, The Nebraska Business Development Center, library time, reading, questions of experts, plant tours of bottlers in Nebraska, and elsewhere, numerous phone calls to other experts, town hall meetings, meetings with potential investors, bankers, economic developers, experts from the state, and briefing preparation, and presentations. "Long hours, no pay and somewhere, actually I know exactly when the total commitment came to take the next step forward. Mrs. Beverly Newport, Clerk for the City of Long Pine, shared the "parable of the frog" with me. This occurred the day I felt I was stalled in the efforts to start the business. The parable of the frog goes like this: "A frog fell into a bucket of cream, not able to get his footing in the cream and escape, he kicked and he kicked until cream turned to butter, then jumped out." What a sweet and wise person Mrs. Newport is. That same day, within moments of the parable lesson, the Mayor and Mr. Rick Gable, a retired businessman, pointed out the difference between a good idea and success is "total commitment." They pointed out that in business, you must be willing to take another step, when everyone else is stalled, you must be willing to go further. Brooks appreciated this sage advice and discussed with his wife, Jean, the opportunity that existed. "We decided to incorporate Seven Springs, Inc., and with Jean's understanding that the worst years of our lives may lie ahead, we did just that." Within three days we had a bonafide corporation in Nebraska, and when the call for funding from potential investors went out, there was sufficient capital raised in four days to start the business, as it was originally designed.

PRODUCT: The Seven Springs Water is of such naturally high quality, the product qualifies for statements such as "Sodium free," contains no chlorine, natural or introduced, with a low Total Dissolved Solid count of 45 ppm, and nitrates less than .75 ppm [the FDA minimum contamination level is ten ppm], potassium, and calcium, all essential trace minerals associated with life. Coca Cola bottled Coke and Orange Nesbit soda in Long Pine until the early 1960's, using Seven Springs Water for the soda pop base. Coke officials have remarked that, of the Coke bottling plants scattered around the country in the sixties, Long Pine's water tests were routinely the best and required the least treatment to meet Coke's high standards for bottling. These Seven Springs were capped in 1926 and caused to flow through a central spring house. Inside the spring house, the spring water is diverted to the City of Long Pine's water tank by two pumps which are rated at 650 g.p.m. when both are operating. When pumping, the Seven Springs water is still going over the weir at a rate in excess of 1400 g.p.m. This source of water has never dried up since records have been maintained. Long Pine's fabled Seven Springs Water made it to the finals during the 1998 International Water Tasting and Competition in Berkeley Springs, West Virginia.

PACKAGES: The original research showed the margins were best if we stayed with the 3 and 5 gallon packages. However, the board of directors, having done their own research, steered us toward the single serve containers as well. The Seven Springs Pure Spring Water is packaged in 5 gallon, 3 gallon, 1 gallon 1.5 Liter, 1.0 Liter, and 16 oz. Bottles at present. We continue to search for innovative packages.

DISTRIBUTION: There were four routes established from the plant in Long Pine. Roger started his route immediately, extending sales into South Dakota and North Central Nebraska. Jane started her route immediately in North East Nebraska. Gary started his route, but decided early that he could not afford the time required to serve his customers, so he gave his customers to Jane. Later came Zelan, who is serving Fremont, Joan, who is starting in Kearney, Lee, who is pioneering Omaha, Jerry and Dick, who are both in Lincoln, and Brownie, in Hastings, Benny in Norfolk, Steve in Kansas, and lately, with the consolidation of routes, Don from O'Neill. As of this writing, there are ten distributors, in various stages of development, with six more doing their own research on distribution.

PRODUCTION: Brooks built the first filling machine in his garage for about $500.00. The filters, pumps, ozone generator, and bottle washer came from Norland, International, a bottled water equipment supplier from Lincoln, Nebraska. The first machine, with a crew of five were able to produce 250 gallons per hour, 500 16 oz. bottles per hour, 300 1.0 Liter bottles per hour, and 200 1.5 liter bottles per hour. The decision to purchase the BF 3000 machine came after two weeks of production. This machine is rated at 3000 16 oz. bottles per hour. To date we have produced 857 per hour, with a crew of four. The larger 3 and 5 gallon bottles are washed in the BW 150, a machine that produces 3 cleaned and sanitized bottles per minute. The time to fill these bottles is four per minute.

PROMOTION: We made a conscious decision to use word of mouth as the initial selling tool for Seven Springs Pure Spring Water. News travels fast in rural America. We spent $300 to paint the logo on the side of the delivery van. We branded our products with the pine tree inside a red circle and the words "Seven Springs Pure Spring Water" inside for the single serve sizes and gallons. The 3 and 5 gallon bottles carry the "Water Wagon" logo. Some dear friends told us that "our labels sucked." They are still our dear friends. They were on target, our labels needed some re-work. After eight months of production we are redesigning the single serve labels and already have an improved version for the gallon containers.

MATERIAL PRICES: The price of our product is related to the cost of raw materials, labor, overhead, and the profit incentive. Clearly, the speed at which we are able to produce products and the volume we sell are critical aspects of pricing determination. We routinely analyze our costs with each purchase to see if we can reduce our selling prices and thereby increase our market coverage. We are constantly looking to buy supplies in larger quantities and get a lower cost of production.

PRODUCT PRICING: The range of retail prices are shown in table 1 below.

These are the actual ranges for our region. We are lower than the competition in some areas, higher than the competition in others. Our philosophy is that we are not trying to be the low end or cheapest product on the shelf, because we enjoy a much higher natural purity than the competition, even after they have "processed" their waters, either with distillation or reverse osmosis. We are not trying to be the industry leader for price either. We have a premium product, and have priced it according to our costs of production, with a markup based on our distribution. We evaluate our costs each time we make a saving of more than $0.02 per package [carton, bottle, label, cap].

The wholesale price range is shown in table 2.

Overall, our pricing policy reflects the high cost of our initial supplies. We could have done additional research and perhaps found cheaper supplies initially. We have lowered our costs of production twice by better [less expensive] purchasing decisions.

2. Cost Information for Break Even Analysis.

The 3 and 5 gallon bottles are amortized over a 7 year expected use.

Some idea on distributor's break even can been seen in information shown to one distributor recently about their break even in terms of customers per miles driven. At a distance of 50 miles from the distributor's warehouse to the customers', it takes 7.125 customers using 4 five gallon bottles per month to make it worth driving that far. Clearly, the folks in the cities have a transportation advantage over us. But they don't have the water, we do. I haven't done the analysis yet, but believe we can ship the water by semi profitably to major cities and bottle it there. The main drawback is whether I can find champions that will care as much about the product as we do. I need to give this more thought sometime.

BARRIERS TO ENTRY: The barriers for any competitive start-up are: (1) Access to money. It takes a great deal to grow and realize profit when the margins are small. (2) Protection of the source springs. (3) Transportation is certainly a barrier for us, but in another way it is one of the attractive aspects of Seven Springs. We are a long way from the markets, but we are right smack dab in the middle of the country also. (4) Cost of supplies. As the figures illustrate, anyone with $500,000 and a pulsating will to succeed, can bottle water. It helps a great deal if you have a source springs that has been in use since 1883. I doubt that a large company would come to Long Pine and start bottling the water. I may be naïve, but we are pretty far out.

KEYS TO SUCCESS: There are over six hundred labels on bottles of water in the US. There are less than 350 bottlers. I think we are enjoying some notoriety because we have shot up quickly, in an otherwise depressed area. But, lately I have begun negotiating with two outfits that want to switch to our product because it simply tastes better. I believe there are three reasons a person buys bottled water: Safety, they are concerned about the quality of their water sources. Taste, there is a taste to water, some not as good as others, and convenience, there are those who think it is better for their kids to drink a bottle of water than a soda pop for example. I like to think that the ten distributors and eight folks we have put on a payroll of some sort, full time or part time, are excited about being part of our organization. I have met and talked to some real jerks, but by and large, I think Americans really want to "be or feel in control of their lives." It is part of being an individual, the feeling that you are accomplishing something useful with your time. One of our best promoters is my 74 year old lady that helps us bottle. She was on welfare, but was taken off because of the meager pay she gets from working here. She feels so much better about herself, it is almost inspirational. I think we sell water because it tastes good, comes in convenient packages, and we are trusted.

CURRENT ISSUES AND OPPORTUNITIES: A "blow molding machine exists for 28K that will produce 500 bottles per hour, with one operator. [An operator is paid $5.75 per hour, less taxes]. The cost of the mold is three cents cheaper per bottle than purchasing bottles in bulk. Labels can be purchased for two cents less when purchased in quantities of 150,000 or more. A label machine can be attached to our present machine for 35K. A date coding machine costs 7.8K and will increase our production velocity by one and a half times. Storage is a concern that has prompted expansion plans for the plant. We figure we need an additional 2,500 square feet. Cost 50K. We can have labels applied for $0.04 per thousand bottles, but we have to switch bottle suppliers. How do we get the word out about our product, how fast do we want to grow, and how far can we reasonably expect to sell our products at a profit, are all burning questions in Brooks' mind.

AuthorAffiliation

Gordon Brooks, Seven Springs, Inc.

John Kilpatrick, Idaho State University

George Johnson, Idaho State University

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

Volume: 7

Issue: 1

Pages: 2-6

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412222

Document URL: http://search.proquest.com/docview/192412222?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 35 of 100

TELECOMMUTING AT KENTUCKY AMERICAN WATER COMPANY

Author: Butler, Sonny; Loy, Steve; Brown, Steve

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

A public utilities company is faced with the problem of improving the performance of its customer service department through the use of telecommuting. Secondary issues include the how the system is selected, developed, implemented, evaluated, and the effects of the changes on the attitudes and personal performance of the service departments personnel. This case is fairly simple, avoiding overly technical details, making it appropriate for juniors (level 4) and seniors (level5). This case is designed to be taught in a one hour class period and is expect to take three hours of preparation.

CASE SYNOPSIS

Kentucky American Water Company decides to implement a telecommuting system to improve the performance of their customer service department. The case provides a background of the company and the importance of its customer service function. It illustrates the problems associated with the everyday operation of a large public service organization and how telecommuting can help solve these problems. Parameters are established, including a set capital budget allocation, narrowing the alternatives for the project team. A cost analysis is presented before the system is installed, and a productivity analysis completed once the system is implemented. Interviews with the three employees most affected by these changes and the project manager appear at the conclusion of the case where they express their delight with the new system.

TELECOMMUTING AT KENTUCKY AMERICAN WATER COMPANY

Kentucky American Water Company (KAWC) is located in Lexington, Kentucky and serves approximately 280,000 people in the Lexington-Fayette Urban County area and parts of Scott, Bourbon, Jessamine, Woodford, Clark and Harrison counties. With such a large service area, KAWC encounters a significant number of telephone calls regarding customer concerns and questions. Based upon KAWC's experience of an inundation of telephone calls for its customer service department associates during certain days of the week, KAWC decided to search for a solution for this overburdening issue. The background of KAWC's telecommuting project is provided below.

The idea of telecommuting had been considered by KAWC for the past five years, but until now, the computer technology was not available at a feasible cost. KAWC's desire was to provide some and perhaps eventually all of its customer service associates the opportunity to work from their homes. However, the main obstacle that KAWC faced was the requirement that the associates working from their homes be able to connect to KAWC's voice and data resources. Making the issue even more challenging was the importance of capturing customer call statistics, which are used to monitor the customer service associates' workload and performance over time. Therefore, it was imperative that the customer service associates working from their homes be included in the existing Automatic Call Distribution (ACD) call group, thereby providing a measure of the productivity of each telecommuter which is analyzed by KAWC's customer service supervisor.

KAWC's goal for this project was to venture into telecommuting for its customer service department in the most efficient manner. More specifically, KAWC's objective was to improve overall customer satisfaction, increase performance results, eliminate distractions and noise, provide more flexibility, improve morale and motivation, provide more trust and empowerment of associates, and ultimately to reduce costs. The initial budget of between $15,000 and $20,000 was intended to support three work-at-home associates and was developed based upon the cost of computer equipment required for three home work stations in conjunction with the average current market prices for the required Integrated Services Digital Network (ISDN) lines, which allow the remote users access to KAWC's network resources.

While it was possible that KAWC would experience a significant initial cost, it was vital that this investment be paid for in increased productivity. Before the project's inception, KAWC constantly employed ten (10) full-time and various temporary customer service associates. It was anticipated that with telecommuting, more workspaces would be opened up by those who telecommute, thereby increasing KAWC s ability to respond to customers in a more efficient manner. KAWC desired the home work stations to be a one-size-fit-all format that imitated the current setup at KAWC due to associate familiarity with the current system, thus eliminating the need and cost for retraining.

Prior to the installation of the telecommuting equipment, KAWC's computer system consisted of a customized IBM AS-400 operating system and an in-house customized COBOL software program. In addition, remote connections were accomplished through the ISDN lines. The Private Branch Exchange (PBX) digital switching device that handled communications of internal voice telephones, computers, and the external telephone network were serviced by Nortel.

Before completion of the project, KAWC had remote data connectivity through five ISDN lines that allowed the remote user access to KAWC's network resources and their IBM AS-400 midrange computer. Some users were using telnet, a protocol that enabled users to log on to other computers on the Internet to gain access to public files, through KAWC's network to an IBM AS-400 in New Jersey, which contains the customer databases.

With KAWC's phone system, statistics were captured through the ACD system, which ran on the Nortel Option 11 phone system. In addition, KAWC's computer information system consisted of Novell 4.11 NOS fast Ethernet LAN, Lotus Notes Server-Windows NT, Internet Server, and IBM AS400-Customer Information Processing. As one would presume, these diverse systems caused some concern as to which telecommuting system would be the most compatible with KAWC's software/hardware. KAWC also made available three PC systems for possible use by its home customer service associates. These systems consisted of two Compaq DP 6000 PCs and one Compaq EN Series PC. Each PC had 266 MHz, 64 megabytes of RAM, a 3-gigabyte hard drive, and was compatible with Windows NT 4.0.

The selection of the provider of the ISDN connections became the most critical and timeconsuming aspect of the project. As discussed earlier, the ability to capture customer call statistics was of the utmost importance and caused a great deal of concern as to whether these statistics would remain available with the implementation of the telecommuting project. The first five weeks of the project were consumed defining the exact specifications for the home connections and determining which manufacturer could provide the best service at a reasonable cost.

After considerable research, the options were narrowed down to Lucent Technologies' TeleCommute Solutions and MCK Communication's Extender 3000. However, the alternative provided by Lucent Technologies was deemed not suitable for this project primarily due to the cost of a new switch, which would be required to enable the system to work for KAWC. Therefore, after careful consideration, the team chose the MCK Communication's EXTender 3000 which had the highest performance measures, was compatible with KAWC's current system, was priced within KAWC's budget, and which provided comprehensive, long-term technical support

The MCK Communication's EXTender 3000 enables users to increase the productivity and performance of their remote workforce by providing them with access to all the features on their Meridian or Norstar System and corporate local area network (LAN) from any remote location.7 With its built-in ISDN line interface, a remote user can connect their digital phone and a PC into the EXTender, thereby providing off-premise associates with full voice and data communications. The EXTender 3000 enables call center associates to work remotely; executives to constantly remain in contact; knowledge workers to have access to the same tools they have in the corporate office and small branch offices to save money by providing access to existing corporate communications systems.

After it was decided that the MCK Communication's EXTender 3000 was appropriate for KAWC's telecommuting needs in relation to performance, compatibility, cost, installation, and technical support, the team identified two local vendors that could provide this service, Vendor A and Vendor B. Both companies were invited to present their products along with their implementation and pricing proposals. Vendor A had an excellent working relationship with KAWC along with extremely high reliability and quick response time. In addition, Vendor A had the ability to service KAWC from a remote location with the ease of one phone call. Therefore, KAWC ultimately chose Vendor A as its service provider.

KAWC's customer service associates were provided the opportunity to bid on the three pilot positions. Following the union contract as it applied to bidding, KAWC considered the following factors in its selection of the customer service telecommuters for the telecommuting project: 1) Length of continuous service; 2) knowledge; 3) training; 4) ability; 5) skill; 6) efficiency; and 7) physical fitness. Under these terms, qualified customer service associates, assumed to have the knowledge, training, skill and efficiency to perform customer service work professionally and efficiently by seniority were given the first opportunity to participate in the pilot program. It was decided that if there were not enough qualified customer service associates interested in participating, the remaining participants would be selected by company seniority.

KAWC faced the following limitations in its customer service telecommuter selections due to location and program participation: 1) lack of radio communication; 2) significant additional line costs and ISDN service availability for customer service associates living outside the Fayette County exchange; 3) distance from the office for potential drop-off of materials required successful bidders to live within Vendor A's Lexington service area and within reasonable proximity to the main office.

Each customer service telecommuter selected to participate in the project was required to set aside space for a home office. The installation of an ISDN line at each telecommuter's home was a significant expense for KAWC. Therefore, it was necessary that the selection of participants be carefully made. If a telecommuter decided to leave or determined that they no longer wished to participate in the project the costs of the ISDN lines would be deemed sunk costs and would thus recur if another participant was added to the project. The EKU team installed the computers and printers, connected all the wiring and the ISDN connection in the home. After all these connections were performed and checked, the login connection was made to the AS 400 at the company location thereby providing each customer service telecommuter with voice and data access.

When the telecommuters sign on to their PC at their homes, they access KAWC's AS-400 in New Jersey, which contains the customer databases. The NT server provides the telecommuters access the AS-400 with password verification and also handles the remote access to KAWC's existing network while simultaneously allowing the telecommuters to perform other various functions such as accessing e-mail. The TCP/IP is a protocol that allows all of the diverse voice and data systems to communicate. When the telecommuters sign on to their phones they access the Private Branch Exchange (PBX) digital switching device, which handles communications of internal voice telephones, computers, and the external telephone network. The routers on each end of the GTE Central Office split the data into voice and computer data via an Ethernet card. In addition, remote connections are accomplished through the Integrated Services Digital Network (ISDN) lines that allowthe telecommuters access to KAWC's network resources and the AS-400 midrange computer. The ISDN lines offer three separate digital channels, designated B, B, and D (usually written 2B + D). The two B channels, which each operate at a speed of 64 Kbps, are intended to carry digitized voice, data, or compressed video; the D channel, which operates at 16 Kbps is intended as a control channel. In general, the telecommuters use the D channel to request services, which are then supplied over the B channels. Both of the B channels can be combined to produce a single channel with an effective data rate of 128 Kbps.

The total initial cost of the project was $6,347.70 per customer service telecommuter. This cost consisted of the purchase and installation of an ISDN line with a 2 B channel for voice and data along with a recurring charge of $146.50 per month for the optional features of the ISDN line. The MCK remote agent equipment cost $3,270.00 for each telecommuter along with an installation charge of $600.00 for each telecommuter. A charge of $2,000.00 was also incurred for a PC and printer for each telecommuter. These costs and other various expenses related to KAWC's telecommuting project are provided as follows.

Insert Table 1 Here

The remote agent equipment is the primary incremental cost of the project other than the ISDN line cost. KAWC anticipates that as technology improves, the monthly communication line costs may also decrease. To date, KAWC continues to monitor the performance of the telecommuting system to ensure that it is functioning properly. In addition, customer service telecommuter performance measures are closely monitored by the company.

Regarding the telecommuters' improved performance, one customer service telecommuter doubled her production with an all-time high of 175 calls on one day. Yet a second customer service telecommuter was also able to double her performance with a total of 174 calls on one day. The third customer service telecommuter was able to triple her production, answering 144 calls on a particular day as compared to her average of 40 to 50 calls per day at KAWC's headquarters. As a whole, KAWC's call rate has risen from 89% prior to the project's implementation in May 1999 to 98% at the end of June 1999. As of June 12, 1999, the Project Manager declared that KAWC's overall call rate, a performance level regarding the total percentage of calls accepted that are answered by the department, was 94% year to date.

In 1998, KAWC's 10 customer service associates experienced an average of 10,600 telephone calls per month resulting in an average of 962 for each customer service associate. These numbers have increased significantly YTD, 1999 (January through October). The total average of calls per month (January 1999 through October 1999) was 11,653, for a team average of 1,165 calls per month for each customer service associate. The customer service associate team's overall performance during 1998 was 87% and now stands at 95% YTD 1999. This productivity improvement is mainly attributed to the telecommuting team, which is currently averaging 13 calls per hour versus eight calls per hour for all customer service associates during 1998. The following chart provides a synopsis of the customer service productivity analysis for 1999 (June through October) as compared to 1998 (June through October).

Insert Table 2 Here

More specifically, the following chart represents the Customer Service Productivity Analysis for KAWC for the month of September 1998 as compared to September 1999 and summarizes the success of the telecommuting project.

Insert Table 3 Here

KAWC has experienced minimal problems since the inception of the proj ect. An unanticipated problem included a break in the connections at times, which was attributed to the older wiring in one of the telecommuter's house. While one of the telecommuter's portable radios was unable to always reach the field agents, this problem was easily fixed with a larger radio frequency system installed for all associates at a cost of approximately $800.00. With the exception of this expense, KAWC has experienced no unanticipated costs.

Thus far, after approximately six months of telecommuting from their homes, the three customer service telecommuters continue to remain very focused and committed to the success of this project. In fact, they have become a true team - working to assist each other and sharing new ideas and expertise with one another. They have enhanced their technical skills significantly, and are much more capable of "trouble-shooting" their PCs and continue learning new skills.

At the inception of the project, the telecommuters were focused on trying to answer the calls and move from one call to the next, which did not allow them adequate time to finish all the pertinent "wrap-up" tasks of each call. These circumstances resulted in additional stress from an already very stressful position. The telecommuting team members are now starting to settle in at their own agreed upon goals - 15 calls per hour, which puts them in the area of approximately 100 calls per day. On any given day, depending on the total call activity and the number of associates available to handle calls, the telecommuters far exceed their goal of 15 calls per hour and are achieving 20 - 25 calls per hour on the busiest of days.

According to KAWC, the associates that were chosen to fill the positions have the perfect personality styles for such a project and truly enjoy working in their home environment. As previously discussed, the associates are far more productive at home versus in the office, mainly due to the avoidance of all the added distractions in the office environment. KAWC strives hard to ensure that the associates are included in every aspect of training, meetings and other activities throughout the company. In addition, KAWC is able to use all avenues of communication - telephone, e-mail, fax, mail and personal contact on a daily basis with the telecommuters.

Three employees of the Kentucky American Water Company participated in the pilot proj ect. Here are some of their comments. Pam Buehler states: "My thoughts before going into the Home Connection program were that I would be in a more productive atmosphere. That I would be more focused and empowered. It has proven to be just that. It is like having your own little business. I would certainly choose different customers but that's the feeling I get. I have become more creative, more self sufficient, taking on additional responsibilities in order for me to be more efficient and productive. We are stilling dealing with the same customer problems has before, but being in the home atmosphere that I am in, I feel like I deal with them more efficiently because of not having the distractions and interruptions. Beverly, Pam, and I are committed to making this program work and appreciate the opportunity to do so. This program does and still has a lot to offer both the employee and the company."

Peggy Hensley says: "The Home Connection has been the most exhilarating, motivating, and difficult project that I have had the privilege to been involved in. This program has allowed me to reach heights within my career that I never dreamed were possible. The foremost highlights are the simple feelings of empowerment and trust. Because KAWC has entrusted me to do my job from my home, I have learned how to be a team member, how to utilize a computer, work and give the customer 100% of my attention. It is truly amazing how much more focused I can be in the quietness of my home and I am proud of the productivity that I have achieved. I have always taken my position seriously, but this program has given me a complete re-direction of my energies and goals. I can be in charge of my direction and I can strive to achieve what I know that I am capable of.

I feel fortunate to be a member of The Home Connection and to be a part of the team at KAWC and most of all, and the three ladies that I work with. We have given our "all" to this program and we are proud to say, that because of our hard work and commitment, it is flying high!!"

The last quote is from Beverly Horton and she states: "When I found out about the home connection I had my doubts; because in order to make this work we would have to work as a team and customer service has never worked as a team. After all the meetings and the installation of equipment were installed I knew in my heart that this was going to be a success. I've had the opportunity to work with two great women who I can ask anything and get an answer and help when needed. I feel I have reached great heights and I intend to accomplish much more. I am so proud to be a part of this team of Home Connection.

The Project Manager and Customer Service Supervisor, Emma Dailey, was contacted on July 12, 1999, regarding performance of the telecommuting project developed by the team. According to Ms. Dailey, KAWC could not be happier with the performance of the system. In fact, the company is considering the addition of two or three new customer service telecommuters, due in large part to the fact that the three pilot telecommuters are currently accounting for over 42 % of KAWC's total calls (June 1999 actual vs. June 1998 - 23% for the same person). In addition to the increased productivity, KAWC is planning on giving the three telecommuters added responsibilities such as handling their own adjustments right at their home PCs versus waiting for the billing clerk to make the adjustments, thereby providing the customer with an immediate response. KAWC has attributed a majority of the project's success to three factors: (1) the total commitment of the three pilot telecommuters; (2) the availability of the telecommuters; and (3) the lack of interruption during the telecommuters' day. The telecommuters are now only coming into the office one day a week for meetings and other pertinent events.

With the accomplishment of the telecommuting project, KAWC can foresee improved productivity and efficiency, as well as increased trust, empowerment, morale, and flexibility of its customer service associates. The company also anticipates a significant reduction in costs and waste. In addition, KAWC has essentially been able to reduce most of their temporary work force. According to Emma Dailey, "this has definitely been a 'win-win' situation for both KAWC and the telecommuters."

AuthorAffiliation

Sonny Butler, Eastern Kentucky University

finbutle@acs.eku.edu

Steve Loy, Eastern Kentucky University

finloy@acs.eku.edu

Steve Brown, Eastern Kentucky University

cbobrown@acs.eku.edu

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

Volume: 7

Issue: 1

Pages: 7-13

Number of pages: 7

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412225

Document URL: http://search.proquest.com/docview/192412225?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 37 of 100

HUMANA HOSPITAL - LEXINGTON: MANAGING INFORMATION SYSTEMS IN TIME OF CHAOS

Author: Loy, Stephen L; Brown, Steve

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

This is a "critical incident" case that describes what happened in a subsidiary organization that depended on its parent company for information systems support and major IS decisions. In this case, when the parent company, Humana, Inc., faced a crisis, it made IS decisions for its subsidiary that satisfied the immediate needs of parent, not the long-term needs of the subsidiary. The central issue of the case is the clash of objectives between parent and subsidiary. Secondary issues include crisis decisionmaking,, centralized verses decentralized IS control, importance of IS quality in selling HHL, problems when systems analysis and software evaluation are done by unqualified managers, problems with oral contracts, and the negative impact of competitive conflict between two healthcare giants on HHL's information system.

This is a fairly difficult case that requires a good understanding of management practices and systems development methodology, especially the selection of software packages. Therefore, this case would be suitable for first or second year graduate students. The students may need to spend 6-8 hours preparing their case analysis. The case discussion could take 1 hour to discuss in class.

CASE SYNOPSIS

A group of managers from Human Hospital-Lexington (HHL) and Jewish Hospital Healthcare Services (JHHS) met to develop a new plan to replace the general ledger system for HHL. The sale of HHL to JHHS could very well depend on how well they did this job. Three months before, Humana executives decided to replace the general ledger software HHL leased from Humana's chief competitor, Columbia/HCA. A committee of three was formed to investigate hospital management software packages and make a recommendation to the parent company, Humana. The committee investigated several popular packages and recommended the purchase of the system offered by First Data Corporation (FDC). However, Humana's VP. of MIS decided to purchase apackage sold by Shared Medial Systems (SMS). The VP. believed that the prospective buyer, Jewish Hospital Healthcare Services (JHHS), would be more likely to buy HHL if the SMS package was installed.

Installation of the SMS software began immediately. Two weeks later, Jewish Hospital entered into a contract to operate HHL for up to seven years during which time they could buy HHL or terminate the contract. JHHS took over operating control of HHL a week later. The first action the new JHHS operating manager took was to order a team from JHHS to conduct a complete assessment of all functional areas of HHL, including the IS department. After the assessment team reviewed the newly signed contract with SMS and the implementation plan, it called an immediate halt to all implementation activities. Based on the team's report, JHHS notified Humana management to cease all implementation activities until several serious problems were resolved. JHHS gave Humana thirty days to act.

Background of HHL and Humana

Built in 1983, HHL was one of seventy-eighty acute-care hospitals owned by Humana, Inc. Humana had experienced thirty years of uninterrupted growth and profitability starting out an a nursing home operator in the 1960s, then hospital management in the 1970s, finally an integrated hospital management and health insurance provider. Throughout its history, Humana remade itself in response to marketplace changes. Humana's corporate culture encouraged innovation, quick response and risk taking. In 1991, while the health plan business was profitable and growing, hospital profits were declining rapidly due reductions in Medicare and Medicaid reimbursements and rapidly rising medical costs. Additionally, occupancy rates were declining due to fierce competition from out-patient centers and home health care operators. The decline was most severe in markets were Humana operated hospitals. By 1992, the Wall Street Journal ran articles describing Humana's problems and stating that the hospitals had to be cut loose to avoid bankruptcy. In January 1993, Humana spun off all but one of its hospitals and Humana was soon in the "black" again. In 1994, Humana, Inc. was the fourth largest health maintenance organization (HMO) in the U.S. with 2.1 million people enrolled in its HMO insurance plans in fourteen states.

INFORMATION SYSTEM IN CHAOS

In April 1995, a group of managers from Human Hospital-Lexington (HHL) and Jewish Hospital Healthcare Services (JHHS) met to develop a plan to new system implementation plan for HHL. Their decisions could affect the sale of HHL to JHHS. It had been a tumultuous two years for Humana Hospital-Lexington (HHL) since it became the only acute-care hospital owned by Humana, Inc. In the 1980s, Humana had grown to become the nation's largest vertically integrated health care provider, when it joined its HMO/PPO insurance operations with a chain of acute-care hospitals. Things turned sour for Humana in the early 1990s when profits declined dramatically because of reductions in Medicare and Medicaid reimbursements, rising medical and operating costs, and declining occupancy rates threatened to bankrupt the company. In 1993, to avoid bankruptcy, Humana spun off 77 of its 78 U.S. hospitals, including the hospital information systems support staff and software support contract, into an independent public corporation named Galen Health Care, Inc. HHL was not transferred to Galen because: (1) Humana was in the process of negotiating the sale of HHL with the Sisters of Charity of St. Joseph (SCSJ), a publicly-owned multi-state hospital corporation; (2) HHL had a reputation as a "problem hospital" because of slow, inaccurate and inadequate payments to local physicians for their services, and (3) Humana's corporate policy of restricting its policyholders from using other Lexington-area hospitals and "nonparticipating" physicians for medical services had angered Lexington-area physicians and hospitals. Humana believed that it either had to own HHL or sell it to someone that would provide service to Lexingtonarea insurance policyholders because of difficulties in getting Lexington-area physicians and hospitals to accept Humana-insured patients or would charge higher rates for treatment.

Humana and Galen entered into an oral contract to provide information systems support for HHL for $40,000 per month for software leases and support for five years or until HHL was sold.. Six months later, Galen was bought by Columbia Healthcare of America (CHA), a fierce of Humana. Columbia also gained ownership of HHL information service contract and most of its software. Fearing that Columbia could terminate HHL's service contract, Humana executives began renegotiating the contract with Columbia executives.

The negotiations were very contentious and the personal animosity grew worse when CHA executives enacted a policy to reduce the number of Humana HMO patients serviced by its hospitals, including the 77 hospitals formerly owned by Humana. Yet, despite all the bitterness, the two companies created an oral service contract which included the replacement of HHL' s General Ledger software with CHA's software.

Fifteen months later, January 1995, Humana executives decided to replace the software HHL leased from Columbia. A committee of three was formed to investigate hospital management software packages and make a recommendation to Humana. The committee was given the charge to find a new system that has all the functionality of the current system and cost less than $40, 000 per month. The committee sent out a request for proposals to all major hospital software vendors except the largest vendor, Baxter. Baxter was excluded because it provided contracted services to Columbia. Five proposals were received. After analyzing the proposal, First Data Corporation (FDC) and Shared Medial Systems (SMS) packages were chosen for further investigation. Demonstrations were conducted at two area hospitals. The evaluation team was comprised of HHL managers. They were the Executive Director, Chief Operating Officer, Director of Nursing, Director of Medical Records, Director of Materials Management, Director of Pharmacy, Business Office Manager, and the Accounting Manager.

The one-day demonstration of the SMS package was conducted at Jewish Hospital-Louisville and the one-day demonstration of the FDC package at Hardin Memorial Hospital in Elizabethtown, KY. The evaluation team focused on the functional capabilities of the systems during the demonstrations. Even though neither sites had the Materials Management or clinical (Pharmacy, Lab and Radiology) modules installed, the team felt that both packages clearly provided more functionality than HHL's current system.

The evaluation team concluded its work by recommending the purchase of the FDC package. The team felt the strong electronic funds transfer (EFT) capabilities of the FDC package would better meet the needs of the HHL Business Office, and that all of other modules met or exceeded current capabilities. The recommendation was sent to the V.P. of MIS for Humana, Inc. To the surprise of the evaluation team, on February 1, 1995 the contract was awarded to SMS instead. The choice of the SMS package resulted from a unannounced agreement with Jewish Hospital Healthcare Services (JHHS) to take over the operation of HHL with an option to purchase HHL in seven years. Since JHHS's hospital in Louisville was contracted with SMS as a beta site for SMS applications, it was thought that JHHS would be more likely to buy HHL if the SMS package was installed at HHL. The process of installation of the SMS software began immediately.

SMS INSTALLATION PLAN

The installation plan was divided into in two phases. In Phase One, the Humana IS staff would develop a wide area network (WAN). The plan called for: (1) wiring HHL with fiber-optic cable, (2) linking the HHL mainframe to Humana's (Louisville) and SMS's mainframe (Malvern, PA), and (3) installing a Novell local area network (LAN) within HHL. Phase One was to begin March 1 and end by April 13. Phase Two was to start on April 13, after the VTAM connection with SMS was completed. The SMS software was to be "delivered" to HHL through this telecommunications link. Once the software was copied, the actual installation of the financial modules for Patient Management, Patient Accounting, Materials Management, General Ledger, Accounts Payable, the Pharmacy, Radiology, and Labs, and specialized modules for cost accounting, budgeting were to be installed.

JHHS TAKES OVER

Two weeks after the start of Phase One, JHHS assumed operating control of HHL. The first action taken by new operating manager was to bring in an assessment team from JHHS to conduct a complete assessment of all functional areas of HHL, including review of the SMS contract and the implementation plan. After hearing the team's findings, he ordered an immediate halt to all implementation activities. The cited numerous problems that needed to be resolved and gave Humana thirty days to act on them. Among the problems cited were:

1. Installation plans were incomplete as to identifying roles, responsibilities, timetables, and critical success factors; did not provide a time table for all installation activities

2. The contract is unclear as to who is responsible for software customization and installation.

3. HHL's MIS manager and staff lack experience and training needed to install the system. IS staff members responsible for data entry, equipment management and IS services are under the supervision of the Director of Accounting.

4. Four to eight full-time new employees (Director of Information Services, 2 systems analysts, computer operator, data entry technician, patient account liaison) are needed to do the manual procedures involved in collections and remittance processing. Insufficient space in current building house additional staff. Will costs an estimated $350,00.

5. The Humana executive who chose SMS and negotiated the service contract had no I.S. contract negotiation experience or legal advice, failed to consider the information requirements of HHL or the functional capabilities of the FDC and SMS products.

6. The service contract gives only loose costs estimates and makes HHL responsible for all installation activities; SMS is to provide minimal consulting service during installation.

7. The role of Humana in the conversion, installation, and maintenance of IS services is not clearly defined. The involvement of Humana's executives and IS department has confused SMS about who their real customer is. For hardware issues, SMS get its orders from Humana. For software issues, SMS is directed by HHL. Now that JHHS is operating HHL, it is unclear who is in charge.

8. Insufficient analysis of HHL's reporting needs, space leased on the SMS mainframe is is inadequate, development of custom interfaces between Humana's mainframe and Medicare EDI system will need to be outsourced.

Assessment recommended that HHL should; (1) hire qualified IS manager and staff to install, maintain and management the new system, (2) lease off-site office space to accommodate IS, Accounting, Finance and the Business Office personnel, (3) develop a solid work implementation plan that details roles and responsibilities, (4) develop a realistic proj ect management plan and budget, and (5) renegotiate the service contract.

INSTRUCTOR'S NOTES

The root cause problems described in the case Humana disregard of HHL's information requirements and its failure to competently negotiate the service contract with SMS. This resulted in inadequate staffing and planning for HHL; over reliance on oral contracts, failure to develop realistic implementation plans; appointing unqualified people of MIS Director for HHL, focusing too much on costs rather than system functionality, and making decisions with too little analysis.

Renegotiation of the service contract to address the deficiencies identified in the JHHS assessment team report. A new implementation plan should be developed with participation from Humana, HHL, JHHS and SMS. The plan must identify project leaders and their roles and responsibilities, time frames and milestones, and identify the resource requirements for each activity. A proper conversion plan should be developed. Implementation of good project management practices needed. Development of Gantt and PERT charts, installation budget to control costs and schedules.

AuthorAffiliation

Stephen L. Loy, Eastern Kentucky University

finloy@acs.eku.edu

Steve Brown, Eastern Kentucky University

cbobrown@acs.eku.edu

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

Volume: 7

Issue: 1

Pages: 15-19

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412238

Document URL: http://search.proquest.com/docview/192412238?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 38 of 100

SHENANIGAN'S TOYS AND PARTIES

Author: Shonesy, Linda B; Caldwell, Kevin; Gulbro, Robert D

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case involves strategic management and organizational change in a small business environment. This case is appropriate for use with level three or four and is designed to be taught in one to two class hours. It is expected to require three to four hours of outside preparation.

CASE SYNOPSIS

Shenanigan's Toys and Parties is a small business that specializes in unique children's books, toys, and parties for children. This case focuses on the various challenges encountered by the small business owner in running a business that faces a very competitive environment and the ability to choose the appropriate organizational structure and goals to meet those challenges. The major problem with this type of business concerns beingable to continue to provide unique products and services in an industry where change is constant and beating the competition is necessary.

The initial task for the student in this case is to review the current organizational structure along with goals and strategies in place. Students can use the information provided to analyze the challenges and opportunities faced by this small business, and develop strategies for future growth.

THE BEGINNING

Kelly Kazek, owner of Shenanigan's Toys and Parties, did not start as an entrepreneur. Her career began as a writer and newspaper reporter. However, because of long hours and short pay, she returned to her hometown and went to work as a technical writer. This job satisfied her financial needs, but left her missing the creativity of free-lance writing. She took a part-time position at a local newspaper writing the local teen page. This gave her an opportunity not only to write creatively, but also to work with young people, which she enjoyed very much.

Soon after beginning her new jobs, Kelly met the owner of a children's bookstore in the area, and found that she was looking for a partner. This intrigued Kelly, who decided she wanted to embark on a new adventure, that of being an owner in the Tiggywinkle's Bookstore.

After having an opportunity to evaluate her new business partnership, Kelly found that the store needed to broaden its customer base. The partners soon began offering children's parties, which involved personalizing the parties to the customer's wishes using various themes, by sending personalized invitations and thank-you cards. Though the store and the parties were successful, Kelly was aware that the store's downtown location limited customer traffic and exposure. When the other partner offered to sell her interest, Kelly accepted and subsequently moved the business within a few months to a busy, growing area nearby.

With the change in locales, Kelly decided to make several changes. She rented two units in a small shopping plaza along a busy highway. One side of the store was devoted to children's books and unique toys and the other side was reserved for parties. The new store was renamed Shenanigan's Toys and Parties and has been in operation for approximately eighteen months. This case will discuss the many obstacles encountered in this type of business, various goals and strategies, as well as the organizational structure.

STRATEGY AND STRUCTURE

As a small business, the structure of Shenanigan's is by nature limited and flat. Kelly Kazek, the owner, performs the manager function and has one assistant. Several part-time workers are also employed. These part-time employees are available for working parties and also other various duties. While Kelly makes the management decisions, regarding such issues as planning and inventory control, employees are encouraged to offer input and ideas. Employees are informed about plans and goals and are cross-trained to insure that all jobs can be covered at all times. An employee rewards program has been instituted, offering cash bonuses to employees for developing successful ideas to improve business.

Kelly began to think about the goals she had set for her business with her recent move. She decided that even though her business was small, she still needed a mission statement. She decided it should be, "To offer unique toys to children, while providing a service to parents and children of a fun, personalized party, where the child is the 'star'." Several marketing strategies have been developed to follow this mission. The business offers specialty lines of toys that other discount and department stores do not have. As an example of unique books, books can be created from photographs and drawings of any child with special captions and stories. In creating personalized parties, provision is made for exclusive use of the party room for each group booking a party. Children may play with their friends undisturbed by other groups, which is not always the case with other businesses that allow parties. The child receives a personalized cake to carry out the theme of the party. In addition, the child who is being honored may place his or her fingerprints on the wall with their name and date underneath. A children's karaoke and use of an indoor antique carousel add to the event. In addition to birthday parties, playtime parties are also available. Finally, Shenanigan's offers a Doll Hospital, where children may bring broken dolls for repair, or adopt a doll that has been donated.

A MOVING TARGET

Change has become a daily part of business for Shenanigan's since the move. To keep the customers already served, flyers were sent to notify them of the change of business address. Once in the new location, new inventory was ordered and a new system was needed for tracking and monitoring sales and inventory. To conserve finances, Kelly contacted her brother, who was a software developer, and asked him to design a program to be used on the current store computer. The software was designed to track inventory pricing, stocking, sales, and employee information. The software allows new modules to be developed as needed.

In addition to books, toys, and parties, several changes have occurred in products and services offered. Shenanigan's tries to take advantage of the latest fads, as well as, selling items that are made available because of children's movies and television shows, such as stuffed animals and characters. Yo-yos have become extremely popular again and are offered in a wide selection. The store also began renting movies and a module was added to the inventory system to track the movie inventory. This also allowed those who rented movies to be added to the customer database and provided a basis for a customer mailing list for special events or sales.

While inventory changes as fads come and go, the party room has grown in its number of attractions also. Shenanigan's constantly needs to remain competitive. The carousel and children's karaoke, mentioned earlier were added to provide a different experience.

Another new service was made available recently when Kelly opened a booth in a local mall to sell Easter baskets and toys. This was considered by Kelly to be a rather risky venture because of the cost of overhead both for the booth and for hiring someone to oversee it. It was hoped that some profit would be made from sales, but also that the exposure would lead to new business at the present store. The booth had an area showing pictures of the store, of available parties, and offered flyers that described the experience at Shenanigans. The venture was very profitable and many new parties were booked as a result of this exposure.

GOOD NEWS, BAD NEWS

As in any small business, change can have a profound effect. The effects are immediate and can be quite damaging. However, there are several strong points for this business. One of these is that it has strong management that is not only willing to take risks, but also believes in planning to insure the future of the business. Kelly has avoided most of the problems that could have occurred. Another strong point is the feeling of camaraderie among the employees. Each employee feels involved with decision-making, which has led to a knowledge that the employees have contributed to the success of the organization. The owner has created a team that is not afraid to change. A third strong point is the use of changing technology to make running the business easier. The business has changed from writing receipts and using a cash register to an automated transaction and computerbased inventory system.

To summarize, products, services and associated strategies have changed frequently to increase the customer base and customer satisfaction. Organizational structure has changed little to this point and cultural changes have been few, but as new employees are hired, care must be taken to insure that new employees realize the importance of providing a special, unique service. While there is much good news to indicate that this business is thriving, the bad news is that because this market changes so rapidly, the owner must be constantly ready to implement change. This requires much attention to detail, to planning, and to input from employees and customers.

THE DILEMMA

Shenanigan's has met the challenge of being able to change, and continues to do so as new problems occur. Several new competitors have opened in the area in the past few months. Kelly has focused on offering products and services that are not available elsewhere. Product lines continue to change, as demand requires. Shenanigan's has thus far been able to change to meet the new challenges by using new strategies such as product development, market development, and innovation. As competition increases, the business must continue to remain proactive in their planning efforts to pursue new customers and markets, new products, and new services. Kelly continues to study past sales trends, observing toys with which children are currently playing, watching children's television shows for new products, and reading industry trade magazines to assist with planning.

Will this small business owner be able to meet the demands for success by developing fresh ideas and options for customers, and continue to create a service that will remain in demand and bring in repeat customers?

1. Develop a SWOT analysis based upon the information provided.

2. Using Porter's generic strategies, discuss Shenanigan's present strategy or strategies. Give examples to support your choice or choices.

3. What is the major problem that this business faces? Discuss other problems that may arise.

4. What new strategies, products, or services could this small business develop for future planning to insure that it can remain successful? As these strategies are implemented, what problems must be considered in planning?

5. If you were the manager/owner of this small business, which of the possible strategies that have been discussed would you choose? Why?

INSTRUCTOR'S NOTES

EPILOGUE

Shenanigan's has made the journey a successful one so far. Products and services have been offered, marketed, and improved. Change is needed to assure that decline is avoided. The biggest challenge is to continue to find creative marketing strategies, as well as, new products and services. Several new ideas are currently being pursued.

Kelly Kazek is contemplating franchising the store, and has several offers to do so. Another possible strategy is expansion to another location. A location in the southern part of the city would be a prime location for a second store. Plans are also underway for building a freestanding store on the lot next door to the present store. This would allow Kelly to design the store to utilize the maximum space instead of having to conform to current available space. It would also give the business the potential room for an outdoor party area for yet another feature to differentiate Shenanigan's services.

As these changes in strategy are contemplated, Kelly is planning for problems that may occur as she expands. As the business grows, tasks tend to divide into more specialized areas. Hiring new employees for the expansion and training these employees, plus retraining older employees in the new tasks will remain a top priority. Business can only grow if the stores are ready to give the best customer service via its employees.

Using the latest technology, Kelly has plans to expand the customer base by selling unique toys and books on-line from the store's website. This will increase the store's exposure and sales at a relatively low cost. Bar-code scanners are being introduced in the store to increase the ease of inventory control and decrease the training needed for employees to perform sales transactions. As can be seen, Shenanigan's continues to grow because of an innovative owner.

AuthorAffiliation

Linda B. Shonesy, Athens State University

lshonesy@athens.edu

Kevin Caldwell, Florida Institute of Technology

kcaldwell@cst-hsv.com

Robert D. Gulbro, Athens State University

rgulbro@athens.edu

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

Volume: 7

Issue: 1

Pages: 20-24

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412224

Document URL: http://search.proquest.com/docview/192412224?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 42 of 100

GOING ABROAD: TYSON FOODS IN MEXICO

Author: Borstorff, Patricia C; Hearn, W Mark

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

This case is designed for international business, international marketing, or management classes on the undergraduate or graduate level. It requires a minimum of one hour outside class time. It is suggested that the instructor specify to the students whether to concentrate on the management or marketing issues present. This case workswell as a team project; 1 1⁄2 hours of class time is necessary for discussing and de-briefing the case.

CASE SYNOPSIS

This case is Internet-based; Tyson's strategy in the Mexican market and the impact of culture are the focus. The review of annual reports and other public information indicates a successful operation, but how successful will they be in dealing with cultural issues in Mexico?

INTRODUCTION

Tyson Foods is headquartered in Springdale, AK and is the world's largest poultry company with annual sales of approximately $7.5 billion and over 70,000 employees. Tyson is a diversified and fully integrated company with 75 processing facilities in the United States and overseas. Tyson has customers in more than 40 countries. It ships product to Canada, Mexico, South America, Central America and the Caribbean, Eastern Europe, the Middle East, Africa, Asia and the Pacific Rim countries, as well as Hawaii and Puerto Rico. More than 10 percent of the company's tonnage is distributed through the International Division. Tyson has direct sales offices in Singapore, Hong Kong, Indonesia, Japan, Korea, Hawaii, and Puerto Rico. Tyson Foods also has undertaken joint ventures in Mexico, Russia, the Philippines and China. This case concerns Tyson facilities in Mexico and how culture influences the business environment. An overview of Tyson Foods Inc is given.

COMPANY/PRODUCTION INFORMATION

Divisions

1. Poultry- Process 2.8 billion chickens annually, leading supplier of chicken to US military, has a 33% market share of domestic market. The only entities that produce more chicken than Tyson are Brazil and China. Leading exporter of chicken to China, Japan and Russia. Has a 41% share of the retail breaded market. About 6,500 growers are under contract with Tyson to grow chickens with annual payments of $417 million. Poultry accounts for 82% of total company sales. (Tyson Foods Processing Facilities Directory, 1999).

2. Seafood- Operate one of the largest commercial fishing and at-sea processing fleets in the North Pacific and is based out of Seattle, Washington. Also operates a fish meal plant in Shanghai, China and two imitation crab meat plants in Minnesota.

3. Mexican Original- Second-largest producer of flour and corn tortillas, taco shells, and chips in the U.S. Tyson has 4 plants in AK, NC and IN that produce the products, making them the leading supplier to Mexican restaurants all over the U.S. Produces approximately 90% of all corn and tortilla products used in Taco Bell restaurants and sells product under the Mexican Original label in grocery stores.

4. Swine-Produces nearly two million hogs annually. Is currently in a j oint venture with Purina Mills, Inc. to establish a commercial feed and live swine operation in the Philippines.

5. Specialty Foods-Produces entrée dinners and high-end food products to airlines industry and upscale restaurants. Has a dominant market share of the Home-Meal Replacement market under the Mallard Foods label.

6. Animal Protein-Most profitable division in the company. Recycles by-products from plants and farms into animal feed and meal.

History

John Tyson started the company in 1931 after taking Arkansas chickens to markets in Kansas City and Chicago. Under his leadership, it became a fully integrated company. He later became a commercial feed dealer for Ralston Purina. Tyson Feed and Hatchery was incorporated and sold baby chicks and feed and transported chickens to market. Throughout the 1950's, John Tyson's company was processing about 96,000 broilers a week. The company changed its name to Tyson Foods, Inc. in 1971, produced 72 million broilers a year and made the Fortune 1000. Two more acquisitions doubled the size of the company. In 1978, Tyson started raising hogs and had its first stock split (four-for-one). By the close of the decade, Tyson was producing 234 million birds per year and was the nation's largest hog producer. In the 1980's, it entered the further-processed markets and was the only company to have its product sold in all 50 states. In 1983, Tyson acquired Mexican Original and branched out into the corn and tortilla market. The company reached the $1 billion mark and claimed the number-one poultry-producing spot, surpassing ConAgra. In 1989, Tyson fought ConAgra for the acquisition of Holly Farms and finally won after a long drawn-out court battle. The Holly acquisition doubled the size of the company again, bringing the total number of employees to approximately 48,000 and sales to more than $2.5 billion. With this acquisition, the company gained access to the beef and pork markets by taking control of Holly's processing plants. That same year, Tyson entered into an agreement with Trasgo, a Mexico-based poultry company, to create an international partnership with Mexico and Japan called CITRA. In 1992, Tyson diversified from its core business by acquiring a fish processing company and an imitation crab and lobster company. Tyson's latest acquisition was in January, 1998 when it acquired Hudson's 11 processing plants. (www.tyson.com)

Tyson's Culture Overview

In 1992, chicken surpassed beef in per capita consumption to make chicken the most consumed meat in the U. S. Since 1960, chicken consumption has increased an average of 1.3 pounds per capita per year. The USDA estimates that between 1997-2005, world chicken consumption will increase an average of 2.3 pounds per capita per year. (Tyson Foods Annual Report, 1999) Tyson's history of growth by acquisition and expansion plans will meet the projected demands for chicken in the US. But to continue their trend of historical growth, international sales must increase at the same pace as the domestic markets become stagnant. According to some industry analysts, Tyson is one more big acquisition away from potential deregulation by the U.S. government. (During the past decade, Tyson has acquired the number 2, 4, 6, and 7 poultry companies in the United States).

International operations of Tyson Foods Objective-To tap into the world's total meat consumption. In 1987, poultry accounted for 21%, today it accounts for 29% making poultry the second most highly consumed meat protein in the world. A combination of rising global incomes in both developed and developing nations, technological advances that lowered production costs, and changes in consumer preferences have led to the increase in world demand for poultry. (Tyson Foods Annual Report, 1999)

International forecasts U.S. exports of poultry are expected to grow from 2.6 million metric tons in 1997 to 3.6 million metric tons by the year 2005. However, total poultry consumption outside the U.S. is estimated to be nearly 38 million metric tons in 1997. Few countries have the production conditions available in the U.S. to allow them to become large exporters of chicken and most countries do not have the capabilities to produce enough chicken domestically to satisfy consumer needs. (Tyson Foods Annual Report, 1999)

International strategies While Tyson will continue to export products to fill needs which can not be satisfied by the domestic production of various foreign countries (such as the demand for paws in China), Tyson will establish a physical presence to satisfy the need for other products. For example, fresh chicken- not the frozen product shipped by necessity from the U.S.- is preferred in almost every market. Having production facilities in foreign markets will allow Tyson to be able to supply this product without the cost and delay in exporting.

Overseas ventures and facilities

1. Trasgo in Mexico-Majority interest in Mexican company with 3 plants in Durango.

2. Kuok Group in China-Partnership with Chinese company to build 10 poultry complexes.

3. Artic Alaska-Shanghai, China fish meal plant.

FOREIGN COUNTRY/CULTURE

The condition of Mexico's economy The peso collapse devastated the Mexican economy and the number of unemployed workers doubled between 1993-1995 to nearly 1.7 million. An estimated 28,000 small businesses in Mexico have been destroyed by competition with huge multinationals and their Mexican partners. Real wages in 1996 were 27% lower than in 1994 and 37% below 1980 levels. Of the 1995 working population of 33.6 million, 19% work for below the minimum wage. ("Economic Policy Institute," 1997) "Pilgrim's Pride" is the only other poultry company that has a processing facility in Mexico.

The following is a comparison of Mexico and U.S. information that would be relevant for Tyson in deciding whether or not to conduct business in the country. (CIA World Factbook, 1999)

COUNTRY/CULTURAL ADJUSTMENTS

History Tyson Foods made an arrangement with the Trasgo Company in 1989 for a minority stake in their operations, becoming in 1994 the majority owner. This venture in Mexico stresses how important the international markets are to Tyson. According to Greg Huett, the Tyson-Mexico general manager, "The opportunities for expanded sales in a foreign market with a small capital outlay is the main reason Tyson made the decision for the first time to start processing chickens in a foreign country."

Facilities Tyson operates two processing plants and one further processing plant in Mexico. The combined production for the complex is approximately 1.5 million birds a week. The products they produce vary from par fry, IQF to cut-up. No product is shipped back into the U.S. due to USDA regulations; however, some product is shipped to Japan and Eastern countries under the Tyson label. In the U.S., the USDA regulates all meats produced by having inspectors on site. A similar program is in Mexico, but it is strictly voluntary and Tyson does participate in it.

Management issues The strategy in managing the plants in Mexico was to start with a few American managers (about 10), utilize their expertise, pull out and hire nationals to run the plants. Presently, there are only a few Americans left in the country who are involved in the day-to-day operations of the business. The biggest adjustment that the American managers had to make was working with the Trasgo managers. The Trasgo managers were accustomed to accepting gratuities and "gifts" from suppliers and government officials. For example, when new machinery was bought for the plant, the managers received a payment from the manufacturer.

This practice was stopped but theft and embezzlement were still rampant and a part of their business culture. Within a short period of time after the merger, two-thirds of the upper management of Trasgo were replaced. Theft continues to be one of the major problems in the plants, ranging from product being taken out of the plant to the stealing of light bulbs and doorknobs. Another issue that took some adjusting to was deadlines and starting meetings on time. The Mexican culture does not get in a hurry and rush many things. Tyson managers quickly found out that the Mexicans would agree on a deadline, but were just trying to be polite and not say no.

NAFTA Overview The NAFTA agreement involved the imports and exports of the United States, Canada and Mexico. NAFTA will phase out 90% of all tariffs among the three countries over 10 years and eliminate remaining tariffs on politically sensitive products over 15 years. Virtually all import quotas and licensing requirements will be eliminated (US Agriculture and the NAFTA: Summary). The main opponents to NAFTA are the labor unions that believe this agreement takes jobs away from American families. According to Teamsters President Ron Carey, "We're sick and tired of trade agreements that benefit big corporations instead of working families, it's time to negotiate trade deals that put people first." (Teamsters News Release, 5/29/97) There was little or no impact on the Mexican business since the majority of supplies are bought from within the country. The only benefit Tyson received was the lower tariffs when exporting dark meat from Mexico to Japan.

Operational differences in Mexico In the US, chickens are grown by independent farmers who are paid by Tyson. In Mexico, that is the goal but progress is slow. Presently, only 50% of the farms are contracted with the rest grown by the company. Again, theft is one of the major problems requiring the company to install fences around the farms and maintaining a 24-hour security system. In the U.S., most plants have a thirty minute break in the morning and a thirty minute break in the afternoon for lunch. In Mexico, they took a two hour lunch and worked until around 7:00 PM. The new managers met some resistance from the Trasgo people about changing the culture and customs so they did a survey asking the employees what schedule they wanted. Ninety percent of the employees wanted the twobreak schedule. The only employees who wanted to continue the "siesta breaks" were the ones who had cars and could leave the plant. As far as the progress made since the joint venture started, the overall number of employees have decreased, production has increased and profits have gone up. The differences in running the plants are relatively few. Killing a Mexican chicken is the same as killing an American one except the plants down there are less automated and finding skilled workers is more difficult.

Personnel Differences After the joint venture with Trasgo was announced, there was an internal campaign to attract managers and supervisors to go overseas. Detailed country information was posted on the company web-site and extensive interviews were conducted to try and pick the right people. From the personnel side, Tyson did not get involved or send any personnel people to Mexico. The labor laws are so different that it made sense to use nationals. The employees earn about $6.00 a day, which is, less than an hour wages here in the states. However, those wages are competitive in that area and trying to staff the plants seems to be a universal problem. Mexico is predominantly a unionized country with over half the civilian workforce belonging to a union. The Tyson plants are non union now but are constantly fighting off union organizing attempts.

Peso devaluation The Mexican peso devaluation was caused, primarily, by the fiscal and monetary policies of the Mexican government followed during 1994 ("The Institute of Development Studies,"). The peso crisis doubled all imported goods used in the production process and had a major impact on the profitability on the venture. Over the long term, Tyson fared better than most foreign companies in Mexico due to the joint venture status they had at the peak of the crisis.

CONCLUSIONS

Tyson Foods expansion into Mexico has been a profitable venture and future plans to grow the operations in that area of the world are promising. According to Greg Huett, "Tyson always has its hooks in the water for a good buy" and more acquisitions in foreign markets fit their future growth strategy. One of the main things learned during Tyson's first overseas venture was to not expect sudden improvement and not try and change the culture, only the business environment.

CASE SYNOPSIS

This case investigates the growth of a multinational corporation and its entrance and expansion in Mexico. One area of interest is learning how culture influences the acceptance of one's product and the environment in which one must operate. Another topic is determining a marketing strategy for one's product in a new culture.

THE CHALLENGE

The challenge is how to change the business environment to successfully operate in a different culture, how to successfully manage a business in Mexico where culture is a major problem, and how to design a successful marketing plan for the product in Mexico.

YOUR ASSIGNMENT

Determine how Tyson should conduct business in Mexico. Discuss how culture influences business decisions (for example, nepotism, theft, bribes, authoritarian leaders, time and deadlines issues, and 'siesta breaks.' Develop suggestion in dealing with each cultural issue listed. Develop a marketing plan for Tyson's product in Mexico.

AuthorAffiliation

Patricia C. Borstorff, Jacksonville State University

pborstor@jsuce.jsu.edu

W. Mark Hearn, Jacksonville State University

mhearn@jsuce.jsu.edu

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

Volume: 7

Issue: 1

Pages: 31-36

Number of pages: 6

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412242

Document URL: http://search.proquest.com/docview/192412242?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 43 of 100

DANSK WOOD

Author: Campbell, Katherine; Helleloid, Duane

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Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

This case describes the concerns facing a Danish firm in its partnership arrangements with a supplier in Latvia. Because of differing practices and legal environments, the Danish firm is finding that a business arrangement that initially seemed very favorable may have some unforeseen difficulties. The case is intended for an introductory undergraduate course in international Business, although it could also be used at the graduate level. The case can be read and analyzed in less than an hour, and comprehensively discussed within a one hour period.

CASE SYNOPSIS

In this case, the manager of Dansk Wood is faced with trying to understand what has gone wrong with his seemingly favorable partnership. Dansk Wood had an agreement with a Lativan sawmill whereby the Latvian's would provide a certain quantity of high quality wood in exchange for receiving state-of-the-art Western sawmill equipment, initial results had proven to be very favorable for all parties. The Latvian's, however, found the equipment to be rather delicate and fussy, unlike the rugged Russian equipment with which they were familiar. Because of the Latvian's concerns over liability, they were not performing what Westerners would consider to be normal preventive maintenance. Thus, the quality of output was decreasing, and the equipment was potentially being damaged from operating outside of specifications. When looked at through the eyes of the Latvian's, given the local legal environment, their decisions were entirely rational. The case illustrates how local laws and customs create differences in normal operating procedures, and how these differences lead to difficulties between business partners. The case also illustrates how different systems evolve over time, and the inter-relationships between national laws, product design, operating procedures, and culture.

INTRODUCTION

Henrik Hoss tried to relax as his six foot eight inch frame was scrunched in the seat of a 30 passenger airBaltic turbo-prop plane on a flight from Riga, Latvia to Copenhagen, Denmark. This had not been one of his better trips to the Baltics, and the drizzly sleety April weather hadn't helped. From his vantage point in Aarhus, Denmark, everything had seemed to be going so well regarding his company's investment in equipment for a Latvian forest products company. Dansk Wood was receiving very high quality lumber from this partner, and was able to make a substantial profit on subsequent sales to furniture makers in Northern Europe. Such good fortune was unlikely to continue, however, unless something was done about how its partner was maintaining the new equipment Dansk Wood had provided.

BACKGROUND

Dansk Wood had been in the lumber business for almost 200 years. Henrik's ancestors had been farmers in the area, but had maintained some of the land as forests. During the cold winter months, logging was done to help make ends meet for the Hoss families. Most of the high quality wood harvested was sold to craftsmen and furniture makers, while the lower quality wood was sold for firewood. Henrik's grandfather had not felt the same love for farming as his father, and had changed the focus of operations towards lumber. As the business grew, Dansk Wood began to serve more as a timber broker than a producer. It purchased logs and lumber from a variety of sources, and then by carefully sorting them into grades, would supply various furniture manufacturers across Northern Germany and Denmark with wood of the precise quality, grain, and dimensions desired. Annual sales were around 40 million USD, and profits averaged around 15%.

When markets in the western part of the Soviet Union and Poland began to open in the late 1980s, Dansk Wood quickly started scouting around for new sources of high quality, inexpensive lumber. It was getting increasingly difficult to obtain wood from Danish sources, as the Green Party and environmental groups were becoming vociferous about protecting Danish woodlands. Henrik felt his company was being unfairly targeted, but there wasn't much he could do.

"These people enjoy sitting around a nice wood dining table at home, having wooden bookcases filled with art and literature made from paper, and printing flyers and newsletters saying the trees should be saved. On Saturdays they rally at logging sites to protest further cutting, and then stop by a pizzeria and take their dinner home in a cardboard box."

In Eastern Europe and the Baltic rim there were no such difficulties. Dansk Wood purchasing managers would show up at sawmills with their own trucks and personnel, and pay cash for the best lumber on hand. One of the managers of a sawmill in Lithuania told the following story:

"It was 1993, I think, when I first heard of these crazy Danes driving around with cash in their trucks. The first time they visited my sawmill was in early 1994. They walked into one of the sheds, randomly looked through a number of the piles of wood, and asked how much I would charge for them to take the wood from that shed. It was our best shed with a new roof, and held our best wood for drying, so I named a price that was two or three times what I would have expected to get for the wood from local customers. The man shook my hand and said 'agreed.'"

"Then what they did seemed just crazy. They backed up their truck, and spent two days sorting through every piece of wood by hand. Some of the best they loaded on the truck, but the rest they just left in the shed. Then they gave me the full price I asked in cash, told me I could keep the rest, and drove away with less than 30% of what had been in the shed. I just didn't understand it.

"After that we started sorting some of the wood ourselves, and setting aside the best quality with the fewest knots, cracks, and checks for these Danes. Whenever they came they would still do more sorting, but they were willing to pay even higher prices since they knew we were trying to help them."

Dansk Wood was very pleased with the lumber they were getting from the Baltics, but realized that this was an inefficient way of obtaining the high quality wood demanded by their selective furniture manufacturers. Demand for their lumber was growing, which led them to consider other approaches for securing high quality supplies.

PARTNERSHIPS

One of the limitations of many of their Baltic suppliers was the quality of their tree harvesting and sawmill equipment. Heavy, rugged, poorly maintained Russian equipment made in the late seventies and early eighties was most common. It often leaked oil, and sawmills would usually be out of alignment. Dansk Wood entered into discussions with several of its largest suppliers about providing them new state of the art machinery in exchange for a negotiated quantity of high quality lumber over a five year period. More sophisticated cutting, hauling, and sawing equipment would decrease the damage done to the wood, and could significantly increase the proportion of a mill's output that would be suitable for furniture manufacturers. The remainder could still be sold locally for construction work, where defects were not so critical.

The first feller-grappler for mechanized tree harvesting, and a computer controlled sawmill for cutting the lumber, were installed in a Latvian company in the Summer of 1996. Technicians from the Finnish sawmill manufacturer worked with the Latvian company throughout September, and by October markedly improved lumber was arriving at Dansk Wood's warehouse in Aarhus. During the winter no one from Dansk Wood was particularly inclined to visit Latvia and drive on the poorly maintained roads. And since the lumber being shipped was of good quality, there was no compelling reason for a visit. In March one of the purchasing managers went to Lithuania to discuss a similar partnership agreement with a regular supplier, and decided to stop by the Latvian site. What he saw disturbed him. Two weeks later Henrik boarded an airBaltic flight to discuss the situation that the purchasing manager had reported.

THE MEANING AND IRRELEVANCE OF PREVENTIVE MAINTENANCE

Henrik' s arrival at the sawmill was unannounced, but Uldis Prabeks, the Latvian manager, did not appear much concerned. He talked about how the winter cutting had been going, and how nice the new equipment looked. He remarked, however, that it seemed to be rather delicate and fussy equipment compared to the Russian versions, and not nearly as rugged and durable. After a tour they returned back to the office, and Henrik commented that it did not appear that much preventive maintenance was being done on the equipment. Performing preventive maintenance was important, Henrik commented. Uldis looked puzzled. He did not know what this term meant. Henrik proceeded with a long explanation, with Uldis interrupting at various times to ask for clarification on specific points. After he had finished, Henrik asked, "Now do you understand what is meant by 'preventive maintenance'?"

"Yes," Uldis replied, "but why would I want to do such a thing. If equipment is well made, this 'preventive maintenance' just seems like a waste of time and money. Besides, doesn't it void the certification to take such actions?" Now it was Henrik who was puzzled.

Uldis went on to explain that he worked in a very dangerous industry, and many workers would get hurt each year from accidents in the forest. This was not something to be proud of, but just a fact of life. Previously when he purchased a skidder from a Russian supplier, for example, it would come with a document stating that it had a certified life of 10 years. During that time if a worker was injured while using the equipment, neither his company nor the manufacturer would be liable. These things just happen, or perhaps the worker was careless. Normal state social programs would take care of the injured or disabled workers under these circumstances. If, however, Uldis allowed equipment to be used after the 10 year certified life, the legal consequences changed dramatically. A worker injured when using a machine past its certified life, even if the machine was operating correctly and the worker was in error, could hold the company liable for any injuries. It was just not considered safe or responsible to have equipment operated beyond its certified life. These laws helped to protect workers from managers who might otherwise have them using worn out and dangerous equipment.

If a piece of equipment were to break or require repair before the certified life was up, a representative from the manufacturer would have to repair it. Many times the equipment was just sent back to the factory for a complete overhaul, whereby it would receive a new certification for another 8 to 10 years. If Uldis' company were to attempt to make repairs, it would invalidate the certification and expose the company to liability. In an inherently dangerous occupation, having only certified equipment that is repaired and adjusted by factory personnel was prudent.

When this was explained, Uldis' perspective on maintenance made perfect sense. The reason the old Russian equipment was poorly maintained was because repairing worn parts would void the certification. In addition, investment in such parts would make little sense if the equipment was nearing the end of its certified life. Because of these laws, Russian equipment tended to be very rugged and durable, but could not be easily adjusted or calibrated by operators. If Henrik regularly worked under the laws and norms faced by Uldis, he would do the same thing. He would also only select very rugged and durable equipment that required little maintenance.

WHAT NEXT

Henrik tried to squirm around in his seat to find a comfortable position. He sure hoped that Danish standards for preventive maintenance were practiced by airBaltic. Flying a Danish airline suddenly seemed like a good idea. What to do about "his" equipment and the partnerships in the Baltics was unclear. There were certain legal questions, and a lawyer would have to help sort out what warranty, liability, and certification laws were in force in this situation. Dansk Wood had purchased the equipment from Finns who installed it to be operated by Latvians on Latvian soil under contract back to Dansk Wood. But even if the legal issues became clear, he would have to work with Uldis to change the philosophy under which the equipment was used. This was high quality western equipment, and was perhaps "fussy" and designed under the assumption that regular preventive maintenance would take place. If Dansk Wood were to enter further partnerships, Western equipment might not be the best way to go. Why hadn't he, or someone else at Dansk Wood, thought about these issues before?

AuthorAffiliation

Katherine Campbell, University of Maryland

Kcampbel@rhsmith.umd.edu

Duane Helleloid, Towson University

Dhelleloid@towson.edu

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

Volume: 7

Issue: 1

Pages: 37-41

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412335

Document URL: http://search.proquest.com/docview/192412335?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 47 of 100

ADVERTISING MANAGEMENT FOR THE ATLANTIC SOCIAL SCIENCE JOURNAL

Author: Bertsch, Thomas M; Wright, Newell

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

This case can be used in advertising management, promotion, and integrated marketing communications classes. The decision making issues include: market identification, market segmentation, buyer benefit analysis, competitive analysis, and strategy opportunities. The teacher may use the experiential learning case to involve students in class-wide discussion or in small-team report writing. Less than 50 minutes will be needed to cover the listed questions. Students develop critical thinking, logical reasoning, and communication skills through the active-involvement case.

CASE SYNOPSIS

Managers of a not-for-profit organization are trying to make advertising decisions concerning the association's journal. Several executive board members favor offering advertising space, to subsidize publication costs. However, they do not want to spend money on promotional announcements if potential advertisers are not interested. That would deplete the association's small financial reserve, and it could endanger the reputation of the journal. (Note: The organization's name is disguised, for confidentiality. The marketing statistics have been adjusted to enrich the learning experience)

INTRODUCTION

The Executive Board of the Atlantic Social Science Association is trying to decide if it should sell advertising space in its journal. Board members want to improve cash flow, to help pay the growing costs of printing. However, they realize that the effort may cost more than it is worth. The board is considering likely markets, attractive market segments, demand, pricing, and promotion choices.

BACKGROUND

The Atlantic Social Science Association was founded in 1925. Its mission is to improve communication among educators in the social science disciplines, to advance the quality of higher education in the social sciences, and to encourage research in the social sciences and in the teaching of social science. The association supports its mission by offering an annual convention, quarterly newsletters, scholar awards, mini-grants for research, and a journal of original social science research articles.

The journal was started in 1965. Through the years the articles have been carefully reviewed and edited for quality. Some research papers from the annual convention are invited for publication. However, those articles go through the same revision process before acceptance. The current acceptance rate for articles is 50%.

Recent annual volumes are approximately 200 pages long, with 10 research-based articles. The association's journal editor orders 300 copies a year. The journal managing editor then provides distribution: 60% to members, 10% to authors, 20% to libraries and indexing services, and 10% to inventory. Stored copies are used to replace missing, lost, and damaged copies at libraries and to serve new members.

The association's membership size has remained stable at approximately 180 for several years. Membership composition is over 80% full-time teachers in colleges and universities along the eastern seaboard of the United States. The other members are retired educators, educational institution presidents, and honorary members from business and government. The current, full-time teachers are from diverse social science disciplines: 10% business/economics, 25% hi story/geography, 35% psychology/sociology/social work, 20% public administration/political science, and 10% teacher education programs.

The Executive Board does not want more than ten pages of advertising per journal issue. Only full-page black-and-white advertising opportunities would be offered. If ads were sold at $40 and page costs remained near $5, then 10 advertisements would contribute $3 50 to the normal $1,000 journal production cost. The extra revenue flow could help build a financial reserve for publication cost increases, a research mini-grant, and recognition plaques given out to guest speakers at the annual conference.

One board member indicated that direct mail advertising costs fifty cents to more than a dollar per person reached-because of set up, printing, handling, and postage expenses. In comparison, the journal advertising would cost approximately thirty-one cents per member reached, and library copies would be seen by more than one person. However, some executive board members are worried that the advertising space may not be of interest to advertisers. Another board member says "why do anything that may damage reputations of the journal, editorial staff, or executive board?"

1. Why do organizations advertise in journals?

2. Which of these markets probably advertise in journals: government, business, education, charities, or environmental groups. Why?

3. Which of the market(s) may advertise in some social science journals. Why?

4. Which (if any) may be willing to advertise in this social science journal? Why?

INSTRUCTORS' NOTES

DISCUSSION QUESTIONS

1. Why do organizations advertise in journals?

Advertising can have many different marketing goals: knowledge, inquiry, trial, liking, acceptance, preference, support, intention, involvement, recall, or satisfaction-to mention a few possible goals.

2. Which of these markets probably advertise in journals: government, business, education, charities, or environmental groups? Why?

All of the markets can use mass communication media that offer widespread audience reach, active audience involvement, lasting message, exposure time flexibility, and repeat exposure opportunity.

3. Which of the market(s) may advertise in some social science journals? Why?

The markets all advertise in social science journals: government agencies list opportunities for grants and contracts. Businesses offer new products and services. Education announces degree and course offerings. Charities indicate needs and donors. Environmental groups report on advocacy issues and achievements. Specialized journals can provide coverage of intended market segments at a low cost per person reached.

4. Which (if any of the markets) may be willing to advertise in this social science journal? Why?

Some students may try to get away with superficial thinking:

A. Reject the advertising idea. It may damage reputations. (However, it may improve reputations. The future outcome is uncertain.)

B. Accept the advertising. Some board members favor it. (However, some are doubtful-so more insight is needed to reach a consensus.)

Students can use the case information to evaluate market segmentation, advertising cost, media fit for potential advertisers, media reach, and cost per contact.

Only 300 copies of the journal are printed per year. It offers a low audience reach compared to other social science journals competing for advertising space.

The largest readership discipline group seems to be psychology/sociology/social work, with 35% of the members. Of course, retirees, author backgrounds, and library readership will influence that percentage slightly. However, relevant market coverage for any discipline -specific message would be approximately 95 people or less (35% times 270 copies distributed). That is very low market coverage of U.S. educators in the discipline area.

The cost per person reached is approximately 15 cents ($40 divided by 270 copies), which is cheaper than the printing and postage costs for direct mail to 270 people. However, direct mail lists could target educators in particular zip codes, which would reduce wasted coverage of educators in other disciplines. The journal advertising cost per person covered in a specific discipline field is much higher, at 42 cents or more ($40 divided by 35% of 270 copies).

The journal is published only once a year. Therefore, advertisers seeking frequent market communication would have to look elsewhere.

The journal is weak on the evaluation criteria of media reach, market coverage opportunity, cost per person reached, and frequency opportunity.

WHAT ACTUALLY HAPPENED

The board did an exploratory survey to see if publishers or other types of educational suppliers were interested in the advertising opportunity. None were interested, so the board dropped the idea. Advertising advocates on the board were satisfied that the idea had been given careful consideration.

AuthorAffiliation

Thomas M. Bertsch, James Madison University

bertsctm@jmu.edu

Newell Wright, James Madison University

wrightnd@jum.edu

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

Volume: 7

Issue: 1

Pages: 45-48

Number of pages: 4

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412253

Document URL: http://search.proquest.com/docview/192412253?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 50 of 100

ENHANCING WORKFORCE SKILLS IN A TIGHT LABOR MARKET: TAPPING UNTAPPED LABOR POOLS

Author: Wright, Newell D; Foucar-Szocki, Diane L; Estes, Kim

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

This case is based on community outreach efforts between a university, several local employers, four adult education providers, andan unskilled labor pool that seeks to upgrade its skill sets. Secondary issues examined include collaboration between partnering agencies and the per sonai issues that influence learner participation. The case can be taught in 2 hours. It is followed by discussion questions designed to provoke discussion of the salient issues in this case.

This case study can be used as a stimulus for discussion within a professional development workshop on employee training, community outreach, or inter-agency collaboration. This case study may also be used as a stimulus for discussion within a graduate level course on human resources or adult learning to demonstrate the issues involved in upgrading the skill set of an adult population with lower level basic skills. It is also useful as a discussion of several public policy goals. The case study might also prove useful for those who are studying program administration at the graduate level. It has a difficulty level of 5.

CASE SYNOPSIS

This case study chronicles the efforts of State University, located in a small town in a midAtlantic state, and four local Adult Education Providers who partner with local and statewide businesses to provide opportunities to upgrade workforce basic and computer skills. Businesses are having a difficult time finding enough qualified employees to meet their needs. In addition, there are many untapped or under-tapped pools of potential employees in the region. This case details the cooperation needed between the university, local adult education providers, and area employers to overcome a shortage of basic and computer skills among incumbent workers and to recruit new employees with basic literacy and computer skills.

DISCOURAGING WEEKLY MEETING

John Smith returned to his office and reflected on the presentation he had just attended at the weekly Rotary Club meeting. Al Harris, Director of Economic Outreach for the city, and one of John's best friends, just presented some discouraging statistics on the state of the local labor market. Smith is the owner and president of The Bindery, a local printing company that specializes in printing 3-ring binders, folders, diskette mailers, CD holders, and other specialty printing products. Lately, one of his top priorities has been hiring enough personnel to staff his business. While it has been difficult to hire personnel in general, he has had a particularly difficult time recruiting and retaining skilled laborers who have some basic computer knowledge. He has even resorted to hiring convicted criminals on work release, a less than desirable option, and is still short-handed. Now he is concerned that he may become so short-handed, he will have to turn potential business away.

A related problem focuses on the basic literacy skills of the people he currently employs. Recently, the Bindery upgraded its printing presses by purchasing a $5 million digital printer. While this new press has allowed Smith's business to grow and expand in ways previously impossible, it also uncovered a glaring labor problem. The new press has a computer interface and requires substantial computer knowledge. Employees who for years had been easy to work with and cooperative had suddenly become surly and difficult to work with. It turns out that many were lacking some basic reading and writing skills. This was not a problem with the old press, but it became quite evident when trying to train the employees to use the new press. Despite the labor shortage, Smith lost two long-time employees who refused to train on the new press. This opened Smith's eyes to the fact that at least some of his employees lacked fundamental literacy skills.

Harris' presentation focused on the state of the labor market in Central Valley. The unemployment rate in the country was 4.5% and falling. In the state, it was 4.2%, and in Central Valley, it had fallen to 1.5% in the last few months. There were simply no people to hire. And to exacerbate the problem, there were acute shortages in certain skilled areas. Computer expertise was in particularly short supply. And, Harris pointed out, he was not necessarily talking about computer programmers with advanced degrees. The computer literacy of much of the work force was below desired levels. Smith nodded in agreement when he heard this, based on his recent experience with training workers on the new digital press.

Smith had gotten a copy of one of Harris' overheads, and was troubled by what was written thereon. It expressed almost exactly the labor shortage he was experiencing. The computer skills of his applicants and incumbent workers were very inadequate. They were not familiar with the computer, nor with the word processing, spreadsheet, database, and Internet programs required for working at the Bindery. Smith pushed the overhead away from him and sat back in his chair. What had happened over the past few years? Why had the labor market tightened up so dramatically? What, if anything, could Smith do about the problem?

1. What factors have led to the tight labor market in the United States in general and the Central Valley in particular?

2. What is driving the need for basic skills and computer literacy, even at lower levels of employment?

3. What can John Smith do about the employment problem facing his firm?

ARE THERE ANY POTENTIAL EMPLOYEES OUT THERE?

The next day, Smith talked with two business associates, Barbara Frye, the Director of Marketing at a local poultry processing plant and Robin Fritsch, the Personnel Director at the local community hospital. Both had attended the Rotary club meeting, and both indicated that their companies were experiencing the same labor shortage.

Fritsch had been dealing with cyclical nursing shortages for years. "It's a boom or bust business," said Fritsch. "Sometimes we are awash in nurses, other times, we cannot hire them to save our lives. When that happens, we intensify our recruiting at colleges and universities and increase our pay. But that is not our biggest problem right now. Currently, we have adequate licensed nurse coverage. What we are lacking are Certified Nurse Assistants. There are plenty of six-week CNA training programs in the area, but few people are enrolling, which means few are graduating."

"We have a similar, yet different problem," said Frye. "We have a hard time hiring new employees, but we also hire workers who cannot speak, read or write English. Some are immigrants, but others never finished high school. Recently, we have upgraded some processes that required some basic computer competence, and learned that many workers were unable to adjust to the new methods."

"That's exactly my experience," said Smith, as he recalled yesterday's presentation at the Rotary club. This started a discussion about the availability of current and potential employees to enter training programs to improve basic literacy and computer skills.

"Surely, there are untapped groups of people out there," said Frye, who was also experiencing difficulties recruiting and retaining skilled employees. "And surely someone has developed training methods to address these issues. We need to pool our thoughts and see who we can identify." Fritsch and Smith agreed, and they sat down and tried to identify potential, employable segments and options to combat the lack of basic literacy skills.

1. What potential segments of the community might exist to fill these vacant positions?

2. What would be some of the bare minimum requirements for these entry-level jobs?

3. How could area businesses tap into these potential segments? What would be required to turn these untapped segments into potential, skilled employees?

AuthorAffiliation

Newell D. Wright, James Madison University

wrightnd@jmu.edu

Diane L. Foucar-Szocki, James Madison University

foucardl@jmu.edu

Kim Estes, James Madison University

esteskl@jmu.edu

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

Volume: 7

Issue: 1

Pages: 55-57

Number of pages: 3

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412252

Document URL: http://search.proquest.com/docview/192412252?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 51 of 100

LOCKHEED MARTIN'S MAYDAY CALL

Author: Lowery, Clyde N; Watts, Larry R; Box, Thomas M

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns strategic adaptation to industry change. The case has a difficulty level of six, appropriate for second year graduate level. The case is designed to be taught in one two-hour class period, and is expected to require six hours of outside preparation by students.

CASE SYNOPSIS

The fall of the Berlin Wall in 1988 marked not only the end of the Cold War, it also marked the end of fat defense budgets that fed an ever-growing aerospace/defense (A&D) industry. During the next 11 years, the U.S. government significantly cut defense spending and supported an effort to realign the existing market. This precipitated a rapid succession of acquisition and merger activity. In 1995, two of the premier A&D companies, Martin Marietta and Lockheed, joined forces to create Lockheed Martin (LM). Since that time, LM has become the market leader, controlling approximately 15 to 20% of all Department of Defense appropriations. The company continued its expansion in 1996 acquiring Loral. Also, around this time LM went outside of the A&D industry, and proceeded to move into numerous commercial ventures. The company's growth, however, came to an end on July 16, 1998 when the company withdrew its bid for Northup Grumman after nearly a year of legal wrangling with the Department of Justice. Less than two months later, in an effort to increase its position in the commercial satellite business, the company began negotiating a merger with Comsat. But this time Congress put the venture on hold. Even if all the issues are resolved, it is very unlikely the deal will now be made. During the one-year period that the Comsat deal stayed in legislative committees, the defense giant suffered a string of debilitating program failures and negative financial results.

After completing this case a student should understand how environmental changes affect an industry, the need to comprehend the complex structure of an industry, and grasp how controls within a market dictate the need to change strategic direction. Specific topics addressed in the case include: mergers and acquisitions, oligopoly style competition, environmental analysis, and strategy formulation.

OVERVIEW

On March 15, 1995, Lockheed and Martin Marietta, two of the world's largest tech industrial companies, merged to form Lockheed Martin (LM). One day later the newly formed company began trading on the New York Stock Exchange under the LMT symbol. At the time, this union created the nation's largest defense contractor controlling more than 20% of U.S. defense spending (Corporate Growth Report, 1994). The combined company then closed the old Lockheed headquarters in Calabasas, CA, and setup shop in Bethesda, MD, Martin Marietta's headquarter city.

The Lockheed and Martin Marietta merger was brought about by economic and industry market conditions that occurred at the end of the Cold War. The end of the arms race ushered in a shrinking defense budget, bringing about a total restructuring of the market. But the merger was not based on survival alone. Both companies had already identified problems associated with depending on a one-customer market (a very powerful customer) and were active in acquisitions, as well as applying their skill in non-defense markets. The merger allowed the combined companies to capitalize on synergies and accelerate growth in civil and international technologies, yet still capitalize on the more mature aerospace industry (Harrison, 1995).

Since the consolidation, LM has continued to strengthen its competitive position and fulfill its strategic game plan by taking steps in consolidation and further integrating into the defense market. Three short months after the merger, management set into motion a series of consolidations that would take place over the next five years, that would result in the closing of 12 facilities & laboratories and 26 field offices thereby eliminating 7.7 million square feet of unneeded capacity. Through these required consolidation efforts, the company expected to save $1.8 billion, unfortunately the move also called for eliminating 12,000 employees. On August3, 1995, LM further strengthened its market position by joining with AV Technology, forming a limited liability company that supplies light armored vehicles and turret systems. Though the new company operated under the name, AV Technology, L.L.C, LM held 80% interest in the venture and the operation reported directly to Lockheed Martin Defense Systems (Financial Information Services, 1999c). Continuing its efforts for fast growth and market dominance, the company made another strategic move on January 8, 1996, acquiring Loral Corporation's defense and systems integration business. The deal worth more than $10 billion, included the purchase of approximately $7.6 billion in stock at $38 a share, and the assumption of $2.1 billion in debt (Lockheed Martin Corporation, 1996). By obtaining the high profile electronics business of Loral, LM became the nation's largest manufacturer of military hardware with revenues of $30 billion (Corporate Growth Report, 1996). Also, during this time, the company began a greater shift toward commercial markets in the areas of commercial satellites, information services, telecommunications, and energy & environmental research. LM made every attempt to transfer the technological advances it had developed in the aerospace/defense business and convert these skills where applicable to commercial use. Reflecting back on the firm's rapid integration into new market, the Chief Executive Officer remarked about how the company redefined itself, "Lockheed Martin has transformed itself from one of America's premier defense companies into a globally oriented, advanced-technology company that retains a significant defense portfolio" (Coffman, 1999a). As 1996 came to a close, LM had integrated 17 businesses into a high tech giant; was riding high on customer confidence; had a 16% rise in the value of its stock with an EPS of $6.04; and, had sales of $26.9 billion, with a backlog of $50 billion. Adding a little frosting on the cake, the company was honored as one of the world's 100 best-managed corporations by Industry Week (Lockheed Martin Corporation, 1996).

By the end of 1997, LM's momentum began to subside and things began to go wrong. Its defense industry merger activity ended shortly thereafter when the Federal Trade Commission and the Department of Defense (DOD) vetoed the company's tender offer for Northrop Grumman. Attempting to continue to build on prior success, the company moved to acquire Northrop to help solidify and increase its market share of the airplane and fighter market. So on July 3, 1997, LM and Northrop Grumman announced their intentions of entering into a merger valued at $11.6 billion, creating a company worth more than $100 billion. By February 6, 1998, each of the company's stockholders approved the venture for Northrop Grumman to become a wholly owned subsidiary of Lockheed Martin. However, the DOD and the Department of Justice (DOJ), seemed increasingly unwilling to allow the transaction to take place. The DOJ was fundamentally opposed to the merger, citing antitrust concerns. After four months of legal wrangling, LM withdrew its bid on July 16, 1998 (Kitfield, 1998; Lockheed Martin Corporation, 1997). LM then decided to look to the commercial side of its operation, and just two months later in September of 1998, the company and Comsat entered into an agreement to merge, and again both groups of shareholders had voted in favor of the action. In September 1999, the deal still had not been closed, as both companies waited for the House of Representative to act on legislation to reform the Satellite Act (PR Newswire, 1999). Now it appears that LM may have to cancel the deal to salvage its own interest. What a difference a year can make.

Since LM failed to close the Northrop agreement and the Comsat deal continued to be delayed, the company's stock was on a roller coaster ride with more valleys than peaks. On January 1, 1999, the company started the year by announcing a stock split. Initially the market favored this move but after a series of disappointing financial announcements the company stock began to take a downward plunge, losing approximately 50% of its value in ten months and underperforming the market by 60% (Crock, 1999a). Of course stock values do not drop without a reason and was merely a reflection of the company's poor financial performance over the past year. In June, company officials announced that fully diluted earnings per share would be about $1.50, less than half of the $3.10 analysts had predicted (Crock, 1999b). "Management has also down graded expectations for net income by $730 million for 1999, and $630 million for 2000. Expected free cash flow was also reduced by $500 million in 1999, and by $400 million in 2000" (Podrasky, 1999).

While LM markets a wide variety of products in both aerospace/defense and commercial business, a major portion of its earnings comes from a hand-full of programs. Understandably, when these high impact programs fail it means big losses for LM. The net income shortfalls for 1999 are reflected in the following:

$275 million loss high cost and lower production rates (C-130j);

$125 million due to timing delays;

$205 million due to performance issues;

$125 million due to reduced portfolio-shaping gains.

(Podrasky, 1999)

With the size and depth of LM product lines, managing this highly complex multinational company is difficult to say the least. Pete Teets, Chief Operating Officer, admits it isn't easy to manage, stating that "My biggest challenge is to learn how to harness that strength" (Crock, 1999a). Some of the reasons for LM's performance are out of its control, such as subcontractor delays. But for the most part, the company's poor showing reflects a more fundamental problem. Over the past year, the company experienced numerous missile launch failures; the THAAD missile experienced five straight failures, as well as a series of disasters with its Titan IV rocket used in satellite launches. Its C-130J cargo plane has experienced delivery, quality and engineering problems creating a huge embarrassment for LM's management (Rublin, 1999). Beyond the quality and production delays, management seems to have lost touch with the operational base of the firms core business. In September, LM lost a vital $4.5 billion-plus satellite contract to its rival Boeing, a business that LM has dominated in the past. More troubling was that the LM considerably overbid the program (Behr & Ramakrishnan, 1999). In addition, the F-22 Raptor fighter plane was facing a very real fight for its survival on the floor of the House of Representatives, which was highlighted by the fact that the company is trying to raise its price, shortly before going into production (Crock, 1999a).

On September 27, 1 999, facing the fact that something had to be done, Vance Coffinan, CEO & Pete Teets, COO announced the realignment of the organization to its employees. These topranking executives reported that in response to the series of negative financial consequences, they had conducted a meticulous top to bottom evaluation of the company, assessing the firm's strengths and weaknesses. Getting to the root of the problem, management was forced to answer fundamental questions about who Lockheed Martin was, and what direction it needed to take (Coffman & Teets, 1999).

References

REFERENCES

Behr, P. & Ramakrishnan, S. (October 29,1999). Lockheed Martin Executives step down. Washington Post. Business & Stocks.

Coffman, V. & Teets, P. (1999). Realigning for customer focus. Today Extra. (Lockheed Martin Intranet) available website: today.lmco.com/today/newmisemore.com.

Coffman, V. (1999a). The future of the U.S. defense industry. Executive Speeches. 13 (5): 5-9.

Corporate Growth Report. (1994). Martin Marietta and Lockheed agree to Merge. Corporate Growth Report. (809).7425.

Crock, S. (January 11, 1999a). A lean mean fighting machine it isn't. Business Week, pp. 41.

Crock, S. (June 28, 1999b). Lockheed Martin needs to unload excess baggage. Business Week, 35.

Financial Information Services. (1999c), Lockheed Martin Corp.-History & Debt. Moody's Investors Service.

Harrison, J. (1995). A giant merger of two survivors. Mergers & Acquisitions. 29(4). 44-45.

Kitfield, J. (August, 1998). The end of merger mania. 1998 Top 200 Federal Contractors Supplement, Government Executive, pp. 39-44.

Lockheed Martin Corporation. (1996). Annual Report, pp. 2-9.

Lockheed Martin Corporation. (1997). Annual Report, pp. 2-9

Podrasky, G.J. (1999). Lockheed Martin. Duff & Phelps Credit Rating Co.

PR Newswire Association, Inc. (Sept 20, 1 999). Statement by Comsat President and Chief Executive Officer Betty C. Alewine Concerning Lockheed Martin Decision to Complete Tender Offer, p. 8363.

Rublin, L.R.(1999). Lock'n' Limp. Barrons. 79(24): 16.

AuthorAffiliation

Clyde N. Lowery, Lockheed Martin

clyde.lowery@lmco.com

Larry R. Watts, Stephen F. Austin State University

lwatts@txucom.net

Thomas M. Box, Pittsburg State University

tbox@pittstate.edu

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

Volume: 7

Issue: 1

Pages: 58-62

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412322

Document URL: http://search.proquest.com/docview/192412322?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 52 of 100

FINANCIAL CRISES OF A PRIVATE TURKISH HOSPITAL: A CASE STUDY

Author: Kisa, Adnan; Ozgulbas, Nermin; Akinci, Fevzi

ProQuest document link

Abstract: None available.

Full text:

Headnote

ABSTRACT

Turkey is experiencing an explosion of private hospitals, which have increased in number from 63 to 237 during the last 15 years. The common characteristics of these hospitals are their small inpatient capacity, their focus on general services, and their not being financed by stock offerings in the security exchange market. In 1997, one of these private hospitals (Sevgi Hospital) offered its shares to the public and its stocks were traded on the Istanbul Stock Exchange. The hospital enjoyed a great number of inpatient and outpatient admissions in 1997 and 1998 but in 1999 it suffer ed from a financial crisis, went into bankruptcy and was shut down. In this study, we analyzed the key financial statements of Sevgi Hospital for 1997 and 1998 using common-size statement and financial ratio analysis methods. The results of our analyses revealed that the hospital did not achieve a good financial structure, and had employed risky financing methods such as high short term debt, lower levels of liquidity, and poor collection of account receivables. All these factors forced the hospital to be closed in 1999.

INTRODUCTION

Understanding the etiology of hospital closure is necessary to decide the extent to which hospital viability should be left to market or environmental forces, targeted by public policy, or treated with a combination of the two. When the literature is reviewed, environmental, institutional, and strategic variables stand out as key factors in hospital closure. Environmental variables such as per capita income, unemployment, and physician-to-population ratio provide some indication of the resources available in a given hospital's environment consistent with the resource dependence model of organizations. Environmental variables also include changes in third party payment and regulations, which can affect hospital closure both directly and indirectly. Institutional variables such as a hospital's number of beds, financial status, and ownership status are indicators of survival in a changing environment. Strategic variables such as diversification and system acquisition measure the organizational changes which hospital administrators make to improve the viability of their hospitals (Longo et al., 1996). These three general categories are consistent with the results of an empirical study by Cleverly (1993), which found 10 common reasons for hospital closures: large financial losses, poor operating margins, declines in nonoperating income, excessive costs, excessive prices, low utilization, lack of investment in plant, lack of patients, deteriorating capital resources, and eroding liquidity.

METHODOLOGY

Common-size comparative statement analysis was used in this study. It is well known that changes in the relative importance of each financial statement item are shown more clearly by common-size comparative statement analysis. In common-size statements, each item is expressed as a percentage of a base amount. For a common-size balance sheet, the base amount is usually the amount of total assets. This total is assigned a value of 100% and then each asset, liability, and stockholders' equity item is shown as a percentage of total assets. When a hospital's successive balance sheets are presented in this way, changes in the mixture of the assets or liabilities and equity are more readily apparent and this helps the analyst to see any potentially important changes in a company's financial structure. In this study, we analyzed the key financial statements of Sevgi Hospital for 1997 and 1998 using common-size statement and financial ratio analysis methods.

BACKGROUND INFORMATION ABOUT SEVGI HOSPITAL

Sevgi Hospital was founded in Ankara, capital of Turkey. In 1997 Sevgi Hospital offered its shares to the public and its stocks were traded on the Istanbul Stock Exchange. The hospital enjoyed a great number of inpatient and outpatient admissions in 1997 and 1998 but in 1999 it suffered a financial crisis, went into bankruptcy and was shut down. Table 1 provides some basic descriptive information about the hospital. Unfortunately, 1998 data were not available from the Turkish Ministry of Health. As can be seen from the table, the hospital suddenly increased its bed and facility capacity from 67 beds in 1997 to 202 beds in 1998. Capacity utilization rates of Sevgi Hospital were 86.4% in 1997 and 87.2% in 1998.

RESULTS

Sevgi Hospital's total sales were 2,710,942,000 (million Turkish Lira, TL) in 1997 and 5,007,675,000 (million TL) in 1998. Although there was an increase in sales in 1998, the hospital's current assets had decreased over time (see Table 2 and Table 3). The share of the current assets within the hospital's total assets was 44.93% in 1997 and 18.84% in 1998. As can be seen from the hospital's balance sheet, the hospital's fixed assets increased from 55.7% to 81.16%. The postulated reasons for the increase between 1997 and 1998 were the construction of a new hospital building and continued investments in hospital building restoration.

Cleverly (1993) and Lynn and Wertheim (1993) reported that low liquidity level is one of the reasons for hospital closures in the US. In the present study, the low liquidity level of the hospital can likewise be shown as a clue to the unsuccessful operation and failure of the hospital. The ratio of the current assets within the total hospital assets was decreasing, so that the current ratio of the hospital (current assets/current liabilities) decreased the liquidity level from 1.18 to 0.30. The decreased current ratio caused an increase in the current liabilities from 26.05% to 62.73%. This means that the hospital lost the ability to pay short term debts, and creditors rated the hospital as a risky investment. The current ratio of a hospital is an indicator of the extent to which the claims of short term creditors are covered by assets that are expected to be converted to cash in a period roughly corresponding to the maturity of the claims. Another scale of the current liabilities is the working capital, which in this case had a negative value in 1998. As a result, the hospital could not cover the current liabilities by using the current assets. This situation forced the hospital to find new loans and new resources.

In account receivables, which is one of the cornerstones of the current assets, the Sevgi hospital experienced a considerable change between 1997 and 1998; the hospital had started to receive its money in 61 days rather than 31 days. The hospital's inventory turnover rate had increased from 14.86% to 16.22% because of increased sales. However, the increased inventory turnover rate had a negative impact on the hospital's profitability; the profit margins were 23% in 1997 and -24% in 1998. When the debts were viewed within total assests, they had increased from 27% to 76%. The hospital was using its equity in 1997 as a financial source but it started using foreign resources heavily as its financing mechanism in 1998. It is important to note that if any hospital wants to be a financially successful institution, it should provide some funds by its equity and loans. The share of the foreign sources within the total assests (76% in this case) puts the hospital at risk and undermines its financial structure. By selecting a speculative financing mechanism, Sevgi hospital increased both its long term and short term debts (1.47%, 14.08%) but the hospital preferred the short term debts. The increased level of debt and the negative value of the working capital meant that the hospital would have difficulty finding new funds and financial sources.

When we look at the fund capital structure of the hospital, the equity's share had increased but the hospital's fund capital decreased, so the hospital did not perform an auto-financing because of the term loss. As can be seen in Table 2, the returns on the equities had decreased from 21% to -65%.

Although the hospital's sales had increased, it had moved to credit sales, and it had difficulty receiving its receivables. In addition, the hospital was in low-liquidity trouble and its cash and securities had decreased. The hospital had found 76% of its resources by long and short term debts, and this affected its equity structure. Although the hospital did not have enough financial resources to do so, it had gone to a heavy short term loan policy. The profit margin and the fund capital levels decreased, and the hospital sought financial support in an increasingly risky way. As a result, Sevgi Hospital has stopped its operation and closed down the facility.

CONCLUSION

The case of Sevgi Hospital clearly illustrates how poor financial management decisions can lead to a financial disaster, and ultimate bankrupty in this case, in a relatively short time frame. A high degree of debt financing and poor liquidity position were the prime reasons for the closure. For obvious reasons, short and long-term solvency measures and liquidity position of an instituion are particularly important for lenders, equity owners, and potential future investors. The closure of this 202-bed private hospital in 1999 was not only an important loss for the community it used to serve but it also discouraged many investors in Turkey from investing in the health care sector.

References

REFERENCES

Cleverly, W.O. (1993). More efficient hospitals are closing. Healthcare Financial Management, 47 (4), 82-83.

Longo, D.R., M-W. Sohn, & S.M. Shortell (1993). The etiology and determinants of hospital closure. Journal of Health Care Finance, 22(3), 34-39.

Lynn, M.L., & P. Wertheim (1993). Key financial ratios can foretell hospital closures. Healthcare Financial Management, 47 (11), 66-70.

Statistical Abstract of Hospitals (1996). The Turkish Ministry of Health, Publication No. 588, Ankara, Turkey.

Statistical Abstract of Hospitals (1997). The Turkish Ministry of Health, Publication No. 599, Ankara, Turkey.

Statistical Abstract of Hospitals (1998). The Turkish Ministry of Health, Publication No. 619, Ankara, Turkey.

AuthorAffiliation

Adnan Kisa, Baskent University

akisa99@hotmail.com

Nermin Ozgulbas, Baskent University

nerminozgulbas@hotmail.com

Fevzi Akinci, King's College

fakinci@kings.edu

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

Volume: 7

Issue: 1

Pages: 63-67

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412490

Document URL: http://search.proquest.com/docview/192412490?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 53 of 100

THE CASE OF THE COUNTY MUSEUM: FINANCES AND FINANCIAL REPORTING

Author: Baird, Jane E

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Abstract: None available.

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Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns financial reporting issues for nonprofit organizations. Secondary issues examined include financial management issues at a nonprofit organization and how specialized entities, such as museums, canpresent unique financial reporting issues. Students are also made aware of the importance of volunteer work and the emphasis that employers often place on community involvement. The case has a difficulty level of three, meaning it is appropriate for a junior level course or higher. The case is designed to be taught in one to two class hours and is expected to require approximately three hours of outside preparation by students.

CASE SYNOPSIS

In this case, the students are introduced to Jessie Star, a recent accounting graduate who has just volunteered (at the urging of her boss) to be the treasurer for the local Historical Society. Jessie finds herself struggling to master the financial issues at the Society so that she will be prepared for her first board meeting. The Society uses fund accounting, which is something with which she is not very familiar. She is also struggling to understand why the Society has never reported its historic artifacts on its balance sheet as assets, even though they are quite valuable, and wonders if this could possibly be an approved accounting method. She is also astonished that all of the Society's investments are held in Certificates of Deposit earning fairly low interest rates, and wonders if there is a better investment strategy for the organization. The students must assume the role of Jessie and research these issues to formulate recommendations for the Society.

INTRODUCTION

Jessie Star, a recent accounting graduate from State University, has just volunteered (at the urging of her boss) to be the treasurer for the local Historical Society. The County Historical Society is a not-for-profit organization that operates a museum displaying historical artifacts and an archive library housing historical documents and photographs. The Society also operates a gift shop in its museum and manages a historical home owned by the county government. The Museum, library, storage areas, and offices are located in a building rented from a local corporation. The historical home is located just a few blocks away. The Society has three employees on its payroll: Robert James, the full-time Executive Director, Erika Lawson, the part-time Museum Assistant, and an Archive Librarian, John Nelson. A volunteer Board of Trustees, consisting of twelve members from the community, directs the Society. As Treasurer, Jessie is an officer and member of the Board of Trustees. She has the primary responsibility for maintaining the Society's books, making investment/financing recommendations to the Board, and assisting with the annual external audit of the financial statements.

Jesse has been struggling to get up to speed with the Society's accounting so that she'll be ready for her first Board meeting. She is not very familiar with Fund Accounting and has never been involved with this type of not-for-profit organization. After talking with the former treasurer and looking over the prior year's financial statements, Jessie has developed some understanding of the accounting function at the Society, as documented in the following notes. However, the more she learns, the more questions she has.

The Accounting Function

Resources for accounting and reporting purposes are classified into funds established according to their nature and purpose. Separate accounts are maintained in the accounting records for each fund. The following are the funds maintained in the accounting records:

Operating Fund includes all items related to the normal operations of the Society. The assets and revenues in this fund are not designated for a specific use. All cash receipts and expenditures for this fund go through a North Bank checking account.

Fixed Asset Fund includes all the leasehold improvements, furniture, fixtures and office equipment owned by the Society.

Endowment Fund represents restricted donations that must be maintained so that only the earnings can be spent by the Society. These funds are in a savings account CD holdings at City Bank.

Restoration Fund represents restricted donations to be expended for restoring and furnishing the historical home operated by the society. These donations are currently maintained in CD holdings at North Bank and in a checking account at City Bank.

Marketing Fund Represents donations restricted for expenditures related to advertising of the Society and its activities. The cash is held in a savings account at National Bank.

Cash Receipts and Revenues

Cash receipts and revenues come from a number of places: membership fees, donations, grants, gift shop sales, archive research fees, entrance fees for the museum and historical house, and special events. Total gross receipts for the last year were approximately $215,000.

Cash and checks are accepted at all locations and events, but credit cards are not. The cash register is used to keep track of all the money coming into the Society. All cash transactions at the Society are recorded on receipts and put into the cash register. The Director then fills out deposit slips, separating the money into the designated accounts for each fund, and takes the deposits to the banks. The Treasurer then uses the breakdown from the deposit slips to record the revenues.

A small amount of cash is collected in the Archive Library on a daily basis, from nonmembers using the resources ($3.00 per day) and for copies made in the library by both members and nonmembers ($.25 each). The Archive Librarian or one of the volunteers puts the money in the desk drawer and gives the individual a receipt. Cash is also received for research performed by the Archive Librarian for patrons. There is a $20.00/hour charge. The Archive Librarian generates an invoice for the research and any related copying charges and keeps a copy in her desk drawer. When payments are received through the mail, they are compared to the office copy of the invoice and the check is put in the desk with the other cash collected in the library. Any cash collected in the library is taken out nightly and put in the register in the bookstore along with copies of receipts written.

When cash donations or membership fee payments are received through the mail, the Museum Assistant records the cash on a receipt for the deposit in the cash register. There are currently no set procedures for receipts of grant moneys. There have been very few grants received by the Society. Cash received at special events is returned to the cash register, with receipts to indicate the source of the cash.

The Society also receives noncash donations, such as office equipment, artifacts and archive materials, and donated labor. Besides the volunteer board members, the Society receives volunteer assistance with staffing events, clipping items from newspapers for use in the library, cataloguing donations, and restoration, cleaning, and maintenance of the historical home.

Cash Disbursements and Expenses

Cash disbursements are mainly related to the daily operations of the Society. The Director receives the bills through the mail and writes out the checks, using the North Bank checking account, to the various vendors. The checks are collected and given to the treasurer for signing and recording.

The types of cash expenditures the Society has each month include wages (paid twice per month on the second and fourth Tuesday of each month) and payroll taxes, rent, and telephone bills. The rent includes utilities and janitorial services for the Museum and administrative offices, and is paid to a local corporation.

Other expenditures incurred regularly by the Society include: accounting and legal fees, mainly for the annual financial statement audit; fees for the security alarms; repairs and maintenance on equipment; office supplies; bank charges; postage; newsletter expenses; insurance; advertising; dues and subscriptions; education or travel cost reimbursements for Society's staff; and inventory purchases for the Gift Shop.

Cash expenditures for large, non-routine purchases must be approved by the Finance Committee and the Board of Trustees, although there is no set dollar threshold.

Assets

The assets on the Museum balance sheet include Cash, Accounts Receivable, Prepaid Insurance, Inventory, and Building & Equipment.

Cash. This includes all cash on-hand in the cash register, in checking and savings accounts, and in CDs for all the funds. Each bank account and CD account has its own account set up in the accounting records. The current cash balance is approximately $250,000, of which approximately $180,000 is in Certificates of deposits and the remainder is held in the checking and savings accounts. The Society earns no interest on its checking accounts, has earned approximately 2 percent annual interest on its savings account, and has earned an average of 6 percent on its Certificates of Deposit.

Accounts Receivable. This represents money owed by patrons of the Museum for research performed by the Archive Librarian on their behalf. Currently, however, it appears that there is no balance in this account.

Prepaid Insurance. This account includes the amount paid in advance for insurance policies. As each month of the insurance policy expires, that month's expense is removed from the prepaid insurance account and recorded in the insurance expense account. The current balance is approximately $1600.

Inventory. Inventory consists of items held for resale in the gift shop. Inventory records are kept on a flrst-in, first out (FIFO) method. This means that it is assumed that if one of a particular item is sold, it is the one that was purchased by the Society first. The current inventory balance is approximately $2600.

There are also consignment goods in the store from eight consignors. There is no fee charged to hold these items in the bookstore, but commissions are charged for items that are sold. The Museum Assistant keeps track of what is sold over a two-month period from the sheet next to the cash register and also uses a spreadsheet to determine how much to pay each consignor every two months. The consignment goods are also counted at the end of the year for inventory purposes, but are not included on the Society's balance sheet.

Building & Equipment. The Building & Equipment line item includes all leasehold improvements in the rented museum and office space, office furniture, display tables in the store and museum, shelving in the archives, and office equipment such as computers and photocopy machines. The total balance is approximately $400,000. The improvements, furniture, and equipment are depreciated for accounting purposes, meaning that the cost is written off to expense over the life of the asset.

A large portion of the Society's assets, the archives and artifacts collections, do not appear in its accounting records. The Society maintains a record of the quantity and types of items donated, but these items are only appraised if necessary for insurance purposes or for a donor's tax records. A total value of the accessioned items is not known.

Liabilities

The only liability account currently on the society's books is accounts payable. This account represents balances owed for unpaid invoices, such as for gift shop inventory or office supplies. The society does not have any notes payable or other long-term debt.

Questions

1. Is it appropriate for the Society to use fund accounting? Is the use of fund accounting required? What professional standards can be referenced to determine if fund accounting is the appropriate method?

2. Is the Society accounting for its donated artifacts correctly? Reference the appropriate professional standards to address this question.

3. Aside from the accounting rules, what are the possible advantages or disadvantages of excluding all of the donated artifacts from the Society's balance sheet?

4. The Society, like most nonprofit organizations, could not continue to operate without the assistance of its volunteers. How should the Society account for the services donated by volunteers?

5. What are the issues that Jessie should consider in recommending an investment strategy for the Society? Do you think that the Society's current policy is appropriate? If so, why? If not, what would you recommend?

6. The Society currently accepts checks, but not credit cards. Why do you think that credit cards are not accepted? Discuss the pros and cons of accepting credit cards in an operation like the Society's.

AuthorAffiliation

Jane E. Baird, Minnesota State University, Mankato

j.baird@mankato.msus.edu

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

Volume: 7

Issue: 1

Pages: 68-72

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412250

Document URL: http://search.proquest.com/docview/192412250?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 54 of 100

LEVI'S CHANGES EVERYTHING

Author: Callahan, Elizabeth N; Gulbro, Robert D; Shonesy, Linda

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Abstract: None available.

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Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns organizational change and renewal. The case has a difficulty level of three. The case is designed to be taught in a one-hour class period.

CASE SYNOPSIS

Levi's is an old firm that has been selling a classic product. Like many old firms, it has old ways. To survive in the current economy, Levi's had to find a way to change the status quo and redesign the firm. Change meant finding visionary leadership and employees willing to share that vision.

In the early to mid-1990s, Levi Strauss made one of the most dramatic changes in the field of business. Levi's was challenged by a changing global market to meet new demands with new and better products. It had to make major changes to its organizational processes, systems, facilities, products, and even job descriptions. It had to then facilitate employee acceptance of those changes. Change for most people is difficult and hard to accept. Changing an organization means changing people through cultural changes, retraining, and a better use of rewards.

BACKGROUND

On May 20, 1 873, Jacob Davis and Levi Strauss received a U. S. Patent for their new product, riveted pants. This innovative product was a result of Davis' attempts to keep pockets from ripping off a customer's pants. By putting metal rivets at the garment's weak points, the fabric was reenforced. The innovation was an immediate success. Not having the financial resources to apply for a patent, Davis approached Levi Strauss, a Bavarian born dry goods merchant from San Francisco, California for assistance. Together they obtained the patent and began making "waist overalls." The birth of the "jean" revolutionized work pants.

Over time the company expanded from its San Francisco base to sell products nationally. In 1948, it ceased its wholesaling efforts and focused on manufacturing. In 1959, Levi entered the global market by exporting products to Europe. In 1971, Levi became a public corporation, then went private again in 1985. In 1996, the company further strengthened itself by purchasing employee-held shares. The company has a long history of commitment to its employees' and philanthropic endeavors, which it continues today. The company continues to be owned by Strauss descendants with a focus toward meeting consumer requirements.

Levi currently has a vision to be the world's foremost authority in casual apparel through a focus on consumers, innovations, and people. Its mission "is to achieve and sustain commercial success as a global marketer of branded apparel." The company has approximately 30,000 employees, with 32 production plants and 29 customer service centers around the world. Levi manufactures a wide variety of clothing such as sportswear, jeans, Sta-Prest (wrinkle free products), Slates and Dockers.

SITUATION

Customer and suppliers worldwide had identified a problem with customer service - it was too slow. Restocking a store could take up to 30 days and the Women's-wear Division took up to a year to source a new product. Shipping was not reliable; Levi shipped less than 40 percent of its products on time. Taken as a whole, the supply chain, from the initial idea to the actual in store stocking of a product was too complex and inefficient.

While much change is incremental, the situation for Levi seemed to imply a need for more radical change. There are four broad areas for change in any organization: 1) Technology, 2) Product/ Service, 3) Structure/Strategy, and 4) People/Culture. In the case of Levi, all four areas needed to be changed.

DISCUSSION

Mr. Thomas M. Kasten, who was the leader at Levi, sought to meet the challenge of the 21st century through organizational renewal. He began with the company in 1966 and had been a manager in almost all parts of the company at one time or another. In 1993, as a vice president and member of the company U.S. Leadership Team, he was called to challenge the status quo as an innovator for change. He fostered an atmosphere for change by inspiring a vision and enabling other to act. He used his power to influence others to bring about the redesign. Kasten said "You can't expect people to change if you don't give them the tools. On the other hand, people have a personal responsibility to get involved. We create opportunities for people to change, but we can't change them." In dealing with change, leaders must be prepared to help employees understand and make a true commitment to their organization.

The overall redesign of the firm was called a "middle-up-down change." Mission and goals come from top management. A senior team of top managers formed and created the context for Kasten's team to improve customer service. This senior team provided targets and gave permission to "think big." When it came to the "how to" in the redesign - how to meet targets, how the organization should look, what jobs were necessary, the "middle of the company took over." Kasten's operative goals for the redesign described specific measurable outcomes as set out by top management.

During the design phase, Kasten took 70 veteran managers on a two-day off site meeting. The purpose was to analyze past redesigns to see what had worked and what had not. He found was that Levi had a good record for motivation but lacked follow through. He also found that Levi had not prepared the employees well for the change. At the offsite meeting, employees were provided with a variety of training methods, such as, videos, seminars, workbooks, and self-diagnostics. Kasten helped create opportunities for change by developing organizational strategies.

To help facilitate the work redesign, 200 employees were taken from their normal duties and refocused their efforts toward change. This was no arbitrary move; employees had to apply for the positions. The 200 employees formed 20 teams that were chartered to reinvent the supply chain to meet the 21st century. As a result the "middle of the company" took over the resign and basically, the third floor of the Headquarters building had become a company with a company. Empowerment increased employee motivation and increased the capacity to produce results. The redesign team was empowered to innovate and act more freely to accomplish their tasks. The third floor was said to be a unique place. The team focused on models of behavior, teamwork, and leadership skills. The team organization itself was very flat. Senior employees were treated the same as non-senior, no private offices were allowed. Each employee had only a desk, a telephone, and a computer.

One of Kasten's first steps was to get the Levi employees to envision a future without changes. Interviews with customers were videotaped and shown to employees. Magazine articles were collected and posted showing employees the negative results for those companies that had failed to change. These interviews and articles provided vivid imagery to the negative outcomes of not responding to customer complaints or not preparing for the future. By getting employees to envision a certain future he made them stakeholders in the process, thus making them more willing to strive for the goal.

The team found that two skills were key in their efforts. The first was communication and the second was a better understanding of teaming. The Political Model assumes that organizations are made up of groups that disagree and have poor information. The Levi team sought to provide rich information to fit each audience. An environment where open communication of tasks oriented ideas and feelings correlates to high organizational performance. Open communications regarding feelings, discussed in a rational and unemotional manner provides a more productive environment. Spontaneous emotional behavior is not good for productivity.

As the chief agent for change, Kasten spent more time in meetings and more time exploring options. The redesign forced Kasten to rethink his management style. He become less controlling and took the "big" picture approach. However, he retained his aggressive and competitive style. In dealing with resistance to change, Kasten discovered three rules: 1) Expect resistance - it is normal, 2) Don't take it personally, and 3) Understand that resistance comes in a code that has to be decoded. Kasten tried to take the fear out of change. The third floor of corporate headquarters held open house, made technology prototypes available, made conference calls to groups overseas and held "Town Meetings." They tried to take the fear out of change by making it fun. The team embraced change by letting people challenge their ideas in a variety of ways. However, at some point employees were either for the overall change or not.

The far-reaching re-design of the organization created new positions that focused on customer satisfaction. These types of positions had never existed before at Levi and required new behaviors. The transformation changed business processes, systems, and the content of literally thousands of positions. The company had to find the right people for the right job. In many respects the redesign was said to have changed the Levi culture. Job descriptions were re-written to fulfill the organizational goal of customer satisfaction. Recruitment was done using email and a panel initially interviewed applicants before the final selection phase.

The team underestimated the effects of the transformation and was unprepared for the resulting stress and conflict. Conflict is desirable and beneficial if it results in an increased organizational commitment, which in turn increases employee output or effort. The results in this case were that it unearthed skills and talents that might never have come to the surface. It opened the door of opportunities for some employees through travel and reassignment. These opportunities have allowed personnel to add value to Levi in ways never expected.

However, Kasten said that if done over he probably would do the job application process differently. It was a stressful and time-consuming process for management as well as the employee. He does not suggest that pain is always bad, because it can cause one to re-evaluate their position. As practical advice, he suggested that in any redesign or re-organization, an employee should find where they add value, indicating that is where security and fulfillment would be found.

The redesign planned and implemented the closure of eleven U. S. facilities with $200 million in employee benefits and $8 million in grants going to affected communities in 1997. The redesign has provided a competitive advantage by offering speed to market, flexibility, and mass customization capabilities. The organizational renewal resulted in record sales of almost $7 billion and profits over $700 million for 1995. The company's market value rose to four times its previous 1985 value. The aggressive transformation and unique organizational culture was the force behind this increased financial performance.

Several of the topics discussed in textbooks are illustrated by this case. Levi, like many other organizations, had recognized the importance of adapting to the changing environment of the global economy. Levi prepared for the 21st century by undergoing an organizational renewal and used its strategic advantage to meet the challenges of the global market. Organizations, like Levi, produce goods and services that customers want at competitive prices. Companies look for innovative ways to produce and distribute goods/services more efficiently by use of modern manufacturing technology and new information technology. They redesign organizational structures and management practices to increase efficiency. They adapt to and attempt to influence a rapidly changing environment. It is essential in today's global economy that a firm monitor its external environment and find ways to adapt. Organizations like Levi should be viewed as system, as a set of interacting elements that acquires inputs from the environment, transforms them and discharges outputs to the external environment. In order to be effective, Levi managers must learn to cope with and adapt to that environment. Generally, as organizations mature they often develop patterns of behavior that are not adaptive. Levi's culture of adaptation shows that management was concerned about survival. It further shows management strongly valued processes that contributed to meaningful change. In order to continue growing, organizations must renew themselves from time to time-just as Levi did.

AuthorAffiliation

Elizabeth N. Callahan, Florida Tech

Robert D. Gulbro, Athens State University

Linda Shonesy, Athens State University

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

Volume: 7

Issue: 1

Pages: 73-76

Number of pages: 4

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412285

Document URL: http://search.proquest.com/docview/192412285?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 55 of 100

STARWOOD HOTELS AND RESORTS WORLDWIDE: THE RISE AND FALL OF A REAL ESTATE INVESTMENT TRUST (REIT)

Author: Nyamuranga, Michael; Embry, Olice H

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns the use of a real estate investment trust (REIT) as an acquisition strategy. Secondary issues examined include the choice of strategy now that the REIT tax loophole has been plugged, branding, marketing strategy in the hospitality industry and leadership. The case is appropriate for junior level, senior level, or first year graduate level strategic management or strategic marketing courses. The case is designed to be taught in one class hour and is expected to require one hour of outside preparation by students

CASE SYNOPSIS

The case chronicles Barry Sternlich's use of a real estate investment trust (REIT) tax loophole to acquire the Sheraton and Westin Hotel chains and build one of the worlds largest hospitality companies, Starwood Hotels and Resorts Worldwide. Barry's dilemma in choosing a strategy after the tax loophole is plugged by his major competitor's lobbying efforts is the central focus of the case. Even though Barry had been named Top CEO of 1999 by National Real Estate Investor magazine, some financial analystsfelt that he didn't have enough experience in the lodging side of the company, especially when compared to heavy weights like Bill Marriott. Others felt that he could not keep his best people since he had lost Richard Nanula, whom he had recruited from the second-in-command post at Disney. In August, 1999, Barry desperately needed to do something to jumpstart his company's stock, which was now selling far below its former highs when it was the darling of Wall Street.

THE DILEMMA

In August, 1999, Barry Sternlicht, Chairman of the Board and CEO of Starwood Hotels and Resorts Worldwide, paced the floor while he waited impatiently for his meeting with business magazine and newspaper reporters who had been invited to hear him announce another acquisition for his company. He hoped that this new acquisition would jumpstart his company's stock which was now selling far below its former highs. Previously the stock had been the darling of Wall Street because of his brilliant use of the Real Estate Investment Trust (REIT) tax loophole to acquire the Sheraton and Westin Hotel chains. Even though he had been named Top CEO of 1999 by National Real Estate Investor magazine, some financial analysts felt that he didn't have enough experience in the lodging side of the company, especially when compared to heavy weights like Bill Marriott. Others felt that he could not keep his best people since he had lost Richard Nanula, whom he had recruited from the second-in-command post at Disney. All of the analysts gave Barry high marks for his acquisition skills, but would that be enough for Starwood to survive in the 21st Century? Barry worried that when he sold Caesar's World last February he had announced that Starwood wanted to focus more on lodging, it's core business, and now he was announcing the acquisition of a time-share vacation company. No doubt it would fit well into Starwood. Most of the competing hotel chains were already in this business, but was this what Starwood really needed? Barry wondered what the strategy for Starwood should be now that his competitor's lobbyists had plugged the REIT tax loophole.

THE EARLY YEARS

After graduating from the Harvard Business school in 1986, Barry Sternlicht, went to work for JMB Realty, a real estate firm. In 1994 Barry started his own company, Starwood Capital LLC, acquiring Hotel Investors Trust with capital furnished by the Ziff brothers who owned ZBI, a publishing firm. Barry named the company after "the tony community where the Ziff brothers' home was located" (Rudinsky, 1997).

Barry realized a loophole in the tax system that he sought to use to his advantage. Real Estate Investment Trusts (REITs) are companies that buy and sell real estate on a large scale. There are various types of REITs but the one Barry sought to use was the pared-share REIT. In this REIT structure, an operations company is paired with a REIT so that a different company handles the operations and management functions of properties and charges the REIT a management fee. With the pared-share structure, Barry could run both companies and charge management fees to the REIT that could run into hundreds of millions per year. 95% of the REIT's profits had to be distributed to the shareholders but the remaining 5% could be used for expansion (Atlas, 1997). The management fees paid by the REIT stayed in the operating company. A lodging division called Starwood Lodging Trust was created and the company became listed and went public in 1996. 38 hotels with 9,626 rooms were acquired in 1996 (Gibbs, 1997). The acquisition strategy was to get up-market full service properties in the best parts of town. The price of the stock went from $12 a share to $56 a share and the revenue from zero to $900 million (Warner, 1998). By 1998, the company had sixteen different hotel brands under its control but no identity and no organizational culture. REITs became the darlings of Wall Street with values that increased form $9 billion to $13 billion.

In 1997 ITT Sheraton Hotels was looking for a partner to get them through a slump. Hilton Hotels made an initial bid that the Sheraton board rejected. The company started selling some of its properties to thwart a hostile takeover from the Hilton. Starwood topped Hilton's bid with a $14.6 billion - $87 per share bid which the Sheraton shareholders finally approved in February, 1998. This acquisition came with a debt of $4.4 billion. At the same time, Starwood had also started negotiations to acquire Westin Hotels and Resorts. The deal came through in early 1998 also and thus Starwood Hotels and Resorts was born. The stock of the company went up to $60.

When Hilton Hotels lost its bid for ITT Sheraton, they realized that they lost the bid because of an advantage created by a tax law. Even the chairman of Starwood admitted, "Our win over Hilton, if you may, was because our multiple was higher than theirs. It was more accretive. We didn't have to worry about depreciation because we were a RIET. We didn't have any gaming. Our multiple was higher and we won the deal" (Whitford, 1998). Hilton, Marriott and other hotel chains lobbied congress to have the loophole plugged. The Internal Revenue bill of March, 1998, reduced the capacity of shared-pair REITs to expand. The market price of the Starwood stock fell by 60%. To avert the impact of this loss of acquisition capacity, the company changed to a C-corporation in August of 1998. The public would own 50% of the stock in the REIT but get dividends from the REIT only. The C-corporation would not give a dividend. The shares would be split into A and B and for every A owned share, a B share would be attached. The B share would have no voting rights but would get dividends from the REIT (Higley, 1999, January 11). The conversion to a C-corporation cost the company $1.2 billion in deferred taxes (Higley, 1999, March 1). This added to the significant debt already assumed through the acquisitions. The dividend for the quarter of conversion fell from 52 cents to 15 cents per share.

EXECUTIVE AND LOCATION CHANGES

When the REIT Company was founded it was based in Greenwich, Connecticut. When the lodging division was formed in 1996, its divisional office was placed in Phoenix Arizona. After the Acquisition of ITT Sheraton and Westin, the operations division office moved to its present location in White Plains, New York. Executive changes after the acquisition of Sheraton and Westin included replacing Eric Danziger, CEO of the operations division, with Jurgen Bartels and hiring Richard Nanula as corporate CEO to relieve Barry from having to be both Chairman and CEO of the REIT. Richard had been Michael Eisner's potential successor at Disney and the youngest CFO of a Fortune 500 company at the age of 32. Barry and Richard had been best friends since attending Harvard together but their business relationship did not work well and Richard was demoted to President of the company in early 1999. Barry resumed the CEO duties and title and Richard left to form a dot.com company of his own. Analysts saw this as an ego problem and felt that Barry could not keep his best people. They also felt that he didn't have enough experience in the lodging side of the company although they did give him credit for his acquisition skills.

GAMING DIVISION SELL OFF

After the gaming division of the company, Caesar's World, failed to meet its forecasted figures by 11%, Barry decided to sell it to Park Place, a spin-off from Hilton Hotels. Hilton had originally bid against Starwood for ITT Sheraton partly because it wanted Caesar's World. In April, 1999, Park Place paid $3 billion in cash for the division which Starwood used to reduce its $8.2 billion debt. Barry Sternlicht stated that, "the volatility of the gaming business and the requirements of the business for major on going capital investment were key to our decision to sell Ceasar's". Barry also stated that Starwood wanted to focus more on lodging, its core business (Higley, 1999, March 1).

LODGING INDUSTRY DEMAND HISTORY AND FORECAST

For the full decade following 1982, the world at large was in recession and the hotel industry profits suffered greatly. In 1994 the industry managed to make a profit of $5.5 billion the good years that followed attracted new entries and expansion. In 1997, 1358 properties were built in the USA. This was an expansion of 18% from the previous year. Industry profitability grew 36% in 1997 to $17 billion. 1999's projection of $22 billion, an increase of only 7.8% indicated that the growth rate was slowing down. This was because of the disparity between the supply and demand and the growth of video conferencing that cut the need for some travel. Price-Waterhouse-Coopers estimated that the oversupply lead to cancellation or postponement of $2 billion of projects. Corporate travel, transient and foreign travel also fell. Travelers from Europe dropped because of the strength of the dollar against the Euro and the rise in airline fares. The demand supply realignment was supposed to occur in 2001.

Atable showing past and proj ected occupancy figures by segment indicated that 1 999 demand would fall 1.2% in the budget segment, 1.5% in the economy and mid-priced segments, but by only 0.3% in the upscale market and the luxury market segments (Selwitz, 1998).

TECHNOLOGICAL CHANGES

Although all companies in the industry have utilized some technology, technology investment lags most other industries. Most of the technology is for the day to day functions within the properties such as centralized reservations systems. The Internet has now challenged this with new ways to make direct bookings, skip central reservations and find bargain prices. Auctions on the Internet put pressure on properties to be price competitive. The hotels, however, have been able to use the Internet to find cheaper suppliers and bargain with them to effect economies of scale in purchasing. The Internet will surely reduce the use of travel agents that presently handle 60% of all hotel bookings. Airlines have also started to cut the commissions to the travel agents soon the lodging industry will follow.

ANOTHER ACQUISITION

In August, 1999, Starwood paid $99 per share for Vistana, a timeshare company. This market was attractive because of the increase in the clientele base and the higher profit margins. Many hotel chains such as Carlson Hospitality Worldwide, Four Seasons Hotels and Resorts, Hilton Hotels Co., Hyatt Hotel Co., Marriott International and Promus Hotel Corporation have gone into timeshares. Barry Sternlicht was about to announce the acquisition to the top business magazines. Even though he had been named Top CEO of 1999 by National Real Estate Investor magazine, some financial analysts felt that he didn't have enough experience in the lodging side of the company, especially when compared to heavy weights like Bill Marriott. Others felt that he could not keep his best people since he had lost Richard Nanula, whom he had recruited from the second-in-command post at Disney. Barry wondered if this new acquisition was what Starwood needed? Would he be further criticized for not staying with the plan he announced in February 1999 to focus on improving core businesses?

Footnote

NOTES:

Atlas, Riva (1997). Poor Ziff brothers. Institutional Investor: Dec 1997, 154-57.

Bierne, Mike (1999, February 1). "Starting from ground zero: Starwood builds towards greatness. Brandweek 172.

Bergsman, Steve (1998, September 21). Ruling prompts changes for pared share REIT. Hotel and Motel Management. 68-69,

Gibbs, Melanie (1996). National Real Estate Investor: Dec 1996. 42-43.

Higley, Jeff (1999, January 11). Starwood chases growth prospects. Hotel and Motel Management. 3 & 43.

Higley, Jeff (1999, March 1). Starwood chief blasts political process. Hotel and Motel Management. 70.

Rudinsky, Howard (1997). REIT heaven. Institutional Investor: Dec 1997, 197-201

Selwitz, Robert (1998). Rising room rates offset occupancy dip. Hotel and Motel Management, Oct 19, 1998).

Shemach, Kelly (June 1999). Starwood hotels shoot for the brightest customers. Card Marketing, Falkner & Gray Inc.

Warner, Melanie. (1997, December 8). First: How Barry Sternlicht became king of hotels. Fortune. 26.

Whitford, Marty (1998, September 21). Intentional growth requires patience. Hotel and Motel Management. 1 & 105.

AuthorAffiliation

Michael Nyamuranga, Columbus State University

Nyamuranga_Michael@Colstate.edu

Olice H. Embry, Columbus State University

Embry_Olice@Colstate.edu

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

Volume: 7

Issue: 1

Pages: 77-81

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412297

Document URL: http://search.proquest.com/docview/192412297?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 56 of 100

"PERMATEMPS" VIZCAINO VS. MICROSOFT

Author: Calvasina, Gerald E; Beggs, Joyce M; Jernigan, I E

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case is human resource management. The case has a difficulty level of four, suitable for undergraduate seniors. The case is designed to be taught in one hour and requires one hour outside preparation by students.

CASE SYNOPSIS

In 1988, Microsoft hired Donna Vizcaino as an editor to coordinate graphics, translations, and writing of foreign-language user manuals for software. She was initially hired as an independent contractor and told to get a business license.

"They made it clear there's tons of work," Vizcaino said.

"We could work as much as we wanted, and eventually the positions would become permanent." (Flash, 2000)

By the second year of her employment, Vizcaino realized that becoming a full time employee at Microsoft was not going to happen.

The Vizcaino vs. Microsoft case originated through a chance reading of a 1989 article in a Seattle newspaper about a Seattle Center janitor named Lawrence Hascall. After an eleven-year battle, Hascall successfully sued the city of Seattle after determining that he had worked for 25 years as a temporary and had no retirement benefits. The court ruled that the janitor was an employee who was entitled to benefits. It was this chance reading that led to the Vizcaino vs. Microsoft legal saga.

As an independent contractor, Vizcaino and all other contingent workers were not allowed to participate in the Employee Stock Purchase Plan (ESPP). The plan allowed employees to purchase Microsoft stock every six months at a 15 percent discount off the stock market price. If Vizcaino had been allowed to buy 200 shares of Microsoft stock in 1988 at the 15 percent discount offered permanent Microsoft employees, her investment would be worth more than $1.5 million today. (Flash, 2000)

On January 11, 2000, the U.S. Supreme Court refused to hear an appeal of Vizcaino vs. Microsoft. The Supreme Court's decision in the Vizcaino case will allow thousands of current and former Microsoft temporary workers the right to buy the company's stock at a discount, a right many were denied since 1986.

INTRODUCTION

According to Fortune, Microsoft's reputation continued to be enhanced despite the company's entanglement in an ugly antitrust battle with the U. S. government. Fortune rated Microsoft twentyfirst on the 100 Best Companies to Work for List in 2000 and twenty-seventh in 1999. On Fortune's America's Most Admired Companies, Microsoft was second in 2000 and was third in 1999. On three of the key attributes to reputation, employee talent, long-term investment value, and financial soundness, Microsoft ranked first.

Microsoft's corporate culture was streamlined, and the workforce of 32,000 employees was very loyal. The workforce was diverse with 20 percent minorities and 26 percent women. There were 7,000 new jobs over the last two years with job growth (full and part time) of 46 percent, but the number of applications was 180,056. According to Fortune, working at Microsoft meant great camaraderie, great benefits, and a good chance at being a millionaire. It appeared that the best way to hired at Microsoft was to know someone who worked there since 40 percent of all new hires came from employee referrals.

In a highly competitive environment such as high technology, a flexible workforce would be considered an asset. The use of temporary workers would result in cost savings due to a just in time workforce. The Bureau of Labor Statistics reported that the use of temporary workers employed by temporary agencies grew as a percentage of the U.S. workforce from .5 percent in 1982 to 2.2 percent in 1997. A new type of temporary worker whose work assignments were longer term was called "permatemps." The use of permatemps in Silicon Valley was "rampant." (DeBare, 1999)

In the latter half of the 1980s, Microsoft began hiring permatemps to perform various services. Microsoft spokeswoman Heidi Rothauser stated that "Microsoft basically uses contingent workers to accommodate the need for a flexible workforce that would arise based on seasonal or cyclical projects like a product launch. "(Diederich, 1998) Many performed these services on a continuous basis often exceeding two years. They were often hired to work on specific projects and performed a variety of functions such as production editing, proofreading, formatting, indexing, and testing.

"Microsoft fully integrated [the Workers] into its workforce: they often worked on teams along with regular employees, sharing the same supervisors, performing identical functions, and working the same core hours. Because Microsoft required they work on site, they received admittance card keys, office equipment and supplies from the company."

(Vizcaino vs. Microsoft Corporation, No. 94-35770, 7-24-97)

Microsoft required workers sign information agreements stating the workers were independent contractors who were responsible for all federal and state taxes, withholding, social security, insurance, and other benefits.

As an Independent Contractor of Microsoft, you are self-employed and are responsible to pay all your own insurance and benefits.... Microsoft ... will not subject your payments to any withholding... You are not either an employee of Microsoft, or a temporary employee of Microsoft. (Vizcaino vs. Microsoft, No35770, 7-24-97)

In 1989 and 1990, Internal Revenue Service (IRS) audits revealed that the workers were not paid for their services through the payroll department. The permatemps were required to submit invoices to the accounts payable department and were paid through accounts payable. Moreover, Microsoft withheld no taxes or Federal Insurance Contribution Act (FICA) taxes, and the workers could not participate the Savings Plus Plan (SPP) or the Employee Stock Purchase Plan (ESPP).

The IRS audit brought attention to the employment status of the workers. Although the workers had signed information forms stating their status as independent contractors, the question remained as to their employment classification. If the workers were employees rather than independent contractors, Microsoft would be liable for taxes. There were several tests that could be applied to determine the workers classification. (See Exhibits 1, 2, & 3.)

The determination of a workers status was not a simple matter. Application of the IRS 20 Factor Control Test, the Fair Labor Standards Act Economic Reality Test, and the Common Law Test under ERISA could render different results. For example, depending upon the issue in question, it was possible for a worker to be an independent contractor under benefits law but an employee under discrimination, labor, or workers' compensation law (Thelen, 1999).

Exhibit 1

Fair Labor Standards Act (FLSA)

Economic Reality Test to Determine whether An Employee-Employer Relationship Exist

1. Which party has the right to control the means and manner of production;

2. The worker's opportunity for profit or loss based on his or her won managerial skills;

3.Which party supplies the equipment or materials used to accomplish the job;

4.The lack of skill required;

5. The permanence of the relationship; and

6.Whether the job being performed is integral to the company's business.

Exhibit 2

Common Law Test Under ERISA

This test requires employers to consider the hiring party's right to control the manner and means by which the product is accomplished and the following additional twelve factors;

1. The skill required

2. The source of the instrumentalities and tools

3. The location of the work

4. The duration of the relationship between the parties

5. Whether the hiring party has the right to assign additional proj ects to the hired party

6. The extent of the hired party's discretion over when and how long to work

7. The method of payment

8. The hired party's role in hiring and paying assistants

9. Whether the work is part of the regular business of the hiring party

10. Whether the hiring party is in business

11. The provision of employee benefits, and

12. The tax treatment of the hired party.

Exhibit 3

The IRS 20-Factor Control Test

1. Making a profit or loss

2. Work on specific projects

3. Offering services to the general public

4. Right to fire

5. Furnishing tools and materials

6. Method of payment

7. Working for more than one firm

8. Continuing relationship

9. Investment in equipment or facilities

10. Business or traveling expenses

11. Right to quit

12. Instructions

13. S equence of work

14. Training

15. Services performed personally

16. Hiring assistants

17. Set working hours

18. Working full-time

19. Oral or written reports

20. Integration into business

Using the exhibits, assess the classification of the workers in question. Are they independent contractors or employees?

AuthorAffiliation

Gerald E. Calvasina, University of North Carolina Charlotte

gecalvas@email.uncc.edu

Joyce M. Beggs, University of North Carolina Charlotte

jbeggs@email.uncc.edu

I.E. Jernigan, III, University of North Carolina Charlotte

ejernign@email.uncc.edu

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

Volume: 7

Issue: 1

Pages: 82-85

Number of pages: 4

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412327

Document URL: http://search.proquest.com/docview/192412327?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 57 of 100

A "WORKOUT" AT GE

Author: Gillies, Kim; Gulbro, Robert D

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter for this case involves strategic management and change in an organization. Secondary issues include leadership and vision, employee empowerment, and team building. This case has a difficulty level of three, and is designed to be taught in a one-hour class session.

CASE SYNOPSIS

When the top managers in an organization are faced with a new and vexing problem, many lack the vision to see the solution. They may attempt to solve new problems with traditional management methods and solutions. At GE, Jack Welch immediately confronted a major problem but found a new way to solve it. He was very successful at getting his solution implemented. Welch brought together all of the GE employees and used them all to help resolve the situation. Collectively they formed teams and identified problems from their respective areas. They were also given the authority to find their own solutions.

INTRODUCTION

General Electric traces its beginnings to Thomas A. Edison, who established the Edison Electric Light Company in 1878. After growing to be a large and unmanageable firm, GE found itself unprepared for the future and unable to compete in the present. During the late 1980's, General Electric went through a period of significant reorganization. Businesses were being bought, sold and merged. This restructuring brought about tremendous streamlining and downsizing. Over 170,000 employees were let go during this time. Today, General Electric is a diversified services, technology and manufacturing company with a commitment to achieving world-wide leadership in each of its businesses. It operates in more than 100 countries around the world, employing 293,000 worldwide. (GE Fact Sheet).

THE PROBLEM

Through the reorganization in the 1980's, business continued as usual. Top down management with continuous strategic management sessions was the norm. The meetings were getting larger and longer, and the profits kept going down. Something was wrong. The downsizing had taken its toll on employees. A lot of employees became concerned that all of the work would now fall on the shoulders of those who remained (Hodgetts, 1996). Employees and managers were working at cross-purposes, with little or no dialogue. Because of the amount of bureaucracy, employees had no one to talk to about the problems they were experiencing. Managers did not want to tell higher ups that they were having problems in their businesses. Hundreds of thousands of GE employees were frustrated and productivity was on a down hill slide.

THE CHANGE

In 1988 during a routine visit to General Electric's centralized training facility, Jack Welch, Chairman and CEO, was irritated by hearing over and over so many specific questions relating to individual businesses. People indicated that they could not ask these questions back home and receive any answers. These were questions Welch felt could be better handled within the business groups. With the world changing fast and quick decisions being a necessity, Welch knew something had to be done. He set out to get workers and managers talking together to work through problems at the lowest possible level. The hundreds of thousands of GE employees who were both frustrated and willing to share their ideas presented an opportunity. The time had come for managers and workers to talk with one another, to explore ways of improving the day-to-day workings of the business (Slater, 1993).

Welch did not believe that managers had a monopoly on ideas. He was convinced that most of the creativity and innovation, which drove productivity, lay in the men and women closest to the actual work. Employees had to be able to make suggestions to their bosses and get a response on the spot if possible. The walls of hostility had to come down (Slater, 1993). In order to get people talking again, GE started holding town meetings. These meetings got a cross-section of people together for intensive discussions. The people came up with the problems they were facing and talked through the solutions. They got rid of bureaucratic sludge that was bogging down the system. In turn this helped get rid of unnecessary work.

These meetings evolved into a program that consisted of getting teams of 30-50 people together for intensive three-day problem-solving sessions. These sessions were mandatory and involved people from throughout the company. Top- level managers down to front-line workers came together to try to solve specific issues. To break the ice or facilitate the dialogue, outside consultants and academics with expertise in business organizations would be present and would encourage the audience to speak out frankly.

The sessions started with the Business Manager of a specific company coming in to tell the group the objectives and goals of the company. Over the next two days, members of the audience evaluated four aspects of their businesses: reports, meetings, measurements, and approvals (Slater, 1993).

The intent of the meetings was to get people to talk about the easy issues that could be changed without too much effort. These were the habits that, with no one questioning their worth, had accumulated over the years and slowed down productive work. As employees grew comfortable in confronting their boss, the level of candor was supposed to increase, allowing tougher issues to be kicked around. The aim of using the town meetings was to 'work on how to get more speed, simplicity, and self-confidence into the operation' (Slater, 1993).

The program was named "Work-Out." Work-out for the mental work out people were getting, for taking the extra work out of the job, and for the process of being able to workout their problems together. (D'O'Brian, 1994). These sessions were mandatory and everyone eventually took part. Managers not committed to participating were out. Everyone had to be one board. It was deemed the only way for GE to survive.

Work-Out sessions led not only to productivity improvements but to changes in the way GE employees felt about themselves and one another. In a number of cases, management-labor relations thawed. Factory workers developed new feelings of self-esteem and pride in their work (Slater, 1993). At this time an unexpected dividend surfaced. Managers and employees now had more or less equal access to information about the business. That had not been the case before.

OUTCOMES

Work-Out took time to develop. Both vertical and horizontal boundaries had to be eliminated. The vertical boundaries could be eliminated pretty easily, but the horizontal boundaries were slow to be eliminated. Because these boundaries were built by insecurity, the answer was to build self-confidence and to build confidence among departments. Thanks to Work-Out and the team efforts that evolved from it, "GE has become faster and more energized than . . . ever thought possible" (Slater, 1993).

Today, Work-Out requires all employees to participate in process improvement. GE created a culture where managers were responsive to worker ideas. Power was switched from a bureaucracy to the operating level. Empowerment allows the people on- site at plants to run things (Quinn, 1994). Where once programs were strictly structured, informal sessions became the norm. Top management no longer oversees the Work Out program, but leaves it completely up to the businesses and employees to work on problems or new ideas as they see fit. When the program started, definite risks to senior management existed. GE had prided itself on knowing how the company should be run. It had written the book on management strategies for decades. Now it was turning the "managing" of the company to lower level employees (Slater, 1993). The program has worked so well that it has been expanded to include suppliers and customers in the sessions. This is another example of a response to changing environments. No matter where the problems may lie, GE is willing and able to respond and provide an answer.

DISCUSSION

General Electric is an organization that is not afraid of change. This case illustrates that even a large, successful corporation has to remain aware of the environments around them, both internal and external. In this case, the changing internal environment brought about adverse reactions that required structural changes to the organization. Leadership and vision from top management allowed quick response to the problems at hand. All the classic traits of strategic management appear in this situation. Through the Work-Out Program, GE remained in touch with the customer, working with them to quickly respond to their changing needs.

The organization has become lean through downsizing and reorganization. The internal environment had so greatly changed that restructuring the management systems was required. Now, everyone has a purpose and knows what it is. Layers of management have been eliminated, and those who remain are dedicated to empowerment.

Work-Out greatly enhanced the quality of information passing between management and worker, and even among workers. Because of the new program, no one had a monopoly on ideas or information. The more information that was exchanged, the better the business operated and the more secure jobs became. People were finally willing to share and take part in the success of others. Decentralization allowed decision-making to occur at the lowest possible level. Employees took ownership for both problems and solutions, thus increasing productivity. GE's formal functional structure was replaced by a matrix structure. Many layers of management were eliminated.

Team decision making was another way Work-Out was able to change the structure of GE. By getting groups together from different areas, across the spectrum of the organization, every type of employee learned to trust and provide input to all types of problems. Each person was able to express their opinion, or idea, and get a response from others without fear of retribution. Lower level managers were empowered to respond quickly to problems, and to try new things. Cohesiveness is now the norm. Work-Out allows for changing teams, but with all working together toward the same overall goals. Because employees now have the opportunity to interact with other departments and many levels of management, they are more responsive to others needs and situations. The walls between departments came down.

Another indicator that GE' s formal culture is changing is that all levels of management must now buy into the Work-Out program. Those willing to adapt to the changing structure are encouraged and helped to do so. These managers are given every opportunity to relearn and operate within the new culture. Those managers not willing or able to adapt are reassigned or let go. GE insists that the wave of the future is employee empowerment and interaction. GE fully intends to be on that wave.

Work-Out has also proved successful in removing conflict from within the organization. Small unproductive behaviors, once brought to light, are quickly removed. Employees are willing to point these out, and managers are empowered to make quick decisions. Non-value added steps in everyday processes are eliminated. Gone are the endless signatures that serve no purpose. The organization is streamlining their work product as well as their personnel. With the new flow of information, employees are communicating more effectively, product development is up, managers are listening and everyone is becoming involved. Emerging from the "same door" is a key to success according to Welch (Slater, 1993).

In instituting the Work-Out program, GE followed the classic techniques to implementing any change. First the true need for change was identified. Once top management identified the overall problem within the organization, lack of communication, they were able to see what needed to be done to correct the problem.

In order to facilitate communication, a program emulating town meetings was designed.

Further, support of top management was necessary. This was not a problem because the CEO was instrumental in designing and backing the Work-Out program. Top management was encouraged and required to stay on top of, and fully support this new and continuing program.

The next step was to design the change for incremental implementation. The Work-Out program was started on a grand scale, but it tried to deal with small problems first. This was done to allow confidence in the program to build and let employees see that their ideas would be heard. The facilitators helped everyone learn to speak freely. It did not take long for the employees to become involved in the program and start making major process changes.

In addition, GE developed plans to overcome any resistance to change. While the program was implemented using facilitators, these facilitators were only used long enough to get the program going well. Once, employees and managers started talking to each other, freely exchanging ideas and getting problems solved, teams were allowed to work independently without outside intervention. GE also provided specific training for managers who may have been resistant to new policies. Al managers were helped to learn how to facilitate the exchange of ideas between themselves and other employees. Specific classes were offered to all managers who were willing to learn. Those who did not wish to participate were reassigned or asked to leave. GE did what it could to remove all resistance to the Work-Out program

The Work-Out program is a perfect example of how an organization can and does respond to changing environments. Internally and externally, employee empowerment has proven to be successful. It has allowed GE to adapt to changing conditions in this fast-paced world. This alone should keep it as one of the top rated organizations for many years to come.

References

REFERENCES

Daft, Richard L. (1998) Organization Theory & Design, Sixth Ed: Southwestern Publishing, Cincinnati.

D'O'Brian, Joseph (1994, January) "GE's 'Work-Outs' Change Role OfManagement." Supervisory Management, 6-8.

"GE Fact Sheet and Financial Highlights." (1999, June 30). GE Website. Inside GE. Online. Internet. Available http://www.ge.com/ibfacal8.htm.

Hodgetts, Richard M. (1996). "A Conversation With Steve Kerr." Organizational Dynamics, 24, 6879.

"Our Values." (1999, June 30). GE Website. Inside GE. Online. Internet. Available http://www.ge.com/ibfacal8.htm.

Slater, Robert (1993). The New GE: How Jack Welch Revived An American Institution. Homewood, IL: Business One Irwin.

Quinn, Judy (1994, September). "The Welch Way." Incentive, 50-54.

AuthorAffiliation

Kim Gillies, Florida Tech

kgillies@redstone.army.mil

Robert D. Gulbro, Athens State University

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

Volume: 7

Issue: 1

Pages: 86-90

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412281

Document URL: http://search.proquest.com/docview/192412281?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-19

Database: ABI/INFORM Complete

Document 59 of 100

MANAGING CHANGE WHILE CHANGING MANAGEMENT: INFORMATION SYSTEMS AND CORPORATE MERGERS

Author: Lash, Patricia B; Nickerson, Inge

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns management challenges during a corporate merger. Secondary issues examined include the blending of cultures, the use of outside consultants and managing change. The case has a difficulty level of four. The case is designed to be taught in 2 class hours and is expected to require 3 hours of outside preparation by students.

CASE SYNOPSIS

This case explores the merger of two insurance companies and the challenges they face in integrating both their systems and management processes. The two organizations, both acquired by a separate parent company, must adapt their cultures, to each other and to their common parent. Additionally, they face the challenges of evaluating their separate systems and distributing information processing for maximum efficiency, while still maintaining two distinct locations. The parent company hires a consulting group to head up the integration effort and an in-house coordinating team is led by a senior manager in one of the companies. While the integration effort proceeds, both organizations continue to run the business, deal with Y2K issues, and ease the transition for employees.

BODY

In August 1999 a European financial services group acquired for $2.6 billion a U. S. insurance company (Company A) based in a southern metropolitan area. The parent company purchased A in order to merge it with a previous acquisition also based in a large southern city (Company B). A and B were the largest competitors in their specialized insurance area, and the parent company intended to form one organization with two locations. By combining these two companies, the parent company expected to achieve economies of scale resulting in $100 million in savings in 3-5 years and gain a secure (and profitable) position in their insurance market.

Currently the two U.S. subsidiaries are in the process of integrating their systems into one cohesive unit. This integration mandates substantial changes at both organizations, although both locations will be maintained. A still retains 4,500 employees in its headquarters and bills $3.6 billion in annual premiums from that location.

A top executive has suggested that what appears to be a match of two organizations with competencies in the same specialized area was actually motivated by distribution. He indicated that product is a small part of the reason for the acquisition. More important is that the merger gives both groups an opportunity to deliver a broad array of products through uniquely positioned distribution channels.

The European parent company does business through large financial institutions, credit card issuers, and mortgage service companies in the U.S. Its acquisition of A brings relationships with smaller banks, retail sellers of consumer products, and consumer finance companies to the mix. Through its acquisition of A, the European company is able to offer its U.S. customers an expanded product line, including employee benefits (short and long-term disability, life and dental), long-term care, provider excess and pre-funded funeral insurance. One of the benefits of serving the middlemarket customers through sophisticated intermediaries such as A and B is that it eliminates the need to build a "brand." The parent company has purchased the brand through its acquisitions.

All parties to the newly merged organization expect to reap benefits. B, already a part of the parent company for two years, offers a very strong customer focus. While they expect to benefit from the more advanced systems and processes in place at A, their customer-oriented culture should improve the product offering overall. For A, the European acquirer provides access to larger markets for their product.

An article in Investment Dealers' Digest (September 27, 1999) details the current situation between European financial firms and the U.S. insurance industry. Increasingly European financial giants are incorporating the U.S. insurance industry into their global strategies. Many of the big European companies act as both insurers and banks. The U.S. insurance companies represent attractive investment opportunities for them, frequently offering more growth potential than European companies. The fragmented state of the U.S. insurance market has facilitated these acquisitions.

The U.S. insurance sector is facing these European acquisitions at the same time that the industry has begun to emerge as a competitor in the financial services area. Several forces are providing the impetus for dramatic change, including the increased interest in annuity products, the opportunities for integration between insurers and commercial banks, and demutualization. In this market, the newly merged company appears poised for success. An executive at the new company stated that, with the U.S. just at the beginning of the curve of offering products through banks, his organization is well positioned to go forward with broader product offerings.

One of the central issues to be addressed by the merged companies is the successful blending of organizational cultures. In this case, the blending is complicated by the participation of three separate entities. First, there is the melding of organizational cultures between A and B. These two organizations, which are effectively to act as one, must form a cohesive unit that works smoothly from two locations. Second, there is the integration of the new American unit into the European unit's organizational culture.

Both A and B have traditionally been entrepreneurial in nature, with A more aggressive and B more laid-back in style. There are, however, cultural differences between A and B. These differences are exacerbated by the normal uncertainty about staff cuts in the face of elimination of duplicate functions. European companies' organizational cultures are generally more formal and hierarchical than their U.S. counterparts. The ultimate success of this merger will depend upon the effective integration of technology, management, and organizational cultures to achieve the desired synergies. Such integration should be viewed as a work-in-progress requiring several (3-5) years to accomplish.

Although the parent company had acquired B two years earlier, they had never fully integrated them into their information technology or business routines. Only payroll and benefits had been combined. However, with the acquisition of A, the parent company hopes to effect a large-scale integration of both technology and business processes.

Information systems integration efforts are led by an outside consulting group reporting to the parent company. The consulting group offers the advantages of objectivity, structured methodology, and resources dedicated to the project. The objectivity is important because every decision will impact both A and B. These decisions will have a direct impact on people's jobs, as well as the way the work is carried out in the two companies. The structured methodology is the first step in standardizing systems and processes, and helps to begin the process of creating a new joint organizational identity. The resources dedicated to the proj ect will, of course, go away once systems integration is complete. There was some initial resistance at both A and B to the consulting group, since it is an outsider acting as a change agent. However, the consulting group has worked for the parent company in prior integration proj ects, has established credibility with them, and is comfortable with their culture.

The initial mutual resistance, however slight, to the consultant, helped to unite A and B. Additionally, one of the first moves to combine the two organizations was the integration of data center operations. In a move which impacted both organizations, data center operations were consolidated and moved to a city in Minnesota. The effect of this rather drastic upheaval was to bind both A and B together, as they jointly faced this challenge.

While the consultants were hired to handle the integration issues, A and B are still responsible for running their business. One critical issue in the use of a consultant is that the business units involved (A and B) need to control the events to ensure that the knowledge does not leave with the consulting group. A group has been formed, led by a senior manager at A, which has been charged with the overall coordination of all of the integration projects and their points of intersection. This group ensures that integration issues are resolved with the business focus in mind. The consultants are experts in integration, not the insurance industry. To further ensure the maintenance of the business focus, all integration teams formed have representatives from both the information technology area and the operations area.

In terms of management, top management at the newly formed merged company were members of the parent company before the merger. However, some top management were retained from both A and B. This blending of the management has helped to ensure a smooth transition, with the concerns of all three organizations represented.

In the face of all of the integration issues, there is still a company to run. The merger and initial integration effort occurred during 1999, when the company was also dealing with Y2K issues. In an information-intense industry such as the insurance industry, the distribution of processing, sharing of information, and redesign of business processes will be a formidable task. While the use of consultants has helped in the systems area, there are some integration tasks which cannot be completed until integration is further along. One of the issues which has emerged is that while the sales force is ready to sell products from both A and B, the systems which will allow this are not yet in place. The sequencing of integration activities and the coordination among the different areas of the companies remain a challenge.

DISCUSSION QUESTIONS

1. The merger of two organizations always presents challenges to management. What circumstances in this particular case increase these challenges?

2. Whenever there is a dramatic organizational change, such as a merger, there is always uncertainty in the organization. What things can be done to facilitate communication and interaction between A and B, even though they are geographically separated? How can the organizations reduce the uncertainty inherent in the process of integration?

3. Discuss the pros and cons of using a consulting group to manage the integration effort. Would you have recommended hiring a consulting group?

4. One of the challenges in this situation is the merging of three distinct organizational cultures. What is culture and how can an organization effect a culture change?

References

REFERENCES

Ending on a High. (January 18, 1999). Investment Dealers Digest, p. 18.

The Europeans Are Coming! (September 27, 1999). Investment Dealers Digest, p. 14.

AuthorAffiliation

Patricia B. Lash, Barry University

plash@mail.barry.edu

Inge Nickerson, Barry University

inickerson@mail.barry.edu

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

Volume: 7

Issue: 1

Pages: 92-95

Number of pages: 4

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412338

Document URL: http://search.proquest.com/docview/192412338?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 60 of 100

NORTHERN MANUFACTURING, INC.

Author: Gilchrist, Neil D

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of the is case is the assessment of an organization's current situation and developing a strategy to take the organization into the future. A secondary issue is the ethics of producing a product viewed by many as being inherently dangerous. This case is appropriate for junior-and senior-level courses in management and strategy. It is adaptable to either a fifty or seventy-five minute period and should require one-two hours of preparation for students.

CASE SYNOPSIS

Much controversy surrounds the manufacturing, distribution and selling of handguns in the United States. Northern Manufacturing (NM) makes small, lightweight, inexpensive, easily concealable handguns for sale as personal protection weapons. Political, legal, and financial pressures are being brought to bear on the handgun industry as a whole, and especially on the manufacturers of inexpensive "junk guns", also known as "Saturday Night Specials". What options are available to enable NM to survive in this industry? Are they responsible for the way their product is used? Does the company have any social responsibility for their products?

"How much longer can we go on?" "It looks like gun-control is going to win out after all-at least as far as we're concerned." "We can't afford to defend ourselves if we are named in any of the lawsuits." "What do we do?"

The pessimism in the office of Northern Manufacturing, Inc. (NM) was overwhelming. Hanging on the wall behind Jim's desk was a framed copy of the Second Amendment to the Constitution of the United States: "A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms, shall not be infringed." Each side of the guncontrol debate seemed to interpret these few words differently. One side says this amendment does not address or guarantee private ownership of guns, while the opposing side believes it specifically guarantees the right to firearms ownership by private citizens. Now the interpretation is threatening their livelihood.

Jim Alstadt founded the Northern Manufacturing, Inc. 25 years ago and anticipated turning the firm over to his two sons in the near future. Both sons graduated from college and immediately went to work in the family business. Northern Manufacturing employs sixteen besides the family members. The firm has evolved over the years, expanding from production of a single handgun, a .45 caliber revolver, to the current lineup of four, semi-automatic handguns. Recognizing about 10 years ago that they could not compete with large firms like Smith & Wesson, Sturm Ruger, and Colt, NM moved away from manufacturing large, expensive handguns to smaller, less expensive weapons meant for self-protection. This shifted their production strategy away from a quality focus to a quantity focus. (See Figure 1 for the product line)

Northern Manufacturing has a solid reputation in the gun industry for producing reliable, inexpensive handguns. NMs target market is the individual who is seeking personal, reliable, and affordable protection in an easily concealable weapon. NM stresses in their marketing that these are not weapons that you would fire repeatedly again and again, but rather their use would be reserved for a life-threatening situation. The NM22 and the NM9 have been the most popular models for the past four years. They are small, light and fit well in a woman's handbag or a man's pocket. Over the years, NM has received numerous letters testifying how their handguns have saved the owners' lives. NM distributes their guns through wholesalers who sell primarily to small independently owned gun shops.

Jim has become concerned lately as reports indicate that .22 and 9mm caliber handguns are often the weapons of choice among young criminals. Several anti-gun organizations such as the Violence Policy Center and the Anti-Gun Coalition of America

lump all inexpensive handguns together as so-called "junk guns" or "Saturday Night Specials". Some states have already outlawed these guns. In 1988, Maryland outlawed the sale of junk guns based on how easy they are to conceal and their quality. Other states seek to prohibit guns based upon the melting point of the materials used in manufacturing them. The anti-gun groups suggest that these inexpensive guns have no legal purpose, are used primarily for unlawful acts, and are even unsafe for the user (due to low quality materials). NM handguns have occasionally been lumped in with the junk guns because of their size and price. There have only been a handful of incidences, however, when NM weapons were traced from crime scenes (when a weapon is found at a crime scene it is traced to the manufacturer in an attempt to find the gun's owner).

The firearms industry, as a whole, has come under much pressure lately, but especially the handgun manufacturers. More and more counties and cities are filing lawsuits accusing handgun manufacturers of negligent marketing practices, negligent distribution practices and even of manufacturing unsafe "junk guns". For example, Chicago is suing the gun industry for over $400 million for costs incurred for police, ambulance, and hospital expenses. Chicago suggests the manufacturers contribute to a "public nuisance" by oversupplying suburban stores, knowing the excess will flow into the city where the laws are strict. Washington D.C. recently became the thirtieth U.S. city or county to sue the industry for costs associated with shooting deaths. This suit seeks changes in gun distribution practices that allow weapons from neighboring Maryland and Virginia to come into Washington despite its much tougher gun laws. Twenty three major gun manufacturers and two distributors were named in this suit. NM has not been named in any of these twenty lawsuits.

Jim just returned from a firearms industry trade show with disturbing news. He heard that several major companies were getting out of the handgun business. Colt's Manufacturing Co. indicated that it would restructure so as to reduce the importance of the civilian handgun market in its business. Although Colt's did not say, it appears that litigation is a driving force in their move. Colt's appears to be focussing their efforts on military small arms. H&R 1871 Inc., known for its shotguns and rifles, announced it would halt production of handguns, due to the high cost of product liability insurance and shipping (driven by increased litigation). Davis Industries and Sundance Industries have sought bankruptcy protection and Lorcin Engineering closed operations in the past year, suggesting litigation as part of their problems. These three companies are part of the so-called "Ring of Fire" (small handgun manufacturers specializing in inexpensive handguns with locations ringing Los Angeles). It was also rumored that the Swiss firearms company, SIG Swiss Industrial Co. Holding Ltd. is trying to leave the U.S. handgun industry by selling its firearms business. SIG has been named as a defendant in some of the county and municipal lawsuits.

Two other issues were discussed at the trade show: (1) The largest shipper of handguns in the United States, United Parcel Service, announced they would no longer use ground delivery for handguns to reduce the risk of theft by employees. Handguns would only be shipped by Next Day Air service-this could double the cost of shipping for the entire industry; and (2) Insurance is getting more and more difficult to get. Handgun manufacturing is like any other business, depending upon insurers to pay for legal defense and contribute to any settlements or judgments. The cost of that insurance is increasing dramatically. Even the per-case deductible now runs anywhere between $25,000 and $1 million (NMs deductible is $250,000). And that is if the manufacturer can even get a company to insure them. Several insurance companies have notified gun manufacturers that they would not pay on these lawsuits so the manufacturers are suing the insurance companies. Leeds & London Merchants Insurance, a company that insures small gun manufacturers like NM has filed for bankruptcy and then it was also discovered that they were not even licensed to sell insurance in most states (several firms thought they were insured when they actually were not). Leeds & London probably will not pay anything on law suits, leaving the manufacturers to bear the entire burden themselves.

Jim and his sons have to decide what options are available to Northern Manufacturing. Can business continue as usual? Should NM change their product line? Is there any way to protect the firm from lawsuits? Can NM prevent its guns from being used in crimes? Does NM have any social responsibilities concerning its products?

This case is a composite drawn from multiple sources, listed below. While Northern Manufacturing is a fictitious company, the events surrounding the industry are real.

INSTRUCTORS NOTES

CASE DESCRIPTION

CASE SYNOPSIS

Much controversy surrounds the manufacturing, distribution and selling of handguns in the United States. Northern Manufacturing (NM) makes small, lightweight, inexpensive, easily concealable handguns for sale as personal protection weapons. Political, legal, and financial pressures are being brought to bear on the handgun industry as a whole, and especially on the manufacturers of inexpensive "junk guns", also known as "Saturday Night Specials". What options are available to enable NM to survive in this industry? Should they be allowed to continue their current product line? Are they responsible for the way their product is used? Does the company have any social responsibility for their products?

DISCUSSION QUESTIONS

1. What options are available to enable NM to survive in this industry?

1. Northern Manufacturing can continue on their present course. They have not been named in any lawsuits yet. Although their handguns do fit the general description of the cheap weapons commonly used by young criminals, few of their weapons have been traced from crime scenes. They can continue refining their marketing program, emphasizing value, reliability, small size, and proper use for self-protection. They must be certain their insurer will pay for any future legal problems should any problems arise.

2. Adding safety devices such as trigger locks to their guns. This might be a viable option if the size of the handgun were not increased (reducing concealability), if the price of the gun was not increased, and if the lock did not slow the response time of the potential victim.

3. NM could use higher quality materials and increase the price of their guns so they would not become the guns of choice for young criminals (pricing them out of that low-end market). Higher prices would help limit access to the guns by young people.

4. NM could also be more selective in choosing retail outlets to sell their guns-not just anyone with a gun license could buy and sell their guns. They could require retailers to sign a pledge agreeing to conduct a thorough background check before selling anyone a NM gun (similar to a program started by Smith & Wesson which requires gun sellers to conduct background checks, agree not to sell or buy stolen guns, and not sell to "straw" buyers-someone buying a gun for someone else).

2. Is NM responsible for the way their products are used (i.e., in the commission of a crime)?

Current lawsuits suggest that the company is not liable just because their product is used in the commission of a crime. However, if courts determine that the product is defective (poor quality of materials putting the user at risk) or unsafe (not meeting current safety laws such as required trigger locks), the company could be subject to a product liability suit. Perhaps of greater concern is the recent ruling in the New Orleans versus the gun industry lawsuit where the judge ruled that the city has the fundamental right to file a suit to try to hold the gun industry liable for the public costs of firearm violence (currently under appeal).

3. Does the company have any social responsibility for their products?

Students could be assigned to research the rulings against the asbestos and tobacco industries

References

REFERENCES

Barrett, Paul M. (1999). Colt's Cuts Role Of Handguns In Revamping. The Wall Street Journal, September 29, Section A, p. 3.

Barrett, Paul M. (2000). Swiss Gun Maker SIG Plans to Sell U.S. Unit. The Wall Street Journal, January 19, Section B, p. 2.

Barrett, Paul M. and Barrionuevo, Alexei (1999). Handgun Makers Recoil as Industry Shakes Out. The Wall Street Journal, September 20, Section B, p. 1.

Puente, Maria (1999). UPS to deliver handguns by air only to reduce theft. USA Today, October 8, Section A, p. 6.

Reuters. (2000). D.C. sues weapons manufacturers. USA Today, January 21, Section A, p. 4.

Walsh, Sharon (1999). Insurers Are Bailing Out on Gun Industry. Washington Post, November 26, Section A, p. 1.

AuthorAffiliation

Neil D. Gilchrist, Truman State University

ndg@truman.edu

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

Volume: 7

Issue: 1

Pages: 96-100

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412396

Document URL: http://search.proquest.com/docview/192412396?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 61 of 100

THE SOCIETY OF PROFESSIONAL ENGINEERING EMPLOYEES IN AEROSPACE STRIKES AGAINST BOEING CO.

Author: Thomson, Neal F

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns Labor Relations and Collective Bargaining. Secondary issues include ethics, competition and business strategy. This case has a difficulty level of three to four. It is appropriate for a junior or senior level Labor Relations or Collective Bargaining course. This case is designed to be taught during a one hour class session, and is expected to require two to three hours of outside preparation.

SYNOPSIS

In last year's (1999) contract negotiations, Boeing made numerous concessions to the International Association of Machinists (IAM) union, including 10 percent bonuses and guaranteed pay increases. Now, in this year's (2000) contact talks, the Society of Professional Engineering Employees in Aerospace (SPEEA) employees are demanding a similar deal. So far, however, the company seems to be less willing to comply with the wishes of the SPEEA. This union is smaller that the IAM, and has less impact on the production schedule of the company. Several offers were tendered by each side, with little ground given, until a strike was finally called. At the time of the writing of this case, the strike was unresolved. This case looks at the issues that led to the strike, and frames them within the collective bargaining process. Problems caused by the strike, including the suspension of Boeing's aircraft certification authority by the FAA are discussed. Questions examine the possible outcomes, and strategies of each side.

INTRODUCTION

1998 was a tough year for Boeing Co. Production and delivery problems led to writedowns of approximately $2.6 billion. In 1999, management hoped to show that the company had solved these problems. The company was on target toward the delivery of 620 aircraft, a one-year record, which would reassure customers and investors that all was well (Zoeckler, 2000). However, the contract for the International Association of Machinists (IAM) was due to expire toward the end of the year. Negotiations between this union, and Boeing, had always been difficult in the past, and 1999 was expected to be no different (Zoeckler, 2000). Many past negotiation with the IAM had led to extended strikes, and huge losses for both sides (Wanttaja, 2000). When negotiations began in Fall 1999, this outcome seemed likely to occur again. Union leaders were warning members to prepare for an extended strike. Boeing offered a contract, which was soundly rejected by the union. Strike preparations began to occur. However, this time, Boeing CEO Phil Condit stepped in, stating that Boeing valued its employees, and the company didn't want to endanger it's recovery (Wanttaja, 2000). The union was given essentially everything they asked for, including 4% annual across the board raises and 10% bonuses (the average machinists salary was approximately $44000) (Labor Day..., 1999). The union quickly agreed, and production continued, crowning a banner year for Boeing. Negotiations with one of Boeing's other unions, the Society of Professional Engineering Employees in Aerospace (SPEEA) would have no effect on 1999 operations, since they began in December, and were not expected to end until Spring 2000 (Wanttaja, 2000)

SPEEA BACKGROUND

The Society of Professional Engineering Employees in Aerospace was never the strong adversary for Boeing that the IAM had always been. Characterized by some as Boeing's "Tame Union," they were viewed to be more of a trade association than a labor union. Their members, professional engineers and technicians, most with advanced degrees, were considered "wimps" who were not likely to put up much of a fight during labor negotiations. In the several decades that SPEEA had represented these workers, they had only gone on strike once, in 1993, a one day affair which quickly fell apart. In fact, only about 40% of the employees represented by this union had ever bothered to join (Wanttaja, 2000). Several other conditions also combined to weaken the influence of the SPEEA; first, as an open shop, employees within the bargaining unit were not required to j oin, nor pay an agency fee (which is required of non-members in some organizations), second, as professional employees, there was strong conflict between professional responsibilities and their selfinterest, lastly, there was a strong reluctance among members, particularly engineers, to consider a strike under any circumstances (Peterson, 2000). Because of this, the SPEEA employees typically received second class treatment.

THE NEGOTIATIONS

While IAM workers received, in contract after contract, across the board raises and large bonuses, SPEEA members would at best receive smaller bonuses and raises based on management assessments of merit. However, even within this context, the contract offered by Boeing in December 1999 was a shock to most union members. Not only was there NO annual bonus (in the past they had typically received some bonus, while not the large 10% that the IAM got), but they weren't even offered the profit sharing plan given to non-union employees (Wanttaja, 2000). In fairness to the company, the 5% annual raise offered in the first year, followed by 4% the next two years of the contract was more than the IAM workers received, but it came with a few hitches. First, for technicians, only 2% of the raise was across-the-board, the remaining 3% was combined into a pool for merit raises, to be given only to those employees chosen by management, while for engineers, the whole 5% was targeted for merit raises (a situation unusual in unionized settings) (Boeing Says..., 2000). Second, in exchange for these raises, employees were expected to begin to pay for part of their health insurance, and some other benefits (which was estimated in one article to be a cost of several hundred dollars per month), all of which had been previously paid for by Boeing. This would essentially negate the raise for most employees, and might even result in a net pay decrease for employees who don't receive high merit raises (Wanttaja, 2000). Members of the union were so unhappy with this contract that 99% voted to reject it, and 80% voted to authorize a strike.

Several weeks of negotiations had little effect on the terms of the contract offered by Boeing, and while two subsequent offers were submitted, very little movement occurred on the important issues. In fact, Boeing's third offer was characterized by the union as a worse contract than the first that they offered. While the medical premium copay was dropped, the company significantly reduced life insurance coverage, and other benefits to cover that cost. Additionally, they offered to make up for the absence of the bonus by offering the workers stock options for a total of 100 shares, over 5 years. However, at best these options are estimated to be worth about $1000 over that 5 year period, and possibly less, or nothing, if the stock price doesn't rise. The cost per employee of eliminating the copayments is approximately $26.50 per month. (Boeing's offer..., 2000).

THE STRIKE

After workers rejected the first contract, they agreed upon a strike deadline. Just before the deadline, Boeing offered their second contract, which had little if any improvement over the first. Even so, the union agreed to delay the strike when asked by the US government to attempt mediation. This was completely unsuccessful, with neither side willing to move an inch. On Feb. 8, 2000 the Union called a strike, beginning at 9:00 am the following morning. Even though membership in the SPEEA had climbed from 40% of the bargaining unit to 60%, nobody expected the massive walkout of employees that occurred. At 9:00 am, Feb. 9th, over 17000 of the 22600 employees represented by the SPEEA, approximately 75% walked off their jobs (Boeing Engineers, 2000). This union, which had never had a strike longer than one day, began the largest strike involving white collar workers in the history of the country. Even then, Boeing was convinced that the strike would not last, and even assured shareholders that production would not be affected. This position was not without its reasons, as the company had significant strike leverage relative to the union (Wanttaja, 2000).

COMPANY STRIKE LEVERAGE

One of the biggest advantages that Boeing had over the SPEEA in this strike was money. Primarily, the strike would not immediately effect production or sales, so if resolved quickly enough, there would be no effect on revenues or profits. In contrast, the union members would immediately begin losing wages, to the tune of $3.4 million a day (Stetkiewicz, 2000). Further, since they had never had a sustained strike before, they had no strike fund, and by March 9 had only collected $155,000 in donations (Bofferding, 2000). Since the workers had never managed to successfully strike before, the company was confident that the financial pain would cripple the strike before it affected profits. Most models of company strike leverage would suggest that Boeing had high strike leverage, at least over the short term, but that if the strike is prolonged, that leverage quickly evaporates. One particularly vexing problem is the fact that many precision tools used in production are maintained by the SPEEA technicians. Within a month, these tools will need calibration, and assembly will begin to grind to a halt.

UNION STRIKE LEVERAGE

Typically, union strike leverage is thought to come from two sources; alternative sources of worker income, and workers solidarity. One of the SPEEA' s biggest weaknesses was that, since they had never had a major strike, they had no strike fund to provide striking workers with financial assistance. However, since these are higher paid, educated workers, a larger than average number of them have savings and investments from which to draw funds. Further, since their skills are in short supply, temporary or replacement jobs are plentiful, and some workers are even finding jobs in the computer industry, at companies such as Microsoft (Wanttaja, 2000).

In contrast, past history indicated a very weak level of union member solidarity. The one previous strike that SPEEA had sponsored died after only one day, since it was ignored by many workers, and others quickly lost their taste for it. Member commitment to a strike was perceived to be low. In fact, before the strike began, one union member was quoted by newspapers as saying "we'll strike the whole week if we have to" (Wanttaja, 2000). Furthermore, the level of bargaining unit membership at the beginning of the labor negotiation process was only 36%. If only these workers went on strike, the union would be in trouble. In assessing the strike risk from this union, these factors invariably played a part in Boeing's decision to play hardball with SPEEA. A number of factors, particularly a comment by Boeing's HR head may have changed that dynamic. Jim Dagnon stated that engineers were prima donnas who "thought the world revolved around them" (Wanttaja, 2000). This so enraged employees, including non-union engineers, that union membership began to swell. Membership rose from the pre-negotiation levels, to 65% of the bargaining unit by March 2000. Furthermore, when the union struck, many non-union workers left with them. At least 17000, and possibly over 19500 of Boeing's 22600 engineers and technicians walked out, depending on whether you believe Boeing's numbers, or the SPEEA's (Wanttaja, 2000).

STRIKE EFFECTS

The effect of the strike on workers was immediate, and painful. Since the first day of the strike, the workers have received any of their pay, which averages $45000 per year for technical workers, and $63000 for engineers. The total lost wages of all the striking workers has been estimated by Boeing to be approximately $3.4 million per day (Stetkiewicz, 2000). For the period during which the workers have been on strike as of the date of this case, the total loss already exceeds $100 million dollars. However, this figure may be somewhat inflated, as some of these employees have found employment elsewhere. While this sounds pretty bad, the losses by Boeing have the potential to be much worse. In the first month of the strike, Boeing has already failed to deliver 19 planes, with values ranging from $30 million to $187 million, some of which were tied to purchase contracts which specify a penalty for late delivery (Stetkiewicz, 2000a). In addition, many of their military aircraft programs have been delayed. Particularly, the F22 program and the Joint Strike Fighter (JSF) program have been delayed. While the F22 delay may cost the company in contract penalties, the JSF program could be lost entirely. Currently, Boeing is developing a proposal for development of this plane, and if awarded the contract, this would be expected to impact Boeing revenues by approximately $350 billion dollars (Stetkiewicz, 2000b).

While these direct effects are devastating, the indirect impact are causing more immediate pain. Many workers from other companies are refusing to cross the picket lines. While the IAM workers at Boeing are required by contract to cross the picket lines, employees of Boeing suppliers are not limited in this way. Truckers, who are represented by the Teamsters union, are refusing to cross picket lines. Long-haul trucks, as well as UPS and FedEx trucks are turning away at the gates. In addition, garbage trucks are refusing to pick up, and railroad engineers are refusing to deliver fuselages. Even an IBM computer repairman refused to cross the pickets to repair a crashed mainframe.

The strike is beginning to hurt Boeing, and may be more painful for the company than the union. Its tough to see a solution in which anyone isn't a loser at this point.

DISCUSSION QUESTIONS

1) What could have been done to avert the strike?

2) Who seems to be primarily at fault here? Did Boeing bargain in good faith? Did SPEEA?

3) What reasons would Boeing have to take this hardball approach with SPEEA?

4) Can anything be done at this point to end the apparent impasse?

References

REFERENCES

Bofferding, Charles (2000). Our View (3/12/2000). Online Posting. WWW.SPEEA.ORG

Peterson, Richard (2000) Boeing's Hardball Tactics out of Place. Online Posting The Seattle Times (1-3)

Stetkiewicz, Chris (2000a) Boeing Engineers Strike Drags on Despite Mediation. Online Posting. AOL. (1-2).

Stetkiewicz, Chris (2000b) Boeing Strike enters second month, damage mounts. Online Posting. AOL. (1-2).

Stetkiewicz, Chris (2000c) Talks Fail to End Boeing Engineers' 19 Day Strike. Online Posting. AOL. (1).

Wanttaja, Ron (2000) The Boeing Strike-? Report From the Trenches. Online Posting. WWW.AVWEB.COM (1-10)

Zoeckler, Eric (2000) SPEEA Strike Goes Beyond Contract Terms. The Everett Washington Herald. (1-2)

_____(2000) Strike Postponed as Boeing Unions Reject Contract Offer. Online Posting. CNN.COM (1-3).

_____(2000) Boeing Engineers Remain on Strike After Contract Talks Collapse Again. Online Posting. CNN.COM (1 -2)

_____(2000) Boeing's Offer Was Step Backward; Showed Company Wants to Break Workers. Online Posting. AOL (1-2)

_____(2000) Boeing Says it will impose last contract offer. Online posting. CNN.COM

AuthorAffiliation

Neal F. Thomson, Columbus State University

Thomson_Neal@colstate.edu

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

Volume: 7

Issue: 1

Pages: 101-105

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412415

Document URL: http://search.proquest.com/docview/192412415?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 66 of 100

NO JOY IN MUDVILLE: TAX AND ETHICAL CONSIDERATIONS IN FINANCIAL PLANNING FOR RETIREES

Author: Rogers, R Bruce; Lirely, Roger; Swanger, Susan L; Coffee, David

ProQuest document link

Abstract: None available.

Full text:

CASE DESCRIPTION

The primary subject matter of this case is personal financial planning for retired individuals. The case requires students to consider both the technical and personal implications of practitioners' recommendations to financial planning clients. Specifically, students must challenge a personal financial plan, in light of the personal wishes of the client, and suggest appropriate changes to the plan. Additionally, students are asked to identify appropriate responses to a demanding and not-socongenial tax manager, assess the ethical and business implications of underreporting hours, and consider the appropriateness of CPA firms operating as multidisciplinary practices. The case has a difficulty level of four out of five, appropriate for senior level or graduate courses. The case is designed to be taught in two class hours and is expected to require five hours of outside preparation by students.

CASE SYNOPSIS

Welcome to the Sunshine State

Rebecca hurried into her office, almost spilling the steaming cup of Cuban coffee she juggled with her umbrella and briefcase. "Ummmm," she sniffed the fragrant blend, "they didn't have coffee like this up in Chicago." She gazed out the window at the torrential rain, savoring the rich aroma of the coffee.

Rebecca Harris had recently been transferred from Chicago to the Tampa office of Nelson & Myers, LLP, a large national CPA firm. After three years in the Chicago office, Rebecca had become a little anxious about her advancement potential. All the people in the Chicago tax department had seemed pretty well entrenched in the practice - none likely to leave; none likely to retire in the near term. The prospect of transferring to another office had not occurred to her until she met Marshall McKinley at a tax seminar in Washington DC a few months ago. Marshall was the managing partner of the tax practice in the firm's Tampa office. As a co-leader of the one of the small group breakout sessions on financial planning, Marshall was impressed by Rebecca's intelligence and vitality. But what impressed him most, was her ability to sort through a lot of superfluous information and get to the heart of a problem. Before the week of training was finished, Marshall had "recruited" Rebecca to move to Tampa as part of the office's fledgling financial planning practice.

"You've got to do more than sniff it to really get a jolt." The words snapped Rebecca back to the present. It was Simon, another member of the tax staff.

Rebecca took a tentative sip of the hot coffee and looked up at the smiling Simon. "I was just wondering how I ever lived without this stuff!"

"Well, drink up and put on your armor - I just ran into Kendall in the hallway. He asked me to tell you that he'Il be free in about 15 minutes to take a look at that financial plan you've been working on for the Clarks."

"Great," beamed Rebecca. "I'm ready on this one."

"Good luck..." the words trailed off down the hallway as Simon headed toward his own office.

Rebecca opened her briefcase and pulled out a manila folder labeled "Dr. and Mrs. Morris Clark." She had really worked hard on this plan. Although Kendall had told her to spend about 4 or 5 hours working on this initial plan, she had actually spent about 10 hours, including the 3 hours at home last night after dinner. She was sure that it was a good plan. But Kendall - never pleased, never impressed - was certain to have changes.

Kendall Watson was a senior manager in the tax department. His name was actually Davis Kendall Watson III. The Watson family was a very rich and powerful force in nearby St. Petersburg, where Kendall grew up. It wasn't really that Kendall was spoiled, Rebecca thought, it was just that it seemed as though he hadn't had to work as hard as many of the others in the office. She had worked two part-time jobs while during college in Illinois. Most other staff members had also worked their way through school. Kendall was a CPA and had a law degree from Harvard, but Rebecca could not help but believe that family money had played a major role in getting Kendall to this point in his life.

With an almost inaudible sigh, she drained the cup of coffee, grabbed the folder, a pen, and a legal pad and headed down the hall to Kendall's office.

A Grade of "D" is Passing

Kendall wrinkled his forehead as he read. Rebecca shifted nervously in her chair. Why did she still feel like she was in school and this was the mid-term examination? "Please," she silently prayed, "don't let him totally trash it. I don't want to fail!"

"Well, Becky Lou, is this how you Yankees did financial planning up in Chicago?" Rebecca felt the blood rush to her face and forced a small smile. She hated when he called her Becky Lou. "Well, it's how they told us to do it at the seminar in DC last summer. In fact, this approach follows the outline Marshall himself gave us at the session."

"But Marshall doesn't know the Clarks, does he?"

"Gee, I don't know if he knows them, but it's good, sound financial planning..."

"Listen, Becky Lou," Kendall interrupted, "maybe up North everyone is driven solely by the almighty dollar, but down here we listen to the wants and needs of our clients. The Clarks have been a client of this office for over 25 years and I'm not about to present apian to them that includes selling their family home. That property has been in their family for decades. And sell the bank stock that Mrs. Clark's daddy gave her - no way, missy!" Rebecca cringed. "Now you take your little plan, back to your little office, and use your little brain to come up with a plan that abides by the wishes of the Clarks. Didn't you see my notes in the file?"

"Yes, but I thought our objective is to preserve assets..."

"Our objective," Kendall interrupted again, "is to keep our clients happy." He shoved the folder back across his desk to her. "Hope you didn't spend more that a couple of hours on this..."

Casey Strikes Out

Back in the relative safety of her office, Rebecca took a couple of deep breaths. "What's his problem?" she thought. Opening the folder, she re-read Kendall's memorandum on planning considerations dated March 23, 1999 (Exhibit A) and the plan she had prepared (Exhibit B). Digging further into the folder, she found original notes in Kendall's distinctive script, scribbled on faded legal paper. The paper was labeled "Meeting with Morris & Dorothy Clark - April 2, 1999." Sure enough, the third item - in big, bold letters and underlined - said "KEEP FAMILY HOMESTEAD" - under that, were the circled words "also bank stock." "Oh, no!" Rebecca thought. "I feel like this Yankee just struck out in the bottom of the 9th!"

EXHIBIT A

Financial Planning Considerations for Dr. & Mrs. Morris Clark

Prepared by Kendall Watson

Nelson & Myers LLP

March 23, 1999

Dr. Morris Clark is 77 years old, with a life expectancy that he estimates as less than a year. He conducted a solo practice in internal medicine for approximately forty years. His assets consist of a retirement account of approximately $80,000 and stocks worth about $400,000. Upcoming medical costs should range between $25,000 and $250,000, with the most likely value being about $75,000. There is no medical "gap" insurance to cover costs not included in Medicare.

Mr. Dorothy Clark is 74 years old and is in good health. Based on her current condition and on her family history, it is likely that she will live well into her 90's. Mrs. Clark has approximately $850,000 of her own stock. Of this, approximately $700,000 is bank stock that was given to her by her father in her name alone. This stock yields only $15,000 a year in dividends and is highly appreciated and would generate large capital games, but the stock has some sentimental value to Mrs. Clark, who would be reluctant to part with it. The remainder of her investments consist of stocks and mutual funds bought for her by her husband.

The couple lives in a home in a stately part of St. Petersburg. Dr. Clark paid approximately $100,000 for the home more than thirty years ago and they have made no major improvements. Its current market value is in the $800,000 to $1,000,000 range, depending on how quickly it must be sold. The Clarks have indicated a reluctance to sell.

The Clarks live comfortably and are able to give some assets to their three married daughters and to their grandchildren, within the annual exclusion of $10,000 per recipient. They do not have a great deal of excess liquid income, however, because a large portion of their assets is tied up in Mrs. Clark's bank stock and in their home.

Dr. Clark's illness limits some of the options available to the couple. For instance, if he were expected to live more than a year, it might be possible for Mrs. Clark to give Dr. Clark some of her appreciated assets and, thus, benefit from the step-up in value that would occur at his death.

In summary, we can see that our client couple has a fairly substantial estate, whose overall value falls significantly above their 1999 joint Unified Gift & Estate Tax Credit equivalent of $1,300,000. In addition, the nature and ownership of certain assets limit their use of this basic credit. We must find ways to utilize the Unified credit and shield the remaining value of their assets (approximately $1,000,000) from excessive taxation. Additionally, we must provide sufficient income for the couple to maintain their current lifestyle.

EXHIBIT B

Financial Plan for Dr. and Mrs. Morris Clark

Prepared by Rebecca Harris

Nelson & Myers, LLP

April 29, 1999

Irrevocable Trust - An irrevocable trust shouldbe established containing $650,000 from the stock portfolio. The trust document should specify that, at the death of Dr. Clark, Mrs. Clark would receive a lifetime interest in the income, with the couple's three daughters receiving the remainder at her passing. The trust would thus be protected from probate. It would be included in Dr. Clark's estate at fair market value, but would avoid taxation through the current Unified Tax Credit. At Mrs. Clark 's death, it would pass directly to the daughters without further taxation.

Medical Costs & Current Living Expenses - Use Mrs. Clark's pool of stocks to pay for Dr. Clark's medical costs and for their current living expenses. Assuming that medical costs are at the levels predicted, Mrs. Clark should have a remainder of more than $575,000, after income tax on the gain related to any stock she sells.

Family Home - The family home should be place on the market immediately. If it is priced to sell within the current year, it should generate about $800,000 after sales costs. The couple have a basis in the home of $100,000 and could utilize dual exclusions of gain on the sale of a residence, which would shield another $250,000 apiece. The remaining taxable gain would be $200,000, and the final after-tax result of the sale would be the generation of approximately $700,000.

Transfer of Assets to Children - At this point, Mrs. Clark has income from a trust corpus of $650,000. She owns stocks worth approximately $575,000 and holds approximately $825,000 in cash. She should gift $650,000 of the cash to her daughters. She should retain the appreciated stock and remaining $175,000 cash. The stocks should remain in her estate and receive a step-up in basis. One would expect that Mrs. Clark should be able to live comfortably on a total asset base of $1,400,000, including both the trust and her own holdings. The Current gross value of her estate would approximate $750,000 before considering any allowable deductions. This would place it in an acceptable 33% tax range for federal estate tax purposes. Overall, taxes would consume only about 13% of the estate.

AuthorAffiliation

R. Bruce Rogers, Steelcase Corporation

rbroger@home.com

Roger Lirely, Western Carolina University

lirely@wcu.edu

Susan L. Swanger, Western Carolina University

swanger@wpoff.wcu.edu

David Coffee, Western Carolina University

coffee@wcu.edu

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

Volume: 7

Issue: 1

Pages: 113-117

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412405

Document URL: http://search.proquest.com/docview/192412405?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 67 of 100

STUDENT AGE DIVERSITY AND ACADEMIC PERFORMANCE

Author: Yang, Nini

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns age effects in the U.S. higher education. Related issues include demographic changes in the U.S. workforce, increased non-traditional students in higher education, and their implications to effective teaching and learning. The case is designed to reveal some major questions and challenges raised by increased non-traditional students and subsequently the rising learning age in colleges and universities. The case is documented in four ways. First, the case synopsis summaries the general purpose and an overview of the case. Second, the case background provides specific information about some significant shifts in student age groups in a senior college of the United States. Third, a senior citizen's experience in accomplishing a college degree after retirement presents a unique case for in-class discussion or a basis for further research of the subject matter. Finally, an instructor's resource manual provides guidelines for the use of the case, which includes questions, recent data, and references to facilitate the case analysis. The case lends itself for either undergraduate or graduate courses in management, education, or career-related training programs. For undergraduate courses, 20-30 minutes are sufficient for case reading and small group discussions. For graduate courses or training programs, the case is suitable for individual or group assignments.

CASE SYNOPSIS

The present case focuses on the increased student age diversity in the U. S. higher education. In the context of the rising average learning age in colleges and universities nationwide, the case depicts a real-life example of the mixed-age college classroom from a senior citizen's perspective. It challenges some widespread assumptions about age effects on learning, behavior rigidity, teamorientation, and adaptability in the rapidly changing world of education. The case is designed to: (a) reveal age-related concerns in higher education; (b) enhance an under standing of major factor s that drive the significant increase of older students in higher education; and (c) generate discussions and research interests in the area of age effects on learning, organizational strategic planning, and mission development in transformational times.

The case is suitable for courses such as organizational behavior, leadership, human resource management, principles of management, and diversity training programs. To facilitate the case analysis, recent data and research findings about significant shifts in relative sizes of student age groups and their implications to higher education are summarized in the instructor's resource manual. Discussion questions, guidelines, references of suggested readings are provided.

CASE BACKGROUND

As the median age of the U.S. population continues to rise, so does the average learning age of the students in higher education. Prior to the 1980's, college students were primarily fresh high school graduates who studied full time to obtain higher degrees. This traditional student population is shrinking dramatically. According to the U.S. Census Bureau, the proportion of 18-24 years old high school graduates has dropped to 36.7% of all college students, while students by full time enrollment status make up 57.8% (The Chronicle: 1999-2000 Almanac). On average, today ' s students are older. About 57% of all students enrolled in American colleges and universities are in the age group of 25 or older. Many of these students are non-traditional, who tend to be married, work full time, and have household costs or childcare responsibilities (see American Council of Higher Education, 1993; Moore & Diamond, 1995; Rice, Solis, Roger &Dalton, 1996; Yang, 1997). As one example, at Clayton College & State University in Morrow, Georgia, female students increased by 18% in the past ten years, and the average age of all enrolled students has reached 29 by Spring 2000. Nearly 60% of the college students hold full-time jobs.

Clayton College & State University is a four-year college with approximately 5,000 students, as well as a large constituency of continuing education. Many of its full-time students are also permanent employees who work for Atlanta based companies such as Coca-Cola Co., Ford Motor Co., Delta Airlines, Home Deport, Bell South, and Wachovia Bank. Looking at these non-traditional students and evaluating them as future employees and entrepreneurs, who work 40 hours a week while taking 9 to 12 hours of college courses, one really has to admire what they are accomplishing, and wonder how they manage the learning effectiveness at a relatively late age stage.

A DREAM COMES TRUE: A SENIOR CITIZEN'S PERSPECTIVE ON A MIXED-AGE COLLEGE CLASSROOM

"I enjoyed it. It was fun to work on," said L.C. Thomas when asked to describe how he felt about pursuing a college degree after retirement. Anyone who knows L.C. Thomas understands what it is meant by the word "fun" here. He is a retired manager of the Nabisco, Inc. Many people call him simply by L.C.

L.C. started the college in 1953 but was unable to complete the degree as his job responsibility increased quickly. He spent 35 years in Nabisco, Inc. and retired as a regional sales manager for the division at Atlanta, Georgia. Although very successful and experienced in the field of business, L.C. always wanted to complete the college, a dream that he and his wife Wynelle talked about during those years of working. ASome day, I will do it," he told himself many times. After being retired for a year or so from Nabisco, L.C. talked about his dream with a business professor at the Clayton College & State University, and was advised to start with one course first, a critical thinking class, Abecause that will help you clue what's going on in the world today at the college level," said the business professor. It was not an easy start, however. Many of the subjects being taught today were not even created 40 years ago. The first time in the class, a question about one's sexual life was raised for answers. AIt was a real shock," said L.C, "but nothing would surprise me anymore after that one."

L.C. had a lot of support from his wife Wynelle and their three children. There was also encouragement from his friends: "If you want to do it, do it." That did not, however, call off the concern about whether the college would accept someone of his age until he became an actual part of the college. JU found in the first class that they will (accept older people). We had one thing in common, that course we were undertaking in that one class. So you can have that in common all the way through, and they will accept," said L.C. AI felt that was very pleasant."

AI also felt I'd better do my homework, especially to stay up. If you had a lot of reading, you'd better read. If in accounting, you'd better do all that work, to stay up. It might be hard to compete against those young folks first," said L.C.. AI think one of the most front things of those young people is they did not enjoy as much as I did for the group study, the group projects, because in group projects, you really have to learn the personalities of other people regardless of the age background. It could be cultural barriers, and it could be racial variables, because of being born in a foreign country. But if you fall into groups of your class, study groups, I think it is the most fun part of the college. I think it is the most learning part."

L.C. followed the footsteps of his daughter and a stepped grandson. One by one, they completed Clayton College & State University, having the same teachers sometimes. His experience is not unusual. Oftentimes, you see in upper level courses, several students are following the footsteps of their children. JlIt is kind of the issue, sharing your needs with your children, but you are not the first one to go. You are the last one to go. That's the humor side of this education," said L.C. AI knew they would want to see my report card. They wanted to see my grades."

L.C. completed his Abiggest report" in August 1995. With a college degree in hand, he is planning to go international. He applied to join a Study Aboard Program in London through the University System of Georgia. AI really want to continue on international studies. I became interested in international through my teachers," said L.C. AIt was just a dream that I worked completely to get a degree, but what I really want to do with all of this, the change that occurred? I would like to teach at the college level, that would require something else."

AI think of the changes of the American country. The education facilities and the means of communication like PCs are great things to get involved with, not too old to learn at my age," said L.C., Abecause our children are involved, and our grandchildren, and we just need to learn."

As a nontraditional student, L.C. Thomas took an active part in the college education and was creative in team projects. Both the students and the School of Business faculty enjoyed having him as a team member, a colleague, a student and a friend. Off the campus, L.C. is active in the community and is a member of the local Kiwanis Club. As today's colleges and universities are getting more diversified in terms of gender, age, and ethnicity, students like L.C. Thomas are real valuable assets to the quality of education. They bring with them rich experiences, high motivation, and creative ideas. They are making today's education both a challenge and a fun activity to work on.

INSTRUCTORS' RESOURCE MANUAL

This case is focused on age-related issues in the context of the increased student diversity in higher education. The aging U.S. population indicates that organizations may face a shortage of skilled workers in the near future, once the baby boomers start to retire. Demographic changes in the relative sizes of different age groups in the U.S. population also reshape the markets for many products and services, including higher education and job-related training programs (Yang, 1997). Although numerous studies have examined age effects on employee performance and job satisfaction (e.g., Galen, 1993; Kalleberg & Loscocco, 1983; Lee & Wilbur, 1985; etc.), there has not been sufficient research on age effects on learning and the quality of education. Regardless of whether it is true or not, people over 55 are often stereotyped as incompetent, past their prime, or slow to respond. These perceptions about age effects are way off base and need to be addressed with recent research evidence or gained first-hand experience such as the real life example presented in the case.

As the average learning age in higher education is rising nationwide, age effects on academic performance can arouse an immediate interest from the majority of the students. Each of the following questions can be an attractive topic area for in-class group discussions or a research assignment out of class.

QUESTIONS FOR DISCUSSION

1. What are some major factors that have caused the significant increase of older students in the U.S. higher education?

2. How is age related to student course performance or ability to adapt to a new environment such as a university? Why?

3. What specific impacts may the mixed-age college classroom have on individual students' learning experience on campus and their future performance at work?

4. Do you have any specific suggestions to higher education institutions for strategic planning and mission implementation?

GUIDELINES TO ANSWERS

The answers provided are starting points for in-class discussions, not absolutes. If individual or group assignments are made for projects out of class, students need to do more in depth research for hypotheses development and testing.

1. Significant shifts in relative sizes of student age groups in higher education can be attributed to at least three major causes. First, as the median age of the U.S. population continues to rise, so does the average learning age of college and university students. While high school graduates as traditional sources of college students are decreasing, nontraditional students are increasing rapidly. As summarized in the case background, today's students in higher education tend to be older, married, working, and having household costs or childcare responsibilities (see American Council of Higher Education, 1993; Moore & Diamond, 1995; Rice, Solis, Roger & Dalton, 1996; Yang, 1997). Second, after two generations of corporate downsizing and reengineering, there has been an increased popularity in skill- and competence-based compensation plans that encourage continuous learning. Many fulltime employees are turning to higher education in order to improve their current work status or marketability for futures. Third, advances in information technology has created an array of substitute educational vehicles for the traditional classroom settings (Yang & Arjomand, 2000), which has made it possible for non-traditional students to balance work, family, and course demands.

2. Although research has shown no evidence that age is negatively related to job productivity, there is a widespread assumption that job performance declines with increasing age (Galen, 1993). According to a recent study of age effects on course-work performance (Rice, Solis, Rogers & Dalton, 1996), there is no significant difference in final examination scores between traditional and nontraditional students, although traditional students tend to have higher admission grade point averages (GPA). In addition, comparing college students on measures of personalityperceptual rigidity and composite rigidity quotient, Panek. Partlo and Romine (1993) found that age was negatively related to behavior rigidity. These results challenge the assumption that nontraditional students may find it difficult to adjust to new situations and tasks because of the age difference. To the contrary, these results indicate that older students tend to be more flexible.

3. Changes in relative sizes of different age groups in higher education can be an asset to colleges and universities because it brings a broad range of viewpoints, conceptual skills, team spirit, and innovation. As expressed by L.C. Thomas in the case, however, older students may feel concerned about whether their college or university would accept the age gap with an open mind and treat students of different age groups equitably. Stereotypes of different age groups may create barriers to effective teaching and learning. On the other hand, the increased student age diversity in higher education reflects the workplace reality. In this regard, successful adaptation to the mixed-age college classroom may give traditional students an edge in their future career opportunities.

4. First, the increased number of non-traditional students calls for many colleges and universities to reexamine their missions and objectives, which will help to explore nontraditional markets and enhance relationships between education institutions and business communities. It will be interesting to see how the non-traditional markets may reshape the role of junior and senior colleges that are, by tradition, more focused on classroom teaching. Second, faculty and administrators should take the leadership to reduce stereotyping and halo errors among students, as well as to increase its own sensitivity to age-related issues. In this regard, diversity training is as import to the faculty and staff as it is to students. Third, more research is needed to identify relationships between age and some solid outcomes such as individual course performance, team projects, and years to accomplish a higher degree. Finally, to meet the special academic and personal needs of nontraditional students, colleges and universities should make substantial changes in their teaching methods, course designs, scheduling, administration, and other education-related services. Of course, many of these changes must be based on research evidence relevant to the institutions of concern.

CONCLUSION

In summary, this case should shed light on age-related concerns in higher education. Based on a real life example of the mix-age college classroom from a senior citizen's perspective, the case is intended to generate discussions and research interests in the area of age effects on learning and the quality of education. In this regard, much can be learned from the first hand experiences of individual students like L.C. Thomas. The case also calls for in depth qualitative and quantitative research towards a better understanding of the increased student age diversity and its implications to colleges and universities.

References

REFERENCES OF SUGGESTED READING

Almanac of Higher Education (2000). College Enrollment Trends, Chronicle of Higher Education, 1-5.

American Council on Education (1993). Part-time students being shortchanged, U.S. Today Magazine, August, 122 (2597), 14-15.

Davis, D.R., Mathews, G. & Wong, C.S.K. (1991). International Review of Industrial and Organizational Psychology, 6, 183-187, Chichester, England: Wiley.

Galen, M. (1993). Myths about older workers cost business plenty. Business Week, December 20, 83.

Institute for Research on Higher Education at the University of Pennsylvania (1995). http://www.si.umich.edu/compt/facts.html.

Johnson, W.R. & Packer, A.H. (1987). Workforce 2000. Indianapolis: Hudson Institute.

Kalleberg, A.L. & Loscocco, K.A. (1983). Aging values, and regards: Explaining age differences in job satisfaction, American Sociological Review, February 78-99.

Lee, R. & Wilbur, E.R. (1985). Age, education, job tenure, salary, job characteristics, and job satisfaction: A multivariate analysis, Human Relations, August 781-791.

McEvoy, G.M. & Casio, W.F. (1989). Cumulative evidence of the relationship between employee age and job performance, Journal of Applied Psychology, February, 11-17.

Moore, M.R. & Diamond, M.A. (1995). The Challenge of Change in Business Education. Earnest & Young Foundation.

Morris, B. (1997). Is your family wrecking your career? Fortune, March 17, 71-90.

National Research Center for College and University Admissions (1997). Career Trends.

Panek, P.E., Partlo, C.I. & Romine, N. (1993). Behavioral rigidity between traditional and nontraditional college students. Psychological Reports, 72 (3) 995-1000.

Rice, L.T., Solis, M.M., Rogers, J.J. & Dalton, M.L. (1996). Surgical clerkship performance of traditional and nontraditional students in a problem-based learning-environment. American Journal of Surgery, 172 (3), 283-285.

Roanoke Times. (1996). More older students on campus, October 17, A-4.

Statistical Abstract of the United States (1993, 1995). http://www.siunich.edu/compt/facts.html.

Yang, N. (1997). AThe rising learning age: Benefits and challenges", Academy of Educational Leadership Proceedings, Allied Academies International Conference, October 14-17, 4-7.

Yang, N. & Arjomand, H.L. (2000). Opportunities and challenges in computer mediated business education: An exploratory investigation of online programs. Academy of Educational Leadership Journal.

AuthorAffiliation

Nini Yang, Clayton College & State University

niniyang@mail.clayton.edu

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

Volume: 7

Issue: 1

Pages: 118-123

Number of pages: 6

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412293

Document URL: http://search.proquest.com/docview/192412293?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 68 of 100

LUFKIN-CONROE COMMUNICATIONS: THE END OF A MONOPOLY

Author: Benedict, J Kevin; Bridges, Kelly L; Crawford, Christopher S; Lazarine, B Gail

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns grand strategy. Secondary issues examined include distinctive industry competencies, the impact of competitive forces, and cultural competencies. This case has a difficulty level of four, appropriate for senior level courses. The case is designed to be taught in a one hour and fifteen minute class period. It is expected to require six hours of outside preparation by students working in teams.

CASE SYNOPSIS

Originally founded by two Lufkin, TX natives, Lufkin-Conroe Communications (LCC) is currently the only local telephone exchange provider in the Lufkin and Conroe communities. LCC provides the cities of Lufkin, Conroe, and surrounding communities with local telephone exchange services, as well as related telecommunications services and products such as Call Waiting, Caller I.D., Internet access, Wireless and Long Distance services. As most local telephone exchanges, LCC has historically enjoyed the revenues and profits of a monopoly. However, several internal and external forces are quickly changing the environment in which LCC operates. Consequently, the management of LCC will be required to analyze competitive forces and adopt a grand strategy that will fortify the position of Lufkin-Conroe Communications.

LCC HISTORY

The origin of Lufkin-Conroe Communications (LCC) stems from the visionary perspective of one man, Dr. Denman. In 1898, Dr. Denman and a close friend, Judge Mantooth, installed the first telephones in Lufkin, Texas and subsequently developed the Lufkin Telephone Exchange.

In 1946, the Lufkin Telephone Exchange started making acquisitions of additional telephone exchanges. The first acquisition was the Conroe telephone exchange, and the second was the Montgomery telephone exchange operated from the Conroe service area. The third acquisition was the Wells telephone exchange operated out of the Lufkin service area. In 1963, the Alto Telephone Company was purchased from W. E. Bynum. As a result of the three acquisitions, the organizational and cultural structure of Lufkin Telephone Exchange saw major changes. One change included the consolidation of the Lufkin, Conroe, and Alto Telephone companies to one company: Lufkin-Conroe Telephone Exchange (LCTX). In 1980, due to divestiture, the deregulation of long distance, and the splitting-up of the Bell companies, LCTX formed another company, LCT Long Distance. This became a deregulated long distance company. In late 1996, a decision was made to form a holding company for both LCTX and LCT Long Distance; the name for this company was Lufkin-Conroe Communications (LCC). In November 1997, the largest, publicly held utilities company in Texas, Texas Utilities (TU), acquired LCC and made it a wholly owned subsidiary of TU. Prior to TU's acquisition of LCC, LCC maintained a very centralized management structure. LCC operated as a small family unit, with top management making almost all decisions regarding employee and customer policy. This centralized decision making filtered throughout the organization, protracting response time to employee and customer questions and concerns.

LCC PRODUCTS AND SERVICES

LCC offers a wide variety of communication products and services. The most significant products and services offered by LCC include local (regulated) products and services, and voice (deregulated) products and services.

Local regulated products and services include local dial tone, Caller ID, 3-way calling, Call waiting, Call forwarding, Call return, and Call block. Voice services include cellular, paging, long distance, voice mail and CPE (Customer Premise Equipment). Since local and voice products and services are the basic core of the telecommunications portion of the company, it is important that a customer-oriented culture be present throughout this functional area.

Over the past fifty years, LCC has used four product suppliers: Nortel, Cisco, Southwestern Bell, and GTE. There are few product suppliers in the telecommunications industry due to high capital requirements. Consequently, suppliers in the telecommunications industry have an enormous amount of bargaining power over telecommunication service providers.

TELECOMMUNICATIONS INDUSTRY

Recently, the telecommunications industry has been transformed into an openly competitive industry built around an emerging technological platform. This innovative technology has spurred the industry into the growth stage of its life cycle. Worldwide telecommunications revenue is expected to grow from $726 billion to in excess of $1 trillion by the year 2001 (Timmer, 1). The Telecommunications Act of 1996 served as the catalyst for this transformation as it relaxed many of the restrictions and defined the broad principles under which competition would be promoted on a national basis.

The Telecommunications Act of 1996, passed February 1, 1996, provided the first major overhaul of the telecommunications industry and its governing laws in over sixty-two years. The driving force behind the Congressional action was the desire to create competition among telecommunications and cable television providers so that Americans have more choices, new products, and lower prices. In the case of the telephone industry, the competitive benefits were sought in both the local and long distance markets. By allowing local telephone companies, long-distance carriers and cable television providers to enter each other's markets, the industry customers were the targeted beneficiary of the increased competition (USTA). In a statement on February 1, 1996, President Bill Clinton stated, "As a result of this action today, consumers will receive the benefits of lower prices, better quality and greater choices in their telephone and cable services, and they will continue to benefit from a diversity of voices and viewpoints in radio, television and the print media" (McCurry).

This monumental legislation also provided the avenues for customers to be offered a broad range of communication and information services from a single provider, and thus creating one-stop shopping. The bundled service concept is fast becoming the mainstream trend among those competing in the telecommunications service industry. The bundled services would consist of local telephone service, long distance telephone service, wireless telephone service, cable television service, and Internet connection and service. The current cultural trend of American households and businesses becoming more complicated and time consuming is a major focus of the marketing campaigns relating to bundled services. The time saving advantages of one-stop shopping and consolidated billing are attractive to those consumers wishing to simplify their lives where possible. Telecom companies see the advantages of diversification and additional cross-marketing opportunities made available by the industry evolution.

EMERGING TECHNOLOGY

While the impact of the Telecommunications Act of 1996 has yet to be truly realized, the competition created from emerging technology is a growing force. The current technology that is available to telecommunications customers provides an enormous number of product options. Add to that, the vast resources that are used to develop cutting edge technology in the telecommunications industry, and the potential revenues can soon be realized. Over the past 15 years, LCC has added new technology such as voice mail, Internet connections, paging, cellular phones, and vertical services such as call forwarding, call waiting, and Caller ID.

LCC is currently considering implementing a progressive technology called fiber optic networks. Fiber optic networks provide fiber line that can carry cable, local phone, long distance phone, Internet, and mobile phone all in one simple bundled package (Files, p. 1B). The new fiber optic network will transmit data at the speed of light, at a reduced cost, and provide customers with one simple bill (Files, p. 1B). However, the fiber optic network requires new land and air lines to be installed which requires a great deal of capital investment. There is also a concern that due to physical limitations of fiber optic line extensions, LCC would only be able to capture 3% of their potential market. LCC has developed a plan to strategically place the lines near major businesses in larger Texas cities, so that LCC can capitalize on the larger revenues and profit margins of business customers.

With the adoption of fiber optic networks technology, LCC could face the competitive threat of other technologies they have chosen not to adopt including microwave and satellite networks. Microwave networks are an emerging technology that utilize microwave towers to offer services such as wireless phone, local phone services, vertical services, and voice mail. These new microwave networks may allow competitors such as Teligent to penetrate into portions of LCC's local market services (Bush, Telecoms Marketing proceedings). Satellite technology is offering a new product that will allow customers to connect to the Internet via satellite connection. This new satellite Internet connection transmits data quicker and less expensively than current phone line connections.

COMPETITION

Despite the fact that LCC has not faced direct competition in its local services and vertical services markets since the inception of the Telecommunications Act of 1996, LCC's competition is expected to increase over the next several years. Currently, there are two possible threats to LCC s local telephone exchange and related vertical services market. One potential competitor is Southwestern Bell, and the other is Enron Communications, a newly formed subsidiary of Enron Energy Corporation. However, complicated political and legal matters have kept Southwestern Bell and Enron out of LCC's local telephone exchange and subsequently LCC has not entered Southwestern Bell's local telephone exchange. As of January 1999, LCC has a very strong penetration rate for local phone service and related vertical services.

Competition for revenue on intra Local Area Telephone Access (intraLATA) long distance calls is also heating up. In previous years, LCC collected tolls on calls that originated or terminated outside of the LCC local area, but were inside of the intraLATA area. However, the local phone service regulatory agency, Public Utilities Commission (PUC), mandated that in January of 1999, customers must be given an option to select the carrier of their choice for intraLATA calls (LCC, p. 4). Consequently, LCC's intraLATA toll revenue will likely migrate to other long distance carriers. In addition to intraLATA state deregulation, national and local competition has also dramatically increased in long distance service as well as internet service.

As of January 1999, LCC is estimated to have a large market penetration of local and long distance phone services. However, the ever-increasing number of competitors in LCC's telecommunications market may begin to break through LCC's large market share.

LOOKING TO THE FUTURE

The cultural transformation from a small, family-owned privately held company to a subsidiary of a large, publicly held utilities company has created a precarious internal environment. This cultural transformation in conjunction with the potential impact of the Telecommunications Act of 1996, the emerging technological advances, and the new and existing competitors facing LCC have forced two strategic decision points upon the management of LCC First, LCC management must decide what type of culture will foster success in the newly evolved internal and external environments. Secondly, on a much larger scale, LCC management must decide what grand strategy will fortify the financial and competitive position of Lufkin-Conroe Communications.

References

REFERENCES

Bush, Beth. (1999, March). Targeted Bundling of Broadband Services for Maximizing Profit Potential. Presented at the Telecoms Marketing: Customer Centric Marketing for Telecommunications Conference, Miami-Biscayne Bay, Florida.

Files, Jennifer. (1998, March 29). Network Central. Dallas Morning News, Page H1-H2.

Lufkin Conroe Communications. (1999). Success and Opportunities. Lufkin Printing.

Lufkin Conroe Communications. Available World Wide Web: www.lcc.com.

McCurry, Mike. White House Press Release February 1, 1996. Available World Wide Web: www.telecompolicy.net.

Timmer, Joel. Telecommunication Industry Snapshot. Available World Wide Web: www.hoovers.com.

United States Telephone Association. Available World Wide Web: www.telecompolicy.net.

AuthorAffiliation

J. Kevin Benedict, Stephen F. Austin State University

Jkevinbaus@aol.com

Kelly L. Bridges, Stephen F. Austin State University

Kelly_bridges@dell.com

Christopher S. Crawford, Stephen F. Austin State University

Cscrawfo@aol.com

B. Gail Lazarine, Stephen F. Austin State University

Gail.lazarine@txu.com

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

Volume: 7

Issue: 1

Pages: 124-128

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412311

Document URL: http://search.proquest.com/docview/192412311?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 69 of 100

RESTRUCTURING AT J.C. PENNEY'S

Author: Mandybur, Oksana A

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns organizational strategies. Secondary issues examined include organizational environment and corporate culture. The case has a difficulty level of four. The case is designed to be taught in a one-hour class and is expected to require two hours of outside preparation by students.

CASE SYNOPSIS

J C. Penney Company, Inc. is an old firm in the current state of decline. Like many old firms, it has based its successful organizational performance on physical expansion. Purchasing assets to expand the market share led to a dramatic increase in operational expenses. Other factors contributing to its decline are a shift in customer demand to other competitors, and its inability to readily adapt to environmental change. The firm further increased its state of decline in 1997 by losing experienced managers to voluntary early retirement.

In early 2000, J C Penney Company, Inc. has taken another step towards restructuring for future operational improvement. It has changed upper management to facilitate new organizational strategies. Closures of under-performing stores, and reduction in the workforce will be implemented by mid-year. For organizational improvement to occur, J.C. Penney's management must set clear strategic goals, retrain personnel, and radically redesign its business processes. The key to success will be critical organizational reengineering.

BACKGROUND

J.C. Penney Company, Inc. began in 1902 when Mr. James Cash Penney opened his first retail store, the Golden Rule Store. His mission statement, "Do unto others as you would have others do unto you", changed the way Americans do business. He believed in the merchant providing good quality merchandise at a fair price. Prior to the store opening he studied the town, its people and their needs. He stocked quality merchandise and clearly marked the price on every item. Within two years he assumed responsibility for managing two more stores. In 1907, he had full ownership of three stores. All of his future stores were built on the concept of offering customers quality merchandise at the lowest possible prices. Customer service, along with shrewd buying practices, talented store managers and associates formed the basis of the new organization. He advocated management involvement with the community.

In 1921, Mr. Penney revolutionized the business industry by establishing an educational department within the company. He offered free business courses to give up-to-date training in salesmanship, merchandising, and business management. In the first year alone more than 90 percent of associates had enrolled. The business environment promoted free expression of ideas, which led to improvement in the corporate culture.

By 1949, J.C. Penney Company, Inc. had opened its first "drive-in" shopping center, a forerunner of modern-day shopping malls. Merchandise was further diversified to include hard-line goods, appliances, sporting goods, and home furnishings. Further store expansion occurred from the 1960s to 1970s.

During the 1980s, J C Penney Company, Inc. underwent dramatic restructuring. Management was streamlined, and based upon consumer studies, the company emphasized a higher line of apparel and home furnishings. In 1983, the stores underwent modernization. By the beginning of the 1990s, J.C. Penney, Inc. transformed from a mass marketer to a national department store. One of the strategic goals was to insure value based contemporary fashions, an exciting shopping atmosphere, and outstanding customer service.

Due to large decreased sales in 1991, management instituted major changes in selection, depth, and pricing. Several drug store chains were acquired, including Fay, Kerr, Rite Aid and Eckerd Drug Corporation. In 1996, Mr. JE. Oesterreicher assumed chairman of the board and chief executive officer.

In 1997, J.C. Penney Company, Inc. integrated all of the drug stores under Eckerd Corporation, which resulted in becoming the nation's fourth-largest drug store chain. It sold the assets of the J.C. Penney National Bank, and reorganized the company into four business units. Department Stores and Catalog, Drugstores, Insurance and International. The year also marked the offer of a voluntary early retirement program. Unanticipated by management was the number of personnel that took advantage of this program. This left inexperienced assistant managers to serve as managers. Another cost cutting method utilized was hiring low salaried inexperienced personnel.. Corporate culture all suffered as a result of these actions.

In 1998, decreased earnings resulted in the closure of 75 stores and two percent downsizing of personnel. Restructuring did not diminish the firm's strategic goal of further expansion. By March 1999, holdings included an additional acquisition of the New York Genovese drugstore chain. It is also involved in the direct marketing business segments, which include Flowers Direct, and an online ordering of its catalog.

SITUATION

The organization defined the problem; they had lost their strategic direction. "In short, management was caught in a set of rules that supported an outdated, non-competitive way of doing business." (Reuters, 2000) Perceiving the need for change in strategic focus, Mr. Oesterreicher hired Ms. Vanessa Castagna and 47 top-level managers.

In addition, Mr. Oesterreicher implemented a restructuring program to reduce operational costs by closing under-performing stores by mid-year 2000. The restructuring effort would close 40 to 45 of its 1,150 J.C. Penney Company, Inc. stores and 289 of its 2,900 Eckerd drugstores. "The restructuring program is an effort to boost profitability by culling lower-performing stores and cutting costs." (Sanders and Adamson, 2000)

Ms. Castagna, a former Wal-Mart executive, was hired as Executive Vice President and Chief Operating Officer to implement a new merchandising process. Her strategy involves gathering demographic data, profiling and clustering stores, and using the information from suppliers to determine merchandise needs. She also assigned the central office total responsibility for merchandise assortment and inventory performance.

In order for the organization's situation to improve, radical strategic change should be implemented. J.C. Penney's management recognized a need for change. The four areas in any organization that should be changed are technology, product/service, structure, and people/culture.

DISCUSSION

J.C. Penney Company, Inc., one of the largest retail companies in the United States, is in the state of organizational upheaval. In Jan 2000, the company posted a loss of $12 million in revenue. From May 1999 to Jan 2000 the company had lost three-quarters of its stock value.

The crisis state of decline occurred when management implemented a reactive approach to the problems of the corporation. In 1997, a volunteer early retirement program was offered to managers. Many took advantage of the program and left the company. This left inexperienced personnel in supervisory positions. An additional cost saving measure was to hire part time labor to fill key positions, such as customer service, promoting an unadaptive corporate culture.

The loss of strategic focus has further hindered J. C. Penney's ability to compete. Specifically, the inability to change to fit shifting trends in consumer lifestyle and preference in a competitive market. The market share has been lost to rival retailers such as Wal-Mart, Target, and Gap, who utilize a more targeted approach to marketing. Another problem was merchandising management. Merchandise did not target the consumer, shelves were stocked too late to meet the consumer demand, and prices were not competitive.

Strategy and the external environment are big influences on corporate culture. The company should be flexible and responsive to change. The culture should promote adaptability. The company should be proactive in implementing changes. Communication is key to organizational improvement. Pending closures, lack of communication between management and employees, has created an unhealthy culture. Employee loyalty to the company has decreased due to future job uncertainty. In order to improve employee relations, management should effectively communicate and involve the workforce.

Mr. James Oesterreicher, CEO of J.C Penney Company Inc., sought to improve his organization through restructuring and reengineering. His first act was to inform the company that downsizing would occur. Stores would be closed to cut costs. "Almost all of these stores are operating at a loss." (Reuters, 2000) J C. Penney and Eckerd under-performing stores would be effected. To boost revenues, he also plans to launch an initial public offering of Eckerd stock during the third and fourth quarter 2000.

In response to loss in revenues, Ms. Castagna was hired to implement strategic change. Her goal is to implement a change in product replenishment. Suppliers will be held accountable for the implementation of the company's business, plans, product replenishment and promotional merchandise. They will have the responsibility of delivering to the customer the right product at the right time. In addition to implementing an improvement in the merchandising process, another company goal is to expand Internet sales.

J.C. Penney envisions an Internet business that will achieve $1 billion in sales over the next three years. Merchandise will be delivered to the customer in two to three days. This will give the company a competitive advantage.

Organizational change is the adoption of an idea or behavior that is new to the organization's industry, market, or general environment. In order for organizational change to be successful at J.C. Penney, there are five elements that must occur. These are implementation of ideas, a perceived need for change, adoption of the proposed idea, implementation of change, and resources.

Implementation of new ideas is necessary for company survival. The company cannot remain competitive without new ideas. These ideas can either be generated from within the company or from external sources. Mr. Oesterreicher has facilitated this change by hiring 47 new managers. Additional ideas should be gathered from the information provided by company employees.

The company perceived a need for change. Management perceived an actual gap between the actual performance and desired performance of the company. Future restructuring will occur and new merchandising ideas will be implemented.

The adoption of the proposed ideas should be accomplished by the support of the key manager and employees. Support will be achieved by key manager and employee involvement. Informing employees of impending changes and facilitating exchange of ideas will encourage participation.

Implementation of change will occur once organization members use the new idea. Training employees is the key to successful implementation. Employees must understand that change is vital to company success. As restructuring will eliminate jobs, J.C. Penney should implement an employee cross-functional training program to better utilize their resources. Cross-functional training will promote self-worth and job enrichment.

Employees must see both the need and the idea to meet the need for change. Providing time and resources will help implement the new idea. Each functional area should have a committee or task force to focus on ideas for change. In order for J. C. Penney Company, Inc. to be successful, innovation should be a primary goal preached by top management and supported throughout the organization.

References

REFERENCES

J.C. Penney Earnings Tumble. (1998, Aug 18) Rueters News Service. http://www.reuters.com

Fairbank, K. (1998, Jan 28). J.C. Penney plans to close 75 stores. Associated Press. http://apdmz.ap.org:8080/CofComm/apprweb.nsf/pr?openview

U.S. Retailers Go Full steam Ahead. (2000, Mar 2). CBS Market Watch. http://cbs.marketwatch.com/archive/20000302/news/current/retail.htx?

Duff, R. (1998,May 5). James E. Oesterreicher, Chairman of the board and CEO, J.C. Penney Company. Fortune Magazine. http://www.fortune.com

Company Industry Rank Overall. (2000, Feb). Fortune Magazine. http://www.fortune.com/fortune/global500/companies/87.html.

Keonig, D. (2000, Feb 24). J.C Penney to Close 45 Stores. Associated Press. http://biz.yahoo.com/apf/000224/eams_penn_3.html

Sanders, L. and Adamson, D. (2000, Feb 24). J.C. Penney Earnings Fall, Retail Chain Details Restructuring. CBS Market Watch. http://cbs.marketwatch.com/archive/20000224/news/current/retail.htx?source=blq/yhoo&dist=yhoo

J.C. Penney Launches Restructuring. (2000, Feb 24). Dallas Rueters. http://www.reuters.com

J.C. Penney Posts $12 Million Loss. (2000, Feb 29) Dallas Rueters. http://www.reuters.com

J.C. Penney sees $1 billion in web sales over 3 years. (2000, Feb 29). Rueters News Service. http://www.reuters.com

Cohen, D. (2000, Feb). Penney, J.C. ValueLine, p. 1654.

J.C. Penney Launches New Merchandise Process. (2000, Feb 29). J.C. Penney Inc. Company Press Release. http://www.jcpenney.net/company/press/merchprocess.htm

James Cash Penney, The Golden Rule, & Customer Service. (1999). JC Penney Connections. http://www.jcpenney.net/company/history/brochure/brochure.htm

Daft, R. (1998). Organization Theory And Design. (6th ed.) South-Westem College Publishing.

AuthorAffiliation

Oksana A. Mandybur, Florida Tech

tngmgr@yahoo.com

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

Volume: 7

Issue: 1

Pages: 129-133

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412280

Document URL: http://search.proquest.com/docview/192412280?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 70 of 100

RAWLINGS SPORTING GOODS COMPANY, INC.: STRATEGIC CHALLENGES

Author: Nickerson, Inge; Rarick, Charles

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns environmental analysis of a company in a mature industry. The case has a difficulty level of four. The case is designed to be taught in 2 class hours and is expected to require 4 hours of outside preparation by the students.

CASE SYNOPSIS

This case evaluates the industry competitive environment facing the Rowlings Sporting Goods Company, Inc. using Michael Porter's Five Forces Model as the analytical tool. Entry barriers to the industry, rivalry among the firms in the industry, the threat of substitute products, and the threat of buyers and suppliers to Rowlings are considered. The issue is a determination of potential strategic options for a firm operating in a mature industry.

BODY

Rawlings Sporting Goods Company, Inc., founded in 1887, is a leading supplier of team sports equipment in North America and, through its licensee, of baseball equipment and uniforms in Japan. Under the Rawlings name the Company provides an extensive line of equipment and team uniforms for the sports of baseball, basketball, and football. Under the Vic, McMartin and Rawlings brand names, the company provides an extensive line of equipment for hockey. The Company has established a longstanding tradition of innovation in team sports equipment and uniforms, including the development and introduction of the first football shoulder pads in 1902, the original deep pocket baseball glove in 1920 and double knot nylon and cotton uniforms for Major League Baseball in 1970. The Company's products are sold through a variety of distribution channels, including mass merchandisers, sporting goods retailers and institutional sporting goods dealers. (Rawlings 10-K)

Rawlings is trying to build on innovation across several fronts. One such grassroots activity is the Rawlings Sports Camp and Caravan. This is an advertising campaign that combines a baseball museum and sporting goods workshop. These sporting goods workshops are planned in conjunction with the YMCA, Boys & Girls Clubs, the United Way and other charity events. To help retailers merchandise products, Rawlings has developed the Dugout display, which gives customers the opportunity to try out the latest innovations in baseball technology through an interactive display. Rawlings has also introduced promotional technical representatives to call on coaches, officials and others in an effort to generate sales for retailers and equipment dealers.

It is apparent from the following is a summary of net revenues that baseball equipment generates the majority of Rawlings' revenue (Rawlings 10-K)

The following is a summary of net revenues by geography indicates domestic markets to be the major revenue generators (Rawlings 10-K)

Comparison of equity returns yields an unfavorable view of Rawlings, as well as the sporting goods industry in general, to the overall market as represented by the Standard and Poors 500 Index (Morningstar.com 3/6/00)

The overall state of affairs at Rawlings Sporting Goods Company appears bleak. Revenues for 1999 have declined, and Rawlings' recent stock price was $5.75, down from its 52-week high of $11.38 (Multex.marketguide.com 3/6/00) One financial website gives Rawlings low ratings: Growth, D; Profitability, D+; Financial Health, D- (Morningstar.com 3/6/00)

Evaluating the External Environmental

Threat of Entry

In the sporting goods industry, there is a relatively low threat of entry by new businesses. Economies of scale act as a barrier. There is little opportunity to increase the overall domestic demand of sporting goods equipment and apparel. Product differentiation is very difficult to achieve for a new entrant, as established brands have a strong customer allegiance.

The development of equipment and apparel for newer sports, such as soccer, rollerblading, surfboarding may provide opportunities for new entrants if established companies such as Rawlings, Wilson, Russell, etc. do not take that market first.

Threat of Rivalry

The threat of rivalry in the sporting goods industry is relatively high. Rawlings regards the following companies to be its major competitors (Rawlings 10-K)

Baseball

Wilson Sporting

Diamond Baseball

Spalding

Mizuno Co.

Basketball & Football

Wilson Sporting

Spalding

Riddell Sports

Apparel

Russell Corp

Wilson Sporting

Hockey

Nike Bauer

The Hockey C

Since this is a mature industry, the threat of rivalry is relatively high. The competitors in this industry vie for contracts with the major and minor leagues and face the threat of buyouts. For example, Rawlings recently outbid Wilson to acquire status as the provider of the official baseball for the NCAA (Author Unknown, 1999). But for every victory there is also a threat as competitors such as Louisville Slugger, Wilson Sporting Goods, Easton Corporation, Brunswick Corporation have been looking to buy out or merge with Rawlings (Vespereny, 1999).

Rawlings is engaging in a number of strategies in an attempt to neutralize the threat of rivalry. One such strategy involves cost leadership. Rawlings is currently investigating options such as outsourcing certain aspects of its business, consolidating manufacturing plants, and improving production efficiencies to reduce cost. Rawlings also seeks to differentiate its products from competitors by continuing to strengthen its brand name via a series of marketing initiatives, including special promotions and a five-year alliance with Host Communications. Rawlings recent purchase of USA Skate Company is indicative of its attempt to expand and diversify its market share within the sporting goods industry.

Threat of Substitutes

The threat of direct substitutes facing Rawlings as a competitor in the sporting goods industry is low. While popularity of sports fluctuates, and people have their own favorite sport, there are no real substitutes for sports as such. It could be argued that different sports could act as substitutes for each other; however, since seasons do not fully overlap, there seems to be little threat of this. The increasing popularity of soccer may or may not take away from the popularity of the already established sports of baseball, football, basketball, and hockey. Soccer may become as popular as other professional sports in the U.S.; whether it becomes a substitute for other sports remains to be seen. It would be prudent for Rawlings to evaluate opportunities for expanding into soccer equipment to hedge its future. Finally, substitutes for baseball, football, hockey, and basketball equipment and apparel are unlikely threats to this industry as there are no real substitutes for these things.

Threat of Suppliers

Rawlings obtains its raw materials from various sources, which it considers to be adequate for fulfilling its requirements. To assure access to the highest quality leather for its baseballs, the Company acquired its Tennessee leather tanning facility in 1985.

Products manufactured in Rawlings' eight plants in the U.S., Canada and Costa Rica constitute about one third of its net revenues, and the remainder is derived from products manufactured by third parties in Asia and Latin America and from licensing fees. Each of five thirdparty suppliers accounts for about 10% of the Company's raw material and finished goods purchases. The Company does not maintain formal supply contracts with these suppliers.

In 1998 Rawlings initiated a comprehensive program to replace its computer systems and applications with a Year 2000 compliant enterprise-wide system costing

$2.9 million. Rawlings has formally communicated with its major vendors and suppliers to determine the extent to which the Company may be vulnerable to those third parties' failure to remediate their own Year 2000 issues. The Company does not foresee any impact of non-compliance on the part of its major vendors. (Rawlings, 10-K)

Threat of Buyers

Perhaps the greatest threat facing Rawlings is the threat of buyers. The primary buyers Rawlings relies on includes consumers, professional league teams and organizations, and retailers.

The threat from consumers as buyers is linked to their interest in sports. As the recent baseball and basketball strikes demonstrate, interest in team sports fluctuates. Basketball lost popularity in 1998 and 1999 due to the players' strike; and, although baseball seems to be popular again and sales of baseball equipment were up in 1998, it is difficult to rely on buyers in this industry. The popularity enjoyed by baseball one year could decline the following (Troy, 1999), and because baseball accounts for 55% of Rawlings' sales (St. Louis Post-Dispatch, 4/23/99), such threats of buyers are very real.

A final threat facing Rawlings come from the retailer Wal*Mart, which is Rawlings' largest customer. Although other retailers such as Kmart and Target also buy and sell Rawlings' products, approximately 12% of the company's annual sales come from Wal*Mart (Discount Store News, 38[3]). This is a large percentage of sales for one buyer to command and it, therefore, poses a threat to Rawlings.

Opportunities in a Mature Industry

Rawlings' leadership has identified three areas as major components of the Company's future strategies: product refinement, distinction based on service, and process innovation (Rawlings, 10-Q, 1/13/99).

The Company has refined several of its products. Recently is released a new line of outer garments and a line of "McGwire Gear." Rawlings also has started to manufacture more baseball gloves for women, personalized bats and gloves, one-size-fits-all batting helmets with holes for ponytails, and a super alloy bat.

In the recent quarterly report the Company identified the area of service as one way to distinguish itself from its competitors.

Rawlings has also started to refine its manufacturing process. Competing in a mature industry has prompted the Company to reexamine its production efficiency and its manufacturing and distribution infrastructure. It has also moved its football manufacturing division to the Orient to cut costs (Vespereney, 1999).

Sidebar

DISCUSSION QUESTIONS

1. To evaluate conditions within the Rawlings organization, please conduct a Value Chain analysis based on Michael Porter's Model.

2. Perform a S.W.O.T. analysis (strengths, weaknesses, opportunities, threats) based on Porter's models.

3. Recommend potential strategic alternatives for the company.

References

REFERENCES

Barney, J. B. (1997). Gaining and Sustaining Competitive Advantage. Reading, MA: AddisonWesley Publishing Company.

Bernstein, A. (1997). "Rawlings tries its hand as trendsetter for '98." Sporting Goods Business, 30(14): 18.

"Basketball looks to rebound". Discount Store News, 1999, 38 (3):56.

"Business summary". http://ca.biz.yahoo.eom/p/r/rawl.html, November 8, 1999.

"Rawlings goes to college with official NCAA baseball". St. Louis Post-Dispatch, April 23, 1999.

"Rawlings recalls bats". St. Louis Business Journal, May 20, 1999.

Rawlings Sporting Goods Company, Inc. (Form 10-Q, 11/30/99) http://www.sec.gov/Archives/edgardata/921915/0000927025-00-000007.text

Rawlings Sporting Goods Company, Inc. (Form 10-K, 8/31/99) http://www.sec.gov/Archives/edgardata/921915/00009227025-99-000117.txt

Rawlings Sporting Goods. Morningstar.com. (3/6/00) http://quicktake.morningstar.com/Stocks/InduSnap/-RAWL.html

Rawlings Sporting Goods. MultexInvestor Market Guide. (3/6/00) http://multex.marketguide.com/mgi/snap/A08D9.html

Rawlings Sporting Goods Company, Inc. Hoovers Online. (3/6/00) http://www.hoovers.com/co/capsule/3/0,2163,20153,00,html

Troy, M. (199). "Baseball scores for category." Discount Store News, 38(3): 55+

Vespereny, C. "Rawlings in play: Louisville Slugger steps up to plate." St. Louis Business Journal, June 21, 1999.

"What are the top analysts saying about Rawlings?" (11/9/99) http://quicktake.morningstar.com/Stocks/Snapshot/_RAWL.html.

AuthorAffiliation

Inge Nickerson, Barry University

Inickerson@mail.barry.edu

Charles Rarick, Barry University

Crarick@mail.barry.edu

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

Volume: 7

Issue: 1

Pages: 134-139

Number of pages: 6

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412308

Document URL: http://search.proquest.com/docview/192412308?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 73 of 100

SWING 1000

Author: Fuller, Barbara K; Donevan, Darcy

ProQuest document link

Abstract: None available.

Full text:

Headnote

ABSTRACT

This case looks at the start-up decisions made by the entrepreneur of a sophisticated Swing Club specifically the trends, location, and sources for raising capital. Based on these start-up decisions, the student is asked to evaluate the current position and the futur e direction of growth for the enterprise. Should the entrepreneur expand by opening another club? If so, where, when, and how should expansion occur? How much and what sources should be explored in seeking capital for the expansion?

This case has a difficulty level of four, appropriate for senior level course, or five appropriate for first year graduate students. Students need to be familiar with materials on managing entrepreneurial growth and private investor equity financing before working with this case.

INTRODUCTION

Darcy Donevan, president of Swing 1000, a fine dining and dance club in Charlotte, NC, sits in her Cigar Bar looking at the future direction of her business. In 1997, she successfully opened a sophisticated nightclub in an area undergoing rejuvenation about a mile from uptown Charlotte, NC. Looking back the start-up was an exciting, dynamic experience that also held many lessons in business as well as faith, hope, and perseverance. However with the club now open, profitable, and the investors seeing some return on their money, she is looking towards the future. Should she open a club using the swing format in another city such as Atlanta or develop a totally new format such as a "60's Retro Theme" in the Uptown Charlotte area? Are there other options that should be considered? The only thing certain at this point is Darcy's continued passion and commitment to the business as expressed in her first comment; "The American dream is alive and well." This is a concept that she lived by and expressed often.

BACKGROUND OF THE FOUNDER

A Charlotte couple, Darcy and Michael Donevan, started Swing 1000 in 1997. Darcy's background was in the travel business. She worked as the Director of Promotional Group Sales, which consisted of booking activities for corporate groups that included a full entertainment schedule. In Darcy's mind Swing 1000 was comparable to the full entertainment experience provided on a cruise ship where there is something for everyone.

Michael Donevan, Darcy's husband, was a radio-broadcasting consultant for contemporary music radio stations throughout the United States. Previously he was the program manager with WEDJ and WBT-FM broadcasting stations in Charlotte, NC. He booked the entertainment for the club. In addition, he added family, financial, and professional support to the venture.

DESCRIPTION OF THE CLUB

Swing 1000 was a fine food dining and dancing entertainment venue, a concept unique to the Charlotte area. It was located in a transitional neighborhood undergoing renovation. The building had an art deco, post World War II look that was preserved and incorporated into the renovation. Because of its character the club became a destination for all types of special events from wedding receptions, banquets, proms, and birthday parties to murder mysteries and wine tasting

Darcy and Michael wanted to offer guests an evening filled with the best food, drinks, cigars, music and dancing available in the city of Charlotte and for that matter in the southeast. The club attempted to capture the fun and essence of the big band era with the added attraction of a festive and fun-filled ambiance. The estimate bill for an evening at the restaurant including the band and a fivecourse meal was approximately $65.00. This is the upper range of restaurants in the Charlotte area. The club also offered an extensive wine list.

There was a $10.00 cover charge to just hangout at the bar and dance the night away without dinner. The entertainment includes a seven-piece house band as well as headliner orchestras for special occasions and holidays. Patrons could swing, fox trot, waltz or tango to the tunes of a live band every night of the week. Swing 1000 was a place where people could dine in 1930's elegance to a big band orchestra and soak in the exquisite ambiance of elegant luxury. The club was known for having the best people, the best menu, and renowned service.

CUSTOMERS

The first customers to frequent the club were international residents and northerners who were transferred or moved to Charlotte. The first year was very difficult. Darcy said "Charlotte residents had to read about the club in the national publications such as Southern Living, Entertainment Weekly, and USA Today before they warmed up to the idea. The club was getting written up as the number one swing club in the country, but many Charlotteans didn't know it existed.'

Weddings, corporate parties, conventions, and special events created most of the business in the beginning. Weekends were good but weeknights were slow. The club had a very mixed clientele. Swing was making its way back into the music scene with the younger crowds yet many older people remember the original Big Band tunes from the 1930' s and 1940's. Everyone who came to the club loved it. Getting them interested in the first visit was the challenge. Charlottens were used to having dinner in an hour and a half rather than spending an entire evening enjoying food and entertainment. They perceived the service as slow rather than quaint. The band started at 8:00 pm. The first two sets were dinner sets with soft music and enjoyable conversation. About 9:00 pm the dancers came in and the band became livelier.

COMPETITION

Swing 1000 had no direct competition located in the Charlotte area, that offers the unique combination of high quality dining, entertainment and dancing provided by the club. No establishment within a 150-mile radius of the city regularly offers live big band music. They did however compete against a variety of local and chain restaurants at the upper price level. These included: Mama Ricotta's Inc., Beef and Bottle Steakhouse, Pewter Rose, Morton's of Chicago Steakhouse, Castaldi's Italian Restaurant, Alston's Steakhouse, Providence Café, The Melting Pot Restaurant, The Townhouse Restaurant, Frankie's Italian Restaurant, Cajun Queen, Bistro 100, Marais French Cuisine, Charley and Barney's Bar and Grill, Jack Straw's, Primo Ristorante, South End Brewery, and Sonoma on Providence.

PRODUCT/SERVICE STRATEGY

Swing 1000 was named in part for musical spirit and in part for its location 1000 Central Avenue. It was located in what used to be a commercial art-deco style warehouse. The building was 10,000 square feet structure, completely up-fitted with a large commercial restaurant kitchen, a large stage appropriate for big band and similar entertainment, a 1,100 square foot parquet dance floor, a knock out lighting and sound system, open restaurant seating for approximately 225 guests (400 accommodated for cocktail parties), two separate rooms for private dining and functions, and a cigar room. The atmosphere encourages patrons to spend a full evening at the restaurant for leisurely dinning, dancing, and enjoying drinks, deserts, and cigars. Other services include dance lessons, private functions, and sales of dance and restaurant-related merchandise. Music produced by a sevenpiece house band plays nostalgic upbeat tune from Count Basie, Benny Goodman, Glenn Miller, Tommy Dorsey, Bobby Darren, and Frank Sinatra. Hugh lighted columns with an iris design carved in them flank the stage and line the back wall. The iris design also appears in the colorful carpet that surrounds the dance floor. The cigar room had a built in ventilation system and comfortable leather and velvet chairs and love seats resembling an old style drawing room. People came to Swing 1000 to be treated like royalty and to escape the realities of everyday life.

THE LOCATION: PLAZA MIDWOOD AREA

The club was located in an older section of Charlotte called Plaza Midwood that was undergoing renovation. Darcy lived in the Plaza Midwood neighborhood and was president of the Friends of Plaza Central. She realized that inter-city areas such as this offered a lot of opportunity if the diversity of the area could be maintained. She became part of the grass roots effort that worked for change through a close alignment with city government and real estate developers. In fact, Darcy became the pied piper of Central Avenue and the Plaza Midwood area. When she first saw the site that would become Swing 1000 she said, "the building spoke to me." To show her commitment to the area she signed a long-term lease for the site. The location of the club off the beaten path in an urban area, one mile from the city caused many eyebrows to raise questioning the viability of the business. But Darcy had a strong vision that kept her focused. She had lived in the Plaza Midwood area for 12 years and that gave her a passion and understanding of the neighborhood. She also saw urban revitalization efforts paying off in other neighborhood projects such a Dilworth and the SouthEnd. These neighborhoods emerged as significant growth areas and she felt that the time was right for the Plaza Midwood area. Darcy wanted to show people that she had confidence in Plaza Midwood and proved it by being willing to do something really innovative there. Swing 1000 proved to be an important piece of the new "town center" that worked to bring life back a number of old storefronts along Central Avenue.

PROMOTIONAL STRATEGY

Darcy utilized a variety of media to promotion the swing concept and the club. Direct mail post cards and monthly activity schedules were sent to all past customers. Customers were tracked and given incentives to return to the club and bring friends and colleagues. The club also purchased databases of potential customers using zip-code demographics matched to the clubs target market. Additional direct mail efforts were focused on uptown Charlotte businesses in an effort to promote the use of the restaurant facilities for business-to-business functions. Direct sales efforts included the bartering of services and the use of promotional tie-ins with corporations. In 1999, Darcy filmed a Christmas Show for WYVI, the local public broadcast station, with the possibility of being picked up nationally giving the club wider promotional coverage

Publicity proved to be the most effective means of getting the world out about the club. Articles in upscale publications such as Southern Living, and USA Today gave the club a national reputation before many Charlottens supported the venue. A combination of the Plaza Midwood location and the need to educate people about the concept of the supper club presented a challenge especially in the beginning. It took a real belief in the idea and some creative promotion in the early stages to make it work. The non-traditional customer including the international community, convention visitors, corporate events, weddings, and special events kept the doors open until individual Charlottens learned about and embraced the idea. Much of the excitement came through world of mouth. If a patron visited the club and experienced the atmosphere, they were hooked.

FINANCING THE CLUB

To finance the business, Darcy believed that all she needed to do was to go to the bank and take out a loan. However, she quickly found out what the comment "Ignorance is bliss" meant. Reality set in with her first visit to the bank. In Darcy words, "Banks don't lend new start-up restaurants money." With this first lesson under her belt she set out to educate herself about how to raise capital. She attended a SCORE seminar, talked with lawyers, and began to find the people she needed to make the vision a reality. The business plan became an important resource.

Using individuals in the business community that she knew such as attorneys, accountants, and other business associates she began to approach private investors or angels with her business plan. This type of financing required the help of an attorney who understands securities laws that regulate the sale and distribution of stock. A Limited Liability Company (LLC) was created which allowed qualified people to investment from $10,000 to $50,000. These investors lent their positive reputations to the venture, helped to attract additional funds, and directly supported the business through patronage from themselves and their friends. Private investors were sought as a source of funding because of their willingness to fund small-untested business ideas. In addition they were easier to secure than venture capitalist and didn't need daily participation in the business operations. On the other hand, the investors had high expectations and wanted a substantial return on their investment.

Financing for the club included raising equity capital for renovation and obtaining a bank loan for working capital. Darcy sought out investors for an initial offering of not more than 40 percent of the outstanding shares of the company for an amount of $400,000. Investors were to receive an 8 percent return on their money. Darcy and Michael Donovon would own 60 percent of the shares for a contribution of $125,000. The club eventually found 17 investors and raised $400,000 in equity. The location proved to be beneficial in attracting money from Bank of America's Small Business Investment Corporation (SBIC). They took an equity position in the company and purchased 10 units. She also received a loan with the help of a Small Business Administration guarantee. Breakeven took a year and a half. In 1999, the club made money and in 2000 started paying back the investors.

FUTURE DIRECTION

In three short years Darcy had lived through opening a Swing Club in the Plaza Midwood area of Charlotte. Her passion for the concept, the music, and the neighborhood all came together in her vision of Swing 1000. So where does she go from here?

Alternative 1 : Open a Swing Club using the same prototype in the Atlanta, GA area:

This would require Darcy to find a location in an upscale Atlanta neighborhood that would support a Swing Club. Although she had a prototype for development of the club, she would need to learn the unique characteristics of the Atlanta market. Many of the subtle nuances that she was familiar with in Charlotte from living in the neighborhood for 12 years would not be in place. She would have to build a new demographic profile and database of customers. The Atlanta market was larger. There was more competition with another Swing Club in the city. There were additional entertainment venues available as substitutes. Time away from the Charlotte club and her family were also considerations in opening the business. In addition, the issue of raising capital would have to be addressed. Should she continue to seek private investor capital or move to venture capitalist?

Alternative 2: Open a new venue such as a Retro 60"s Club called the "Big Chill" in the Uptown Charlotte area.

The uptown Charlotte area had grown significantly with the increased number of arts and sports events occurring in the city. The NASCAR, NFL and NBA have all held major uptown events thus increasing the need for new venues. However, the present Swing club was only a mile away from the uptown area raising the question, "Can Charlotte support two theme supper clubs with entertainment nightly aimed at the upper scale market?" In addition there were a number of upscale restaurants in the uptown area offering significant competition. This alternative would also have to be supported with a large capital investment that would have to be raised through angels or venture capitalist. The Retro 60's theme proposed for the new venue was untested. Did it have the staying power of the Swing revival?

AuthorAffiliation

Barbara K. Fuller, Winthrop University

fullerb@mail.winthrop.edu

Darcy Donevan, Owner, Swing 1000

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

Volume: 7

Issue: 1

Pages: 142-146

Number of pages: 5

Publication year: 2000

Publication date: 2000

Year: 2000

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: 192412364

Document URL: http://search.proquest.com/docview/192412364?accountid=38610

Copyright: Copyright The DreamCatchers Group, LLC 2000

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 76 of 100

A.F. WOLKE

Author: Brown, Steve; Davig, Bill; Masten, John; Devine, David

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

Wolke is a comprehensive case and is rich in issues that would make it suitable for both strategy and small business classes. Financial data is provided for a two year period and organization charts are included in the case. It is a classic example of how a small firm employs a differentiated niche strategy successfully only to create problems for itself. In this case Wolke has been so successful that it has expanded globally and is now at the stage where key decisions must be made regarding the firm's future. It now has outgrown its capacity, current personnel and organization structure that, in turn, are now beginning to result in R&D, scheduling, transportation, productivity, and quality assurance problems. Faced with the increasing competition and a rapidly changing environment the owners are unsure what to do about the situation. The case is targeted for seniors andgmduate students (levels of difficulty- five andsix). It has extensive teaching notes including an industry, SWOT, Five Forces, and ratio analysis. The preparation time is expected to take in excess of six hours, and the class discussions should last two hourly class periods.

CASE SYNOPSIS

A.F. Wolke started out as a small paint supplier and later evolved into a manufacture of concrete coatings. In 1995, the company was sold to four employees of one of Wolke' s major suppliers. By 1998,the company had grown to eleven employees, new equipment was purchased and sales increased to $2.5 million. Because of the impact of environmental concerns, Wolke moved to a water based technology. In order to compete Wolke has focused on unique niche markets and developed specific coatings for its customers. In the past two years a conscious effort his been made to improve their marketability. Recently, they have started selling paint in Yorkshire, England The company is now at the point where their personnel are on the road servicing customers leaving little time for lab work and the development of new products. Products are manufactured in small batches, and some runs have to be completed before others can begin. The plant is small causing production to be inefficient and unsafe at times. Their margins are further strained by tiie high cost of using common carriers andtiie high cost of a unique ingrethent in their paint formula Due to its small size, Wolke has been unable to implement a much needed quality assurance program The size is also inhibiting their ability to capitalize on new opportunities, which are constantly presenting themselves. Unfortunately, the absentee owners cannot devote the time and effort toplanfor the future.

A.F. WOLKE

The A.F. Wolke Company was founded by Chester Higgenbottom as a manufacturer of individual coatings. Over the years the company never grew larger than a three-man operation and limited its marketing to the Midwest region. In 1985, he sold the company to four employees of one of his solvent suppliers. Under the new ownership Wolke began to expand. Chris Williams, a chemist and paint formulator, was hired as general manger. By 1998 the company had grown to eleven employees, and sales had increased by tenfold. New products and equipment were added to meet the demands of a national market.

Although Wolkes' products have changed considerably, their operating principles have remained the same for over sixty years. They represent integrity, caring leadership, customer satisfaction, quality workmanship, and service. These principles ensure that every Wolke product and employee reflects the values of the company and carries them forward into the partnership with the customer. Wolke is an international coating company dedicated to manufacturing quality paints and coatings to customer specifications. Wolke proudly boasts of having loyal, committed employees who understand and value the customers' needs. Wolke is dedicated to technical excellence, the supply of quality products, and high levels of personal service. It is proud to have many satisfied customers throughout the United States, Canada, Mexico, and Europe. Through the years, Wolke has a well earned reputation for technical excellence, personal service, and product innovation, plus the ability to focus resources on the practical needs of the customer.

Wolke faces intense competition from large, national paint manufacturers such as Valspar, PPG, and Sherwin Williams. These competitors have many more resources and capital allocated for research and development and marketing. But, they also have higher administrative costs associated with large national companies. These companies have universal coatings that they can submit to several different companies that may work and perform adequately. In addition, they focus on larger volume accounts where they can move thousands of gallons of paint. Although Wolke is proud of marketing globally, most accounts are comparatively small and limited to a regional area near the plant because of travel and transportation costs.

Wolke is a small company that has selected unique niche markets that the larger coatings companies do not target. Wolke has been strong and successful due to the one-on-one relationship with its customers and its ability to develop part specific coatings for its customers. Most of Wolke customers use a specific custom-formulated coating. There are many variables that affect performance of paint, and Wolke manufacturers variations of a particular coating to meet their customers' particular needs which enables it to compete with the large manufacturers in the marketplace. Wolke' s major niche market is the coat-hanger industry which represent 81 percent of the company's total sales. Other niche markets consist of the metal tank, extruded farm equipment, and the wood finishing industries. Each of these market segments is in need of waterborne paint custom formulated for their particular products and paint processes.

Because of the EPA air quality laws and regulations, interest for water-borne paint grew significantly in the manufacturing plants using solvent-based paint. This presented a threat to the chemical and solvent companies. As solvent customers expressed interest in a water-borne paint systems, Mr. Williams got involved in the development of a water-borne paint to meet their specific needs. An example of this was the Laidlaw account. Their solvent emissions were not in compliance with EPA regulations. Consequently, they were fined significantly for this noncompliance and felt they needed to convert to a water-borne paint system for the future. Mr. Williams, by trail and error, developed a combination of polyester resins that used water as the vehicle for applying the resin and pigment to the substrate or coat hanger. Within two years, all the other Laidlaw plants were converted to Wolke's water-borne coatings and technology.

The past two years, Wolke has made a conscious effort to improve its marketability. A company brochure has been printed, and a Web site has been generated. Wolke is at the point where the sales and technical personnel are on the road, servicing customers, leaving less time for lab work and developing new products. In 1997, Jeff Martin was hired as a salesman from DeVoe Paint. Mr. Martin has ten years in the paint business as a formulator and inside sales person . He has been assigned a limited number of accounts and is expect to do some prospecting. However, he has primarily has spent his time learning about Wolke products and working in the lab and manufacturing plant. David Wardrip, the technical service manager, is also very knowledgeable about paint formulation and would be a big help in development, but he also has to spend most of his time in the field.

The water-based coatings going into the coat-hanger industry sells in the $9.00-$ 14.00 per gallon range. Cost of material is running at 64.5 percent of sales. The cost is based upon a raw material that is extremely critical to the quality of Wolke products and to the profit margins. The main component of Wolke's coat-hanger products is a polyester resin made by Reichhold. This is the only resin that has been qualified to meet the product specifications. Wolke has been unable to find a substitute for this resin and is therefore at the mercy of the manufacturer as far as pricing goes.

Wolke batch produces their products in a plant that is not large enough to handle the volume, therefore, production is inefficient and at times unsafe. The facility is inhibiting the growth of Wolke because their single shift is running at over capacity rates. Particular production runs have to be completed before new runs can begin. Because of limited storage, inventory cannot be purchased at volume discounts. Product is delivered to the customer in 5 gallon cans and 55 gallon drums via common carriers that can be expensive and place a strain on margins. Shipping cost were $123,000 in 1998, up 12 percent from 1997. Due to its size, Wolke has been unable to afford to implement quality assurance programs required to compete for business with larger industrial concerns and on government bids.

Through the contacts of the owners, Wolke has many prospects for the future. Other competitors of Laidlaw Corp. have expressed an interest in doing business with Wolke. Kimball International has opened the door to Wolke for specialized water-based finish coatings, mold release agents, and drawer dips. Leggett & Piatt in Winchester, Kentucky, has invited Wolke to develop a water-based brown flo-cote for coating their bed frames. Fred Cain Farm Equipment needs a water-based dip coating for painting their bush hogs. In addition, other companies have expressed an interest in Wolke whenever Wolke is ready to work with them. These prospective accounts represent over $1.4 million in additional revenue for Wolke. Although the owners have great contacts through their full time jobs, they are not involved with the firm's daily operations. At the present time, Wolke has no long-term debt but has neither the resources nor the time to capitalize on these opportunities.

Wolke paint has experienced significant growth during the past ten years. The company has increased sales and profits on a yearly basis during this period. Taxable revenues in December were $2.5 million in 1998, up from $2.2 million in 1997. New products and market niches have been developed which presents tremendous opportunities for the future. It has a strong customer base with which to build upon for the future. Wolke's management is considering building a new manufacturing plant that will enable it to grow and sustain itself in the future. Alternatively, they are considering selling the business. Recently two major producers have approached Wolke and expressed an interest in acquiring the business.

AuthorAffiliation

Steve Brown, Eastern Kentucky University

cbobrown@acs.eku.edu

Bill Davig, Eastern Kentucky University

cbodavig@acs.eku.edu

John Masten, Tennessee State University

Masten @ home.com

David Devine, Ulrich Inc.

Davd@aol.com

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

Volume: 6

Issue: 2

Pages: 11-14

Number of pages: 4

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192411792

Document URL: http://search.proquest.com/docview/192411792?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 78 of 100

NIGERIAN METAL FABRICATORS

Author: Smith, D K (Skip)

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

If you 've ever wished for a relatively short and straightforward case to demonstrate to your students the essence of what marketing is all about (that is, creation of successful businesses through the process of seeking out the needs and wants of customers and then organizing and executing to satisfy those needs and wants), here 's your case. The case has been used successfully with students ranging from freshmen (level 1) on up through executives participating in executive development seminars. It is designed to be taught in one class of approximately one hour and a half, and is likely to require a couple hours preparation time from students.

CASE SYNOPSIS

The case tells the story of the President and General Manager of a company in Nigeria which imports aluminum ingots from overseas and uses them to produce fabricated aluminum products for the local market. For many years, the company has focused on producing roofing sheets for individuals who are constructing a house. Recently, however, the price of the imported aluminum ingots has increased 400%. Because individuals are no longer able to afford the roofing sheets, company volumes and revenues have fallen precipitously. The President believes that the company can be saved by pursuing roofing opportunities (either new construction or re-roofing projects) with private sector businesses and/or governmental units. While the President has submitted bids on 20 commercial roofing projects, and while some of his bids have been as much as 15% lower than the lowest bid of any competitor, he has not yet been awarded a single job or contract. Students are asked to imagine themselves in the role of the President, and to create a successful marketing strategy for the company based on the President's knowledge (set forth in the case) of the needs and wants of industrial customers.

THE SITUATION

James Oke, President and General Manager of Nigerian Metal Fabricators, Ltd. shook his head in frustration as he looked at the file containing the 20 bids on roof sheets for large commercial buildings which Nigerian Metal Fabricators had submitted to property managers, architects, and general contractors over the last 6 months. He and his staff had spent hundreds of hours preparing these bids, but had not succeeded in winning even one job. This was especially frustrating to Oke because he knew that on at least half of these roofing projects, Nigerian Metal Fabricators had been the low bidder. In fact, in some cases, Nigerian Metal Fabricators' bid had been as much as 15% lower than the bid submitted by the company which had finally been awarded the roofing job. Because the winning of large commercial roofing projects was a key component of Oke' s plan to increase Nigerian Metal Fabricators' turnover and profits, Oke resolved to spend much of his long holiday weekend working to find a way to help Nigerian Metal Fabricators compete more successfully for these large commercial jobs.

THE COMPANY

In 1959, Metal Company International, Ltd. established two aluminum-related companies in Nigeria. The first, Metals Nigeria, Ltd. was a rolling mill to convert aluminum ingots imported from Jamaica into sheets of aluminum. The second, Metal Products- Nigeria, Ltd., (hence, MPN) was engaged in the production and sale of fabricated aluminum products in Nigeria, especially roof sheets. MPN' s original manufacturing plant was located in the Lagos area.

Over the ensuing years, MPN expanded its operations in Nigeria. Plants to manufacture roof sheets were established in Port Harcourt and in Kaduna. In addition, a large plant to manufacture aluminum windows and doors for the entire Nigerian market was established in Kaduna. However, because Metal Company International's primary motivation for establishing subsidiaries in Nigeria was to develop a market in Nigeria for Jamaican aluminum ingots, MPN did not devote much time or money attempting to develop additional products or expand Nigerian markets. Almost zero money was spent for advertising or market development purposes. In fact, for many years the only promotional literature available in Nigeria on MPN' s product line was a small brochure available to interested parties at MPN sales offices.

Up through 1984, MPN was able to fulfil quite effectively its corporate mission of taking aluminum from the rolling mill, converting it into roofing sheets, and moving that product into the Nigeria market. Each year the company would sell 4000 to 5000 tons of aluminum sheets. In general, Metal Company International, Ltd. was pleased with MPN' s performance.

CHANGES IN ENVIRONMENT, AND IMPACT OF THESE CHANGES ON MPN

In 1985, the impact of the import license program which Nigeria had implemented two years earlier hit MPN very hard. Because it was unable to procure import licenses for aluminum ingot from its parent company, sales of roofing sheets by MPN in 1985 fell to less than half of the customary volume. This problem continued into the first several months of 1986. While the naira figures for turnover and profits in 1986 remained strong, this was purely an artifact of the loss in value of the naira during 1986. As the tonnage figures indicate, the amount of product moved by MPN in 1986 shrank to approximately l/4th of the volume for previous years.

The other major problem MPN encountered at this time related to price increases in aluminum sheets necessitated by the fall in the value of the naira. It turned out that MPN' s customers were unable to afford the 400% increase in the price of roofing sheets caused by naira devaluation. Thus, MPN encountered problems not only in sourcing their raw materials but also in moving finished products.

In response to the above problems, Metal Company International, Ltd. decided in 1986 to liquidate its operations in Nigeria. Ultimately, Metal Company International's shares in MPN and in the Metal Company Nigeria, Ltd. rolling mill operation were sold to a group of Indian shareholders. At that time, the names of the two companies were changed to Nigerian Metal Fabricators, Ltd. (hence, NMF) and to Nigerian Metal Company, Ltd., respectively. It was shortly after this that James Oke was brought in from a financial background to be President and General Manager of NMF.

NMF UNDER OKE (PART 1): REVIEW, INITIAL CHANGES, AND RESULTS

One of Oke's first moves as President was to conduct a thorough review of NMF's mission, objectives, and strategies. During the course of this review, Oke reached several conclusions including the following:

* The traditional mission (that is, moving as much Jamaican ingot as possible into the Nigeria marketplace) is no longer an appropriate focus. The company must redirect its energy and attention to Nigerian markets and to serving these markets in a way which increases turnover and profits.

* NMF is currently collecting almost no information relating to Nigerian markets and marketing in Nigeria.

* The current situation wherein 90% of NMF' s turnover comes from a declining market (that is, roofing sheet to individual customers) is unacceptable.

* NMF has never developed a really successful new product. However, given the change in mission and the need to reduce NMF's dependence on the sale of roof sheets, it appears that it will be necessary to broaden NMF's product line.

* Given the change in mission and the need to introduce new products, it will be necessary to increase dramatically the awareness in Nigerian markets of NMF and its product line. It will no longer be acceptable for NMF to be far less visible in the marketplace than ABC, Ltd. and XYZ, Ltd, its principal competitors.

Based on the above conclusions, Oke began immediate to move to implement his vision of the company he thought NMF could become. Sensing that customers of aluminum windows and doors refused to patronize NMF because they feared it would not be possible to receive these products from Kaduna in a timely manner, Oke persuaded his Board of Directors to approve a scaling back of the Kaduna window and door plant so that additional plants for these products could be justified in Lagos and Port Harcourt. Oke also created a new product department, to work on additional extensions of his product line. Furthermore, he created a marketing department, and charged it with collection of data relating to customer profiles, why customers purchase NMF products, competitor profiles, changes in the marketplace, how NMF is responding to changes in the marketplace, and why NMF loses business when that happens. Finally, he initiated a promotional program using national TV and billboards, to familiarize consumers with the NMF name and products. In the process, the NMF advertising budget increased from N100,000 in 1985 to nearly N 1,000,000.

Results of the above programs were not totally gratifying. Windows and doors sales did increase, especially in Lagos and in the East, but not markedly. The new product department developed additional construction-related products which seemed likely to be quite successful, especially office partitions. The marketing department began to provide useful information on numerous issues including the motivations of buyers to buy aluminum windows and doors (low maintenance, also, higher status and aesthetics), reasons buyers don't now buy windows and doors from NMF (salesmen neither know nor push these products), and the identity of historical purchasers of NMF roof sheeting (primarily, individuals purchasing small numbers of sheets for private construction). As indicated in Exhibit 1, however, the overall impact of these changes on NMF' s turnover in 1987 was not great. Furthermore, pre-tax profits decreased substantially, due to the heavy expenses associated with Oke's plant, product, and promotional initiatives.

NMF UNDER OKE (PART 2): ADJUSTMENTS AND RESULTS

Based on these results, Oke determined to work very hard at a relatively small number of issues. The first was continued low volume in window and door sales, even though the new local plants in Lagos and Port Harcourt had eliminated the "transportation from Kaduna" problem. In examining this issue, Oke discovered that most of his salespersons had very little motivation to try to sell windows and doors, because they could generate far higher volumes by focusing their attention on a small number of large sales of roof sheets. In addition, his salespersons, most of whom had secondary school (not university) educations and had worked for the company for many years, tended not to be knowledgeable on the characteristics of these new products and their benefits to customers.

In an attempt to address the above issues, Oke decided to introduce both product/market training and an incentive pay scheme. Regarding incentive pay, Oke began by setting a monthly target for each salesperson of 2 or three tons per month (depending on the territory) of roof sheet and N50,000 of doors and windows. Salespersons who met both criteria could earn 1A percent commission on any additional sales. However, after a three month period during which no salesperson earned any commission, Oke revised the program to incorporate one quota for roof sheet and a separate one for windows and doors. At this point, a few salespersons started earning commissions, and sales of windows and doors began to increase, especially in the Lagos market. As regards product knowledge, Oke hired a marketing professor from a local university to come and run training sessions for his salespersons, to improve their knowledge of products and consumers.

The results of these initiatives were very gratifying. Soon, monthly sales of windows and doors in the Lagos market exceeded those in the Kaduna area, in which NMF had been selling these products for many years. These increases are reflected by NMF's turnover and tonnage figures for 1988, which increased 73% and 36%, respectively, over the figures for 1987.

The second issue, which Oke began to address early in 1989, was NMF's declining roofing sheets business. As indicated earlier, data collected by the marketing department suggested that NMF's traditional customer, an individual needing a relatively small number of sheets for a private dwelling, could no longer afford to purchase aluminum sheets and was switching to galvanized sheets. Because the roofing sheet business represented such a major portion of NMF's sales, and because it was the core business on which NMF had been built, Oke knew that any real turn around for his company depended on a successful revitalization of the roof sheet business. Thus, he instructed his marketing department to prepare a report on the characteristics of the commercial market for roofing sheets. A summary of the marketing department's major findings is as indicated in Exhibit 2.

YOUR ASSIGNMENT

Assume you are James Oke. Develop a brief setting forth your suggestions for re-vitalizing NMF' s roof sheet business.

AuthorAffiliation

D.K. (Skip) Smith, Southeast Missouri State University

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

Volume: 6

Issue: 2

Pages: 18-23

Number of pages: 6

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192411607

Document URL: http://search.proquest.com/docview/192411607?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 79 of 100

ST. LOUIS CHEMICAL: THE BEGINNING

Author: Kunz, David A

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns business start-up issues. Secondary issues examined include the components and importance of a business plan, evaluation and selection of a business organization form, and evaluating sources and types of start-up capital. The case requires students to have an introductory knowledge of accounting, finance and general business issues thus the case has a difficulty level of three (junior level) orhigher. The case is designed to be taught in one class session of approximately 1.25 hours and is expected to require 2-3 hours of preparation time from the students.

CASE SYNOPSIS

The case tells the story of Don Williams, a young business professional who is considering starting anew business. Williams was the Director of Sales for the distribution division of Midwest Chemical a manufacturer and distributor of chemicals. Midwest was been sold and the acquiring firm did not require his services. As a result of his chemical distribution business experience, contacts with customers and suppliers and the cash he received from the buyout of his Midwest stock options and severance package, he is considering beginning a chemical distribution business. Williams has a solid understanding of the chemical industry and the distribution process. While at Midwest, he had Profit & Loss (P&L) responsibility but his knowledge of accounting and finance is limited.

The case contains information on the chemical distribution process and the Small Business Development Center (SBDC) Program administered by the U.S. Small Business Administration. SBDCs provide management assistance to current and prospective small business owners. The case requires students to investigate the purpose and use of abusiness plan and examine business start-up issues, including selecting abusiness organizationform andevaluating sources and types of start-up capital

THE SITUATION

Don Williams, the Director of Sales for the distribution operation of Midwest Chemical, a large, regional chemical manufacturer and distributor, has been told that the sale of Midwest to a large multinational chemical manufacturer had been finalized. Williams was aware of the sale negotiations but he didn't really think the company would be sold. The company had entered sale negotiations a number of times during the last five years, but for a variety of reasons the sale was never completed. To add to his surprise, Williams was told that after the acquisition his services, along with most of Midwest's senior management, would not be required. This didn't necessarily reflect unfavorably on the management team of Midwest but without adjustments, combining the two firms would result in substantial management duplication.

Don Williams is thirty-two years old and had been employed by Midwest Chemical, since graduation from Iowa State University with a degree in chemical engineering. With Midwest he has moved through a number of management positions, each with an increased responsibility. For the last four years he had been Director of Sales for the distribution operation. In an effort to develop the business skills necessary to handle a senior management position, he continued his formal business education. He recently earned an MBA from St. Louis University after attending evening classes for four years.

Williams has a career decision to make, to seek a position with another firm or become an entrepreneur. Despite his advancement at Midwest, Williams always had aspirations of someday operating his own chemical distribution business. It appears that "someday" may be now.

The exercise of his stock options as well as proceeds from the sale of stock he has accumulated since joining the firm will provide him with a large amount of cash. Although he is not sure of his exact tax liability, he expects to net about $180,000 from the buyout of his options and the sale of his stock. In addition, he will receive a severance package amounting to $30,000.

The proceeds from the sale of his Midwest holdings (stock and options), severance pay and family savings could be used to start the new business. He and his wife can contribute $60,000 from savings, and a second mortgage on their home could add another $50,000 but his wife is hesitant to consider a second mortgage. In fact his wife has reservations about the whole idea of starting a business.

Another source of start-up capital could be Don's father. His father is retired and living in Florida but he recently sold a chain of dry cleaners for a profit of more than $3,000,000. Don thinks his father may be willing to invest $200,000 in his new business.

Before pursuing employment Williams wants to investigate beginning a chemical distribution business located in the St. Louis area.

CHEMICAL DISTRIBUTION

A chemical distributor is a wholesaler. Operations may vary but a typical distributor purchases chemicals in large quantities (bulk - barge, rail or truckloads) from a number of manufacturers. Bulk chemicals are stored in "tank farms", a number of tanks located in a dyked area. The tanks can receive and ship materials from all modes of transportation. Packaged chemicals are stored in a warehouse. Other distributor activities include blending, repackaging, and shipping in smaller quantities (less than truckload, tote tanks, 55-gallon drums, and other smaller package sizes) to meet the needs of a variety of industrial users. In addition to the tank farm and warehouse, a distributor needs access to specialized delivery equipment (specialized truck transports, and tank rail cars) to meet the handling requirements of different chemicals. A distributor adds value by supplying its customers with the chemicals they need, in the quantities they desire, when they need them. This requires maintaining a sizable inventory and operating efficiently. Distributors usually operate on very thin profit margins. RMA Annual Statement Studies indicates "profit before taxes as a percentage of sales" for Wholesalers - Chemicals and Allied Products, (SIC number 5169) is usually in the 3.0% range. In addition to operating efficiently, a successful distributor will possess 1) a solid customer base and 2) supplier contacts and contracts which will ensure a complete product line is available at competitive prices.

WILLIAMS' EXPERIENCE

Williams has a solid understanding of the chemical distribution process. While with Midwest, Williams developed solid customer contacts in the St. Louis metropolitan area, as well as with major customers in Missouri, Illinois, Iowa, Indiana and Tennessee. He has also developed valuable contacts with key chemical manufacturers. While at Midwest, he had Profit & Loss (P&L) responsibility but his knowledge of accounting and finance is limited. He has completed a preliminary site location investigation and examined other start-up issues but is not sure how to put everything together. Williams has discussed his situation with a friend who is a commercial lending officer with a large local bank. He suggested Williams visit the Small Business Development Center at St. Louis University. His friend thinks the Small Business Development Center could provide the assistance Williams needs to determine if his new business is feasible.

SMALL BUSINESS DEVELOPMENT CENTERS

The U.S. Small Business Administration administers the Small Business Development Center (SBDC) Program to provide management assistance to current and prospective small business owners. SBDCs are a combined effort of the private sector, education community and government (state and federal) to stimulate economic growth by aiding development of new businesses. Most SBDCs are housed on university campuses and receive a portion of their operating funds from the schools. Many SBDC counselors are faculty members from a variety of academic fields.

Anyone currently operating a small business or interested in starting a business can receive free, confidential assistance from the SBDC. Counseling and training activities include preparing a business plan, examining sources of financing, preparing loan requests and in general providing guidance on how to start a business.

THE MEETING

Williams arranged a meeting with Frank Charles, the Director of the Small Business Development Center, to determine what assistance, if any, the SBDC can provide in beginning his new venture. Before becoming the Director of the SBDC, Charles owned and operated a number of small businesses as well as worked as a commercial loan officer for a commercial bank. Charles explained the services available and asked Williams to describe his proposed new business.

Williams described the chemical industry and the role of a distributor. He would begin operations in St. Louis from a leased warehouse/office building located in an industrial park. The facility would be leased for five years at an annual cost of $60,000 and includes two, five-year renewal options. The facility would need to be modified to handle both liquid and dry chemical repacking operations, as well as storage tanks for bulk liquids. Exact numbers have not been developed but he thinks the modifications would cost about $250,000. With the modifications and six employees, Williams estimates the facility would support an annual sales volume between four and six million dollars. First year sales dollars are estimated to approach five million, with his existing customer contacts providing the majority of the sales. Initial inventory would require an investment of $600,000. Williams expects to offer credit terms of net 30, the same as the industry. Williams is very confident the estimated first year sales can be achieved and can be doubled in the second year of operation. According to RMA Annual Statement Studies distributors report a "Sales/Total Asset" ratio between 2 and 4.

Charles asked Williams what form of business organization he intended to select. Williams indicated he hadn't really given it much thought and didn't know much about any organization form other than the corporation.

Given the industry experience of Williams, Charles thinks the proposed new business venture has merit, but told Williams he needs to convert his ideas and thoughts to a business plan. A formal business plan would provide Williams with a guide to starting the business. Williams has been involved in preparing three year plans and annual budgets but has had no experience in preparing a business plan. Williams admitted he doesn't even really know what a business plan includes. Charles suggested that one of the SBDCs counselors could provide help in preparing the plan. Charles said the plan would also help quantify the assets and financing needed to start the business. Williams agreed to work with a counselor to develop a plan before a final decision to begin the business is made.

THE TASK

Assume the role of a SBDC counselor and help Williams begin planning his new business. Prepare answers to the following questions.

What is the purpose of a business plan?

What are the components of a business plan?

What business organization forms are available for selection? What are the advantages and disadvantages of each form? What organization form would be best for Williams's new venture?

What sources of capital, other than personal funds and his father's investment, might Williams consider? Examine the type of capital provided by commercial banks, venture capital firms and business angels. What are the characteristics of each?

Williams has considered some startup costs. What other costs might/should be included in determining financing requirements? What operating costs should be included and how should they be estimated?

Describe the function of Small Business Development Centers.

References

SUGGESTED REFERENCES

Adelman, Philip J., and Alan M. Marks (1998), Entrepreneurial Finance: Finance for the Small Business, Prentice Hall.

Lambing, Peggy and Charles R. Kuehl (2000), Entrepreneurship, 2nd ed., Prentice Hall.

Jarvis, Susan S. (1997), Basic Law for Small Business, West Publishing.

Osteryoung, Jerome S., Derek L. Newman and Leslie George Davies (1997), Small Firm Finance: An Entrepreneurial Analysis, Harcourt Brace & Company.

RMA Annual Statement Studies (1997), Robert Morris Associates.

"The Facts About... Small Business Development Center Program", U.S. Small Business Administration

Zimmerer, Thomas W. and Norman M. Scarborough (1998), Essentials of Entrepreneurship and Small Business Management, 2nd ed., Prentice Hall.

AuthorAffiliation

David A. Kunz, Southeast Missouri State University

dkunz@semovm.semo.edu

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

Volume: 6

Issue: 2

Pages: 26-30

Number of pages: 5

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192411691

Document URL: http://search.proquest.com/docview/192411691?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 80 of 100

R J REYNOLDS TOBACCO

Author: Bieber-Hamby, Barbara; Jackson, William T; Stein, Bert

ProQuest document link

Abstract: None available.

Full text:

INTRODUCTION

In 1997, RJ Reynolds Tobacco Company is the second largest producer of tobacco products in the world. While (as was the case for most of the firms in the tobacco industry) the company has diversified into other areas (primarily food products), a large portion of its operations are still directed within tobacco products. The company has also experienced considerable restructuring in its leadership positions over the last several years.

While the company has shown financial promise over the last several years, can this American landmark continue to be successful in spite on the environment in which it operates. Have the choices of diversification provided enough of a buffer to protect it from the downside of its core operations?

The purpose of this case is to illustrate RJR' s vulnerability to both massive pressures from the macroenvironment (especially in the areas of legal & political activity) as well the ability of a firm with highly concentrated efforts in one industry to compete in an extremely competitive industry environment. The ability to stem the tide of the external environments is extenuated due to the company's own internal environment. How should the company respond to the impending outcomes of adverse litigation, a socially hostile consumer base, and the ever changing demographics of the country? Has the company made the needed changes at the top to continue to survive in an extremely competitive market?

HISTORY - RJR NABISCO

For $85 a share (4.9 billion) RJ Reynolds Tobacco acquired Nabisco early in June of 1985. In 1986, by charming the Board of Directors, Ross Johnson edged out RJR CEO, Wilson, and had been named to the post of CEO of the 19th largest company in America. The honeymoon was short lived. Johnson hated small town Winston-Salem and quickly began looking for a new headquarters. Meanwhile in the "glass menagerie", corporate headquarters, old RJR people were disappearing rapidly, to be replaced by Nabisco (read Standard Brands) executives. The question began to be asked "who bought who?" Job eliminations, the first ever in the company's 100 year history, were announced in early summer 1986. This was in large part due to the planned opening of Tobaccoville Manufacturing Center in September. It had been hoped that normal attrition would eliminate the need for massive layoffs prior to moving to the state of the art facility, but approximately 1,400 positions were lost. The Winston Rodeo, a long time sports promotion, (sponsor of the top 60 NPRA Rodeos in the country) was discontinued and the Scoreboards sold to Coors Brewing. These funds were transferred to the Nabisco Golf tournaments and used to keep people like O. J. Simpson on payroll (he received $250,000/year to show up at golf tournaments, which he rarely did). In 1987 Johnson donated the "glass menagerie" to Wake Forest University and packed RJR Nabisco corporate offices off to 11 leased floors and a $20 million jet hanger (for what was becoming known as the RJR airforce) in Atlanta.

Fascinated with the media business, Johnson made an offer to CapCities for their 80% of ESPN (Reynolds owned the other 20%), they turned him down flat. That was the only attempt at building anything the first year in Atlanta. Meanwhile, Johnson sold off Hublein, Kentucky Fried Chicken, all the pipe tobaccos, Winchester Cigars, and many other small business units. The divestiture monies went into the bank to pay down debt. When the market crashed on October 19, 1987, RJRN stock went from the mid sixties to the low forties, where it stayed for several weeks. Even though the company reported a 25% increase in profits for the year the market ignored the stock. In March 1988 the company's board authorized a buy back. Forty-one million shares were eventually bought at about $53.50/share, then the street price relapsed to the mid 40's. In June, the Industry's unbroken streak of legal victories ended. The jury cleared the industry of conspiracy, however, Anthony Cipollone was awarded $400,000 in damages for his wife's death. Even with this behind the company, the stock went nowhere. The market was waiting to see if Johnson could do anything besides auction off a company.

Throughout the summer and early fall of 1988 Johnson played with several merger, takeover ideas, but the idea that gradually took his fancy was a management lead Leveraged Buy Out. At 9:35 on the morning of October 19th, the news of a $75 per share offer for RJR Nabisco crossed the Dow Jones news service wire. The first public shot of what was to become the largest and nastiest LBO in history. November 30, 1988, the Board of Directors accepted the Kolhberg, Kravis and Roberts $109 per share bid. On February 9, 1989, $18.9 billion, the cash portion of the $25+ billion winning KKR bid, started flowing through the nation's financial markets.

KKR - RJRN

Nabisco's European foods, Baby Ruth and Butterfingers, Del Monte, and several domestic Nabisco lines were sold. Tobacco cut 2,300 factory and middle management jobs, trade loading was discontinued, and Premier, the first smokeless cigarette was killed. In 1991, two years before the earliest redemption date of bonds for stock, KKR issued an RJR Nabisco IPO for $11.25 a share. Regional and divisional sales offices were restructured. Field sales support staff was terminated, their jobs consolidated into regional office processes. In 1993, the first ever elimination of field sales positions further streamlined the tobacco business unit, and Workforce 2000 was underway. Meanwhile, increasing pressure from legal actions, FDA pronouncements, and a growing public antismoking sentiment kept the stock price depressed.

The competition was not idle during this period. Sensing vulnerability, Philip Morris increased it's sales force and introduced two low cost savings brands (Bristol and Basic) to undercut RJR's segment leading Dorai. In response Reynolds instituted an aggressive price promotion strategy to shore up declining market share. The promotion, a combination of in store, on carton/pack coupons, and mail in rebates, combined with print media support restored much of Doral's market. In addition, the company fought back with it's own sub savings brands, Monarch and Best Value. In the fall of 1993 Philip Morris retaliated by dropping the wholesale price of full price brands by $4 per carton and savings brands by $3 per carton.

Despite reducing the LBO debt by over $17 billion, by 1995 the company's stock dropped to $6 per share. It traded throughout the early months of the year between $5 and $6 per share. The company changed marketing directions, attempting to reduce in-store promotions and buy-downs, reducing emphasis on market share gains, especially in the low end margin products, Monarch and Best Value. Management devised a two-part plan; a five for one reverse split, and a July 3 announcement of further restructuring, including field sales. This same year also saw KKR sell out of the rest of their interest in RJRN Holdings.

POST KKR

Also in 1995, the company took a more active role in it's distribution system and reduced the length of time available for wholesale payment discounts. The upgrading of EDI systems was complete and terms for contract bonuses were adjusted to reflect the fact. Instead of the previous alternatives for payment and contract rebates, Electronic Funds Transfers within 14 days resulted not only in the 3/4% discount, but were credited against year-end contract bonus money. Included in the new contracts signed with distributors was a clause allowing field sales access to computer generated retail shipping figures. From these sales reps can perform individual retail outlet analysis for store management. Philip Morris and B & W also unveiled similar contract changes.

Late in 1995, Bennett LeBow, of the Brooke Group, who had purchased Liggett & Meyer Tobacco (the smallest company in the industry with less than 2% market share), announced a bid for control of the RJRN Board of Directors. Although LeBow's Brooke Group only controlled 7% of outstanding RJRN Holdings shares directly, they formed a plan they hoped would win over sufficient shareholders to their side. The first tactical move was a settlement with several of the states' Attorney Generals. This settlement, the first of its kind, broke ranks with the heretofore-solid industry stance. It also included a provision that RJ Reynolds Tobacco be included in the settlement provisions should Brooke Group gain control. The second move was an amendment to spin tobacco off from foods. Apparently, LeBow and his group (including former RJRT executive Ralph Angiolli) felt that these to steps would sway activist shareholders to vote the Brooke Group slate. (This also assumes that there are enough activist/unhappy shareholders to make a significant impact.) The incumbent board won by a 3.8 to one majority. The spin off vote also received a similar proportion of votes. The spin off was not a new idea, the board had been exploring the concept of separating the two companies for a while. In fact 19.5% of Nabisco was sold as an IPO in early 1995. During the summer of 1996 Nabisco restructured it's field sales force, redefining or eliminating about six thousand jobs. Additionally plants were closed and the total 1996 restructuring cost amounted to over $400 million.

Throughout 1995 and 1996 tobacco continued to lose ground in the full price category, Winston, long the flagship brand was tanking (down 8%), Salem once the best selling menthol cigarette in the country declined steadily, the only full price brand with promise was Camel, averaging about 4% growth per year. The brand family had been extended over the years and the Camel light was having measurable impact on Marlboro sales. In 1996, reading Mr. RJ's book, the company reached back to it's early days and reintroduced Red Kamel , with graphics reminiscent of the early product. Camel Menthol was also introduced in the second quarter of 1996, in test markets. Both line extensions have shown positive growth and profits, and Camel menthol was introduced nationally in 1997.

Unfortunately the ramifications of this, and previous Camel brand success, has been increased legal actions and threats from the FDA about the brand family's advertising. Just prior to Camel's 75th birthday, in 1988, the company scrapped it's "Where a man belongs" advertising in favor of the "french camel" style of advertising. The cartoon character became an instant hit, not only with the franchise's smokers but with the competitor's customers and non-smokers alike.

First quarter 1997 was flat with a continued decrease in domestic volume, reflecting national trends. Some of the effect was due to a shorter shipping period over the prior year. However, third quarter 1997 results show positive signs. The repositioning of the Winston brand with the "No Additives, No Bull" promotion has increased the brands sales by 10%. The company showed a 9% gain in domestic volume. However Philip Morris' Marlboro accounted for 35% of all cigarettes shipped domestically during the quarter, raising PM's market share to 49% total. Although Joe Camel has been discontinued as a result of the proposed national June 20, 1997 industry settlement, the substitution of the traditional camel in promotional materials does not seem to have materially affected sales. The out of court $10 million dollar settlement with the City of San Francisco, likewise, did not admit to any wrong doing in the use of the Joe Camel advertising, or it's discontinuance. The effect of the settlements on earnings has, however, been severe. RJR's net income posted in the third quarter was just $122 million, reflecting the $133 million after tax effects of the settlements. Traditionally tobacco has provided the lion's share of corporate profits, in 1996 while contributing 48% of total sales, tobacco was 67% of operating contribution to RJR Nabisco Holdings. The settlement dollars removed from the net profit can significantly impact RJR Nabisco's cash flow position and limit the international growth of the firm.

While the June 20 settlement appears to be dead in the water currently, many capitol observers feel that it will be resurrected in 1998. Former FDA head and tobacco foe William Kessler has reversed himself and come out in favor of it, provided the $1.50/pack increase is included. The provisions allow for payment amounts to be prorated according to market share. This benefits RJR in it's current position as distant number two. 1997 figures released so far indicate that RJR's total share has dropped to just over 25% of the total market. Much of this loss can be attributed to the decline in the savings/low cost segment of the market (1997 savings segment has dropped to 27% from 30% of total market), where RJR's Doral is the mid-price industry leader and low end brands, Monarch and Best Value, contributed more to market share than profits. Maintaining Dorai' s market position, while allowing the low-end market share to deteriorate has increased profits, while reducing promotional costs. (To understand this, the profit structure of the cigarette industry must be understood. In 1995 the profit in one carton of Winston [10 packs] was approximately equal to the profit in 8 cartons of Doral, and 23 cartons of Monarch or Best Value. Specific profit amounts vary with firm and production costs.)

Reversing the 1994-95 de-emphasis on market share, refocusing on core brands, Camel, Winston, and Doral, to build the brands franchise has had positive effects on the bottom line. Increased presence in emerging markets by Reynolds International has contributed volume increases in 1 997, however exchange and transaction rates have limited profits. (Value Line estimated in its July Company evaluation that transaction costs would affect International profits by $60 million.) Some of the growth internationally has come from purchases or strategic alliances, such as the 1996 purchase of 50% of Azerbijan Tobacco Co. In addition, on November 12, 1997, International opened a new $9.1 million plant in Tunisia.

Continuing the separation of foods and tobacco remains an issue, not only at RJR Nabisco but industry wide. In December 1994 American Brands sold the industry's number four American Tobacco to B. A. T.'s number three US subsidiary, Brown & Williamson, in 1996 their U.K. tobacco division Gallaher was spun off, and then the firm changed it's name to Fortune Brands. Now B. A. T. may spin off it's $2.6 billion per year tobacco business when it merges with Zurich Insurance Co. Philip Morris is also grappling with the issue, spin tobacco off from it's food lines, Kraft and General Foods.

CURRENT LEGAL ACTIONS/ISSUES

Florida Counsel representing RJR and other companies signed an agreement with Gov. Chiles to settle claims against them. Requires that all billboard advertising be discontinued and that the state be paid $550 million on Sept. 15, 1997 and annual payments thereafter. Amounts prorated by Company market share.

Mississippi Similar to Florida settlement.

San Francisco Mangini Settlement, scheduled for December 1997 in Superior Court. Settlement of $10 million, requires that the defendants acknowledge that the lawsuit along with public controversy surrounding Joe Camel, was a "substantial factor" in the phase-out of Joe Camel Advertising. Requires prompt removal of Joe Camel billboards and cessation of the use of Joe in advertisements and promotional materials in California.

Texas Reimbursement of state Medicaid funds, trial in Texarkana. Legislation passed in last session requires that all self serve cigarette displays be removed or replaced with non-self serve by January 1, 1998.

Georgia Raymark Industries suit against B & W includes RJRT and RJRN for contribution/damages related to asbestos litigation.

The above are a representative sampling of the types of legal challenges and legislation currently being pursued by the individual states. In addition, the FDA is still challenging court rulings on the agency's legal right to control/limit the types and placement of tobacco advertising and the sales locations of the product.

CONCLUSION

The years spent paying KKR off for the LBO severely hampered the competitive position of RJRN in the tobacco industry. As a declining industry, the nineties should have been entered from a position of greater strength. However, management's refocus on market share through brand identification of core brands, Winston, Camel, Doral, and Salem, has provided positive growth through the second and third quarters of 1997. The uncertain nature of the national industry settlement will continue to affect cash flows until there is a resolution of this issue.

The continued support and upgrading of the technology sales tools at the field sales level provides a solid platform for entering the year 2000. Industry wide RJR seems to have recommitted itself to leadership at the field sales level. EDI throughout the distribution system is solidly in place and should continue to maintain and forge good relations with the participants in the system.

AuthorAffiliation

Barbara Bieber-Hamby, Stephen F. Austin State University

bbieberhamby@sfasu.edu

William T. Jackson, Stephen F Austin State University

wjackson@ sfasu.edu

Bert Stein, Stephen F Austin State University

bstein@sfasu.edu

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

Volume: 6

Issue: 2

Pages: 32-37

Number of pages: 6

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192411628

Document URL: http://search.proquest.com/docview/192411628?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 81 of 100

COLIN POWELL

Author: Jackson, William T; Watts, Larry R

ProQuest document link

Abstract: None available.

Full text:

Headnote

ABSTRACT

The study of leadership has been a very important field of research throughout the years. Numerous models of leadership have been developed approaching the concept from every conceivable angle. When individuals recognized at strong leaders are studied, the approach is to examine that individual in "the present tense." Very little research has focused on how individual leadership traits evolve over time.

General Colin Powell has received considerable attention over the last several years in terms of several leadership roles. The ability he had to orchestrate the Gulf War activities has garnished him international acclaim. His leadership potential has also place Powell in the political arena. Much of Colin Powell's approach to leadership can be traced to events that occurred during the early years of his life.

The purpose of this case is to examine an individual who is well respected in regard to his leadership abilities as demonstrated late in his career. A closer look, however, of how these leadership skills were manifested at early points in his life and career are examined.

As many researchers have argued, are leaders born or are they made? Do we change in our approach to leadership as we are given additional responsibilities? What provides a strong base for an emerging leader?

COLIN POWELL'S YOUTH

Numerous events and experiences while growing up on Kelly Street in Harlem had a significant impact on the life of this outstanding officer and individual. Colin as with most of us, had his character shaped by two loving, but demanding parents-Ariel and Luther Powell. Many of the Jamaican men of the time during Colin's youth " . . .were weaker personalities than their wives. The women set the standards, whipped the kids into shape, and pushed them ahead" (p. 15). This was not the case with the Powell family. Luther was the ".. .ringmaster of this family circle" (p. 15). Luther had high expectations for Colin-both in his professional as well as his personal life. Ariel provided a blend of passion and determination. She also, provided a strong glue with their Jamaican past and family.

There were numerous occasions where Colin did not meet Luther's expectations. On one occasion, Colin was sent home from a church camp for stockpiling beer. On a more serious note, Luther always considered Colin's academic motivation was lacking. Colin's high school G.P.A. of 78.3 surely served as a limitation of college choices. Even after the young Powell entered City College of New York (CCNY) and only stayed one semester as an engineering major before changing to geology, Luther wondered what his future would hold. Colin, on the other hand, saw " . . .geology as an easy yet respectable route to a degree" (p. 28).

The one area that Colin did not show any signs of minimization was for the ROTC curricula. This was an area that Colin could apply his passions and energy.

ROTC

Colin's first semester at CCNY had not been a very uplifting experience for the 18-year-old until he made the decision to join the ROTC. He had always been "... much attracted by forms and symbols," (p. 27) and he missed the camaraderie that had existed back on Kelly Street. A natural choice for Colin was to join, and, as some might say, the rest is history.

After entering the ROTC program at CCNY, Colin made the decision to join the Pershing Rifles (PR). The PR fraternity was one of three ROTC fraternities on campus- PR being considered the elite of the three. It was there that Colin met Ronnie Brooks-an officer cadet (one-year Colin's senior). Ronnie had a significant impact on Colin at both CCNY and for years to come.

Colin saw qualities in Ronnie that he lacked in himself. Ronnie was "... sharp, quick, disciplined, and organized" (p. 28). Colin " ...set out to remake [himself] in the Ronnie Brooks mold" (p. 28). Whatever accomplishments Brooks achieved, Colin looked to that as the bar to reach or surpass.

Colin's first position in the PR was as the recruitment officer-a minor position, yet one he took very seriously. While all of fraternities (including the PR) had used the showing of pornographic films as a recruitment technique, Colin decided that the best way to bring in new recruits was to show films about what they really did-drill. When pledge day passed, this new approach resulted in the largest pledge class ever for the drill team. The value of Cadet Powell had begun to rise.

Colin's career continued to echo that of his friend, Ronnie Brooks. As Ronnie would move up, Colin would step into the vacated position. When Ronnie moved from trick drill team commander to the commander of the regular drill team, Colin took over the trick team. In his first major competition Colin's team astonished the audience by not just marking time between maneuvers (as every other team did), but, instead by doing a dance solo. The team scored 492 out of 500 winning first place.

The next year while serving in Ronnie's old position of regular drill team commander (and thus responsible for the trick team) Colin learned a valuable lesson. Even though he had sensed that the trick team was losing its edge under his successor, he did not make a reassignment for the position. The trick team bombed miserably in its first competition. Powell "... learned that being in charge means making decisions, no matter how unpleasant" (p. 35). In essence, " . . .being responsible [may] mean pissing people off (p. 36).

Between his junior and senior years at CCNY, Colin attended the ROTC summer training program at Fort Bragg, NC. Based upon his "... grades, rifle range scores, physical fitness, and demonstrated leadership" (p. 35), Colin was selected as the "Best Cadet Company D"- second only to one other for the whole base. He learned from a white sergeant that his color might have been the reason for not being selected number one for the base.

In the summer of 1958, Colin Powell was commissioned as a second lieutenant in the U.S. Army. He received a regular commission because of being selected as a "Distinguished Graduate". Although he received his diploma from CCNY the next day, Colin could not get too excited about the event. He viewed his "...B. S. in geology as an incidental dividend" (p. 37) to being commissioned in the Army. "Yet, even this C-average student emerged from CCNY prepared to write, think, and communicate effectively and equipped to compete against students from colleges that [he] could never have dreamed of attending" (p. 37). Now, it was off to infantry school.

A YOUNG OFFICER

Colin headed directly to Fort Benning, Georgia for infantry training. It was there that many career-defining lessons were learned. The first dealt with hammering home a military officer's creed. The hammering began subtly by viewing the "Follow Me" statue (an infantry man leading his men into battle), and ended with the recognition that an officer was responsible for entering ". . . into battle up front, demonstrating courage, determination, strength, proficiency, and selfless sacrifice" (P. 41). Other lessons learned by Colin can be summed up in 8 very valuable statements-words he never forgot.

He also learned "... that Americans must know the reason for their sacrifices. As such, officers had a responsibility to put soldiers in harm's way only for worthy objectives" (p. 41).

After infantry training 2nd Lt. Powell attended airborne training where it came to his attention that he didn't enjoy jumping out of an airplane with a parachute. He completed the course knowing that being an Airborne Ranger would be a necessity for a successful career, and (more importantly) "... conquering one's deepest fears is exhilarating" (p. 44).

FIRST COMMAND

After a short leave, 2nd Lt. Powell headed for his first assignment-Gelnhausen, Germany. His assignment was that of platoon leader to Company B, 2d Armored Rifle Battalion, 48th Infantry. He relished the command and immediately felt "... paternal toward men close to [his] own age, and even older" (p. 45).

It was there that Colin was "... about to discover an Army far different from the romping, stomping, gung ho airborne rangers of Fort Benning" (p. 45). His first supervisor, Captain Tom Miller, was typical of many of those teachers - ". . . mostly World War II and Korean-era reserve officers, barely hanging on ... These men may not have been shooting stars, yet there was something appealing about them, something to be learned from them, something not taught on the plain at West Point or in the texts on military science and tactics . . ." (p. 45).

One of the first lessons came when Colin was directed to have his platoon guard a 280 mm atomic cannon. Because of his haste in preparing for the privilege of guarding a nuclear weapon, Colin lost his pistol. On the way to the assignment, Colin noticed his .45 caliber pistol was not in his web holster and immediately notified Capt. Miller. Miller advised him to continue on with the assignment. Shortly after that, Capt. Miller arrived with the pistol. He advised Colin that a young boy in the village had found the pistol and had discharged a round before he could be stopped and the pistol confiscated. He further advised Colin that this should never happen again.

Colin was devastated not only by his own military faux pas, but also by the possibilities that could have occurred if the bullet had found an unexpected target. Later, Powell discovered that Capt. Miller had found the Pistol in Colin's tent. Instead of administering normal military punishment (punishment that could have ended Colin's career) the captain had decided to use shock therapy with Colin. It worked. Miller's approach made a lasting impression that sometimes not going by the book might be the best approach - ". . . when they fall down, pick' em up, dust' em off, pat' em on the back, and move' em on" (p. 46).

The first of many additional areas of responsibility was handed down to now 1st Lt. Powell while in Germany. Colin was assigned to prosecute three enlisted men on charges of manslaughter. These three individuals, while drunk and driving military vehicles ran into a family in a Volkswagen-killing three people. Powell (not trained in law) faced a civilian defense attorney hired by the three enlisted men. Colin was successful in this prosecution. The experience caused him to realize something very important about himself-he was a good communicator.

Powell was assigned numerous other additional duties while stationed in Germany. Almost all of these duties ended with the same result-success. Even when success was not the final result, Colin still learned. Once when assigned as the executive officer for a new company commander, Captain Louisell, Powell was overheard shouting at a fellow lieutenant. Louisell chastised Powell for his temper both verbally as well as on his performance report. The report read: "He has a quick temper which he makes a mature effort to control" (p. 49). These words, even to this day, are evoked whenever Colin begins to lose his temper.

Lt. Powell gained even further knowledge of his role as an officer on his second assignment, Fort Devens, Massachusetts. While beginning this assignment as a liaison officer (gofer), he quickly moved to executive officer of Company A and then to company commander. One supervisor he had during this period was Lieutenant Colonel William Abernathy . Abernathy taught Powell much about the average soldier-treat them with respect. Abernathy felt strongly that a commander had to find a way to ". . . reach down and touch" each and every member of their command. He ". . . found a way to demonstrate caring in a fundamentally rough business" (p. 59).

1st Lt. Powell became the envy of many of his fellow career officers when he was selected to serve as a military advisor to the Army of the Republic of Vietnam (ARVN). Before Colin left for this assignment, however, he had one matter of unfinished business to attend to.

VIETNAM

Lt. Powell was assigned to the 2nd ARVN Battalion Commander, Captain Vo Cong Hieu at A Shau Valley. The outpost sat right across the boarder from Laos on the Ho Chi Minh trail. It didn't take long before the futility of this conflict came to life for Colin. When he quizzed Hieu why the outpost was there, the reply was:

"Very important outpost. "

"But why is it here ?"

"Outpost is here to protect airfield."

"What's the airfield here for?"

"Airfield here to resupply outpost."

Hieu was a very capable officer and Colin had considerable respect for his leadership abilities. And, "...as soon as [Hieu] concluded that [Powell] was not an American know-it-all, Hieu warmed to [Colin]" (p. 90). Colon also discovered that he could get more changes made by letting Hieu think that he had come up the idea. This led Colin to conclude the "... there is no end to what you can accomplish if you don't care who gets the credit" (p. 90).

Gaining the respect of the soldiers was not quite as simple. Early during his tour, Powell's worth to the troops seemed to ride a roller coaster. At one point, the troops had finally begun to trust the American advisor. This was until a Marine helicopter gunner mistakenly opened .60 caliber fire on their patrol killing and wounding several ARVN soldiers. They all wanted to know "... Why you do this? Why shoot us?' It took some time before Colin could regain their trust. In fact, it wasn't until another frightening event occurred before that happened.

The ARVN followed an uncomfortable procedure (one Colin constantly fought to change) of moving through the jungle single file. The VC had an easy time of ambushing the column. When Colin could not get them to alter this procedure, he at least wanted them to wear flax vests. Because of the heat, the point man constantly refused to wear the body armor. Finally, through Colin' s insistence, a few men adapted the policy. One day on a normal patrol, the point man was ambushed. Everyone rushed to bring Powell to the point. There was the soldier unharmed. Colin dug the shell out of the armor and passed it around for everyone to see. "Powell's stock was back on the rise. [He] was a leader of wisdom and foresight. The only problem now was that during the next supply delivery, [Powell] could not get enough vests for all the men who wanted them" (p. 89).

"The ARVN soldiers were courageous and willing but not always easy to train. [Powell] instructed. They smiled, nodded, and often ignored what [he] said" (p. 95). On one occasion, Colin spent hours trying to convey the importance of speed in unloading the supply helicopter. He explained over and over that the best procedure was to have two soldiers board the craft as fast as possible, and the rest of the men would act as a fire-brigade of moving the supplies to the trees. "[Powell] scratched an outline of a helicopter into the dirt and [they] drilled again and again " (p. 95). The next day a helicopter landed and all the men tried to climb inside. "They were uncomplaining as [Powell] began drilling them all over again, and, finally, they got it" (p. 95).

Vietnam gave Colin the opportunity not many new military officers could experience-warfare. Although much of the activity did not sit well with Colin, he continued to feel quite strongly about the fact that "... mine was not to reason why" (p. 87). "However chilling this destruction of homes and crops reads in cold print today, as a young officer [Powell] had been conditioned to believe in the wisdom of [his] superiors, and to obey" (p. 87).

Even when a new commander (Captain Kheim) was assigned to the ARVN at A Shau Valley, Colin remained focused on the nature of his job. This was true even in light of the inability Colin and the new commander to connect. Kheim was the type of officer "... who expressed his authority by barking foolish orders rather than exercising sound judgment" (p. 93).

One night when Powell was awakened by mortar fire from the nearby hills, he went outside to find Captain Kheim giving orders to return fire. Powell tried to convince Kheim not to return fire thus giving the VC a way to pinpoint their location. Kheim refused the advice. This allowed the VC to hit their camp killing and wounding numerous soldiers including Kheim. Kheim' s departure did not disturb Colin in the least.

Captain Kheim was replaced shortly after the attack by Captain Quang. Quang was a capable officer, but "... [Powell] was senior in terms of service with the unit and had the confidence of the men" (p. 95).

After being wounded, Powell was allowed to complete the remainder of his tour at 1st ARVN Division Headquarters as an assistant advisor for the operations staff. His new boss was George Price. " [Powell] felt reassured working with George. He still talked nonstop, but [Powell] listened closely, since what he said usually made sense. And, much of what [he] saw at headquarters badly needed explaining" (pp. 99-100). Those directing the operations had little if any first-hand knowledge about what was really going on in the field. "McNamara 's slide-rule commandos had devised precise indices to measure the unmeasurable" (p. 103). Although uncomfortable with the situation, Powell was able to come to terms with the Vietnam situation.

Powell's final duty in Vietnam was as the Commander of the Hue Citadel Airfield. "After dealing with intelligence wizards and puffed-up pilots, [Powell] began developing another rule: don 't be buffaloed by experts and elites. Experts often possess more data than judgment. Elites can become so inbred that they produce hemophiliacs who bleed to death as soon as they are nicked by the real world" (p. 102).

One thing that kept Captain Powell going during this time was knowing that he would be heading back home soon to Alma, his son Mike (whom he had yet to see), and a new assignment to attend "Infantry Officers Advanced Course" (IOAC)-another career assignment. Before leaving, he thought back on his experiences in Vietnam. The most valuable accomplishment was that the "...shared death, terror, and small triumphs in the A Shau Valley linked [him] just as closely to men with whom [he] could barely converse. [He] left comrades of the 2d Battalion with more than a tinge of regret" (p. 99).

INFANTRY OFFICERS ADVANCED COURSE

Upon returning to Fort Benning, Georgia, Colin and his family had several months to wait before the Infantry Officers Advanced Course (IOAC) began. In this interim period he was assigned as a member of the Infantry Board-a group responsible for testing new technology in the area of infantry advancement. This allowed Colin to move his family on base and to get reacquainted. Near the time to begin the IOAC, Powell was asked if he was interested in returning to the Infantry Board upon graduation. His decision seemed somewhat out of character for some of his previous military choices-he accepted a non-promotion assignment.

After graduation, Colin did return to the Infantry Board. His stay, however, was very short lived. Within a year, he received a new assignment-instructor for the IOAC (another "coveted assignment"). After finishing the instructor course (the pivotal learning experience of his life according to Powell), he returned to IOAC-wearing clusters.

While there were numerous other experiences that General Powell had over the remainder of his career, those of his youth, family, and early years in the Army served as a valuable frame of reference for this exceptional career officer.

AuthorAffiliation

William T. Jackson, Stephen F. Austin State University

Larry R. Watts, Stephen F. Austin State University

wjackson@sfasu.edu lwatts@sfasu.edu

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

Volume: 6

Issue: 2

Pages: 40-45

Number of pages: 6

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412228

Document URL: http://search.proquest.com/docview/192412228?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 86 of 100

AEROBICS UNLIMITED BY ELEANOR, INC.

Author: Baugh, LaDoris; Shonesy, Linda B

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case involves financial decisions in a small business. Secondary issues concern management issues concerned with growth and expansion. The case is designed to be taught in one to two class hours and is expected to require five or six hours of outside preparation. The case is appropriate for use at level two or three.

CASE SYNOPSIS

This case explores some of the financial and management issues facing a small business owner in a rapidly growing industry, where survival is synonymous with making the right decision at the right time - every time. In the health and fitness industry, there is no room for mistakes, as the competition is fierce, and it is not uncommon for firms to exit the market soon after entering. Aerobics Unlimited has been able to compete in this market for eleven years; but faced with new decisions that will allow it to remain competitive, the owner realizes that she must take a more active role and not assume that this business will run itself

The initial tasks for the student in this case are to review several financial problems and issues that have developed during the course of business, and to make decisions as to whether these have been handled correctly. After making the first set of decisions, the student must then decide whether the business should consider expansion.

THE BEGINNING

Eleanor moved to a medium-sized city about fifteen years ago with her family. She had taught aerobics while in high school and enjoyed it enough to seek out opportunities to teach in her new community. A large health club was located in her neighborhood, so she applied and was hired to teach several classes. Consequently, her relationship with club owners developed rapidly, so that she soon found herself traveling to several of the other locations to train other aerobics/fitness teachers. While Eleanor eventually grew tired of the traveling, she did not tire of the work itself. It was at this point that she began to explore the possibility of opening her own health club. She had finished college and knew that she had rather non-traditional career aspirations compared with those of her classmates. She could envision owning and operating a health club that would bear her name.

Eleanor stumbled onto a health club for sale after overhearing several members talking about it following one of her aerobics classes. She contacted the current owner and obtained information from him about the sales price, which was $50,000. She learned that she would have to lease the building and equipment, hire her own employees, and take over maintenance of the pool. There were also 200 individuals that had been sold memberships that would be included in the purchase price. Eleanor would have to lease the space to start her new business by March, 1987, which was only two months away, or the space would be sold and dismantled. However, through further inquiry, she discovered that the business had problems from the beginning. The owner of the club had no plans of honoring the existing memberships. The members that Eleanor was to inherit had been sold their memberships under false pretenses. She had some money that she had inherited from an uncle, which would provide her with the necessary capital for purchase of the health club. The biggest challenge facing Eleanor would be that of damage control. She knew it was imperative that she gain the conference of the disgruntled members, and develop a relationship with them that would restore their trust. Doing these things would ultimately determine her fate. Unhappy members could affect other potential members, causing her business to sink before it even started

THE FIRST HURDLE

Eleanor had a good friend with a local accounting firm, who had been handling her financial affairs, since she had inherited a substantial amount two years earlier. She contacted Bob, the accountant and said, "Bob, I have found a health club here in town that is going out of business and I want to make arrangements to buy it. Can you look at my financial situation, and see if I can purchase it? I will need about $50,000 for the purchase price, and I will have expenses of $1,000 per month for a building lease, $1,000 per month for leased equipment, $5,500 per month for employees, and pool maintenance, utilities and other miscellaneous expenses. I want to make sure that I will have enough money to take care of things for the first few months, while I am getting started." Bob replied, "I will be glad to check into this and will get back to you tomorrow."

While Eleanor waited for Bob to call her, she decided that she wanted to develop some thoughts about the potential business to include a mission statement. In addition, she needed to determine strategies to gain the trust and respect of past and future customers, since the current club had put those customer relationships in jeopardy. She began with the mission statement. She worked for several hours and developed the following statement:

Aerobics Unlimited by Eleanor, Inc. is a health club designed to offer a wide-range of activities for individuals wishing to either improve or maintain a healthy lifestyle. Our primary goal is to serve the needs of our members by providing the best state-ofthe-art equipment in a setting, which promotes relaxation. In order to accomplish this, we will provide a playroom for children to keep them happily occupied, and will provide an array of classes based upon member's requests, where possible. We are dedicated to continuing to improve our facilities, while serving our members and our community, as well.

Eleanor then began to think about how she would advertise her business to reach the community. She decided to begin by taking out several ads in the local paper, offering a 20% discount to new members. She also determined that she needed to find a niche, which would make her club different from others in the area. She mused to herself, "Why not advertise and market a playroom that is operated for children, while their mothers are exercising?" I could also publicize the fact that my club is exclusively for ladies, since many women don't feel comfortable working out in mixed company." She liked her marketing strategies the more she thought about them, as she had always felt that she could be successful in creating an atmosphere, where ladies could feel comfortable without being concerned about opposite gender issues. She would also have brochures printed to be distributed in the area around the health club and to be placed in various businesses in the area. Finally, to continue to attract customers and to retain those who had already joined, Eleanor decided to create a newsletter, which would keep members informed about club aerobics, workout equipment, and staff activities, with the intent being to make members feel part of the Aerobics Unlimited family. Are there other strategies that might be considered?

While Eleanor considered other possibilities, her accountant called. Bob told her, "I think you may be able to buy this club, and still not have to touch your principle for about a year, unless something goes terribly wrong." He outlined his plans, and they quickly decided that Bob would make an offer for her to buy the club the next day.

Eleanor then began to make a list of the things she would need to do, if the offer was accepted. This included announcements for the grand opening, cleaning and decorating the facility for the opening, and plans to advertise for teachers.

Bob called early the next morning to tell Eleanor, "You are now the owner of a health club! Our offer was accepted! We will meet with your attorney and sign papers in a few days." The next few days flew by, and Eleanor's dream came true. She was working day and night as the owner of a small business. It would take her three weeks to have the facility ready for the grand opening.

During the time that she was preparing to open, Eleanor decided to send announcements to each of the members who had joined under the old management, and advise them that they were automatically members of the new club. She indicated that she would honor the agreement that each had signed with the former club owner, and price increases would not affect those original members for at least one year.

After the grand opening, Eleanor was so busy that she soon had to hire a club manager to assist her in the day-to-day operations of the business. In addition, she employed six part-time teachers. Time began passing very quickly as her business continued to grow.

IS SOMEONE POCKETING THE CASH?

Today, after eleven years, Aerobics Unlimited by Eleanor, Inc. has 8 employees, of which two are full-time, and the others work an average of 1-2 hours per week as aerobic teachers. Eleanor has achieved the illusive dream of surviving as a small business owner in the rather competitive fitness/health industry. She employs Bob's accounting firm to handle the billing and accounting responsibilities, and she has established what she believes to be a good business relationship with the accountants and other staff members of the firm. She is even thinking about expanding her facilities, because of her previous success. She has noticed that the competition has grown significantly and is concerned about insuring that she maintains the latest state-of-the-art club. She would like to consider the possibility of expansion, either by remodeling her current facility or building a new one. However, she feels that she needs to wait before making that decision, as she has become particularly concerned because of some discrepancies she noticed in the most recent statements provided by the accounting firm. She had recently read an article about the perils of small business owners, where it described how easy it is for both employees and service providers to embezzle or take advantage of a small business. This happens because many owners do not pay close attention to financial matters. She was determined that she must pay more attention to the financial statements, rather than letting her accounting firm take care of everything, as she had typically done in the past!

Eleanor sat down with the statements to try to determine why she had an uneasy feeling about them. The more Eleanor looked at the statements the more she was sure that something was wrong! The income statement indicated that after all the expenses were deducted from the revenue, there was a net profit. "So why," she asked herself, "does the cash balance indicate that the cash has decreased?" She tossed and turned all night wondering what to do next.

"I may not have taken many accounting or finance courses in college, but I am not stupid," she said the next morning. "Someone that I trust is taking money from me!" Why couldn't she just go to the firm and ask questions? After all she had established a good relationship with the people there and Bob was a long-time friend. She didn't want to jeopardize that friendship. However, she could not get rid of the nagging feeling that something was wrong. Eleanor concluded that she needed to find a third party that she could trust (a non-"bean-counter"), to advise as to what her next step might be. She decided to contact her attorney. He could advise her as to how to approach the accounting firm with her allegations. She knew that she must be certain that her facts were correct. Eleanor's attorney assisted her with retrieving answers to questions that she had about the business.

The following questions represent the issues raised. These issues are the result of a review of the financial statements provided by the accounting firm.

1. What happened to the cash? How can the net income have increased, yet the cash balance decreased?

2. A variety of stocks for Eleanor's personal portfolio was purchased with the money made from the business over a period of time. Where are these investments reported on the statements?

3. The health club is located on valuable property, and was appraised at over 100,000 just six months ago. Why does the accountant show it valued at only $10,000? Did he just drop a zero?

4. One of the large expenses on the income statement is for depreciation, but no check was authorized by Eleanor for that amount. Since all equipment is paid for, what could this mean?

Since Eleanor was thinking about expansion, Eleanor's attorney asked the accounting firm to address issues that were of concern. Then, Eleanor could concentrate on the decision regarding expansion.

ELEANOR'S CURRENT DILEMMA

After settling the problems Eleanor had with her financial statements, she was able then to begin to think seriously about whether she should expand her business. She wanted to research her competition before spending a lot of unnecessary money. She spent several weeks determining what her competitors were offering.

"Fourteen, fifteen...," Eleanor counted aloud from the yellow page listings in the phone book under health clubs. She sighed, "The competition is increasing steadily, I can't afford to postpone my expansion plans any longer." Eleanor had enjoyed the success of her health club "exclusively for ladies" for more than a decade. However, she was aware that her past success was no guarantee of continuing success, unless she remained proactive and stayed at least two steps ahead of the competition, which had increased three-fold, since her club opened in 1987.

To make a decision about her expansion, Eleanor needed to gather some information and compare the cost of renovation of her current facility or the possibility of building or buying a new facility. After researching her competition, Eleanor decided to seek help from her accountant to develop some projected cash flows. Eleanor called Bob and found that capital could be borrowed at a rate of 15% for the renovation, and 18% for the new facility option.

Editors' Note: Financial figures and data are available from the authors.

AuthorAffiliation

LaDoris Baugh, Athens State University

Linda B. Shonesy, Athens State University

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

Volume: 6

Issue: 1

Pages: 1-5

Number of pages: 5

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412336

Document URL: http://search.proquest.com/docview/192412336?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 87 of 100

K-MART: THE BLEEDING GIANT

Author: Bhandari, Narendra C

ProQuest document link

Abstract: None available.

Full text:

Headnote

ABSTRACT

K-Mart is one of the top retailers of general merchandise in the U.S. It, however, continues to lose its market share in this cut-throat, competitive industry. This case examines the financial, managerial, and competitive variables relevant to K-Mart's precarious position and its strategies for the future. Several pertinent questions are raised for students' discussion at the end of the case.

INTRODUCTION AND OBJECTIVES

K-Mart started as a single store, in the name of S. H. Kresge Co. in 1912, in a small town in Delaware1. That was 87 years ago. Today, K-Mart has 2115 stores, spread all over the United States and some foreign countries2. Its operating revenues were about $32.18 billion in 1997, with a net income of $249 million3. Its five year and ten year, compound growth rates for operating revenues at -3.2% and 2.2% respectively, are quite dismal, considering that such rates for Dayton Hudson were 9.1% and 10%, respectively; and for Wal-Mart, they were 16.3% and 22.1% respectively. Sears with -4.6% and -1.6% did even worse than K-Mart, if that is any comfort. In the pages that follow, let us examine why K-Mart is losing ground to some other general merchandise retailers; to the industry behemoth Wal-Mart, in particular.

Several numerical tables are presented to show K-Mart's financial plight. Managerial and marketing facts are discussed to explain why the financials are faltering the way they are. Questions for students' discussion are presented at the end.

MANAGEMENT

Joe Antonini, who became K-Mart's chief executive in 1987, is often held responsible for K-Mart's problems, during his tenure of about 9 years4. During this period, all the decision making was centralized into one person: Joe Antonini. He was the chairman, the CEO, and the president5. He did not want anyone else to make important strategic decisions.

He did not like to hear bad news and he created a type of culture that discouraged people to tell him6. According to many articles, he did not hesitate to insult his senior executives publicly7. Reportedly, he would call them stupid, and incompetent5. Antonini, however, denied all that. In the Fortune survey of the most admired companies, K-Mart was voted the least admired of all companies in the categories of quality of products and services8.

A study by Prudential Securities found that the K-Mart price structure of 66 items studied were 4.2% below the average price, while that of Wal-Mart was 0.4% above the average7. Still, K-Mart is losing ground to Dayton Hudson and Wal-Mart.

K-Mart's sale items are often out of stock. Many stores are sloppy, and morale is low. CEO Joseph Antonini was finally forced out by the K-Mart's board in March, 19964(4). He was replaced by a veteran troubleshooter, Floyd Hall, who, became famous for expanding the discounter, Target stores, in the 1980's. He is also known for resurrecting the faltering grocer, Grand Union4.

DIVERSIFICATION

In order to try to get a balanced growth, K-Mart diversified. It built or bought an assortment of firms, such as, Pace Warehouse, Payless Drugs, Waiden Books, Office Max, Builders Square, and Sports Authority. Unfortunately, however, as the flagship mother company faces fierce competition from Wal-Mart and others, her siblings are beaten up by other power houses in their respective areas. For example, the Builders Square is threatened by Home Quarters (Hechinger's Unit) and Home Depot. Pace Warehouse is facing competition from Sam's Clubs5. The earnings are flattening at Payless Drug. Waiden Books has an efficient distribution system.

With these disappointments in the diversification strategy, K-Mart recognized the need to concentrate on its main business of retailing, on the one hand, and get away from its specialty stores, on the other. In order to meet its first need, K-Mart plans to relocate 500 stores, renovate 120 and close 75(9). To meet its second need, it is selling chunks of its specialty store divisions, once touted as helpful in a down market. It is planning to give up 30% each of its specialty units, such as, Builders Square, Waiden Books, Office Max, and the Sports Authority9. The Payless Drugstore and Pace Wholesale Club have been sold completely.

Antonini spent billions of dollars for his ill-fated diversification strategy. Wal-Mart, on the other hand, mainly focused on its core business of retail discount stores that are doing very well; aided by its very successful buying and distribution systems.

MARKETING

In 1989, K-Mart was the world's largest retailer. Now, with 1997 operating revenues of only about $32 billion3, K-Mart is merely 27% the size of Wal-Mart. Its net income is a mere 7% of WalMart's. Long before Hall, K-Mart started to lag behind Wal-Mart in most every area that matters; merchandise selection, service, and value, to name a few. K-Mart's old stores have only 40,000 square feet of space. The standard size these days is a minimum of 70,000 square feet of space per store10. One of K-Mart's biggest edges is that it has some of the best locations and entrenched positions in many markets; better than the Wal-Mart does. K-Marts are generally very conveniently located.

One of K-Mart's problems is that its core customer is 55 years old4, has no kids at home, and has less than $20,000 in income. K-Mart needs the younger, richer customers, like those who patronize Wal-Mart.

SUPER K's

The establishment of Super K's, a combination of supermarkets and discounters, is proving to be a successful strategic move for K-Mart. The Super K's in Auburn Hill, Michigan, has colorcoded department signs and spacious floor outlay. It has a pharmacy and a music store; in addition to several retailing departments. It has a computer that tracks store traffic at 15 minutes intervals to ensure that the right number of checkouts will be open.

Super K was developed out side of K-Mart's central authoritative structure. It competes head on with Wal-Mart. Its employees are very enthused about its open style management.

WAL-MART

Wal-Mart is using its information and distribution skills to work better with its suppliers. The company was among the first, for example, to insist that all ordering be done computer to computer. It also works with its suppliers to smooth out their production schedules. This has lowered distribution cost for such vendors as Colgate Palmolive and Proctor and Gamble10. Lower supplier costs allows Wal-Mart to buy goods cheaper from them. Secondly, Wal-Mart has entered into agreements with suppliers, such as Gitano, where the supplier is responsible for Wal-Mart's inventory10. A supplier gets a specific number of racks to stock its merchandise in Wal-Mart's warehouse. In return, the discounter does not buy the merchandise until it is moved from its warehouse into the store. Wal-Mart shares with Gitano how fast and at what price it sells Gitano jeans. It enhances businesses for both companies.

K-Mart has also spent heavily to match Wal-Mart's state of the art computer system to track sales and inventory systems. In 1990, it installed a check out scanning system that gives the company real time data on sales.

Wal-Mart's most successful strategy is its culture. The Company gospel, as preached by the late Sam Walton, is relatively simple. Be an agent for consumers. First, find out what they want, and then sell them those items for the lowest possible price. Sam once said that the Company gets about 99% of its best ideas from its employees10. For that reason, Sam often went to where the employees are, because that is where the customers are. He learned about both of them at the same time. You can't learn about one without the other and you can't learn about it by staying in your head quarters, he used to say.

CONCLUDING REMARKS

K-Mart offers consumers the same kind and quality of merchandise that Wal-Mart does. It still lags behind its arch rival in many important ways. The fact that the Wal-Mart, the nations largest retailer, has yet to hit the biggest population centers, must terrify any retailer in its path. According to one research9, the top ten discounters in 1962, the year when K-Mart, Wal-Mart and Target started operating, do not exist today.

DISCUSSION QUESTIONS

1. Diversification has been a disaster for K-Mart. It also proved unprofitable overall for Sears when it tried to first branch into, and then withdrew from, industries such as insurance (All State), real estate (Caldwell Bankers) and credit cards (Discover).

(a) Research both companies. Discuss their similarities in failure? What do you learn from these failures?

(b) Why did K-Mart's Pace Wholesale Club not bear fruits, while Wal-Mart's Sam's Clubs are thriving?

2. What strategies (managerial, marketing, and financial) would you suggest to, first, stop KMarts decline vis-a-vis Wal-Mart and Dayton Hudson, and, secondly, to help K-Mart get a bigger market share and better rate of return in the retail industry?

ACKNOWLEDGMENT

The author wishes to thank the Lubin School of Business, Pace University, New York, for its support in completing this article. Special gratitude is due to Jason Taitt, my research assistant, for his untiring typing support.

References

BIBLIOGRAPHY

1 Moody's Investors Service, "The K-Mart Corporation - History and Debt" June 27, 1998.

2 Zimmerman, K.A. "K-Mart Using In-Store PCs To Broaden Product Offerings," Supermarket News, August 3, 1998, p. 13.

3 Standard and Poors Retailing: General Industry Survey, October 22, 1998.

4 Sellers, P. "K-Mart Is Down For The Count And Floyd Hall Does Not Look Like The Man To Get It Back On Its Feet," Fortune, January 15, 1996, p. 102.

5 Rice, F. "Why K-Mart Stalled," Fortune, October 9, 1989, p. 79.

6 Saporito, W. "K-Mart The High Cost Of Second Best," Fortune, July 26, 1993, p. 99.

7 Chakravarty, S.N. "The Best Laid Plans," Forbes, January 3, 1994, p. 44.

8 Saporito, W. "Bloody New Year For Retailers," Fortune, February 7, 1994, p. 16.

9 Saporito, W. "Is Wal-Mart Unstoppable? The New No.1 Retailer Is Headed Toward Decisive Battles With Its Arch Rival, A Smarter, Updated K-Mart," Fortune, May 6, 1991, p. 50.

10 Sellers, P. "How To Cook Up Capital For One: The Real Martha Stewart-K-Mart Story," Fortune, June 23, 1997, p. 26.

AuthorAffiliation

Narendra C. Bhandari, Pace University

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

Volume: 6

Issue: 1

Pages: 6-13

Number of pages: 8

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412282

Document URL: http://search.proquest.com/docview/192412282?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 89 of 100

THE GROUP DYNAMICS OF THE SPECIAL GRAND JURY: ELLEN'S EXPERIENCE

Author: Doolittle, Dorothy C

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns the reflections of one member of a ten person task group. It is designed to facilitate student mastery of concepts related to group dynamics. Secondary issues examined include the interpersonal interactions of the group members. The case has a difficulty level of three, appropriate for junior level courses and higher. The case is designed to be taught in one to two class hours and is expected to require one hour of outside preparation by students.

CASE SYNOPSIS

Ellen is reporting for her first experience with jury duty. She and nine others will learn that they have been selected as the special grand jury. The case examines Ellen's reactions to the group and her observations of the other group members and how they interact. The case provides opportunities to explore different facets of group dynamics in a real setting. The members of the task group, or grand jury, must cope with determining what the correct procedures for the task are (e.g., talking to witnesses and summoning witnesses), work with strangers of different genders, ages, and socioeconomic backgrounds, make an important decision as a group, and learn the norms and rules of a surrounding (the courthouse) that is new to all of them. After three days, the jurors report their findings and are dismissed.

The case is written from Ellen's point of view and her observations are presented in chronological order: Monday, Tuesday, and Wednesday. Information about some of the jurors is sketchy because Ellen did not have the opportunity to talk with them outside the jury room or because they had a tendency to avoid talking about themselves or making small talk.

BODY OF THE CASE

Ellen walked through the metal detector and waited while the sheriff's deputy searched her bag. "I'm sorry, but you can't bring a cellular phone into the courthouse. So, out Ellen went, into the cold, to deposit her cell phone in her car. Back at the courthouse, Ellen went through the detector and bag search with no problems. She found the elevator and made her way through the hallway to the front of the court she was to report to for grand jury duty. Two women, talking with each other, were sitting on the only bench in front of the courtroom. One looked up and asked Ellen if she was there for jury duty. When Ellen nodded, the one slid over on the bench to make room for her. Ellen smiled and the three of them briefly discussed not knowing what to expect and established that none of them had been on any kind of jury duty before. When the deputy walked out, he asked for names and instructed them to follow him. They arrived at a room marked Jury Room 1 and went in. One of the two women asked, "What are we going to be doing in here today?" The deputy smiled and said someone else would have to tell us that. This was the beginning of a new experience for Ellen and the others. The deputy returned with a man. He sat down and the two women started talking to him about jury duty.

The jury room was about 14 feet by 16 feet with an eight foot square table in the middle. The four jurors spaced themselves, but stayed on the same side of the room. The conversation in the room was intermittent, but friendly. The door opened and the deputy escorted three more jurors in and left. The three seated themselves two on the side to Ellen's left and one on the side of the table in front of Ellen. No one said anything. Ellen thought she could try to start a conversation, but remembered that the person who talks first and/or most often ends up the leader (or in this case, the foreman) and sat silently. She felt others looking at her from time to time, but she rarely looked up. Ten to fifteen minutes passed and no one spoke. The door opened and another juror followed the deputy in. The deputy announced that more jurors were expected. When the deputy left, Ellen looked at the man at her left and suggested they all introduce themselves. Everyone looked at Ellen and so she started. She only gave her first name and the rest followed her lead.

When the last juror came in, the deputy stated that they had not heard from the eleventh juror and the judge was ready to start. The jurors followed him to the jury box in the courtroom to be sworn in. The judge asked a particular juror to stand so that she could be sworn in as foreman of the jury. Ellen sighed in relief that it was not going to be her. The deputy instructed them to go back to the jury room. The State Attorney for the city came in and introduced himself. He told the grand jury that they were a Special Grand Jury and that they would be looking at an issue involving a business in the community. The attorney informed the group they had up to 6 months to make a decision about the case. Everyone looked stunned. It seemed that all ten had assumed this would be a one day event. Someone asked, "How do we go about making this decision and determining how long to meet?" The attorney replied, "You're the special grand jury, you decide. There really is no set way for you to do your work." Ellen felt like things were going downhill. She had seen herself and others trying to figure this task out. She understood, and assumed the others did also, that the grand jury would not find guilt or innocence, but would rather decide if there was enough evidence to indict and send to trial. Of course, Ellen was relieved that she wasn't going to have to be party to a murder trial or some such, but she did want some structure. She felt that they had not been given any information on how the grand jury would go about its task.

The attorney offered to help the jury with calling witnesses and questioning them. The jurors immediately took him up on the offer. He also told the jurors that a court reporter would be in the jury room and that all conversation would be recorded unless it was specified as "off the record". Jurors would need to identify themselves for the court reporter before they questioned a witness or made a comment. The earlier special grand juries had assigned themselves numbers and had stated their number before talking for the record. "Let's do that," said Ellen. The attorney left to call the witness to the jury room. Everyone looked around the table at one another, but no one said anything.

The witness entered and the attorney directed her to a seat at the table. When the attorney began with some questions for the witness, Ellen felt more comfortable about the process. He seemed thorough and asked things she was already wondering about. After the jurors' questions, the attorney asked if she had anything she would like to add. This format was followed the entire morning of testimony. Ellen and one other juror asked the most questions. Between witnesses, the jurors just looked at one another.

When someone asked when they could break for lunch, the attorney told them it was up to them, they made their own schedule. Someone said, "Let's go to lunch." There were quiet murmurs of agreement. Dining choices were limited. Seven of the jurors headed to the restaurant across the street. At the restaurant, Ellen sat with two jurors, a man and a woman, and four others sat together at another table. The three ordered and made small talk while waiting for the food. They discovered that they all had had some sort of relationship to the military and they talked about the pros and cons of the weather here and other places they or family members had lived. Ellen talked some about her children. When the female juror asked Ellen if she worked, Ellen replied "Yes. Do you?" The woman talked about helping her husband in his business. Ellen was relieved that she didn't pursue what job Ellen had. Ellen knew that the other jurors would treat her differently if they knew she was a psychology professor. She thought, "This time I just want to blend in."

Back at the courthouse, the deputy came out and led them back through the locked door, down the hallway and into Jury Room 1. Again, the jurors avoided talking. A different attorney from the State Attorney's office came to help them. This man was much younger than the one from that morning and seemed a bit uncomfortable. Ellen wished that the other one had returned and doubted that the afternoon would go as well as the morning. The attorney asked them how they wanted to proceed. Everyone was quiet. Finally one of the male jurors asked if they could see a particular person named on the witness list. The young attorney went out to get the witness. While he was gone, the jurors decided who else they wanted to talk with that afternoon. A few suggestions were made and everyone agreed. When he and the witness returned, the young attorney started with some questions for the witness in a formal manner and Ellen relaxed. He seemed to know what he was doing.

Ellen thought it was a good idea to have numbers to identify themselves to the court reporter. She certainly did not want to have to say her name each time she spoke and she did not want her name to stand out to the many witnesses they were questioning. However, the numbers created a sense of depersonalization for her. She was aware that she actually thought of the more vocal jurors by their numbers rather than by their names. Who knew what the witnesses thought this was all about.

After a couple of hours of testimony, the jurors considered their options. Could they call some new witnesses? Yes. When would they come? When the jurors wanted them tobe here. The foreman told the young attorney who the jurors wanted to talk with next. He suggested that they set another day to see them in order to have time to deliver the summons. The deputy came in and lined them up to leave.

Ellen got there early on Tuesday morning. A deputy escorted her and two others up to Jury Room 1. The juror Ellen had sat with at lunch on Monday was already there. She handed Ellen a small package and told her it was for her son. Ellen opened it to find a model car from the retail store that the woman and her husband owned. Ellen didn't really know what to say, so she thanked her. The woman said she thought it might get Ellen's son interested in models and that would be future business for the store. By 9:30, everyone was assembled. Again, the group sat in silence and the court reporter set up her equipment.

In about fifteen minutes, the attorney from the previous morning came in. Ellen was glad to see that he was back to help them. While she admitted that the young attorney had done a good job, she just had more confidence in this attorney. Today was going to be difficult anyway, they were seeing witnesses that might not have be anxious to testify before the grand jury. The attorney asked in what order they wished to see the witnesses. The jurors decided without much discussion. The morning went by quickly.

Nine of the ten jurors walked to the restaurant Ellen had eaten at yesterday. It was much more crowded than it was on Monday. They waited to be seated and the five women were seated at a long table while the four men were taken to a booth. One of the older female jurors kept making jokes about being "special", referring to being on a special grand jury. The women then began to discuss lunch choices. Everyone talked about the pros and cons of the lunch they had eaten on Monday. The women told a few personal, funny stories, and everyone talked more about their children and their work. Ellen still did not reveal that she was a psychologist. They joked more about the jury duty and made a few off-hand comments about some of the other diners.

Back in the jury room, the jurors went "off the record" to talk about what was expected of them. There was some disagreement about what the jury was supposed to do after they finished listening to the witnesses. When the attorney came in, different jurors asked procedural questions. He told them that they would have to present a written report on their findings to the judge, but that an attorney would be made available to help them. There were other questions, but one witness was still available and it was decided to question him at that time.

When the witness left, the attorney asked when they planned to deliberate and when they planned to write the report. They felt they were all pretty much of one mind, having taken a sort of straw poll after lunch before the court reporter showed up. They felt they could formally reach a decision in a short amount of time. The attorney and the court reporter left for them to deliberate. Everyone looked at each other, and the foreman asked, "What are we going to do?" One juror said what he thought about whether or not the business owner should be indicted and two others agreed with his views. Ellen said she thought the jurors needed to be able to clearly state the rationale for why they were voting in a certain way for the official report. The foreman called the attorney back back into the jury room. She said that the jury was ready to write the report. He looked a bit surprised. He then told them that the attorney that would help them was probably not available on such short notice, but they would check his schedule for tomorrow if that was when the grand jury would like to meet with him. "Not another day!" thought Ellen.

The jurors were put in a different room on Wednesday. Everyone sat in about the same places as they had in Jury Room 1. Ellen felt aggravated that they didn't get the same room they had been using. One of the male jurors asked if they were going to deliberate some more. Ellen was surprised, she had felt everyone had agreed before they left the jury room yesterday. Finally, she spoke up and said, "I thought we had pretty much decided what we thought yesterday." "Right," he replied, "but what are we going to write?" Someone else said, "We should just wait until the lawyer gets here and see what he says." The jurors said a few things about the case and the witnesses while they waited.

After the attorney arrived, it was short work to complete the final report. The attorney left to get the report typed. Again, the jurors were left with nothing to do until he returned. Ellen had been crocheting during the down times of the jury duty. Now other jurors starting asking her questions about what she was making. Some of the men talked about how their wives sewed and did that kind of work. One woman asked about the stitches Ellen was using. The jurors kept getting up and moving around (something that was not done during the previous two days). A few had quiet conversations. One leaned back against the wall and appeared to go to sleep. Ellen realized that this was the most these people had talked to one another about non-jury related matters. The attorney reappeared in about an hour. He said he needed to notify the judge that they were ready to present the report. In fifteen minutes, a deputy came in and said they would be moving back to Jury Room 1 to present the report to the judge. Everyone lined up and followed the deputy down the hall back to the original meeting room. Ellen noticed that everyone went back to the same seats they had occupied on Monday and Tuesday.

The deputy returned to take them to the jury box in the courtroom. The jurors filed out, single file, to the courtroom. The judge asked the foreman if the grand jury had finished the report and she replied that it had. The judge instructed her to hand the report to the clerk of the court, who took the report and handed it to the judge at his bench. Without looking at the report or the decision, he thanked the grand jury members for their service and said, "You are excused." The deputy then opened the door to the jury room and the former jurors filed out of the courtroom. It all seemed rather anti-climactic to Ellen.

"I guess we can go now," someone said. The deputy replied that they were now officially finished. Everyone put on their coats and scarves without saying much. Once more they lined up behind the deputy to go down the restricted corridor. They walked toward the front of the building together, saying things to the group such as, "it was nice to meet everyone." Each walked to the different parking lots alone. Ellen felt that everything just sort of ended. It seemed odd that they had worked together for three days on an important issue, were finally beginning to talk more about personal things with one another, and now were just walking away, thinking they'd never see each other again. "Maybe it's just the psychologist in me," she thought.

AuthorAffiliation

Dorothy C. Doolittle, Christopher Newport University

dolittle@cnu.edu

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

Volume: 6

Issue: 1

Pages: 33-37

Number of pages: 5

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412294

Document URL: http://search.proquest.com/docview/192412294?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 90 of 100

CEEBEE'S FURNITURE OUTLET: A CASE IN STRATEGIC MANAGEMENT OF A SMALL BUSINESS

Author: Earl, Ronald; Thomas, Olga; Kavanaugh, Joe; Reed, Paul

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns making strategic management decisions in the context of a small retail business. Key strategic areas that need to be addressed are the focus of the organization, and organizing and staffing the business. Secondary issues examined include marketing issues such as the right product mix, the right amount of advertising and promotion and the right credit policies. The case has a difficulty level of three or four (appropriate for junior or senior level courses). The case is designed to be taught in approximately one class hour and should require no more than three hours of student preparation.

CASE SYNOPSIS

CeeBee's is an independently operated discounter of furniture and appliances located in Huntsville, Texas. In business almost three years, it has yet to generate a profit. Typical of many small businesses, the operating owner of CeeBee's is currently "all things to all people," attempting to perform too many diverse functions, and as a consequence has lost focus on the strategic growth of the business. Questions must be answered as how to recapture focus, appropriately organize and staff the business, and build operating infrastructure which will be able to support the business as it prepares to move to the next level. The immediate crises the owner faces are a growing burden of receivables, inefficient management practices, and significant under staffing.

INTRODUCTION

As Tom reviews his daily agenda, he looks out at the merchandise from his office in the center of his discount furniture store showroom. To the right of Tom is his accounts receivable bulletin board. Tom posts his delinquent accounts on note cards in one of three columns: zero to thirty days, thirty to sixty days or sixty to ninety days. Tom is concerned about the growing number of note cards in his sixty to ninety day column.

Tom's store has experienced steady growth and is faced with many uncertainties. The following questions race across Tom's mind as he contemplates the store's future. Should the store be expanded to include other product lines such as wide screen televisions? Should CeeBee's open another store in a nearby city? If so, will it be wise to borrow the money necessary for expansion? Would revising or changing the no credit check policy hurt the store financially? How can the new computer be used to improve store operations?

HISTORY

On February 20, of 1995, Thomas Churin and Carl Brandon opened CeeBee's Furniture Outlet in Huntsville, Texas. The name CeeBee's came from a combination of the partners last names. The partners chose Huntsville as a location after looking at several other Texas cities. The main reason for their choice was the low unemployment rate in Huntsville and CeeBee's practice of using verifiable employment as credit for in house financing.

Tom and Carl had been small business owners prior to opening the store. In fact, Tom had a similar discount furniture store in El Campo, Texas. Both men were aware of the elements necessary to be profitable in the discount furniture store business. Tom is the active partner while Carl mainly provides financial support. CeeBee's began as a discount furniture retailer and later expanded the inventory to include appliances.

LOCAL AREA

CeeBee's primary market is Huntsville and the counties located within a twenty mile radius. Huntsville is the home of Sam Houston State University and the headquarters of the Texas Department of Criminal Justice (TDCJ) with four prison units within its city limits. Another maximum security prison is now under construction. TDCJ and University employees make up a large portion of the labor force. The population in 1996 was 56,400 people, which included TDCJ inmates and college students residing in Huntsville. The population has a current unemployment rate of 2.5%. In 1996, 45.5% of the labor force earned salaries that were under $19,999 dollars, 23% earned between $20,000 - $34,999, 15% earned between $35,000 - $49,999, and 16.5% earned $50,000 and over.

Since 1991, Huntsville has experienced 6.59 % growth in the number of households. The addition of new apartment complexes and new college students each year, provides a strong market for discount furniture in the community (see Exhibit 1).

The downside of the Huntsville community is that it is very close knit. Often, community members are more supportive of local business men and neither Tom nor his partner are originally from Huntsville. However, CeeBee's sponsors community organizations like the youth rodeo and boys baseball. CeeBee's is also a member of the Chamber of Commerce.

EXTERNAL ENVIRONMENT

Competition. There are are six furniture dealers and three furniture rental stores in town. However, only two of these dealers carry the same discount priced furniture product as CeeBee's.

Tom faces competition directly from William's Furniture & Gift Shop located across town from CeeBee's. William's Furniture is a family owned and operated establishment that has served Huntsville for approximately three years and also has a location in Conroe, Texas. William's offers its customers variety, options to customize, and lifetime guarantees on all furniture. William's is well known among the community members and college students for the salesmen's willingness to bargain and an atmosphere of high pressure sales. The average price of a sofa at William's is $650 and the price of a mattress is $399. William's estimates that his turnover is three weeks. Like CeeBee's, William's targets TDCJ employees.

The next closest competitor is Adam's Furniture which is located downtown on the square. Adam's has served the Huntsville community for over 25 years and has a large diversified customer base. Approximately one hundred people enter Adam's daily. It is well known for personalized service and a good reputation. Adam's offers low credit requirements and in-store financing like CeeBee's and Williams. Adam's sells all household furnishings including both furniture and appliances like CeeBee's. It carries name brand products and charges slightly higher prices than both CeeBee's and William's. The average price of a sofa at Adam's is $950.

INTERNAL ENVIRONMENT

Location. CeeBee's is located in a small business strip shopping center. The store is visible from Highway 75, a heavily traveled road. This highway contains a large majority of Huntsville's family owned small businesses including carpet and antique stores. CeeBee's has a small sign in front of the store and paintings of furniture on the windows. Also, there is always a display in the showcase window. The store has 5000 square feet comprised of a 3750 square foot showroom and office space and a warehouse in back that Tom uses as a repair shop and an area to receive inventory. CeeBee's has adequate parking and is readily accessible from the highway. Tom likes his location and has expressed interest in buying the building.

Management. Tom believes in the principles of hard work and discipline. He served in the U.S. Navy for four years in Vietnam. After leaving the Navy, Tom worked in construction and traveled extensively for many years. When he returned to the U.S., Tom wanted to utilize his qualities to run his own successful small business. He entered the furniture sales business approximately four years ago and has been working faithfully toward his goal of success ever since.

Tom and Carl are considering opening a second location in a nearby city. They have been researching potential cities but, have not yet found a good location. They anticipate that it will take approximately three years to plan this venture.

Recently, Tom and his wife, Pam opened a Massage Therapy Service located behind CeeBee's. Pam is a licensed therapist and handles most of the operations for the new business.

Personnel. CeeBee's has one part-time employee Brenda, who mainly works Tuesdays, Thursdays and Saturdays. She is a Sam Houston State University student and has been at CeeBee's since it opened. Brenda is the only person who can run the store in Tom's absence. She will be graduating soon. Eventually, Tom plans to have his wife Pam, work as a part-time employee. Pam is currently enrolled in computer courses at SHSU, she plans to use these skills in both businesses. On occasion Carl comes in from out of town and works in the store. Also, CeeBee's uses an outside CPA firm to handle year end audit and filing of federal and state income tax.

Operations. Tom does all of the bookkeeping for the company by hand, including financial statements, customer billing information and receipts. He also does a monthly physical count of the inventory. Currently, he uses twenty different handwritten spreadsheets for his inventory tracking. Tom also purchases all the store's inventory at market in Houston on Tuesday or Thursday when his assistant works. On average, he makes one trip to Houston per week. Tom normally keeps a low level of inventory on hand to reduce expenses and for tax purposes. The county assesses property taxes on a business's inventory and equipment on hand.

Tom estimates that he has approximately 146 customers and record keeping and billing can take a large portion of the month to complete. Recently, Tom purchased a Pentium based Hewlett Packard computer with monitor and a desk jet printer but, he has not learned to use it yet. His wife, Pam, is taking some computer classes and later plans to become responsible for CeeBee's record keeping.

Showroom. The store is busiest early in the month because the majority of customers are TDCJ employees who get paid on the first of the month. CeeBee's has a good repeat business, largely due to Tom's determination to maintain close customer relationships.

CeeBee's carries various discount brands of bedroom and living room sets, mattresses and appliances including refrigerators, microwaves, deep freezers and stoves. The store has some variety merchandise like figurines, rugs, jewelry and a pool table. As an added service, CeeBee's allows customers to order furniture that is not in the store from a catalog. The customer can also choose from over 150 fabrics. The best selling items in the store are living room sets and mattresses. The majority of the merchandise has an average markup of seventy-five percent.

Tom is proud of his store and takes pride in its appearance, and he keeps the showroom very neat and organized. There is a small work area in the showroom that Tom uses to assemble products. The merchandise is arranged in a decorative, spacious manner as opposed to the crowded showroom displays of his competitors. As result, CeeBee's customers can easily browse the store and inspect the merchandise.

Tom does not believe in high pressure sales. When a customer enters, Tom and his assistant let the customer browse the store freely before approaching them. After a sale, Tom prefers that the customer arrange for the delivery of the furniture. In the past, Tom used a contractor to make his deliveries but, problems arose with damaged merchandise. Now he does the deliveries himself for a small fee, however, Tom's busy schedule makes it difficult to arrange deliveries.

MARKETING

Promotion. CeeBee's mottos are "we tote the note" and "why rent when you can buy for less" these mottos emphasize CeeBee's in house financing policy. Tom advertises no credit check and easy payments in his promotions as well. His advertisements appear in the Huntsville Item, the local newspaper; in the TDCJ bucks, a coupon book; in the Spotlight, a free entertainment magazine for county residents and visitors; in TV Guide and on local radio. CeeBee's mainly uses coupons in its advertisements. Tom feels that word of mouth is his greatest advertisement. Tom is an active member of the community which is a good source for him to reach the potential customers.

Price. CeeBee's offers unique services by offering no credit check, in- house financing, low down payments and payment schedules with a maximum of six months. This policy attracts customers who cannot afford to shop at the other local furniture stores, but some of these customers do not make their payments and this has caused CeeBee's to have a high accounts receivable account.

CeeBee's average prices are very comparable to competitor William's Furniture and lower than Adam's Furniture. CeeBee's coupons give the customer discounts off their total purchase. In addition, if the customer chooses to finance their purchase they receive an additional ten percent discount every month that their payments are made on time.

Place. CeeBee's provides the customer with readily available products. The customer can purchase and take home their merchandise in the same day. If the customers orders from the catalog the product is available to them within 5 to 10 days.

Product. CeeBee's primarily sells furniture and appliances and some accessories like centerpieces and lamps. Tom would like to add wide screen television, electronics and entertainment centers because many customers have expressed interest in purchasing them. New products will give CeeBee's a competitive advantage, adding variety to the showroom selection and possibly attracting new customers.

These higher priced products, however, could create risk and problems for CeeBee's. Their purchase would require CeeBee's to borrow to obtain this merchandise, and higher prices may alter CeeBee's image as a discount retailer. In addition, higher prices mean higher customer bills and this could increase the amount of delinquent accounts.

FINANCE

Furniture and appliance retail sales in Huntsville have followed an increasing trend. The whole industry has increased 37.33 % since 1991. In 1996, Huntsville's retail sales for furniture were $7.5 million dollars as compared to $6.2 million in 1995. CeeBee's sales growth over the last two years has been 43.7% per year. Tom attributes this growth to his increased expenditures on advertising by 76% from 1995 to 1996 (see Exhibit 2).

CeeBee's accounts receivables make up, on average, 40% of total sales. In 1995, accounts receivable approximated $56,000. Most of CeeBee's customers choose the six month payment option. Several incentives are offered to encourage timely monthly payments. For example, Tom provides ten percent discounts for on time payments. He also allows the customer to call if payment cannot be made on time. He even has a toll free number for out of town customers to call if their payments will be late. Therefore, these customers can avoid late charges. Tom also has penalties for customers who pay late. For example there is a twenty dollar late fee. Tom also has his new customers list references on the credit application. If the new customer does not make their payments, the references listed on his or her application will lose the ability to have credit at CeeBee's.

Tom often has difficulty collecting some accounts. He treats each delinquent case on an individual basis giving the customer every opportunity to pay their balance. After thirty days, Tom sends a certified letter to the customer requesting payment in full or repossession of the furniture. If the request is ignored, Tom refers the account to a collections agent. If the account is still not paid it is turned over to the Sheriff s Department or District Attorney's office for collection. At this time, Tom posts the name on the past due account on a bulletin board in the office that faces the showroom. This also serves as a deterrent to have an overdue account.

Although CeeBee's has incurred losses of $21,032 and $10,704 respectively for 1995 and 1996, Tom feels that the future looks good for CeeBee's. He remarks, "it's not unusual for new stores to lose money for the first couple of years until they get on their feet."

FUTURE OPTIONS

Tom is very optimistic about CeeBee's future. He believes that his unique service of no credit check, in house financing will continue to draw new customers. In addition, Tom believes that Huntsville has a solid economy.

Tom has considered opening a new store in a nearby town or in another "prison" city like Huntsville. He feels that CeeBee's major target market is TDCJ guards, many of whom do not have credit or have bad credit and cannot purchase furniture elsewhere. CeeBee's has also considered expanding into several lines of appliances including wide screen televisions.

AuthorAffiliation

Ronald Earl, Sam Houston State University

mkt_rle@shsu.edu

Olga Thomas, Sam Houston State University

Joe Kavanaugh, Sam Houston State University

mgt_jkk@shsu.edu

Paul Reed, Sam Houston State University

mgt_prr@shsu.edu

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

Volume: 6

Issue: 1

Pages: 38-46

Number of pages: 9

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412325

Document URL: http://search.proquest.com/docview/192412325?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 91 of 100

THE CITY OF PHOENIX: STRATEGIC MANAGEMENT NOT JUST FOR PRIVATE ENTERPRISE ANYMORE

Author: Hostetter, Glenda S; Watts, Larry R

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case is concerns strategic management in the government sector. Secondary issues examined include evaluating and controlling a government entity. This case has a difficulty level of four, appropriate for senior level courses. This case is designed to be taught in one or two class hours and is expected to require four hours of outside preparation by students.

CASE SYNOPSIS

Local governments found themselves in difficult financial straights during the early 1990's when revenues did not keep pace with expenditures. The Government Finance Officers Association, in league with a number of governmental regulatory associations, set forth a series of guidelines for municipal governments which incorporated many of the strategic management concepts previously applied to private sector firms. A number of state and local governments chose (or were financially forced) to participate in the trial programs. Since the program's inception, the City of Phoenix, Arizona has served as a sterling example of the success that can be achieved when a governmental entity borrows management techniques from the private sector. (Leithe, 1996).

INTRODUCTION

A traditional business-type analysis of the operating environment of any municipal government poses a unique set of challenges. For the most part a city government exists as a monopoly in the areas of service it provides to its citizens. Limited competition in a free market economy makes it difficult to measure the efficiency achieved in the provision of services. Further, the determination of optimal quality of performance is hindered by the involuntary nature of the resources provided; the fact that the majority of a city's resources come from taxes imposed upon its citizens. Consumers purchasing a commercial product can evaluate the quality of the product lines available to them and choose to purchase the one he feels to be the greatest value or the most suitable to his circumstances. The "purchaser" of city provided services has no such option. (Wilson, Hay & Kattelus, p. 7). However, recent trends toward outsourcing and privatization of specific services have made some strides in closing the gap between the public and private sectors. City managers and council members were once hesitant to even consider the option of privatization of services for fear of adding to unemployment woes. Today, those persons responsible for the efficient utilization of a city's resources recognize the necessity for, and general public approval of, making decisions that include the evaluation and consideration of whatever cost cutting measures that might be available. Also, traditional statistical evaluations and financial ratios so critical for evaluating the fiscal soundness and viability as a going concern for a private sector firm are virtually meaningless in evaluating the efficiency of a governmental entity. Public responsiveness and approval and the adequacy of resources required to provide a specific level of services are the criteria by which municipalities are most often evaluated. How an individual city utilizes its resources and the procedures it employs to make utilization decisions are the only factors that truly individualize the strategic management process.

BACKGROUND

While a number of factors in evaluating entities in the public and private sectors differ greatly, many of the basic premises of effective management are the same. A well-run city government must follow the same essential steps in formulating a management plan as any private sector organization.

The first step in the strategic management process is the formulation of a mission statement. While not specifically stated as a "mission statement," the City of Phoenix has issued a "Vision and Values" statement that charges its leaders and employees with dedicating its resources and efforts to providing the citizens of Phoenix with a superior level of seamless public service. ("Seamless Service Mission," 1998). Underlying the mission statement is the inherent responsibility of any city government to provide adequate service in the areas of public health and safety. The City is also dedicated to continuing its long tradition of being among the best run cities in the US, as evidenced by the GFOA awards, and in the world, as evidenced by its receipt of the Carl Bertelsmann Prize in 1993. ("Carl Bertelsmann Prize" 1998).

In lieu of conventionally defined mission statements and the development of traditional grand strategies the City has chosen to develop seven policy statements that define what city management feels is a feasible service level to its citizens. These policy statements are rigorously adhered to and are a part of the employee policies and procedures statement of the City.

* We Work as a Team - Teamwork is the basis of our success. We use cooperation as our first tool in working with others - employees, departments, the private sector. We involve people because we value their commitment and ownership. We view successful performance as a group activity. There is nothing we cannot accomplish together. One unit of the city cannot be successful at the expense of another. Our teamwork and cooperative spirit reaches out to the customer - we include the customer in our team.

* We are Dedicated to Serving our Customers - We succeed by focusing our attention on the customer. The city exists to serve the customer and our community. Their needs give us our direction and purpose. They need to feel and sense our commitment to them.

* We Each Do All We Can - We are the city's most important resource. We are committed. We each have the opportunity and responsibility to develop and use our skills to the highest level. We value diversity. To be successful, we all contribute our ideas and creativity to improving the city. We are proud of the statement our work makes about us.

* We Learn, Change and Improve - We are open to new methods and we listen and learn from others. We correct our mistakes and learn from them. We continually strive to be faster, smarter and better than we were the year before.

* We Focus on Results - Each of us knows the level of our customer satisfaction, our response time in delivering services and the cost of those services. We use information about the results we provide so we can improve. There are times when bureaucracy is a barrier to achieving the desired result. When the rules do not add value, we want to change them to better focus on results and customer satisfaction.

* We Work with Integrity - Whenever we make a decision, provide a service or deal with our customers, we act with honesty and integrity. People learn from interacting with us that they can continue to trust us. We treat all people equally and equitably.

* We Make Phoenix Better - We work to make Phoenix better. Improving transportation, the environment, public safety, educational opportunities and other parts of our community are the reason we come to work each day. It's the reason we want to change and improve. Making Phoenix a better place to live and work is our bottom line. We care about our community. ("City of Phoenix Vision and Values," 1998).

As with any business in the private sector, before specifically forming a strategy for compliance with its mission statement, the city must analyze its internal and external environments in order to develop its plan of action. It is critical that any internal analysis includes a look at demographic trends as a predictor of future demands on public resources and the anticipated levels of those resources. The population figures that, like the US overall, Phoenix's population is growing and ageing.

A unique factor in dealing with a city government is that population growth is a double edged sword. As the population grows so does the potential revenue base, but so does the demand on resources. Additionally, as the population ages, citizens shift from wage earners who contribute to the revenue base to older citizens who place increasing demands on specific city services such as health care and programs designed specifically for seniors. Since this population segment is traditionally on fixed incomes or at a moderate income level, the City's revenue generated by this segment declines as the population percentage increases. Of particular concern related to population demographics is the decline in the percentage of the population that is between 45 and 64 years of age. Historically, this age group is well established in careers and has a greater number of discretionary dollars to spend which would increase its contribution to transaction-based revenues. While at present the percentage decline in this particular demographic is small, it could be of immense concern, particularly when coupled with the increase in the "over 65" percent. Another aspect of concern to City management is the decline in personal income growth. A number of factors could contribute to this decline, including; a general slowing of the economy, shifting of demographic groups which contribute to the income base, and an influx of low to moderate income households. The impact of a reduction in personal income growth once again will be most keenly felt in a possible reduction of the number of discretionary dollars contributing to transaction driven revenues (such as sales tax revenues) and, at the extreme, a reduction in the number of property owners contributing to property tax revenues and a reduction in the amount of revenues the City derives from the State of Arizona as a percentage of personal income taxes. Fortunately for the City, estimated property tax revenues are currently increasing due primarily to increasing property values. Just as private sector enterprise must set specific goals, develop long and short term objectives and develop specific strategies for meeting those goals and objectives, so must a governmental entity develop a specific strategy for meeting the challenges of providing services to a growing population under the constraints of potentially declining revenues and more stringent budget constraints. The City of Phoenix has taken a divisional approach to budgetary formulation, partly by the mandated requirements of fund accounting and partly as a means of applying a "grand strategy" type approach to efficient resource management.

Since the management techniques utilized by the City's management are most clearly reflected in the budget preparation and approval process, the formulation and adoption of a budget can be viewed in the same light as establishing annual objectives. The budgetary process in the City of Phoenix is virtually a constant process. No sooner is one year's budget adopted and put into place than work begins on the next year's budget.

Each year the City's budget is developed in conjunction with the Mayor and council members, citizens, individual service departments, the Budget and Research Departments and the Office of the City Manager. Each fall departments submit an estimate of the costs associated with providing their current levels of service for the following year. Budget and Research staff review the estimates to insure that only those resources necessary to maintain the current levels are included in the departments' estimates. This review process is considered a technical review since it takes a line item approach to reviewing each department's submission. Each winter each department presents a schedule of possible reductions to the existing budget, usually totaling 5-10% of the total budget. The City has adopted the approach of prioritizing each department's service projects and reducing those with the lowest priority, rather than attempting broad based, across-the-board budgetary cuts. This allows services in critical service levels to remain undiminished while reducing overall costs of operation. At the same time each department presents its requests for any new, restored or expanded programs. Such reductions and requests must include all estimated costs for the specific project area, including employee salaries, benefit estimates, costs of operation, equipment, etc. Any new or expanded projects are also rated according to priority. This allows Budget and Research to determine if a lower priority project may be cut or eliminated in order to fund a higher priority project, or if additional funding would be required. City Council is also asked to submit their own ideas for prioritizing.

City Council then rates service-related budget issues. These ratings provide necessary feedback to the City Manager's office to assist them in preparing a trial budget. The trial budget is submitted to the City Council in early spring and is designed to allow community feedback and to enable the City Council to comment on proposed budgetary changes prior to the city manager's preparation of the City Manager's Preliminary Budget, which is submitted to the City Council in late spring. A series of public hearings throughout the community takes place between the Trial and Preliminary budgets. Again, the public hearings provide necessary feedback for evaluating the effectiveness of and public approval for the management techniques employed by the City's management team. The City Council makes its final recommendations one week after the conclusion of the public hearings.

Once the City Council has approved the Preliminary Budget, the City begins a Comprehensive Program Budget Review (CPBR). Again the City management prioritizes specific projects and selects several projects for review. This eliminates the necessity of reviewing every proposed program on an annual basis but is comprehensive enough to ensure that every program is reviewed within a five year cycle. The CPBR is designed to eliminate redundance of service and implement specific management/productivity improvements to reduce costs or improve customer service whenever possible. Since fiscal year 1990-1991, the City has completed budget reviews for all departments and has approved 274 budget recommendations, representing an annual savings of $1.3 million. (City of Phoenix Summary Budget, p. 37).

If one considers each of the fund types, i.e., General Fund, Enterprise Funds, Capital Projects Funds, etc. as divisions of the governmental "corporation" it becomes much clearer as to how specific tenants of strategic management can be applied to a governmental unit.

The General Fund of the City is financially responsible for the areas of Criminal Justice Police and the Municipal Court system; Public Safety - Fire and EMS services and transportation; Transportation - Public Transit and Street transportation; Community Development - Housing programs, Neighborhood Development programs and Economic Development programs; and Community Enrichment - Parks, Recreation, Libraries, Head Start programs, and Senior programs. If the General Fund is treated as division of "City Corporation," then each of the indicated service areas functions as a subdivision of the General Services area.

General Fund revenues are comprised primarily of Property and Sales Tax revenues but contain components of a variety of fees and assessments. These revenues are collectively used to support the projects of the service areas listed above. Each service area and each department therein has its own set of specific program goals and functional strategies for achieving those goals. In this way each City department incorporates the resources, including human and community at its disposal in order to effectively institutionalize its overall management strategy. The individual program goals statement provides guidance for leadership and employees in working toward common goals on a day-to-day basis.

CRIMINAL JUSTICE DIVISION

Expenditures in the criminal justice division comprise 30.5% of the total general fund budget. This division is further subdivided into police services and the municipal court system including the County and District Attorney's Offices and the Office of the Public Defender.

Police

The Phoenix police department consists of more than 3,000 officers and support personnel responsible for protecting a population of more than one million residents and patrolling approximately five hundred fifty square miles. The departments program goals statement defines its purpose as providing the community with a law enforcement system that integrates and utilizes all departmental, civic and community resources for police services and protection of the lives and property of its citizens.

The police department's 1998-99 budget reports an overall increase of 4.5% over 1997-98 levels and comprises 17.5% of the overall General Fund budget. Much of this increase is incorporated into programs designed to retain forty-eight officers and hire an additional one hundred fifty-two officers after federal grants expire in 1998 and 1999. The increase in the number of officers has also led to the necessity of additional civilian staff support, and the budget includes provision for the hiring of thirteen additional civilian staff members. However, at least two of the support positions will be completely funded by a reduction in overtime expenses. Also included are provision for two additional Victim Assistance programs.

Municipal Court System

The Municipal Courts system in the City includes operations of six arraignment, four traffic, and nineteen criminal courts along with their respective administrative staff members, the Public Defenders office with its six-member staff, the Prosecutor's office with its one hundred seventy-seven member staff and supports twenty-eight police officers. The program goal for the municipal court system is to provide speedy and equitable justice to individuals charged with misdemeanors (felony charges are referred to State, District and Federal Courts for adjudication) and encourage respect for law and the administration of justice. Stated separately, the program goal for the Public Defender's office requires the provision of legal representation for indigent defendants in Municipal Court.

The Municipal Courts' operating budget for 1998-99 accounts for 13% of the overall General Fund budget and includes an increase of approximately 5.7% over the 1997-98 budget, and the Public Defender's budget includes a 9.3% increase over 1997-98 levels. The increase in the Court budget includes the cost of transferring lease payments on the Municipal Complex that were previously budgeted in a different department along with normal increases in operating expenses. Additionally, the budget includes provision for the replacement of contract security guards with eleven full time employees in order to provide a more reliable and consistently trained security force. The Court is also in the process of construction of a new physical facility funded in part by General Obligation Bonds. The budget for this facility is included in the Capital Projects Fund budget rather than in the General Fund Operating Budget.

The increase in the operating budget for the Public Defender's office includes the costs of adding four additional court-appointed attorneys and instituting an arraignment court pilot program in an effort to help reduce increasing caseloads and legal costs.

Public Safety

General Fund Expenditures in the area of Public Safety account for 17% of the overall Fund budget. Areas of service by this division include Fire, Emergency Management and Animal Control.

Fire Department

Throughout its long and colorful history, the Phoenix Fire Department has developed a reputation for excellence of service to Phoenix and the surrounding community. The department has responded to more than 28,000 calls in fiscal 1997-98 with a staff of 1,192 authorized sworn fire fighters. While response times have increased slightly over the past two years, the area protected has grown from four hundred twenty square miles in 1990 to approximately five hundred fifty square miles in 1998. The department's program goals outline a commitment to provide the highest level of life and property safety through the extension of Fire Prevention, Fire Control, Emergency Medical and Public Education. The department's dedication to this expression of its goals is evidenced by the number and variety of programs it participates in each year designed to inform and educate the public in the newest techniques of fire prevention and coping with the aftermath of a fire emergency. Further, working in conjunction with Microsoft, Inc., the department has developed an innovative telephone response system designed to get firefighters dispatched to an emergency situation even more quickly.

The department's 1998-99 budget allowance represents only a 3.5% increase in estimated expenditures. Aside from normal inflationary increases, the majority of the budgetary increase is accounted for in the relocation of an Adaptive Response Unit formerly stationed on the periphery of the City back into the central regions of Phoenix where call demand is higher, and the re-staffing of the station from which the unit was transferred. Departmental management felt that it would be most cost effective to place personnel already trained in adaptive response back into a higher volume area than to incur the expense of additional specialized training for new hires. In addition, the department is also budgeting for its share of costs to begin the design of a state of the art 800 MHZ radio system designed to provide uninterrupted radio service in the widely divergent terrain of the Phoenix service area. The 1998-99 budget also includes two new captains and the transfer of two captains from Emergency Medical Services to provide logistical support and coordination of emergency incidents. The additional costs associated will be fully funded by reductions in overtime expense. Two other major projects include one fire prevention specialist to provide support for the underground storage tank inspection program and will be funded by contributions from the Arizona Department of Environmental Quality (ADEQ), and one to support the Development Services Department Annual Facility Review program. The costs of adding this specialist will be offset by additional inspection revenues.

Emergency Management

The program goal as defined by the Department of Emergency Management is to provide the City of Phoenix with the capability to mitigate, plan for, respond to and recover from large-scale community disasters as a result of manmade, technological or natural disasters. The majority of the activities of this department are done in conjunction with a joint project with Maricopa county and twenty other municipalities in the Valley of the Sun. The program is a cost-effective way to handle regional emergency management planning and coordination activities necessary to assure the overall public safety in time of disaster. The program also provides the City staff with twenty-four hour readiness and response capability while avoiding costs associated with duplication of effort.

The 1998-99 budget for the Department of Emergency Management shows no overall increase in estimated expenditures, but provides for additional part-time clerical and support staff.

Animal Control

The Department of Animal Control expresses its program goal as the provision to the City of Phoenix with protection for persons and property from harm by domestic animals through programs of rabies control and leash law enforcement, including licensing and vaccination of dogs, spay/neuter programs, impoundment of stray animals and enforcement of other animal control regulations.

The animal control budget for 1998-99 remains essentially unchanged from 1997-98 levels. The budget retains current service levels while the City negotiates a new service contract with Maricopa County Rabies and Animal Control. Phoenix as well as several other Valley cities contracts with Maricopa County for rabies and animal control. Funding for the service is to be self-supporting to the extent possible based upon animal license and other user fees. When revenue is insufficient, the member cities fund the deficit proportionately based upon population. The departmental budget also includes provision for the continuance of the City's spay and neuter program for pets of disadvantaged citizens.

TRANSPORTATION

The Transportation division accounts for 14.5% of the General Fund budget for fiscal 199899. Service areas in the transportation division include the Street Transportation Department, Aviation Department, Street Lighting and Public Transit.

Street Transportation

The program goal of the Street Transportation Department is defined as planning for the safe and convenient movement of people and vehicles on city streets, effective maintenance of the City's streets, design and inspection of the construction of streets to assure they meet specifications and minimizing street damage through the control of irrigation and storm water.

The Street Transportation operating budget allowance represents a 4.3% increase over 1997-98 operating levels. The increase is reportedly due primarily to the purchase of additional vehicles, inflationary increases and budget carryovers and program expansions. A portion of the expenditure increase is offset by a reduction in insurance expenditures. The budget also adds funding for the purchase from Highway User Revenue Funds of traffic mitigation devices by neighborhood groups and the removal of illegal signs from the public right of way. Street sweeping activities necessitate the purchase of motor brooms and funding is required for contractual dead animal removal services. The budget also adds a position to support technology for street construction, street maintenance and traffic operations.

Street Lighting

The Street Lighting Department's program goal is stated as facilitating the safe movement of people and vehicles on city streets during nighttime hours. Specific projects for the department are primarily concerned with the installation and maintenance of street lights throughout the inner city and subdivisions. The department anticipates approximately 1,200 requests for street light maintenance and the installation of approximately 1,500 new street lights during the upcoming fiscal year.

The 1998-99 operating budget for the Street Lighting Department shows an anticipated increase in expenditure of 2.4% over the previous fiscal year. This increase is attributable to an increase in electrical rates charged to the City by Arizona Power Service (APS).

Aviation

The Aviation Department is committed to providing the Phoenix metropolitan area with a selfsupporting system of airports and aviation facilities that will accommodate general and commercial aviation in a safe, efficient and convenient manner. The department is responsible for the operations of Phoenix's three major Airports; Sky Harbor, Goodyear and Deer Valley including passenger and terminal facilities, ground transportation and air cargo services.

The Aviation Department's 1998-99 budget represents the largest single increase over 1997-98 budgetary amounts with a 16% increase over current expenditures. The increase primarily represents debt payments for various expansion and improvements to new and existing terminal facilities at Sky Harbor Airport, relocation of existing streets to facilitate airport access and expansion, costs of a new air cargo facility, additional vehicle purchases and increased insurance expenses. The budget also adds funding for staffing and contractual services to expand community outreach and neighborhood involvement programs in areas adjacent to the City's airports. It also adds staffing the expanded airport security, fire and mechanical systems while eliminating two vacant duty manager positions.

Public Transit

The program goal of the Public Transit department is to provide improved public transit services and increased ridership in the Phoenix urbanized area through the operation of a coordinated regional fixed route and paratransit bus transportation system. Specific departmental programs include operation and maintenance of the City's mass transit system and an extensive "Dial-A-Ride" program for physically challenged citizens who could not otherwise take advantage of public transportation.

The department's 1998-99 budget shows an increase of 10% in operating expenditures over current levels, but will be partially offset by reduced liability insurance costs. The principal factor in the budgetary increase is the increase in costs of liquefied natural gas and critical computer hardware and software necessary to support the transit operation. The City will also participate in a federally matched project to open a "starter corridor" route from central Phoenix to the suburb of Tempe.

COMMUNITY DEVELOPMENT

Community Development operating costs account for approximately 11% of the overall General Fund expenditures. Departments within this division consist of Developmental Services, Housing, Economic Development, Neighborhood Services and Public Parking Facilities.

Development Program

The program goal of the Community Development Program is the management of the development approval process to insure the construction of safe buildings and compatible site improvements that enhance the urban environment and promote economic vitality. The primary functions of this department include the review and approval of construction plans, site and building inspections and approval and the issuance of building permits.

The budget allowance for fiscal 1998-99 shows an increase in the amount of 4.1% over the 1997-98 operating levels. While normal inflationary adjustments account for a portion of the increase, the major contributor is the addition of two staff positions and the acquisition of related equipment necessary to complete a Residential Design Review Program approved by Council in February 1998.

Housing

The Housing Department is dedicated to providing and promoting diversified living environments for low-income families, seniors and persons with disabilities through the operation and leasing of assisted and affordable housing. The department is primarily engaged in the construction, leasing and maintenance of affordable housing units and providing funding for rent assistance for lowincome families. Among the Department's programs are the Conventional Housing Program and Scattered Sites Program which provide housing units and assistance for single-family dwellings throughout the City.

The department's budget shows an increase of approximately 10.8% over 1997-98 expenditure estimates. A portion of the increase is attributable to inflationary increases and the carryforward of unspent funds from 1997-98. The budget includes a housing program assistant for conducting inspections and consulting services for the department's Wide-Area-Network service which helps locate low-income or subsidized housing. The budget also includes funding for nonprofit housing used by victims of domestic violence.

Economic Development

The Department of Economic Development defines its program goal as creating or facilitating development activities which add or retain jobs, enhance City revenues and enhance the quality of life, including business development in the downtown redevelopment area, Sky Harbor Center and other non-redevelopment areas. The principal projects include the Collateral Loan Assistance Program and the Capital Assistance Program which provide assistance in obtaining small business loans for entrepreneurs wishing to open or expand business in the City and an extensive project to revitalize the Downtown area of Phoenix.

Utilizing the budgetary program classification and prioritizing methods previously described, this department was able to cut its 1998-99 operating budget by approximately 4.5%. The reduction is largely due to a reduction in federal grants funding and includes converting a project manager position to a new administrative aide position which will provide technical support for the departments computers and general office support for its payroll and purchasing systems. This change will result in net savings to the General Fund of $10,000.

Neighborhood Services

According to its program goal statement, the Neighborhood Services Department serves as a focal point for improving the quality of neighborhoods throughout the City. The department, through cooperative planning with neighborhood residents, seeks to preserve good neighborhoods so that they become or continue to be desirable places to live; rebuild and redevelop blighted areas so they become workable neighborhoods; and reclaim areas with rising criminal activities through the Fight Back Program. This department uses General Operating funds coupled with State and Federal grant funds to improve the overall livability standards of the City.

This department's general operating fund budget estimates for 1998-99 indicate an overall increase of 63.2%. This figure is misleading however, due to the fact that the 1998-99 base reflects prior years' carry forward of unspent grant funds and the 1998 allocation of HOME and CDBG grant funds. The actual increase to General Fund Expenditures is approximately 40.1% which includes prior year's carry forward for the Fight Back Program and several high priority service enhancements. Service enhancements funded in the 1998-99 budget include the replacement of expired federal funding and the continuance of a neighborhood specialist position to assist neighborhoods with maintenance and revitalization efforts. The position functions as a liaison among business interests, neighborhoods and the City. An additional neighborhood specialist position will be created by reclassifying and existing administrative support position. The budget also includes the addition of one accountant's position to manage the financial oversight of federal grant monies.

Public Parking Facilities

The Public Parking Facilities program provides for the construction and maintenance of public parking garages for the use of patrons and the public staying at Downtown hotels, visiting museums, city parks and other Downtown activities and businesses.

The 1998-99 operating budget calls for an increase in expenditures of 14.3%. The increase is primarily due to an increase in capital outlay to begin painting two garages, and increase in the parking management contract, (offset by additional revenues) and normal inflationary increases.

COMMUNITY ENRICHMENT

The Community Enrichment Division accounts for approximately 27% of the General Fund Expenditures. Principal areas of service by this division include Parks ans Recreation, Libraries, Sports Facilities, the Civic Center and Human Services.

Parks and Recreation

The Parks and Recreation Department's program goals are to provide and maintain a diverse parks and recreation system available and accessible to all which will contribute to the physical, mental, social and cultural needs of the community and permit outlets that will cultivate a wholesome sense of civic pride and social responsibility. The department is responsible for the oversight of a number of city owned parks, recreation trails, city swimming pools, municipal golf courses and the After School Recreation program. It is directly responsible for grounds keeping and staffing a total of seventy-six sites throughout the City.

The department budget for Parks & Recreation (including Golf Services) shows an increase of approximately 8.1% over 1997-98 levels. The increase is the result of service additions and expansions and several staff-identified changes. The budget estimates allow for the addition of several grounds keepers, park rangers and gardeners to operate and maintain new and expanded recreational facilities. The budget also adds funding for staff to begin developing a Desert Preserve Plan and related boundary, vegetation and archeological studies. In addition, funding is available to replace federal funding dedicated to a program to remove gang-related tattoos. The budget also allows for completion of remodeling projects for the City's municipal golf courses.

Libraries

The City's Library Department's program goal is to provide information and resources that are relevant and responsive to the intellectual needs and interests of the community. The City's libraries serve over 3.3 million people annually with a staff of approximately 350.

The library budget for 1998-99 is 8.8% greater than estimated expenditure for 1997-98. The increase is attributable largely to the restoration project for the Central Library, expansion of branch library hours and expansion of library resources. The department will be providing approximately 890 service hours per week at the Central and branch locations. This expansion led to the addition of sixteen additional staff members.

Human Services

The Human Services Department program goal statement charges it with providing a wide array of services that promote the economic, physical and social well-being of residents by promoting self-sufficiency. The Department is specifically involved with such programs as "Meals-On-Wheels", Head-Start, various senior and community service programs and Employment and Training programs.

The Human Services operating expenditure estimates for fiscal 1998-99 are 2.7% less than the estimates for fiscal 1997-98. The variance reflects one-time grant funding for JTPA programs but allows for the addition of a registered dietician for senior nutrition programs.

CONCLUSION

While the budgetary process and program goals effectively deal with annual objectives and establishing policy for the "divisions" of Phoenix's city government, specific long-term objectives are outlined in the City's Five-Year Capital Improvement Program. This program outlines specific longterm projects by department and summarizes the funding sources for each. For example, the current five year program includes $260.3 million for major improvements at the City's three airports. These projects are to be funded by Aviation bonds, federal funds and passenger facility charges. In the area of Community and Economic development, non-profit bonds will be used to finance Civic Plaza improvements and the construction of additional parking garages. Fire Protection Bonds will be used to complete an Operations Center and to finance the construction of two new fire stations. (Five-Year (1997-2002) Capital Improvement Projects, 1998)

The final step in the evolutionary process of strategic management is evaluation and control. The process of strategic management is dynamic and must continually be evaluated and adjusted as necessary. Long terms objectives previously stated may not remain feasible due to both internal and external environmental factors. The City of Phoenix employs a constant budget oversight program to assure that expenditures are kept in line with budget estimates and that adequate resources are maintained to provide requisite services to its citizens.

References

REFERENCES

Books

Wilson, E. R., Hay, L. E. & Kattelus, S. C. (1998). Accounting for governmental and nonprofit entities (11th ed.). New York: McGraw-Hill

Print Articles

D'Alessandro, G. (1994 February) "Local government deficits," TheCPA Journal, pp. 40-44. Eagle, K. S. (1997 June) "Contract monitoring for financial and operational performance," Government Finance Review, pp. 11-14.

Leithe, J. L. (1996 June) "Managing for results: advancing the art of performance measure," Government Finance Review, pp. 40-42.

Sharp, T. (1997 June) "Privatization or managed competition? The Fort Lauderdale experience," Government Finance Review, pp. 15-18.

Thai, K. V. (1997 June) "Local government financial emergency: the case of Miami, Florida," Government Finance Review pp. 23-25

Welsh, S. (1997 December) "Hitting the mark: communicating outcomes to the citizens," Government Finance Review, pp. 13-15.

Government Documents

City of Phoenix. (1998) Summary budget, 1998-99.

US Census Bureau (1994) A perspective on low-wage earners

US Census Bureau (1998) Immigration, outmigration and Net migration for metropolitan areas: 1985-1997.

Electronic Articles

City of Phoenix 1997 annual citizens reporthttp://www.ci.phoenix.az.us/CITYGOV/anrptidx.html

City Statistics http://www.ci.phoenix.az.us/CITYGOV/stats.html

GFOA Budget Awards http://www.gfoa.org/awards/budget.html

GFOA CAFR Awards http://www.gfoa.org/awards/cafr.html

GFOA Finance Awards http://www.gfoa.org/awards/finance.html

Five year (1997-2002) capital improvement program http://www.ci.phoenix.az.us/BUDGET/summcip.html

Managing for results: the path that Phoenix has followed. http://web7.searchbank.com/infotrac/session/574/346/335842w7/lllxrn_16

Managing results:initiatives in select American cities, http://www.magi.com/~godbout/Kbase/metral.htm

Phoenix Vision & Values http://www.ci.phoenix.az.us/CITYGOV/vision.html

Phoenix Fire Department history http://www.ci.phoenix.az.us/Fire/history.html

Phoenix Municipal Court Fact Sheet http://www.ci.phoenix.az.us/COURT/courthse.html

Phoenix's Commitment to excellence http://www.ci.phoenix.az.us/BUDGET/summcomm.html.

Seamless Service Mission http://www.ci.phoenix.az.us/seamless.html

Watching Phoenix rise: city employees improve work/life, http://web7.searchbank.com/infotrac/session/574/346/335842w7/111xm_3

Who pays for growth in the City of Phoenix: an equity-based perspective on urbanization.http://web7.searchbank.com/infotrac/session/574/346/335842w7/111xrn_2

AuthorAffiliation

Glenda S. Hostetter, Duke Energy

gshostetter@duke-energy.com

Larry R. Watts, Stephen F. Austin State University

lwatts@sfasu.edu

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

Volume: 6

Issue: 1

Pages: 70-83

Number of pages: 14

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412337

Document URL: http://search.proquest.com/docview/192412337?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 92 of 100

WENDY'S: WHERE'S THE BEEF?

Author: Johnson, Marty; Marlowe, Stephanie; McGraw, Patrick

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns marketing. Secondary issues include management and entrepreneurship. This case is designed to be taught in approximately three class hours, and is expected to require approximately three hours of outside preparation by students depending upon the depth of the analysis.

CASE SYNOPSIS

Wendy's, one of the fastest growing Companys in the fast food industry, has performed with great energy from its birth until the mid 1980's. Now, since the retirement of its founder, Richard David Thomas, the company has experienced financial difficulties. This leads to the question, "Should Wendy's bring Dave Thomas back to help recuperate from its losses and regain its leadership position in the fast food industry?" If Dave is to return to the company, "In what capacity should he be brought back?"

DAVE - THE EARLY YEARS

Born on July 2, 1932, in Atlantic City, New Jersey, Richard David Thomas never knew his birth parents. Rex and Auleva Thomas of Kalamazoo, Michigan adopted 'Dave' when he was six weeks old. Unfortunately, Auleva died when Dave was five years old causing them to move from state to state during his childhood as Rex sought work.

As a result of constantly moving during his childhood, Dave began to find himself without roots or a sense of belonging. Instead of books or new friends, Dave retreated to work as his place of refuge. He also found enjoyment in going out to eat in restaurants where he could see families dining together and enjoying the friendly atmosphere. Early on, because of such pleasant experiences, Dave began dreaming of having his own restaurant where families could sit together, enjoy a great home-style meal, and return again and again (Corporation, 1999).

Delivering groceries in Knoxville at the age of 12, Dave was fired from his first job over a misunderstanding with his boss about his vacation. Dave was fired from his second job as a soda jerk at Walgreen's because his boss found out he wasn't 16 years old. At the age of 12 and on his third job, Dave finally found his refuge with the Regas brothers. He worked diligently behind the counter at the Regas Restaurant in Knoxville on 12-hour shifts and became like family as the brothers provided him with an encouraging and caring mentorship that lasted a life time (Thomas, 1992).

Following another move at the age of 15, Dave found full-time work at the Hobby House Restaurant in Ft. Wayne. As Rex and his stepfamily planned for yet another move, Dave decided against the move and rented a room at the local YMCA. Decidedly, Dave's biggest mistake was when he quickly determined that he would drop out of high school to work longer hours. Dave wanted a hands-on education to learn more about the restaurant business (Corporation, 1999).

At the age of 18, Dave joined the army to avoid being drafted and became one of the youngest soldiers to manage an enlisted men's club. Reaching the position of sergeant at the age of 18, Dave held fast to six secrets on serving yourself while serving your country-or anyone/anything else: 1. Don't be afraid to volunteer, 2. Take a little initiative, 3. Make your own job bigger, 4. Mine the "gold" out of the garbage, 5. Find ways to be an entrepreneur, 6. Help improve morale. After coming home from the service, Dave was excited to return to the Hobby House where he met Lorrain and later married her in 1954 (Thomas, 1992).

Dave and Phil Clauss opened a barbecue restaurant in 1956 titled The Ranch House. There, he met Colonel Harland Sanders, one of the greatest influences of his life and the founder of Kentucky Fried Chicken. Clauss purchased a KFC franchise from Sanders and by 1962 owned four. Promising 45 percent of the business if Dave could turn the four failing chicken carryouts around, Clauss gave Dave a great challenge. Dave realized the restaurants needed focus and cut the 100-item menu to focus on chicken and side items. Adding the bucket of chicken logo and making trades for advertising time with the buckets for radio time, the restaurants started to prosper. Beginning to prosper, four additional restaurants were added and in 1968, Clauss sold the restaurants back to KFC, making Dave a millionaire at the age of 35. He then joined the KFC parent company as regional operations director. At this point, Dave still could not shake his gut instinct that America needed his dream of old fashioned hamburgers (Corporation, 1992).

WENDY'S - THE EARLY YEARS

Dave opened the first Wendy's on November 15, 1969 in Columbus Ohio. He had named the new restaurant after his daughter Melinda Lou, nicknamed "Wendy". The menu at this first store was simple and limited. Fresh, made-to-order hamburgers, chili, French fries, soft drinks, and the, now famous, Frosty Dairy Dessert reigned the original menu because Dave did not want it too broad. The second Wendy's opened in 1970 and featured a pick up window, a new idea in the industry. Dave opened several more stores in the Columbus area and let his children manage them (Corporation, 1999).

1972 became a milestone for the restaurant chain because the first Wendy's franchise became available for sale. Dave became a pioneer in the franchise industry for his idea of selling franchises for entire cities and parts of states. In 1972, Wendy's also established it manager training center to help develop skills for managers and owners. With this new vision, the Wendy's operation took off. More than 1,000 stores opened in the company's first 100 months of operation. In 1974, Wendy's had over $25 million in sales and their net income in just 5 years had reached over $1 million (Thomas, 1992).

In 1976, the company established an international presence with the opening of their first store in Canada. By 1980, more than 2,000 Wendy's were in operation and making profits. The company was thriving. In the early 80's, Dave decided he had had enough of the trials of work and groomed another CEO to take his place. With Dave not leading the charge of the company, it started on a steady decline for the next few years. The fate of this Cinderella company now held in the balance (Corporation, 1992).

WENDY'S FINANCIAL TROUBLES

After Dave Thomas stepped down as the chief executive officer, the company continued to grow each year until the middle 80's. Trouble began in 1985 when the company posted revenues of $1,125,617,000.00. This revenue posted a net income of $76,191,000.00. This amount was not the targeted amount for the year, but the company was satisfied that they had posted a positive income for the year. Things continued along the same path for the company in 1986. Revenues were up 1% this year to $1,139,852,000.00. The real trouble began when the company posted a negative net income of $4,926,000.00 (Barney, 1987). The company did not begin to realize the trouble they were facing. In 1987, for the fourth year in a row, revenues fell to $1,058,557,000. For the second year straight, the company posted a negative net income of $4,505,000.00 (Barney, 1988).

Where could these problems have came from so quickly? It is the by far popular opinion that the company tried to grow too quickly, leaving behind the vision and beliefs that the founder had created and sculpted in order to make the business a success. The consecutive losses made the company stand up and take notice that something was going on and the problem had to be fixed quickly.

Rumors were circulating that Wendy's had fallen so low that they could not recover. Things improved for the company in 1988, when revenues went up .4% to a high of $1,062,615,000.00. This boosted the net income also and for the first time in two years the company posted a positive net income of $28,492,000.00. This was great for the company, because they were getting back on the right track. Revenue in 1989 was up .7% to $1,069,697,000.00. Moreover, for the second year straight, net income was positive. The net income in 1989 was $30,423,000.00 (Near, 1990). Figure one shows the rise and fall of revenue of the company, and figure two shows the rise and fall of net income.

CONCLUSION

Wendy's is now in trouble since the founder, Dave Thomas, went into retirement. As the data above clearly states, the company is in a current state of rebuilding. As a part of this rebuilding effort, should Dave be brought back into the company? Upon possible return, what role should he take?

POSSIBLE ANSWER

Dave agreed to appear in a few Wendy's commercials as the company spokesman early in 1989. These series of commercials, with the addition of the new Super Value Menu, sets the stage for the Dave Thomas campaign to begin around April. Dave portrays the homey style of advertising that makes him one of the nation's most recognizable spokesmen. Dave emerges from Wendy's advertising campaign as an American folk hero. His honesty and old-fashioned values shine through and solidifies his popularity (Near, 1990).

References

REFERENCES

Barney, R. L. (1987). 1986 Annual Report to Shareholders, Wendy's International, Inc., February 17, , 1-39.

Barney, R. L. (1988). 1987 Annual Report to Shareholders, Wendy's International, Inc., February 15, 1-24.

Corporation, Southern Hospitality. Untitled, Wendy's International Corporate website, www.wendys.com, March 4, 1999.

Near, J. W. (1990). 1989 Annual Report to Shareholders, Wendy's International, Inc., February 19, 1-27.

Thomas, R. D., R. Beyma, M. M. Gelpi. (1992). Dave's Way, New York: Berkey Books.

AuthorAffiliation

Marty Johnson, Western Carolina University

Stephanie Marlowe, Western Carolina University

Patrick McGraw, Western Carolina University

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

Volume: 6

Issue: 1

Pages: 84-88

Number of pages: 5

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412347

Document URL: http://search.proquest.com/docview/192412347?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 94 of 100

DO YOU TAKE THIS MAN TO BE YOUR LAWFULLY WEDDED BUSINESS PARTNER?

Author: McCullough, Mike

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case is that of work-nonwork issues, specifically as related to the life of an entrepreneur. That being so, the case should be useful in entrepreneurship, small business and innovation courses, as well as organizational behavior courses. The case would probably be most useful to college seniors or graduate students, since experience both in the classroom and working, would enhance discussion about issues having to do with marriage and family as they relate to business management. The students should have read the case before coming to class, which should take no more than thirty minutes, if the case elicits good conversation, I would imagine in-class coverage should be given an hour.

CASE SYNOPSIS

Would you merge your small business with another, if you knew the owner/manager of the other business had been married four times and was currently divorced? Would you be fearful that whatever had caused him to be incompatible with his previous wives, would surface between the two of you? Or would you assume that his attention to business had been a contributing factor to his failed marital relationships, and therefore you as a partner would be safe? After all, his customers love him and he "works a case to death."

The case will take you through interview sketches that will offer insight into The Thompson Group and especially Jim Thompson. Of course, there is also Thompson's point of view to consider. What if you were the more successful and experienced of two businessmen, and the other approached you with the prospect of a merger? What would go through your mind? Would you say I do?

INTRODUCTION

What follows is an account of one man's experience as an entrepreneur. There is no particular reason to draw specific conclusions from his life to those of others who have stepped away from the world of big organizations to run their own business. The case delves deeply into Jim Thompson's life story, and then asks the reader to appraise Jim as a business associate, by bringing up the prospect of a merger with another firm. Here it is.

THE THOMPSON GROUP

The Thompson Group solicits and services bonds that cover relationships between contractors and business owners, owners and their property, or businesses and their customers. For example, in the case of a construction contract, if the job is not completed on time or in a satisfactory manner (as specified by the contract), the bond covers the amount of penalty owed to the party buying the contracted services. The Thompson Group manages risk. They also handle a small number of personal insurance policies, but most of their business is commercial.

Located in Jackson, Tennessee, on the South Side of Carriage House Drive in an office park which looks more like mid-scale, one-story, wood-sided apartments (their building is green, others are pink and gray), The Thompson Group occupies what would be a spacy four bedroom apartment. The four offices (not really bedrooms) are nicely appointed with furniture and pictures. Jim's office is in what might otherwise be a large dining room-den combination.

Jim Thompson, owner of the business, invited me out to "help us get a little more organized". When I met with him on July 22, 1997, we met in the break room just off his office, behind closed doors. He tended to some details before our discussion, which gave me a few minutes to observe how tastefully the space was planned, how it invited feelings of security (appropriately low risk), nothing accidental or wrecklessly thrown together. I noted that noise was not a factor, although work was already being done at 8:30 AM. If you can predict the tone of a discussion from the surroundings, ours would be pleasant and interesting.

We began with personal and business history. In fact, I had started with another, much less introductory question, (something like what type of insurance do you sell) and Jim asked me if I did not want to know a little of the history of the business. I chided myself privately for not asking the history question first, and said yes, of course, I think we should address history first. The consultant was already behind the client by one piece of insight.

At this point I would like to draw your attention to something that occurred to me as I worked my way through the interviews of all five employees. Please think about it with me, that within Jim Thompson's life/career (really inseparable), one can trace the sociological (or at least demographic) history of West Tennessee since the 1950s, and perhaps more of the United States as well.

Jim bought a fledgling personal insurance business from his brother in January of 1980. At the time of this purchase, Jim owned a convenience store and raised hundreds of acres of cotton. One day in late 1976 a man came into the store and asked Jim if he would sell the business. Jim had owned the store for about three years. He was surprised by the question, but the offer was good, and sure enough, Jim did sell the convenience store to this customer in January of 1977, for $23,000.00.

Jim took the money from the sell of the store and bought his brother's insurance business, knowing nothing about insurance. But he made a success of the business through hard work and moving away from personal toward commercial business over the years. In October of 1993, he opened his business in Jackson. Between '93 and '97, the dollar amount of insurance written had grown from 1.5 million to 3.5 million.

I was intrigued with how a 400 acre cotton and bean farmer could own a convenience store at the age of 26, sell it for a handsome profit at age 30, buy and turn a weak insurance business into a profitable one, and do it all without financiers.

So we went back further in Jim's life to when he was thirteen. That was the age when he bought his first tractor and started raising his own cotton on twenty rented acres in the Trenton, Tennessee area. By the time he was a senior in high school, he had a much better tractor (a $10,000.00 one) and was farming many more acres of cotton. He worked out an arrangement with the school (I laughed when he first said this, but he was not kidding) whereby he went to school half a day and worked his crops the other half during growing season.

His agriculture teacher when he was a high school junior, assigned grades on the basis of how many farm animals the student kept. If you had a pig, you got a C, if you had a pig and some chickens, you got a B and if you had pigs, chickens, and cows, you got an A. Jim made straight A's, since besides his crop farming, he also raised animals to sell.

But the new agriculture teacher, who arrived Jim's senior year, did not care how many animals you had. Besides that, the school had decided to combine Agriculture class with Shop. As a final exam, this new teacher made you rig up a circuit board that if wired properly, caused several lights to come on. Jim said, "When I touched the wire to that dry cell, not a damned light came on." Jim said, he got a C in Ag and Shop, despite the fact that he made more money that year than the teacher did.

Prior to buying the convenience store, Jim had divided his time between farming, managing the IGA grocery store in Trenton, fathering a son and a daughter, and husbanding his first wife. It does not seem out of line to surmise that Jim was always a person for whom work was important. On occasion, it could be argued, work has come before his family responsibilities, especially that of the role of husband.

Jim married right out of high school and had a child when he was twenty and another when he was twenty-two. I asked him about his marriage, and he said he had been married four times, and he had to assume that "none of the women were partial to a hard worker". He said, "I'm not good at that," referring to marriage.

I asked him if he should shoulder all the responsibility for the failed marriages and he shrugged. Later, his son Chuck told me he thought his father had gotten some bad apples.

Jim said he had always had a good relationship with his children, who work for him. Someday, he intends to give the business to them. Kari, he said, has his work ethic, and Chuck, who is a carbon copy of Jim, recently finished his business degree from Middle Tennessee State University.

We turned our attention to the insurance business he now runs in Jackson. His staff of four consists of Diane Ford, CPA, who handles all the accounting; Amanda Markom, who did external sales (she quit a few months after our interview); Kari, his daughter, who works the accounts from paperwork, to phone calls, to quotes; Chuck, his son, takes care of the remaining personal insurance accounts and as he puts it, gets what Kari does not decide to take, of the other accounts. Jim said he had a temporary person answering the phone, but that he had recently decided not to retain her services. He feels good about the number of people on his staff.

THOMPSON GROUP POINTS OF INTEREST ABOUT JIM

Jim might be a workaholic (if not the other kind). He is resourceful in the area of customer service. "We service a contract to death", he told me. "We'll stop what we're doing, to help somebody with any little thing". The business is financially sound, with little debt to speak of. In 1997, they wrote $3.5 million in commercial insurance.

Eight to ten contracts are about $100,000 each and the remainder are from $30,000 to $50,000 each. Jim says they treat each customer the same. The first year in business, they wrote only $364,000 of business. They almost gave up at that point. They remained small for years, then moved south to Jackson in 1993. That year they wrote $1.7 million. By 1996, they were at $3.2 million.

Jim talking about Jim

The commercial insurance business is becoming increasingly competitive due to sheer numbers of companies. Worker's compensation is part of the business, but it pays nothing. The rest of business pays from 15% to 20%. Thompson is the second largest writer of commercial insurance in town. The larger agency sells $6 million a year. They have been in Jackson for 40 years.

They tell me I am a slave driver and maybe I am, I don't know. I work 60 to 80 hours a week, take no vacations to speak of. I go to the river on weekends, take files to my cabin. None of the other employees take work away with them from the office, so I suppose I am the slave I drive. Everybody else works 8 to 5. Kari (his daughter) works about 7:30 to 4 PM to be with children.

Another consultant suggested that we add a little structure, by having weekly staff meetings, but we quit having them pretty soon. Kari has personality, Chuck is more inward, like me. Diane, the accountant, knows everything about the business financials. She is really the only one who does. Diane is the executor, if anything should happen to me.

The biggest complaint you will get from Diane, Chuck and Kari, will probably be my moodiness; bad mood, stress service, service, service. But hey, their profit share plan is 15% of salary at the end of each year.

Family problems have not tended to interrupt the business, but I may not know them all. To my knowledge, there are no long-standing personal grudges. It is part of the agreement that if they sell, whomever buys will keep Diane.

The business has been positively influenced by Jackson's growth, by a good reputation and a lot of referrals. Contracts cover about a 70-mile radius. We need to be able to get to each in two hours or less. It is not really that necessary to get out of the office and see the customer, the phone is okay, of course, 250 thousand dollar policies are hand delivered. We recently spent $60,000 on a new computer system-looking at a 5 year payoff.

I want to be a better people person. I am disorganized. Somebody could study our piles to see how our business works. The only thing I have done for myself is to take trips to Hawaii and Aruba in the last few years. I am not a tourist type.

My relationships with women have sucked. I married for the first time at age 18, was going to be a farmer...and my number never came up for the armed service. I read the Reader's Digest, or Lewis Grizzard. My real hobby is my woodworking shop at home. Chuck (his son) likes to fish. I am looking at the possibility of purchasing a new boat.

I have a little network of friends. One man is single, the others married. As far as religion goes, I had Baptist parents but I am personally turned off to religion. I look for a long healthy life. There is no family history of heart problems. I think about dying young though. This business could not survive without me. My dad died at age 72. My children do not look beyond this business. They have no ideas of changing occupations.

One problem in this business, is you can get stale, if you get tired of claims. You need to stay innovative, so this does not happen. At Christmas, we will smoke about 125 hams and hand deliver them to our customers. I am a people person, but not necessarily when it comes to managing them.

We have top out parties. We bought the food for one client when they threw a party to celebrate finishing construction on a Fedex project. I enjoy doing that sort of thing, and I would like to do more. We did a secretary's day luncheon and had 27 or 28. We rented out the fairgrounds and did it up nice. We did this, really, so we could get information about new certificates of insurance. The secretaries know this information.

THE REST OF THE THOMPSON GROUP

Sketches from my interview with Amanda Markom

She started her career, some fifteen years before, with Brassfield Construction, a general contractor. She had done a lot of area travel attending civic organizational meetings. Then she worked for Markum a subcontractor, spending the first two years in the office and after that travelled to job sites in Jackson. Then she was with C & W Manufacturing for 2 years. They had a work force of between 150 and 200. She did training for them, along with travelling to establish banking relations.

I asked her what the Thompson Group is doing well and she said their timing in coming to Jackson was perfect, given the phenomenal growth of contractors working here. Majority of business has been walk-in as opposed to being "rounded up". Larger contracts have been gotten. We have had trouble with new generation wanting to have business handled locally not in Memphis or Nashville, Jackson is their home. Future growth will not be as dramatic, maybe this will be healthier, as Thompson can then cultivate stable business. Thompson is relatively new, and will need to prove themselves over the long haul.

Threats? Decision must be made by Jim and children, can we handle the growth or are we satisfied where we are, should we hold back on growth. We must set a direction and go for it, before current business is hurt. There is no consistency in the way accounts are handled. As a person who was once a customer, if five are working on the account and one does not know what the other four are doing at a given time [that is a problem]. There needs to be regular communication, and currently we have zero.

Do you get along well with one another? That is the only way to do business. There is not a genuine understanding of job duties. Jim admits he is not a people person and gets some enjoyment out of being the way he is. He is moody and he can be a yo yo of emotions on a daily basis. The other four of us desire life outside company...work has become 100% of his life and this makes it difficult. The rest of us could not survive if we did not pull together. There is a lack of understanding of one another's functions. It's easy for Diane being in accounting. Do I understand Chuck's role? Let's just say his role is not defined as well. Kari lets everyone know how much she does. Diane and Kari do not know what Chuck does.

Health and life insurance are difficult to understand and frustrating...you are dependent on the information the company gives you. You must get information from each one of these people, then Chuck gathers what he can sends it into a carrier, and then they start calling in individually, 40 or 50 and then you may not get the business anyway. It's easy to say that he is not as actively snowed under as I am. His is a different personality, he is a different person.

No one's job is more important than the others. It takes all the pieces to put the puzzle together, to make things work. It is easy for others to complain about what others are doing and in some cases this is from a lack of understanding of what the other person is doing.

Are your responsibilities ambiguous to you? Don't know (great response). This has a lot has to do with the way I was brought in, and with the fact that one day his intentions are one thing and the next day they are another. In the beginning when Jim and I talked about the company, it was about developing new programs to reach out for more business. Jim led me to believe it was important for others to understand why I was being brought in. I then found out another side. Diane was uncertain as to why I was here and whether business was being brought in. She, Diane, was not involved in the hiring decision as Jim said she was. We have started doing safety programs for companies. We have brought in clients who were stable with other companies for 30 years. We have made promises that we were going to do programs, but then we have said we will not do those things. Today I might be able to do that and tomorrow maybe not. More and more Jim has said he would like to pull away from programs and do door-to-door to the construction industry. Construction companies do not want to see an insurance agent coming.

In previous jobs I have been given the opportunity to show people what would work and what would not. Maybe from the accounting standpoint they are here to crunch numbers and not to get business, then you add the difficulty of bringing in stable business. The children have a better understanding of this. The market has been wide open and continue to be so... Our agency does not have accessibility to market as older and larger contractors.. We are limited somewhat in our ability to penetrate markets. This creates a great deal of job insecurity for me...I don't know if it is paranoia or not... I am not sure that Jim likes what I do... My strength comes from what clients tell me. I am only permitted to be involved in certain areas. You may be permitted today and not tomorrow. I am not a door-to-door salesperson... the role had been portrayed to me as one where everybody worked as a team,

[here my notes become fragments]

My new understanding has been that there was another side to my being hired and it created an uneasiness for other people... Diane has on more than one occasion spoken to me about wages. She feels like that for the weight of her responsibilities, because she is an accountant she should get more, she may be fueling him or he fueling her (against me)... She may be volunteering information or he may be volunteering information to her... Because of the frustrations of what I may be involved in today or not.

Jim is a workaholic... he knows that I have been a hard worker... my daughter has had brain surgery, my father open-heart surgery, 28 year old stepson has diabetes Type I juvenile... Daughter is 29 and is doing okay... God has been good.. Oct. '95 to May '97 this has occurred. Have used every day of vacation and sick leave I have for other people... my mind has been away and not here... but I know my family comes first... but Jim wants me 100%... [there are evening meetings and preparation time that I am sometimes not given credit for]... I don't know that because of the way things turned out at the beginning if things can ever be fixed... stepson is single so he needs someone. ..I respect that he has a mother, but she cannot always be there...

Despite this, we have accomplished some things. I have made myself feel that I have done some good. Lack of understanding of safety programs... requires time to develop a program... they cannot always be done quickly and cheaply.

It is important to understand people's characteristics.. we are not given the opportunity to understand. Jim's background is more one of controlling and that can be a stumbling block... to grow one person cannot handle all things himself. .trust empower others... we are not allowed to point out things...

Under total change in life circumstances... I am not sure I would do things differently because I don't believe I have done the wrong thing... don't know if our son will live or not... but even through that, I feel that I have a good plan of work... If and when Jim makes a change... he will be a different salesman for the business... Jim drinks a lot after hours... he is a different man when he is like that, actually easier to get along with,.. he talks a lot when he is like that... when something is said to one person in Jackson it travels quickly... he has made comments about me being a burden financially that have come back to me... some businesses do not want to be associated with Jim's type of business... you cannot be a personable person until you genuinely respect other people... even right down to the language he uses in the presence of women... it is so detrimental... lack of respect for males as well as females... have a number of people as clients whom I really respect... there is a language for the job site and with construction workers and other in the office. He uses no politeness.

SUB-NARRATIVES

Tractor at 13

West Tennessee is agricultural on a scale greater than that of east or even central Tennessee, because the land is so flat and workable. It is terrain any tractor would love. Jim grew up here and appeared to not entertain alternatives to the primary source of livelihood. He did not become a guitarist, harmonica player, or fiddler, although, music was important in the region due to the river, slave trade, dirt farming, and rural ways.

Jim also did not gravitate toward formal education, which is for many people, a way out of what they were born into. Jim never felt trapped by local circumstances or a sense of inferiority that sometimes accompanies a provincial mentality. Apparently, he stayed too busy for such considerations. He appeared to understand the combination of agriculture and economics at a very young age. And like many boys before him who have accepted local expectations and beliefs, Jim had little trouble seeing himself, as another in a long line of farmers.

He accepted this in an era when alternatives were becoming more numerous. Education, music, the arts, science, retail business, and factory work, were all on the upswing, and certainly an option, for boys during his youth. We all know those people who seem to have little internal dialogue as to what they should busy themselves with. Jim seemed to be one of those people. He clearly was not torn between farmwork and reading novels, for example.

When people are as driven to work as he was, it is often because they are answering what appears to be a calling, they have a large need to fill, someone stands over them and makes them do what they do, or they have a clear understanding of their goals and how to achieve them. Some people also seem to be the polar opposites of daydreamers. Jim might be this sort of person. In looking back at this life, he seems to have had a need to become self-sufficient as quickly as possible.

One of the things he revealed to me through what he said about his relationship with his mother, father and brother, is that he has a powerful sense of responsibility to not let down his end of a bargain. When his brother's insurance business was failing, Jim stepped in to rescue it, and to make it so that his mother would not have to worry over two boys who might need the money left to her by her husband. It could be that his drive to not let his mother down, after his father died, as his brother had, was so strong, that it intervened between him and upholding his end of the bargain in marital relationships.

Although it is impossible to go back and see Jim as a young man managing the grocery store in Trenton, Tennessee, it is not that hard to draw inferences from the way he does business now and how he must have approached it back then. When I asked him to explain how they had such loyal customers, (I did a customer satisfaction survey for him, from which we found that his customers were virtually unanimous in their conviction that he was doing an excellent job working their cases), he said "It's simple, we service them (the cases) to death."

It could be argued that Jim's basic motivation is to live in a fashion as to make death seem as remote as possible. Chuck said that one time, years ago, his father returned from a business conference quite affected by a speaker there. The speaker had stated a bias toward working hard and playing hard. Jim had told Chuck that that sort of described his philosophy of living, and according to Chuck, hearing the guy give it a label, appeared to free him up to be even more that way. It was as if by hearing it described in words, it made the path toward doing it, clearer for him.

Although Jim never pursued higher education for himself, he shows signs of being quite taken with it in other people. During my interview with Kari, she implied that it was not surprising to her that her father had been so impressed with the Myer's-Briggs-based temperament scale I had given him. He had taken it as part of an executive roundtable group. When he called me to ask if I ever did any freelancing as a business consultant, I told him I did. At that time he said that he was just "bowled over" by how accurate the profile of him was. Jim was an ISTJ, as I recall.

Bigger tractor at 16

As a young man, even though he may have been somewhat shy, as he seems as an adult, he clearly did not have trouble striking up relationships he saw necessary to meet his goals. He went to the school officials and worked out an arrangement whereby he could go to school in the mornings and work the fields in the afternoon. This story illustrates the nature of the culture where he lived, and also his own sense of purpose and drive. The culture was sympathetic toward farming. The school officials implied by their positive response to his request, to be coming down on the side of action, of knowing what you want, of hard work and discipline, as opposed to the need to study hard to rise above the life of a rural farmer. This may indicate a greater consilience between public education and community values.

Another point of view often revealed by educators is that it is essential that farm boys spend their time getting learning from books and teachers, since this may be their "ticket out." Jim seemed to get no such reaction from the school officials. Quite the contrary, by their willingness to work with him on his plan to finish school while he took the first steps toward the life of a farmer, they were reaffirming local values, and the belief that education and physical work were compatible.

Little by little Jim left the fields behind. It was as if his career as a farmer peaked in his early twenties. During the early days of grocery store management, he was also farming cotton and soybeans on a large scale. Upon buying his brother's insurance business, he began to leave farming behind. But he did not leave behind the sense of responsibility.

Farming is a relationship between a man, the land and the weather. Given the chancy nature of weather, Jim already had a long history of dealing with disappointment that comes from an unpredictable partner in a relationship. Weather and the economy can play havoc with the life of a farmer. Grocery store outcomes are more predictable than those of farming. It could be argued that across his life time Jim became increasingly adept at minimizing risk. This can be seen if you look across his life, from farming where the risk is related to the weather and virtually uncontrollable, to a grocery store, where through inventory control and procedural diligence one can tame the risks, to the life of a commercial insurance provider, where both the risks of the insurer and those of the insured can be minimized by careful decision making and a keen feel for tolerable amounts of liability.

Small businesses are closer in nature to basketball teams than to say football teams. A few people can make a big difference to the former as opposed to the latter. Jim, from the days of owning a tractor at the age of 13, always leaned toward the small operation, the operation in which he could have the greatest impact.

Curiosity of relationships

Several relationships are key to understanding Jim's life and therefore his business. First there are his relationships with his parents, those with the local school, those with the land (mitigated by the weather), those with his wives, with his children, with his brother, and those with clients, both on the contractor and contracted side.

Jim was unquestioning in his acceptance of his lot in life, which included hard work. His parents must have instilled this virtue in him from an early age. How this came about is not clear, but the events of his life up until he was thirteen, reveal a young man who welcomed the prospect of hard work. There is no history of rebellion, against either the lifestyle of his father and mother, nor of that of the local community.

His approach was aggressive and straightforward. Rather than spend his time watching TV or playing sports with other boys his age, he spent his teenage years working the way the adults did in his community. At least in one respect, he was clearly mature beyond his years. Is it possible that he did not progress through all the stages necessary, as conceptualized by Erikson and others, and as a result entered adulthood with a diminished capacity to succeed in the relationship of marriage?

It is also true that as an adult, Jim has had a long relationship with alcoholic beverage. At least one of his employees believed he may be an alcoholic, and his children did not feel qualified to say one way or the other. However, there seemed to be no connection drawn between his tendency to drink and the difficulties he has had in marriages.

Kari said she still finds it hard to believe, even after all these years, that her mother and father split up. She is still not sure why it happened, or who was most to blame. Listening to her talk, it does not feel like a reach to infer that she might have accepted some of the blame herself, although the evidence indicates no reason for her to do so. It is not at all unusual for young people to react this way when their parents divorce. It could be argued that such a response is the most natural one.

Jim's relationship with Kari is one of mutual admiration and respect. In fact, her respect for his knowledge of the insurance business is nothing short of awe. She said she would love to have the insurance-business knowledge he has in his little finger. Chuck seemed to be similarly reverential in his opinion of his father as a businessman. However, Kari was able to consider her father in the separate relationships. She sees him as a business and social success, but as a marital and spiritual failure.

Chuck, on the other hand, sees his father as (to quote Mary Poppins) "practically perfect in every way." He would grow impatient with any questions that insinuated that his father was unusually moody or that he did not respond well to stress. It did not seem important to Chuck that he and his father never had conversations about important issues such as failed marriages. Their discussions are apparently limited to improvement projects at the cabin Jim owns or the business of commercial insurance. Chuck, in fact, seemed not only contented with his father, but quite determined to be as much like him as possible.

Diane, Jim's low key accountant, is so laid back it would be most surprising if anything that transpired at the office could unnerve her. Although during our interview she did admit to getting a little frustrated that Jim would not let go of some aspects of the business, despite the fact that she was certain she had proven herself trustworthy. There seemed to be some slippage between Diane's perception of Jim' opinion of her as a business associate, and what he said. There was little equivocation in Jim's words when he described how valuable and trustworthy he saw Diane as being.

Diane also appeared to resent the fact that during those times when Jim had a girlfriend he would confide in her even less. There is no overt reason to believe this has anything to do with a desire to be more important in Jim's life, in a non-business sense. Diane's happy family life, successful husband and two well-adjusted children, make such speculation seem most idle. But whenever the topic is relationships all the possible dynamics are brought up and in turn, dismissed, or pursued until the road of rational interpretation runs out. If the dynamic of male-female intrigue plays any part in Diane and Jim's, I could not detect it. But the fact remains that Diane is somewhat bemused by the fact that Jim's girlfriends alter his relationship with her.

It might well be that Diane sees this change, just as she sees his moodiness, and only brings it up because she was asked point blank, by me, what goes on in the office that might be less than optimal when it comes to doing business. After all, it was to improve business, that Jim invited me to do interviews in the first place, and Diane just spoke out of a sense of obligation to the cause, business improvement.

Kari, Amanda, and Diane were fairly unanimous that Jim could be extremely moody. Chuck did not seem to notice it that much, but then, Chuck did not come across as being exceptionally interpersonally intuitive. Chuck is clearly a young man who does not mull over the meaning of life on a regular basis. This in know way should be construed as a comment on his ability to do so, only his propensity. In fact, this quality is one of the things that makes Chuck so much like his father, and both of them so easy to warm up to. One gets a sense of simple complexity and warmth in the presence of both. In normal conversation, neither appears capable of the sort of belligerency usually thought to be necessary for divorce.

Apparently then, Jim has a somewhat darker side, over which he has limited control. Furthermore, since his education stopped at high school graduation, he appears to have a limited grammar for discussing the nuances of personalities, especially his own. This dark side was not associated with his tendency to drink. The only insight about how Jim's personality changes when he has had a few drinks comes from Amanda's observation that he may alienate some of their newer, more morally conscious clients, with the stories he tells after he gets a couple in him.

Jim is quite sociable when he drinks, not at all obnoxious, but perhaps a little looser with his standards than he might be when sober. There also is scant evidence that his marital woes and tendency to drink, are at all related.

Jim's marriages are something of a mystery element in this whole story. As Kari says, she still does not know why the first marriage ended. The only thing that seemed to be consistent across these relationships was that Jim may have spent more time working than his wives thought appropriate. I think Jim would agree, that he did not "service his marriages to death." Rather, it might be more apt to say, that he "worked them to death", as in spending too many hours at work away from them.

From the survey results, Jim obviously does not treat his clients the same way he has his wives. They apparently get all the time they need with him, all the answers to their questions.

My letter to Jim

Here is a letter I wrote to Jim that was supposed to be mostly about business, but as you can see, it is often difficult to separate the personal from the business in the world of entrepreneuship.

Jim:

I have talked to everyone, thought about things, and here are my thoughts. Please bear in mind that at this point you should probably keep this between you and me. Then during our discussion we can figure out our next step.

You are a unique person. Not only do you own your own business, but you have basically been in business for yourself over thirty years. All this, and you are still young enough to enjoy the fruits of your labors. Except for the time spent managing the IGA in Trenton, you have never worked for a boss. In this regard, you would be the envy of a good many people.

There are many different types of successful people. Some are successful because they have a loveable personality, which serves them well in the business world. Others succeed by acquiring formal education. Others just work harder than everyone else. And finally, some people are just plain smart.

You combine intelligence with hard work and a likeable manner. The one area you have not explored is that of formal higher education. Rest assured, much of what you know, they would not have taught you in college, anyway. As Kari said, I would love to have the knowledge you have in your little finger.

Not only have you been successful in business, but you have two children who have a chance to be just as successful. Kari shares your capacity to learn and immerse herself in work. Chuck fancies himself as a Jim clone, and there are a number of similarities, but he has added formal education.

According to my calculations, you are 46 or 47 years old. From the time you were thirteen, thirty-four years or so ago, you have worked about as hard a man can work. And just like they say, it has paid off. Nothing you have ever gotten has been handed to you. The odds are very long against a cotton farmer from Trenton, Tennessee, without formal education, ever making the kind of money you make today. I would dare say, you are one person in a million who could have pulled this off.

But let's examine what your success has cost. Four marriages have ended in divorce. Chuck says you got some bad apples. You say that you are no good at marriage. The truth probably lies somewhere in between. It has become increasingly hard for you to be alone with your thoughts. You find it hard to communicate your feelings. Your inner person has been sucked dry by your outer person.

Let me see if I can explain what I mean. Somewhere along life's path you began to honor the rewards of hard work more than the rewards that come from just living. When the sun comes up, you see insurance cases, not the sun. When the sun goes down you reluctantly put aside work and wait for sleep.

Work is a powerful drug. Just like alcohol or nicotine, it can become addictive. In every case of addiction, the person gives up more and more of his inner-self, just to feed the habit. People become addicted to sex, eating, drugs, alcohol, work, rest, illness, exercise, tobacco, computers, and so on. The only things required, are the delivery of satisfaction, and a tendency toward obsessive behavior.

In the long run, most addictions make us miserable. Alcohol destroys our brain, liver, nerves, and ability to be comfortable without it. Tobacco kills our lung tissue, inflames our breathing passages, and weakens our heart. Addiction to work, can destroy our marriage, children, and ultimately our appreciation for the remainder of living.

The bad news is that you have the symptom's of a workaholic. You are unable to be happy taking time off from work and even when you do get away, you are thinking about it. Even worse, is the fact that one addiction tends to need others. A workaholic often winds up needing alcohol to forget work or tobacco to serve as a way to calm down. Take away these three, work, alcohol, and tobacco and what do you have left? You have a person who is forced to confront himself. After years of not confronting ourselves, we find it almost impossible to do so.

This is where I believe you find yourself at age 47. You are tremendously successful in the world of material possessions. You have enough money to buy pretty much whatever you want. You are fortunate enough to have something you know how to do extremely well, namely manage risk. The irony is that you are failing to manage the greatest risk, the risk to your mind, body and soul. No amount of money, no amount of work, no amount of esteem in the eyes of the community, is worth trading in your own happiness.

In a way, your life is symbolic of West Tennessee. You came from cotton and beans, to retail, to risk management, in the last thirty years and that is pretty much what West Tennessee has done. During the growth of Jackson, many people have become upset that we must shove down so many trees and put in roads or parking lots. As I look at you, I see roads and parking lots, but few remaining trees.

Kari believes you need religion again. I would put it more generally. You need to consolidate your addictions into one easy monthly payment. The only addiction you need is life. You have what all the MBA students I teach think they want, lots of money and the promise of more to come. The only thing you need now, is a way to enjoy it.

Buying that boat was a step in the right direction. Having the cabin is certainly a plus. Taking up fishing with Chuck will, no doubt, do you and him good. Working with wood is certainly a great way to get your mind away from the office. Going to Aruba or Cancun can do you much good. Buying the computer system should make the office work a lot more effectively. Having me come in, can be a good thing.

What you must ask yourself is, what are my priorities. I personally believe that each of us must treat ourselves as priority number one. What got you this business? It was good old Jim. What will keep your business going well into the future? Good old Jim. It is time you started treating good old Jim with the amount of respect he deserves.

If your life were a movie, this would be considered a turning point. You are not old, but you are not young. You are successful, but not as happy as you should be. You have probably accomplished more than you ever thought you would. Now is the time to put yourself to the greatest test of all. Now is the time to ask yourself the 64 million dollar question. Are you willing to work as hard at appreciating your success as you were at achieving it? This question is so important I am going to repeat it. Are you willing to work as hard at appreciating your success as you were at achieving it?

There is nothing wrong with your business that you cannot fix. My concern is whether you can fix the things wrong in your life, before this movie has a sad ending. Your moodiness is not a root cause, it is a symptom. Your unwillingness to communicate openly with the people in the office is not a root cause, it is also a symptom.

Amanda needs to know what you want from her, Diane is deserving of more of your respect, Kari needs someone to take her under his wing and teach her the business, Chuck needs someone to lovingly, but firmly, describe what it takes to be a success. All of them need to feel needed and appreciated. You need the assurance that this business can continue to grow and last even after you are gone.

I would make the following suggestions: (1) begin immediately to heal your mind, body and soul, getting rid of all addictions except the one that involves living moment by moment, (2) enter into your "business prayer closet" and decide what your goals are for the next ten years for the Thompson Group, (3) decide how each of the people with you now can help you get where you want to be, (4) put this all down in writing, (5) have a retreat where you tell them your goals, your expectations of each of them, and the necessary changes in you and them, to achieve these goals, (6) ask them to tell you what their personal goals are and how they think they can best help you reach your business goals, (7) agree on the goals, expectations, and changes, and (8) work as hard at becoming a good communicator as you have at understanding the management of risk.

You have mastered the art of keeping contractors and business owners satisfied. Now turn the same brilliant mind on the mastery of the art of keeping yourself and those in your office satisfied. Make the necessary personal and procedural changes, not because you love the business, but because you love Jim.

Find out what each of your people knows, wants to learn, and what their dreams are for the remainder of their working days. Make the changes. Follow through. You have "contracts" with Kari, Dianne, Amanda, Chuck, West Tennessee, and Jim Thompson. SERVICE THEM TO DEATH!

Hopefully, when we sit down together we can talk more about specifics. What I have tried to do here is to lay out the challenge as I see it. I realize that what I have said was at times personal and perhaps too strong, and for that I apologize.

POST NARRATIVE: THE SMITH GROUP (ASSOCIATED INSURANCE)

Jim was most appreciative of my concern for him, not at all bitter or resentful. We did have a half-day session where we talked about goals, priorities and strategies to improve the business. Jim has been quick to give my name to other business people in Jackson, so he must have thought we accomplished something.

A few months after my consultative relationship with Jim, a man named Roger Smith approached him about a merger between his firm and The Thompson Group. The Thompson Group was writing about $4 million of mostly commercial business, by this time. Associated Insurance (Smith's company) wrote about $2 million of mostly personal insurance contracts. Associated had some debt whereas Thompson did not. Both firms were of a vulnerable size in the risk management business, since large insurance companies prefer doing business with firms at least $6 million and up.

There are other issues, such as the people. Here is information about the employees at Associated.

The people

Emily - 35 year veteran on the commercial side, her reaction to a possible merger is one of bemused disagreement. You get the feeling if it were left up to her, she would have leave well enough alone and let Smith remain as they are, but as it is, she understands why Roger Smith wants to merge.

Rose - a commercial service representative, who also admits to fully understanding the reasons for the merger. Yet her concern is that it seems to indicate little loyalty from Roger toward people like Joanne, and also that melding the two groups may require more compromise on the Associated Insurance side than on the Thompson side.

Tammy Price - a one-woman customer service team, with a strong sense of right and wrong. She is uncertain whether the merger would be a sign of disloyalty to those who had done so much for Associated Insurance over the years. As she said, "I do not do change".

Tammy Bryant- a pleasant woman, who was hired only a couple of months prior to talk of the merger, and who therefore has little to say on the whole thing, except that she wonders whether the Thompson group will welcome the Associated side into "their place".

Joanne - the person who stands to lose her old role in the merger, accounting, and she would be unlikely to get it back. She is the most frustrated at the prospect and perhaps unbelieving that this could happen to her. She said she started hearing talk of a possible merger the day she came back from vacation.

Roger - Roger Smith, the son of the city's most successful mortician, had purchased Associated Insurance only a few months prior to proposing a merger with the Thompson Group. He had worked for Associated Insurance two years prior to buying the company. Prior to coming to work for Associated, he had been in the funeral home business. He exudes sympathy and understanding for the employees and believed a merger to be the wisest choice, since the firm is small. He is aware that the merger could well mean dramatic changes and even the loss of roles, for those who worked with him. The employees seem to believe that Roger has been to quick to act after buying the firm only a few months before. They believe he should have communicated the possibility of a merger before he had completely made up his mind to seek it.

POST NARRATIVE: MERGER?

The notion of a merger between the two firms, was brought up by Roger Smith to Jim Thompson. Jim was reluctant at first. He was happy with things the way they were. Sure, insurance companies are more likely to do business with a larger company, but why should he doubt that The Thompson Group could grow substantially over the coming years. Kari was against the merger, in part because her father had such a history of failed relationships, at least in the instance of marriage. Diane, the accountant, knew that Thompson was debt-free, and while Smith was not in financial trouble, they were not as well off as Thompson.

Roger Smith looked at this opportunity to go from the very vulnerable size of $2 million of business to $6 million as an opportunity to guarantee his future in the insurance business. He also believed that the fact that most of the Smith business was personal insurance meant that they would benefit greatly from a merger, by getting the personal business of a number of Thompson's commercial customers.

The employees of Smith were dead set against a merger. Roger had only owned the company a few months, and now here he was asking them to give up their offices to move into someone else's space. He was asking them to adapt to another computer system. They did not like the idea of being "stepchildren" in a new home. That where the story ends. It's a cliffhanger of sorts. What do you suppose Jim should do? Should Roger take some time to rethink his desire to merge?

AuthorAffiliation

Mike McCullough, University of Tennessee at Martin

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

Volume: 6

Issue: 1

Pages: 92-106

Number of pages: 15

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412348

Document URL: http://search.proquest.com/docview/192412348?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 97 of 100

WHEELS AND DEALS

Author: Thomson, Neal; Snipes, Robin L

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case concerns Ethics. Secondary issues include whistleblowing, misrepresentation and fraud. This case has a difficulty level of three. It is appropriate for an upper division business ethics course. This case is designed to be taught during a one hour class session, and is expected to require one to two hours of outside preparation. This case makes a great course "icebreaker" since students are eager to discuss the suject matter.

SYNOPSIS

John Wilson * is the parts manager at a new car dealer in the United States. He was promoted to this position from a counter sales position in the parts department. While he has considerable experience in the auto parts industry, this job represents a significant increase in his salary over his previous positions. In the course of his job, he has encountered a number of difficult choices involving ethics. Three of these situations are examined in the following case, each with different ethical dimensions.

In the first situation, John is asked to bill a customer for parts that were not used, during a routine tune-up. The old part was reusable, and in good condition, and the mechanic indicated that he was only charging the customer for the part since he insisted on a new part. The second situation involves the sales department. A new model was introduced, in limited quantities, and a strong encouragement from the manufacturer not to mark the car up past the suggested retail price. However, no mention was made about dealer installed options. Some interesting accounting was used to squeeze a several hundreds of dollars in extra profits from each car. The last situation involved the use of third party parts, rather than OEM (original equipment manufacturer) parts for repairs, and the price that should be charged for these parts. Each of these situations is explained in detail, along with any mitigating circumstances that were involved.

* John Wilson is a pseudonym. All names and locations have been changed to conceal the identities of the parties involved in this true case.

WHEELS AND DEALS

When John Wilson was hired to his new position as a parts counter employee at a new car dealership, he knew he had finally made it. Dealer positions are typically the highest paid in the auto parts industry, with better hours and benefits than positions at auto parts retailers or repair facilities. Not surprisingly, they are also the most sought after. As he expected, his starting salary was significantly higher than the $22,000 annual salary at his last job. With a base salary of $26,000 per year, plus bonuses based on sales, John's five years of hard work at retail parts stores had finally paid off. As if the pay were not enough, the dealer's parts counter was only open 8am until 5pm Monday through Friday, and 8am until Noon on Saturdays, so there were no more nights or Sundays to work. This job would sound fairly attractive to most people, but to John, it was a dream. Personal difficulties earlier in his life had caused him to drop out of high school, and nearing thirty, was finding that this was creating barriers to his advancement in most jobs. In this job however, according to the interviewer, that didn't matter. Performance was what counted, and in that area John had always excelled.

John's first six months on the job were a dream. His performance was higher than the company had expected, giving him bonuses of nearly $5000 during the six month period. His supervisor, Bill Grimes* was impressed with his performance, and took John under his wing, training him in nearly every aspect of the parts department. The two got along so well that Bill even invited John along on weekend fishing trips to the coast. Even so, John was caught off guard when Bill tapped him as the new parts manager when he was promoted. This new job was getting better and better. His new salary topped $30,000, and with bonuses, based on the parts department's gross profits, could exceed $40,000 annually. It was like a dream, too good to be true! Little did he know that in the coming months, reality would come crashing in.

SITUATION 1

Shortly after being promoted to parts manager, John encountered his first ethical dilemma. It began with a seemingly simple request by one of the repair mechanics. The dialog of the request follows:

Repair Mechanic (approaching the parts counter) : "Hey John, I'm doing a transmission tune up on the car in bay 3. invoice this account for a new transmission screen."

John : "OK, let me check the computer to make sure we've got one on hand."

RM : "Don't bother, I'm reusing the old one, but the customer asked for a fluid AND FILTER change." The mechanic then went on to explain that the metal screens used in these transmissions were not like the paper filters used in many transmissions. They only needed to be cleaned, unless damaged.

John : "Are you sure?"

RM : "Yeah! We do it all the time, besides, it's 100% gross profit for you!"

John was perplexed. It didn't seem right to charge for parts that were not used. However, the mechanic seemed so confident that this was standard practice. Besides, John didn't want to risk his new position by making a big deal out of it. Instead he went to see his boss, the former parts manager, Bill Grimes. Bill was doing paperwork when John entered his office.

John : "Hey Bill, you have a minute?"

Bill : "Yeah John, what do you need?"

John (closing the door behind him): "One of the mechanics asked me to print an invoice for a transmission screen, then told me he was going to reuse the old one. I was wondering if this had ever happened when you ran parts."

Bill : "Sure, all the time. The mechanics want to up the cost of the work, because they make a percentage on all the repairs they do. It's no big deal, those screens are good for 100,000 miles at least. Besides, its more gross (profit) for you."

John : "What does Paul (the dealership's general manager) think of this?"

Bill : "He's the one that got us started doing it. He started in parts too, you know!"

John : "Well, thanks for your help, I just didn't want to mess up!"

John left feeling even worse than he had before. He didn't want to jeopardize his new job, and it seemed like the whole dealership was doing this, so who was he to argue? Besides, Bill was his friend, not just his boss. He couldn't let him down, after all, he took a risk recommending him over two other parts counter employees, who both had more experience. John went back to his computer, and typed out the invoice.

SITUATION 2

Months had passed since the first incident, and John had settled in to his job with no other real problems. However, the dealership was now abuzz with excitement. The manufacturer was releasing a new sports model, which was receiving very positive reviews, and was expected to boost sales of all of their models. Unfortunately, the manufacturer had limited production, and each dealer was to receive only 50 cars, spaced out over the model year. Before the first vehicle had hit the lot, demand for the model was materializing. The dealer responded by creating a waiting list, on a first come, first served basis. Customers were put on the list when they gave the dealer a $500 deposit. However, they were not allowed to choose options, such as color, sport or trim packages. When their name made the top of the list, they would be offered the next car arriving at the lot, on a take-it or leave-it basis. However, if they didn't take the one offered, they would be moved back to the bottom of the list, which by now was longer than 50 people (meaning some would have to wait until the next model year).

In order to avoid price gouging by dealers, the company had dictated that the dealers not sell the car for more than MSRP (manufacturer's suggested retail price). They enforced this policy by cutting off the supply of this model to any dealer who exceeded that price (although officially, the company says they only "encouraged" dealers to sell for MSRP). Demand for the model was so great that some used, low-mileage cars had appeared on independent lots for as much as $6,000 above MSRP, which frustrated the dealership's management, who felt they were being shortchanged. However, they soon found a way around the restrictions, dealer installed options.

Dealer installed options have been around for many years. Back in the 1950's and 1960's it was common to see dealers install items not available from the factory, such as air conditioning and seatbelts, upon request of a customer. However, this situation was different. The dealer decided to load the cars with options, such as rear spoilers, fog lamps and premium wheels, before the buyers even got the chance to see them, charging premium prices for the options, which were not included in MSRP. The customers would have to accept the charges, or give up their spot in line. Mark-up on these parts generally exceeded 50%, which made the whole deal very lucrative, both for the dealership, and for John, who ordered the parts, and billed them out to the new car division. While John didn't really have a problem with this, there was one situation which did bother him.

One factory installed option was a handling package, which included suffer springs, special shock absorbers, and heavier roll bars. It also included premium 15" alloy wheels, with softcompound performance tires, as part of the handling package option price. However, when the first car arrived so equipped, the general manager had John order special aftermarket 16" alloy wheels, with racing type tires for it (along with several other dealer installed items). The full retail price of these items (about $1500) was added to the MSRP of the handling package equipped car, with no credit given for the wheels and tires that were removed. The general manager then instructed John to put the wheels and tires into the parts inventory, with a zero cost for inventory. These wheels ended up being put on the next car of this model to come in, which had arrived with steel wheels and hubcaps, and the buyer was charged full retail (just over $1000) for the dealer installed alloy wheels, even though the dealership paid nothing for them. The steel wheels were then added to inventory (again with no credit to the buyer), and sold to repair shops. It seemed to John that there was something wrong with this practice, although he wasn't sure what it was. One thing was certain though, his bonuses sure were doing well.

SITUATION 3

A frequent question that John had to answer as parts manager at a new car dealership was "Why do the parts cost so much?" The standard answer was that they were Original Equipment parts, from the manufacturer, and were higher quality. Usually, the first part of this at least was true, the parts came from the manufacturer, who charged more for them, and they met OEM specifications, which might also mean the higher quality part was true as well. However, as is relatively common in the automobile repair industry, when the parts department was out of stock on a part, they would call aftermarket parts suppliers to find the item, particularly if the service department needed it for a repair. What bothered John about this practice was the method used by the dealership to price parts obtained in this way. Normally, the parts department had a standard markup (roughly 35%) on parts. However, when they received parts from third party suppliers, the invoice typically listed two prices, the one the dealer paid, and full retail suggested list price (which was higher than even walk-in retail customers of the parts stores paid). In one extreme case, the dealership paid $39 for a part, which had a suggested retail price of $89.99. Rather than marking up the part 35% from the actual price, or even charging the suggested retail, the parts department would charge 35% above the suggested retail price. In the case listed above, the dealer charged $120 for a part for which they had paid $39 (over 200% markup). This markup was in addition to the $60 per hour charge that the service department added for labor to remove the old part and install the new one. A mechanically inclined individual could have purchased the part for $55 (the actual retail) from the same source the dealer used and installed it in under two hours. Instead, the customer paid almost $250 for the repair.

AuthorAffiliation

Neal Thomson, Columbus State University

Thomson_Neal@colstate.edu

Robin L. Snipes, Columbus State University

Snipes_Robin@colstate.edu

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

Volume: 6

Issue: 1

Pages: 128-132

Number of pages: 5

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412447

Document URL: http://search.proquest.com/docview/192412447?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 98 of 100

REINVENTING CONTINENTAL AIRLINES

Author: Thomson, Neal F

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

The primary subject matter of this case involves Strategy. Secondary issues include Total Quality Management, empowerment and customer service. This case has a difficulty level of three to four. It is appropriate as an in-class exercise for a junior to senior level course on Strategic Management, or one that includes that topic. This case is designed to be taught during a one hour class session, and is expected to require one to two hours of outside preparation.

SYNOPSIS

In the early 1990's Continental Airlines was best known as a "lousy, unreliable airline", they were unreliable, unpredictable, often late, and frequently lost luggage. It seems unlikely under these circumstances to expect the company's stock to rise 1700 percent over 4 years, and to post 12 consecutive quarters of profits from 1995 to 1998. However, that's exactly what happened after Gordon Bethune took over as CEO and orchestrated what has been called "One of the most dramatic business turnarounds of the Nineties." How did he do it? This case examines the factors that led to Continental Airlines' decline, and the methods that Bethune used to reverse the fall.

Prior to the hiring of Gordon Bethune, Continental had been through a number of years of cost cutting, by several CEOs, the most well known of whom was Frank Lorenzo. While he is most famous for the destruction of Eastern Airlines due to a failed labor negotiation (largely caused by Lorenzo's hard line negotiating style), he also led Continental for several years. However, his record with the unions at Continental was only marginally better than at Eastern, and the company's culture was terrible. One article describes the situation as follows: "The culture at Continental, after years of layoffs and wage freezes and broken promises, was one of backbiting, mistrust, fear and loathing." In addition, the cost containment methods used by Lorenzo and the other prior CEOs led to deteriorating quality of the planes. Cleaning and painting was reduced, resulting in dingy looking planes, and reduced maintenance staffs were used, often resulting inflight delays. Poor employee relations, coupled with poor customer service, was dragging the company into the ground.

When Gordon Bethune was hired away from Boeing to be the new head of Continental, he was faced with a formidable task. How do you reverse years of bad employee relations, improve customer service and improve the company's on-time flight performance once a company has already fallen to the depths within which Continental now resided? He had to rebuild the customers' trust, rebuild the employees' trust, and keep the shareholders from abandoning the company's stock. Bethune implemented a number for innovative programs, for employee and customer alike, which made large strides toward regaining their trust. This case examines these changes, and their effects on Continental, and looks forward from their current position, allowing students to develop future strategies for the company, and critique those of Bethune's.

REINVENTING CONTINENTAL AIRLINES

The deregulation of the airline industry in 1978 began a turbulent period of decline for Continental Airlines. In 1982, the company merged with Texas International, headed by Frank Lorenzo. Under Lorenzo's leadership, the company went through a chapter 11 bankruptcy, beginning in 1983. Lorenzo, best known for his hard-line union negotiating tactics at Eastern Airlines, which eventually resulted in the demise of that airline, took similar positions when dealing with Continental's Employees. His management style was one which focused on cost-cutting and efficiency, and generous contracts for the unions apparently didn't fit into that equation. While initially, this strategy seemed to be working (Continental posted record profits of $50 million in 1984), by 1990, the company was headed back into bankruptcy, and Lorenzo decided it was time to leave. He sold most of his direct and indirect investments in Continental, leaving the company in worse shape than when he arrived. In 1993, Air Partners/Air Canada invested $450 million in Continental, which was enough to end their bankruptcy, but couldn't fix the problems which still plagued the company. In 1994, Gordon Bethune, formerly of Boeing, was hired on as CEO, to fix these problems. The number and severity of these problems made this an especially daunting task.

THE PROBLEMS

Continental had problems in nearly every aspect of their business. The customers, employees and shareholders were all unhappy with the performance of the company. The customers because the company had one of the worst records in the industry in on-time arrivals and departures. In addition, the service given to customers could only be described as dismal. In one case, a couple was flying to their daughter's wedding, when their flight is canceled. The husband, who is flying on regular fare, is rescheduled on a competitor's flight. The wife, flying on a discounted companion fare, is informed that she must wait for the next Continental flight, five hours later. Similar problems occurred in other areas of customer service.

The employees were unhappy for numerous reasons. First, during the Lorenzo years, his hard line on wages and other contract areas led to Continental employees' compensation trailing industry averages by a large margin. Similarly, Lorenzo's leadership led to a very rule driven environment, in which employees were expected to follow the handbook for every situation, leading to problems with customers like the one discussed above. Needless to say, it was not much fun to be the employee who had to tell the couple that they wouldn't get to fly to the wedding together, or even at the same time. The customers would understandably be upset, and would vent their anger on the gate attendant, who was only following procedure, and risked termination if they deviated. Employee relations got so bad that they were described as follows:

"The culture at Continental, after years of layoffs and wage freezes and broken promises, was one of backbiting, mistrust, fear, and loathing." "Everybody was screwing over everybody, - no wonder the planes were late and the luggage was lost."

The shareholders were unhappy for the reason most shareholders get unhappy. Continental, rather than increasing shareholder wealth, was decreasing it, providing flat, or negative returns, and downward spiraling share prices, as well as two bankruptcies. These problems would provide quite a challenge for Gordon Bethune.

THE TURNAROUND

The challenge facing Continental was to reverse years of decline, rebuild trust, and produce a service that customers perceived to be high in quality. One of the first things they had to do was eliminate the company's focus on cutting costs. As Bethune put it

We know what it costs to do something - get the planes cleaned more often, paint them, hire an extra person to service the engines ten minutes faster so we can schedule planes to fly when people want them to fly. These things cost money, and there are always good reasons to avoid doing something that costs money. But what was it costing us not to do those things? The answer: It was costing us our business!

The first step in this process was to identify the factors that made up customer satisfaction. On-time performance was the number one factor by a margin of nearly 2 to 1 over any other factor. Therefore, Bethune chose this for what he called their "macro metric," the basic indicator of their performance. He then tied this figure to cash bonuses for the employees. Each employee (except pilots and managers, who were under different contracts), would receive $65 any month that Continental was in the top 5 airlines nationwide in on-time arrivals. Prior to this program, they typically scored at the bottom, or near there, among the top ten US airlines. The January prior to this program (1994), they had 61% of their flights on time, for dead-last in the industry. The first month of the program, January 1995 they hit 71% on time, good for seventh, the best they had done in years. In February, it hit 80%, good for fourth (and above the industry average of 79%), and a bonus to the employees. They stayed in the top five (even hitting number one twice) for most of the year, with the exception of three months during which there was a labor dispute. For 1996, they raised the payout to $100 per employee, but also raised the hurdle to third in the industry. Eventually, the other carriers followed suit, and since third became harder to hit, the company modified the bonus so the workers would receive it whenever they hit 80%, even if that wasn't good for third.

Bethune's second move was to revamp the company's culture. He began with the symbolic gesture of burning the old employee handbook, which represented the authoritarian, rule-driven culture built under Lorenzo. He then set up a committee to rewrite the employee manual, renamed it employee guidelines (to reflect their flexibility), and made sure that the guidelines were created with employee input. Rather than specifying exact procedures for every specific event, these new guidelines "help employees solve problems - give them a sense of where the boundaries are when they run into trouble." Employees faced with a situation like the one discussed earlier, involving the couple going to a wedding, need not force the couple to fly separately. They are expected to gauge the situation, see how the customers respond, and can reschedule both on a competitors flight if needed. "Now that management is out of their way, the employees do it every day. Furthermore, Bethune has made sure employees know the customer counts. They are one of a few airlines that don't limit carryon luggage size, and have sued Delta over some shared x-ray equipment that puts limits on Continental customers.

Bethune also unveiled a new operational plan for the employees, based on four points, called the Go Forward Plan.

The Go Forward Plan

Fly to win

Fund the future

Make reliability a reality

Working together

These goals provide the framework under which the company makes decisions, ranging from employee issues to capital acquisition. How successful has this plan been? the following is a summarized list of some of the awards that Continental has received under Bethune.

Awards

1998, top 100 company in America to work for

1998 NPD Group - Best Website

1998 JD Power Consumer Satisfaction Survey, 2nd overall.

1998 OAG Airline of the Year awards (awards in 8 categories)

1997 Best US business Class - Conde Nast, Entrepreneur and Smart Money

1997 Air Transport World Airline of the Year

1997, 1996 Natl. Airline Quality Rating - Most Improved

1996, 1995 Best Airline - flights over 500 miles

1996 Air Transport World Airline of the Year

1995 Business Week Magazine - Best NYSE Stock for the year (Went from $6.50 in Jan. to $47.50 in Dec.)

Recently, Continental has engaged in yet another new innovation, to attempt to better serve their customers. They negotiated creative "code sharing" agreements with Northwest Airlines, which will provide customers of both airlines to fly to any city served by either company, without having to make reservations through two companies. In addition, luggage will be transferred by the airlines, eliminating the need to claim and recheck luggage. Also, customers can receive frequent flier miles for flights from wither company.

However, there is a risk to this new strategy. Continental says that they "won't just align with anyone - we want to make sure that every codeshare partner offers the same quality of service you're accustomed to receiving from Continental." However, Northwest airlines seems to reflect the old Continental Airlines, better than the new. A recent Forbes article calls the airline "Northworst." They ranked dead last in 1998 in on-time performance, and frequency of customer complaints. In 1997, they were second to last in both categories. Also, in 1998, the pilots struck for two weeks, costing the company $630 million, and crippling air travel in the northwestern US. In addition Northwest's fleet averages over 20 years old, compared with an average 10 years old at American and United.

Continental has come back from the brink, but the airline industry is a turbulent one. Companies can go from the industry's darling to the gutter in a matter of months. Is continental on the right track now, or does more need to be done?

AuthorAffiliation

Neal F. Thomson, Columbus State University

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

Volume: 6

Issue: 1

Pages: 136-140

Number of pages: 5

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412290

Document URL: http://search.proquest.com/docview/192412290?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

Document 100 of 100

AGRA-BRAZIL

Author: White, Charles W; White, Nancy A

ProQuest document link

Abstract: None available.

Full text:

Headnote

CASE DESCRIPTION

This case focuses on the problems encountered when a company decides to enter a new international market. Students in management and marketing would be particularly interested in this case as it relates to problems of expanding a catalog service into the Brazilian market. It could be used in any course, graduate or undergraduate, where international issues are considered an important area of study.

CASE SYNOPSIS

Agra U. S. is planning its entry into the Brazilian market with a line of supplies, tack, and medical products for cattle breeders and livestock producers of that country. This is a company that has been successful in the United States and hopes to continue that success in Brazil. However, economic conditions and government regulations are presenting a situation which concerns the success of the proposed operations. The team which will be representing Agra U. S. in Brazil has made its preliminary plans and will be presenting those plans to Agra U. S. representatives in the near future.

In examining the facts and assumptions of this case, students should enjoy the "real life" issues of a program designed to expand an existing company into a new country. (Note: This case was prepared by Charles W. White, Hardin-Simmons University, for classroom discussion rather than to illustrate effective or ineffective handling of an administrative situation. Research assistance was provided by Nancy A. White and Gui Lima, Hardin-Simmons University.)

AGRA-BRAZIL

In late 1993, Mr. Antonio Carlos looked outside his window at the Sao Paulo city fogged skies, he could not stop wondering about several things that had to be done in the next three weeks prior to his meeting in Fort Atkinson, Wisconsin with Mr. Martin Farquart, export director of Agra U. S. In order for Agra to consider a new advertising campaign for the newly organized Agra Brazil subsidiary, serious questions had to be answered by Mr. Carlos and his partners. Agra already accepted their business proposal and financial credit approval. Now, there were few operational details to be decided on.

BACKGROUND OF AGRA U. S.

Agra is one the largest mail order companies in the United States, featuring over two thousand agricultural supplies for the serious farmer and breeder. With more than 53 years in business, the catalog offers items for breed promotion, animal health, livestock, farm management, showing and grooming, agronomy and much more. In its first year Agra distributed 2,500 catalogs in the United States, today, the company distributes over 1.5 million catalogs worldwide each year. Agra stands behind every item in their catalog and wants to keep customers by supplying the quality products they demand at affordable prices and fast delivery. At Agra satisfaction is guaranteed. In the past couple of years Agra has recruited international firms to represent their catalog. Companies in Europe, Asia, and Africa are successfully creating mini Agra catalogs, purchasing the inventory from Agra and following Agra leadership in distributing high quality products while emphasizing service, affordable prices, and reliable delivery systems.

RECENT CONDITIONS

Mr. Carlos and partners are very familiar with the Livestock Show markets in Brazil. For the past ten years they have imported live show cattle from the United States and high quality semen to enhance cattle breeds in Brazil. So it was natural for them to pay special attention to these strengths that could become valuable opportunities. They already knew the market, customer profiles, unmet wants and needs, and current trends.

Their idea to focus in the beginning into importing showing and grooming supplies for livestock animals, and as the business progress, expand to different opportunities within product categories in the Agra U. S. catalog. Agra Brazil's' plan is to focus clearly on customer needs while developing high perception of reliable service, satisfaction, and positive post purchase evaluation. Prior to the selection of their ideal marketing mix, (line of products, price, distribution methods, and promotional campaign), Mr. Carlos and partners studied as much as possible the current customers needs and even called up several friends in the showing and grooming business for focus group sessions. A number of good suggestions and positive criticism came from these sessions. Agra Brazil at this point has a first draft proposal of its marketing mix and possible target market (Exhibit 1) and all partners seem enthusiastic about it. Now that Mr. Farquart has approved the first part of their project, Mr. Carlos and partners are aware that several important issues still need to be resolved. Unanswered questions about Agra Brazil's inventory, promotional efforts, and lack of reliable computer software to control orders and inventory are some of the issues to be addressed.

CURRENT ISSUES

Brazilian Methods of Importing Merchandise: Since the beginning of this project, everyone involved had been aware of the strict Brazilian import regulations. There are two recognized methods of bringing products into Brazil. The first is probably the most traditional with the bringing in of large quantities of the given product, registering them with the proper Brazilian import office, paying the individual duties assessed on each product relevant to its manufacturing characteristics, and then distributing them through the established marketing channels (See Exhibit 2).

The second method of importation, which was recently approved by the government, allows products to be shipped from other countries to Brazil with the duties collected according to the contents of the package. This second method seems to best fit the needs of Agra Brazil and the Brazilian customers of the company. (See Exhibit 3).

INVENTORY OPTIONS

The two options available here goes respectively with the duties decision. Once Agra Brazil decides to have large quantities of products in Brazil, they are obligated to pay individual duties on each different product. An extensive amount of capital is required in order to have all possible products available at any time, something that Agra's owners are not very positive about. On the other hand, by having products in Brazil, customers would receive their purchases almost immediately and they would be able to know about backorders with no delays. The second option, one that so far Mr. Carlos is very enthusiastic about, would be to purchase products directly through Agra U.S. once customers place their orders. Merchandise would be delivered straight to customers and duties would be under the package/order table. Here customers would have to wait at least 30 days to receive their merchandise, and some delays are expected in order to let customers know about their backorders.

PRICING

Mr. Carlos and partners are concerned about how to price their merchandise in their catalog. They know Agra Brazil will have high prices compared to local products. The point is that inflation in Brazil is running at a 40 percent rate per month, and they cannot print price lists every day or even keep track of all the price changes for each product in the Agra's 3000 products catalog. Their solution is to have all prices in U.S. dollars and use the official exchange rate that is published every day by the respective authorities in Brazil. This way they would use the adjustments of the currency against the dollar to protect themselves against high inflation. Once customers call up the telemarketing department with their orders, the computer will have the final price in dollars and automatically the corresponding price in cruzeiros reais according to the exchange rate for that specific day.

As far as the breakdown for pricing, Mr. Carlos has studied other related businesses and also run simulated ordering situations to determine the best cost structure. (Exhibit 4).

ORDERING SYSTEM

Mr. Carlos and partners are aware that their mail order business would need a reliable information system in order to collect important data and information, arrange it in a logical manner, and report it in an order that would provide the owners and employees with enhanced decision making capabilities. Some of the most important features are budgetary and cash control information system, customer and sales information system, and an inventory information system.

After a period of indecision, and search, Mr. Carlos had two available options. They could purchase an information system out of the market; designed for small to medium size catalog operations or they could hire a programmer to design a customized information system for Agra Brazil. The options would cost respectively $3,000 and $12,000.

PROMOTIONAL CONCERNS

Agra Brazil believes that the most effective way to introduce the company in Brazil is by following the same steps of Agra U.S. That procedure involved the development of an effective catalog and using the clearly defined direct marketing lists to reach the expected target market. Mr. Carlos and his partners believe that having the right catalog and lists is key to their success. Agra Brazil had examined several promotional strategies as a part of the development of the marketing mix. Now some decisions need to be finalized concerning those strategies.

One of the obstacles of primary concern is the price of producing the required quantities of the Agra Brazil catalog. Preliminary studies showed an average cost of $3.00 per catalog if produced in Brazil. For this first option would be prepared in the Portuguese language and thus would not require translation and it would also contain fewer pages than the original Agra U.S. catalog. The second option would be to acquire original Agra U.S. catalogs at a reduced rate of $1.50. Here the drawbacks would be the language barrier which might adversely affect the catalog's sales.

Mr. Carlos and partners felt unsure about their catalog decision. Around $20,000 would be allocated for catalog distribution. If produced in Brazil only 6,666 copies could be distributed compared to 13,333 for their first year of business. " I believe our primary issue here isn't the number of copies, but the effectiveness of the Agra Brazil catalog," said one of Mr. Carlos's partners during one of their last business meetings.

FUTURE PLANS

Both Mr. Carlos and Agra U.S. were confident of the possibilities for the success and growth of Agra Brazil in the large Brazilian market which had already begun to adopt many U. S. products. Again important issues were yet to be completed and decisions were to be made. The upcoming meeting with Agra U.S. had Mr. Carlos and partners making last minute preparations. Crucial decisions about their inventory levels and the duty situation could very much determine how successful the venture could be. Last, but not least, their computer information system and catalog options had to be precise in order to fulfill their immediate and future needs. Although Mr. Carlos felt that he and his partners had carefully addressed most issues concerning their entry into this new business, they were concerned that they were properly prepared prior to their trip to Fort Atkinson, Wisconsin to meet Mr. Farquart and the other Agra U.S. executives.

AuthorAffiliation

Charles W. White, Hardin-Simmons University

Nancy A. White, Research Assistant

cwhite@hsutx.edu

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

Volume: 6

Issue: 1

Pages: 148-153

Number of pages: 6

Publication year: 1999

Publication date: 1999

Year: 1999

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: 192412295

Document URL: http://search.proquest.com/docview/192412295?accountid=38610

Last updated: 2013-09-20

Database: ABI/INFORM Complete

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